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Withdrawal/Redaction Sheet
Clinton Library
DOCUMENT NO.
SUBJECT/TITLE
DATE
RESTRICTION
AND TYPE
001. memo
Bonnie to Rich et at: re: Physician Practice Expense Transition Issue
10/13/1999
P5
AMS 4/6/15
(4 pages)
002. memo
Bonnie to Rich et al. re: Physician Practice Expense Transition Issue
10/13/1999
-P5
MS
4/6/15
(4 pages)
COLLECTION:
Clinton Presidential Records
Domestic Policy Council
Devorah Adler
OA/Box Number: 20470
FOLDER TITLE:
Givebacks [Folder 12]
2012-0463-S
rc762
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - (5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office |(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advice between the President
information |(b)(4) of the FOIA)
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy |(b)(6) of the FOIA]
personal privacy |(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes |(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed
b(8) Release would disclose information concerning the regulation of
of gift.
financial institutions [(b)(8) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(9) Release would disclose geological or geophysical information
2201(3).
concerning wells [(b)(9) of the FOIA]
RR. Document will be reviewed upon request.
UH
202 200 7857
P.01/08
"^=
HEALTH CARE
FINANCING ADMINISTRATION
ADDRESSEE:
Chus Jenning
FROM: Bonne Washington
OFFICE OF THE ADMINISTRATOR
200 INDEPENDENCE AVE., S.W.
Dan Mendelson
ROOM 314G
Mark Miller
WASHINGTON, DC 20201
PHONE: 202-690-6726
PHONE:
FAX : 202-690-6262
TOTAL PAGES:
ADDRESSEE'S FAX MACHINE NUMBER:
DATE:
$
REMARKS:
Draft OPD letter to Sen Rockefeller
+ others for your review. Please
let me know today if you have
Comments.
202
DEPARTMENT OF HEALTH & HUMAN SERVICES
Health Care Financing Administration
Deputy Administrator
Washington, D.C. 20201
The Honorable John D. Rockefeller
United States Senate
Washington, D.C. 20510
Dear Senator Rockefeller:
Thank you for your letter to the Administrator concerning the proposed Medicare hospital
outpatient prospective payment system. I am responding on her behalf, and I regret the
delay in this response.
I am aware of the many concerns raised about the potential impact that this proposed system
would have on hospitals. The estimated 5.7 percent overall reduction in payments to
hospitals that would result from implementation of this new system is sizable. You advise
that this reduction is an unintended decrease in payments to hospitals which "represents a
misinterpretation of Congressional intent" that you believe can be resolved administratively.
I want to assure you that the Health Care Financing Administration is committed to ensuring
that our payment policies are based upon an accurate reading of the law. In view of your
concerns and similar ones raised by others, I have asked the Office of General Counsel to
closely review the Balanced Budget Act provisions pertaining to the hospital outpatient
prospective payment system and to advise us of areas where we may have some flexibility.
Please be assured that this task will be completed in time to give full consideration to any
such flexibility before the promulgation of the final rule.
I appreciate your bringing this matter to my attention and your interest in assuring
appropriate payments to hospitals for outpatient services delivered to Medicare
beneficiaries. My staff and I look forward to working together on this issue with you and
the other Congressional Members who co-signed your letter.
A similar letter is being sent the other Members who co-signed your letter.
Sincerely,
Michael M. Hash
Deputy Administrator
WASHINGTON, DC 20510
1999 JUN 23 AM 11: 23
June 18, 1999
Nancy-Ann Min DeParle
Administrator
Health Care Financing Administration
200 Independence Avenue, S.W.
Room 314G
Washington, D.C.
Dear Madame Administrator:
We are concerned about the Department's Notice of Proposed Rulemaking (NPRM)
for the implementation of the outpatient prospective payment system (PPS) enacted in the 1997
Balanced Budget Agreement (BBA).
With the encouragement of Congress, HCFA, seniors' representatives and providers
cooperatively developed the outpatient PPS policy. The new policy was designed to address a
longstanding flaw in outpatient payment policy and to gradually rationalize Medicare's outpatient
copayments, without imposing unmanageable outpatient payment cuts on hospitals. This policy
change was accomplished in the Balanced Budget Act, which contained a $7.2 billion outpatient
payment reduction. No additional payment reductions were contemplated, analyzed or scored.
We strongly support the outpatient PPS approach. However, HCFA's proposed rule
contains an additional, unintended 5.7 percent "across the board" reduction in payments to hospital
outpatient departments. This $850 million per year reduction represents a misinterpretation of
Congressional intent and threatens the integrity of a broadly supported compromise. Total outpatient
hospital payments were to be budget neutral to a clearly identified new baseline in the law. No
additional reduction was contemplated.
Congress clearly intended that these changes to outpatient copayments be achieved on
a budget-neutral basis - the identical language that originally passed the House and the Senate clearly
precluded any payment reduction for this policy. While a minor technical drafting change in the
Conference agreement resulted in confusion over the outpatient payment formula, we believe the
Department has the flexibility under the statute to implement Congress' clear intent.
We urge that HCFA not implement an outpatient PPS rule which is inconsistent with
Congressional intent.
Sincerely,
Day Rahyelle
Tom Hartin
--more--
202
260
7837
P.04/08
Hnited States Senages/DCCM
WASHINGTON, DC 20510
1999 JUN 28 AM II: 23
June 18, 1999
Nancy-Ann Min DeParle
Administrator
Health Care Financing Administration
200 Independence Avenue, S.W.
Room 314G
Washington, D.C.
Dear Madame Administrator:
We are concerned about the Department's Notice of Proposed Rulemaking (NPRM)
for the implementation of the outpatient prospective payment system (PPS) enacted in the 1997
Balanced Budget Agreement (BBA).
With the encouragement of Congress, HCFA, seniors' representatives and providers
cooperatively developed the outpatient PPS policy. The new policy was designed to address a
longstanding flaw in outpatient payment policy and to gradually rationalize Medicare's outpatient
copayments, without imposing unmanageable outpatient payment cuts on hospitals. This policy
change was accomplished in the Balanced Budget Act, which contained a $7.2 billion outpatient
payment reduction. No additional payment reductions were contemplated, analyzed or scored.
We strongly support the outpatient PPS approach. However, HCFA's proposed rule
contains an additional, unintended 5.7 percent "across the board" reduction in payments to hospital
outpatient departments. This $850 million per year reduction represents a misinterpretation of
Congressional intent and threatens the integrity of a broadly supported compromise. Total outpatient
hospital payments were to be budget neutral to a clearly identified new baseline in the law. No
additional reduction was contemplated.
Congress clearly intended that these changes to outpatient copayments be achieved on
a budget-neutral basis - the identical language that originally passed the House and the Senate clearly
precluded any payment reduction for this policy. While a minor technical drafting change in the
Conference agreement resulted in confusion over the outpatient payment formula, we believe the
Department has the flexibility under the statute to implement Congress' clear intent.
We urge that HCFA not implement an outpatient PPS rule which is inconsistent with
Congressional intent.
Sincerely,
Day Rahydle
Malloch Tom Harter
--more--
HURH UH
202 200 7837 P.05/08
HCFA Letter
June 18, 1999
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202 200 7837 P.06/08
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202 200 7837 P. .08/08
HCFA Letter
June 18, 1999
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MEDICARE MEDICAID
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SECURITY
Number of Pages:
Date: 10/14/99
To:
From:
Mark! Dan
Bonnie Washington
Chris his/gear
Fax:
Fax:
Phone:
Phone:
REMARKS:.
HEALTH CARE FINANCING ADMINISTRATION
200 Independence Ave., SW
Room 341-H, Humphrey Building
Washington, DC 20201
October 13, 1999
Note to: Rich/Jane
Mark/Dan
Chris/Jeanne
Subject: Physician Practice Expense Transition Issue
The Administration's FY 2000 budget/legislative package contains a technical fix to the physician
practice expense transition issue. The BBA language contains glitches and inconsistencies which
has resulted in litigation about what BBA means and intends; certain specialties have argued for
an atyptical transition in which payments first increase before they decrease.
In submitting our legislative proposal, we indicated that we wanted a legislative correction
regardless of the outcome of the Court case. A legislative correction is contained in the draft
Senate Finance Chairman's mark.
We want you to be prepared on this issue. Attached is a short paper which discusses the issue.
Justice has done a great job defending us in the lawsuit, but the outcome is uncertain. Justice has
strongly urged a legislative correction.
We believe that this issue needs to be on a list of "must have" items for the forthcoming Medicare
legislation. Without a legislative correction, if we were to lose the lawsuit, the plaintiffs could
seek retroactive payments at least from Medicare which could involve taking money from primary
care physicians.
Please call if you have any questions.
Bomme
Bonnie
The Physician Practice Expense Transition
The BBA Provision: The Balanced Budget Act (BBA) enacted a transition to resource-based
practice expenses under the Medicare physician fee schedule during 1999, 2000 and 2001.
During these transition years only, practice expense payments are based on decreasing portions of
prior charge-based values and increasing portions of resource-based values. The transition will be
complete by January 1, 2002 at which point physician practice expenses are fully resource-based.
The purpose of a transition is to "soften the blow" for procedures and specialties where
practice expense payments would be reduced under the resource-based system. The BBA
softened the blow through a "normal" transition in which losing procedures are gradually
reduced, during 1999, 2000 and 2001, to their full resource-based levels in 2002.
Prior to BBA, a resource-based practice expense system was scheduled to be implemented
without any transition. Procedures would have increased and decreased from their
charge-based levels to be completely resource-based in one step.
Implementation of the BBA Provision: The BBA transition language contains some glitches and
inconsistencies. The Secretary's November 2, 1998 final regulation for the 1999 physician fee
schedule implemented a "normal" transition, lowering practice expense payments in measured
steps from their 1998 levels to their eventual 2002 levels (shown in the solid line in the
attachment).
This "normal" transition was the purpose of the BBA provision, is a permissible reading of
the ambiguous language, is consistent with the movement toward resource-based practice
expenses since 1993 and is the only approach that makes policy sense.
The Lawsuit: Some physician specialties (including ophthalmologists, orthopedic surgeons,
neurological surgeons, cardiologists, gastroenterologists and general surgeons) have sued the
Secretary, arguing for a different, and highly unusual transition in which some practice expense
payments first increase before they are reduced to their full resource-based level in 2002 (shown
in the dotted line in the attachment).
These specialties have argued that an "atypical" transition is the only construction of the
ambiguous language, though some of the litigating specialties urged still a different
atypical transition in December 1997.
Moreover, these specialties argue that Congress explicitly intended that an atypical, up
then down transition occur. They reject the "softening the blow" purpose of a normal
transition.
+
Rather, they suggest that instead of gently moving procedures down to their
resource-based level in measured steps, the purpose of the atypical transition is to
provide additional compensation, in their words "to offset the significant long-term
decrease those codes are scheduled to suffer under a resource-based PE-RVU
system".
+
In effect, despite the fact that such an atypical transition has never been used for
any type of service in Medicare, these specialties suggest that Congress explicitly
rejected the "softening the blow" purpose of a normal transition, and explicitly
intended that losing procedures, which were in excess of their resource-based
levels, be given temporary payment increases during 1999, 2000 and 2001 to
compensate for the fact the procedures will be at their resource-based levels
beginning in 2002.
+
Such a contorted policy rationale is hard to believe in the context of the pre-BBA
statute which had no transition and which had reduced payments for high-practice
expense procedures in 1994, 1995 and 1996 (pursuant to OBRA-1993).
+
While these specialties do not challenge the resource-based levels to which losing
procedures will be reduced beginning in 2002, their notion of resource-based levels
providing for "suffering" is a unique perspective. Losing procedures are already
being overcompensated under current charge-based payment levels compared to
the resource-based levels. These specialties provide no rationale to justify why
they assert that Congress explicitly would have provided for additional
overcompensation for three years before getting to proper payment levels.
+
The real issue for these specialties seems to be that they don't like resource-based
payment levels since those proper payment levels will replace their currently
overcompensated levels. A reduction in overpayments to proper levels does not
constitute suffering.
Status of the Lawsuit: A lawsuit was filed last fall and the case is before the Court. There have
been several rounds of filing of briefs. The case was referred to a Magistrate Judge who recently
made recommendations to the Judge. The timing and ultimate resolution of the Court case cannot
be predicted. Several primary care physician specialties have filed briefs in this case in support of
the Secretary's position.
Legislative Proposal: The Administration has submitted a legislative proposal to eliminate the
glitches and clarify inconsistencies in the statutory language. In submitting the legislation, the
Administration indicated that clarifying language was sought regardless of the outcome of the
Court case. The clarification would resolve any ambiguities about achieving the softening the
blow purpose of a "normal" transition that was the purpose of the BBA provision. The
clarification would be the way the Secretary implemented the provision.
The transition to resource-based practice expenses is accomplished in a budget-neutral fashion.
An atypical transition would increase payments for certain procedures and specialists and take
money away from other procedures and specialists, typically primary care physicians. The
legislative clarification has no budget effects.
BILLING CODE 4120-01-C
AVERAGE NATIONAL PAYMENT FOR CPT CODE 66984 (CATARACT)
TL 92 BASE
TL 98 BASE
1200.00
1150.00
1100.00
1050.00
1000.00
AVERAGE NATIONAL PAYMENT
950.00
900.00
850.00
800.00
750.00
- vol. 63, No. 211 Monday. November 2, 1998 / Rules and Regulations
700.00
650.00
1992
1993
1994
1995
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2000
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Senate Committee on Fluance
Highlights of DRAFT Chairman's Mark
"Balanced Budget Adjustment Act of 1999"
October 12, 1999
Title I - Provisions Relating to Part A Only
Skilled Nursing Facilities (SNFs): The mark would: adjust upward the new
payment schedule to better accommodate medically complex patients by
increasing by 7.5% the Special Care and Extensive Services RUGS; include
the cost of Part B services in the facility-specific component of Medicare
payments to SNFs participating in the Nursing Home Case Mix and Quality
demo; and permit SNFs to elect to be paid according to the transition
formula, or under the federal per diem rate, whichever is higher.
Hospice Services: The mark would provide an upward adjustment in the
market basket.
Title II - Provisions Relating to Part B Only
Hospital Outpatient Departments: The draft mark would protect cancer and
certain rural hospitals from the new payment system, and would limit the
reductions in Medicare outpatient payments to other hospitals by establishing
floors of 90%, 85%, and 80% over the first 3 years.
Physicians: The mark includes a technical adjustment to stabilize payment
rates for physicians, known as the sustainable growth rate. In addition, the
mark resolves current pending litigation and applies a normal transition to the
physician practice expense payment system.
Title III - Provisions Relating to Parts A and B
Home Health Services: The mark would delay the 15% reduction in
payments until PPS is implemented and would phase in the reduction over
three years, The mark would raise the per visit limit to 108% of the national
median; eliminate the 15 minute rule; and exclude durable medical equipment
(DME) from consolidated billing. The mark would also allow overpayments
to be repaid within 12 months without interest, and repayments made after 12
months and up to 5 years would require interest payments at rates consistent
with those applied by the IRS to repayment of underpaid income taxes.
Teaching Hospitals: The mark would delay the reduction in IME payments,
by freezing the IMB adjustment factor at 6.5% for fiscal years 2000 through
2003.
1
P.
3
Title IV I Rural Initiatives
In addition to protecting rural hospitals from the impact of the new outpationt
payment system, the mark would provide a full payment update for Medicare
Dependent Rural Hospitals and Sole Community Hospitals. The mark would
also change the 96-hour restriction on individual inpatient hospital stays for
Critical Access Hospitals to a requirement that the average inpatient stay of
patients not exceed 96 hours; and directs the Secretary to set up a waiver
process whereby certain hospitals currently treated as urban or large urban
could be treated as rural.
Title V - Provisions Relating to Medicare+Choice
The mark would lessen the impact of risk adjustment by providing a longer
phase-in period. In addition, the mark would: ease the transition for
beneficiaries affected by plan withdrawals or termination; extend waivers for
social health maintenance organizations (S/HMOs); specify that notices
regarding coverage of inpatient services be provided within 16-24 hours prior
to discharge; and other provisions.
Title VI - Other Medicare Provisions
Rehabilitative Therapy Caps: The mark would combine the rehabilitative
therapy caps into a unified ceiling of $3500.
Dialysis: The mark would increase the composite payment amount for renal
dialysis services furnished under the Medicare program.
Recoupment of Certain DSH payments: The mark would suspend for one
year the recoupment of certain disputed disproportionate share hospital
(DSH) payments pending negotiations between the affected states, hospitals
and HCFA; and would pennit the recoupment of payments to be spread over
10 years at the discretion of the Secretary.
Title VII - Provisions Relating to Medicaid and CHIP
Technical corrections to Medicaid DSH table for MN, WY, NM, DC.
Lift sunset and 12 quarter limit on Medicaid-welfare transition fund.
Conect the CHIP allotments for Puerto Rico and the territories.
Technical adjustment to stabilize CHIP allocation formula and provide for
improved data collection.
2
215 417
then 6233
1-1999 4:59AM
FROM
P.2
09/23/99 17:57
003/004
SEP.2299 (WED) 16:10
SENATE FINACE COMM
TEL: 228 0054
5.006
WILLIAM V. ROTH, JR, DELOWARE. CHAIRMAN
JONNH. CHAPEE. PRODE ISLAND
DANEL RATRICK MOYNIMAN, NEW YORK
CHARLES 2. CRASSLEY, IDWA
MAX BAUCUS MONTANA
ORGIN a MATCH. UTAH
JOHN a ROCKEFELLER W. WEST VIAGINIA
FRANK H. MURKOWSK). MAERA
JOHN BREAUX. LOUISIANA
DON NEELER. OKLAHOMA
EXT CONRAD. NORTH DAKOTA
"YIC CRAMM. TEXAS
BOB GRAMAM FLORIDA
NT LOTT. MISSISSIPPI
RICHARD n BRYAN, NEVADA
United States Senate
JES M. JEFFORDS, VERMONT
J. ROBERT RERREY. NEGRASKA
CONNE MACK, PLORIDA
CHARLES 6 ROBE, VIRGINIA
FRED THOMPSON, TENNESSEE
COMMITTEE ON FINANCE
copies Jane Bonnie
WASHINGTON, DC 20510-6200
FRANKLIN 6, POLIC STARP DIRECTOR AND CHIEF COUNSEL
DAVID PODOFF. MINORITY STAFF DIRECTOR AND CHIEF ECONOMIST
September 22, 1999
fat to Chris Danm. J.
