[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[Extensions of Remarks]
[Pages 25782-25784]
[From the U.S. Government Publishing Office, www.gpo.gov]



                         SUPPORT FOR H.R. 5543

                                 ______
                                 

                          HON. HEATHER WILSON

                             of new mexico

                    in the house of representatives

                       Tuesday, October 31, 2000

  Mrs. WILSON. Mr. Speaker, the House recently passed a bill to 
increase the minimum wage, increase the amount Americans can save each 
year through an IRA, and to improve add funds to Medicare and Medicaid 
programs. An important part of that Medicare package improves the 
reimbursement rates for Medicare+Choice. This program offers more 
choices for seniors to decide what kind of health care plan they 
prefer. The Medicare+Choice managed care plans usually offer better 
services and benefits than traditional Medicare--most importantly--they 
can provide prescription drug coverage to seniors who cannot afford a 
Medigap policy. In my district, nearly 60 percent of seniors who earn 
less than $20,000 per year who chose a Medicare+Choice plan. But in my 
state, Medicare reimbursement for this program is half of what places 
in New York or Florida receive. And New Mexico's rate is too low for 
the plans to continue to offer the same quality service. H.R. 5543 will 
correct that disparity.
  This measure is strongly supported by New Mexicans, and I wish to 
bring your attention to the attached article written by Bob Bada, that 
clearly illustrates the current situation and need for this legislation 
and the need for a long term reform of Medicare.

 The Dual Edged Sword of Medicare Reimbursement--the Medicare Provider 
            and Health Maintenance Organization Perspective

                             (By Bob Badal)

       While the nation's booming economy and concomitant boosts 
     in Federal tax revenues over the past six to seven years has 
     extended the solvency of the current Medicare program to 
     2023, the baby-boom generation soon will begin to enter the 
     program. Paying for the extended range of benefits for this 
     increase in senior citizens will exact a large financial 
     toll. In 2025, 69.3 million elderly and disabled persons are 
     expected to be eligible for Medicare, up from 39 million 
     today. The share of our nation's gross domestic product spent 
     on Medicare is projected to almost double from 2.7 percent in 
     1998 to 5.3 percent in 2025. Congress passed the Balanced 
     Budget Act of 1997 (``BBA'') to secure the financial 
     stability of the Medicare program by providing an estimated 
     $115 billion in cuts, over five years, in spending to 
     physicians, hospitals, nursing homes, and home health 
     agencies. In addition, the BBA sought to provide alternative 
     network and product choice to beneficiaries via 
     Medicare+Choice plans. Medicare patients, as intended by the 
     BBA, would be able to elect coverage from Preferred Provider 
     Organizations or private insurers, or they could establish a 
     medical savings account, financed by the Health Care Finance 
     Administration (``HCFA''), and purchase a high-deductible 
     insurance policy. With the benefit of hindsight, it is 
     apparent that the BBA, and subsequent amendments, have 
     negatively affected not only the financial stability of 
     Medicare providers, but also the level of choice for the 
     beneficiaries it is mandated to protect. On this point, 
     Senator Pete Domenici R-N.M., Chairman of the Senate Budget 
     Committee stated: ``Seniors in many communities are treated 
     like second-class seniors because their choice and access to 
     care is practically nonexistent. We have created a system of 
     healthcare defined by the `haves' and `have nots' ''.


                  Medicare Reimbursement to Providers

       The BBA has created a surplus in funds for the Medicare 
     Program over the past 2 years. This surplus is a pyrrhic 
     victory, however. The BBA has reached a surplus by 
     effectively

[[Page 25783]]

