Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
May 12, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4219 words
HEADLINE:
TESTIMONY May 12, 1999 JOHN W. ROWE SENATE FINANCE CHANGES TO
THE MEDICARE SYSTEM
BODY:
STATEMENT OF JOHN W.
ROWE, M.D. Before a Hearing of THE U.S. SENATE COMMITTEE ON FINANCE on MEDICARE
REFORM May 12, 1999 Thank you Chairman Roth, Senator Moynihan, and members of
the Committee for inviting me to testify today on Medicare reform and the
importance of the broader missions this Committee has traditionally called upon
the Medicare program to accomplish. I am a geriatrician and serve as President
of the Mount Sinai School of Medicine and am also President and Chief Executive
Officer of the Mount Sinai-NYU Medical Center and Health System, one of the
nation s largest academic health science centers. The system includes the Mount
Sinai Hospital, the NYU Hospitals Center, the Hospital for Joint
Diseases/Orthopedic Institute, and NYU Downtown Hospital. These hospitals serve
an urban population that includes a substantial proportion of disadvantaged
individuals who are Medicare beneficiaries. I am also a member of the Medicare
Payment Advisory Commission, also known as MedPAC. There is a certain symmetry
to having been asked to appear before you today. Four years ago to the week --
on May 16, 1995 -- just as you began the two-year debate on ways to ensure the
fiscal solvency of the Medicare program, I testified before this Committee on
the mission of the Medicare program. That two-year process culminated in the
enactment of the Balanced Budget Act of 1997 (BBA), an act that was heralded as
having made the most sweeping changes to the Medicare program since the program
s creation in 1965. The hearing I testified at four years ago was on Medicare
solvency. Medicare solvency is clearly something the BBA has achieved, with the
Medicare actuaries having reported recently that the Part A Trust Fund will be
solvent until 2015, a full 13 years longer than its projected solvency when we
last met. I would like to begin my testimony by repeating a section of my
testimony from four years ago. At the time, I said the following: "We are
entering a period of risk in Medicare that goes beyond fiscal solvency. The
current preoccupation on reductions in expenditures has blurred our view of the
broad mission of the program. Medicare is not just another insurance program, it
has a broader mission, has made greater promises and commitments and serves a
group of Americans who have substantially greater health care needs than their
younger counterparts. Fiscal modifications must be undertaken in the context of
a thorough understanding of the missions of the program to avoid adverse effects
on those the program is designed to serve. We should, in brief, honor the first
principle of medicine, Primum Non-Nocere: above all, do no harm." For the most
part, the provisions of the Balanced Budget Act reflect this principle. This
Committee, the Congress as a whole, and the President should be commended for
being guided by that principle when designing the myriad provisions contained in
the BBA. As Senator Roth stated on the Senate floor on June 23, 1997, "We took a
critical first step towards addressing the long-term solvency of the Medicare
Program while at the same time making certain that the program meets the needs
and expectations of its current beneficiaries. The changes we made in Medicare
actually allow us to expand Medicare coverage for certain important preventive
services including mammography, colorectal screening, bone mass measurement and
diabetes self-management. We are able to offer this expanded coverage and
protect and preserve Medicare by incorporating choice and competition into the
current program, and by slowing Medicare s rate of spending growth. Our measures
will save Medicare from bankruptcy for another 10 years, while still increasing
Medicare spending per beneficiary from $5,450 this year to $6,950 in the year
2002." Emphasis added. That statement by Senator Roth sums up the laudable
intent of this Committee when the BBA was enacted, and, as I say, I believe that
that intent has been largely fulfilled. In recent months, however, it has become
clear that in a few critical areas there have been some unintended consequences
of the BBA that need to be corrected. Just as the treatments prescribed by the
best of doctors can have unintended adverse effects, so, too, can the best
legislation. And, just as I was taught in medical school that it is best to stop
the offending treatment sooner rather than later, I am here today to urge you to
make some critical changes before irreparable harm is done to the nation s
biomedical research, treatment, and education infrastructure, an infrastructure
that is of critical importance to the nation s senior citizens. As Senator Roth
stated on the Senate floor nearly two years ago, your intent was to slow