The Honorable Trent Lott
Senate Majority Leader
S-207, The Capitol
Washington, D.C. 20510
Dear Trent:
As we continue to make progress on the appropriations bills
for FY 2000, I wanted to alert you to several items that should be
addressed this year with regard to the Finance Committee.
As you know, the CBO projected a $14 billion on-budget
surplus for fiscal year 2000. In the Taxpayer Refund and Relief
Act of 1999, the FY 2000 revenue loss was approximately $4
billion. It is important that this $4 billion amount for FY 2000 be
reserved for the following items this fall.
1. Tax Extenders - $2.2 billion. Extension of tax provisions
that expired in 1999 must be addressed. My preference is to
pass the identical provisions that were included in the
conference report to accompany H.R.2488, which included a
five year extension of many of the provisions.
2. Alternative Minimum Tax (AMT) - $1 billion. The
AMT for individuals should be corrected in order for millions
of Americans to take advantage of numerous tax credits such
as the $500 per child tax credit, HOPE scholarship credit, and
the dependent care tax credit. We promised these benefits to
middle income families and we should not let the AMT
interfere with these credits. We provided AMT relief for one
year in last year's omnibus appropriations bill. We need to
extend this relief this year as well.
9-24-1999 4:59AM
FROM
P.3
09/23/99 17:57
$
004/004
SEP -22'99 (WED) 16:11
SENATE FINACE COMM
TEL 202 228 0554
P. 003
3. Medicare BBA 97 Changes - $1 to $1.5 billion. Several
changes to the Balanced Budget Act of 1997 should be made this
fall to alleviate the unintended consequences of certain Medicare
provisions of the BBA 97.
I believe it is desirable that these three items be addressed
before Congress adjourns for the year. In addition, several trade
extenders should be addressed this year such as the GSP and TAA.
Also, a minimum wage/small business tax package could be
considered. As you may know, a limited number of non-
controversial pay-fors are available to offset these additional items.
My staff and I are available to discuss any of these issues
with you in our effort to resolve these Finance Committee matters
with regard to trade, tax and Medicare needs.
Sincerely,
Rice
William V. Roth, Jr.
Chairman
WVR/jkw
WILLIAM V. ROTH, JR., DELAWARE. CHAIRMAN
JOHN H. CHAFEE, RHODE ISLAND
DANIEL PATRICK MOYNIHAN. NEW YORK
CHARLES E. GHASSLEY, IOWA
MAX BAUCUS, MONTANA
ORRIN G HATCH, UTAH
JOHN D. ROCKEFELLER IV.
VIRCINIA
FHANK H. MURKOWSKI. ALASKA
JOHN BREAUX. LOUISIANA
DON NICKLES, OKLAHOMA
KENT CONRAD, NORTH DAKOTA
PHIL GRAMM. TEXAS
BOB GRAHAM. FLORIDA
TRENT OTT-MISSISSIPPI
RICHARD H. BRYAN, NEVADA
JAMES M, JEFFORDS. VERMONT
J. ROBERT KERREY, NEBHASKA
United States Senate
CONNIE MACK, FLOHIDA
CHARLES S. ROBB. VIRGINIA
FRED MITOMISON, TENNESSEE
COMMITTEE ON FINANCE
FRANKLIN C. POLK. STAFF DIRECTOR AND CHIEF COUNSEL
WASHINGTON, DC 20510-6200
DAVID POPOFF, MINDRITY STAFF DIRECTOR AND CHIEF [CONOMIST
October 14, 1999
The Honorable William Jefferson Clinton
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Mr. President:
Thank you for the generous time you carved out of your schedule to discuss a number of
issues with us last week. We wanted to share some additional thoughts on the matter of how we
might work together to remedy some of the unintended consequences of the Balanced Budget
Act of 1997 (BBA 97). As completion nears on a Chairman's mark developed in the Senate
Finance Committee with bipartisan collaboration, we thought it would be best to revisit certain
points.
As discussed in the Oval Office meeting, il would be extremely helpful and appropriate
for the Administration to adjust downward its proposed 5.7 percent reduction in payments to
hospital outpatient departments. We believe that the proposed reduction was an unexpected
result of BBA 97 policies over which there is room for differences in interpretation. Of course,
such an adjustment to the 5.7 percent reduction must be implemented in a way that protects the
reduction in beneficiary coinsurance amounts scheduled to go into effect.
With the goal of achieving stability in the Medicare+Choice marketplace, we urge you to
use your discretion to help ameliorate the negative impact of the Administration's current risk
adjustment proposal on benefits and service areas offered by health plans. This is unequivocally
within the Administration's authority and would demonstrate your commitment to the concepts
of competition and choice in the Medicare program.
Our review of the skilled nursing facility prospective payment system suggests that
treatment of medically-complex patients is inadequately reimbursed. Although the Chairman's
mark would address certain aspects of this issue legislatively in the near future, we remain
hopeful that you will commit to specific changes that could be made to ensure appropriate
services for beneficiaries across the continuum of care.
Lastly, we understand an issue has very recently arisen with regard to the recovery of
potential overpayments in the Medicare disproportionate share hospital program. We look
forward to working with you to address this issue administratively. Thank you for your continued
assistance as we work on the Senate Finance Committee to address these complex issues.
Sincerely,
Bil
X
William V. Roth, Jr.
Daniel Patrick Moynihan
6:33PM; GOVERNMENT AFFAIRS
;202 789 4692
American Medical Association
Physicians dedicated to the health of America
AMERICAN MEDICA
E. Ratcliffe Anderson, Jr., MD
515 North State Street
312 464-5000
Executive Vice President, CEO
Chicago, Illinois 60610
312 464-4184 Fax
October 7, 1999
The Honorable William V. Roth, Jr.
Cleres
Rich really this.
Chairman
Committee on Finance
United States Senate
104 Hart Senate Office Building
Washington, DC 20510
needs
Barbaren
Dear Mr. Chairman:
On behalf of the American Medical Association (AMA), I am writing to express our appreciation
for including, in your September 24 letter to the President, correction of errors in the sustainable
growth rate (SGR) among the list of items to be addressed by the Executive Branch
administratively. Errors made by the Health Care Financing Administration (HCFA) have already
shortchanged the SGR by $3 billion. We appreciate your efforts to ensure that HCFA replaces
these erroneous estimates with accurate data, and we hope these vital efforts continue.
Further, we have had discussions with your staff concerning several additional improvements in
the SGR system that will require new legislation. We hope you will include the SGR refinements
described below in your Committee's legislation to address the unintended consequences of the
Balanced Budget Act of 1997. Our recommendations are compatible with those made by the
Medicare Payment Advisory Commission (MedPAC) in its March 1999 Report to Congress.
1. Physician Payment Updates Must Be Based on Actual Data, Not Erroneous Estimates
As you noted in your letter to the President, the erroneous administrative projections used to
set the SGR each year must be adjusted in order to avoid inappropriate payment reductions to
physicians. Among several errors that HCFA has made in just the first two years of the SGR,
the most serious was to underestimate by 1,000,000 beneficiaries the number of elderly and
disabled patients enrolling in the Medicare fee-for-service program rather than managed care.
For example, Delaware was one of the States where health plans abandoned Medicare in 1999,
leaving fee-for-service as the only option for many patients. HCFA did not account for these
plan withdrawals in the SGR; however, shortchanging Delaware physicians by nearly $9
million, or nearly $4,000 for each physician in the State.
To address this problem, we recommend that the Committee's legislation direct HCFA to
replace its estimates with actual data for 2000 and each year thereafter. We further
recommend that the Committee include report language expressing the Committee's concern
about the erroneous projections in the 1998 and 1999 SGR and directing that they be corrected.
2. The SGR Must Be Increased to GDP+2 to Allow for Technological Advances and an Aging
Population
The 1995 Republican budget plan, endorsed by the AMA, would have set the SGR factor for
GDP growth at GDP plus two percentage points, but the Balanced Budget Act of 1997 sets this
10-14-99: 6:33PM; GOVERNMENT AFFAIRS
;202 789 4692
Hon. William V. Roth. Jr.
Page 2 of 2
factor at GDP alone. We recommend that this factor be increased to GDP+2 in 2003, which
means there no costs associated with this proposal for the first three years of the budget cycle.
MedPAC recommends increasing this factor to allow for "cost increases due to improvements
in medical capabilities and advancements in scientific technology." A MedPAC analysis also
has found that the proportion of patients in older age groups is increasing relative to the
younger age group. Thus, MedPAC recommends revising the SGR to "include measures of
changes in the composition of Medicare fee-for-service enrollment."
These two factors-technological advances and an aging patient population-have always led
to increased utilization of health care services. The Medicare Trustees report that utilization
growth will outstrip Congressional Budget Office forecasts of GDP growth over the next
decade. Thus, no matter how cost-effective physicians are in caring for their Medicare patients,
Medicare physician payment rates are virtually guaranteed to decline relative to inflation in
their costs of practice. The SGR must be increased if physicians are to continue to be able to
offer their Medicare patients the finest medical care in the world.
3. Steps Must Be Taken to Stabilize Future Payment Updates
As a result of design flaws in the SGR system, updates will alternate between steep increases
and steep decreases, with physicians virtually guaranteed periods of several consecutive years
with 5% payment cuts each year. It is inconceivable that Congress intended to create such
intense volatility in Medicare payment rates, nor that Congress would condone such steep
annual cuts for any other group. We recommend that several measures be enacted to prevent
this volatility in Medicare physician payment rates:
narrow the range of possible updates to inflation +/- 2%;
synchronize the current mismatch in time periods into a calendar year system; and
reduce the effect of yearly GDP fluctuation by using 5-year average GDP growth.
4. HCFA Should Be Required to Provide Payment Previews for MedPAC's Review
The problems with the SGR system are augmented by the lack of timely, reliable information.
Congress should require HCFA to provide previews for MedPAC's review of forthcoming
payment updates and should share information on quarterly expenditures and changes in
projections, as recommended by MedPAC.
Thank you for your consideration, Mr. Chairman. We look forward to working with the Senate
Committee on Finance to improve the SGR system. We would be happy to provide you with any
additional information that you may need concerning our recommendations.
Respectfully,
E. Ratcliffe Anderson, Jr., MD
10-14-99: 6:33PM; GOVERNMENT AFFAIRS
:202 789 4692
# 5
Medicare Physician Payment Rates Under HCFA's
SGR Legislative Proposal
$37.00
$36.47
$36.00
$35.43
$35.00
Conversion Factor
$34.73
$34.00
$33.66
$33.00
$32.44
$32.00
$31.98
$31.00
$30.89
$30.00
1998 1999 2000 2001 2002 2003 2004 2005 2006
10-14-99; :33PM;GOVERNMENT AFFAIRS
;202 789 4692
#
American Medical Association
AMERICA
MEDICAL
Physicians dedicated to the health of America
NOILVING
Richard A. Decm
1101 Vermont Avenue, NW 202 789-7413
Vice President
Washington, DC 20005
202 789-4692 Fax
Government Affairs
October S, 1999
Robert Berenson, MD
Acting Deputy Administrator
Health Care Financing Administration
Hubert H. Humphrey Building
200 Independence Ave., SW
Washington, DC 20201
Dear Bob:
Thank you for meeting with Mary Jo, Sandy, and me last week, and for calling me following our
conference call with Ira and Marc to discuss HCFA's legislative proposal. We do appreciate your
help in ensuring that the legislative language was shared with us. Unfortunately, the proposal is
woefully inadequate.
Although we understand that HCFA agrees with us that the projection errors should be corrected,
we still do not understand the HCFA concept of applying a budget neutrality adjustment to the
error correction. That is why the list of questions we provided to you for last week's meeting
included: "How exactly would such an adjustment be made? How would such an adjustment
affect physician payment rates over the next 5 years? Alternatively, how would correction of the
errors without such an adjustment affect payment rates?"
We still have not gotten an answer to these questions. As best we can tell without these
answers, HCFA's legislative proposal would have no impact on physician payment updates
until 2007, meaning physicians will continue to be shortchanged by the projection errors
until then and payment updates will whipsaw between inflation-7% and inflation+3% until
then. This is unacceptable. We appreciate your offer of a meeting with someone from the
Office of the Actuary, and request that such a meeting be scheduled in the near future so that we
can get these questions answered.
We also raised the question last week of how we can get Administration support for the entire
package of fixes we have identified for the instability problem, including narrowing the limits on
payments updates to inflation +/- 2% and use of 5-year rolling average GDP growth. We
understand that it will be necessary to meet with Bonnie Washington on this issue and would
appreciate your help in arranging for such a meeting.
The FY2000 SGR Final Notice
The AMA's concerns about the projection error issue and HCFA's management of the SGR
system were significantly heightened last week with the publication of an FY2000 SGR of
2.1%. Although the HCFA projection of real per capita GDP growth seems more realistic than
last year's estimate, the factors for enrollment and law and regulation changes are problematic.
AARP
Chus:
601 E Street, NW
Washington, DC 20049
This letter is going to member
of ways i means, Commerce, and
Senate Ferrance. We thought
it critical that members
was thought might be
interested 111 the attached.
understand the implications
of any further delay or
slow-down of the outpatient
Consurence "fex!!
Patricia Smith
Sr. Coordinator/Health Issues
Federal Affairs
(202) 434-3770 phone
(202) 434-3758 fax
AARP
October 7, 1999
The Honorable William M. Thomas
U.S. House of Representatives
2208 Rayburn House Office Building
Washington, DC 20515
Dear Representative Thomas:
As Congress considers possible refinements to the Balanced Budget Act of 1997
(BBA 97), AARP urges you to keep in mind the implications of any changes for
Medicare beneficiaries and for the solvency of the Medicare Trust Fund.
AARP is particularly concerned that the BBA 97 provision that began to reduce
the beneficiary coinsurance for Medicare outpatient services is now in jeopardy.
The phase-down enacted in the BBA remains the very minimum that must be
done to begin to address the fact that, on average, beneficiaries today are
paying about 50 percent of the total payment to hospitals for outpatient services.
If the scheduled phase-down of this provision is changed or delayed,
beneficiaries will be forced to pay millions of dollars more out-of-pocket
than they should for hospital outpatient services. AARP must oppose
changes that further delay the phase-down of outpatient coinsurance for
any beneficiary.
The extraordinarily high coinsurance for hospital outpatient services stemmed
from a "glitch" in the law that allowed hospitals to base beneficiary coinsurance
on the amount the hospital charged for the service rather than the amount
Medicare approved. As a result, for years, Medicare beneficiaries have paid
significantly higher coinsurance for hospital outpatient services than for other
Part B services.
BBA 97 began to address the coinsurance problem by essentially "freezing" what
beneficiaries now pay in coinsurance and slowly phasing it down, over many
years, to the typical level of 20 percent of the total payment to hospitals.
Medicare beneficiaries have already experienced one delay in the correction of
the coinsurance problem due to Y2K concerns. This delay is estimated to have
cost beneficiaries about $600 million in additional coinsurance payments.
601 E Street, NW Washington, DC 20049 (202) 434-2277 www.aarp.org
Joseph S. Perkins President
Horace B. Deets Executive Director
Page Two
Unfortunately, some groups are now raising concerns with Congress about how the
new hospital outpatient prospective payment system (PPS) and the beneficiary
coinsurance "fix" will be implemented. As a result, there is some discussion of delaying
implementation of the hospital outpatient PPS system-either for all or some providers.
If Congress were to delay the new hospital outpatient payment system, the coinsurance
"fix" would be delayed as well. Beneficiaries would then be forced to continue paying
significantly higher coinsurance than they should. In fact, if the current phase-down
does not go into effect, over the next ten years beneficiary coinsurance payments will
grow, on average, to roughly 60 percent of the total payment to hospitals for outpatient
services. By 2020, beneficiary coinsurance is estimated to rise to about 73 percent.
In addition to discussion about delaying the new hospital outpatient PPS system, some
are considering whether Medicare should be required to make higher payments to
hospitals for outpatient services. However, if Medicare were to increase spending to
hospitals for outpatient services, this would also raise beneficiaries' Part B premiums
because the amount of the monthly Medicare premium is tied directly to total Part B
spending. The monthly beneficiary premium is already projected to more than double
from $45.50 a month in 1999 to $94.60 by 2008. A significant portion of this increase is
attributable to the changes made by the BBA.
AARP supported BBA 97. As is often the case with legislation of this magnitude, some
"fine-tuning" may be required. However, we strongly believe that there should not be
any further delay of the phase-down of the beneficiary coinsurance for hospital
outpatient services. We urge you also to consider carefully whether changes to the
hospital outpatient payment system will increase the monthly Medicare Part B premium
that beneficiaries must pay.
If you or your staff have questions or need additional information about this issue,
please contact Tricia Smith or Kirsten Sloan of our Federal Affairs staff at
(202) 434-3770.
Sincerely,
Horace B. Deets
October 12, 1999
MEMORANDUM RE. MEDICARE BBA GIVE-BACK LEGISLATION
TO:
John Podesta
Steve Ricchetti
Gene Sperling
Bruce Reed
Jack Lew, Dan Mendelson
Larry Stein
Joel Johnson
David Beier
Melanne Verveer
FROM:
Chris Jennings and Jeanne Lambrew
This afternoon, Senator Roth and Moynihan released their draft Medicare legislative
give-back package. Thomas has indicated that he will release his mark tomorrow.
Highlights of the Roth-Moynihan mark include:
Costs and scope: The package includes provisions for virtually every provider that
has raised concerns about the BBA and, as such, is likely to cost at least $15 billion
over 10 years. Provider concerns addressed include: teaching hospital IME payment
freeze for 2000 through 2003; non-budget-neutral transition to the outpatient payment
system; add-on for acute cases in skilled nursing facilities; and NY and PA DSH fix.
No offsets. The mark did not mention offsets nor any transfer of surplus to the
Medicare trust fund to protect solvency.
Does not include Medicare modernization provisions. To the dismay of Senators
Graham, Chafee, and possibly other members, Senators Roth and Moynihan did not
include the traditional Medicare program modernization provisions in their mark.
The reported reasons were that there was not bipartisan support and that the savings
were too little to justify moving in this area. However, staff has quietly
acknowledged that they hope to use the President's desire in this area as a chit in a
broader Medicare reform debate next year.
There are reports that this mark is not necessarily supported by the Republican
Leadership. Senator Lott may be meeting with Republican Finance Committee Members
on Wednesday morning to discuss it.
