Copyright 1999 Federal News Service, Inc.
Federal News Service
SEPTEMBER 15, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4591 words
HEADLINE: PREPARED TESTIMONY OF
MR. MIKE
HASH
HEALTH CARE FINANCING ADMINISTRATION
BEFORE THE
HOUSE COMMERCE COMMITTEE
HEALTH AND ENVIRONMENT
SUBCOMMITTEE
SUBJECT - HEARING ON THE BALANCED BUDGET ACT OF 1997:
IMPACT ON COST SAVINGS AND PATIENT CARE
BODY:
Chairman Bilirakis, Congressman Brown, distinguished Subcommittee
members, thank yoinviting us to discuss possible necessary adjustments to the
Balanced Budget Act Medicare fee-for-service reforms. The BBA includes important
new preventive benefits and payment system reforms that promote access,
efficiency, and prudent use of taxpayer dollars. These reforms are critical to
strengthening and protecting Medicare for the future. The Medicare Trust Fund,
which was projected to be insolvent by 1999 when President Clinton took office,
is now projected to be solvent until 2015Coverage of new preventive health
benefits is among the BBA's most significant impacts on patient care. We have:
- expanded coverage for test strips and education programs to help diabetics
control their disease; - begun covering bone density measurement for
beneficiaries at risk of osteoporosis;
- begun covering several colorectal
cancer screening tests;
- expanded preventive benefits for women so
Medicare now covers a screening pap smear,
pelvic exam and clinical breast exam every three years for most women, and every
year for women at high risk for cervical or vaginal cancer; and,
- begun
covering annual screening mammograms for women age 40 and over, and a one-time
initial, or baseline, mammogram for women ages 35-39, paying for these tests
whether or not beneficiaries have met their annual deductibles.
And, as of
January 1, 2000, we will begin to cover prostate screening, as well. These
important additions to the Medicare benefits package will have a substantial
impact on patient care by helping to prevent problems and identify them at
earlier, more treatable stages.
The BBA also made substantial changes to the
way Medicare reimburses providers in the fee-for-service program. We have made
solid progress in implementing these payment reforms. For example, we have:
- modified inpatient hospital payment rules;
- established a prospective
per diem payment system for skilled nursing facilities to encourage facilities
to provide care that is both efficient and appropriate;
- refined the
physician payment system, as called for in the BBA, to more accurately reflect
practice expenses for primary and specialty care physicians;
- initiated the
development of prospective payment systems for home health agencies, outpatient
hospital care, and rehabilitation hospitals that will be implemented once the
Year 2000 computer challenge has been addressed; and,
- begun implementing
an important test of whether market competition can help Medicare and its
beneficiaries save money on durable medical equipment and supplies.
We have
fully implemented the majority of the BBA's more than 300 provisions affecting
our programs, including the Medicare+Choice program. While the statute generally
prescribes in detail the changes we are required to make, we are committed to
exercising the maximum flexibility within our limited discretion in our
implementation of these provisions.
It is clear that the BBA is succeeding
in promoting efficiency, slowing growth of Medicare expenditures, and extending
the life of the Medicare Trust Fund. However, according to both the HCFA
actuaries and the Congressional Budget Office, the BBA is only one factor
contributing to changes in Medicare spending. Low inflation from a strong
economy is having an impact on total spending. Slower claims processing during
the transition to new payment systems is contributing to a temporary slow-down
in overall spending. And we have made substantial strides in fighting fraud,
waste and abuse that have significantly decreased the amount of improper
payments. For the first time ever, the hospital case mix index declined last
year due to efforts to stop upcoding, or billing for more serious diagnoses than
patients actually have in order to obtain higher reimbursement.
Change of
this magnitude always requires adjustment. It is not surprising that some market
corrections would result from such significant legislation. We are proactively
monitoring the impact of the BBA to ensure that beneficiary access to covered
services is not compromised. We are evaluating this information to assess the
impact of BBA changes on beneficiaries and to determine what changes may need to
be made to ensure continued access to quality care.
Thus far, our monitoring
reveals evidence of isolated but significant problems. For example, there is
reason to be concerned that some beneficiaries are not getting necessary care
because of the BBA's $1500 caps on certain outpatient rehabilitation therapies.
We want to continue working with beneficiaries, providers, and Congress to
closely monitor the situation, evaluate any evidence of problems in access to
quality care, and develop appropriate, fiscally responsible solutions.
