[Congressional Record Volume 147, Number 7 (Monday, January 22, 2001)]
[Senate]
[Pages S409-S410]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN (for herself, Mr. Jeffords, Mr. Cochran, Mrs. 
        Boxer, and Ms. Landrieu):
  S. 135. A bill to amend title XVIII of the Social Security Act to 
improve payments for direct graduate, medical education under the 
medicare program; to the Committee on Finance.


        correcting the direct graduate medical education formula

  Mrs. FEINSTEIN. Mr. President, I rise today to introduce legislation 
to reform the longstanding inequity in the Medicare Direct Graduate 
Medical Education (DGME) formula that has unfairly compensated many 
teaching hospitals across the country in the past 15 years.
  The Medicare DGME payment compensates teaching hospitals for many of 
the costs related to the graduate training of physicians.
  This legislation is timely as many of our nation's 400 teaching 
hospitals are in the midst of a serious financial crisis.
  Over 72 percent of all teaching hospitals are currently operating 
with negative margins, according to the Association of American Medical 
Colleges. Approximately 42 percent of the 100 major teaching hospitals 
could be operating at a loss by 2002.
  Teaching hospitals are losing millions of dollars annually.
  The University of Pennsylvania reported a $200 million deficit in 
1999.
  In Massachusetts, Beth Israel Deaconess Medical Center, Brigham and 
Women's Hospital, Massachusetts General Hospital, and the New England 
Medical Center posted operating losses for the six month period of 
October 1998 to March 1999 totaling more than $63 million.
  The University of Minnesota sold its hospital to a private company in 
1997 because ``it was bleeding red ink,'' according to the university's 
senior Vice-President for health sciences.
  Wayne State University in Michigan lost nearly $200 million in 1998 
and 1999.
  Georgetown University lost $83 million in 1999, $62 million in 1998, 
and $57 million in 1997.
  In my State, the University of California Los Angeles (UCLA) has seen 
its net income plunge $50 million and bottom out close to zero.
  The University of California San Francisco faces a $25 million loss 
over the next year.
  Excluding the University of California San Francisco, all University 
of California teaching hospitals collectively lost $90 million in net 
income since 1997.
  Many factors are to blame for the financial crisis of our nation's 
teaching hospitals.
  Balanced Budget Act of 1997:
  The Balanced Budget Act (BBA) of 1997 took a major blow at teaching 
hospitals, significantly cutting federal Medicare payments.
  The cuts included in BBA 1997, for example, has meant a loss of $25 
million over three years to UCLA.
  Penetration of Managed Care:
  Managed care payments to many teaching hospitals barely cover costs. 
Twenty-eight percent of all privately insured Americans are enrolled in 
an HMO. In California, this number is 88 percent.
  For example, California's capitation rate is one of the lowest in the 
nation. The average capitation rate in the State reached its peak in 
1993 at $45 per month. Last year, the rate sunk to $29, while the cost 
of living jumped 25.2 percent.
  Increasing Number of Uninsured:
  The number of uninsured has exploded. Today, 44 million Americans are 
without health insurance, California alone has 7 million uninsured 
residents.
  The high rate of uninsured impacts teaching hospitals because they 
are a major safety net provider--teaching hospitals provide 
approximately 44 percent of all care to the indigent. This means that 
when our nation's uninsured require medical care for complicated and 
complex pathologies, they find their way to teaching hospitals.
  Academic medical centers affiliated with the University of 
California, for example, are the second largest safety net for a State 
that has the fourth highest uninsured rate in the country.
  These are three examples of the forces behind the financial crisis of 
our nation's teaching hospitals. Low DGME payments further erode and 
destabilize the health care system.
  Academic medical centers have three major responsibilities and 
missions--teaching, research, and patient care--which cause them to 
incur costs unique to such facilities. ``If just one leg of that three-
legged stool is weak, it [academic medical centers] becomes 
destabilized,'' said Dr. Gerald Levey, UCLA's provost for health 
sciences. Low DGME payments are weakening teaching hospitals' ability 
to train future physicians.
  Teaching hospitals account for only 6 percent of the nation's 5,000 
hospitals. Despite the small number of teaching hospitals, they are a 
major provider of care. Teaching hospitals house: Forty percent of all 
neonatal intensive care units; fifty-three percent of pediatric 
intensive care units; and seventy percent of all burn units.