Medicare s rate of spending growth rather than to achieve absolute reductions in
Medicare spending. Yet absolute reductions in Medicare spending have, indeed,
been the result of the BBA. On May 4, 1999, Robert Pear of The New York Times
reported in an article entitled With Budget Cutting, Medicare Spending Fell
Unexpectedly, "New Government data show that Medicare spending actually declined
in the first half of the current fiscal year. Congress and President Clinton
clamped down on Medicare spending in the Balanced Budget Act of 1997, curbing
payments for many services. They expected to slow the growth of Medicare. But
for the six months ended March 31, Medicare spending was in fact $2.6 billion
less than the $106.5 billion spent in the similar period the previous year,
according to data from the Treasury Department." Two days later, The New York
Times followed with two more articles entitled Teaching Hospitals Battle
Medicare-Money Cuts, which focused on the difficulty academic medical centers in
Boston are having coping with the BBA Medicare reductions, and another entitled
New York Hospitals Braced for Cuts, which focused on teaching hospitals in the
New York metropolitan area. These articles reflect a problem that we in the
teaching hospital community had already identified, namely, that the Balanced
Budget Act s reductions for teaching hospitals went too far. This is true when
the BBA s Medicare reductions to teaching hospitals are measured both against
the BBA s reductions for other types of hospitals but also against the standard
set by Congress and the President for the BBA, which was to merely reduce the
rate of growth in Medicare spending rather than cut it outright. A recent study
by the Center for Health Economics and Informatics (CHEI) at the Greater New
York Hospital Association found several unexpected outcomes from the BBA with
respect to the fiscal impact on inpatient and outpatient ("acute care") hospital
services provided in the fee-for-service (FFS) program. These unexpected
outcomes are described below. First, however, it is important to note that the
CHEI's study methodology differed from the original Congressional Budget Office
(CBO) estimates in two important ways: 1. CHEI's Medicare savings estimates were
derived "bottom-up" from individual hospital cost report and patient data
provided by the U.S. Health Care Financing Administration (HCFA), while CBO's
estimates were derived "top-down" from aggregate projections. CHEI is currently
reviewing its analysis with the CBO, the Office of Management and Budget (OMB),
and MedPAC. 2. CHEI's fiscal impact model was static in that it changed Medicare
payment policy provisions while holding all other variables constant. CBO's
model was dynamic in that it also incorporated assumptions about trends in
managed care enrollment, utilization in the fee-for-service program, and
behavioral offsets. CHEI's first unexpected finding was that the payment policy
changes in the BBA would reduce baseline Medicare spending on acute care
services by $61 billion from 1998 through 2002. This reduction is $17 billion
higher than CBO's $44 billion estimate (see Figure 1). Part of the difference
might be attributable to CBO's trend assumptions. However, to the extent that
some of the discrepancy is due to CHEI's more accurate, bottom-up methodology,
the finding of higher-than-expected Medicare savings from hospital-based acute
care services would be in line with the recent data provided by the Treasury
Department regarding total Medicare spending. CHEI's second finding was that the
BBA slowed the growth in Medicare spending on acute care services through 2002
to a virtual halt of only 1% in nominal dollars. In so doing, it reduced the
purchasing power of the Medicare payment rates by approximately 15%. More
significantly, the 1% nominal growth for all hospitals represents an average of
+2% for non-teaching hospitals, +1% for other teaching hospitals, and -1% for
major teaching hospitals. Thus, the BBA actually cut Medicare payments to major
teaching hospitals (see Figure 2). Furthermore, with no changes in either the
volume or mix of services, or in hospital cost structure, the BBA would reduce
the aggregate bottom-line margin of major teaching hospitals to a negative
level, the only group of hospitals to be so affected (see Figure 3). Figure 2.
2002 Medicare Revenue Loss Compared with Baselinea and Base Year Revenueb
Hospital Type N % Change in Nominal $ from Baseline 2002 to Post-BBA 2002 %
Change in Nominal $ from Base Year 1996 to Post-BBA 2002 All 5,648 -12.7% 1.2%
Major teaching 318 -14.0% -0.7% Other teaching 902 -12.5% 1.3% Non-teaching
4,428 -12.2% 2.0% Large urban 1,824 -13.1% 0.2% Other urban 1,403 -12.2% 1.7%
Rural 2,421 -12.3% 3.6% Voluntary 3,059 -12.8% 1.1% Proprietary 1,186 -12.3%
0.9% Government 1,403 -12.7% 1.8% a The amount hospitals would have received in
2002 absent the BBA. b The amount hospitals received in 1996. Source: CHEI.