Because of our concerns, the President's Medicare reform plan sets aside
$7.5 billion from fiscal 2000 to fiscal 2009 to smooth out implementation of BBA
payment reforms that may be adversely affecting beneficiary access to high
quality care. Where there is credible evidence that adjustments are necessary to
protect access to care, we want to work with the Congress to make appropriate
adjustments. The President's reform plan also dedicates a portion of the budget
surplus to Medicare. This will help prevent excessive cuts in provider payment
that otherwise would be necessary in the future as Medicare enrollment is
expected to double over the next 30 years, and increased efficiencies alone will
not be able to cover the increased costs.
The President's plan also includes
administrative actions to assure a smooth implementation process, and we are
continuing to explore other actions. Those already underway address several key
areas of concern:
- Inpatient hospital transfers. The BBA requires the
Secretary to reduce payments to hospitals when they transfer patients to another
hospital or unit, skilled nursing facility or home health agency for care that
is supposed to be included in acute care payment rates for ten diagnoses. It
also authorizes HCFA to extend this transfer policy to additional diagnoses
after October 1, 2000. To minimize the impact on hospitals, we are delaying
extension of the transfer policy to additional diagnoses for two years. -
Hospital outpatient payments. The BBA requires Medicare to begin paying for
hospital outpatient care under a prospective payment system, similar to what is
used to pay for hospital inpatient care. To help all hospitals with the
transition to outpatient prospective payment, we are considering delaying a
volume control mechanism for the first few years of the new payment system.
The law requires Medicare to develop such a mechanism because
prospective payment includes incentives that can lead to unnecessary increases
in the volume of covered services. The proposed prospective payment rule
presented a variety of options for controlling volume and solicited comments on
these options. Delaying their implementation would provide an adjustment period
for providers as they become accustomed to the new system.
We also are
considering implementing a three-year transition to this new PPS by making
budget-neutral adjustments to increase payments to hospitals that would
otherwise receive large payment reductions such as low-volume rural and urban
hospitals, teaching hospitals, and cancer hospitals. Without these
budget-neutral adjustments, these hospitals could experience large reductions in
payment under the outpatient prospective payment system.
And, to help
hospitals under the outpatient prospective payment system, we included a
proposal in the proposed rule to use 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.
For all of these outpatient department reform options, the rulemaking process
precludes any definitive statement on administrative actions until after the
implementing rule is published.
- Rural hospital reclassification. Hospital
payments are based in part on average wages where the hospital is located. We
are making it easier for rural hospitals whose payments now are based on lower,
rural area average wages to be reclassified and receive payments based on higher
average wages in nearby urban areas and thus get higher reimbursement. Right
now, facilities can get such reclassifications if the wages they pay their
employees are at least 108 percent of average wages in their rural area, and at
least 84 percent of average wages in a nearby urban area. We are changing those
average wage threshold percentages so more hospitals can be reclassified.
-
Home health. The BBA significantly reformed payment and other rules for home
health agencies. We are taking several new steps to help agencies adapt to these
changes. We are increasing the time for repayment of overpayments related to the
interim payment system from one year to three years, with one year interest
free. Currently, home health agencies are provided with one year of interest
free extended repayment schedules. We are postponing the requirement for surety
bonds until October 1, 2000, when we will implement the new home health
prospective payment system. This will help ensure that overpayments related to
the interim payment system will not be an obstacle to agencies obtaining surety
bonds.
We also are following the recommendation of the General Accounting
Office by requiring all agencies to obtain bonds of only $50,000, not 15 percent
of annual agency Medicare revenues as was proposed earlier. We are eliminating
the sequential billing rule as of July 1, 1999. Many home health agencies had
expressed concern about the impact of the implementation of this requirement on
their cash flows and this measure should alleviate these problems to a large
degree. And we are phasing-in our instructions implementing the requirement that
home health agencies report their services in 15-minute increments in response
to concerns that the demands of Y2K compliance were competing with agency
efforts to implement this BBA provisions. Allowing this degree of flexibility
for a temporary period will prevent agency cash flow problems or returned
claims.
It is important to note that the BBA is only one factor contributing
to challenges providers face in the rapidly evolving health care market place.
Efforts to pay correctly and promote efficiency may mean that Medicare no longer
makes up for losses or inefficiencies elsewhere. We are concerned about reports
on the financial conditions of some individual and chain providers.