     transferring a growing share of the risk to the provider. The 
     Medicare spending cuts called for by the BBA far exceeded the 
     $115 billion Congressional Budget Office (CBO) estimate, and, 
     in fact, will reach more than $212 billion over the five-year 
     life of the BBA. The subsequent Balanced Budget Refinement 
     Act of 1999 served only to restore a modest $15 to $18 
     billion in payments back to providers. Many providers have 
     been forced into bankruptcy by these draconian cuts, while 
     others have been forced to close their doors.
       Cardiac surgeons saw over a 10 percent drop in their 
     reimbursement and anesthesiologists experienced an 8 percent 
     decline. In heavily penetrated Medicare and Managed Care 
     markets, such declining reimbursement can have a serious 
     financial impact on many providers. John DuMoulin, director 
     of managed care and
       In communities like Albuquerque, New Mexico, which has 
     experienced a 15-physician-per-month exodus due, in part, to 
     poor levels of physician-based Medicare reimbursement, access 
     to quality healthcare is becoming a serious concern (New 
     Mexico Hospital Association, January 2000). In addition, as 
     reported in July, 2000, by the American Hospital Association, 
     10 percent of the nation's nursing homes have filed for 
     bankruptcy protection, and 35 percent of the nation's 
     hospitals are losing money on inpatient services (Healthcare 
     Financial Management, July 2000). Faced with escalating costs 
     of as much as 8-10 percent due in part, to scientific/
     technological advances, higher drug costs, and increases in 
     union labor nursing costs, hospitals are faced with a 
     dilemma. They are scheduled to receive increases in Medicare 
     reimbursement of 1.1 percent, less than the market-basket 
     rate of inflation in fiscal 2001 and 2002.
       Public and provider confidence in HCFA's understanding of 
     the relevancy and possible drastic consequences of their 
     continued pressure on provider reimbursement is not high. To 
     understand the reason why, one need only examine the 
     misguided approach that HCFA has used to determine the 
     initial solvency estimates of Medicare: In 1998, following 
     the passage of the BBA, the General Accounting Officer (GAO) 
     generated new estimates that said that Medicare could remain 
     solvent until 2008. In April 1999, the Bipartisan Commission 
     on the Future of Medicare entered the fray when it issued its 
     report to the nation: Medicare would live until 2015, said 
     the commission. Then in early 2000, the Medicare trustee 
     issued yet another revised estimate for the solvent life of 
     Medicare--2023. That estimate lasted only a few weeks before 
     the trustees admitted they had made a few calculation errors. 
     Medicare would be alive and kicking until 2025. (Healthcare 
     Financial Management, ``Never Underguesstimate the Financial 
     Future of Medicare,'' Jeanne Scott, June 2000).
       The formula used by HCFA to calculate physician payment 
     creates extreme oscillations in the reimbursement scale. The 
     swings are due in large part to HCFA's use of a variety of 
     time periods--the current fiscal year, the calendar year and 
     other time frames--to make calculations about physician 
     payment. Part of the problem exists within the new 
     ``sustainable growth rate system'' enacted by the BBA to help 
     control expenditures for physician services under fee-for-
     service Medicare. The growth rate system calculates the 
     updates to the Medicare fee schedule conversion factor, which 
     is used to set standardized reimbursement for specific 
     service categories. The problem, however, is that HCFA is 
     using projected data on utilization patterns and associated 
     healthcare provider costs rather than current actual data in 
     establishing each year's sustainable growth rate. 
     ``Deliberate use of sustainable growth rate estimates that 
     are based on knowingly flawed projections--even after actual 
     data have become available--is arbitrary and capricious,'' 
     the AMA said in a March 4 letter to Harriet S. Rabb, general 
     counsel for Health and Human Services. (Government and 
     Medicine, ``Data driving swings in Medicare pay,'' Susan J. 
     Landers, AMNews staff. May 17, 1999).


Health Maintenance Organizations and Medicare+Choice Reimbursement from 
                                Medicare

