[Congressional Record Volume 152, Number 104 (Tuesday, August 1, 2006)]
[Senate]
[Pages S8538-S8540]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself and Mr. Baucus):
  S. 3767. A bill to delay the full implementation of the occupational 
mix adjustment to the wage index under the Medicare inpatient hospital 
prospective payment system; to the Committee on Finance.
  Mr. GRASSLEY. Mr. President, I am pleased to join once again my good 
friend and colleague Senator Baucus to introduce the Wage Index 
Accuracy Improvement Act.
  The Wage Index Accuracy Improvement Act enables the Centers for 
Medicare & Medicaid Services, CMS, to improve the accuracy of Medicare 
payments for acute care hospital services.
  Under Medicare, acute care hospitals are paid for inpatient services 
through the hospital inpatient prospective payment system, IPPS. Around 
3,500 hospitals received payment through the

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IPPS totaling approximately $100 billion in fiscal year 2004.
  As you know, hospitals in the United States vary greatly in terms of 
size, geographic location, types of patients served and staffing. Since 
a ``one size fits all'' approach to paying hospitals would not fairly 
compensate hospitals for the inpatient services they provide to 
Medicare patients, payments under the IPPS are adjusted to take into 
account these differences.
  CMS has been refining one such adjustment, as required by law, and 
has limited its application until it has been adequately developed. 
This significant adjustment, the area wage index, is intended to 
account for differences in prices for labor in different markets.
  In order to ensure that the wage index accurately reflects the 
difference in labor costs among different areas and not a hospital's 
employment choices, an occupational mix adjustment is also applied to 
the wage index.
  For example, a hospital choosing to employ predominantly registered 
nurses would have higher labor costs than a hospital employing--less-
expensive--licensed practical nurses. Because a hospital's staffing 
practices are unrelated to area wages, its staff composition should not 
influence the area wage index.
  CMS collected data in 2004 from hospitals for purposes of calculating 
the occupational mix adjustment; however, because of reasons including 
the agency's lack of confidence in the data, only 10 percent of the 
wage index was adjusted for occupational mix in fiscal years 2005 and 
2006.
  Questions concerning the reliability of these data can be seen in my 
home State of Iowa. Since the State is largely rural, Iowa hospitals 
generally employ a less expensive mix of personnel. One would expect 
the occupational mix adjustment to the wage index to benefit these 
hospitals; however, the opposite effect has occurred. In fact, it is 
estimated that the occupational mix adjustment has adversely affected 8 
of the 10 geographic locations in Iowa.
  CMS originally proposed to continue this limited adjustment for 
occupational mix in fiscal year 2007, but a Federal appellate court 
ordered the agency to apply the occupational mix adjustment, based on 
data collected in 2006, to 100 percent of the wage index effective for 
fiscal year 2007.
  CMS collected these data hurriedly, using only 3 months of data, and 
will not be able to post the final wage index information until after 
the fiscal year 2007 inpatient hospital rates are announced. Moreover, 
since the data collection instrument has changed from the last time CMS 
collected data, CMS will not have sufficient time to analyze fully the 
data and determine their accuracy.
  Given the lack of opportunity to ensure data accuracy, the 
uncertainty of how the occupational mix adjustment will affect hospital 
payments, and the disruption that can occur in moving immediately from 
a 10-percent adjustment for occupational mix to a 100-percent 
adjustment, the Medicare Wage Index Improvement Act would limit 
application of the occupational mix to the current rate for a 2-year 
period.
  This legislation would give CMS the opportunity to look at the data 
and act accordingly both to apply the occupational mix adjustment to 
the wage index appropriately and to avoid disruptions.
  In the meantime, the Medicare Wage Index Improvement Act would 
require CMS to evaluate the way in which they collect data for and 
calculate the occupational mix adjustment and present us with 
recommendations by January 1, 2008.
  I would also like to point out that the changes required under this 
legislation would be budget neutral because the Social Security Act 
requires that aggregate payments under this adjustment not be greater 
or less than payments made without the adjustment.
