[Congressional Record (Bound Edition), Volume 157 (2011), Part 1]
[Senate]
[Pages 59-62]
[From the U.S. Government Publishing Office, www.gpo.gov]




                                MEDICARE

  Mr. GRASSLEY. Mr. President, as we begin the 112th Congress I want to 
discuss one of my continuing concerns with the Medicare Program. For 
the last 10 years, I have served most recently as ranking member and 
previously as the chairman of the Senate Committee on Finance, which 
has jurisdiction over Medicare. During this time I have led efforts to 
reform the Medicare payment system and realign incentives in Medicare 
to promote higher quality and more efficient care. Today, I would like 
to address one of the flaws in the Medicare payment system: the 
inaccuracy of the Medicare geographic adjustment factors used for 
physician practice expense and the adverse impact they have on rural 
Medicare beneficiaries' access to care. This flaw has for many years 
resulted in unfairly low payments to high quality areas like my own 
home State of Iowa and many other rural States.
  Medicare payment varies from one area to another based on the 
geographic adjustments known as the geographic practice cost indices or 
GPCIs. These geographic adjustments are intended to equalize physician 
payment by reflecting differences in physician's practice costs. But 
they do not accurately represent those costs in Iowa or other rural 
States. They have failed to do the job. They penalize rather than 
equalize Medicare reimbursement in rural States and discourage 
physicians from practicing in areas like New Mexico, Arkansas, 
Missouri, and Iowa because of their unfairly low Medicare rates. Iowa 
is widely recognized as providing some of the highest quality care in 
the country yet Iowa physicians receive some of the lowest Medicare 
reimbursement in the country due to these inequitable geographic 
disparities.
  I introduced legislation to correct these unwarranted geographic 
payment disparities in the 110th Congress, the Medicare Physician 
Payment Equity Act of 2008. In the 111th Congress, I introduced the 
Medicare Rural Health Access Improvement Act of 2009. And when the 
Senate Finance Committee conducted its markup of health reform 
legislation in the fall of 2009, I offered an amendment to reform the 
practice expense geographic adjustment, PE GPCI, that has caused unduly 
low payments in rural areas due to the inaccurate data and methodology 
that is used. My amendment provided more equity and accuracy in 
calculating this adjustment, and it provided a national solution to the 
problem. It was accepted unanimously by the Senate Finance Committee, 
and it was included in the Senate health reform bill, the Patient 
Protection and Affordable Care Act, PPACA, that was enacted last year.
  The goal of my amendment was to assure that the statutory mandate of 
the Social Security Act is met and that the most recent and relevant 
data is used for these geographic adjusters. The language of section 
3102(b) is very specific. It requires a transitional 2-year period of 
limited relief to reduce the impact of the current, inequitable 
practice expense formula in rural areas while a broader analysis of the 
methodology and evaluation of the data is conducted by the Department 
of Health and Human Services, HHS. The Secretary is mandated to limit 
the impact of the existing adjustments by reflecting only one-half of 
the geographic differences in employee wages and rents in the PE GPCI 
adjustment for 2010 and 2011 and to hold harmless those localities that 
would otherwise see a reduction as a result of this adjustment. Most 
importantly, the provision requires that a longer term solution be 
implemented in 2012, at which time the

[[Page 60]]

