Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 17, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4357 words
HEADLINE: PREPARED STATEMENT OF
GAIL R.
WILENSKY, PH.D
CHAIR
MEDICARE PAYMENT ADVISORY COMMISSION
BEFORE THE
SENATE COMMITTEE ON FINANCE
SUBJECT - MEDPAC
RECOMMENDATIONS ON
IMPLEMENTING MEDICARE PROVISIONS
OF THE BALANCED
BUDGET ACT OF 1997
BODY:
Good morning Chairman
Roth, Senator Moynihan, and members of the Committee. I am Gall Wilensky, Chair
of the Medicare Payment Advisory Commission (MedPAC, or the Commission). I am
pleased to be here this morning to discuss the provisions of the Balanced Budget
Act (BBA) of 1997 that affect the Medicare program and how they are being
implemented. My testimony will draw heavily on MedPAC's Report to the Congress
on Medicare Payment Policy, which was released March 1.
Broadly speaking,
the Commission's recommendations address four topics: adequacy of payment
updates, equity of payments, technical and regulatory components of new payment
mechanisms, and other payment- related issues concerning coverage and
beneficiary cost sharing.
For certain services whose payment updates are set
in law by the BBA-- such as those provided by Medicare+Choice plans, inpatient
hospitals under the prospective payment system (PPS), and physicians MedPAC's
recommendations address whether the statutory updates are appropriate. In
general, the Commission finds the updates to be appropriate and does not
recommend changes to the law. In the ease of payment for physicians' services,
however, the Commission has developed several recommendations.For example, the
sustainable growth rate mechanism should account for changes in medical
technology and changes in the characteristics of beneficiaries enrolled in
traditional Medicare, such as their distribution across age groups.
MedPAC's
recommendations also address the issue of payment equity. The Commission
supports the introduction of a new risk adjustment system for
the Medicare+Choice program to make payments that better reflect enrollees'
health status. We also recommend changing payment methods for hospital
outpatient and physicians' services to account for cost differences that reflect
differences in patients' health status.
For services that the BBA directed
to be paid under new payment systems, MedPAC addresses recommendations to the
Secretary of the Department of Health and Human Services (the Secretary) and to
the Congress, as appropriate. We recommend technical changes in regulations that
would make payments more equitable within provider groups and more consistent
across types of providers. For example, the Commission supports the Secretary's
efforts to develop a case-mix adjustment system for skilled nursing facilities
that would better account for use of services other than rehabilitation therapy.
The Commission also supports developing a common unit of payment--a facility
discharge where possible--across providers of post-acute care.With respect to
other issues, MedPAC's key recommendations concern services provided in
outpatient hospital departments and by home health agencies. For the former,
MedPAC recommends accelerating the so-called coinsurance buydown provided for in
the BBA. For the latter, we recommend further clarification in statute
eligibility guidelines for receiving home health services.
The Balanced
Budget Act of 1997 and the Medicare Program
The Balanced Budget Act made
wide-reaching changes to the Medicare program. It established the
Medicare+Choice program, which allows new types of private health plans to offer
options for Medicare beneficiaries, and changed how Medicare pays private health
plans to slow the rate of growth of spending and make payments more equitable
among providers and across geographic areas. In the traditional Medicare
program, the BBA changed payment updates and methods for services provided by
acute care hospitals and physicians. It also directed the Secretary to establish
new prospective payment systems for skilled nursing facilities, home health
agencies, rehabilitation hospitals, and hospital outpatient departments.
MedPAC is monitoring the implementation of BBA policies closely and
evaluating them on the principle that Medicare's payment policies should
ensurebeneficiaries have access to necessary medical care in an appropriate
setting. At the same time, the program should not spend more than is required to
achieve that goal. This principle implies that payment rates must be consistent
with the costs of efficiently providing the necessary level of care, while not
interfering with clinical decisions as to the amount of care or the setting in
which it is provided.
Creation of the Medicare+Choice program
The BBA
abolished the so-called section 1876 risk contracting program, which had allowed
Medicare beneficiaries to enroll in health maintenance organizations (HMOs). In
its place, the Act established a new program called Medicare+Choice, which
permits many new types of private health plans to participate in Medicare,
including preferred provider organizations (PPOs), HMOs with a point-of-service
option, providersponsored organizations (PSOs), private fee-for-service plans,
and high-deductible plans offered in conjunction with a medical savings account.
