[Congressional Record Volume 145, Number 39 (Thursday, March 11, 1999)]
[Extensions of Remarks]
[Page E399]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E399]]



INTRODUCTION OF LEGISLATION TO HELP THE NATION'S SAFETY NET HOSPITALS: 
         CARVE-OUT OF DISPROPORTIONATE SHARE HOSPITAL PAYMENTS

                                 ______
                                 

                         HON. CHARLES B. RANGEL

                              of new york

                    in the house of representatives

                        Thursday, March 11, 1999

  Mr. RANGEL. Mr. Speaker, I am today introducing legislation to give 
equitable treatment to the Nation's safety-net hospitals, the hospitals 
which serve a disproportionate share of the Nation's uninsured and low-
income. I am pleased to be joined by Representatives Stark, Quinn, 
Walsh, and 26 other Members.
  Our bill ``carves out'' Disproportionate Share Hospital (DSH) 
payments from the amount we give HMOs and pays those DSH funds directly 
to DSH hospitals when managed care company patients use a DSH hospital.
  This legislation completes a process well-started in the Balanced 
Budget Act. In the just-enacted Balanced Budget Act, we ``carved out'' 
from what we pay HMOs the amount attributable to the cost of Graduate 
Medical Education (GME) and provided that, when an HMO's patient 
actually uses a GME Hospital, that hospital will be directly reimbursed 
by Medicare for its extra GME expenses. This provision corrects a 
serious problem facing our Nation's teaching and research hospitals: 
HMOs get paid as if they use these hospitals, but in many (but not all) 
cases, HMOs avoid these more expensive hospitals. The ``carve out'' 
will prevent windfalls to HMOs and permit the GME hospitals to compete 
fairly for HMO patients.
  The same logic that supported the GME carve-out supports the DSH 
carve-out. Though the Senate Finance and Commerce Committees' bills 
provided for both a DSH carve-out and a GME carve-out, the DSH carve-
out was dropped from the final BBA. There is no logic to not applying 
the same principle to DSH payments.
  Our Nation's safety-net hospitals desperately need these extra 
payments--and HMOs which do not use DSH hospitals do not deserve the 
extra amount. As data from 1995 show, the Nation's public hospitals in 
over 100 of America's largest metropolitan areas are the key safety-net 
hospitals. These hospitals make up only about 2 percent of all the 
Nation's hospitals, yet they provide more than 20 percent of all 
uncompensated care and they rely on Medicare and Medicaid to fund more 
than half of that uncompensated care. In 1995, 67 of these safety-net 
hospitals reported incurring $5.8 billion in uncompensated care costs 
(defined as bad debt and charity care)--an average of over $86 million 
per hospital. For these institutions, bad debt and charity care 
represented 25 percent of their total gross charges. And this disparity 
is only getting worse. Private and for-profit hospitals are 
increasingly competing for Medicaid patients (who at least bring with 
them some government reimbursement) and leaving the totally uninsured 
to these disproportionate share safety-net hospitals. These safety-net 
hospitals have the worst total margins (i.e., ``profits'') in the 
hospital industry. Overall, hospital margins from Medicare payments are 
at record highs and this fact justified the Medicare payment update 
freeze and reductions which were included in the Balanced Budget Act. 
But the Prospective Payment Assessment Commission estimates that in 
1997 the Nation's major teaching hospitals (who also tend to be DSH 
hospitals) will have the lowest total margins of any hospital category: 
3.9 percent--a thin and shrinking margin that will surely turn negative 
in the next economic downturn. The enactment of this legislation could 
help improve these margins and preserve these hospitals.
  Providing a DSH carve-out will also help these hospitals compete 
equally for managed care patients. Failing to provide a carve-out 
serves as an incentive to managed care plans not to use these more 
expensive hospitals. A recent White Paper from the National Association 
of Public Hospitals and Health Systems entitled ``Preserving America's 
Safety Net Hospitals'' explains why the DSH carve-out should be 
legislated:


       The current methodology for distributing Direct Graduate 
     Medical Education, Indirect Medical Education, and DSH 
     payments is seriously flawed in the Medicare managed care 
     context. For Medicare patients enrolled in managed care, 
     these supplemental payments are incorporated into the average 
     adjusted per capita cost (AAPCC) which is the capitation 
     payment made to managed care plans. The plans do not 
     necessarily pass these payments along to the hospitals which 
     incur the costs that justify the payments. In fact, some 
     plans receive the payments and do not even contract with such 
     hospitals. As Medicare increases the use of capitated risk 
     contracting, the amount of DGME, IME, and DSH funds that go 
     to teaching hospitals will diminish considerably unless this 
     payment policy is changed. In essence, payments intended to 
     support the costs of teaching or low income care are being 
     diverted from the hospitals that provide the care to managed 
     care plans that are not fulfilling this mission. For this 
     reason, the GME and DSH payments must be carved out of the 
     AAPCC rate and made directly to the hospitals that incur 
     those costs.


  The carve-out for graduate medical education was wisely included in 
the Balanced Budget Act. It is logical, appropriate, and important that 
we complete the work and carve out the DSH payments.
  I want to thank the Greater New York Hospital Association, the 
American Hospital Association, and the Healthcare Association of New 
York State (HANYS) for their support of the bill in the 105th Congress 
(H.R. 2701), and we look forward to working with them on the issue in 
the 106th Congress.

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