[Senate Report 106-222]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 415
106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-222

======================================================================



 
       MEDICARE SUBVENTION DEMONSTRATION FOR VETERANS ACT OF 1999

                                _______
                                

               November 16, 1999.--Ordered to be printed

                                _______
                                

    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 1928]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, having considered an original 
bill (S. 1928) to amend title XVIII of the Social Security Act 
to establish a medicare subvention demonstration project for 
veterans, and for other purposes, reports favorably thereon 
without amendment, and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................2
        A. Summary...............................................     2
        B. Background and Reasons for Legislation................     2
        C. Legislative History...................................     2
II. Explanation of the Bill...........................................2
        A. Short Title...........................................     2
        B. Purposes..............................................     2
        C. Medicare Subvention Demonstration for Veterans........     3
            1. Establishment of Demonstration....................     3
            2. Expansion of Demonstration for Medicare-eligible 
                Military Retirees................................     5
            3. Inclusion of a Fee-for-Service Model Under the 
                Demonstration for military Retirees..............     5
        D. Revenue Offsets.......................................     6
            1. Reduction of Bad Debt Payments Under Medicare.....     6
III.Budget Effects of the Bill........................................6

IV. Vote of the Committee.............................................9
 V. Regulatory Impact................................................10
VI. Changes in Existing Law Made by the Bill, as Reported............10

                       I. SUMMARY AND BACKGROUND


                               A. Summary

    The original bill, with amendments, as reported by the 
Committee on Finance, authorizes a four-year demonstration 
where the Department of Health and Human Services (DHHS) and 
the Department of Veterans Affairs (VA) may designate up to 
eight sites to deliver Medicare-covered services to targeted 
Medicare-eligible veterans; extends the duration of the current 
Medicare subvention demonstration under the Department of 
Defense (DoD) until December 31, 2001; and authorizes the 
inclusion of a fee-for-service model of health care delivery at 
one or more of the existing sites under the DoD demonstration.

                B. Background and Reason for Legislation

    Today, due to budgetary limitations in appropriated dollars 
to the VA, certain veterans could potentially face limitations 
in access to VA health care. These veterans, known as priority 
7 veterans, do not meet specific income thresholds or have 
service-connected disabilities that qualify them for priority 
care in the VA health care system. Many of these same veterans, 
approximately 4 million, are also eligible for Medicare. By 
allowing these veterans to utilize their Medicare benefits in 
the VA health care system, veterans may enjoy greater access to 
care.

                         C. Legislative History

    An original bill was considered in a Committee on Finance 
markup on June 24, 1999, and was ordered favorably reported by 
voice vote.

                      II. EXPLANATION OF THE BILL


                       A. Section 1. Short Title

    The short title of the bill is the ``Medicare Subvention 
Demonstration for Veterans Act of 1999.''

                         B. Section 2. Purposes

    The Chairman's mark is based on an original bill and has 
three primary purposes as set forth in the bill. First, the 
mark provides for a four-year demonstration where the DHHS and 
the VA may designate up to eight sites to deliver Medicare-
covered services to targeted Medicare-eligible veterans under 
both coordinated care and fee-for-service models. Second, the 
mark extends the duration of the current DoD demonstration under 
Medicare until December 31, 2001, compensating for the 12 months 
dedicated to operational start-up issues where health care services 
delivery did not occur. Third, the mark authorizes the inclusion of a 
fee-for-service model of health care at one or more of the existing 
sites under the DoD demonstration in an effort to create equitable 
choices among both DoD and VA demonstrations.

