Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
May 27, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4881 words
HEADLINE:
TESTIMONY May 27, 1999 LARRY S. GAGE SENATE FINANCE HEALTH CARE
CHANGES TO THE MEDICARE SYSTEM
BODY:
Statement of
LARRY S. GAGE President of the National Association of Public Hospitals &
Health Systems Before the COMMITTEE ON FINANCE United States Senate Washington,
D.C. May 27,1999 I am Larry Gage, President of the National Association of
Public Hospitals & Health Systems (NAPH), which represents over 100 of
America's metropolitan area safety net hospitals. These hospitals and systems
are uniquely reliant on governmental sources of financing to support care to
Medicare, Medicaid, and uninsured patients. They also provide many preventive,
primary and costly tertiary services to their entire communities, not just to
the poor and elderly. These services include a wide variety of around- the-clock
standby services such as trauma units, bum centers, neonatal intensive care,
poison control, emergency psychiatric services, and crisis response units for
both natural and man-made disasters. Finally, most NAPH members also serve as
major teaching hospitals. I am pleased to have this opportunity to testify
before the Finance Committee on the issue of long term Medicare reforms. NAPH
members on average serve fewer Medicare patients, and far more Medicaid and
uninsured patients, than the average community hospital in America. However,
Medicare payments -- especially Medicare teaching and disproportionate share
hospital (or "DSH") adjustments -- are important sources of support for safety
net hospitals. Moreover, the Medicare patient population of NAPH members is
disproportionately drawn from among low income elderly residents in urban areas.
We therefore feel that our members have a special interest in the debate over
future reforms to the Medicare program. I would like to accomplish three things
in my testimony this morning. First, because it has been some time since NAPH
last testified before this committee, I would like to take this opportunity to
bring you up to date on the situation of America's safety net hospitals and
health systems. Second, I will provide you with a number of specific comments on
long term Medicare reform generally and on the premium subsidy proposals
discussed during the deliberations of the Medicare Commission in particular,
Finally, as part of my prepared testimony submitted for the record, I would like
to comment briefly on several other issues of concern to NAPH members. These
include the impact of the 1997 Balanced Budget amendments, dramatic recent
changes that have occurred in Medicaid eligibility and reimbursement policies,
and a proposed new Safety Net initiative currently under consideration by the
Senate Appropriations Committee. Situation of Urban Safety Net Hospitals &
Health Systems The last decade has seen a dramatic transformation of the role of
the hospital in our nation's health system, with a profound impact on every
important element of that system. From the way we purchase and pay for health
coverage, to where and how we provide needed care, the metamorphosis has been
swift and intense. New systems and networks spring to life overnight, mergers
and acquisitions dramatically shrink the number of players, and traditional
payment mechanisms turn upside down in a heartbeat. While all hospitals are
affected by these trends, safety net hospitals and health systems have felt
their impact disproportionately. The pressure for change is especially acute for
those providers who rely most heavily on federal, state and local governmental
funding to pay for their wide range of primary, acute and public health
services. For such systems, marketplace pressures are intensified by a variety
of other factors. These include the growth in the uninsured, reductions in
Medicaid funding and local support, greater competition for Medicaid patients,
the explosion in managed care, and the need to provide public health and
community-wide services. As a result of these challenges, safety net hospitals
and systems face major threats to their future survival. The health of many
millions of low income patients, and the viability of the health system for rich
and poor alike in many metropolitan communities, are likely to be in danger if
these threats are not adequately addressed. In describing the situation of
safety net systems, I will draw in part on new 1997 data collected by NAPH in
its annual Hospital Characteristics Survey, augmented by data from the American
Hospital Association's Annual Survey and other sources. Please note that this is
the first time this new 1997 NAPH data has been released. The mission of NAPH
members, and other safety net health systems, includes a willingness, to the
extent of their financial ability, to serve all individuals, regardless of
insurance status or ability to pay. This mission is reflected first and foremost
in the tremendous volume of patient care services provided to all patients in
safety net hospitals. In 1997, NAPH members averaged 17,200 inpatient admissions
and over 340,000 outpatient and emergency room visits annually. However, these