Tomorrow, Bill Thomas will hold a press conference to unveil the Ways and Means
Committee majority mark. He repots that it will be more modest, paid for (not through
Medicare offsets but through an unspecified commitment from the Republican
Leadership). He will also claim that he is carrying two-thirds of the costs of the BBA
give-backs and will ask us to pick up one-third of the costs through the hospital OPD fix
and the hospital transfer policy. Recognizing that we do not support the administrative
fix for managed care, he will include it in his legislative package. The Ways and Means
mark will not include traditional program modernization, for the stated reason that we
have rejected movement towards a Medicare board and broader competition in the
program. Thomas did not indicate exactly when he would mark up this bill.
The release of these two packages will increase pressure on the Administration to release
its response on hospital outpatient department (OPD) policy. Mr. Thomas at his press
conference will inevitably suggest that he is carrying more than his fair share of the costs
and that the Administration should do its part. Both Roth and Thomas repeated that they
would write letters stating their belief that the more generous interpretation for hospital
payments is consistent with Congressional intent if we could act administratively.
We will need press guidance tomorrow as well as responses for the President for his press
conference on Thursday.
Senate Committee on Fluance
Highlights of DRAFT Chairman's Mark
"Balanced Budget Adjustment Act of 1999"
October 12, 1999
Title I - Provisions Relating to Part A Only
Skilled Nursing Facilities (SNFs): The mark would: adjust upward the new
payment schedule to better accommodate medically complex patients by
increasing by 7.5% the Special Care and Extensive Services RUGS; include
the cost of Part B services in the facility-specific component of Medicare
payments to SNFs participating in the Nursing Home Case Mix and Quality
demo; and permit SNFs to elect to be paid according to the transition
formula, or under the federal per diem rate, whichever is higher.
Hospice Services: The mark would provide an upward adjustment in the
market basket.
Title II - Provisions Relating to Part B Only
Hospital Outpatient Departments: The draft mark would protect cancer and
certain rural hospitals from the new payment system, and would limit the
reductions in Medicare outpatient payments to other hospitals by establishing
floors of 90%, 85%, and 80% over the first 3 years.
Physicians: The mark includes a technical adjustment to stabilize payment
rates for physicians, known as the sustainable growth rate. In addition, the
mark resolves current pending litigation and applies a normal transition to the
physician practice expense payment system.
Title III - Provisions Relating to Parts A and B
Home Health Services: The mark would delay the 15% reduction in
payments until PPS is implemented and would phase in the reduction over
three years. The mark would raise the per visit limit to 108% of the national
median; eliminate the 15 minute rule; and exclude durable medical equipment
(DME) from consolidated billing. The mark would also allow overpayments
to be repaid within 12 months without interest, and repayments made after 12
months and up to 5 years would require interest payments at rates consistent
with those applied by the IRS to repayment of underpaid income taxes.
Teaching Hospitals: The mark would delay the reduction in IME payments,
by freezing the IME adjustment factor at 6.5% for fiscal years 2000 through
2003.
1
P.3
Title IV - Rural Initiatives
In addition to protecting rural hospitals from the impact of the new outpationt
payment system, the mark would provide a full payment update for Medicare
Dependent Rural Hospitals and Sole Community Hospitals. The mark would
also change the 96-hour restriction on individual inpatient hospital stays for
Critical Access Hospitals to a requirement that the average inpatient stay of
patients not exceed 96 hours; and directs the Secretary to set up a waiver
process whereby certain hospitals currently treated as urban or large urban
could be treated as rural.
Title V - Provisions Relating to Medicare+ Choice
The mark would lessen the impact of risk adjustment by providing a longer
phase-in period. In addition, the mark would: ease the transition for
beneficiaries affected by plan withdrawals or termination; extend waivers for
social health maintenance organizations (S/HMOs); specify that notices
regarding coverage of inpatient services be provided within 16-24 hours prior
to discharge; and other provisions.
Title VI - Other Medicare Provisions
Rehabilitative Therapy Caps: The mark would combine the rehabilitative
therapy caps into a unified ceiling of $3500.
Dialysis: The mark would increase the composite payment amount for renal
dialysis services furnished under the Medicare program.
Recoupment of Certain DSH payments: The mark would suspend for one
year the recoupment of certain disputed disproportionate share hospital
(DSH) payments pending negotiations between the affected states, hospitals
and HCFA; and would pennit the recoupment of payments to be spread over
10 years at the discretion of the Secretary.
Title VII - Provisions Relating to Medicaid and CHIP
Technical corrections to Medicaid DSH table for MN, WY, NM, DC.
Lift sunset and 12 quarter limit on Medicaid-welfare transition fund.
Conrect the CHIP allotments for Puerto Rico and the territories.
Technical adjustment to stabilize CHIP allocation formula and provide for
improved data collection.
2
American Medical Association
Physicians dedicated to the health of America
NEBICAL MEDICAL ADDITIONAL
1101 Vermont Avenue, NW
Washington, DC 20005
FAX TRANSMISSION SHEET
Date: 10/4/99
To:
Chris Jennings
From: Richard A. Deem
Vice President
Government Affairs
Tel: (202)789-7413
Message:
See attached letter to President Clinton.
Total Pages (including cover sheet): 2
Reply Fax Number: (202)789-4692
Government Affairs
American Medical Association
Physicians dedicated to the health of America
AMERICAN
MEDICAL
Thomas R. Reardon, MD
515 North State Street
312 464-4887
President
Chicago, Illinois 60610
312 464-5543 Fax
[email protected]
October 4, 1999
The President
The White House
Washington, DC 20500
Dear Mr. President:
On a personal level and as president of the American Medical Association (AMA), I have
enjoyed the privilege of working closely with you, Secretaries Shalala and Herman, others in your
Administration, and the other members of the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry to help design and enact a meaningful
patients' bill of rights. Our work together, and especially your leadership and personal
commitment to this issue, have clearly borne fruit. As I write this letter today, we are poised on
the verge of a truly historic vote in the U.S. House of Representatives on patients' rights for all
Americans.
While we have been focusing on patients' rights, however, actions by the Health Care Financing
Administration (HCFA) have caused a serious problem in the Medicare physician payment
schedule. I am writing to ask your help in solving this problem as you consider steps that you can
take to repair the unintended consequences of the Balanced Budget Act (BBA).
The BBA established a system for annually updating Medicare physician payment rates called the
sustainable growth rate (SGR). In its first two years, HCFA has already made $3 billion in errors
in its SGR calculations. As a result, physicians are caring for one million more patients than the
Medicare budget allows. Despite HCFA's promise in a 1997 rule to fix its errors, it reneged one
year later and now claims it lacks statutory authority to do so.
Mr. President, I understand that Senator Roth has written to you about this matter and will meet
with you tomorrow. Senator Roth believes that the HCFA errors can be corrected without any
new legislation. On behalf of the AMA, I urge you to direct HCFA to make the needed
corrections. I also ask your support for an AMA legislative proposal addressing several other
SGR improvements that do require congressional action.
Fixing the SGR is critical to ensuring that the 85% of elderly and disabled patients covered by
fee-for-service Medicare continue to receive the access and benefits to which they are entitled.
Thank you again, Mr. President, for your continued leadership on patients' rights and for your
attention to this important matter.
Sincerely,
T homas R Rearden mn
Thomas R. Reardon, MD
American Medical Association
Physicians dedicated to the health of America
ASSOCIATION AMERICAN MEDICAL
1101 Vermont Avenue, NW
Washington, DC 20005
FAX TRANSMISSION SHEET
Date: 10/14/99
To: Chris Jennings
From: Richard A. Deem
Vice President
Government Affairs
Tel: (202)789-7413
Message:
Total Pages (including cover sheet): 2
Reply Fax Number: (202)789-4692
Government Affairs
Medicare Physician Payment Rates Under HCFA's
SGR Legislative Proposal
$37.00
$36.47
$36.00
$35.43
$35.00
Conversion Factor
$34.73
$34.00
$33.66
$33.00
$32.44
$32.00
$31.98
$31.00
$30.89
$30.00
1998 1999 2000 2001 2002 2003 2004 2005 2006
OCT-14-1999 11:47
HCFA LEGISLATION
410 205 5157
P.02/05
October 13, 1999
Note to: Rich/Jane
Mark/Dan
Chris/Jeanne
Subject: Physician Practice Expense Transition Issue
The Administration's FY 2000 budget/legislative package contains a technical fix to the physician
practice expense transition issue. The BBA language contains glitches and inconsistencies which
has resulted in litigation about what BBA means and intends; certain specialties have argued for
an atyptical transition in which payments first increase before they decrease.
In submitting our legislative proposal, we indicated that we wanted a legislative correction
regardless of the outcome of the Court case. A legislative correction is contained in the draft
Senate Finance Chairman's mark.
We want you to be prepared on this issue. Attached is a short paper which discusses the issue.
Justice has done a great job defending us in the lawsuit, but the outcome is uncertain. Justice has
strongly urged a legislative correction.
We believe that this issue needs to be on a list of "must have" items for the forthcoming Medicare
legislation. Without a legislative correction, if we were to lose the lawsuit, the plaintiffs could
seek retroactive payments at least from Medicare which could involve taking money from primary
care physicians.
Please call if you have any questions.
Bomme
Bonnie
OCT-14-1999 11:47
HCFA LEGISLATION
410 205 5157
P.03/05
The Physician Practice Expense Transition
The BBA Provision: The Balanced Budget Act (BBA) enacted a transition to resource-based
practice expenses under the Medicare physician fee schedule during 1999, 2000 and 2001.
During these transition years only, practice expense payments are based on decreasing portions of
prior charge-based values and increasing portions of resource-based values. The transition will be
complete by January 1, 2002 at which point physician practice expenses are fully resource-based.
The purpose of a transition is to "soften the blow" for procedures and specialties where
practice expense payments would be reduced under the resource-based system. The BBA
softened the blow through a "normal" transition in which losing procedures are gradually
reduced, during 1999, 2000 and 2001, to their full resource-based levels in 2002.
Prior to BBA, a resource-based practice expense system was scheduled to be implemented
without any transition. Procedures would have increased and decreased from their
charge-based levels to be completely resource-based in one step.
Implementation of the BBA Provision: The BBA transition language contains some glitches and
inconsistencies. The Secretary's November 2, 1998 final regulation for the 1999 physician fee
schedule implemented a "normal" transition, lowering practice expense payments in measured
steps from their 1998 levels to their eventual 2002 levels (shown in the solid line in the
attachment).
This "normal" transition was the purpose of the BBA provision, is a permissible reading of
the ambiguous language, is consistent with the movement toward resource-based practice
expenses since 1993 and is the only approach that makes policy sense.
The Lawsuit: Some physician specialties (including ophthalmologists, orthopedic surgeons,
neurological surgeons, cardiologists, gastroenterologists and general surgeons) have sued the
Secretary, arguing for a different, and highly unusual transition in which some practice expense
payments first increase before they are reduced to their full resource-based level in 2002 (shown
in the dotted line in the attachment).
These specialties have argued that an "atypical" transition is the only construction of the
ambiguous language, though some of the litigating specialties urged still a different
atypical transition in December 1997.
o
Moreover, these specialties argue that Congress explicitly intended that an atypical, up
then down transition occur. They reject the "softening the blow" purpose of a normal
transition.
+
Rather, they suggest that instead of gently moving procedures down to their
resource-based level in measured steps, the purpose of the atypical transition is to
provide additional compensation, in their words "to offset the significant long-term
decrease those codes are scheduled to suffer under a resource-based PE-RVU
OCT-14-1999 11:48
HCFA LEGISLATION
410 205 5157
P.04/05
system".
+
In effect, despite the fact that such an atypical transition has never been used for
any type of service in Medicare, these specialties suggest that Congress explicitly
rejected the "softening the blow" purpose of a normal transition, and explicitly
intended that losing procedures, which were in excess of their resource-based
levels, be given temporary payment increases during 1999, 2000 and 2001 to
compensate for the fact the procedures will be at their resource-based levels
beginning in 2002.
+
Such a contorted policy rationale is hard to believe in the context of the pre-BBA
statute which had no transition and which had reduced payments for high-practice
expense procedures in 1994, 1995 and 1996 (pursuant to OBRA-1993).
+
While these specialties do not challenge the resource-based levels to which losing
procedures will be reduced beginning in 2002, their notion of resource-based levels
providing for "suffering" is a unique perspective. Losing procedures are already
being overcompensated under current charge-based payment levels compared to
the resource-based levels. These specialties provide no rationale to justify why
they assert that Congress explicitly would have provided for additional
overcompensation for three years before getting to proper payment levels.
+
The real issue for these specialties seems to be that they don't like resource-based
payment levels since those proper payment levels will replace their currently
overcompensated levels. A reduction in overpayments to proper levels does not
constitute suffering.
Status of the Lawsuit: A lawsuit was filed last fall and the case is before the Court. There have
been several rounds of filing of briefs. The case was referred to a Magistrate Judge who recently
made recommendations to the Judge. The timing and ultimate resolution of the Court case cannot
be predicted. Several primary care physician specialties have filed briefs in this case in support of
the Secretary's position.
Legislative Proposal: The Administration has submitted a legislative proposal to eliminate the
glitches and clarify inconsistencies in the statutory language. In submitting the legislation, the
Administration indicated that clarifying language was sought regardless of the outcome of the
Court case. The clarification would resolve any ambiguities about achieving the softening the
blow purpose of a "normal" transition that was the purpose of the BBA provision. The
clarification would be the way the Secretary implemented the provision.
The transition to resource-based practice expenses is accomplished in a budget-neutral fashion.
An atypical transition would increase payments for certain procedures and specialists and take
money away from other procedures and specialists, typically primary care physicians. The
legislative clarification has no budget effects.
BILLING CODE 4120-01-C
AVERAGE NATIONAL PAYMENT FOR CPT CODE 66984 (CATARACT)
TL 92 BASE
TL 98 BASE
1200.00
1150.00
1100.00
1050.00
1000.00
AVERAGE NATIONAL PAYMENT
950.00
900.00
850.00
800.00
OCT-14-1999 11:48 - VOI. 63, No. 211/Monday. November 2, 1998 / Rules and Regulations
750.00
700.00
650.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
YEAR
TOTAL P.05
1999 -
transi
comm
tmplete
Con
the Co
we hat
1848(c
on our
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of the .
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of the :
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Dudisep
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reduct:
NRMA
PAGE
01
NATIONAL RURAL HEALTH ASSOCIATION
OFFICERS
FAX TRANSMISSION
Gall Bellamy
President
1320 19th Street, N.W. Suite 350
Susan Wilson
Treasurer
Washington, D.C. 20036-1610
Janet Ivory
Telephone: (202) 232-6200
Secretary
Fax: (202) 232-1133
Tim Size
E-mail: [email protected]
Past President
TRUSTEES
Marvin Cole
Date:
Hospitals and
Community Health
Systems
Constituency Choir
To:
Chris Jennings WHs
Veme Glbbs
Rural Health Policy
Board Chak
Fax
Charlotte Hardt
Number:
456-5557
State Association
Council Chak
From:
Darin Johnson, Government Affairs Director
Hilda Heady
Statewide Health
Resources
Constituency Chair
Linda Rouse, Government Affairs Special Assistant
Robert LeBow
Clinical Services
Constituency Chalr
James Norton
Research and
Subject: BBA Rural Health
Education
Constituency Choir
Bonnie Post
Community-operated
Issues I spreed the
Practices
Constituency Choir
Thomas Robertson
i/ems foot could be done
Frontier Constituency
Chair
Robert Tessen
admissionatively - Callif
Rural Health Clinics
Constituency Chair
Val Schott
you have questions
State Office
Du
Council Chok
Pages (Including Cover Page):
11
Monnieque Singleton
Population-based
Services
Constituency Chak
NATIONAL OFFICE
WASHINGTON, D.C., OFFICE
Donna M. Williams
One West Armour Boulevard, Suite 203
Internet:
1320 19th Street. N.W.. Suite 350
Executive
Kansas City, Missouri 64111
http://www.NRHArural.org
Washington, D.C. 20036-1610
Vice President
Telephone (816) 756-3140
Telephone (202) 232-6200
Fax (816) 756-3144
Fax (202) 232-1133
E-mail: [email protected]
E-mail: [email protected]
NRHA
PAGE 02
JOIN THE NATIONAL RURAL HEALTH
ASSOCIATION IN GUARANTEEING ACCESS To
HEALTH CARE FOR RURAL AMERICANS
The NRHA's Rural
Pass Rural Targeted Balanced Budget Act of 1997 Reforms This Year
Balanced Budget Act
Relief Priorities
1. Protect Small, Rural
Hospitals from the
Impact of the
Proposed Medicare
Hospital Outpatient
PPS System
2. Ensure Community
Health Centers and
Rural Health Clinics
Continue to Receive
Equitable Medicald
Reimbursement
3. Guarantee New
HPSA Designation
Promotes Access
for Rural and Frontler
Communities
Testimony of
A. Build Upon the
Successful Medicare
THE NATIONAL RURAL HEALTH ASSOCIATION
Rural Hospital
Flexibillty/Critical
Access Hospital
Program
5. Exempt National
Health Service Corps
Scholarships and
Stipends from
Federal Taxes
6. Require HHS To
Conduct Rural
Impact Statements
Hearing on
Medicare Balanced Budget Act Refinements
7. Promote Medical
Residency Oppor-
Ways and Means Health Subcommittee
tunities in Rural
U.S. House of Representatives
Settings
Friday, October 1, 1999
8. Require Specific
Wage Indices Be
Used for the New
Skilled Nursing and
Home Health PPS
Systems
9. Allow Rural Providers
in MSA Designated
Countles to
Participate In Rural
Medicare Programs
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PAGE 03
A
real and imminent crisis is occurring in our country that threatens to shutout a vast number of our
citizens from receiving health care as many rural and frontier providers are teetering on the brink of
reducing and eliminating essential services. In that light, the National Rural Health Association
(NRHA) would like to share its support for the rural targeted Balanced Budget Act of 1997 (BBA) relief
priorities identified by our diverse, grassroots membership. We believe that collectively these priorities will
secure access to vital health care services for rural Medicare and Medicaid beneficiaries and their families.
A report authored by the non-partisan Rural Policy Research Institute states, "Given low enrollment into
managed care and limited use of any Medicare risk plans in rural areas for the foreseeable future, the impact
of changes in traditional Medicare are of vital concern for the welfare of rural beneficiaries." Without rural
targeted BBA reforms, the NRHA is gravely concerned that access to basic health care services will be
jeopardized for those seniors living in rural and frontier America.
Recognizing the need for rural targeted BBA relief, both the House Rural Health Care Coalition and the
Senate Rural Health Caucus introduced omnibus rural health care bills earlier this year, HR 1344 and
S. 980, which include a number of important BBA relief provisions. Currently 95 members of the House of
Representatives and 31 members of the Senate have cosponsored these rural health bills - a clear indication of
the bipartisan support for rural targeted BBA relief. The NRHA's BBA relief priorities were taken directly
from provisions included in both H.R. 1344 and S. 980, and are supported by both the House Rural Health
Care Coalition and the Senate Rural Health Caucus.