The BBA also changed how private health plans are paid. Under the old risk
contracting program, Medicare set payments for managed care enrollees in each
county at 95 percent of what the program would have paid had those enrollees
remained in the traditional fee-for-service program. The BBA broke the direct
link between the level ofcounty fee- for-service spending and Medicare managed
care payments. Under the new system, Medicare+Choice plans are paid the higher
of a floor rate, a 2 percent increase from the prior year's rate, or a blend of
local and national payment rates (but only if a socalled budget neutrality
condition is met). The BBA also directed the Secretary to implement a new system
of risk adjustment based on the health status of plans'
enrollees, effective for payments in 2000.
One of the major objectives of
the BBA was to make a wider variety of private health care coverage options
available to Medicare beneficiaries by expanding the types of private health
plans eligible to participate in Medicare. However, changes in how payment rates
are determined, the establishment of new regulations to implement the program,
and concurrent trends in the health insurance environment resulted in few new
available options and, in fact, a sizable portion of former risk plans declined
to participate in Medicare+Choice.
It is too soon to tell whether the recent
departures from Medicare stem from systematic problems with the level or
distribution of payment. Accordingly, the Congress should not modify payment
rates at this time. MedPAC will continue to monitor this situation during the
next year. In the meantime, the Health Care Financing Administration (HCFA)
should continue to work with the relevant parties to identifychanges in
regulations or other policies that would reduce the burden of compliance without
compromising the objectives of the program. Two specific changes recommended by
MedPAC include postponing the date by which Medicare+Choice organizations must
file their premium and benefit proposals and allowing organizations to vary
their benefit packages by county within their service areas. The Commission
supports the Secretary's plan to phase in, beginning in 2000, an interim
risk adjustment mechanism for Medicare+Choice payments.
In this mechanism, differences in expected costliness among enrollees
will be based on health status, as measured by diagnoses from hospital stays in
the previous year, prior entitlement to Medicare benefits based on disability,
and eligibility for Medicaid benefits during the previous year. As quickly as
feasible, however, the risk adjustment mechanism should be
refined to incorporate diagnosis data from all sites of care. These changes
should improve the correlation between payments to Medicare+Choice organizations
and the expected service use of their enrollees.
Provisions affecting
payments to hospitals
For inpatient services provided in acute care
hospitals under the PPS, no update was made to payments in fiscal 1998, and the
BBA limited updates for 1999 through 2002 tothe growth in the hospital market
basket less a specified factor. For rehabilitation, longterm, and psychiatric
hospitals--whose payments had been made on the basis of costs subject to
facility-specific limits--the BBA instituted new national cost limits and
established more stringent limits for new facilities.
Hospitals covered by
the acute care prospective payment system. Based on our ongoing analysis of the
factors that determine year-to-year changes in hospital costs, we believe the
operating update for fiscal year 2000 that was enacted in the BBA--1.8
percentage points less than the increase in HCFA's hospital operating market
basket index--will provide reasonable payment rates. If the current market
basket forecast holds, the update would be 0.7 percent.
MedPAC's analysis
shows that hospitals have responded to a more competitive market by improving
their productivity and shifting services to other sites of care. These two
responses have resulted in a substantially lower rate of inpatient cost growth
and sharply higher Medicare inpatient margins. Although both Medicare and the
industry benefit from productivity improvements, the site-of-care substitution
has increased Medicare's payments. When post-acute care replaces the latter days
of inpatient stays, Medicare picks up an additional payment obligation while its
per-case payment for hospital care is unchanged.MedPAC believes that a downward
adjustment to payments is warranted to account for site-of-care substitution.
Part of this adjustment was reflected in the update recommendation we made last
year for fiscal 1999, and in our predecessor commission's recommendation for
fiscal 1998. But we currently believe that an additional adjustment of between 3
and 6 percentage points should be made. To avoid too great a single-year impact,
the adjustment should be spread over three years.