numbers tell only part of the story. For most safety net systems, this volume
reflects an even more significantly disproportionate provision of services to
the elderly and the poor, especially by those hospitals which also serve as
academic medical centers. In 1997, NAPH members provided, on average, 83 % of
their services to Medicare, Medicaid and " self-pay " patients. Most "self pay"
patients represent, in effect, the uninsured (who typically pay little or
nothing for their care). NAPH members provided, on average, 28% of their
services (as measured by gross charges) to such self-pay patients in 1997. Most
of these self pay patients end up as bad debt or charity care for NAPH member
hospitals, and the costs of these patients must be covered from a variety of
other payment sources. Just 67 NAPH members provided over $3.9 billion in
uncompensated care in 1997, or an average of $58 million per hospital. The
situation is projected to worsen over the next several years. Even since efforts
to enact national health reform failed in 1994, the numbers of uninsured have
grown to nearly 44 million today, and are project to continue to grown for the
foreseeable future. The University HealthSystem Consortium recently estimated
(using HCFA data) that we would have 53 million uninsured by 2003. A recent
study by the National Coalition on Health Care predicts that if an economic
downturn occurs, as many as 61.4 million non-elderly Americans - one in four -
could be uninsured by 2009. It is ironic that the pressures on the safety net
have been increasing at a time of unprecedented economic prosperity in America.
Unemployment is at a 28-year low. The federal budget was balanced last year for
the first time in decades. And many states are seeing larger budget surpluses
than at any time in recent memory. Why do we face this paradox of an
extraordinarily robust economy and increasing number of uninsured? There are
several likely reasons, including: -Many of the new jobs being created are in
small businesses or service industries that do not provide adequate insurance
coverage; -Many lower-income workers, especially younger individuals, faced with
rising costs, are giving up coverage or refusing to accept optional personal or
dependent coverage, -Welfare and immigration reforms have led to reduced
eligibility for Medicaid and other programs among some low-income and vulnerable
populations; -In most states a large proportion of those eligible for Medicaid
and other programs are simply never enrolled, or at least not until they fall
seriously ill; -Incremental reforms - such as the 1995 Kennedy-Kassebaum
legislation and the 1997 Child Health Insurance Program (CHIP) - have been slow
to bear fruit and will likely end up helping far fewer uninsured individuals
than originally anticipated. One major characteristic that defines NAPH member
hospitals is how they finance the provision of high volumes of charity care. In
1997, NAPH members on average received just 19% of their net operating revenues
from Medicare and 19% from commercial insurance and managed care plans. With
another 27% in Medicaid patient care revenues, that left 35% of costs to be
covered by alternative sources. The primary sources of financing for
uncompensated care in NAPH member hospitals are the Medicaid and Medicare
Disproportionate Share Hospital (DSH) programs. In 1997, Medicaid DSH payments
covered 35% of the costs incur-red in treating the uninsured and underinsured
and Medicare DSH covered another 8% for all NAPH members nationally. State and
local subsidies made up most of the difference, accounting for 52% of total
payments for uncompensated care. Such subsidies accounted for 28% of net patient
revenues for NAPH members in 1997. Safety net health systems also face increased
competitive pressures, including competition for privately insured patients, and
for selected Medicaid patients as well. In the area of obstetrics, for example,
NAPH members have seen a dramatic reduction in the number of deliveries, as
private providers have increasingly sought to compete for the simpler, less
complicated Medicaid patients. In particular, between 1990 and 1996, the number
of births has declined by over 35% (or nearly 1200) at the average NAPH member
hospital. This trend in obstetrics is just one example of the more aggressive
competition driving the need for dramatic changes in the way safety net
hospitals do business. A significant part of this is driven by the shift to
managed care for Medicare, Medicaid and privately insured patients alike. The
ability to contract with managed care plans and compete for both physicians and
managed care patients is becoming more essential to survival in today's
competitive marketplace. In addition to eliminating cost shifting, managed care
and competition have had other effects on health care providers in ways that
will impact their provision of uncompensated care. States have used managed care
to contain costs in their Medicaid programs and, in some instances, have
attempted to expand coverage to the uninsured with some of the savings. However,
many such states have been forced to cap or reduce such expanded eligibility.