  Teaching hospitals also handle: Twenty percent of all inpatient 
admissions; twenty-two percent of outpatient visits; nineteen percent 
of surgical operations, including 82 percent of all open heart 
surgeries; sixteen percent of emergency visits; and nineteen percent of 
all births.
  The bottom line is that the financial crisis faced by teaching 
hospitals is impacting patient access to and quality of care.
  California has been particularly impacted by this financial crisis.
  Let me tell you how an outpatient eye clinic at the University of 
California, San Francisco has been impacted by the financial crisis 
facing teaching hospitals.
  The clinic has a patient mix that is approximately 70 percent 
Medicare and 30 percent Medi-Cal. Due in part to historically low DGME 
payments, the clinic has had to decrease the number of staff, increase 
patient load, and cut faculty salaries by 15 percent. The number of 
patients seen on an average day, for example, has increased from 12 per 
half day to 18. Less time with each patient compromises quality of 
care.
  According to a 1965 Medicare rule, Medicare paid for its share of 
DGME costs based on each hospital's ``Medicare allowable costs.'' This 
allowed for open-ended reimbursement.
  Congress changed the methodology used to determine payments in 1986, 
and retroactively established Fiscal Year 1985 as the base year for all 
future calculations for DGME payments. The problem, which created this 
disparity in payments, is that some teaching hospitals narrowly 
interpreted the law and did not claim such expenses as faculty costs 
and benefits in 1985.
  Submitted claims for 1985 were then used to determine a ``base 
formula'' for each teaching hospital. The base formula determined for 
each teaching hospital in 1985 has been used to determine all DGME 
payments since 1985 and disadvantages many teaching hospitals.
  To give you an idea of the large variation in payments, 10 percent of 
teaching hospitals had per-resident payments of more than $98,800 in 
1995, whereas the average payment for another 10 percent was below 
$37,400. The national mean in 1995 was $62,700.
  A study conducted last year based on data from the Health Care 
Financing Administration (HCFA) further highlights the variations among 
teaching hospitals. The study shows that: Beth Israel Medical Center in 
Manhattan received an average Medicare payment of $57,010 a year for 
each resident it trains. In comparison, Columbia-Presbyterian Medical 
Center in Manhattan received an average of $24,444 per resident.
  Even when cost-of-living and training expenses are presumably similar 
(both hospitals are in Manhattan), there is great variation in the 
payment received by hospitals for training residents.
  Additional examples of variations in payments include: Montefiore 
Medicare

[[Page S410]]

Center in the Bronx received an average of $55,073 per resident; 
Massachusetts General Hospital in Boston received an average of $29,843 
per resident; Cleveland Clinic Hospital received an average of $16,118 
per resident, and the University of California, Los Angeles Medical 
Center received an average of $11,908 per resident.
  In an attempt to level the playing field, the Balanced Budget 
Refinement Act of 1999 (BRA) contained provision that created a 70 
percent floor and a 140 percentage ceiling for Medicare DGME payments. 
The Medicare, Medicaid, and SCHIP Improvement Act of 2000 also 
contained provision to increase the floor to 85 percent in 2002.
  While Congress has begun to address the tissue of variations in DGME 
payments by implementing a floor and a ceiling for payments in 1999 and 
2000, more must be done.
  I believe all teaching hospitals should receive reimbursement from 
Medicare that equal the national average. Bringing all teaching 
hospitals up to the national average, without undermining the financial 
stability of those teaching hospitals currently receiving payments 
above the national average, could help stabilize our nation's health 
care system.
  The legislation that I am introducing today takes good steps to 
reduce variations in DGME and restore stability to the system.
  As established in current law, the floor for Medicare reimbursements 
for teaching hospitals would equal 85 percent by Fiscal Year 2002. Over 
a period of four years (from FY 2003-2006), this legislation would 
bring teaching hospitals that are currently reimbursed by Medicare 
below the national average up to the national average.
  The phase in is as follows:
  Beginning in Fiscal Year 2003 and 2004, the floor would be increased 
to 90 percent.
  In Fiscal Year 2005 the floor would be increased to 95 percent.
  By Fiscal Year 2006, all teaching hospitals would be receiving per 
resident payments that equal at least 100 percent of the national 
average. Those teaching hospitals receiving payments above the national 
average would be held harmless.
  Approximately thirty-eight States benefit under the proposed 
legislation. Teaching hospitals in several states will benefit over the 
next several years due in combination to the proposed legislation and 
the changes made in both 1999 and 2000 to increase the floor for DGME 
payments.
  California to Benefit:
  California will gain approximately $61.5 million over the next 6 
years as a result of this legislation and the changes made to the DGME 
floor in 1999 and 2000.
  For example, the University of California Medical Centers will gain 
$16.3 million over six years. The medical center at the University of 
Davis will gain $3.2 million; the medical center at the University of 
Irvine will gain $1.6 million; UCLA's medical center will gain $5.8 
million; the medical center at the University of San Diego will gain 
$1.8 million; and the medical center at the University of San Francisco 
will gain approximately $3.9 million.
  This is merely an example of State impact under the proposed 
legislation. These numbers are significant. Many of our nation's 
teaching hospitals would greatly benefit under the proposed 
legislation.
  The proposed legislation would use new money to move teaching 
hospitals below the national average up to the average. Less than $500 
million over 4 years would be borrowed from the Medicare Part A Trust 
fund to pay for the increase in Medicare payments to direct graduate 
medical education. So as to keep the Medicare Part A Trust Fund solvent 
beyond 2025, this legislation authorizes the Senate to appropriate to 
the Trust Fund annually an amount equal to what is taken out to 
reimburse teaching hospitals at this higher rate.
  Teaching hospitals rely heavily on DGME payments to train and support 
their medical students and faculty.
  For example, medical education funding in California helps support 
108 hospitals that train more than 6,700 residents over three-to-five 
year periods. California received $75.1 million in DGME payments in 
1997.
  Many of the nation's teaching hospitals will be forced to close down 
beds and lower the quality of care they provide. UCLA has had to lay 
off 300 employees in the past few years due to budget constraints.
  In a statement issued April 2000 by the Association of American 
Medical Colleges (AMC), the association said that:

       To enhance the credibility of the payment system and to 
     eliminate inequities in payment levels, the AMC believes that 
     payments to any hospital whose per resident DGME amount is 
     below the national average per resident DGME payment levels 
     (adjusted for local variability in cost of living wages) 
     should be raised closer to the national average; additional 
     funding resources should be used to accomplish this 
     adjustment.

  This legislation does just that--over a period of four years, 
teaching hospitals receiving payments below the national average will 
be brought up to the national average using new money. It is that 
simple.
  ``Teaching hospitals are a national resource,'' says Albert 
Carnesale, Chancellor of UCLA. I agree with Chancellor Carnesale. I 
believe that the vitality of our nation's teaching hospitals should be 
of highest concern to Congress.
  As our nation's uninsured rate continues to grow and the population 
continues to explode, we must work to ensure that we have an adequate 
supply of physicians to provide medical care. Training physicians and 
providing teaching hospitals with the funds necessary to offer this 
training should be of highest priority.
  I believe that a teaching hospital's ability to serve their 
communities and train physicians will be further compromised if we do 
not enact this legislation.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 135

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Direct Graduate Medical 
     Education Improvement Act of 2001''.

     SEC. 2. ESTABLISHMENT OF A FLOOR FOR THE LOCALITY ADJUSTED 
                   NATIONAL AVERAGE PER RESIDENT AMOUNT DURING 
                   FISCAL YEARS 2003 THROUGH 2006.

       (a) In General.--Section 1886(h)(2)(D)(iii) of the Social 
     Security Act (42 U.S.C. 1395ww(h)(2)(D)(iii)), as amended by 
     section 511 of the Medicare, Medicaid, and SCHIP Benefits 
     Improvement and Protection Act of 2000 (as enacted into law 
     by section 1(a)(6) of Public Law 106-554), is amended to read 
     as follows:
       ``(iii) Floor for locality adjusted national average per 
     resident amount.--

       ``(I) In general.--The approved FTE resident amount for a 
     hospital for a cost reporting period beginning during a 
     fiscal year shall not be less than the applicable percentage 
     of the locality adjusted national average per resident amount 
     computed under subparagraph (E) for the hospital for that 
     period.
       ``(II) Applicable percentage.--In this clause, the term 
     `applicable percentage' means, in the case of a cost 
     reporting period beginning during--

       ``(aa) fiscal year 2001, 70 percent;
       ``(bb) fiscal year 2002, 85 percent;
       ``(cc) fiscal year 2003 or 2004, 90 percent;
       ``(dd) fiscal year 2005, 95 percent; and
       ``(ee) fiscal year 2006, 100 percent.''.
       (b) Authorization of Appropriations.--For each fiscal year 
     (beginning with fiscal year 2003), there are authorized to be 
     appropriated to the Federal Hospital Insurance Trust Fund 
     established under section 1817 of the Social Security Act (42 
     U.S.C. 1395i) an amount equal to the amount by which 
     expenditures under such Trust Fund are increased for the 
     fiscal year by reason of the enactment of items (cc), (dd), 
     and (ee) of section 1886(h)(2)(D)(iii)(II) of such Act (42 
     U.S.C. 1395ww(h)(2)(D)(iii)(II)), as added by subsection (a).
                                 ______