In a recent letter to the Congress, thirty-nine of our nation's state office of rural health directors shared, "Over
the past 10 years state and federal programs have encouraged our rural health providers to integrate their
services. For many rural communities, it is the hospital that provides not only inpatient and outpatient care,
but also services such as skilled nursing, home health and ambulatory care. Because the BBA reduces
payments in each of these areas, rural hospitals are being financially punished for having done exactly what
state and federal governments asked them to do - integrate services. As a result, these hospitals are reducing
and eliminating services that rural beneficiaries and their families depend on daily."
If the BBA is fully implemented and rural hospitals, clinics and health centers are forced to reduce services or
in some instances, close their doors, hard-to-recruit physicians and other health care providers will leave these
communities. To reopen a rural health clinic or to recruit a primary care practitioner back into a rural or
frontier community is an almost impossible task. That is why the Ways and Means Health Subcommittee and
the Congress must be proactive in ensuring access to health care is not jeopardized for rural Americans.
Data from the Medicare Payment Advisory Commission illustrates that a greater percentage of rural hospitals
experienced negative total Medicare operating margins in fiscal year 1995 than urban hospitals - 15.9 percent
VS. 9.8 percent. Of concern to the NRHA is that these numbers reflect the financial condition of small, rural
hospitals before any portion of the payment reductions in the BBA had been enacted and implemented.
The fact is rural hospitals and other providers depend more on Medicare reimbursement than their urban
counterparts and are more vulnerable to payment reforms and reductions under the BBA, because rural
America has a disproportionately higher percentage of Medicare beneficiaries. BBA relief targeted toward
rural health care providers must be enacted this year so these providers can continue to ensure access to
quality health care for the millions of Medicare and Medicaid beneficiaries living in rural and frontier
America
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Of equal concem is the Congressional Budget Office has projected that Medicare spending for fiscal year
1999 will be $88.5 billion less than was anticipated when the BBA was enacted The result is our nation's
rural hospitals, community health centers, rural health clinics and other providers are being asked to provide
rural Medicare and Medicaid beneficiaries with a greater number of health care services and higher quality of
care while their Medicare and Medicaid payments are being drastically reduced beyond what the Congress
originally intended.
Because of the cumulative negative impact that reforms contained in the BBA are beginning to have on the
rural health care delivery system, it is imperative that the rural targeted priorities outlined below be included
in any BBA relief measure considered by your Subcommittee and the Congress this year. The NRHA stands
ready to assist and support the Ways and Means Health Subcommittee and the Congress in guaranteeing
access to health care services for rural and frontier Americans. If you have questions about the NRHA's
BBA relief priorities or if the association and its membership can be of further assistance to you, please
contact Darin E. Johnson, Vice President for Policy and Public Affairs, at (202) 232-6200.
THE NATIONAL RURAL HEALTH ASSOCIATION'S
RURAL TARGETED BBA RELIEF PRIORITIES
1. Medicare Hospital Outpatient Prospective Payment System
Exempt Medicare Dependent Small Rural Hospitals and Sole Community Hospitals from the
proposed Medicare hospital outpatient PPS system or at a minimum, establish a stop loss measure to
protect low-volume, rural providers from the disproportionate effects of the PPS system.
The NRHA is deeply concerned with the Health Care Financing Administration's (HCFA) proposed rule
implementing a Medicare prospective payment system (PPS) for hospital outpatient services as defined by
the BBA New estimates prepared by HCFA demonstrate the grave impact the proposed PPS system will
have on low-volume, rural hospitals.
The NRHA understands Congress may be considering, as part of a larger BBA relief measure, a phase-in of
the proposed PPS payment methodology as a means of protecting small, rural hospitals from the severe
impact of the proposed PPS system. The NRHA strongly opposes a phase-in because the impact on rural
hospitals will ultimately be the same - small, rural hospitals will be placed in a financially vulnerable situation
A phase-in of the PPS system for hospital outpatient services would be nothing more than a band-aid fix to a
very serious problem which merits a more viable and long-term solution.
HCFA's latest analysis on the impact of the proposed PPS system shows that Medicare payments for hospital
outpatient services for small, rural hospitals with fewer than 50 beds would be reduced by 13.8 percent
compared to 5.7 percent for all hospitals. In addition, total Medicare payments on average for rural hospitals
would be reduced almost twice as much as for all hospitals (1.1 to 0,6 percent). The harsh reality is that
access to care for Medicare beneficiaries in rural areas will be jeopardized as a result of this proposed PPS
methodology, especially when combined with other payment reductions included in the BBA.
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For some rural hospitals (25-100 beds), outpatient services total 45 percent of total revenue compared to less
than 33 percent for their urban counterparts. Many of these hospitals already are experiencing negative
operating margins, making them extremely vulnerable to the effects of outpatient payment reform. It appears
the effect is greater on government owned hospitals and hospitals with less than 50 beds. It is these hospitals
that are providing services to the most remote areas of our nation, and also generally serve communities with
high Medicare populations.
2. Medicaid Reimbursement to Community Health Centers and Rural Health Clinics
Repeal the phase-out of Medicaid cost-based reimbursement to Federally Qualified Health Centers
(FQHCs) and Rural Health Clinics (RHCs) or as an alternative, implement a prospective payment
system that guarantees rural centers and clinics receive equitable reimbursement.
Beginning October 1, 1999 the BBA permits state Medicaid agencies to pay FQHCs and RHCs less than it
actually costs the rural health care provider to care for their Medicaid patients. Moreover, the phase-out
methodology used by the BBA is flawed in that it automatically reduces reimbursement below the cost of
providing services no matter how reasonable they may be. Such a drastic move will threaten the existence of
these safety net providers and the role they play in ensuring access to quality health care for rural Medicaid
and Medicare beneficiaries and the uninsured.
FQHCs and RHCs provide primary care services to our nation's most vulnerable and underserved rural
populations. As a result, these providers are extremely dependent upon Medicaid payments to cover the cost
of these services. The BBA forces community health centers to face revenue losses that are impossible to
avoid or overcome through greater efficiencies or cost-cutting. In the year 2000 alone, these revenue losses
will equal $100 million nationally.
According to the HCFA's own analysis, the Medicaid per beneficiary cost is much lower in a RHC than in
other provider settings by an average of $500 per beneficiary. Such a reduction in Medicaid reimbursement
penalizes RHCs for their efficiency in providing primary care services to rural Medicaid beneficiaries.
The House Rural Health Care Coalition's Triple-A Rural Health Improvement Act of 1999 (H.R 1344)
repeals the BBA's provision phasing-out reasonable cost reimbursement to FQHCs and RHCs. The Senate
Rural Health Caucus' Promoting Health in Rural Areas Act of 1999 (S. 980) and two free-standing bills
(S. 1277 and H.R. 2341) create an alternative Medicaid PPS system for FQHCs and RHCs.
The PPS system provides Medicaid payments in fiscal year 2000 that are equal to 100 percent of the per visit
costs of furnishing services in 1999. Subsequent to 2000, the amount per visit would be increased by the
percentage increase in the Medical Economic Index and adjusted for changes in scope of services. The
Senate provision would also allow states to pay for services at rates above those provided by the Medicaid
PPS system. The NRHA would support an alternative Medicaid PPS system if it is modified to reward cost
efficient FQHCs and RHCs and contains a federal enhanced match to encourage states to continue paying
cost-based reimbursement to these essential providers.
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3. Health Professional Shortage Area and Medically Underserved Area Designations
Legislate the following as the Bureau of Primary Health Care (BPHC) considers changes to the
methodologies used to define Health Professional Shortage Areas (HPSAs) and Medically
Underserved Areas (MUAs):
Require consideration of pending physician retirements or resignations in designating HPSAs;
Require revised standards for HPSA designation through expedited negotiated rule-making process;
Require DHHS to consider the needs of medically underserved populations and individuals and the
percentage of the population over age 65 in developing such standards; and
Prohibit new methodology for HPSA designation if the methodology is detrimental to rural or frontier
communities in that it results in the provision of fewer services.
Given the dramatic impact the BPHC's proposed rule to establish a new designation methodology for
Medically Underserved Populations (MUPs) and HPSAs would have had on federal and state programs to
serve rural and frontier underserved populations, the BPHC was recently forced to withdraw its proposed
revision to the methodology for designating these areas.
While the current law establishing MUAs and HPSAs applies specifically to the National Health Service
Corps and Federally Qualified Health Centers programs, a number of other important programs impacting
underserved populations are affected by these designations. Federal programs impacted by changes in the
designation methodology include eligibility for cost-based reimbursement to Rural Health Clinics, allocation
of Health Professions Education and Training Grant programs (Titles VII and VIII) funding, Indian Health
Professions Scholarship Grant program, Medicare bonus payments to physicians in underserved areas and
eligibility for Medicare telehealth reimbursement. It is critically important to take into consideration the
implication of any change in the MUA and HPSA methodologies on these programs, as well as state
sponsored programs. The smallest change in these methodologies could put in jeopardy a number of federal
and state programs and resources providing access to primary care services.
The BPHC's proposed methodology did not give considerable weight to the additional needs of the nation's
elderly and Medicare population, a disproportionate number of whom reside in rural and frontier
communities. While the proposed rule included a method for age-adjusting, several states reported that under
the proposed methodology areas with higher percentages of elderly residents actually were disadvantaged.
Any final underserved area designation must give separate consideration to the elderly population.
Additionally, the proposed designation did not take into account the special needs and characteristics of our
nation's frontier population. It was likely that a number of frontier areas would not have met the
requirements to be designated as a MUP, and therefore would not have been designated as a HPSA even
though their population to primary care practitioner ratio was greater than 3000 to 1. The NRHA
recommended in its formal comments to the BPHC that a separate frontier area designation process be
established to take into account population density, distance in miles to the nearest service market and time in
minutes to the nearest service market.
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Given the many barriers to health care services the proposed MUA and HPSA designation methodology may
have caused rural and frontier underserved areas, the Congress must direct the BPHC to initiate a negotiated
rule-making process to facilitate the design of a new underserved designation that more appropriately and
effectively recognizes medically underserved and health professional shortages areas in rural, frontier and
urban areas.
4. Critical Access Hospital Reforms
Strengthen the Medicare Rural Hospital Flexibility Program by making the following important
reforms to this program which is maintaining essential access to basic hospital and emergency room
services for rural and frontier Americans:
Allow hospitals that closed or downsized to a clinic within three years of enactment of this law to reopen
as or convert to a Critical Access Hospital (CAH);
**
Allow CAHs to choose between two options for payment for outpatient services: (1) reasonable costs for
facility services, or (2) an all-inclusive rate which combines facility and professional services;
Require Medicaid programs to reimburse for services in CAHs;
Change the 96 hour length of stay limit to a 96 hour average;
Exempt CAH swing beds from PPS for skilled nursing facilities; and
Grant CAHs deemed status that will allow for accreditation.
The NRHA urges the Congress to adopt reforms to the Medicare Rural Hospital Flexibility program that will
further strengthen our nation's rural health care delivery system. This program, established by the BBA,
creates an important alternative for small, rural hospitals by providing regulatory relief and more equitable
financing options by assisting states in proactively responding to market changes, removing restrictive
regulatory standards, and supporting network development and regional approaches to health care. It is
vitally important the Subcommittee include the NRHA's CAH reforms in its BBA relief legislation so this
program is able to reach its full potential.
To date, 36 state rural health plans have been approved by HCFA, and approximately half of the estimated
1,100 eligible small, rural hospitals nation-wide have indicated an interest in being designated a CAH.
Extremely crucial to encouraging maximum participation in the program is allowing CAHs to choose
between two options for payment for outpatient services: (1) reasonable costs for facility services, or (2) an
all-inclusive rate which combines facility and professional services. The all-inclusive payment allows
hospitals to bundle physician payments into their CAH cost-based reimbursement, which is a key financial
incentive to recruiting physicians to practice in CAHs. This option was an important component of the
successful demonstration projects that this program is based upon - the Montana Medical Assistance Facility
program and the Essential Access Critical Hospitals/Rural Primary Care Hospital program.
Permitting hospitals that have recently closed or downsized to reopen or convert to a CAH is also vital to the
ultimate success of the program This provision would allow those facilities that have already succumbed to
the overwhelming financial pressures created by decreasing Medicare and Medicaid reimbursement
payments to continue providing essential primary and emergency care services to their communities.
Changing the current 96 hour length of stay limitation to a 96 hour average will also provide CAHs flexibility
in caring for their patients. In addition, it will save money from unnecessary and costly patient transfers when
only an additional day or two of inpatient care is needed.
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5. National Health Service Corps Scholarships
Exempt the National Health Service Corps (NHSC) scholarships from federal taxation in any tax
measure that moves through the Congress this year.
This tax provision was included in the tax measure recently approved by the Congress, but subsequently
vetoed by the President. It was also part of a broader education bill passed last year that was again vetoed by
the President because of unrelated provisions. As demonstrated by its passage by the Congress on two
occasions, wide bipartisan and bicameral support for this issue exists - which is vital to the NHSC's mission
of providing quality health care services to our nation's most vulnerable populations.
In testimony submitted earlier this year to the House Ways and Means Committee, a NHSC scholar and
second year medical student spoke of how she was forced to take out two loans - one to cover a portion of
her living expenses and the other to pay her federal taxes- because each month more than half of her stipend
is withheld by the Internal Revenue Service (IRS) for tax purposes.
The NHSC program plays a critical role in providing primary health care services to rural and urban
underserved populations. The scholarship program is one of the few incentives the NHSC has to recruit new
clinicians to rural and inner-city communities. Currently 2,400 NHSC clinicians, including physicians,
dentists, nurse practitioners, physician assistants, nurse midwives, and mental and behavioral professionals,
provide primary care services to over 4.6 million Americans who would otherwise lack access to quality
health care.
6. Rural Impact Statements
Require the Department of Health and Human Services (DHHS), when promulgating or proposing a
regulation related to a health care program, to include an analysis of the impact of implementation of
the regulation on rural areas, including its impact on: (1) rural safety net providers; (2) rural
primary care providers; (3) rural hospitals; (4) FQHCs and RHCs; (5) the economies in rural areas;
and (6) rural residents.
While the NRHA recognizes the enormous burden that has been placed upon the DHHS, specifically HCFA,
as it implements the Medicare and Medicaid reforms contained in the BBA, the association remains
extremely concerned that the Department continues to consider, draft and implement policies that will put
access to health care in jeopardy for rural beneficiaries. Recent regulations proposed and implemented by
HCFA have not recognized the unique needs of our nation's rural health care delivery system.
On several occasions the BBA and members of the Senate Finance Committee and the House Ways and
Means Committee were explicit in their intent to give special considerations to rural providers when
implementing portions of the BBA. For example, the BBA gave specific instructions to the Secretary of
HHS to give "special considerations" to rural residency programs when apply the BBA's Graduate Medical
Education reforms. These special considerations were not included in the Department's final rule. On
another occasion, members of the Senate Finance Committee responsible for drafting the telehealth portion of
the BBA communicated that it was their intent that "store and forward" telemedicine be reimbursed by
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Medicare - yet the Department refused to follow these instructions. Most recently HCFA's own analysis
shows that its proposed PPS system for Medicare hospital outpatient services will have a disproportionate
impact on low-volume rural hospitals. However, the Administration recently proposed in its fiscal year 2000
budget to move forward with applying the PPS system to small, rural hospitals with a transition period.
Given these reoccurring examples of how the interests of rural health care providers and beneficiaries are not
being taken into consideration by the DHHS as important policies are developed, it is critical that Congress
mandate that the implication of policies and rules on the rural health care delivery system be analyzed and
receive the serious consideration they deserve by the Department.
7. Graduate Medical Education Reforms
*
Legislate the following rural Graduate Medical Education reforms to promote residency
opportunities in rural and frontier communities:
Require the Department of Health and Human Services to provide special consideration in apply the BBA
provisions that reduced IME payments to providers and placed a ceiling on the number of Medicare
funded residencies to rural residency programs, as well as facilities that are not located in an underserved
rural area but have established separately accredited rural training tracks;
Increase indirect GME payments to some hospitals by changing the way interns and residents are
counted, from including those who were in the hospital during the most recent cost reporting period
ending on or before December 31, 1996, to those who were appointed by the hospital's medical residency
training programs for the same time period; and
Allow a hospital that sponsors only one residency program to count one additional intern/resident for each
calendar year up to a maximum of three more than the limit otherwise determined under this provision.
The BBA contained several Medicare GME provisions that were intended to promote residency opportunities
in rural hospitals and ambulatory settings. The provisions were included by Congress because studies show
that GME programs located in rural areas help to counteract persisting rural physician shortages by attracting
medical residents and physicians to rural communities. Unfortunately, these rural specific GME provisions
were not implemented by the Secretary of HHS in her final rule implementing the BBA.
The BBA called for the gradual reduction of IME payments to facilities training residents, and a ceiling to be
phased-in on the number of residents for which a GME program will receive Medicare funding. For the
purpose of determining both IME and DME payments, existing programs may not exceed the number of
resident FTEs reported in their teaching hospital on or before December 31, 1996.
Understanding the cap on the number of residents would restrict new and expanded residency programs in
general, the BBA recognized the importance of graduate medical training in rural areas by instructing the
Secretary of HHS to "give special consideration to facilities that meet the needs of underserved rural areas."
In addition, the Secretary was also given discretion to modify the ceiling for new GME programs (those
established on or after January 1, 1995). Despite the Congress' explicit guidance, the Secretary did not make
any special considerations for facilities providing rural and frontier residency opportunities in her final rule
implementing the GME provisions.
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8. Wage Indices for Skilled Nursing Facilities and Home Health Agencies
*
Require that area wage adjustments for the skilled nursing and home health care PPS systems be
based on wage levels at Skilled Nursing Facilities and Home Health Agencies.
As part of the current Medicare hospital inpatient PPS system, HCFA uses a complex formula to determine
the amount it reimburses hospitals for providing inpatient services to Medicare beneficiaries. About three-
quarters of that payment is increased or decreased by applying a hospital wage index which is intended to
adjust for the fact that market wage rates for nurses and other hospital employees vary somewhat across the
country.
The current index actually goes well beyond its original intent in that it not only makes adjustments for
differences in local wage rates, but it also rewards hospitals in areas, mostly urban, where a greater than
average number of employees are hired. As a result of this methodology, the wage index varies greatly
between urban and rural hospitals - the primary reason Medicare reimbursement to rural hospitals is lower
and their resulting Medicare inpatient margins are less than half of urban hospitals (4.4 versus 9.7 percent in
1995).