This has further increased pressure on safety net providers serving the
uninsured and underinsured. NAPH Comments on Medicare Reform NAPH members
understand and appreciate that long term structural reforms will be essential if
the Medicare program is to be preserved and improved for current and future
generations. Fortunately, the hard work previously undertaken by Congress and
the President allows this Congress more time to step back and take a thoughtful
and measured approach to reform. The life of the Trust Fund has been extended by
the reforms already enacted and by improvements in the U.S. economy. We also
believe the Congress can further extend the life of the Trust Fund by adopting
the President's proposal to dedicate 15 percent of the budget surplus to that
purpose. Because the program has thus been protected for the near future, NAPH
believes that your baseline principle for considering major reforms should be
"first, do no harm." In that regard, first and foremost, we counsel caution and
careful deliberation. Efforts at reforming the Medicare program should not be
taken lightly or precipitously. For this reason, NAPH neither endorses nor
opposes the premium support proposals deliberated (although not formally
endorsed) by the Medicare Commission. Rather, we prefer to provide you with some
suggested principles for undertaking a cautious and careful approach to reform.
Those principles are: Medicare must continue to guarantee coverage and benefits.
The Medicare program has been extremely successful in ensuring that our nation's
elderly and disabled have access to meaningful health care coverage. Meaningful
coverage means guaranteeing beneficiaries that their costs for a defined set of
health care benefits will be paid for (or substantially paid for), subject only
to clearly defined and commonly understood copayments. The premium support
proposals discussed to date do not make it clear that beneficiaries would
continue to be entitled to coverage for a defined benefits package. NAPH's
support for future reform proposals will be contingent upon continuing the
guarantee of coverage and benefits to all Medicare-eligible individuals.
Medicare must be affordable for low-income beneficiaries. Currently, Medicare's
premiums and cost-sharing are strictly limited by law. Low-income beneficiaries
are further protected from unaffordable cost-sharing through dual
Medicaid-Medicare coverage. Such cost-sharing protections, particularly for low-
income beneficiaries, must be preserved in any reform proposal. Unless
low-income beneficiaries retain equal access to the full gamut of Medicare
options, we will wind up with a two-tiered Medicare system which channels poorer
beneficiaries into second- rate plans, while the more wealthy enjoy better
coverage. Medicare reform must protect beneficiaries from adverse selection.
Currently, only around one in six beneficiaries is in a Medicare HMO and the
rest remain in the "traditional" Medicare fee-for- service system. HMO enrollees
on average have been a healthier and less costly population to serve than their
fee-for-service counterparts. Current Medicare benefits and marketing
requirements to some extent limit the ability of HMOs to attempt to attract a
specific sub-set of beneficiaries, such as those who are healthier or lack
certain chronic conditions. However, to date, HCFA is currently in the process
of designing a risk- adjusted HMO payment system to remove the incentive for
such "cherry-picking." Any reform must ensure that participating plans are
prohibited and financially discouraged from avoiding high- risk, high-cost
cases. Otherwise, the traditional fee-for-service Medicare system will be left
with only the more expensive beneficiaries, becoming prohibitively expensive
both for the beneficiaries and for the government. Medicare reform should ensure
that beneficiaries have meaningful choices in both their plans and providers. As
Medicare seeks to move more and more beneficiaries into managed care as a way of
controlling costs and providing more benefits, reform should ensure that these
choices are real for all beneficiaries, not just those who are healthy or live
in certain communities. The premium support proposal that has been outlined by
Senator Breaux calls for establishing a "Medicare Board" to oversee the program.