Secretary must make appropriate adjustments to the formula to ensure 
accurate geographic practice expense adjustments.
  This 2-year transition in 2010 and 2011 was provided to allow time 
for a focused, in-depth study by the Centers for Medicare and Medicaid 
Services, CMS, on the data and methodology used to support a revised PE 
GPCI formula that would be implemented by January 1, 2012. However, to 
date CMS has failed to make any significant changes in the sources of 
the data or the methodology used in calculation of the practice expense 
adjustment. Although CMS has acknowledged its obligations for an 
additional study as called for by section 3102(b), they continue to 
claim that their ``analysis of the current methods of establishing PE 
GPCIs and [their] evaluation of data that fairly and reliably establish 
distinctions in the cost of operating a medical practice in the 
different fee schedule areas meet the statutory requirements'' of 
section 3102(b), Federal Register, November 29, 2010, Page 73254. I 
strongly disagree.
  When the current Medicare payment system was established, Congress 
decided that geographic adjustments would be appropriate to equalize 
physician payment by reflecting differences in physicians' practice 
costs, and it established the geographic practice cost indices, GPCIs, 
for physician work, practice expenses, and malpractice premiums. 
Congress also mandated that HHS use the most recent data available 
relating to practice expenses in calculating the geographic adjustments 
for physician practice costs.
  However, CMS has long relied upon proxy data sources that bear little 
to no relevance to actual practice costs, such as using Housing and 
Urban Development, HUD, apartment rental data to calculate physician 
office rent. This doesn't have any connection with the cost of office 
space, let alone a physician's office. Also, the current formula only 
counts employee wages in four occupations: nurses, clerical personnel 
and medical technicians but it should reflect employee wages more 
accurately by also taking into account physician assistants, office 
administrators, and other more highly compensated specialists commonly 
employed in practices today. The third category, of ``other'' expense, 
is considered to be a national market and not adjusted. It should 
include expenses like office furniture and information technology that 
cost the same, no matter where you live, but it doesn't. And the 
weights used by CMS in their methodology are outdated and fail to 
represent physician practice expenses accurately.
  Unfortunately, the more accurate calculation of practice expense 
costs that was intended to be achieved by my amendment also has been 
jeopardized by a special interest provision that was added to PPACA 
behind the closed doors of the majority leader during the Senate floor 
consideration of health reform. It addresses geographic disparities in 
Medicare payment but it helps just 5 States at the expense of the other 
45 States. It is what I call the ``Frontier Freeloader'' provision. It 
improves Medicare reimbursement in these frontier States by 
establishing floors for the hospital wage index and the physician 
practice expense GPCI. A frontier State is defined as one with 50 
percent or more frontier counties, defined as counties with a 
population per square mile of less than six.
  This special deal will ensure that higher payments go to just five 
rural States in 2011--North Dakota, South Dakota, Montana, Wyoming and 
Nevada--at the expense of every other State. But the Frontier 
Freeloader is even more egregious because Iowa and other States like 
Arkansas and New Mexico that don't benefit from this provision are 
paying for it! So, taxpayers in your State and mine all the other 45 
States--will kick in to pay for this unfair $2 billion Frontier 
Freeloader carve-out for five States that ends up harming all the other 
rural States. And that is just the cost for the next few years. The 
frontier States deal does not sunset, and it is not time-limited. It 
will continue to benefit so-called ``frontier States'' forever while 
taxpayers in your State and mine continue to pay the bills. It's 
another example of how the lack of transparency and the deals made 
behind closed doors to garner votes last year led to bad policies. And 
it became law when the President signed the health care reform bill.
  I introduced legislation to eliminate the inequitable frontier 
freeloader provision in the last Congress and to improve Medicare 
beneficiaries' access to care in all rural States. The Medicare Rural 
Health Care Equity Act of 2010 would have eliminated this special 
Medicare reimbursement rate for frontier States and provided additional 
funds from its repeal to improve reimbursement in all rural States. 
Iowa provides some of the highest quality care in the country but it 
does not meet the definition of a frontier State. Certainly Iowa should 
have been helped since Medicare reimbursement for hospitals and 
physicians is lower in Iowa than in most of these so-called 
``frontier'' States. Medicare also pays much lower rates in other rural 
States, like Arkansas and New Mexico, but they don't benefit from the 
Frontier Freeloader because they don't meet the definition of a 
frontier State. We should improve physician payments for all rural 
States, not just a select few. And it's unfair to improve hospital 
payments for just a few States. My legislation would have eliminated 
those special payments for just five States, and I will be 
reintroducing that legislation again soon.
  The Institute of Medicine, IOM, has been asked by HHS to evaluate the 
accuracy of the existing geographic adjustment factors and whether the 
current measures and data are representative of the costs. I have 
prepared a statement for consideration by the IOM committee charged 
with this review, the Committee on Geographic Adjustment Factors in the 
Medicare Program. I urge the IOM to address the inaccuracy of the 
current geographic adjusters used for physician practice expense, the 
methodology and data used in their calculation, and the adverse effect 
of the existing practice expense geographic adjustment factor on rural 
access to care. I also urge IOM to review the frontier States provision 
and provide HHS and Congress with recommendations on specific factors 
that could be used to determine physician practice costs in those 
States in lieu of the inequitable frontier States floor.
  It is my hope that the IOM will carefully consider these comments as 
it proceeds with its review and develops recommendations and a report 
to be submitted to HHS and the Congress later this year. I ask 
unanimous consent that my statement to the IOM be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                  Statement of Senator Chuck Grassley