The BBA mandated that HCFA develop new PPS systems for hospital outpatient services, skilled nursing
and home health care. HCFA has signaled that it plans to apply the currently flawed wage index, which was
created specifically for the hospital inpatient PPS system, to the payment systems for hospital outpatient
services, home health care, and skilled nursing. The NRHA believes only wage rates relevant to the specific
services providing in these settings should be used. In addition, the hospital wage index, as well as the wage
indices used by the new PPS systems for hospital outpatient services, home health care and skilled nursing,
should be changed to reflect only legitimate differences in area wage rates, not average per employee
expenditures that are biased toward facilities in urban areas.
9. Medicare Rural Waiver
For purposes of Medicare payments, establish a waiver process to allow rural providers located in
Metropolitan Statistical Areas (MSAs) to be classified as "rural" if they are located: (1) in a rural
area as defined by the Goldsmith Modification published in the Federal Register on February 27,
1992; (2) outside of an urbanized area as defined by the U.S. Census Bureau; or (3) in an area
designated by a State as rural.
The definition of a rural area currently used by HCFA for purposes of Medicare reimbursement does not
recognize certain hospitals and other providers that are indeed located in rural and frontier areas. Because the
federal definition of rural is based solely on whole-county urban or rural classification, some rural hospitals,
community health centers and rural health clinics cannot participate in Medicare programs designed to help
preserve access to care for rural Medicare beneficiaries and their families. These important programs include
the Medicare Rural Hospital Flexibility/Critical Access Hospital program, the Medicare Dependent Hospital
and Sole Community Hospital programs and the Rural Health Clinics program. The supplemental payments
made to rural providers by these programs are frequently the primary reason for their continued viability and
existence.
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As defined by law, the Medicare program currently defines "rural" as any area that is outside of a
Metropolitan Statistical Area (MSA) as defined by the Office of Management and Budget MSAs are
defined along county lines and may include one or more counties. This definition ignores such important
factors as geography, demography, transportation, and economics in defining rural and urban areas.
For purposes of determining eligibility for federal grant programs, the Federal Office of Rural Health Policy
uses the Census Bureau's rural census tracts which recognize rural areas within MSA counties. In addition,
both the Department of Agriculture and the Federal Communications Commission have adopted this rural
definition for their rural-focused programs. Rural hospitals, health centers and clinics that are currently
located in MSA counties do not have the ability to obtain reclassification from urban to rural status.
9
LEGISLATION
410 205 5157 P.01/07
NUMAN SERVICES. USA
RIVER
HCFA
MEDICARE MEDICAID
=
Office of Legislation
Health Care Financing Administration
Number of Pages: C+6
Date: 10/8
To: Dan Mendelson 395-5631
From:
Mark Miller 395-3910
Bonnie Washington /Paul
Jean Lambrew 456-7431
Chris Jennings . - 456-5557
Catton
Fax:
Fax: 690 8168
Phone:
Phone: 690-6277
REMARKS:, Comments to Paul Cotton
at 690-6277- ASAP!
REVISED RUTH LETTER
HEALTH CARE FINANCING ADMINISTRATION 563
200 Independence Ave., SW
Room 341-H, Humphrey Building
Washington, DC 20201
7012
5157
P.02/07
Dear Senator Roth:
The President and I are committed to working with you and other Members of Congress
to strengthen and modernize the Medicare program for those who rely on it today and in
future generations. This specifically includes addressing the unintended consequences of
certain Balanced Budget Act of 1997 provisions. Our foremost concern is to ensure that
Medicare beneficiaries continue to have access to the quality care they deserve. 1 am
responding to your request that we review certain potential adjustments and advise you of
our ability to address these issues administratively.
As you know, the President has included $7.5 billion over 10 years in his comprehensive
Medicare reform plan to fund legislative changes to help smooth the transition to BBA
payment reforms and ensure access to care. The plan also includes a number of
administrative actions that we are taking to ease the burden on providers. We are
committed to affording providers maximum flexibility to ease the burden of the BBA
within the limited discretion given to us in the law. We will continue to evaluate
proposals and make appropriate additional changes administratively where we have
discretion to do so under the law. We also will continue working with Congress,
beneficiary groups, provider groups, and our colleagues at the General Accounting Office
(GAO), the HHS Inspector General's Office, and the Medicare Payment Advisory
Commission (MedPAC) to identify and address areas where there is evidence of adverse
effects of the BBA on beneficiary access to quality care. You asked us to review and
comment on our ability to take administrative steps to address a number of issues. The
following is our assessment of those issues.
Hospitals
Proposal: Develop and administer a budget neutral multi-year transition method for
implementation of the hospital outpatient prospective payment system (PPS -- scheduled
for July 2000), including a policy to maintain the scheduled reductions in beneficiary
cost-sharing liabilities for services received in hospital outpatient departments.
410
205
5157
P.03/07
Obtain an expert and independent evaluation of the clinical soundness and payment
equity implications of the proposed Ambulatory Patient Classification (APC) system,
including its appropriateness for unique categories of providers, such as cancer hospitals.
If a delay in implementation or exemption of certain classes of providers is warranted
under the review, inform the Congressional Committees of jurisdiction by June 2000.
Comments: We expect to publish the final rule implementing the outpatient PPS system
early next year. We are reviewing all of the many comments we received and working to
address these comments in the final rule. In addition, 1 have asked the Office of
Legislative Counsel at the Department of Justice to closely review the BBA provisions
pertaining to the hospital outpatient PPS and to advise us of areas where we may have
some flexibility.
Where we know we have administrative flexibility, we are taking advantage of it to help
hospitals adjust to the new payment system required under the law. For example, as you
have suggested, we are considering a 3-year transition to the new PPS by making budget-
neutral adjustments that will increase payments to hospitals that would otherwise incur
large payment reductions. These hospitals would include certain rural, inner city, cancer,
and teaching hospitals. This transition policy would maintain the scheduled reductions in
beneficiary cost sharing for services furnished at these hospitals.
In addition to the transition policy, we are also considering a delay in implementing the
proposed "volume control mechanism." The statute requires the agency to develop a
volume control mechanism. In the proposed rule, we suggested use of a mechanism that
might lead to a downward adjustment in the payment rates as early as 2002 (to reflect
volume increases in 2000). Delaying this mechanism would provide time for providers to
adjust to the new system. The proposed rule also uses the same wage index for
calculating rates that is used to calculate inpatient prospective payment rates. This index
would take into account the effect of hospital reclassifications and redesignations.
2
P.04/07
We plan to make changes to address the many technical comments received regarding the
proposed Ambulatory Payment Classification system as part of the final rule. We also
are reviewing MedPAC's detailed comments on the proposed rule and are addressing
them in the final rule. We also plan to address the many other comments, including those
related to the appropriateness of the system for categories of providers, in the final rule.
And we have hired another independent, outside contractor to provide additional private
sector expertise as we address problems with the data we have on the cost of
chemotherapeutic agents. This contractor is examining a random sample of patients who
need chemotherapy and other high drug costs to advise us on possible methods and data
for assuring adequate payment for these drugs. We believe that further outside reviews
would delay the implementation of the system and protections for beneficiary out of
pocket expenses.
Proposal: Freeze the payment policy for hospital transfers at the current set of 10
Diagnosis Related Group categories.
Comments: As you have suggested, and as the President announced as part of his
Medicare reform plan, we are planning to postpone for two years the extension of the
hospital transfer policy to additional diagnoses beyond the current set of 10 Diagnosis
Related Group Categories. We also will consider whether further postponement of
extension to additional diagnoses is warranted.
Skilled Nursing Facilities
Proposal: Establish payment refinements to selected Resource Utilization Groups as the
Skilled Nursing Facility (SNF) PPS is implemented. These changes should be targeted to
improve reimbursement for medically complex cases, with special attention to the unique
problems of patients requiring complex treatments and prosthetics.
3
5157
P.05/07
Comments: As you have suggested, we will use administrative flexibility to increase
payment for high acuity patients under the skilled nursing facility prospective payment
system where data indicate such changes are warranted. However, we are able to make
such administrative changes only in a budget neutral manner. We have research
underway now on how we should make such refinements. We expect to have the
research completed by the end of this year and to then propose refinements in a proposed
rule next Spring for implementation in October 2000.
Using the limited administrative discretion afforded by the statute, we have excluded
certain types of services performed in hospital outpatient departments from the SNF PPS
bundle, such as CT scans, MRIs, cardiac catheterizations, emergency services, major
ambulatory surgical procedures, and radiation therapy, because such services are well
beyond the scope of SNF care plans. We received a significant number of comments,
both in response to last years' interim final rule and at a national Town Hall meeting we
held to solicit comments on SNF PPS. We are examining whether any additional hospital
outpatient services (e.g., chemotherapy) fall within the scope of our present
administrative and legislative authorities to carve them out, but believe that legislation is
necessary to exclude these or other services (e.g., prostheses) categorically.
Physicians
Proposal: Provide immediate advice on administrative options for improving annual
updates in payments for physicians' services to correct for erroneous projections.
Comments: The HHS General Counsel advises that we do not have the ability under the
existing law to correct the Sustainable Growth Rate (SGR) for projection errors.
However, the Administration has submitted, as part of the President's FY 2000 budget, a
budget neutral legislative proposal to require that revisions be made to correct estimation
errors in calculation of the SGR and to fix other technical aspects of the SGR.
4
410 205 5157
P.06/07
Home Health
Proposal: Relieve home health agencies of the inappropriate responsibility for tracking
patients that secure services from more than one agency in order to prorate payments.
Comments: This is required by statute and cannot be addressed administratively.
However, due to systems complications and Y2K constraints, we have not instructed
claims processing contractors to make systems changes to automatically track the
implementation of this provision. If claims processing contractors learn of situations
where patients are receiving services inappropriately, they will take appropriate action to
ensure proper payment. We are concerned that eliminating proration altogether may
create incentives for agencies to re-direct patients to another agency after the agency
provided services equal to their per beneficiary limit.
Proposal: Provide for extended repayment schedules for agencies that incurred
significant Medicare overpayments due to difficulties adjusting to major BBA 97
payment system changes.
Comments: As part of the President's Plan, we are allowing agencies an automatic 36
months to repay excess interim overpayments. The first year is interest-free.
Ambulatory Surgical Centers
Proposal: Do not implement payment policy changes for ASCs until 1999 industry
survey data are analyzed and properly incorporated into any proposed changes.
Comments: We plan to publish the final rule on payment policy changes for ASCs next
spring and implement the new system in July 2000. The current ASC rates have been in
place since 1990 and are based on 1986 survey data. We appreciate the desire to
incorporate more current data. However, the process of sending out and having the ASCs
complete the surveys, auditing the surveys, analyzing the data, writing a proposed rule,
commenting on a proposed rule, and issuing a final rule is lengthy. If we were to delay
5
410 5157 P.07/07
implementing payment changes until the 1999 survey data are incorporated, we would
have to delay the payment policy changes planned for July 2000 for an additional three
years.
Medicare +Choice
Proposal: Revise phase-in schedule for risk-adjusted payment to extend the transition by
at least two years and to prevent any single plan from experiencing more than a 5-10%
shift in Medicare payment rates attributable to the risk adjuster in any single year.
Comments: In March, we announced a five-year transition to comprehensive risk
adjustment for Medicare+Choice plans to minimize the disruption to plans. We plan to
begin the transition in 2000 with a 90/10 blend of demographically and risk adjusted
rates. This blend will be gradually increased over five years so that in 2004, rates will be
fully risk adjusted using a comprehensive adjustment system that takes into account all
care settings.
We strongly believe that this five-year transition strikes the appropriate balance between
concern for plans and our obligation to be fiscally responsible and ensure that plans are
paid fairly and appropriately for the care they provide, especially to the sickest
beneficiaries. Our actuaries estimate that this transition schedule will cost the Medicare
Trust Funds $4.5 billion more than full implementation of risk adjustment in 2000. Our
current phase-in schedule prevents plans from experiencing more than a five to ten
percent shift in rates in the first few years. For example, based on our impact analyses,
no plan will face more than a 1.85 percent reduction in 2000. Significant differences in
later years would indicate that a plan's enrollment is substantially healthier than average,
in which case it is appropriate to pay more to other plans that are caring for less healthy
enrollees. We would like to work with you and other members of Congress to further
review the phase-in and other possible technical modifications of Medicare+Choice risk
adjustment.
6
TOTAL P.07
This Week's Press Briefings and Releases
http://www.whitehouse.gov/library/ThisWeek.cgi?type=p&date=lbriefing=8
White House Briefing Room
October 5, 1999
STATEMENT BY THE PRESS SECRETARY
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
October
5, 1999
STATEMENT BY THE PRESS SECRETARY
President Clinton Meets With Senate Finance Committee Chairman Roth And
Ranking Member Moynihan To Discuss Medicare Reform
Senate Finance Committee Chairman William V. Roth Jr. (R-DE), and
ranking Democrat Daniel Patrick Moynihan (D-NY) met this morning with
President Clinton to discuss the outlook for Medicare reform legislation.
The President, as well as Chairman Roth and Senator Moynihan,
reiterated their intention to strengthen and modernize the Medicare
program. The Senators conveyed their mutual desire to work towards the
goal of passing broad-based Medicare reform in this Congress.
Chairman Roth and Senator Moynihan urged that administrative and
legislative action be taken this fall to moderate the impact of Medicare
provider payment reductions included in the Balanced Budget Act of 1997
(BBA) The President indicated his openness to such initiatives, but in the
context of providing additional statutory authority to modernize the
purchasing practices of the Medicare fee-for-service program. The
President pointed out that initiatives to modernize the traditional
Medicare program were included in both the Breaux-Thomas recommendations
and the Administration?s broader Medicare reform proposal released earlier
this year.
The President indicated that Administration representatives will work
with the Finance Committee, as well as the House Ways and Means and House
Commerce Committees, on a package of provisions that moderate the impact of
the BBA and modernize the fee-for-service program. The President also
agreed to provide an expeditious response regarding the administrative
actions the Department of Health and Human Services can take independent of
the legislative process SO that the Committees can construct their
legislative packages to reflect these changes. The President reaffirmed his
commitment that any provider payment reforms should not harm the success we
have had in extending the life of the Medicare trust fund.
###
Back to summary page
1 of 2
10/6/1999 10:42 AM
10/05/99 TUE 20:54 FAX 202 456 6423
PRESS OFFICE
10/05/99 TUE 17:48 FAX
002
FOR IMMEDIATE RELEASE
Press Release #106-215
October 5, 1999
Contact:
Senator Roth:
Tara Bradshaw
202/224-5218
Senator Moynihan:
Mike Waterman
202/224-4451
ROTH, MOYNIHAN MEET WITH PRESIDENT ON MEDICARE
WASHINGTON - Senate Finance Committee Chairman William V. Roth, Jr. (R-
DE) and ranking Democrat Daniel Patrick Moynihan (D-NY) met this morning with
President Clinton to discuss the outlook for Medicare legislation. Senators Roth and
Moynihan informed the President of their intention to continue working toward a
consensus within the Committee and with the President on legislation to reform
Medicare over the long-term, including adding a prescription drug benefit, while
protecting the solvency of the Medicare trust fund.
Senators Roth and Moynihan also discussed with the President the need to act
immediately, before the end of the first session of this Congress, to restore some of the
Medicare funding cuts under the Balanced Budget Act of 1997 (BBA).
In response to inquiries from Chairman Roth and Senator Moynihan regarding
possible administrative adjustments to the БВА, the President agreed to provide a quick
answer so that the Committee could fashion legislation that takes into account any
administrative changes.
President Clinton recommended, as an offset to part of the costs in the BBA
package, that the package include a proposal sent to Congress in June to modernize the
fee-for-service program. Senators Roth and Moynihan agreed to consider the
President's recommendation.
###
OCT-05-99 15:32 From:OGC IMMEDIATE OFFICE
2026907998
T-649 P.01/02 Job-365
DEPARTMENT OF HEALTH AND HUMAN SERVICES
THE GENERAL COUNSEL
PHONE: 202/690-7741
FAX: 202/690-7998
TO:
CHRIS JENNINGS / DEVORAH ADLER
DATE: 10/5/99
DEPARTMENT/OFFICE: WH/DPC
PHONE:
zoz 456-5560
FAX:
202 456-5557
FROM:
HARRIET S. RABB
GENERAL COUNSEL
COMMENTS:
The attached gage sets out
HHs' reed of the proposed
Substances act.
Crime Bill language Ne: Controlled
PAGES INCLUDING COVER:
2
OCT-05-99 15:32 From:OGC IMMEDIATE OFFICE
2026907998
T-649 02/02 Job-365
I. Background
HHS and DOJ have already agreed to the following expansions of DOJ's emergency scheduling
authority:
DOJ can emergency schedule and reschedule drugs under IND.
FDA will periodically certify to DEA that an IND is being actively pursued.
Researchers will periodically certify that they can account for all drug product.
DEA can bring criminal charges against IND holders if FDA finds that they have
violated the terms of their IND.
The following issues remain:
DOI wants parallel, independent authority to promulgate recordkeeping and reporting
requirements mirroring FDA requirements, and to investigate and prosecute violations.
HHS is concerned that DOJ will impose on IND researchers the security requirements that
apply to drug manufacturers who handle large amounts of drug substance.
II. What problem are we trying to fix?
The problem DOJ seeks to address with this legislation is "street" abuse of substances that
are being researched under INDs. The provisions already agreed to are fully adequate to
address this abuse.
There has never been evidence, or even allegations, of diversion of IND drugs by an IND
researcher. Legitimate researchers and drug suppliers have a strong interest in preventing
diversion to preserve their ongoing relationships with FDA, DEA, and the scientific and
medical research community.
Imposing additional regulatory burdens decreases the incentive to conduct this essential
scientific and medical research. One of the core principles of this administration is that we
do not impose regulatory burdens unless there is a demonstrated need for additional
regulation. There is no demonstrated need in this area.
III. What are the problems with DOJ's proposed legislation?
Record Keeping and Reporting Requirements
Duplicate regulations will result in confusion and impose excessive regulatory burdens on
researchers who will be required to comply with two sets of regulations governing the
same activity.
Interpretation and enforcement of regulations by two different agencies could result in
confusion and inconsistent enforcement since the same conduct could be determined to be
violative by one agency, but not the other. Such inconsistency would undercut the
authority of both agencies.
Security Requirements
Compliance with extensive security requirements will be excessively costly for researchers
who are producing small amounts of a drug substance for research purposes only, and are
generally not realizing a profit from the sale of substances under IND.
