NEWS from Congressman John W. Olver 1027 Longworth House Office Building Washington, DC 20515-2101 Tel: 202-225-5335 Fax: 202-226-1224  Representing the First District of Massachusetts

Washington – Congressman John W. Olver announced today that $16.4 billion in financial givebacks to health care providers across the country was included in the $385 billion end-of-the-session Omnibus spending bill that was just signed into law by President Clinton. The legislation –  the Balanced Budget Refinement act of 1999 – addresses flawed policy and excessive payment reductions resulting from the Balanced Budget Act (BBA) of 1997.  The bill increases payments for hospitals, nursing homes, home health agencies, managed care plans, and other Medicare providers.  The entire bill is expected to cost about $16.4 billion over 5 years with $1.2 billion in immediate relief this year.

“This is not enough to help our ailing health care providers in Massachusetts, but it is a step in the right direction,” Olver noted. “Congress had no idea when they passed the 1997 BBA that it would have this kind of devastating effect across the country.  In Massachusetts alone many Medicare HMOs have pulled out, one in five nursing homes has filed for bankruptcy, community hospitals are closing, and Medicare-related costs have skyrocketed.”

The bill also provides increased payments for rehabilitative therapy services, longer coverage of immunosuppressive drugs, and limits on outpatient department coinsurance.  A detailed summary of the legislation and how it will benefit each health care sector is listed below.

1.  HOSPITALS: $7.2 billion

The 1997 Balanced Budget Act created a new prospective payment system (PPS) for hospital outpatient care that pays set amounts for services that are similar clinically and in their use of resources.  Hospitals charged that these 1997 changes were egregious.  The bill adjusts the 1997 PPS by:

• Smoothing the transition to the PPS.  During the first three and a half years of the PPS, the bill creates payment floors to minimize the disruption of the new system.  Small rural hospitals would be held harmless for 4 years while cancer hospitals are permanently held harmless from the PPS.

• The bill clarifies Congress’s intent that the new system is not supposed to impose an additional reduction of 5.7 percent on top of the removal of formula-driven overpayment – this was the most important clarification for the hospitals and will result in approximately $217 million to Massachusetts hospitals between 2000 -2002.
 Teaching Hospitals:

• Freeze in the Indirect Medical Education reimbursements at 6.5% for FY00, a reduction in FY01 to 6.25% and in FY02 5.5%.  This provision is worth approx $55 million to MA teaching hospitals.

• Direct Medical Education payments will be shifted to a national average system, but a wage adjustment factor has been included that will greatly reduce the negative impact for MA teaching hospitals.  The bill begins to reduce the geographic disparity among hospitals.  It raises the minimum payment for hospitals to 70 percent of the national, geographically adjusted average payment and limits growth in payments for hospitals with costs above 140 percent of the geographically adjusted average payment.

 Disproportionate Share Hospitals (DSH):

• The bill increases DSH payments.  The 1997 BBA reduced DSH payments by 3 percent in 2000, 4 percent in 2001 and 5 percent in 2002.  The new law will increase the payment rates set in the 1997 BBA.  Under the new bill, DSH payments would be reduced by 3 percent in 2001 and 4 percent in 2002.  This restoration helps these hospitals that care for the uninsured.

 Rural Hospitals:

• Modifies and improves a series of Medicare policies that support rural health providers.  They complement the special protection for rural hospitals in the outpatient PPS system. The bill also provides exemptions to residency caps for rural graduate medical education.
 

2. SKILLED NURSING FACILITIES AND THERAPY SERVICES: $2.7 billion
(In italics are the changes that Congressman Olver advocated for by lobbying his colleagues on the conference committee.)

• Provides immediate increases in payment for high-cost cases.  The 1997 BBA created a new PPS for skilled nursing facilities that was implemented on July 1, 1998.  Under this system, payments are based on service needs of patients adjusted for area wages.  Effective April through October 1, 2000, a 20 percent increase will be added to 12 resources utilization groups (RUGS) for medically complex cases and 3 rehabilitation RUGs.  The bill also creates special payments to facilities that treat a high proportion of AIDS patients for 2000-2001 and excludes certain services (certain ambulance services, prosthesis, chemotherapy) from consolidated billing and the PPS system.

• Increases payment rates across the board by 4 percent for 2001 and 2002.  It also gives nursing homes the option to elect to be paid at the full Federal rate for SNF PPS.

• Imposes a 2 year moratorium on payment caps.  The BBA limited yearly payments for physical/speech therapy and occupational therapy to $1,500 each per beneficiary.  This limit is too low, causing a large number of therapy users to have payments exceed the caps and to have to pay for services out-of- pocket.   This bill puts a 2-year moratorium on the caps, steps up medical review to prevent fraud, and revises BBA-mandated study to develop an alternative, more rational system for therapy services payment.

• Administrative Actions: In addition to the bill, the Administration will increase payment for high acuity patients and exclude certain types of services furnished in hospital outpatient departments from SNF PPS.

3. HOME HEALTH: $1.3 billion

The 1997 BBA created a new PPS system for Home Health Care which has not yet been implemented.  In addition to creating the PPS, the 97 BBA also required a 15% reduction in payment limits.  This bill:

• Delays implementation of the 15 percent reduction until after the first year of implementation of the PPS.
• Pays $10 per beneficiary in 2000 to home health agencies to help them cover the cost associated with patient data collection and reporting requirements.
• Eases and clarifies the surety bond provision.
• Excludes durable medical equipment from home health consolidated billing.
 

4. MANAGED CARE: $4 billion

The bill requires that Medicare payments to managed care companies be risk adjusted to prevent adverse selection and to encourage plans to enroll sicker beneficiaries. It also increases rates to managed care companies, from fee-for- service minus .5 to fee-for-service minus .3 in 2002. The bill is particularly helpful to Western Massachusetts because the bill provides an entry bonus for plans entering counties not previously served and for plans that had previously announced that they were withdrawing from certain counties.
 The new law will increase payments to other providers by stabilizing physician payments through:

• Increased payments for pap smears, setting the minimum payment rate at $14.60 beginning in 2000.
• Increased payments for renal dialysis by 1.2 percent in 2000 and another 1.2 percent in 2001.
• Increased updates for hospice, durable medical equipment and oxygen.
 

5. MEDICAID AND THE CHILDREN’S HEALTH INSURANCE PROGRAM: $.8 billion

The 1997 BBA phased-out cost-based reimbursement for community-health centers.  In other words, the 1997 bill phased out the Medicaid requirement to pay federally-qualified health centers and rural health clinics based on cost.  The 2000 phase-out – where payments are based on 95 percent of costs – would be extended by the new law for 2001 and 2002. In 2003, payments will be based on 90 percent and in 2004 on 85 percent of costs.  A study will determine how these clinics should be paid in subsequent years.

State Children’s Health Insurance Program: (SCHIP)
• Extends the availability of the $500 million fund for children’s health outreach established by the welfare reform law for states to use for the costs of simplifying their eligibility systems and conducting outreach.
• Eliminates the sunset and extends the availability of this fund until it is expended.
• Improves data collection and evaluation of SCHIP.

One of the centerpieces of the 1997 BBA was the creation of this new CHIP program to provide health insurance to children in families with incomes too high for Medicaid but too low to afford private insurance. However, the BBA of 1997 failed to provide funding for monitoring and evaluating the implementation and outcomes of SCHIP.  This bill adds funding for data collection and evaluation of the program.