It is
essential that we try to delineate the BBA's impact from the effects of excess
capacity, discounted rates to other payers, aggressive competition, imprudent
business decisions, and other practices and market factors not caused by the
BBA. And, as is underscored by the title of this hearing, it is essential that
we focus on the impact on beneficiary access to high quality patient care.
Monitoring Access
These payment reforms have created change for many of
our providers. As mentioned above, our first and foremost concern continues to
be the effect of policy changes on beneficiaries' access to affordable, quality
health care. We are proactively monitoring the impact of the BBA to ensure that
beneficiary access to covered services is not compromised. We are systematically
gathering data several sources to look for objective information and evidence of
the impact of BBA changes on access to quality care, including:
-
beneficiary advocacy groups;
- health plans and providers;
- Area
Agencies on Aging;
- State Health Insurance Assistance Programs; - claims
processing contractors;
- State health officials; and
- media reports.
We also are examining information from the Securities and Exchange
Commission and Wall Street analysts on leading publicly traded health care
corpors. This can help us understand trends and Medicare's role in net income,
revenues and expenses, as well as provide indicators of liquidity and leverage,
occupancy rates, states-of- operation, lines of business exited or sold by the
company, and other costs which may be related to discontinued operations.
We
are examining Census Bureau data, which allow us to gauge the importance of
Medicare in each health service industry, looking at financial trends in revenue
sources by major service sectors, and tracking margin trends for tax-exempt
providers.
We are monitoring the Bureau of Labor Statistics monthly
employment statistics for employment trends in different parts of the health
care industry. Such data show, for example, that the total number of hours
worked by employees of independent home health agencies is at about the same
level as in 1996. That provides a more useful indicator of actual home health
care usage after the BBA than statistics on the number of agency closures and
mergers. The data also show that nursing homes may be slightly reducing the
number of employees and the hours that they work.
The HHS Inspector
General's office has interviewed hospital discharge planners and nursing home
administrators about the BBA's impact on patient care. They found that the
proportion of beneficiaries discharged to skilled nursing facilities is
unchanged from 1998. Hospital lengths of stay have not increased. Less than 1
percent of nursing home administrators say the prospective payment system is
causing access to care problems. However, about one in five discharge planners
say it takes more time to place Medicare patients in nursing homes, while only 1
percent say it is Avery difficult to make such placements.
The Inspector
General's Office also found that both nursing home administrators and hospital
discharge planners say nursing facilities are requesting more information before
accepting patients. About half of the nursing home administrators say they are
less likely to accept patients requiring expensive supplies or services such as
ventilators or expensive medications, about half also say they are more likely
to admit patients who require special rehabilitation services such as physical
therapy following joint replacement surgery.
The Inspector General's office
also has agreed to interview discharge planners about access to home health care
following BBA payment reforms, and the impact of the $1500 caps on outpatient
therapy. Specific BBA Provisions
Outpatient Rehabilitation Therapy: The BBA
imposed $1500 caps on the amount of outpatient rehabilitation therapy services
that can be reimbursed, except in hospital outpatient clinics. However, these
caps are not based on severity of illness or care needs, and they appear to be
insufficient to cover necessary care for many beneficiaries.
Beneficiary
groups are reporting many instances of problems with this cap, and we are very
concerned about their adverse impact, particularly on individuals in nursing
homes. As mentioned above, our HHS Inspector General colleagues have agreed to
study this problem. We are providing data to the Medicare Payment Advisory
Commission so it can analyze patterns of therapy service usage. And we will
continue to work with Congress and others to determine what adjustments to the
cap should be made.
Skilled Nursing Facilities: We implemented the new
skilled nursing facility prospective payment system called for in the BBA on
July 1, 1998. The old payment system was based on actual costs, subject to
certain limits, and included no incentives to provide care efficiently. The new
system uses average prices adjusted for each patient's clinical condition and
care needs, as well as geographic variation in wages. It creates incentives to
provide care more efficiently by relating payments to patient need, and enables
Medicare to be a more prudent purchaser of these services.
The BBA mandated
a per diem prospective payment system covering all routine, ancillary, and
capital costs related to covered services provided to beneficiaries under
Medicare Part A. The law requires use of 1995 costs as the base year, and
implementation by July 1, 1998 with a three year transition blending
facility-specific costs and prospective rates. It did not allow for exceptions
to the transition, carving out of any service, or creation of an outlier policy.
