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Document 4 of 120.

July 19, 2000, Wednesday

SECTION: PREPARED TESTIMONY

LENGTH: 2613 words

HEADLINE: PREPARED TESTIMONY OF DAVID T. WILLIAMS DIRECTOR OF GOVERNMENT RELATIONS INVACARE CORPORATION ON BEHALF OF THE AMERICAN ASSOCIATION FOR HOMECARE AND THE HOME MEDICAL EQUIPMENT (HME) SERVICES INDUSTRY

BEFORE THE HOUSE COMMITTEE ON COMMERCE SUBCOMMITTEE ON HEALTH AND ENVIRONMENT

SUBJECT - "BBA '97: A LOOK AT THE CURRENT IMPACT ON PROVIDERS AND PATIENTS"

BODY:
Mr. Chairman, Congressman Brown and Members of the Committee: my name is David T. Williams and I am the director of government relations for Invacare Corporation. I am pleased to be here to offer testimony on the impact of the Balanced Budget Act of 1997, as it pertains to home- based health care and the home medical equipment services industry.

Invacare Corporation is the world's leading manufacturer and distributor of medical equipment and supplies for use in post-acute care settings. The company employs more than 5,000 people and is headquartered in Elyria, Ohio. Invacare has domestic facilities in Ohio, Florida, Massachusetts, California, Maryland, Michigan, Missouri and Texas. Invacare also has manufacturing operations in Canada, Mexico, Australia, New Zealand, Denmark, the United Kingdom, France, Germany, Sweden, Switzerland and Portugal.

I am also a member of the Board of Directors of the American Association for Homecare (AAH), a national trade association representing home health agencies and HME providers. AAH was formed earlier this year by the merger of the National Association for Medical Equipment Services, the Home Health Services and Staffing Association and HIDA Homecare. It is the only association representing the spectrum of providers committed to quality health outcomes in the home.

With your indulgence, I will speak on behalf of both Invacare and the Association.

In the course of this hearing, you have or will have heard compelling statements from a wide spectrum of health-care providers. Each witness will try to make a case for restoring some funding, correcting some error or eliminating a new regulatory burden. I am no different than those witnesses who have preceded me and those who will follow me. The purpose of my testimony is to bring to the attention of this Committee, three provisions of the BBA that deserve your immediate attention. However, before going into detail on these provisions, I would like to offer some observations about health care in the home.Let there be no mistake, home-based health care has grown faster than any other segment of the health care continuum. But, the growth in home care is not an indicator that something has gone wrong. The growth in home-based health services is good news for America.

It is good news because homecare is a clinically appropriate, cost- effective and patient preferred alternative to facility-based health services. Please allow me to elaborate.

A study conducted by the Hudson Institute in 1998 concluded that home- based health services are cheaper than and can reduce admissions to facility-based care. This study was an in-depth look at the State of Indiana's In-home/CHOICE program. A copy of this study will be forwarded to each member of this committee. For the purpose of this hearing, however, two of the study's conclusions are worth noting. First, the researchers noted that by placing increased emphasis and funding on home-based health services, they were able to reduce institutionalization of Indiana's frail elderly population by 50 percent. Second, the Hudson Institute reported that home-based health services reduced spending for health care on this population by 50 percent or more. Home care is cost effective!

There are a variety of studies that talk about improved clinical outcomes obtained when a patient receives health services in the familiar surroundings of their home. In one study conducted by Tuffs University, a small group of 100 patients, diagnosed as frail elderly, was divided into two groups. One group received their health care in a facility setting (a nursing home). The other group was provided with home-based health services. The mortality and morbidity statistics for the first group was dramatically higher than those served in their home. A less "academic" demonstration of the clinical appropriateness of homecare can be found in heart transplant centers across the country. In preparation for their surgeries, transplant patients go on strict regiments of pharmaceutical and dietary therapy. Virtually every major transplant center arranges for this therapy to take place in the home. Surgeons report that patients who come from a loving home environment are better prepared and yield better outcomes. Homecare is clinically appropriate!The Ohio Department of Aging surveyed a large number of adults over the age of 55 years. Ninety percent of the respondents said that if they ever needed long-term care, they wanted that care to be delivered in their home. Several other studies report similar results. Homecare is patient preferred!

Yes, homecare has grown over the last two decades and it will continue to grow. Advances in medical technologies and changes in Medicare's payment structure have spurred a considerable growth in the use of home care. As in every other aspect of modem medicine, home health care has benefited from an explosion of new and emerging technologies. Things such as, the use of space-age materials to make wheelchairs and mobility aids lighter and the application of micro-chip computer technology in implantable devices used to dispense critical medication, make it possible for the care received in the home to equal or exceed that received in a hospital, at a fraction of the cost. Today, it is common for a Medicare beneficiary to undergo chemotherapy in the comfortable surroundings of his or her own home, a fete that was inconceivable just a few years ago. In the future, advances in telemedicine and similar technologies will make it possible to further reduce health care costs and improve the quality of health care provided in the home. None of these advances could have been envisioned at Medicare's inception in 1965.