At the same time, however,
several factors point toward the need for caution in specifying future updates.
First, the expanded transfer policy included in the BBA should be considered
part of Medicare's response to site-of-care substitution, and its effects are
not yet known. Second, evidence is emerging that the decade-long trend of cases
shifting towards higher-weighted diagnosis-related groups, which automatically
increases PPS payments, is subsiding. Third, we question whether the unusually
low rate of hospital cost inflation in recent years can be sustained without
adverse effects on quality of care. The year 2000 computer problem will also put
upward pressure on hospital costs. And finally, several provisions of the BBA
will reduce Medicare's payments for other hospital services, and the overall
impact of the BBA on hospitals is not yet evident.
The BBA also phased in a
5 percent reduction in Medicare's extra payments tohospitals that care for a
disproportionate share of low- income patients, increasing the importance of
allocating these payments appropriately. Currently, disproportionate share
payments are made through a complex formula that determines a percentage add-on
to each hospital's PPS payments based on its location, size, certain other
characteristics, and a measure of care to low-income people. The measure of care
to low-income people, however, excludes uncompensated care and local indigent
care programs, which represent a large share of the burden faced by many
hospitals that treat low-income patients. Moreover, under the current formula,
rural and small urban hospitals that treat a disproportionate share of
low-income patients receive a much smaller adjustment (if any) than large urban
hospitals with the same share. Our technical recommendations are intended to
eliminate these flaws.
Facilities exempt from the acute care prospective
payment system. Certain types of hospitals and distinct units of hospitals are
exempt from the acute care PPS. These socalled PPS-exempt facilities are a
diverse group that share a common Medicare payment method established by the Tax
Equity and Fiscal Responsibility Act of 1982. They include rehabilitation,
long-term, psychiatric, children's, and cancer hospitals, and rehabilitation and
psychiatric units in acute care hospitals. Each of these facilities is paid an
amount based on its own costs in the payment year relative to a per-case target
that depends on its costs in a base year, updated to the payment year.MedPAC's
analysis of the factors that determine year-to-year cost increases for
PPS-exempt facilities indicates that the update factor applied to the per-case
targets in fiscal year 2000 should be increased by 0.4 percentage point more
than in the formula prescribed in the BBA. The BBA also established a
category-specific cap on the percase targets for rehabilitation and psychiatric
facilities and long-term hospitals but did not provide that these nationwide
caps be adjusted for differences in input prices across areas. We recommend
correcting that technical oversight. The BBA required that Medicare implement a
new payment system for rehabilitation facilities and that the Secretary develop
a proposal for long-term hospitals. It did not mention psychiatric facilities,
however. MedPAC encourages additional research in case-mix classification for
payments to psychiatric facilities, with an eye toward developing a PPS for them
in the future.
Provisions affecting payments to physicians
The BBA
mandated a number of changes in the Medicare Fee Schedule for physicians. To
update payment rates for physicians' services, a sustainable growth rate system
was established to replace volume performance standards. To make the fee
schedule fully resource based, HCFA recently began to phase in a new methodology
for the practiceexpense component (which it intends to refine as it is used) and
is developing revisions to the professional liability component.
MedPAC
recommends several modifications to the sustainable growth rate system (SGR).
These include revising the SGR to include measures of changes in demographic and
other characteristics of Medicare fee-for- service enrollees, to reflect cost
increases due to desirable improvements in medical capabilities and scientific
technology, and to correct for inaccuracies in estimates used in SGR system
calculations. We also call for a reduction in time lags between the periods on
which the various components of the SGR are based and the earlier availability
of estimated updates for each upcoming year.
With respect to HCFA's
implementation of resource-based practice expense payments, MedPAC agrees that,
for some services, it is appropriate to pay a lower practice expense amount when
physicians perform the service in facilities other than their offices. MedPAC
recommends, however, that a service-by-service approach be used to decide which
services are subject to this site-of-service differential, rather than applying
the same decision to entire groups of services. Services generally recognized as
inappropriate to perform in a physician's office should be paid at the lower
facility practice expense level. In refining practice expense payments,
participants with a wide variety of relevant expertise should be included in the
process.To make the professional liability component of the fee schedule
resource based, payments should reflect the risk of a professional liability
claim in providing each service.