                 C. Medicare Demonstration for Veterans


                   1. Establishment of Demonstration

Present law

    Under current law, Medicare is prohibited from reimbursing 
for any services provided by a Federal health care provider, 
except: (1) For emergency hospital services; (2) for services 
of a participating federal provider that is determined by the 
DHHS to be providing services to the public generally as a 
community institution; (3) for services furnished by a 
participating hospital or stilled nursing facility of the 
Indian Health Service; and (4) for services furnished under 
arrangements made by a participating hospital. Medicare is 
prohibited form making payment to any Federal health care 
provider who is obligated by law or contract to render services 
at the public expense.
    The Balanced Budget Act of 1997 (BBA 1997, P.L. 105-33) 
authorized the Secretaries of the DDHS and the DoD to establish 
a 3-year managed care demonstration project where the DHHS 
would reimburse the DoD from Medicare trust funds for health 
care services furnished to certain Medicare-eligible military 
retirees or dependents. For the first time in the Medicare 
program, the BBA demonstration project allowed Medicare to 
subsidize services delivered under the auspices of another 
Federal program.

Explanation of provision

    Under the proposal, the Secretary of the DHHS (Secretary) 
and the Secretary of the VA may designated up to eight 
demonstration sites to deliver Medicare-covered services to 
targeted Medicare-eligible veterans. In this context, a 
targeted Medicare-eligible veteran is an individual who has 
reached age 65, is entitled to and enrolled in Medicare Parts A 
and B, and meets eligibility criteria as defined by the VA for 
a priority 7 veteran, i.e., a veteran who has no service-
connected disabilities and does not meet the low-income 
threshold.
    The proposal allows the VA to establish two different 
models of health care delivery, a coordinated care model and a 
fee-for-service model, with an equal number of sites 
representing each type of model. In additional, at least one 
demonstration site under each model must operated in a 
predominantly rural area.
    At least 30 days prior to commencement of the demonstration 
project, the Secretaries must submit to the Committees of 
jurisdiction an agreement entered into by the Secretaries 
providing a detailed plan describing the scope and 
implementation of the demonstration, including, but not limited 
to, a description of the benefits, eligibility rules for 
participation, sites selected, and certification by the 
Secretaries that VA hospitals and providers participating in 
the demonstration have the necessary resources and expertise, 
as well as the appropriate billing and information systems to 
carry out the demonstration.
    The Secretaries may not implement the plan for any 
demonstration site until the Secretary of the VA has received 
certification from the Inspector General of the DHHS that the 
VA: (a) has cost accounting and related transaction systems to 
provide cost information and encounter data at each 
demonstration site; (b) has reliable and accurate cost and 
encounter data that is consistent across all demonstration 
sites; (c) has minimized the risk that VA appropriated dollars 
will be used for the Medicare demonstration; (d) has the 
capacity, for each demonstration site, to provide benefits 
under either model to a sufficient number of targeted Medicare-
eligible veterans; and (e) has sufficient safeguards and 
systems, at each demonstration site, to minimize reduction in 
quality or access to care for veterans both participating and 
not participating in the demonstration.
    The proposal allows the VA to establish a coordinated care 
health plan, that is operated through the VA and within a 
demonstration site and is consistent with the Medicare 
Program's Medicare+Choice requirements for health plans. The VA 
is required to provide, at a minimum, Medicare benefits as 
prescribed under Medicare+Choice rules and regulations (unless 
waived by the Secretary for specific reasons). Targeted 
Medicare-eligible veterans must enroll in the coordinated care 
health plan before receiving health care services under the 
demonstration.
    The proposal also allows the VA to provide health care 
services, within a demonstration site, on a fee-for-service 
basis, consistent with rules and regulations governing Medicare 
Parts A and B. The VA must verify eligibility for targeted 
Medicare-eligible veterans prior to these veterans receiving 
health care services under the demonstration.
    The demonstrations for each model would run in a staggered 
fashion. The coordinated care model would begin on January 1, 
2000, and terminate the earlier of (a) 3 years after the date 
enrollment begins at any demonstration site under this model; 
or (b) December 31, 2003. The fee-for-service model would begin 
January 1, 2001, and terminate the earlier of (a) 3 years after 
the date enrollment begins at any demonstration site under this 
model; or (b) December 31, 2004. The duration of the 
demonstration is intended to allow for one year of startup and 
implementation for each type of model followed by three years 
of health care delivery.
    The Secretary of DHHS would reimburse the Secretary of the 
VA, under thecoordinated care model, at a rate equal to 95 
percent of the amount paid to a Medicare+Choice organization. The 
Secretary of DHHS would reimburse the Secretary of the VA, under the 
fee-for-service model, at a rate equal to 95 percent of the Medicare 
reimbursement that would be payable on a non-capitated basis. 
Disproportionate share hospital payments, and payments for direct and 
indirect graduate medical education would be excluded from 
reimbursements made under the demonstration. Payments would include 33 
percent of any amounts attributable to capital-related costs.
    The proposal allows for an annual limit of $50 million for 
all demonstration sites. The Secretaries are given the 
discretion to determine the proportion of this limit that will 
apply to demonstration sites operating under each type of model 
in any given year.
    The proposal includes a maintenance of effort requirement, 
where the Secretary of DHHS may not reimburse the Secretary of 
the VA under the demonstration, at any site, until expenditures 
by the VA exceed an established baseline amount for any given 
year, to be determined by the Secretaries jointly. In addition, 
the proposal requires an annual reconciliation process to 
assure no increase in costs to the Medicare Program. The 
Comptroller General is required to report, annually, the 
extent, if any, to which the costs to the Medicare Program 
under the demonstration have increased.
    The proposal requires the Comptroller General to conduct 
separate evaluations of the demonstrations project for each 
model. The Secretaries are also required to submit a report to 
Congress, following the final evaluation issued by the 
Comptroller General, containing final recommendations on 
extension and expansion of the demonstration.