Figure 3. Change in the Total Margin as a Result of the BBAa Hospital Type Total
Margin 1996 2002 All 5.8% 1.9% Major teaching 3.0% -0.9% Other teaching 6.9%
2.9% Non-teaching 6.8% 2.9% Large urban 5.1% 1.0% Other urban 6.6% 2.7% Rural
6.8% 3.5% Voluntary 5.9% 1.8% Proprietary 9.1% 4.9% Government 3.1% 0.1% a
Assumes no changes in service mix or utilization, and no change in hospital cost
structure. Source: CHEI. Among major teaching hospitals, academic medical
centers are affected the worst. Within the Mount Sinai-NYU Medical Center and
Health System, the Mount Sinai Hospital serves as a good example to illustrate
the unexpected and unintended consequences of the BBA for major teaching
hospitals in general and for academic medical centers in particular. CHEI
estimated Mount Sinai's cumulative loss during BBA implementation (1998-2002) at
$177 million, or an average loss of $35 million per year. However, while $35
million is the average annual loss, the fully phased-in, year-2002 loss is $48
million, or 15.3% of the amount that Mount Sinai would have received absent the
BBA for the same volume and mix of services. Furthermore, the 2002 Medicare
revenue projection is $7.5 million less than what the hospital received in 1996,
a 3% cut in nominal payments. All other things being equal, the BBA would force
the hospital's bottom-line margin from a positive 3% to a negative 3%. Since the
hospital cannot survive with chronic losses, to close our budget gap, we are
cutting back important programs and services. In diagnosing why major teaching
hospitals and academic medical centers fare worse than other hospitals under the
BBA, it is useful to examine the contribution of each of the individual
provisions to the total loss (see Figure 4). Figure 4. Relative Impact of
Individual BBA Acute Care Provisions on Medicare Revenue BBA Provisions 2002
Loss as % of 2002 Baseline Category Revenue 2002 Loss as % of 2002 Baseline
Total Revenue All Major Teaching Mount Sinai All Major Teaching Mount Sinai PPS
Update -8.7% -8.7% -8.5% -5.9% - 6.0% -5.8% Outliers -15.2% +1.6% +7.7% -1.0%
+0.1% +0.2% IME - 28.6% -28.6% -28.6% -1.2% -3.9% -4.3% DSH -5.0% -5.0% -5.0%
-0.2% -0.3% -0.4% Transfers -23.0% -25.4% -27.4% -0.6% -0.5% -0.2% PPS capital
-16.9% -16.9% -17.3% -1.2% -1.1% -1.0% PPS-exempt -8.5% - 10.1% -19.1% -0.7%
-0.5% -1.5% Outpatient -10.4% -12.9% -30.5% - 1.5% -1.5% -2.2% Bad debt -45.0%
-45.0% -45.0% -0.5% -0.4% -0.2% Weighted average or total -12.7% -14.0% -15.3%
-12.7% -14.0% -15.3% Source: CHEI. In the first set of columns, the aggregate
loss at the bottom of each column represents the weighted average of the
individual line items, since the individual line items reflect the revenue loss
in each category as a percent of the baseline revenue in each category. In
contrast, in the second set of columns, the aggregate loss at the bottom of each
column represents the sum of the individual line items, since the individual
line items reflect the revenue loss in each category as a percent of the total
baseline Medicare revenue. Thus, in terms of the percentage loss within each
category, the deepest cuts are: 1. The bad debt cut, a 45% reduction in
reimbursement for unpaid deductibles and coinsurance; 2. The IME cut, a 29%
reduction in the indirect medical education (IME) adjustment; and 3. The
transfer cut, a redefinition of selected discharges to post-acute care as
transfer cases. In terms of their contribution to the overall loss, the worst
cuts are: 1. The update cut, a five-year cumulative cut in the prospective
payment system (PPS) operating inflation update from approximately 16% to
approximately 6%; 2. The outpatient cut, a conversion from cost-based
reimbursement to a PPS; 3. The IME cut; and 4. The cut in the inpatient capital
PPS rate. Cuts that make a significant contribution to the total loss for all
hospitals are the update and capital cuts. Cuts that also make a significant
contribution to the total loss for major teaching hospitals and academic medical
centers are the IME cut and the outpatient cut. Finally, the PPS-exempt cuts and
the DSH cut also disproportionately affect major teaching hospitals. As already
noted, the IME cut is a phased-in 29% reduction in the IME adjustment to the PPS
rates. The IME adjustment pays for the higher costs observed in teaching
hospitals resulting from the teaching mission. Such costs include: the higher
acuity level of patients treated by teaching hospitals; the development and
testing of new technologies and treatment protocols; the cost of maintaining
expensive services such as emergency rooms, intensive care units, and
psychiatric units; and additional time and testing provided by medical
residents. The result of cutting this adjustment is a deterioration in the
quality of both patient care services and physician training. Also as already
noted, the outpatient cut represents a conversion from cost-based reimbursement
to a PPS. One reason why major teaching hospitals and academic medical centers
bear a disproportionate impact is that the U.S. Health Care Financing