This Board would be given broad powers to negotiate premiums, approve the
benefits package, safeguard against adverse selection, and ensure quality
standards. The proposal gives no boundaries within which the Board would wield
these powers - it does not even give any details on how the Board would be
constituted. These questions must be answered before NAPH could support such a
proposal with confidence that such a Board would protect beneficiary interests.
Protection of essential medical education and DSH payments Currently, Medicare
hospital reimbursement includes explicit adjustments to pay for graduate
medical education (GME) and care for the poor (through the
disproportionate share hospital, or DSH, program). Medicare's role in funding
these payment adjustments has been debated, and some have called for the removal
of these payments from the Medicare trust fund. We strongly oppose these
efforts. Medicare pays only for its share of medical education and other
uncompensated costs. These adjustments must be properly viewed as a legitimate
component of Medicare reimbursement, not an inappropriate subsidy that should be
paid for through general revenues. We do agree, however, that Medicare should
not be the only payer supporting medical education and care for the poor, and
that the structure of these payments might possibly be subject to reform within
the context of broadening support by other payers. At the same time, a reformed
Medicare system must ensure that DSH and GME payments reach their intended
recipients - providers that care for a disproportionate number of low-income
patients and that train our nation's future health care work force. The current
program does this for GME by carving it out of the payments to managed care
entities and paying it directly to the providers that teach residents. A
reformed program must likewise ensure that both GME and DSH payments are not
folded into the premiums paid to plans but are paid directly from the federal
government to the providers that they are intended to support. Medicare reform
must not increase the ranks of the uninsured. Proposals to raise the eligibility
age from 65 to 67 years of age will increase the number of near-elderly who
cannot get health insurance coverage. Given the rising number of uninsured and
the particular problems for individuals who are over 55 years old to access
coverage, no federal policy should be undertaken that decreases access to health
insurance coverage. NAPH supports adding a prescription drug benefit to the
Medicare program. Some proposals would effectively limit availability of this
benefit to the very poor and only those who can afford high option plans.
Consistent with these principles, we urge that it be made accessible to all
beneficiaries and not financed in ways that undermine other aspects of the
program. Finally, Medicare reform must ensure that managed care plans protect
beneficiaries' health. The reforms of the Balanced Budget Act and those
discussed by the Medicare Commission envision an expanding role for managed care
plans in Medicare. This expansion comes at the same time that Congress is
concerned enough about managed care abuses to debate seriously patient
protection legislation. Moreover, many private sector plans participating in
Medicare+Choice have demonstrated a lack of long-term commitment to the program
and have dropped out, causing disruptions and access problems for thousands of
beneficiaries. Meanwhile, providers, many of whom already are struggling under
BBA cuts, are finding their reimbursement slashed further under managed care,
not only through low rates but less overtly through payment denials and delays.
We caution you to consider seriously the myriad problems wrought by Medicare
(and Medicaid) managed care and to find ways to address them before moving too
swiftly to expand the role of managed care further. NAPH would be happy to
assist you in this process. This set of principles is by no means exhaustive,
but represents concerns that have grown out of the deliberations of the Medicare
Commission as it considered a model of Medicare reform based on premium support.