Effective date

    On or after January 1, 2000.

 2. expansion of demonstration for medicare-eligible military retirees

Current law

    The BBA 1997 authorized the Secretary and the Secretary of 
DoD to establish a 3-year subvention demonstration. This 
demonstration allows Medicare-eligible military retirees to 
receive Medicare-covered services under the DoD health plan, 
known as Tricare. The Secretary reimburses the Secretary of the 
DoD for services provided to these retirees. The demonstration, 
established at six sites nationwide, began January 1, 1998 and 
is scheduled to terminate December 31, 2000.

Explanation of provision

    The proposed extends the duration of the current 
demonstration until December 31, 2001. The aggregate amount to 
be reimbursed to the Secretary of Defense for the demonstration 
in year 2001 shall not exceed $65 million.

Effective date

    On or after January 1, 2000.

  3. inclusion of a fee-for-service model under the demonstration of 
                           military retirees

Current law

    The BBA 1997 authorized the Secretary and the Secretary of 
the DoD to establish a 3-year demonstration to provide health 
care delivery in accordance with Medicare+Choice rules and 
regulations.

Explanation of the provision

    The proposal gives the Secretary and the Secretary of the 
DoD the authority to include a fee-for-service model of health 
care delivery at one or more of the existing demonstration 
sites, if determined jointly by the Secretaries to be feasible. 
The fee-for-service model under the demonstration is subject to 
all rules and regulations, including, but not limited to, 
beneficiary cost-sharing and provider and hospital 
certification requirements, as established under Medicare Parts 
A and B. The Secretary is authorized to reimburse the Secretary 
of the DoD at a rate equal to 95 percent of the Medicare 
reimbursement that would be payable on a non-capitated basis. 
The fee-for-service model is subject to existing maintenance of 
effort, reporting, and evaluation requirements. The sum of 
reimbursements made for the coordinated care and fee-for-
service models under the demonstration is subject to existing 
annual limits.

Effective date

    On or after January 1, 2000.