Administration (HCFA) did not propose an IME and DSH adjustment to the new
ambulatory patient groups (similar to inpatient DRGs), even though its
regression model suggested that such adjustments would be appropriate. In
addition, major teaching hospitals tend to serve the highest share of patients
with comorbidities and severe acuity. Finally, HCFA believes that the
disproportionate impact on major teaching hospitals will be somewhat ameliorated
once all hospitals learn to code their new outpatient bills correctly. The
PPS-exempt cut that threatens service delivery is a national, 75th percentile
cap on cost-based payments per discharge (the "TEFRA caps") within three classes
of services exempt from the PPS: psychiatric, rehabilitation, and long-term
hospital services. These services were exempt from the PPS because their
patients and treatment plans are so dissimilar that an average pricing scheme
would be inappropriate. For example, burn treatment and medical rehabilitation
are both classified in the rehabilitation category, but they are vastly
different services. Because the variation in cost among services reflects
service differences rather than inefficiency, the TEFRA caps are having the
unintended effect of crippling important high-acuity services. Major teaching
hospitals tend to provide the most intensive psychiatric and rehabilitation
services, which is why they are disproportionately affected by the caps. The DSH
cut is a phased-in 5% reduction in the subsidy for hospitals that serve a highly
disproportionate share of indigent patients. There is typically a high degree of
overlap between these institutions and major teaching hospitals. For example, in
New York State, the 76% of all hospital-based uncompensated care is provided by
the 23% of hospitals that are major teaching hospitals. As I stated earlier, one
of the first things medical students learn is that if a treatment is having
adverse unintended consequences, it is best to stop the offending treatment
sooner rather than later. To that end, I would prescribe considering the
following changes to the BBA in order to get the BBA back to its original goal
of reduced cost growth. Since major teaching hospitals have an urgent need for
relief, the changes listed below would provide the greatest assistance at the
lowest cost, although more broad-based efforts could be considered with more
resources: n Halt the phased 29% reduction in IME payments, as proposed by
Senator Moynihan; this would cost approximately $3 billion over five years,
i.e., from FY 2000 through FY 2004. n Repeal the phased 5% reduction in DSH
payments; this would cost about $600 million over five years. n Provide IME and
DSH adjustments to the new outpatient PPS; this would be budget neutral,
although it would reallocate roughly $100 million per year, or less than 1% of
projected outpatient PPS spending. In addition, provide new funding for
stop-loss payments until the problems with the new PPS are identified and
corrected. n Repeal the TEFRA cap provision; this would cost about $700 million
over five years. n Provide for direct payment of Medicare DSH funds to DSH
hospitals on behalf of Medicare managed care enrollees, also proposed by Senator
Moynihan; this would be budget neutral. This is not intended to be an exhaustive
list of BBA changes, but I believe that these changes in particular would cure
the disproportionate impact the BBA has had on our nation s teaching
institutions. I would like to express my deepest gratitude to Senator Moynihan
for already recognizing much of what I have said here today and for once again
showing the leadership we have come to expect by preparing important legislation
to remedy some of the severest consequences of the BBA on academic medical
centers. Senator Moynihan, I salute you. We will miss you greatly when you
retire in 2001. You have also asked me here today to discuss Medicare s broader
mission in the context of the major Medicare reform proposals that have been
discussed to date, including the so-called "premium support" proposal. First, I
must reiterate that the first principle of Medicare reform must be Primum
Non-Nocere: above all, do no harm. I believe that it is impossible to adhere to
this principle until you know the impact of your most recent reforms. After all,
the Balanced Budget Act of 1997 passed only 21 months ago. Many of its
provisions have not yet phased-in. As I mentioned before, we have already seen
adverse reactions to some of the provisions that have already taken effect. We
cannot possibly know all of the effects, including complex interactive effects,
of provisions that have not yet been implemented. Therefore, I prescribe extreme
caution when proceeding with any new, untested reforms. Second, I urge you to
preserve the special character of the Medicare program and resist transforming
it into "just another insurance program." The Medicare program has always been
committed not just to coverage but to access -- an aspect of the mission of the
Medicare program that is often neglected in the ongoing reform discourse.