The public descriptions to date of this model have been short on details and
left many of these concerns unanswered. Without more details, it is impossible
to say whether or not Medicare will remain an entitlement under a premium
support model or whether beneficiaries will be guaranteed the same set of
benefits currently available. We will employ our principles as we evaluate more
specific forthcoming proposals. We thank you for your work on these difficult
issues. Because of the scope and reach of the Medicare program, efforts at
reform must be taken carefully. "Fixing" one set of problems may result in
creating others - affecting not just Medicare, but the entire health care
system. We caution you and your Senate colleagues to consider carefully the
effect of any proposed reforms, not just on the elderly and disabled who are
beneficiaries, but on all segments of our society which may be affected. NAPH
stands ready to assist you in your efforts. NAPH Comments on Other Important
Issues In this third section of my prepared statement, I would like to take this
opportunity to comment on several other issues that are important to NAPH
members. Impact of 1997 Balanced Budget Act It is becoming increasingly apparent
that the cuts initiated in the Balanced Budget Act of 1997 (BBA) are much deeper
than anyone anticipated at the time and are threatening the viability of
hospitals and other providers. Several recently released studies detail the
impact of BBA cuts on hospitals. The most recent study, done for the American
Hospital Association (AHA) by the Lewin Group, projects that BBA Medicare cuts
will reduce hospital spending by as much as $71 billion over five years - $18
billion more than originally estimated - and that those cuts will cause 70
percent of all hospitals to have negative Medicare profit margins by 2002.
Another study, done by Ernst & Young, projects that total hospital margins
will decline 48 percent in five years, from 6.9 percent in FY 1998 to 3.6
percent in FY 2002. The Association of American Medical Colleges (AAMC) has
found that the impact will be especially hard on our nation's teaching
hospitals, reducing total margins for typical large teaching hospitals by as
much as half or more - to about I percent - by 2002. NAPH wants to thank those
members of this Committee who recognize the BBA's impact on hospitals,
especially teaching hospitals, and we appreciate your introduction and support
of legislation to mitigate this impact. In particular, NAPH wishes to express
our support for the "Graduate Medical Education Payment
Restoration Act of 1999" (S. 1023), introduced by Senator Moynihan, with the
co-sponsorship of Senator Kerrey and others. That act would freeze the indirect
medical education (IME) adjustment at the FY 1999 level of 6.5 percent, rather
than reduce it to 5.5 percent by FY 2001 as required by the BBA. We would
strongly urge the authors of this proposal to extend this freeze to DSH payment
adjustments. We also support Senator Moynihan's "Managed Care Fair Payment Act
of 1999" (S. 1024), which would carve DSH payments out of the payments made to
Medicare+Choice organizations and pay them directly to the DSH hospitals that
provide the care. We also commend Senators Chafee and Kerrey for their support
of this bill. We further support the "Nursing and Allied Health Payment
Improvement Act of 1999" (S. 1025), to carve out Medicare funding for the
training of nurses and other allied health professionals from Medicare+Choice
rates and pay them directly to the hospitals that provide their training. As
Medicare relies more and more heavily on managed care, the loss of DSH and nurse
training payments for Medicare managed care enrollees will have a greater and
greater impact on the safety net and teaching hospitals that rely on these
payments. Congress should therefore do for DSH payments what you have already
seen fit to do for GME payments and pay them directly to the hospitals for which
they were intended. Once again, we thank Senator Moynihan and his cosponsors for
their leadership on each of these important healthcare issues. Impact of
Medicaid, Immigration and Welfare Reforms Medicaid absorbed significant cuts in
the Balanced Budget Act of 1997, particularly in the Disproportionate Share
Hospital (DSH) program, which is the lifeblood of many NAPH members. Further
cuts, even those purportedly coming from administrative expenditures, ultimately
impact Medicaid recipients and the providers that serve them. NAPH urges
Congress to continue to hold the line on future cuts to the program. A recent
report released by Families USA estimates that 675,000 low income individuals
became uninsured as a result of welfare reform (either because they were
diverted from applying for cash assistance and never got enrolled in Medicaid
even though they were eligible, or because they found jobs that do not have
health insurance). Medicaid enrollment declined by 1.25 million between 1995 and
1997 as a result of welfare reform. With the number of uninsured at 43 million
and rising, NAPH supports any and all efforts to expand Medicaid to those
without adequate health care coverage. These efforts include the following:
-Restoration of Medicaid and CHIP coverage to certain legal immigrants. -Passage
of the Work Incentives Improvement Act to allow disabled persons to return to
work without fear of losing Medicaid (or Medicare). -Expanded eligibility and
enhanced outreach for the State Children's Health Insurance Program (CHIP).