       Before the BBA was passed, Medicare beneficiaries 
     essentially were limited to a choice between traditional 
     Medicare coverage under Part A and Part B or HMO coverage. 
     HCFA paid most Health Maintenance Organizations (``HMO'') 
     under the Medicare risk-based system. Under this approach, 
     HCFA generally paid an HMO a prospective amount equal to 95% 
     of the average adjusted per capita cost (AAPCC) of providing 
     traditional coverage to Medicare beneficiaries in the county 
     in which they resided. This amount was adjusted to reflect 
     geographic differences in utilization and practice 
     parameters, as well as certain demographic characteristics of 
     enrollees, such as gender, institutional status, and age. 
     Payment to most HMOs was risk-based in that it was fixed, 
     regardless of the total costs incurred by the HMO in 
     furnishing care to an individual beneficiary. The Medicare 
     payment rates to HMOs varied significantly across the 
     country. Thus, HMOs more actively pursued Medicare enrollees 
     in areas where HMO rates tended to be higher, typically in 
     larger cities. Conversely, market penetration by HMOs was 
     limited in other areas, particularly in rural areas, where 
     Medicare payments to HMOs were lower. Since Medicare HMO 
     plans have traditionally offered enhanced benefits--such as 
     prescription drug coverage and routine physicals--to their 
     enrollees, the lower availability of managed care options in 
     rural areas meant that many rural beneficiaries did not have 
     access to the same benefits as urban beneficiaries did. 
     (ProPac, Medicare and the American Health Care System: Report 
     to the Congress, June 1997; and PPRC, Medicare Managed CARE: 
     Premiums and Benefits, April 1997).
       Under the BBA, Medicare+Choice plans would receive 
     aggregate payments for the year based on their geographic 
     location and the demographic characteristics of their 
     enrollees. The BBA establishes that each county's payment is 
     determined as the greater of (1) a local/national blend rate, 
     (2) a national floor, or (3) a minimum update rate set at 2 
     percent above the previous year's rate. (Project HOPE Center 
     for Health Affairs, ``Changes to Medicare risk plan payments 
     as a result of the Balanced Budget Act of 1997; implications 
     for budget neutrality [abstract],'' Schoenman, 1998). In 
     addition, the BBA, through the use of a risk-adjustment 
     payment, attempts to reflect the relative health status of 
     managed care enrollees, with plans getting more money for 
     their sickest beneficiaries. Because this risk adjustment 
     model is based solely upon impatient hospital utilization 
     gathered from Medicare risk contractors, there
       With the passage of the Balanced Budget Act, changes in the 
     Medicare program requirements were designed to attract more 
     managed care plans to the program. These changes have 
     resulted in new plans in some areas, but the payment reforms 
     in the BBA, coupled with new regulatory requirements, have 
     already had the unintended effect of discouraging other 
     health plans from participating, resulting in fewer choices 
     for Medicare beneficiaries overall. In 1999, the number of 
     Medicare risk plans declined in response to changes in public 
     policy under the BBA. An estimated 450,000 seniors were 
     affected in 1999 as 54 health plans announced their intent to 
     reduce the size of the markets they served, and 45 did not 
     renew their contracts with HCFA. In January of this year, 
     another 41 Medicare+Choice plans announced their intentions 
     to leave the Medicare market, with 58 additional plans 
     announcing a reduction in their service area. In addition, 
     many HMOs that remain have raised premiums or cut benefits to 
     beneficiaries, including prescription benefits.


                              Consequences

       When Providers and Medicare+Choice plans pull out of 
     markets on such a grand scale, the implications for seniors 
     are tremendous. Access to care, continuity of care, cost of 
     healthcare services, and provider/Medicare HMO (both 
     inpatient and outpatient) ``flight'' are the paramount 
     concerns of most Medicare beneficiaries (Modern Healthcare, 
     ``The exodus escalates, Medicare+Choice market pullouts to 
     nearly double in 2001,'' Benko, July 3, 2000). As Medicare 
     reimbursement to providers continues to fall far short of 
     rates obtainable from private payers, providers will 
     increasingly refuse to serve Medicare patients and/or will 
     reduce the quality of services rendered to them. (Economic 
     Commentary, ``Medicare: Usual and Customary Remedies Will No 
     Longer Work,'' April, 1997). For some providers, this 
     decrease in reimbursement may prove to be too costly, forcing 
     them out of business all together. Declining Medicare 
     reimbursement to HMOs has had a similar effect, and has 
     proven to be even more costly to Medicare beneficiaries than 
     Medicare cuts in provider reimbursement. A study by the 
     Barents Group, Westat, and the Henry J. Kaiser Family 
     Foundation, performed in 1998, providing data on 2,163 
     Medicare beneficiaries who were involuntarily disenrolled 
     from their Medicare risk HMO, confirms the implications of 
     Medicare's declining HMO reimbursement methodologies, and 
     subsequent decreases in Medicare contracted HMOs. The study 
     identified seven areas of concern:
       Benefit Reductions: Eighty-four percent of beneficiaries 
     reported prescription drug coverage in their former HMO, but 
     only 70% reported coverage after their plan withdrew. 
     Beneficiaries most likely to have lost one or more benefits 
     also were those most likely to have health problems and least 
     able to pay for those benefits. The disabled under age sixty-
     five, those age eighty-five and older, and the poor and near 
     poor were more likely to have moved to traditional Medicare 
     with no supplemental coverage and were most likely to report 
     losing benefits after the transition.
       Increased Out-of-Pocket Costs: Four of every ten 
     beneficiaries reported paying higher monthly premiums after 
     their Medicare HMO left the market, with the share of 
     beneficiaries paying no premiums for supplemental benefits 
     declining from 67 percent to