 (Institute of Medicine, Committee on Geographic Adjustment Factors in 
                  the Medicare Program, Jan. 5, 2011)

       As the senior senator from Iowa and the Ranking Member of 
     the United States Senate Committee on Finance in recent 
     years, I appreciate the opportunity to provide this statement 
     to the Institute of Medicine (IOM) on a study that the IOM 
     has undertaken at the request of the Secretary of the 
     Department of Health and Human Services (HHS) regarding the 
     accuracy of the geographic adjustment factors used for 
     Medicare payment.
       For the last ten years, I served either as Ranking Member 
     or as the Chairman of the Senate Committee on Finance, which 
     has jurisdiction over Medicare. During this time, I led 
     congressional efforts to establish more accurate geographic 
     adjusters for Medicare physician payment and to realign 
     incentives in Medicare to promote higher quality and more 
     efficient care. This IOM committee has been asked to evaluate 
     the accuracy of the geographic adjustment factors and to 
     provide their recommendations as to whether the current 
     measures and data are representative of the costs. I would 
     like to address the inaccuracy of the current Medicare 
     geographic adjustment factors used for physician practice 
     expense, the methodology and data used in their calculation, 
     and the adverse effect of the existing practice expense 
     geographic adjustment factors on rural access to care. I 
     offer these comments for consideration by the committee as it 
     proceeds with its review and develops its recommendations and 
     report to HHS and Congress later this year.

[[Page 61]]