We are carefully reviewing the possibility of making administrative changes to
the PPS.
We held a town hall meeting earlier this year to hear a broad range
of skilled nursing facility concerns, and we continue to meet with provider and
beneficiary representatives. There are concerns that the prospective payment
system does not adequately reflect the costs of non-therapy ancillaries such as
drugs for high acuity patients.
We are conducting research that will serve
as the basis for refinements to the resource utilization groups that we expect
to implement next year. We expect to have the research completed by the end of
the year and to then develop refinements that we will be able to implement next
October. Under the statute, we have the authority to refine these groups and
redistribute money across categories in a budget neutral manner. We do not have
discretion under the law to increase the overall level of payments to skilled
nursing facilities. We fully expect that we will need to periodically evaluate
the system to ensure that it appropriately reflects changes in both care
practice and the Medicare population.
Home Health: The BBA closed loopholes
that had invited fraud, waste and abuse. For example, it stopped the practice of
billing for care delivered in low cost, rural areas from urban offices at high
urban- area rates. It tightened eligibility rules so patients who only need
blood drawn no longer qualify for the entire range of home health services. And
it created an interim payment system to be used while we develop a prospective
payment system. We expect to have the prospective payment system in place by the
October 1, 2000 statutory deadline. We expect to publish a proposed regulation
this fall so we can begin receiving and evaluating public comments, and publish
a final rule in July 2000.
The interim payment system is a first step toward
giving home health agencies incentives to provide care efficiently. Before the
BBA, reimbursement was based on the costs they incurred in providing care,
subject to a per visit limit, and this encouraged agencies to provide more
visits and to increase costs up to the limits. The interim system includes a
new, aggregate per beneficiary limit designed to provide incentives for
efficiency that will be continued under the episode- based prospective payment
system.
Last year Congress increased the cost limits in an effort to help
agencies during the transition to prospective payment. We are also taking steps
to help agencies adjust to these changes, and in March we held a town hall
meeting to hear directly from home health providers about their concerns. We are
increasing the time for repayment of overpayments related to the interim payment
system to three years, with one year interest free. And, effective July 1, we
ended the sequential billing policy that had raised cash flow concerns for some
agencies. Sequential billing was designed to ensure proper allocation of home
health expenditures between Part A and Part B that is required by changes to
financing of the benefit included in the BBA. We have determined we can
accomplish this allocation through other means.
At the same time, we are
implementing the Outcome and Assessment Information Set (OASIS). OASIS fulfills
a statutory mandate for a standardized, reproducible home care assessment
instrument. It will help home health agencies determine what care patients need.
It will help improve the quality of care. And it is essential for accurate
payment under prospective payment.
To date, evaluations by us and the GAO
have not found that reduced home health spending is causing significant quality
or access problems. However, we have heard serious reports from beneficiary
groups, our regional offices, and others regarding home health agencies that
have inappropriately denied or curtailed care and incorrectly told beneficiaries
that they are not eligible for continuing services. This may result from a
misunderstanding of the new incentives to provide care efficiently, or from
efforts to cherry pick low cost patients and game the system. The Congressional
Budget Office attributes some of the lower health spending to the fact that
agencies are incorrectly treating the new aggregate per beneficiary limit as
though it applies to each individual patient.
Recognizing this, we have
therefore provided home health agencies with guidance on the new incentives and
their obligation to serve all beneficiaries equitably. We have instructed our
claims processing contractors to work with agencies to further help them
understand how the limits work. Because home health beneficiaries are among the
most vulnerable, we are continuing ongoing detailed monitoring of beneficiary
access and agency closures. And, as mentioned above, we have taken several
administrative steps to help home health agencies adjust to BBA changes, such as
extending the time for them to repay overpayments.
Hospitals: We have
implemented the bulk of the inpatient hospital- related changes included in the
BBA in updated regulations. We have implemented substantial refinements to
hospital Graduate Medical Education payments and policy to encourage training of
primary care physicians, promote training in ambulatory and managed care where
beneficiaries are receiving more and more services, curtail increases in the
number of residents, and slow the rate of increase in spending. We have
implemented provisions designed to strengthen rural health care systems. We have
carved out graduate medical education payments from payments to managed care
plans and instead are paying them directly to teaching hospitals (and are
proposing in the President's Medicare reform plan to similarly carve out
disproportionate share hospital payments).