[[Page 25784]]

     53 percent and the share of beneficiaries reporting premiums 
     of $75 or more a month rising from 3 percent to 21 percent. 
     Joining another Medicare HMO, however, does not appear to 
     protect beneficiaries against premium increases or cost 
     concerns. One quarter of those who joined another HMO 
     reported paying higher premiums after switching HMOs and said 
     they expect to have higher doctor and hospital expenses.
       Continuity of Care: Most beneficiaries (91 percent reported 
     having one person they think of as their personal doctor or 
     nurse. However, 22 percent of beneficiaries said that they 
     had to find a new personal doctor after their plan withdrew, 
     and 17 percent had to find a new specialist. Beneficiaries in 
     traditional Medicare with no supplemental coverage were much 
     less likely than others were to report having a personal 
     doctor after their plan pulled out and more likely to report 
     having to change specialists. For markets where provider 
     financial viability is already threatened by high percentages 
     of uncompensated care and dwindling commercial insurance 
     payers, continuity of care is further diminished.
       Impact on Patient Interactions: Time spent with Medicare 
     patients on each visit is being reduced, and multiple visits 
     for multiple problems are being required. Some physicians 
     selectively refer the more difficult, costly cases to other 
     physicians. Videos are being substituted for face-to-face 
     patient counseling and education.
       Cutting Amenities: Services for the convenience of patients 
     are being dropped, such as arranging for community services, 
     in-office phlebotomy and x-ray services, and incidentals such 
     as post-procedure care kits. Screening and counseling are 
     being curtailed. Satellite offices are being closed. 
     Telephone consultations are being reduced, with office staff 
     returning more telephone calls from patients.
       Impact on Access: Medicare patient loads are being reduced, 
     limited or eliminated. Some physicians accept Medicare 
     patients only by referral. Money-losing services, especially 
     surgical procedures, are not being offered to Medicare 
     patients. Simple procedures formerly performed in the office 
     are done in outpatient facilities. In addition, access to 
     specialists is decreasing. Specialists refer patients back to 
     primary care physicians as soon as possible, and are less 
     willing to become primary physicians for their chronically 
     ill patients. ``Reimbursement generosity from private 
     insurance relative to that from Medicare negatively affects 
     physicians' assignment rates, implying that the elderly's 
     access to health care and/or the financial burden is likely 
     to be jeopardized by further reductions in Medicare
       Technology lags: Many providers are not renewing or 
     updating equipment used in their office, but shifting to 
     hospitals to perform Medicare procedures. Purchases of 
     equipment for promising new procedures and techniques are 
     being postponed or canceled.


                                Solution

       How should we design Medicare if we had it to do over 
     again? To restore the viability of the program's promise to 
     future generations, and to prevent the drop in access of 
     quality, cost effective healthcare for beneficiaries, the 
     American Medical Association's approach makes sense. Medicare 
     funding, states the AMA, must be shifted from the pay-as-you-
     go system to one in which beneficiaries have a larger 
     responsibility to provide health insurance for their own 
     retirement health care during their working years. Shifting 
     out of a tax-based, pay-as-you-go system to a system of 
     private savings can assure that all working Americans have 
     access to health care in retirement. This does not means, 
     however, that government would not have a major role to play. 
     The government would continue to make a substantial 
     contribution toward the purchase of insurance for the elderly 
     and it would enforce requirements for individual saving. From 
     a financial standpoint, greater individual funding of 
     retirement health care has at least five advantages over a 
     government-based system:
       A private system would allow individuals to freely choose 
     the types of health care plans that meet their particular 
     needs.
       Individual funding would remove federal budgetary 
     considerations and the accompanying extraneous budgetary 
     issues from government policy toward the system.
       Much of the funding of a private system would be invested 
     in economic activity in the private sector, rather than in 
     unfunded federal debt that must be repaid by subsequent tax 
     revenue.
       A higher rate of return is possible with investment of 
     funds in private sector economic activity than in government 
     debt instruments.
       And, above all else, provider as well as Medicare+Choice 
     HMO reimbursement would be appropriately set at free market 
     competitive levels, as established by the consumer. 
     (Rethinking Medicare: A Proposal from the American Medical 
     Association--``Solutions for Medicare's Short-term and Long-
     term Problems'', February, 1998).