                           D. Revenue Offsets


            1. Reduction of Bad Debt Payments Under Medicare

Current law

    Certain hospital and other provider bad debts are 
reimbursed by Medicare on an allowable-cost basis. To be 
qualified for reimbursement, the debt must be related to 
covered services and derived from deductible and coinsurance 
amounts left unpaid by Medicare beneficiaries. The provider 
must be able to establish that reasonable collection efforts 
were made and that sound business judgment has established that 
there is no likelihood of recovery at any time in the future. 
Medicare pays for bad debt payments according to the following 
schedule:
          FY 1998: 75 percent of bad debt payments were 
        reimbursed by Medicare
          FY 1999: 60 percent of bad debt payments are 
        reimbursed by Medicare
          FY 2000: 55 percent of bad debt payments are 
        reimbursed by Medicare (and for each subsequent year 
        thereafter)

Explanation of provision

    Medicare payments for bad debt are reduced by 6 percent, 
allowing a total of 49 percent of bad debt payments to be 
reimbursed by Medicare. Although this provision is included in 
the bill as reported, it is not the intent of the Committee 
that it be included when the bill is brought up for 
consideration before the Senate.

Effective date

    FY 2000.

                    III. BUDGET EFFECTS OF THE BILL

    In compliance with sections 308 and 403 of the 
Congressional Budget Act of 1974, and paragraph 11(a) of rule 
XXVI of the Standing Rules of the Senate, the following letter 
has been received from the Congressional Budget Office on the 
budgetary impact of the legislation:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 10, 1999.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Medicare Subvention 
Demonstration for Veterans Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Tom Bradley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

Medicare Subvention Demonstration for Veterans Act of 1999

    Summary: The Medicare Subvention Demonstration for Veterans 
Act would require the Secretaries of Health and Human Services 
(HHS) and Veterans Affairs (VA) to establish a demonstration 
project in which Medicare pays for the VA for Medicare-covered 
services furnished to certain veterans who are entitled to 
Medicare. (Medicare payment to federal providers of health care 
services is referred to as Medicare subvention.) The bill also 
would extend and modify a demonstration project of Medicare 
subvention involving the Department of Defense (DoD). Finally, 
the bill would reduce Medicare payments to hospitals for bad 
debt--that is, copayments and deductibles those hospitals are 
unable to collect from Medicare beneficiaries.
    CBO estimates the bill would increase Medicare spending by 
$5 million in fiscal year 2000, but would reduce spending by $5 
million over the 2000-2004 period. Because the bill would 
affect direct spending, pay-as-you-go procedures would apply. 
The bill would impose no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of this bill is shown in the following table. 
The costs of this legislation fall within budget function 570 
(Medicare).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal years, in million of dollars--
                                                                    --------------------------------------------
                                                                       2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Medicare Subvention--VA............................................    (\1\)       20       25       20        5
Medicare Subvention--DoD...........................................        5       25        5        0        0
Bad Debt...........................................................    (\1\)       -5      -30      -35      -40
                                                                    --------------------------------------------
      Total........................................................        5       40        0      -15      -35
----------------------------------------------------------------------------------------------------------------
\1\ Cost or savings of less than $500,000.

Note.--VA=Department of Veterans Affairs, DoD=Department of Defense.