  Mr. President, adjusting inpatient hospital payments under Medicare 
can have significant effects on a hospital's financial health. These 
adjustments should therefore be adequately developed to ensure that 
payments are accurate and not fully implemented until they are ready.
  In the case of the wage index adjustment, let's provide CMS the 
opportunity to get the job done right.
  Mr. BAUCUS. Mr. President, today, along with Finance Committee 
Chairman Chuck Grassley, I am introducing the Wage Index Accuracy 
Improvement Act. This bill would help ensure access to quality, 
affordable health care in rural America. And this bill would improve 
accuracy, reduce volatility, and ease uncertainty in the way that 
Medicare pays hospitals.
  Medicare pays most hospitals through the inpatient prospective 
payment system, or IPPS. Under the IPPS, Medicare pays hospitals a 
standardized amount for each patient discharged. The Government's 
Centers for Medicare and Medicaid Services, or CMS, adjusts this amount 
for local wages, with a mechanism known as the area wage index. CMS 
intends that the area wage index help adjust for the wide variation of 
prices for labor and supplies across the Nation. After adjusting for 
wages, CMS then multiplies the standardized amount by the relative 
weight of the diagnosis--the diagnosis related group or DRG--to 
determine the total payment to the hospital. CMS further increases 
payments if the hospital is a teaching hospital, cares for a 
disproportionate share of low-income patients, or treats an 
exceptionally costly case.
  Rural providers have had concerns about the accuracy of the wage 
index. Largely in response to these concerns, Congress enacted an 
important provision as part of the Medicare Modernization Act, or MMA, 
in 2003. For hospitals with wage indexes below 1.0--that is, hospitals 
where CMS thinks that local wages are below average--section 403 of the 
MMA reduced the portion of the standardized amount subject to wages to 
62 percent, down from about 70 percent. This provision increased 
payments to hospitals in low-wage areas by an estimated $5.2 billion 
over 10 years. And this change was an important step toward ensuring 
access to quality, affordable health care in rural areas.
  Nonetheless, significant problems with the wage index still exist. 
Some of those problems relate to section 304 of the Benefits 
Improvement and Protection Act of 2001. In that law, Congress required 
CMS to collect data on hospitals' occupational mix, in order to remove 
incentives to employ a relatively more expensive workforce.
  For instance, a hospital that employs predominantly higher paid 
registered nurses would typically have higher labor costs than a 
facility employing mostly lower paid licensed practical nurses. In an 
effort to remove the influence of these staffing choices on Medicare 
hospital payments, section 304 required CMS to adjust the wage index 
for occupational mix. Congress intended through section 304 to bring 
greater accuracy to the payment system, leading to fairer reimbursement 
for hospitals. I am concerned that this provision may well have the 
opposite effect.
  CMS collected data for occupational mix adjustment in 2004. But given 
concerns over the accuracy of the data, in fiscal years 2005 and 2006, 
CMS applied only a 10-percent adjustment for occupational mix. CMS 
proposed the same adjustment--10 percent--for fiscal year 2007.
  On April 3, 2006, the Second Circuit Court of Appeals ordered CMS to 
apply 100-percent of the occupational mix adjustment for fiscal year 
2007. The court directed CMS to complete data collection and 
measurement by September 30, 2006, and then apply the adjustment in 
full.
  Mr. President, if CMS proceeds with a 100 percent occupational mix 
adjustment, hospital payments will be subject to inaccuracy, 
uncertainty, and volatility. Congress can prevent these outcomes, by 
passing the Wage Index Accuracy Improvement Act that we introduce 
today.
  This bill would maintain the current 10 percent occupational mix 
adjustment for the next 2 fiscal years, giving CMS time to collect 
accurate data. The bill would require CMS to report on its data 
collection for the occupational mix adjustment by January 1, 2008. Both 
of these actions will give hospitals more time--and more information--
to better understand the effect of the occupational mix adjustment.
  Mr. President, Medicare pays for more than $100 billion of hospital 
inpatient services every year. This system should be as accurate as 
possible. This system should not be subject to swings resulting from 
quickly-collected data, applied at the last minute. I urge my

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colleagues to join Chairman Grassley and me in passing this important 
legislation as soon as possible.
                                 ______