                               Conclusion

       It is somewhat paradoxical to think that providers of 
     healthcare and their long-time adversary, the HMO (or in this 
     case, the Medicare+Choice HMO), actually may have something 
     in common. Providers of healthcare and managed care 
     organizations agree that the Health Care Financing 
     Administration, and its reimbursement methodologies, have 
     eliminated some of the incentive for providing quality, cost 
     effective access to care for beneficiaries. Nevertheless, 
     because there is only a finite amount of dollars that HCFA 
     can provide to the delivery of healthcare for beneficiaries, 
     any short-lived alliance between providers and HMOs breaks 
     down. Both parties will continue to fight over available 
     healthcare dollars. Worse yet, as the population ages and the 
     number of Medicare beneficiaries grows--leading to a 
     subsequent decline in Medicare tax revenues per beneficiary--
     the battle for government healthcare funding will increase.
       Most health care groups and analysts believe Congress will 
     allocate some additional money to Medicare fixes this year. 
     The large budget surpluses, the greater-than-expected savings 
     from 1997 Medicare cuts, and the data supporting providers' 
     and managed cares' claims of financial pain make it difficult 
     for lawmakers to ignore the problems. ``I think the surplus 
     makes it easier to make corrections and to make a larger 
     amount of corrections,'' said Rick Pollack, executive vice 
     president for the American Hospital Association. Bob Blendon, 
     a health policy and political analysis professor at Harvard 
     University, however, states that members of Congress ``. . . 
     may be concerned about paying for tax cuts and a Medicare 
     prescription drug benefit, as well as ensuring that Medicare 
     cuts won't have to be reinstated if the surplus disappears.'' 
     Despite the cautious optimism among providers, in a highly 
     charged political environment like a presidential election 
     year, the issue remains undecided and unresolved, and the 
     deterioration in service continues apace.
       Aetna U.S. Healthcare: 23 counties in 14 states, 355,000 
     lives.
       Humana: 45 counties in 6 states, 84,000 lives.
       Foundation Health Systems: 18 markets in 6 states, 19,000.
       Oxford Health Plan: 6 Louisiana parishes, 5,900.
       Gulf South Health Plans: 5 Louisiana parishes, 4,000.
       United Healthcare: Bristol County, R.I., 1,700.
       Additional Pullouts pending:
       Cigna Corporation, Philadelphia Pennsylvania, announced 
     last month that it is leaving 13 of its 15 Medicare HMO 
     markets, affecting about 104,000 members, effective January 
     1, 2001. Cigna cites Medicare payment reductions mandated by 
     the BBA have made it difficult for MCOs generally to offer 
     benefits cost effectively. (Healthcare Financial Management, 
     July 2000, ``Cigna Drops Most Medicare HMOs'').
       Carefirst Blue Cross and Blue Shield reports its intent to 
     close Maryland's largest Medicare HMO by year-end, displacing 
     32,000 members. Carefirst blames the government's skimpy 
     reimbursement rates, which it says aren't keeping pace with 
     medical cost increases.
       Pacificare's Secure Horizon plan will uproot 20,300 lives 
     when it exits 15 markets in Arizona, Colorado, Texas and 
     Washington. The company has been changing its benefit 
     offerings and boosting members' premiums and copayments in an 
     effort to offset reduced government payments. ``For us to 
     remain viable in the long term, congressional action is 
     needed. We've been urging Congress for over two years to 
     increase funding for the Medicare+Choice program,'' says 
     Robert O'Leary, CEO Pacificare. (Modern Healthcare, July 10, 
     2000, ``More Plans dropping Medicare HMOs'').

     

                          ____________________