Establishing new prospective payment
systems in the fee-for-service program
The BBA established new prospective
payment systems for post-acute care providers--skilled nursing facilities, home
health agencies, and rehabilitation hospitals--and for services provided in
hospital outpatient departments. Payments to these providers had previously been
made on the basis of facilities' costs--and also charges in the case of hospital
outpatient departments--subject to certain limits. Under the new prospective
payment systems, fixed predetermined payments will be made for a specified set
of services. For skilled nursing facilities, a three-year phase-in of the PPS
began in July 1998. Implementation of the PPS for home health agencies,
originally scheduled for October 1999, was delayed for one year by the Omnibus
Consolidated Emergency Supplemental Appropriations Act of 1998. The PPS for
rehabilitation hospitals is scheduled to be implemented in October 2000. The
prospective payment systems for hospital outpatient departments was originally
scheduled to be implemented in January 1999 but has beendelayed.
The new
prospective payment systems will reduce uncertainty for both providers and
policymakers and will encourage providers to deliver care efficiently.
Prospective payments will also allow policymakers to compare rates
across settings more directly, which will make it easier to set payment rates
that vary according to the services provided and not simply their location.
Policymakers will need to monitor the quality of and access to care to ensure
that providers do not react to the new systems by stinting on care, rather than
improving efficiency.
Developing new payment systems for post-acute care
providers. The BBA mandated substantial changes in Medicare payment policy for
providers of post-acute care. To guide the development of consistent payment
policies across post-acute care settings, MedPAC recommends that common data
elements be collected to help identify and quantify the overlap of patients
treated and services provided. Further, it is important to put in place quality
monitoring systems in each setting to ensure that adequate care is provided in
the appropriate site. We also support research and demonstrations to assess the
potential of alternative classification systems for use across settings to make
payments for like services more comparable.The Commission has several
recommendations intended to improve the PPS for skilled nursing facilities. More
work is needed to refine the classification system used in the PPS for skilled
nursing facilities, particularly in its ability to predict the costs of
nontherapy ancillary services. Alternative ways of grouping rehabilitation
services provided in SNFs may also be called for to reduce reliance on
measurements of rehabilitation time. A method for updating the relative weights
that determine how much facilities are paid for each type of patient is crucial
as the system and the types of services provided change over time. In general,
as better data become available with the new system, distortions in the base
payment rates due to imperfections in the initial data and measures used should
be detected and corrected. To avoid future problems, facilities must be
accountable for accurately assessing patients' needs and reporting the data used
to determine payment for each case. Finally, payments should be adjusted for
geographic differences in labor prices using wage data from SNFs, rather than
hospitals, to make them more equitable among providers.
The BBA put in place
an interim payment system (IPS) to govern payments to home health agencies until
a prospective payment system was developed. The IPS was the subject of a great
deal of controversy in the year following its enactment. This controversy
stemmed, in part, from the use of payment policy as a vehicle for curbing the
rapidly rising cost of a benefit that was poorly defined. Although the debate
appears tohave subsided, at least temporarily, with recent changes to the IPS,
MedPAC believes that more fundamental changes are necessary even as a new
payment system is being developed. We urge the Congress, in consultation with
the Secretary, to enact clearer eligibility and coverage guidelines for Medicare
home health services. To better understand the content of home health visits,
agencies' bills should describe the specific services provided. Moreover, we
recommend that an independent assessment of need be conducted for Medicare
beneficiaries who receive extensive home health care to ensure that care is
appropriately coordinated and suits the needs of the patient. Finally, modest
beneficiary cost sharing should be introduced for home health services;
copayments should be subject to an annual limit, and low-income beneficiaries
should be exempt from this requirement.
As systems for rehabilitation
facilities are developed, a number of crucial decisions must be made. Among them
is the unit of payment. MedPAC recommends that a per-discharge mechanism be
adopted for rehabilitation services. A system currently exists that with some
modifications could serve as a basis for such an approach. We also recommend
that, in choosing a patient classification methodology for a longterm hospital
PPS, HCFA consider not only per diem but also existing and potential
perdischarge approaches.Modifying payment for services provided in ambulatory
care facilities. Spending for facility-based ambulatory care services has grown
substantially since the early 1980s, in part because a combination of financial
incentives and technological advances encouraged shifting of services that once
were provided exclusively in the inpatient setting to hospital outpatient
departments (OPDs), ambulatory surgical centers (ASCs), and physicians' offices.