            Medicare's Flawed Geographic Adjustment Factors

       Medicare's payment system for physicians is flawed in many 
     ways. One of those flaws is the unjustified geographic 
     disparities in payment that has for many years given unfairly 
     low payments to high quality areas like my home state of Iowa 
     and other rural states. Geographic equity in Medicare payment 
     has been a longstanding issue of major concern to me. The new 
     health care reform law, the Patient Protection and Affordable 
     Care Act (PPACA), includes a provision I authored that makes 
     some much needed changes in the calculation of the geographic 
     adjustment factors that is intended to provide more equitable 
     payments to physicians in rural areas and to improve access 
     to health care for Medicare beneficiaries in rural states.
       Medicare payment differences from one area to another based 
     on the geographic adjustments known as the Geographic 
     Practice Cost Indices (GPCIs) are intended to equalize 
     physician payment by reflecting differences in physician's 
     practice costs but they do not accurately represent those 
     costs in Iowa or other rural states. They have been a dismal 
     failure, in fact. They discourage physicians from practicing 
     in rural areas because they create unfairly low Medicare 
     reimbursement rates.
       I introduced legislation to correct these unwarranted 
     geographic payment disparities in the 110th Congress, the 
     Medicare Physician Payment Equity Act of 2008, as well as the 
     Medicare Rural Health Access Improvement Act of 2009 in the 
     111th Congress. In the fall of 2009, I also offered an 
     amendment in the Senate Finance Committee markup of health 
     reform legislation to reform the practice expense geographic 
     adjustment that has caused unduly low payments to physicians 
     in rural areas due to the inaccurate data and methodology 
     that is used.
       My amendment was intended to provide more equity and 
     accuracy in calculating this adjustment as well as to provide 
     a national solution to the problems that have arisen from the 
     current unwarranted disparities in Medicare payment due to 
     these geographic adjustments. The amendment was accepted 
     unanimously by the Senate Finance Committee during markup of 
     Senate health reform legislation in September 2009. Section 
     3102(b) of the Patient Protection and Affordable Care Act 
     (PPACA) that passed the Senate and became law is based on 
     this amendment. It requires HHS to improve the accuracy of 
     the Practice Expense Geographic Practice Cost Index (PE GPCI) 
     data and methodology and to examine the feasibility of using 
     actual data or reliable survey data on office rents and non-
     physician staff wages. These two PE GPCI inputs, which are 
     the only inputs adjusted to reflect local costs, currently do 
     not measure physician costs. Instead, they rely upon proxies. 
     The current input adjustments are not credible because of 
     their reliance on proxy data sources rather than actual 
     physician practice costs. As a result, some physicians are 
     paid more and others are paid significantly less for the very 
     same service with the same time, effort, and expertise needed 
     to furnish that service to a Medicare beneficiary.
       I urge the committee to note the wide differences in 
     physician payment under the GPCIs as currently constructed. 
     At the beginning of calendar year 2010, before the 
     transitional adjustments required by PPACA, a 38.894% 
     difference in Medicare physician payment on average existed 
     between the highest paid and the lowest-paid Medicare Part B 
     payment locality (Alaska and Puerto Rico) for the same 
     Medicare service. The PE GPCI disparity for this same period 
     was even greater, ranging from 1.441 (San Francisco) for the 
     highest to 0.694 for the lowest (Puerto Rico) and 0.821 for 
     the second lowest (the rest of Missouri), with 1.0 being the 
     average. The PE GPCI for Iowa was 0.870. This means that 
     physicians in San Francisco received a PE GPCI adjustment 
     that was 144 percent of the average, while Iowa physicians 
     received an adjustment of just 87 percent.
       Survey findings of the American Medical Association (AMA) 
     and others challenge this significant range in payment 
     disparity by showing little measurable distinction in 
     physician practice expenses throughout the country. The AMA 
     PPIS is based on actual physician data, rather than the proxy 
     data upon which CMS relies. Geographic distinctions in 
     physician practice expense payment in rural areas should be 
     supported by accurate and reliable data and calculations. I 
     urge the committee to address this discrepancy between 
     credible surveys, based on real physician cost data, and the 
     PE GPCI range established by CMS.
       Section 3102(b) requires a transitional two-year period of 
     limited relief to reduce the impact of the current, 
     inequitable practice expense formula in rural areas while a 
     broader analysis of the methodology and evaluation of the 
     data is conducted by HHS. The Secretary is mandated to limit 
     the impact of the existing adjustments by reflecting only one 
     half of the geographic differences in employee wages and 
     rents in the PE GPCI adjustment for 2010 and 2011 and to hold 
     harmless those localities that would otherwise see a 
     reduction as a result of this adjustment. The provision 
     requires that a longer-term solution be implemented in 2012, 
     at which time the Secretary must make appropriate adjustments 
