[Congressional Record Volume 144, Number 149 (Monday, October 19, 1998)]
[Extensions of Remarks]
[Page E2234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page E2234]]


  INTRODUCTION OF BILL TO REINSTATE INCENTIVE AND CAPITAL PAYMENTS TO 
                          PPS-EXEMPT HOSPITALS

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                        Monday, October 19, 1998

  Mr. NEAL of Massachusetts. Mr. Speaker, I rise today to introduce the 
Reinstatement of Medicare Bonus and Capital Payments for Rehabilitation 
Act of 1998. This bill would restore the full incentive payment 
percentages for PPS-exempt rehabilitation hospitals and units that were 
repealed in Section 4415 of the Balanced Budget Act of 1997 (BBA). The 
restored percentages would remain in effect only until the new 
prospective payment system (PPS) for inpatient rehabilitation services 
in fully phased in by October 1, 2002.
  The bill would also change the provision in the BBA that reduced 
capital payments for PPS-exempt hospitals and units by 15 percent for 
FY 1999-2002.
  Prior to the BBA, qualifying PPS-exempt hospitals were eligible to 
obtain an incentive payment for keeping their costs below their TEFRA 
limits. That payment was the lesser of 50 percent of the difference 
between their costs and the TEFRA limit, or 5 percent of the limit. 
This system encourages these facilities to incorporate efficiencies 
without compromising service or quality for their patients. The BBA 
reduced the applicable percentages to 15 percent and 2 percent, 
respectively. This modification for paying PPS-exempt (TERFA) hospitals 
dramatically reduces incentive payments that were designed to reward 
efficient facilities that are able to keep costs below their TEFRA 
limits.
  The earlier formula actually worked as it was intended. It provided 
an incentive for PPS-exempt hospitals to keep costs below TEFRA limits 
while still retaining high quality care. This is evidenced by the fact 
that patient outcomes have remained the same, despite a decrease in 
average lengths of stay in PPS-exempt hospitals.
  The BBA provision reduces incentive payments so significantly the 
payments are unlikely to motivate facilities to further reduce lengths 
of stay. And there could easily be additional negative ramifications to 
this misguided policy.
  First, absent incentives to hold down costs, many facilities may 
increase lengths of stay if it is more economically feasible to do so. 
The end result will be increased costs to the Medicare program. In 
fact, a one-day increase in average Medicare length of stay in 
rehabilition facilities would result in increase payments of about $200 
million. This is substantially more than the amount ``saved'' by the 
BBA's new formula.
  Second, incentive payments should be retained to hold costs down and 
motivate efficiencies since payments under the new PPS system will be 
set to total 98 percent of what would have been paid absent the PPS 
system. That is why it is particularly important that Congress offer 
providers incentives to hold down costs in the interim. However, under 
the bill, the restored incentive payments would be retained only until 
the new PPS for inpatient rehabilitation services, also authorized by 
the BBA, is fully implemented.
  Third, increased lengths of stay may negatively impact patient 
outcomes if providing necessary rehabilition services is postponed to 
lengthen a patient's stay. This could lead to another negative--a 
shortage of beds. It follows that longer lengths of stay will also mean 
that fewer beds will be available for new patients who require access 
to rehabilitation services.
  Fourth, a shortage of rehabilitation beds could also negatively 
effect hospitals' costs. Hospitals could end up keeping patients, who 
otherwise would have been discharged, for longer periods. This would 
increase their costs.
  Finally, many facilities have used incentive payments in the past to 
help fund building programs for persons with disabilities. These 
programs also will likely suffer under the revised BBA incentive 
payment scheme.
  My bill would also change the provision in the BBA which imposed a 
15-percent reduction in capital payments for PPA-exempt hospitals and 
units for FY 1999-2002. This provision is very problematic.
  Rehabilitation facilities and others are paid on a cost basis, not on 
a prospective payment basis as other hospitals and providers. They were 
exempted from capital cuts in the past because of this difference.
  The argument for full reimbursement of capital is that a provider 
under cost reimbursement has no opportunity to make up the loss of 
capital payments through operating efficiencies. If operating costs go 
down, so does reimbursement, and the provider is stuck with payment 
below cost. The provider does not have any incentives to become more 
efficient, thus the rationale for the incentive bonus payment. This 
argument is still valid. However, the incentive payment has also been 
seriously reduced.
  A 15-percent cut in capital reimbursement will cost PPS-exempt 
providers at least $79 million. Total incentive payments are likely to 
be far less than the aggregate loss from the 15-percent cut in capital 
reimbursement. Few rehabilitation providers can cover capital cuts with 
incentive payments. This means that almost all rehabilitation providers 
will be paid below cost.
  Compounding this situation is the fact that a rehabilitation provider 
does not have the same opportunity as other providers to shift costs to 
other payers. Because rehabilitation hospitals are heavily dependent on 
Medicare, they have few non-Medicare patients on whom they can shift 
costs. That is because 70 percent of admissions and 65 percent of days 
in rehabilitation are covered by Medicare fee for service. This rate of 
Medicare utilization is unique among provider groups.
  Until the PPS system authorized by the BBA is fully implemented, 
capital cuts should not be imposed on PPS-exempt rehabilitation 
hospitals and units. Full payment of capital should continue under the 
cost-based system because, unlike providers in a PPS system, PPS-exempt 
providers have no opportunity to make up the loss of capital payments 
through operating efficiencies. If operating costs go down, so do 
reimbursements.
  For the rehabilitation entities, that leaves the only other way to 
generate revenue from Medicare--cover the shortfall on capital 
reimbursement through incentive payments--which the BBA also reduced. 
For this reason, almost all rehabilitation providers will be paid below 
cost under the BBA.
  That is why I am introducing my bill today. We need to enact this 
legislation which will repeal Section 4415 and restore the former 50/50 
incentive payment formula until a PPS for inpatient rehabilitation 
services is fully implemented. It also removes the provision that 
reduces capital reimbursement for rehabilitation hospitals and units 
for FY 1999-2002. I appreciate your support and look forward to working 
with all of you on this very important issue.

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