Basis of estimate

            Medicare subvention for veterans
    Under current law--with a few exceptions, such as the 
existing demonstration project of Medicare subvention for DoD--
Medicare does not pay federal providers of health care services 
when they furnish Medicare-covered services to Medicare 
enrollees. The bill would require the establishment of a 
demonstration project in which Medicare would pay VA for 
services furnished to certain Medicare-eligible veterans at up 
to eight VA medical facilities. In general, veterans who are 
not poor or do not have a compensable service-related 
disability would be eligible to participate in the project. 
Medicare would pay on a capitated basis for participating 
veterans at half of the sites and on a fee-for-service basis at 
the remaining sites.
    The capitated component of the demonstration would operate 
for up to three years during the 2000-2003 period, and the fee-
for-service component would operate for up to three years 
during the 2001-2004 period. Total Medicare payments to VA 
would be limited to $150 million over the course of the 
demonstration. The bill would require that VA maintain its 
level of effort in terms of the amount VA spends for Medicare-
covered services provided to eligible but nonparticipating 
veterans at the demonstration sites. However, that maintenance 
of effort requirement does not encompass Medicare-covered 
services that VA provides to Medicare-eligible veterans who are 
not eligible to participate in the demonstration because they 
do not live near a demonstration site, are poor, or have a 
compensable service-related disability.
    CBO assumes that VA would reallocate resources to satisfy 
the maintenance of effort requirement for eligible but 
nonparticipating veterans at the demonstration sites, and that 
as a result, VA would provide less Medicare-covered care to 
Medicare-eligible veterans who do not live near a demonstration 
site, are poor, or have a compensable service-related 
disability. Thus, some of the care those veterans would receive 
from VA under current law would instead be furnished by 
providers in the community. CBO estimates that the provision 
would not have a significant effect on Medicare spending in 
2000. However, the increase in Medicare spending for payments 
to community providers for services displaced from the VA would 
total $70 million over the 2000-2004 period.
            Medicare subvention for military retirees
    The Balanced Budget Act of 1997 established a Medicare 
subvention demonstration project for care furnished by DoD to 
military retirees. The bill would extend that project for one 
year--through 2001--and permit Medicare to pay DoD on a fee-
for-service basis. (The current demonstration involves payment 
on a capitated basis only.)
    The DoD demonstration also has a maintenance of effort 
requirement that is implemented on a site-specific basis, 
rather than on a system-wide basis. CBO expects that DoD would 
reallocate resources to satisfy the maintenance of effort 
requirement at the demonstration sites, and that as a result, 
DoD would provide less Medicare-covered care to Medicare-
eligible military retirees who do not receive care at a 
demonstration site. Thus, some of the care those military 
retirees would receive from DoD under current law would instead 
be furnished by providers in the community. CBO estimates that 
Medicare payments to community providers for services displaced 
from the DoD facilities would total $5 million in 2000 and $35 
million over the 2000-2004 period.
            Bad debt
    Under current law, Medicare pays hospitals 55 percent of 
the amount of deductibles and coinsurance that hospitals do not 
collect from Medicare beneficiaries. The bill would reduce that 
proportion to 49 percent, beginning with cost reporting periods 
that begin during fiscal year 2000. That provision would not 
have a significant effect on Medicare spending in 2000, because 
most of the effect would be delayed until the cost reports for 
2000 are settled, beginning in late 2001. CBO estimates that 
the change in bad debt payments would reduce Medicare spending 
by $110 million over the 2000-2004 period.
    Pay-as-you-go consideration: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays that are subject to pay-as-you-go procedures 
are shown in the following table. For the purposes of enforcing 
pay-as-you-go procedures, only the effects in the budget year, 
and the succeeding four years are counted.

----------------------------------------------------------------------------------------------------------------
                                                      By fiscal year on millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2000    2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
Changes in outlays..............       5      40       0     -15     -35     -45     -45     -50     -50     -55
Changes in receipts.............                                  Not applicable
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: The bill 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Previous CBO estimate: On May 29, 1998, CBO produced an 
estimate of H.R. 3828, the Veterans Medicare Access Improvement 
Act of 1998, as ordered reported by the House Committee on Ways 
and Means. That bill proposed a Medicare subvention program for 
the VA that differed in significant ways from this proposal. 
That cost estimate contained an extensive discussion of issues 
involved in measuring, monitoring, and enforcing a maintenance 
of effort requirement. The current analysis uses the methods 
described in that estimate to calculate the increase in 
Medicare spending due to erosion of the VA's and DoD's level of 
effort.
    Estimate prepared by: Tom Bradley.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       IV. VOTE OF THE COMMITTEE

    In compliance with section 133 of the Legislative 
Reorganization Act of 1946, the Committee states that the 
original bill was ordered favorably reported by voice vote.

                          V. REGULATORY IMPACT

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
legislation will not significantly regulate any individuals or 
businesses, will not impact on the personal privacy of 
individuals, and will result in no significant paperwork.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to showing of changes in existing law 
made by the bill as reported by the Committee).

                                  
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