Existing FDA regulations address the security and accountability of controlled substances
and permit DEA to inspect a researcher's records and facility.
P. 27'.99 (MON) 16:31
SENATE FINACE COMMITTEE
0001
To: COURTNEY & DEVORAH
United States Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C. 20510
Phone: (202) 224-4515
Fax: (202) 228-0578
Date:
9/27/99
To:
BROENE
Fax Number: 456-6220
From:
AEC PHILLIPS
Re:
LETTER FROM FEYDAY + ENCOSURE
No. of Pages (Including Cover Sheet): 6
P. 27'99 (MON) 16:31
SENATE FINACE COMMITTEE
WiLLIAM V ROTH. JH. DELAWARE. CHAIRMAN
JOHN H. CHAFEE. АНОДЕ ISLAND
DANIEL PATRICK MOVNIHAN. NEW YORK
CHARLES P. GRASSLEY IOWA
MAX BAUCUS MONTANA
ORAIN G HATCH, LITAH
JOHN P ROCKEFELLER IV. WEST VIRGINIA
FRANK n. MURKOWSKI. ALASKA
JOHN BREAUX. LOUISIANA
DON NICKLES. OKLAHOMA
KENT CONNAD, NORTH DAKOTA
PHIL GRAMM. TEXAS
age CHAHAM. FLOMDA
TRENT LOTT. MISSISBIPPI
RICHARD H. BRYAN. NEVADA
United States Senate
JAMES M JEFFORDS. VERMONT
J ROBERT KERREY NEBRASKA
COMNIE MACK. FLORIDA
CHARLES S. Roon. VIRGINIA
FREP THOMPSON. TENNESSEE
COMMITTEE ON FINANCE
WASHINGTON, DC 20510-8200
FRANKLIN o. KOLK. STAFF DIRECTOR AND CHIEF COUNSEL
DAVID PODOFF. MINORITY STAFF DIRECTOR AND CHIEF ECONOMIST
September 24, 1999
The Honorable William Jefferson Clinton
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Mr. President:
During the 105th Congress, you provided leadership and worked
successfully with Congressional leaders to enact the Balanced Budget Act
of 1997 (BBA 97). That law helped put the federal government on a
course of fiscal discipline that is resulting in major economic dividends
benefitting all Americans. With respect to the Medicare program, we
collaborated on the most significant set of reforms in payments to providers
and private health plans that has occurred since the program was first
enacted. These changes had the salutary effect of temporarily stabilizing
the rates of growth in Medicare spending and extending the solvency of the
Part A Hospital Insurance Trust Fund.
As is occasionally the case with major legislation, we have learned
that there are some unintended consequences. As a result, certain provider
and health plan payment adjustments may be required under Medicare in
order to protect beneficiaries' access to quality health care services and
plans. It is my intention to propose shortly a package of legislative
adjustments in areas where steps must be taken to improve payment equity
to providers and to protect the availability of privately offered
Medicare+Choice plans. In this regard, although you did not specify
policies, it was helpful that the Administration's recently released Medicare
reform proposal set aside $7.5 billion over 10 years to address concerns in
these areas.
Our review indicates that several areas of legitimate concern could
clearly be addressed by the Executive Branch administratively, thereby
freeing the Congress to concentrate on those matters which can only be
addressed legislatively. I urge you to review the enclosed list of
CP. 27.99 (MON) 16:31
SENATE FINACE COMMITTEE
03
The Honorable William Jefferson Clinton
September 24, 1999
Page 2
administrative adjustments and advise me of your willingness to take steps
within the Administration to address these matters. As necessary, the
Congress can and will act on other related matters. However, I am
confident that in the spirit of the BBA 97 agreements, including a shared
concern for fiscal responsibility, you will want to collaborate with us in
resolving these concerns. Thank you for your consideration.
Sincerely,
Bir Red
William V. Roth, Jr.
Chairman
Enclosure
P. 27'99 (MON) 16:32
SENATE FINACE COMMITTEE
004
Administrative Adjustments to Improve Medicare Provider Payment
Equity, and to Stabilize the Medicare+Choice Program
Hospitals
Proposal -- Fair Transition for Outpatient Payment Changes: Develop and
administer a budget neutral, multi-year transition method for Implementation of the
hospital outpatient prospective payment system (scheduled for July, 2000), including a
policy to maintain the scheduled reductions in beneficiary cost-sharing liabilities for
services received in hospital outpatient departments.
Obtain an expert and independent evaluation of the clinical soundness and payment
equity implications of the proposed Ambulatory Payment Category (APC) system,
including its appropriateness for unique categories of providers. such as cancer
hospitals. If a delay in implementation or exemption of certain classes of providers is
warranted under the review, Inform the Congressional Committees of jurisdiction by
June, 2000.
Explanation: The Balanced Budget Act of 1997 (BBA) required the Secretary to
implement a prospective payment system (PPS) for hospital outpatient department
services by January 1, 1999. The proposal Issued by the Administration represents a
major change in Medicare payment policy for outpatient services and may result in
significant changes in hospital payments. This requested adjustment is needed to
provide hospitals a reasonable period to adjust operations to meet these funding
changes, while maintaining corrections to the amount that beneficiarles are required to
pay in coinsurance for hospital outpatient services.
There is also concern about the methodology of the proposed APC classification
system. Before such drastic changes to current payment policy are implemented, an
independent revlew of the proposal is appropriate.
Proposal - Limit Scope of Hospital Transfer Policy: Freeze the payment policy for
hospital transfers at the current set of 10 Diagnosis Related Group categories.
Explanation: The BBA gave the Secretary of HHS authority to classify discharges
from acute-care hospitals to post-acute care facilities within a group of 10 Diagnostic
Related Groups (DRGs) as "transfers." Beginning in 2001, the Secretary would have
authority to expand this policy to more than the Initial 10 DRGs. As other payment
policy changes from the BBA continue to be monitored, It is unnecessary to expand the
transfer policy in the foreseeable future.
1
P. -27'99 (MON) 16:32
SENATE FINACE COMMITTEE
IBU.
Skilled Nursing Facilities
Proposal Higher Payments for Complex Cases: Establish payment refinements to
selected Resource Utilization Groups as the Skilled Nursing Facility (SNF) PPS is
Implemented. These changes should be targeted to improve reimbursement for
medically complex cases, with special attention to the unique problems of patients
requiring complex treatments and prosthetics.
Explanation: The BBA phases in a PPS that pays for covered SNF services on a per
diem rate. The General Accounting Office has indicated that the current rate may not
adequately reimburse for services provided to medically complex patients.
Physician Payments
Proposal Corrections Due to Erroneous Spending Projections: Provide
immediate advice on administrative options for improving annual updates in payment
for physician services to correct for erroneous projections.
Explanation: Implementation of new payment methodologies established in the BBA
produced inappropriate payment reductions to physicians due to fallures to adjust for
erroneous administrative projections used to set rates. This particular problem could be
remedied through changes in the year-to-year administrative payment projection and
adjustment process.
Home Health Agencies
Proposal Proration of Payments: Relieve home health agencies of the
inappropriate responsibility for tracking patients that secure services from more than
one agency in order to prorate payments.
Explanation: New home health payment systems created by the BBA called for
tracking the number of home health services beneficiaries receive from different
facilities, so that payment amounts could be prorated. However, the BBA does not
specify that this tracking is the responsibility of the agencies. Such responsibility would
be more appropriately assigned to the fiscal intermediaries.
Proposal Equitable Recovery Schedules for Overpayments: Provide for
extended repayment schedules for agencies that incurred significant Medicare
overpayments due to difficulties in adjusting to major BBA 97 payment system changes.
2
006
P. 27" 99 (MON) 16:32
SENATE FINACE COMMITTEE
100. 660
Explanation: There is recognition of the need for more flexible overpayment schedules
for certain home health agencies facing large overpayment amounts due to the
changes in payment systems contained in the BBA.
Ambulatory Surgical Centers (ASCs)
Proposal - Fair Payment for ASCs: Do not implement payment policy changes for
ASCs until 1999 industry survey data is analyzed and properly incorporated into any
proposed changes.
Explanation: In a proposed rule. the Administration is proposing changes to the
payment policy for ASCs based upon 1994 survey data. It would be more appropriate
to implement proposed changes after the 1999 survey data is complete.
Medicare+Cholce
Proposal -- Fair Transition for Health Plans: Revise phase-in schedule for risk-
adjusted payments to extend the transition by at least two years and to prevent any
single plan from experiencing more than a 5-10% shift In Medicare payment rates
attributable to the risk-adjuster in any single year.
Explanation: The BBA required HCFA to develop and implement a health-based risk-
adjustment system by January 2000 to increase payments to plans that enroll sicker
patients and to decrease payments to plans that enroll healthler patients. The
implementation may cause significant changes in the annual payments to plans and
thus the premiums beneficiaries would be charged. This proposal would provide for a
more gradual transition to risk adjustment and protections for both beneficiaries and
plans.
3
TERVERVILLE
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SEP-29-1999
12:46
POWERS
PYLES
SUTTER &
VERVILLE PC
ATTORNEYS AT LAW
FILE ID:
TWELFTH FLOOR
1875 EYE STREET, NW
WASHINGTON, DC 20006-5409
PHONE: (202) 466-6550 FAX: (202) 785-1756
FAX COVER SHEET
To:
Chris Jennings
From:
Jim Pyles
Special Assistant to the President
for Health Policy Development
Fax:
456-7431
Pages:
9
Phone: 456-5560
Date:
September 29, 1999
Re:
Urgent
For Review
Please Comment
Please Reply
Please Recycle
Note:
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CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL, AND EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. IF
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SEP-29-1999 12:46
POWERSPYLESSUT ERVERVILLE
202 737 2517
P.02/09
POWERS
PYLES
SUTTER &
VERVILLE PC
ATTORNEYS AT LAW
Twelfth Floor
1875 Eye Street, NW
Washington, DC 20006-5409
Phone: (202) 466-6550 Fax: (202) 785-1756
MEMORANDUM
To:
Chris Jennings
From:
Jim Pyles
On behalf of the Home Health Services and Staffing Association
Date:
September 27, 1999
Re:
President's Statement on the Budget Surplus
I was struck by the President's statement this morning concerning the budget
surplus as compared to the growing crisis in home health as described by a study
released on September 14 by the George Washington University Center for Health
Services Research and Policy. See An Examination of Medicare Home Health
Services: A Descriptive Study of the Effects of the Balanced Budget Act Interim
Payment System on Access to and Quality of Care (September 1999).
The President stated that this year's budget surplus will be at least $115 billion
which is "larger than last year's, and larger, in fact, than any dollar surplus in the history
of the United States".
The George Washington University study found that cuts in Medicare
reimbursement for home health services are
1) eliminating access to covered home health services for the sickest, most frail
Medicare beneficiaries;
2) eliminating access to covered specialty services for those beneficiaries that
can still obtain services; and
3) deleting information concerning the higher cost patients from the data base
that will be used for a prospective payment system.
SEP-29-1999 12:46
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Chris Jennings
September 27, 1999
Page 2
The question that must be asked is: How can the Administration, at a time of
unprecedented budget surpluses, fail to fund covered home health for sickest,
most frail Medicare beneficiaries?
I am attaching a copy of the executive summary of the George Washington
University study for your review.
Attachment
12:46
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Executive Summary
Introduction
The Medicare home health provisions of the Balanced Budget Act of 1997 (BBA) were
designed to convert home health payment methodology to a prospective payment system (PPS)
that would end cost-based reimbursement considered to create incentives to increase utilization.
As a transition to PPS, the BBA mandated an interim payment system (IPS) designed to
constrain substantially the growth in Medicare home health expenditures. In this report, we
present the results of a descriptive study of home health agency responses to the changes in
payment methodology. Major findings from this research are:
The majority of agencies participating in the study have altered their case mix
and/or their practice patterns to conform utilization to reimbursement. Diabetics,
particularly complex diabetics, appear to be the most affected by changes in
admission practices and reductions in the level of care. Other beneficiaries with
more intensive care needs also appear to be affected significantly by these changes.
Southern agencies in the study do not appear to have the same capabilities to alter
their case mix as agencies in other regions. Nor do their case mixes contain as much
variety. Accordingly, beneficiaries in the South may experience more reductions in
their levels of care, while sicker beneficiaries in other regions may experience more
difficulty gaining access to home care services. The findings indicate that IPS may
be exacerbating regional variations in the health status characteristics of home care
beneficiaries, even as utilization and payment becomes more nationally uniform
without regard to the health status of beneficiaries.
Chronically ill beneficiaries may experience greater fragmentation of care among
providers and more disruptions in care as a result of payment changes.
Administrative constraints on utilization may affect access by sicker beneficiaries to
appropriate levels of home care.
Approximately 3 million acutely and chronically ill elderly and disabled Medicare
beneficiaries depend on home health services as an element of their medical care. As would be
expected from their homebound status, Medicare home care beneficiaries generally are sicker,
older, and poorer than Medicare beneficiaries in general.
While initially limited to post-hospital acute care of defined duration, the Medicare home
health benefit was expanded in 1980 to include those beneficiaries who had not experienced a
prior hospital stay and to provide services for as long as medically necessary. As a result, the
number of Medicare home care beneficiaries increased dramatically, marked by the inclusion of
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people with disabling chronic diseases who require ongoing medical management.
Other factors contributed to the large growth in home care services including the growth
of managed care, changes in Medicare hospital reimbursement, and technological changes
enabling more complex care to be delivered at home. These factors, in combination with the
growing supply of home health providers, led to sharp increases in home care utilization from
1989 to 1993, after which time the growth in home care began to abate. The rapid rise in home
care spending from 1989 to1993 led to the inclusion in the BBA of changes in payment
methodology designed to reduce substantially payments for and utilization of home health
services.
This réport will describe the Medicare home health care changes in the BBA, the scope of
the underlying study, previous research, the study findings, and their implications. In addition, it
will provide recommendations designed to address issues concerning beneficiary access to care.
Overview of BBA Changes in Medicare Home Health Reimbursement
The ultimate goal of the BBA was to convert home care reimbursement to a case-mix
adjusted prospective payment system (PPS) and end the cost-based reimbursement considered to
create incentives to increase utilization. Because HCFA had not developed a home care PPS
methodology, the BBA mandated an interim payment system (IPS) to be in effect for two years.
However, IPS is expected to be in place until at least October, 2000.
The IPS contains a number of elements designed to constrain growth in home care costs
substantially. It excluded increases in market basket costs from 1994 to 1996 in calculating IPS.
Then, IPS reduced the per-visit cost- limits from 112 percent of the national mean to 105 percent
of the national median. The IPS also imposed payment limits on the aggregate amount of
Medicare reimbursement a home health agency may receive based on its average per beneficiary
costs in FY 1994, regardless of its current case mix or the cost of care of any individual
beneficiary. It is the operation of these payment limits that has created the most controversy.
Finally, IPS imposed an additional across-the-board 15 percent reduction in home health
payments to go into effect on October 1, 1999.
According to the Congressional Budget Office (CBO) in 1997, these changes were
designed to achieve savings of $16.2 billion over five years. The most recent projections by
CBO indicate that in fact IPS spending reductions for home health services will amount to $47.9
billion over the same period. As a result of concerns that the magnitude of the payment
reductions in home health were having an adverse effect on services, the Omnibus Consolidated
and Emergency Supplemental Appropriations Act (P.L. 105-277) modified somewhat the
payment methodology. The per-visit limits were raised from 105 percent to 106 percent of the
national median. Low-cost agencies (those that provided services below the level of the national
median in FY 1994) regardless of case-mix were provided additional payments. The 15 percent
across-the-board reduction was delayed for one year.
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Previous studies of the IPS raised the concern that this payment methodology would
create incentives to deny care to the sickest and frailest beneficiaries and would result in
substantial regional variation in access to services and in quality of care. The 1998 changes in
the BBA which provide additional funds to low-cost agencies without regard to patient mix did
not address those concerns because they did not direct additional funds to the care of higher cost
beneficiaries. This study examines the specific responses to the BBA payment reforms made by
home health agencies since 1997.
Study Methods
The goals of this descriptive case study are 1) to explore and document the effect of IPS
on the service delivery patterns of home health agencies; 2) to examine whether these effects
have led to a reduction in the availability of services; and 3) to assess whether a reduction in
services will likely affect disproportionately the sickest, most costly Medicare beneficiaries.
The experiences of home health agencies in nine states were examined: California,
Florida, Indiana, Iowa, Louisiana, Massachusetts, Mississippi, Pennsylvania, and Texas. States
were selected for geographic diversity and urban/rural mix. In addition, states wère selected to
enable comparisons in their historic utilization patterns and demographic composition.
Interview protocols consisting of 60 questions were mailed to agencies who responded to
a solicitation through state home health associations. Structured interviews were conducted with
all agencies who responded to protocol. This protocol was designed to collect information from
1994, 1996, and 1998 about the types of patients admitted to care, patient mix over time, patterns
of referrals and discharges, clinical practice patterns, and changes in demand for alternative
services and financing. The study also examined financial and operational factors affecting
agency stability and access to care. Participating agencies were assured of confidentiality, and all
agency identifiers were deleted from completed protocols.
The data on which this report is based were collected from twenty-eight home health
agencies. The respondents included nine free-standing for-profit agencies, 11 free-standing non-
profit agencies, and eight hospital-based or affiliated agencies from all nine states and reflect a
mix of urban and rural agencies. Interviews were completed with all of the agencies who
responded to the protocol. While based on a self-selected sample of agencies, we believe the
sample reflects a good cross-section of agency experience since it represents a mix of
respondents by type, geography, and utilization history.
Previous Research
Findings from recent studies suggest that patients with similar health status and
underlying conditions who have unconstrained access to home health services have better health
outcomes than those who do not receive home health services or those whose access is tightly
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controlled through managed care. In addition, two major studies funded by the Health Care
Financing Administration (HCFA) examined the relationship between intensity of utilization and
outcomes and regional variation in utilization and outcomes. These studies are referenced at
Footnotes 21 and 23. Taken together, these studies' findings indicate that higher utilization is
associated with poorer underlying health status which triggers the need for more intensive or
longer term services. Moreover, beneficiaries who use more intensive services tend to
experience measurable improvements in health status as they receive more care. On the basis of
these studies, it appears that those beneficiaries with poor underlying health status and more
intensive needs will be more susceptible to adverse consequences as a result of changes in
patterns of care. These more vulnerable beneficiaries appear to be more concentrated in the
southern states.
Findings
The study results show changes in clinical practice patterns and patient case-mix and
selection by responding agencies that may have implications for access to or quality of care.