Payment to support the training of physicians, the maintenance of the biomedical
research and treatment infrastructure necessary for National Institute of Health
funding, reimbursement of capital expenditures, provision of support for
hospitals that provide care to disproportionate numbers of indigent patients,
and subsidies to rural hospitals that are "sole community providers" all
guarantee access to care for your constituents who are Medicare beneficiaries.
In our inner cities as well as our rural areas we continue to have substantial
pockets of underserved populations with very limited access to care. These
populations are usually indigent. Few physicians practice medicine in offices
based in poor communities in our major cities. For these populations, many of
whom are elderly Medicare beneficiaries, the sole or dominant source of care is
hospitals. Long ago, this Committee realized that without support for
graduate medical education, without support for
disproportionate share hospitals, without capital support, without subsidies to
rural hospitals and "sole community providers," a large number of older
Americans would be placed in the absurd position of being eligible for health
care services under the Medicare program with no access to the health care
services for which they are eligible. Many policy makers have of late called for
making the Medicare system more like private insurance and seek to largely turn
the program over to private insurers and HMOs. Other members of this panel who
are testifying today have recently published reports that show what happens to
research and care for the indigent -- two of the important public goods Medicare
has traditionally sought to support through graduate medical
education and DSH subsidies -- in markets where managed care dominates.
In both studies, the more managed care there is, the fewer the "public goods" --
biomedical research, charity care -- that are provided. These studies make clear
that the private sector does not by itself finance public goods, does not
voluntarily pay teaching hospitals higher rates, does not reimburse hospitals
that care for indigent patients more to cover their extra costs, and does
nothing to ensure that indigent patients have access. These are points Senator
Moynihan has made repeatedly and eloquently over the years. Some have said,
"Only Medicare pays for these things," as if that statement is an indictment of
the Medicare program. I believe, rather, that it is an indictment of the rest of
the payer community, and, if Medicare stops paying for public goods, you will
find senior citizens and other constituents losing access to teaching hospitals
and hospitals in their urban and rural communities. You will then have both a
public health problem -- and, perhaps, a political problem -- with which to
contend. At the very least, then, I urge you to recognize that there is a reason
that Medicare is different. Medicare still supports public goods, albeit at a
reduced level due to the BBA. The private sector does not and Medicaid often
does not. Someone must, or these public goods will disappear. The BBA, along
with the growth in managed care and cutbacks in Medicaid reimbursement, has the
potential, in a relatively short period of time, to seriously damage the
infrastructure of academic medicine and care for the poor. This infrastructure
took decades to build; it will not be readily replaced. Medicare payments to
teaching hospitals and DSH hospitals, then, must continue to be made directly to
teaching and DSH hospitals, even in situations where a Medicare beneficiary is
covered by private insurance. With regard to graduate
medical education payments, the ideal solution would
be a mandatory graduate medical education all-payer trust fund,
like the one proposed by Senator Moynihan. Unless and until Senator Moynihan s
bill is enacted, however, Medicare must maintain its commitment to GME, and must
maintain its commitment to DSH -- in short, must maintain its commitment to
access precisely because no one else will. My final point on Medicare reform is
to urge you to transform the Medicare program from a health insurance program
into a health promotion program. Currently, Medicare s health promotion
initiatives are limited to vaccination against influenza, hepatitis B, and
pneumococcal infection. Other preventive services focus on early detection and
include screening mammography, screening for colorectal cancer, Pap smears, and
measurement of bone density. True reform would include comprehensive initiatives
to promote health and prevent disease. Such an effort, launched in conjunction
with a comprehensive review of the current benefits package, would improve
Medicare s financial stability, since health care expenses are related to health
status, and since reductions in risk factors are associated with reduced
expenses. A broad Medicare-supported prevention program might include payment
for exercise, nutrition, and smoking-cessation programs. I have attached to my
testimony a recent editorial on this subject that appeared in the March 4, 1999
edition of the New England Journal of Medicine that contains more detailed
recommendations. Mr. Chairman, Senator Moynihan, I thank you once again for
inviting me here today. I would be glad to answer any questions members of the
Committee may have.
LOAD-DATE: May 13, 1999