     to the formula to ensure accurate geographic practice expense 
     adjustments. These statutory adjustments were intended to 
     moderate the negative effects of the existing inaccurate GPCI 
     disparities on low-paid Medicare regions while allowing time 
     for a focused, in-depth study by the Centers for Medicare and 
     Medicaid Services (CMS) on the inputs, weights, and data used 
     in the PE GPCI to support a revised formula that would be 
     implemented as of January 1, 2012.
       Congress agreed at the inception of the current Medicare 
     payment system that, to the extent physicians practicing in 
     the various Medicare payment localities face higher or lower 
     practice expense burdens, reasonable distinctions in Medicare 
     payment would be appropriate, and it established the 
     Geographic Practice Cost Indices (GPCIs) for physician work, 
     practice expenses, and malpractice premiums to do so. To 
     support the PE GPCI, Congress directed the Department of 
     Health and Human Services to ``use the most recent data 
     available relating to practice expenses . . . in different 
     fee schedule areas.'' (Social Security Act, Section 
     1848(e)(1)(D)). The statutory requirement makes it clear that 
     there must be a nexus between data sources and actual 
     physician practice expenses as represented by the inputs of 
     the PE GPCI.
       However, CMS has long relied upon proxy data sources that 
     bear little to no relevance to actual practice costs. 
     Furthermore, the weights used by CMS are outdated and fail to 
     represent accurately the relativity in expenses in this 
     dynamic and ever-changing field. It is my understanding that 
     the PE GPCI, in particular, is currently supported by data 
     that is neither relevant to physician practices nor credible 
     to physicians. Physicians who serve the Medicare population 
     must bear the burden of their true practice costs while the 
     Medicare payment system upon which they rely fails to reflect 
     those same practice expense costs fairly and accurately.
       The goal of Section 3102(b) is to assure that the statutory 
     mandate of the Social Security Act is met and that the most 
     recent and relevant data is used for these geographic 
     adjusters. The language of Section 3102(b) is very specific 
     in its directions but so far CMS has failed to make 
     significant changes in the methodology or data used in 
     calculation of the PE GPCI. The final CMS CY 2011 Medicare 
     physician payment rule sets forth the results of CMS' sixth 
     3-year GPCI review. Although CMS acknowledged its obligations 
     for an additional PE GPCI study under Section 3102(b) of 
     PPACA, they stated that their ``analysis of the current 
     methods of establishing PE GPCIs and [their] evaluation of 
     data that fairly and reliably establish distinctions in the 
     cost of operating a medical practice in the different fee 
     schedule areas meet the statutory requirements'' of Section 
     3102(b) (Federal Register, November 29, 2010, Page 73254).
       The most recent CMS review and analysis does not provide a 
     new analysis and evaluation of data but merely treads old 
     ground, looking at the PE GPCI underlying data and its 
     weights along the lines of what other studies have already 
     examined. For example, CMS continues to rely, with little 
     justification, on Housing and Urban Development (HUD) section 
     8 apartment rent data as a proxy for physician rent even 
     though Section 3102(b) directs CMS to evaluate ``the 
     feasibility of using actual data or reliable survey data 
     developed by medical organizations on the costs of operating 
     a medical practice, including office rents and non-physician 
     staff wages in different fee schedule areas.'' If no suitable 
     nationwide data on rental rates for physician office space 
     currently exist, the IOM should recommend other approaches 
     for CMS to use in studying this issue to come up with more 
     reliable data than HUD apartment rents.
       CMS acknowledged in the final physician payment rule for CY 
     2011 that there is much ongoing analysis of the PE GPCI data 
     that could form the basis of future GPCI changes. They stated 
     that they would ``review the complete findings and 
     recommendations from the Institute of Medicine's study of 
     geographic adjustment factors for physician payment'' along 
     with other HHS activities and continue to study the issues as 
     required by Section 3102(b) (Federal Register, November 29, 
     2010, Page 73256). CMS will consider the GPCIs for CY 2012 
     again in the context of their annual physician fee schedule 
     rulemaking beginning in CY 2011 based on information that is 
     available then.
       A significantly more comprehensive analysis and detailed 
     evaluation should be conducted for the PE GPCI study mandated 
     by Section 3102(b) than what has been detailed by CMS in its 
     final CY 2011 Medicare physician payment rule. New studies, 
     data, and other approaches must exist or be developed to 
     facilitate reliability and accuracy in identifying actual 
     physician practice expenses and setting weights among those 
     expenses. That is why a two-year transition was provided: to 
     ensure that CMS would have sufficient time to do additional 
     studies, if needed, and come up with more meaningful data 
     than, for example, continuing to use apartment rental data 
     which bears no relation to the cost of a physician's office. 
     I urge the committee to provide CMS with specific 
     recommendations for more accurate methodology that could be 
     used to determine the PE