Home health agency interview data indicate that most of the responding agencies have adjusted
their case mixes and/or their practice patterns to conform utilization to reimbursement. While
fiscal intermediary practices have clearly had an effect on both case mix and practice patterns,
agency responses indicate that payment levels appear to be the dominant driver of these changes.
Moreover, the data show substantial regional variation in the types of adaptations made by home
health agencies. In general, southern agencies appear more likely to rely on reducing level of
services and less able to change their case mix characterized by more chronic illness. Agencies
in other regions are more likely to rely on screening admission of patients or altering marketing
patterns to control case mix of their patients as well as reducing the number of visits. Interview
findings indicate that diabetics, particularly complex diabetics, appear to be affected significantly
by both exclusions from care and reductions in the level of services. Other patients who present
predictably high-costs also appear to be experiencing some displacement, although not to the
same degree. By contrast, study data indicate that patients with predictably low-costs may be
experiencing improved access to care, regardless of amount of time in care.
The majority of agencies report that the financial need to limit the level of services
provided has created greater fragmentation of care between different types of providers.
Agencies report that this fragmentation of care for individual beneficiaries is related in part to
shorter stabilization periods in care. The data suggest that this pattern of fragmentation affects
sicker, more chronically ill beneficiaries since they are the ones who require more ongoing and
intensive services. Agency reports also suggest that the effects of intermediary review, changed
staffing patterns within agencies to reduce costs, and changed physician referral patterns may
compound this fragmentation and create additional barriers to access to care.
Overall, the number of Medicare beneficiaries admitted to care in the study agencies as a
percentage of all patients has declined 21 percent since 1996. Medicare 1998 revenues in the
study agencies have declined by 25 percent from 1994 levels reflecting lower payments and
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-V-
utilization for Medicare beneficiaries. Agencies report cross-subsidization from other entities or
charitable sources to pay for care delivered to Medicare beneficiaries.
Notwithstanding the evidence of substantial problems, some agencies report that IPS has
triggered some efficiencies and quality enhancements. These include more case management,
higher levels of nursing supervision, more goal and outcomes orientation with patients,
encouragement of greater patient independence, and reduction of administrative costs.
Discussion and Implications
The reported screening of high cost patients as well as significant reductions in the
number of visits suggest that some beneficiaries may have difficulty receiving home health-
services or maintaining a consistent level of services. The reductions in care to high cost
beneficiaries potentially could affect their health status. The decline of the relative percentage of
Medicare beneficiaries compared to other patients served by the study agencies suggests that
Medicare beneficiaries may be experiencing greater access problems than non-Medicare patients
and that agencies may be retrenching their participation in the Medicare market. The extent of
the decline in diabetic patient census in particular as reported by home health providers as well as
the reductions in care apparently targeted to complex diabetics raise more pronounced concerns
about the long-term health status of this population. Evidence that home health agencies and
physicians may be arbitrarily limiting care to avoid increased administrative scrutiny may
compound potential problems by sicker beneficiaries to maintain a consistent level of services,
even as this greater involvement provides utilization oversight.
The reported responses by agencies in non-southern regions reflecting a tendency to favor
healthier case mix while southern agencies maintain historic case mix characterized by more
chronic illness may exacerbate regional variations in the health status characteristics of home
health beneficiaries, even as utilization becomes more nationally homogenized to meet
reimbursement requirements. This uniformity of utilization in the face of increasingly
regionally diverse case-mix could create even greater regional disparities in health outcomes
among Medicare beneficiaries.
These effects appear to be magnified by changes in other parts of the health care system.
Evidence of greater movement of patients between providers of all types may reflect greater
fragmentation of care for the sickest population. This fragmentation suggests that providers at all
levels may be experiencing difficulty providing sustained care to high cost patients, carving out a
sector of patients with chronic illness and medical instability who may experience increasing
difficulty obtaining care in any health sector. The adverse effects of chronically ill beneficiaries
rotating in and out of the health care delivery system and experiencing more disruptions in care
on the effective management of chronic disease may be significant
Many adaptations to the BBA as reported by home health agencies expose significant
gaps in clinical and beneficiary information against which these changes should be measured.
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-vi-
The decline in the total number of beneficiaries in the study agencies receiving home care
services or experiencing reductions in services must raise serious concerns both for access to care
and its quality and effectiveness. The apparent increase among almost all of the respondents in
patient/staff ratios, the increased patient load for skilled services, and the reduction or
elimination of specialty services including mental health services by some agencies underscore
concerns regarding quality of care. The fact that these changes are occurring in the absence of
organized patient tracking and outcomes analysis magnifies these concerns.
The data from the study agencies suggest that many of the sicker beneficiaries may no
longer be in the Medicare home care system as a result of screening and exclusion by some
agencies. Moreover, reimbursement-based changes in utilization may not reflect the clinical
needs of the patient. Accordingly, any permanent PPS system that is based on utilization data
from 1998 may fail to address the service needs of the eligible population. This could result in
the long-term exclusion of sicker populations from Medicare home care services or the
standardization of levels of care that are ineffective.
Recommendations
The findings of this study taken together with previously published studies, raise
significant policy questions that should be addressed. Specifically, additional studies must be
conducted to track beneficiaries' experiences obtaining home health care and to evaluate the
effects of changed patterns of care on beneficiary health status and the degree and cost-
effectiveness of greater fragmentation of care. Because of findings indicating that IPS and the
BBA have created distortions in utilization data, PPS should not rely on utilization data from
1998-99. Given the evidence that agencies exclude or limit the amount of care to sicker
beneficiaries, the IPS should be modified to adequately account for the costs of medically
necessary care for these beneficiaries. Guidelines to fiscal intermediaries and physicians should
be clarified to mitigate administrative barriers to beneficiary access to care. Finally, any
additional reductions in payments for home health services should be postponed until definitive
data on the effects of the current reductions can be assessed.
Conclusion
The challenge for policy-makers is to develop payment methodologies that create
efficiencies while maintaining incentives to provide effective care to the sickest populations.
The failure to meet this challenge could produce a systemic failure to appropriately manage
chronic disease, generating higher health care costs in other sectors or adverse consequences on
beneficiary health.
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TO. CHRIS 1 Dever Art
FROM! CAKE
THE WHITE HOUSE
Office of the Press Secretary
(New York, New York)
Internal Transcript
October 7, 1999
INTERVIEW OF THE PRESIDENT
BY
JOHN ROBERTS OF CBS
Sheraton New York Hotel and Tower
New York, New York
3:40 P.M. EDT
Q
Mr. President, sir. Good to meet you; how are you?
THE PRESIDENT: Good to see you.
I
So, you know the issue, sir. You've been trying to
address it, the idea that there are 15 million senior citizens in
this country who don't have Medicaid coverage for prescription
drugs, Medicare coverage. What does it say about a country, sir,
where many people have to go outside of the country to buy drugs
that they can afford?
THE PRESIDENT: Well, it's wrong. And it happens because we
have about three-quarters of our senior citizens need
prescription drugs that they simply can't afford. They don't
have access to any coverage, or the coverage they have is too
expensive and too limited. And in Canada and in many places,
drugs made in America are cheaper than they are here because
bigger units can buy discounts.
Now, this proposal :: made to reform Medicare is totally
voluntary -- no senior has to buy a prescription drug coverage if
he or she doesn't want it. But if they do buy it, then a private
group - - not the government -- would be able to get the drugs at
a lower cost because they would be buying them in bulk. And I
think it's fair. It will not adversely affect the drug
companies. It will increase their volume, even though the drugs,
individually, will be cheaper. They will still come out way
ahead. And our people will be treated more fairly and they won't
have to depend upon whether they're on the Canadian border to run
across the line to buy drugs they can afford.
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2
a
What do you think about the idea of allowing pharmacies
to re-import drugs, parallel importing for senior citizens and
allow them access to the cheaper prices that they would pay in
Canada?
THE PRESIDENT: You're the first person that ever asked me
that. I don't know. But I'll look into it. It's an interesting
idea. I never thought about it.
&
That's Congressman Sanders' idea. He has proposed to
allow pharmacies to re-import drugs from Canada or Mexico. There
has been some question as to whether or not that would be legal
because of FDA regulations. But that's the idea that he is
proposing.
THE PRESIDENT: Well, if you could preserve their safety and
quality, that there were some assurance of that, I would think it
could be done. And it might work well along the Canadian border
for Vermont, where Congressman Sanders lives, and for the other
states along the border.
Then the further you get away from the border, the question
is will the transportation cost back more than offset the money
that you would otherwise save. I don't know the answer. You're
the first person that's ever asked me that. But I'll look into
it.
Q
Now, the drug companies have been saying that even
under your plan, which would allow Medicare to buy drugs in bulk,
it would decrease the revenue stream to the point where research
and development would be stifled. I mean, would you look at the
profits they've been making in the last few years -- is that a
legitimate argument?
THE PRESIDENT: No. No, you know, they said that over and
over and over again. American drug companies charge American
citizens far more money for the same pharmaceuticals than they
charge Europeans, Canadians, Mexicans, anyone else.
Q
Does that seem right?
THE PRESIDENT: No. They say they do it because we bear the
full cost of the research and development cost -- and they
can't put it off on any of the others because the government
controls the prices. That's what they say.
So I think if that's true, then the United States and its
people have been awfully good to our drug companies. They've
been willing to pay higher prices for drugs made in America than
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3
people in other countries do, and I think they owe it to the
seniors to get off this high horse and stop trying to beat this
attempt to extend medical coverage to seniors for prescription
drugs.
People that live on fixed incomes ought to be able to get
the benefit of discounts you get when you buy in bulk. This is
not government regulation, this is market power. A lot of these
drugs they have long since recovered the research and
developments cost, long since. And I just think it's wrong for
our people either not to be able to get them at all or to pay so
much more than others do. And this is one way to sort of split.
the difference between their position that they need higher
profits to invest in research and development, and the very low
cost that they can get if they happen to live close enough to the
Canadian border to cross it.
So I would like to see Medicare cover prescription drugs on
a voluntary basis so our seniors can get discount prices. It's
very important.
Q
The ideas that have been floated in the Senate, which
ostensibly are voucher systems, would you agree with that type of
system to pay for prescription drugs?
THE PRESIDENT: Well, it wouldn't be as effective as the
proposal we've made because it would be more difficult to get the
benefit of discounts. And, therefore, over a few years it would
be harder to keep the premiums down.
But, as I said, I would like to see the members of Congress
in both parties engage with us on this, let's work it through,
let's come up with something -- you've got three-quarters of our
seniors in trouble out there and we ought to do something about
it.
Q
In terms of national priorities, how important is this?
THE PRESIDENT: Oh, I think it's very important. The big
challenges facing our country right now, at the top of those
challenges are what to do about the aging of America as more of
us live longer that means we have to save Social Security and
reform and modernize Medicare; and the children of America -- we
have to give all of our kids a world-class education with the
most diverse student population ever.
Those are the big challenges we face. And to me this is a
big part of it. You're going to have the average 65 year old
person today has a life expectancy of 82. The people being born
today, if the human genome project works out right, might have a
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4
life expectancy of 100. But if that's true, in order to maintain
their quality of life and their health and not bankrupt the
hospitals, we'll have to keep more and more of them well with the
proper kind of drug treatment programs.
So you want the drug companies to be able to continue to
pioneer new drugs, but they've got to be affordable and they have
to be accessible.
Q
Thank you for your time, sir, I appreciate it.
THE PRESIDENT: Thank you.
END
3:46 P.M. EDT
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An Initial Report
on
The Impact of the Balanced Budget Act
On Small Rural Hospitals
WWAMI Rural Health Research Center, University of Washington I
September 1999
Funded by the Office of Rural Health Policy, HRSA, DHHS
1 Funded by the Office of Rural Health Policy, HRSA, DHHS. Grant #CSURC0001-03.
i
Impact of the Balanced Budget Act on Small Rural Hospitals
Executive Summary
Executive Summary
A report on case studies of six well-managed, small rural hospitals. The hospitals selected
were among the best managed and stable rural facilities in their states, and had all suddenly
experienced financial difficulty in the last few years. These hospitals are in six different states,
representing the diversity of rural America: Iowa, Kentucky, Mississippi, Montana, Pennsylvania
and Texas. The Office of Rural Health Policy asked the University of Washington's Rural Health
Research Center to make an initial rapid assessment of the impact of the BBA by conducting
intensive site visits to six rural hospitals. This study is an investigation of the reasons for and
effects of their financial downturns.
Financial downturns. In just two years (1997 to 1999) the financial condition of five of the six
case study hospitals has worsened. The Balanced Budget Act is already eroding the financial
stability of these small rural hospitals. Four are in the red; the other two are scarcely in the black
(Table 1). Their worsening financial condition is the combined result of the Balanced Budget
Act and the increasing presence in rural areas of Medicaid and commercial managed care
programs. Managed care reduces inpatient days, and commercial plans demand discounted fees.
BBA payment impacts. The Balanced Budget Act's provisions have already made significant
cuts to rural hospitals' Medicare payments. The largest impact -- on outpatient revenues -- is yet
to come.
Diversified hospitals hit hardest. These forward-looking hospitals had worked hard to
expand and diversify -- all have outpatient services, five have home health agencies. and two
have skilled nursing facilities. The Medicare revenues for all of these services will decline as
the new prospective payment systems come on line. (Tables 2 and 3)
Home health. Five of the hospitals have experienced large losses in their home health
programs, directly attributable to BBA cutbacks and rule changes. Large home health losses
have undermined the financial stability of three of the hospitals visited.
ii
Skilled nursing facilities. The Pennsylvania hospital started a SNF in 1995. Medicare
reimbursement rates per day have fallen from $407 in FY 98 to LA 288 in FY 2000, and are
anticipated to fall to $221 when the BBA rate is fully phased in. Although this unit operates
at capacity, it is already losing money at current reimbursement r ites and likely will be closed
to stem the losses.
Outpatient services. Effects of the Medicare outpatient payment reductions are yet to
come. They will be the largest. (Table 3)
Impact on access and quality of care
Home health agencies are selecting patients based on the agency's ability to afford caring for
them within BBA limits.
The Texas hospital closed two outlying federally certified rural health clinics because
reimbursements had fallen.
The Pennsylvania hospital closed and the Mississippi hospital sharply reduced partial
hospitalization programs for elderly psychiatric patients.
The Texas and Kentucky hospitals laid off half their home health n urses
One hospital used an employee buyout strategy to reduce its staffing level and costs. The
highest paid, most skilled nurses took the buyout. This hospital's managers voiced concerns
about 'being on the edge' of their ability to maintain quality of care.
iii
Background
Initial reviews of the 1997 Balanced Budget Act provisions by rural policy experts
(RUPRI, 1997; RUPRI, 1999) predicted negative financial impact on many rural
hospitals. Earlier this year, some evidence of detrimental effects began to surface
(NRHA Annual Meeting, 1999; Capital Area Rural Health Roundtable, July 1999). Rural
hospitals' first experience with Medicare prospective payment systems - DRGs in the
1980s -- had been negative. Medicare inpatient PPS was a major contributor to the
closing of several hundred rural hospitals. Now three additional Medicare prospective
payment systems are coming on line -- for skilled nursing facilities, home health
agencies, and hospital outpatient services. Most rural hospitals will be affected by at least
two of the new prospective payment systems (21% will be affected by all 3; 72% will be
affected by 2 of them) as well as numerous other BBA reductions in hospital payments
(Univ. of Minn., 1999).
The Office of Rural Health Policy asked the University of Washington's Rural Health
Research Center to make a rapid assessment of the impact of the BBA by conducting
intensive site visits to six rural hospitals. This largely qualitative study of a limited
number of case studies was designed to identify the types of changes that are occurring to
the financial and institutional foundations of rural hospitals. There is no claim to
representativeness of the results. Hospitals in six different states were selected
representing the diversity of rural America: Iowa, Kentucky, Mississippi, Montana,
Pennsylvania and Texas. These six hospitals were selected because they 1) have
reputations as being well-managed, 2) have stability in their boards, physician supply and
administrators, and 3) suddenly began experiencing financial stress. Selecting relatively
well-run facilities allowed the study team to focus on the effect of changes in
environment and payment policy. This paper is the first report of findings from this
study; a more detailed report will be published later in 1999.
General Deterioration in Financial Condition
In 1997, our six study hospitals were in reasonable financial condition, but half had
negative operating margins. As illustrated in Table 1, two years later, five of the six have
seen their margins decline substantially. Four are actually in the red and the other two are
scarcely in the black. The Balanced Budget Act is a major contributing factor to this
trend since it is directed at those sectors rural hospitals have worked hardest to expand.
Similar to many rural hospitals, they had sought to diversify -- they opened home health
agencies,
1
Table 1
Changes in Hospital Profitability
in Six Study Hospitals
FY 1997-1999
Total Operating
Net Revenues After Expenses
Location of Study
Revenue
1997
1999
Hospital
Received FY99
Percent Change
Profitability
Profitability
Iowa
$ 9,268,575
$342,249
$ 22,982
- 93.3%
Kentucky
18,494,600
- 373,990
126,038
+133.6
Mississippi
7,946,652
- 617,522
- 774,642
- 25.4
Montana
9,217,618
321,383
- 364,821
- 213.5
Pennsylvania
22,579,649
- 131,971
- 812,633
- 515.8
Texas
4,548,900
706,360
-521,000
173.8
Source: Calculated by the University of Washington's WWAMI Rural Health Research Center using the
hospital Medicare Cost Reports for FY 1997 and FY 1999.
Notes: "Profitability" is measured by subtracting total operating expenses from total operating revenue
from patient care, but excluding non-operating income such as income on investments, gifts, and tax
revenues. Starting dates for fiscal years differ among hospitals. Data for Mississippi are for Fiscal years
1996-1998. Data for the Pennsylvania hospital are for one year 1998-1999 only.
started skilled nursing units, expanded outpatient departments, initiated geriatric
psychiatry programs, and increased rehabilitation units. However, this diversification in
no way decreased the heavy reliance of rural hospitals on Medicare. (U. Minn., Ch. 4)
Medicaid and commercial managed care programs are also part of the explanation.
Managed care plans, both commercial and Medicaid, are becoming a significant presence
in the rural markets visited, particularly those bordering on metropolitan areas. All the
case study sites reported significant cuts in commercial insurance rates. Indeed they
2
reported that commercial plans are beginning to adopt Medicare fee schedules and
payment plans wholesale. In addition, most states have now extended Medicaid managed
care into rural counties and have effectively reduced inpatient days and payment for ER
visits. All six hospitals reported a higher incidence of denials and delays in the
processing of claims by managed care and commercial carriers. The effect of these
developments is to exacerbate the impact of the BBA reductions.