-Coverage for low-income women without health coverage diagnosed with breast or
cervical cancer. We would like to commend Senators Jeffords, Roth, and Moynihan
for your leadership on the "Work Incentives Improvement Act" (S. 331) and
applaud the Committee's approval of this important legislation. In addition,
Medicaid cuts in the disproportionate share hospital program have begun to
impact hospitals. The impact will worsen as those cuts are fully phased in by
2002. Several states, like Minnesota, Wyoming, and New Mexico, had caps in their
DSH allotments that were set too low in error. These errors have been corrected
in the annual appropriations process, but they require more than one-year fixes,
which should more appropriately be addressed by authorizing committees, and
several other states may also require relief Some safety net hospitals are also
losing additional Medicaid DSH funds due to the hospital-specific DSH caps
established in OBRA 93. Such hospitals are financing their states' entire DSH
program and they are experiencing a significant and unfair loss of DSH funds due
to imposition of the caps. The 1996 welfare reform law eliminated benefits for
many legal immigrants, creating a crazy-quilt patchwork of eligibility
requirements that is confusing to immigrants and providers. NAPH supports the
passage of Senator Moynihan's Fairness for Legal Immigrants Act of 1999 (H.R.
1399/S. 792) which would clarify eligibility requirements and restore many of
the benefits taken away by the 1996 legislation. In particular, the Fairness for
Legal Immigrants Act would: -Permit states to provide Medicaid and CHIP
eligibility to legal immigrant pregnant women and children, regardless of date
of entry. -Permit states to provide Medicaid eligibility to legal immigrants who
are blind or disabled, regardless of date of entry. -Restore SSI and Medicaid
eligibility for elderly poor legal immigrants who entered the US prior to August
22, 1996. -Restore SSI and Medicaid eligibility for legal immigrants who become
disabled after entry to the US. Support for New Safety Net Initiative Finally,
we also urge your support for a new national safety net initiative included in
the Administration's FY 2000 budget request for the Department of Health and
Human Services. Specifically, $25 million has been requested through the
appropriations process as seed funding for the coming fiscal year, and $250
million per year for each of the next four years to finance safety net reforms
in up to 100 communities around the country. This funding would support grants
to local communities to enhance collaboration and cooperation among safety net
clinics and hospitals, helping to produce a more efficient and seamless health
care system for the uninsured. Currently many very important federal programs
provide reimbursement or direct support to providers of health care services for
uninsured and underinsured populations. These programs play a vital role in
their communities and need additional funding in their own right to serve the
growing number of people who are seeking their care. While such funding will
strengthen the foundation of care for uninsured and vulnerable people in many
communities, safety net providers could be even more efficient and
cost-effective if given the resources to work together and coordinate care for
their patients. Currently, there is no federal support for communities wishing
to integrate the pro-rams and services they already provide into a cohesive
system of care for uninsured patients. While safety net providers are committed
to providing the best possible coordinated services, they face significant
obstacles in doing so. Their patients typically have much greater and costlier
medical and social needs than more affluent populations, sapping these providers
of any disposable resources to devote to coordinating care among themselves. The
safety net initiative would help fill service gaps, building upon existing
programs by encouraging coordination and efficiency and thereby significantly
stretching federal dollars invested in direct services. Moreover, the initiative
would allow for significant innovation and experimentation at the local level,
with local consortia of providers proposing the most effective use of the
funding for their communities. By focusing on the most pressing service gaps in
their communities and targeting true safety net providers - those who currently
serve large numbers of low-income and uninsured patients - communities can
guarantee that existing charity care is expanded, and not supplanted or
replaced. Successful models already in existence could be replicated or adapted,
or communities could design completely new approaches. In addition, communities
could use the relatively modest federal investment to leverage even greater
local public and private funding, eventually becoming self-sustaining. This
concludes my prepared testimony. I would be pleased to answer any questions you
may have at this time.
LOAD-DATE: June 2, 1999