Medicare pays for many of these services differently according to where they are
provided.
As required by the BBA, the Secretary has proposed a new payment
system for hospital outpatient services. MedPAC recommends these changes be
closely monitored to ensure that beneficiary access to appropriate care is not
compromised in the face of substantial reductions in payments to hospital OPDs.
In addition, payments should reflect the higher costs of treating certain types
of patients. In the absence of adequate patient-level indicators, facility-level
adjustments may be required for the time being. We are also concerned that
loosening guidelines for determining whether a procedure is eligible for
coverage in an ASC may lead to inappropriate changes in the pattern of service
provision across ambulatory settings.
Although the BBA provided for a
gradual reduction in the amount of beneficiary coinsurance for services provided
in hospital outpatient departments, it will be yearsbefore that amount is
reduced to a level comparable with that for similar Medicarecovered services
furnished in ASCs or physicians' offices. MedPAC recommends accelerating the
reduction in the outpatient coinsurance, to be funded by increased program
spending rather than by further reductions in hospital payments.
The
Commission makes several recommendations that apply to payment for ambulatory
care in general. Consistent with the way that Medicare pays for physicians'
services, the unit of payment should be the individual service--that is, the
primary service and the ancillary supplies and services integral to it--rather
than a larger bundle of services. Accordingly, the relative cost of the
individual service should determine payment, rather than costs for groups of
services taken together. When payment rates are set, the pattern of services and
costs across ambulatory settings should be taken into account. Moreover, a
single update mechanism that links updates to spending growth across all
ambulatory care settings should be applied to the payment rates for each type of
provider.
Improving the quality of dialysis services
The BBA required
the Secretary to develop and implement methods to measure and report the quality
of dialysis services. MedPAC is studying the quality of care providedto
beneficiaries with renal failure and will comment on this topic in its June
Report to the Congress. In March, the Commission recommended updating the
composite rate for outpatient dialysis services. The dialysis industry has been
profitable, and finns continue to enter the market despite the lack of a
significant update in the composite rate since it was established in 1983. The
Commission's analysis indicates, however, that costs have been approaching
payments in recent years. We are concerned that further increases in dialysis
costs relative to the payment rate may cause quality to deteriorate.
Conclusion
In just over a decade, the first members of the baby-boom
generation will become eligible for Medicare, and policymakers have
appropriately focused significant attention on how to address Medicare's future
fiscal pressures. But Medicare also faces challenges in the short run as HCFA
continues to implement the BBA, developments unfold in the market for health
care, and new technologies and treatments emerge.
These short-run challenges
are inevitable because Medicare is an extraordinarily large and complex program.
The program has almost 40 million beneficiaries, and it makes payments to
hundreds of thousands of providers who deliver tens of thousands of different
kinds of health care services and supplies. Medicare's payment policies
bothinfluence and are influenced by the larger health system and market for
health services in which the program operates. Therefore, Medicare's payment
policies must continue evolving to ensure that beneficiaries have access to high
quality, medically necessary care across the country.
To assist the Congress
and HCFA in meeting this objective, MedPAC will continue to monitor Medicare
beneficiaries' access to health care and will examine what can be done to
improve quality in both Medicare+Choice and in the traditional fee-forservice
program. The Commission will track developments as the Medicare+Choice program
matures and will look at the availability of plans, the impact of risk
adjustment, and other payment policies. MedPAC will continue to analyze
fee-for-service payment policies in a broad context that takes into account the
implications of providing health care services in an increasing variety of
settings. This work will look at what constitutes an appropriate unit of payment
and how payments are currently updated using different methods. Finally, the
Commission will continue to study the delivery of services in the broader health
care market to determine whether strategies that have evolved in private markets
can be used to improve Medicare policy.
END
LOAD-DATE: March 18, 1999