The BBA also called for a
prospective payment system for outpatient care, which we expect to implement
next year. The outpatient prospective payment system will include a gradual
correction to the old payment system in which beneficiaries were paying their 20
percent copayment based on hospital charges, rather than on Medicare payment
rates. Regrettably, implementation of the prospective payment system as
originally scheduled would have required numerous complex systems changes that
would have substantially jeopardized our Year 2000 efforts. We are working to
implement this system as quickly as the 000 challenge allows. We issued a Notice
of Proposed Rule Making in September 1998 outlining plans for the new system so
that hospitals and others can begin providing comments and suggestions. We are
actively reviewing all of the comments from the industry and other interested
parties that we received during the comment period, which we extended until July
30.
We are focusing most of our continuing work on rural, inner city,
cancer, and teaching hospitals because our analysis suggests that the outpatient
prospective payment system will have a disproportionate impact on these
facilities. We are reviewing the many comments we have received on the proposed
regulation and we are continuing to develop modifications to the system for
inclusion in the final rule. In addition to our work on the outpatient
prospective payment system, we are proactively monitoring the impact of all
Medicare payment changes on hospitals.
Physicians: As directed by the BBA,
we are on track in implementing the resource-based system for practice expenses
under the physician fee schedule, with a transition to full implementation by
2002 in a budget-neutral fashion that will raise payment for some physicians and
lower it for others. The methodology we used addresses many concerns raised by
physicians and meets the BBA requirements. We fully expect to update and refine
the practice expense relative value units in our annual regulations revising the
Medicare fee schedule.
We included the BBA-mandated resource-based
system for malpractice relative value units in this year's proposed rule. We
welcome and encourage the ongoing contributions of the medical community to this
process, and we will continue to monitor beneficiary access to care and
utilization of services as the new system is fully implemented.
The
President's fiscal 2000 budget contains a legislative proposal for a
budget-neutral technical fix to ensure the BBA's sustainable growth rate (SGR)
for physician payment. Medicare payments for physician services are annually
updated for inflation and adjusted by comparing actual physician spending to a
national target for physician spending. The BBA replaced the former physician
spending target rate of growth, the Medicare Volume Performance Standard, with
the SGR. The SGR takes into account price changes, fee-for-service enrollment
changes, real gross domestic product per capita, and changes in law or
regulation affecting the baseline.
After BBA was enacted, HCFA actuaries
discovered that the SGR system would result in unreasonable year-to-year
fluctuations. Also, the SGR target cannot be revised to account for new data.
CONCLUSION
The BBA made important changes to the fee-for-service
Medicare program to strengthen and protect it for the future. These changes,
along with a strong economy and our increased efforts to combat fraud, waste,
and abuse, have extended the life of the Trust Fund until 2015. With changes of
the magnitude encompassed in the BBA, some issues have arisen that may require
adjustment and fine tuning. The President's Medicare reform plan sets aside $7.5
billion to smooth out implementation of BBA reforms. It dedicates a portion of
the budget surplus to Medicare, which will help protect against excessive
provider payment reductions in the future as Medicare enrollment doubles over
the next 30 years, and increased efficiencies alone will not be able to cover
the increased costs. The President's plan also includes administrative
adjustments to help in the transition to new payment systems.
It is not
surprising that necessary market corrections would result from such significant
legislation. As always, we remain concerned about the effect of policy changes
on beneficiaries' access to affordable, quality health care. We are proactively
monitoring the impact of the BBA to ensure that beneficiary access to covered
services is not compromised. We welcome the opportunity to look at any new
information regarding beneficiary access to quality care. We are committed to
continuing to look at refinements to the BBA that are within our administrative
authority. We look forward to continuing to work with this Committee to identify
concerns, and we will keep you up to date on the status our of implementation of
the BBA.
The President is committed to working with Congress to enact
bipartisan Medicare reform this year that includes more competition in the
program, a long over-due prescription drug benefit that is available and
affordable for all beneficiaries, and that dedicates a significant portion of
the budget surplus to Medicare, and sets aside funding specifically for
smoothing out the transition to BBA payment reforms.
I thank you for holding
this hearing, and I am happy to answer your questions.
END
LOAD-DATE: September 17, 1999