The Balanced Budget Act and Rural Hospitals
The provisions in the Balanced Budget Act have made significant cuts to rural hospitals'
Medicare payments that will sharply escalate in intensity and affect a wide range of the
services they provide to Medicare beneficiaries. Table 2 summarizes the results of a
simulation comparing a baseline of FY 1998 with the same data applied to fully phased-
in BBA payment rules. (c. 2002). Note that the simulation model developed by the
American Hospital Association projects only modest cuts in total patient revenue, but
these are enough to wreak havoc with the bottom line of hospitals, even including
subsidies and interest income. A key finding is that these projections, based on a widely
disseminated model, appear to be underestimating the actual changes displayed in
Table 1.
Many rural hospitals may be able, over time, to adapt to these reduced revenues, if they
are able to survive that long. However, the declining or negative margins on which the
study hospitals now operate require significant cost cutting and place some of the
facilities in a race against time. This statement is not hyperbole. One hospital, an active,
busy facility offering a wide spectrum of services, currently has $250,000 in cash and in
November faces well over $1 million in paybacks to HCFA and to bond holders. While it
has a plan to meet this crisis, the facility will be left with absolutely no financial reserves
and further projected steep declines in Medicare revenues.
These hospitals will have to cut services to survive as their ability to further cut staffing is
limited. Indeed, the site visit team considered that two of the hospitals had already made
too deep a set of cuts in staff.
3
Table 2
Projected Changes in Revenue And Net Income of Hospitals
With Fully Phased-in BBA Changes To Medicare Payments
(in $1,000's)
Location of
Total Patient Revenue
All Income Net of Expenses
Study Hospital
Baseline
With BBA
Percent
Baseline
With BBA
Change
FY 1998
Change
FY 1998
Montana
$9,216
$8,775
-5.3%
$51
$ -436
$ -486
Mississippi
7,840
7,441
-5.1%
96
-303
-399
Pennsylvania
21,941
20,662
-5.8%
631
-647
-1,278
Texas
4,982
4,544
-8.8%
571
132
-438
Source: Projections calculated by the University of Washington's WWAMI Rural Health Research Center
using hospital FY 1998 Cost Reports, an average payment impact model developed by the American
Hospital Association, and hospital-specific projections of APC outpatient payment impact from the Health
Care Financing Administration.
Notes: Patient Revenue is total revenue actually received and defined as total charges for all patient care
net of discounts and allowances for charges not received. All Income Net of Expenses is patient revenue
plus other sources of non-patient care income minus operating costs. Cost report data for two of the six
study hospitals is not yet available. In the simulation there are no changes in costs: hence the difference in
patient revenue (columns 1 and 2) is equal to the change in net income (column 6)
Specific Impacts of the BBA on Six Rural Hospitals
What services will have their revenues most affected by the BBA payment cuts? The
BBA mandates a complex, far-reaching series of changes in Medicare payment policy.
Table 3 examines the results of the simulations by type of hospital service. A key finding
suggested by this table is that most of our study hospitals have not yet seen the largest
impact of the phasing in of the BBA provisions. While much attention has been paid to
the effects on home health, the forthcoming reductions in payments for outpatient
departments will generate much larger reductions in total revenue.
4
Table 3
Distribution by Hospital Service of Projected Cuts
in Medicare Payments FY 1998-2002
Total
Payment Reductions by Major Hospital Service Area
Location of
Annual
Total
Acute
OPD
SNF
Home
Cap-
Bad
Study Hospital
Reduction
Inpatient
Health
ital
Debt
($1000s)
Mississippi
399
100%
39.9%
47.8%
-2.0%
--
8.2%
6.1%
Montana
-$486
100%
24.9
56.8
--
12.2
5.7
0.4
Pennsylvania
-$1,278
100%
26.7
26.3
31.9
4.6
6.2
4.3
Texas
-$438
100%
13.9
66.2
--
13.5
3.1
3.2
Source: See Table 2
Note: Rows add to 100%. SNF includes skilled nursing facilities, a geriatric psychiatry unit, and
limitation of payments for contracted physical therapy services.
Outpatient Department Payments
All six of these hospitals provide extensive outpatient services. In 3 of the 4 case study
hospitals on which we had data to project BBA cuts by service area, the outpatient
payment reductions will be the largest single amount. Hardest hit will be the Texas
hospital; its outpatient payment reduction is projected to be two-thirds of all its BBA
cuts. For the other three hospitals, it will be a smaller but still substantial proportion of
their projected BBA cuts: 48%, 57% and 26% respectively. Although the estimates in
Table 3 for outpatient payment reductions are speculative, they were developed by
HCFA, and are the best available numbers of potential level of impact. The rural
hospitals visited were so involved in trying to manage the current downward financial
spiral that they have given very little attention to preparing for these large outpatient
payment cutbacks which are still to come.
Home Health
Five of the hospitals we studied experienced large losses in their home health programs,
directly attributable to BBA cutbacks and rule changes. Even the two hospitals (Texas,
Kentucky) which anticipated large cutbacks and adjusted early by laying off staff and
5
reducing visits were forced to make significant repayments to HCFA. These home health
losses have been of a magnitude to undermine the financial stability of three of the
hospitals visited.
Implementation of the home health agency interim payment system was as flawed as the
policy itself, in the eyes of the administrators with whom we spoke. The new per-case
cost limits were not communicated to the hospitals for months after they were in effect.
Our Kentucky hospital had guessed the cutback would be no worse than 25%, cut back its
costs accordingly, and was only told by its fiscal intermediary six months after the fiscal
year began that the cutbacks would total 50%. It has to write a check for about $500,000
to HCFA, a particularly difficult development since the hospital used the interim
payments to deliver the services and had held none of it in reserve.
Perhaps even more disturbing, home health agencies are having to both refuse patients
who need care and deny visits to patients who need them because of the BBA cutbacks.
Two hospital-based home health agencies stated that they now have to screen new cases
and turn down those which appear to be high cost. Two respondents also stated that their
nurses are seeing particularly needy patients on their own time without hope of
reimbursement.
Skilled Nursing Facilities (long-term care)
The Pennsylvania hospital started a SNF in 1995 that was designed as a post-acute unit
for stays of two weeks or less. Responding to its own difficulties finding an appropriate
setting for high-need discharges, the initiative has proven popular and has a waiting list of
patients awaiting discharge from other, often tertiary care, hospitals. It is now difficult to
see how this unit can be preserved. Effective reimbursement rates per day have fallen
from $407 in FY 98 to $288 in FY 2000. Given its current case mix the fully phased-in
BBA rate will be $221. The escalating financial loses for this SNF pose a challenge for
the hospital as a whole. However, its demise also raises the problem the unit was
designed to solve. Retaining patients will increase lengths of stay in the inpatient unit
and exacerbate increasing losses there.
Moreover, the hospital reports that the BBA cuts have increased the unwillingness of
free-standing nursing homes to accept high-need patients. These nursing homes
increasingly keep RN staffing at a minimum and avoid patients who need IVS. cardiac
medications, daily lab tests, extensive physical therapy or diabetic care. In addition, the
hospital has lost over $125 thousand in billings from three local nursing homes that
canceled their contracts for respiratory therapy in favor of in-house nurse-delivered
oxygen. The change may not be trivial given the community's coal economy and the
elevated incidence of lung disease among older people. Increasingly, when nursing home
6
patients are hospitalized, the hospital is having a harder time persuading the originating
nursing home to take them back. The hospital social worker told us, "Things started to
get really bad only in the last year or two. Nursing homes' decisions are now based on
financing. Medicaid patients are really at risk for discrimination, especially if they have
high acuity and expensive meds."
Bad Debt and Co-payments
Medicare beneficiaries who have limited or no supplemental insurance may have
difficulty paying the hospital deductibles and copayments. Several study hospitals
reported that the problem of bad debt for both Medicare and non-Medicare patients was
increasing -- doubling in two years in the case of the Iowa hospital. Previously, Medicare
beneficiary bad debt was reimbursable by including it as an allowable cost This is being
eliminated over a four year transition period.
Access to Care and Quality of Care
Are the BBA payment reductions and revenue losses from other payers affecting access
to care and quality of care for rural Medicare beneficiaries? In four of the six hospitals
visited, the scale of the cost cutting necessary to bring the hospital within range of the
ever-deepening revenue reductions is so large that the only feasible solution is to cut back
on services. And for many hospitals the largest reductions are yet to hit. Here are some
the changes in service capacity and access that the site visit team was told about:
Home health agencies are selecting patients based on the agency's ability to afford
caring for them within BBA limits;
The Texas hospital closed two outlying certified rural health clinics because
reimbursements had fallen;
The Mississippi hospital has decided to not even open its brand new Rural Health
Clinic;
The Pennsylvania hospital closed and the Mississippi hospital sharply reduced partial
hospitalization programs for elderly psychiatric patients;
Access to physical therapy, occupational therapy and speech therapy has declined in
all the sites;
The Iowa hospital had just raised the money to remodel its surgery facilities and is
stopping the project mid-construction because of declining financial resources;
The Texas and Kentucky hospitals laid off half their home health nurses;
Ironically all sites are having to employ additional people on the paperwork side
while reducing patient care in order to keep up with the new "fraud and abuse" rules
under BBA:
7
Labs are struggling with new rules requiring certain diagnoses to justify a Medicare
reimbursement, while physicians cannot be told what the rules are.
Three sites reported that physicians had become very reluctant to refer patients to
home health or long term care because of a perception that they could be risking fraud
and abuse charges.
One hospital used an employee buyout strategy to reduce its staffing level and costs.
The highest paid, most skilled nurses took the buyout. This hospital's managers
voiced concerns about now : being on the edge' of their ability to maintain quality of
care.
Critical Access Hospital Program
The CAH program will help many rural hospitals, especially in that large group which
averages fewer than 10 inpatients a day. However, the intent of the CAH legislation was
never to help all rural hospitals. Some of our hospitals were too large to be downsized.
For others (e.g. Iowa) the nearest larger hospital was so far away that the community
required obstetrics and surgery -- services incompatible with restricted lengths of stay.
The Mississippi hospital had high hopes for the program, but the results of a financial
simulation showed they would actually lose money by converting to a CAH. (It was
already exempt from PPS through its designation as a Sole Community Hospital and its
inpatient relative to outpatient revenue was unusually large.) Finally, cost-based
reimbursement means that Medicare will cover the direct costs of treating Medicare
patients only. If the hospital is also experiencing losses serving its non-elderly
population, where will the revenue come from to cover these shortfalls?
References
Rural Policy Research Institute. 1997. Rural Implications of the Balanced Budget Act of
1997, Report P97-10.
1999. Implications of the Provisions of the Balanced Budget Act of
1997: Critical Issues for Rural Health Care Delivery, Report P99-5
University of Minnesota Rural Health Research Center, 1999. Rural Hospitals:
Accomplishments and Present Challenges. July 1999
8
September 24, 1999
ROTH URGES PRESIDENT CLINTON TO ADDRESS BBA 97 MEDICARE CHANGES
THROUGH ADMINISTRATIVE ADJUSTMENTS
WASHINGTON Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today said
that the Executive Branch has the authority to make needed adjustments to the Medicare program
reforms enacted in the Balanced Budget Act of 1997, and urged the White House to go forward
with them.
In a meeting today with representatives from the White House, Finance Chairman Roth
suggested that the Clinton Administration address a number of areas of concern in the Medicare
program administratively. He outlined his suggestions in a document entitled, "Administrative
Adjustments to Improve Medicare Provider Payment Equity, and to Stabilize the Medicare +
Choice Program." The document lists administrative changes for hospitals, skilled nursing
facilities, physician payments, home health agencies, ambulatory surgical centers and Medicare
+ Choice.
"Our review indicates that several areas of legitimate concern could clearly be addressed by the
Executive Branch administratively, thereby freeing the Congress to concentrate on those matters
which can only be addressed legislatively," Roth stated in a letter to President Clinton.
"It is my intention to propose shortly a package of legislative adjustments in areas where steps
must be taken to improve payment equity to providers and to protect the availability of privately
offered Medicare + Choice plans."
A copy of the letter and enclosure are attached.
###
September 24, 1999
The Honorable William Jefferson Clinton
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Mr. President:
During the 105th Congress, you provided leadership and worked successfully with
Congressional leaders to enact the Balanced Budget Act of 1997 (BBA 97). That law helped put
the federal government on a course of fiscal discipline that is resulting in major economic
dividends benefiting all Americans. With respect to the Medicare program, we collaborated on
the most significant set of reforms in payments to providers and private health plans that has
occurred since the program was first enacted. These changes had the salutary effect of
temporarily stabilizing the rates of growth in Medicare spending and extending the solvency of
the Part A Hospital Insurance Trust Fund.
As is occasionally the case with major legislation, we have learned that there are some
unintended consequences. As a result, certain provider and health plan payment adjustments may
be required under Medicare in order to protect beneficiaries' access to quality health care services
and plans. It is my intention to propose shortly a package of legislative adjustments in areas
where steps must be taken to improve payment equity to providers and to protect the availability
of privately offered Medicare+Choice plans. In this regard, although you did not specify policies,
it was helpful that the Administration's recently released Medicare reform proposal set aside $7.5
billion over 10 years to address concerns in these areas.
Our review indicates that several areas of legitimate concern could clearly be addressed by the
Executive Branch administratively, thereby freeing the Congress to concentrate on those matters
which can only be addressed legislatively. I urge you to review the enclosed list of
administrative adjustments and advise me of your willingness to take steps within the
Administration to address these matters. As necessary, the Congress can and will act on other
related matters. However, I am confident that in the spirit of the BBA 97 agreements, including a
shared concern for fiscal responsibility, you will want to collaborate with us in resolving these
concerns. Thank you for your consideration.
Sincerely,
William V. Roth, Jr.
Chairman
Enclosure
Administrative Adjustments to Improve Medicare Provider Payment Equity, and to
Stabilize the Medicare+Choice Program
Hospitals
Proposal -- Fair Transition for Outpatient Payment Changes: Develop and administer a budget
neutral, multi-year transition method for implementation of the hospital outpatient prospective
payment system (scheduled for July, 2000), including a policy to maintain the scheduled
reductions in beneficiary cost-sharing liabilities for services received in hospital outpatient
departments.
Obtain an expert and independent evaluation of the clinical soundness and payment equity
implications of the proposed Ambulatory Payment Category (APC) system, including its
appropriateness for unique categories of providers, such as cancer hospitals. If a delay in
implementation or exemption of certain classes of providers is warranted under the review,
inform the Congressional Committees of jurisdiction by June, 2000.
Explanation: The Balanced Budget Act of 1997 (BBA) required the Secretary to implement a
prospective payment system (PPS) for hospital outpatient department services by January 1,
1999. The proposal issued by the Administration represents a major change in Medicare payment
policy for outpatient services and may result in significant changes in hospital payments. This
requested adjustment is needed to provide hospitals a reasonable period to adjust operations to
meet these funding changes, while maintaining corrections to the amount that beneficiaries are
required to pay in coinsurance for hospital outpatient services.
There is also concern about the methodology of the proposed APC classification system. Before
such drastic changes to current payment policy are implemented, an independent review of the
proposal is appropriate.
Proposal -- Limit Scope of Hospital Transfer Policy: Freeze the payment policy for hospital
transfers at the current set of 10 Diagnosis Related Group categories.
Explanation: The BBA gave the Secretary of HHS authority to classify discharges from acute-
care hospitals to post-acute care facilities within a group of 10 Diagnostic Related Groups
(DRGs) as "transfers." Beginning in 2001, the Secretary would have authority to expand this
policy to more than the initial 10 DRGs. As other payment policy changes from the BBA
continue to be monitored, it is unnecessary to expand the transfer policy in the foreseeable
future.
Skilled Nursing Facilities
Proposal -- Higher Payments for Complex Cases: Establish payment refinements to selected
Resource Utilization Groups as the Skilled Nursing Facility (SNF) PPS is implemented. These
changes should be targeted to improve reimbursement for medically complex cases, with special
attention to the unique problems of patients requiring complex treatments and prosthetics.
Explanation: The BBA phases in a PPS that pays for covered SNF services on a per diem rate.
The General Accounting Office has indicated that the current rate may not adequately reimburse
for services provided to medically complex patients.
Physician Payments
Proposal -- Corrections Due to Erroneous Spending Projections: Provide immediate advice on
administrative options for improving annual updates in payment for physician services to correct
for erroneous projections.
Explanation: Implementation of new payment methodologies established in the BBA produced
inappropriate payment reductions to physicians due to failures to adjust for erroneous
administrative projections used to set rates. This particular problem could be remedied through
changes in the year-to-year administrative payment projection and adjustment process.
Home Health Agencies
Proposal -- Proration of Payments: Relieve home health agencies of the inappropriate
responsibility for tracking patients that secure services from more than one agency in order to
prorate payments.
Explanation: New home health payment systems created by the BBA called for tracking the
number of home health services beneficiaries receive from different facilities, so that payment
amounts could be prorated. However, the BBA does not specify that this tracking is the
responsibility of the agencies. Such responsibility would be more appropriately assigned to the
fiscal intermediaries.
Proposal -- Equitable Recovery Schedules for Overpayments: Provide for extended repayment
schedules for agencies that incurred significant Medicare overpayments due to difficulties in
adjusting to major BBA 97 payment system changes.
Explanation: There is recognition of the need for more flexible overpayment schedules for
certain home health agencies facing large overpayment amounts due to the changes in payment
systems contained in the BBA.
Ambulatory Surgical Centers (ASCs)
Proposal -- Fair Payment for ASCs: Do not implement payment policy changes for ASCs until
1999 industry survey data is analyzed and properly incorporated into any proposed changes.
Explanation: In a proposed rule, the Administration is proposing changes to the payment policy
for ASCs based upon 1994 survey data. It would be more appropriate to implement proposed
changes after the 1999 survey data is complete.
Medicare+Choice
Proposal -- Fair Transition for Health Plans: Revise phase-in schedule for risk-adjusted payments
to extend the transition by at least two years and to prevent any single plan from experiencing
more than a 5-10% shift in Medicare payment rates attributable to the risk-adjuster in any single
year.
Explanation: The BBA required HCFA to develop and implement a health-based
risk-adjustment system by January 2000 to increase payments to plans that enroll sicker patients
and to decrease payments to plans that enroll healthier patients. The implementation may cause
significant changes in the annual payments to plans and thus the premiums beneficiaries would
be charged. This proposal would provide for a more gradual transition to risk adjustment and
protections for both beneficiaries and plans.