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     GPCIs and obtain more reliable actual or survey data sources 
     to be used in these calculations.


               The Inequitable Frontier States Provision

       Unfortunately, the more accurate calculation of practice 
     expense costs that was intended to be achieved by Section 
     3102(b) has been jeopardized by a special interest provision 
     that was added to PPACA behind closed doors during the Senate 
     floor consideration of health reform. The ``frontier states'' 
     provision addresses geographic disparities but helps just 
     five states at the expense of the other 45. It improves 
     Medicare reimbursement in the so-called frontier states by 
     establishing a permanent 1.0 floor for the PE GPCI as well as 
     for the hospital wage index, effective January 1, 2011. A 
     frontier state is defined as one with 50 percent or more 
     frontier counties, defined as counties with a population per 
     square mile of less than six. The frontier states provision 
     ensures that higher Medicare physician payments resulting 
     from a higher PE GPCI adjustment go to just five states in 
     2011--Montana, Wyoming, North Dakota, South Dakota, and 
     Nevada.
       Iowa provides some of the highest quality care in the 
     country but it does not meet the definition of a frontier 
     state. Yet Medicare reimbursement for hospitals and 
     physicians is lower in Iowa than in most of these so-called 
     frontier states. Medicare also pays much lower rates in other 
     rural states that do not meet the definition of a frontier 
     state.
       The frontier states provision is even more egregious 
     because taxpayers in all 50 states will help pay the 
     estimated $2 billion cost for a provision that benefits just 
     five states. That amount is the Congressional Budget Office 
     cost estimate of the frontier states provision for the next 
     ten years. A practice expense floor for rural states may be 
     warranted but it should not be an adjustment for just a few 
     select states. This automatic pay increase for frontier state 
     physicians could result in reduced access for Medicare 
     beneficiaries in nearby rural states that do not have the 1.0 
     PE floor if physicians migrate to those rural areas where 
     Medicare payment has been significantly increased.
       Last spring I introduced legislation, the Medicare Rural 
     Health Care Equity Act of 2010, to eliminate the special 
     Medicare reimbursement rates for frontier states. It is 
     imperative to reduce unwarranted geographic disparities and 
     base physician practice expense costs on actual or reliable 
     survey data, not by legislative fiat that improves physician 
     payments for just a few states. Although legislative action 
     would be required to make changes in this regard, I urge the 
     IOM to review this situation and provide recommendations to 
     HHS on whether specific factors should be considered to 
     determine physician practice costs in frontier states if such 
     a floor did not exist.


                               Conclusion

       The practice expense geographic adjustment factor has a 
     significant impact on the health care workforce in rural 
     areas, because it plays a major role in the ability to 
     recruit and retain physicians in rural areas who see more 
     patients and work longer hours for correspondingly lower pay. 
     This in turn can result in Medicare beneficiaries in rural 
     areas having reduced access to physicians and other health 
     care practitioners. Twenty percent of the population lives in 
     rural America yet only nine percent of physicians practice 
     there. Shortages of primary care and specialty physicians 
     currently exist in many rural areas yet unwarranted 
     geographic payment disparities make it difficult to improve 
     access for rural Medicare beneficiaries and other patient 
     populations.
       The existing inaccurate geographic adjustments by CMS 
     result in unwarranted and unduly low rural reimbursement 
     rates. More current, relevant, and accurate data sources 
     exist and should be used by CMS to make geographic 
     adjustments to Medicare payments, especially in the area of 
     physician practice expense. The current geographic 
     disparities in payment are not based on actual or reliable 
     data, and they put rural Medicare beneficiaries at risk. I 
     urge the committee to recommend that CMS use actual practice 
     cost data rather than the current inaccurate proxies to 
     ensure that Medicare payment reflects true geographic 
     differences in physician practice costs.

                          ____________________