I ask that the Members of this Committee, as you go about fashioning legislation to refine the BBA, keep in mind the irrefutable fact that the growth in the utilization of homecare is good news for America.

Congress can go a long way toward insuring that America has a strong and vibrant homecare system that is capable of meeting the growing healthcare needs of this country by addressing three provisions of the BBA. Our industry asks that this Committee address the pending 15 percent reduction in payments to home health agencies, the freeze on the annual cost of living adjustments for home medical equipment and HCFA's use of inherent reasonableness in any Medicare provider "give- back" legislation.

Eliminate the pending 15 percent reduction in payments to home health agencies (HHA). The BBA included a congressional mandate to change the way payment is made for home health services from a "cost plus" methodology to a prospective payment system. Because so little was known about the level of savings that could be achieved under PPS, Congress included a provision to reduce payments to HHAs by an additional 15 percent, if saving targets were not hit. The Congressional Budget Office estimated the transition would save $16 to $19 billion over five years. The transition is not even complete and the savings to Medicare is conservatively estimated to exceed $45 billion.

But the threat of an additional 15 percent cut continues to hover over home health agencies and threatens the financial stability of these organizations.

As you can well imagine it is difficult, if not impossible, to attract investors or secure loans when there's a potential for a devastating reduction in fees on the books. It is a matter of fundamental fairness that Congress acknowledge that home health agencies have done their part by permanently removing the proposed 15 percent reduction.

Restore the annual Cost of Living Adjustments for HME services. The BBA included a freeze on the Medicare fee schedules for durable medical equipment for the years 1998 through 2002. This cut was in addition to a 30 percent reduction in the fees paid for home oxygen therapy. The impact of this combination, on an industry populated by many small entrepreneurial enterprises, has been devastating. Invacare is the largest creditor in the ME industry. Since 1997, there has been a dramatic increase in bad and unrecoverable debt. The number of customers who have filed for bankruptcy is unprecedented. Small providers are going out of business or being forced into consolidation at a record rate.

Large/national HME providers have also been hit very hard. PriceWaterhouseCoopers (PWC) has released some starting findings in an update of a 1999 survey of nine publicly held companies that provide home medical equipment and services. PWC observes that the nine companies were earning a positive net income in 1996, but three years later, two-thirds of them were losing money, bankrupt or out of existence. This occurred during a period in which U.S. corporate profits for all industries rose by 18 percent.The HME industry asks Congress to restore the Cost of Living Adjustment (COLA) for fiscal years 2001 and 2002. Income from Medicare, not only was cut 30 percent for home oxygen but, all income for Medicare home medical equipment and services has declined in real terms in the absence of a COLA, while costs to HME providers - particularly labor and fuel costs have continued to increase. By restoring two years of the COLA, the industry can regroup and begin to rebuild so its members can be viable partners with Congress and HCFA in the mission to better serve Medicare beneficiaries.

Note: Invacare and other vendors to the HME providers have done their best to help our customers survive perilous economic conditions. Our company has assiduously avoided price increases in deference to our customers. At the same time, the costs of raw materials, fuel and labor have continually increased and we can no longer "subsidize" the Medicare program with artificially low wholesale prices. On the first of October this year, Invacare will impose its first price increase since passage of the BBA.

Congress must provide oversight as HCFA begins to use its "expedited inherent reasonableness authority." The BBA empowered HCFA to develop a process for reducing the Medicare fee schedules for durable medical equipment using an expedited process. The HME services industry acknowledges the fact that HCFA must be able to make reasonable adjustments in the fee schedules for the goods and services it purchases for beneficiaries. However, HCFA has repeatedly abused this authority and clearly demonstrated its inability to exercise it in a reasonable and rational manner.

In the Balanced Budget Refinement Act of 1999 (BBRA), Congress acknowledged that HCFA was "not playing fair" with its IR procedures. Report language was included in the BBRA requiring the agency to develop and use a sound costing methodology based on statistically valid and relevant data. Notwithstanding this provision, HCFA appears to be ready to impose several reductions of significant consequence, ignoring the mandate contained in the BBRA.The attached table describes the potential consequences of this action, as they pertain to 3 specific products manufactured by Invacare. HCFA proposes reducing the Medicare fee schedule for these three products by an average of 38% (48% to 28%). If HCFA proceeds with this action, American businesses and Medicare beneficiaries will get hurt.

To demonstrate this point, let's consider one product, a basic folding walker (HCPCS E0135). Invacare sells this product to its customers, HME providers, for $33.20. The provider must deliver the unit to the beneficiary's home, measure and adjust the unit for the individual, instruct the patient in its use and go through the laborious process of collecting the copayment and billing Medicare. Using the principles of Activity Base Costing, it is estimated that the additional cost of providing this product would be $55.91. Thus, the total retail cost- without any consideration for profit margin - is $89.11. The proposed new Medicare fee schedule is $50.50. This is neither reasonable nor rational.

Providers will be unable to take assignment on this product and Medicare beneficiaries will have to pay the full retail cost out-of- pocket and will have to have the provider submit unassigned claims for the allowable amount. This is an unreasonable economic hardship for beneficiaries.

Equally important is the impact this kind of shortsighted policy has on American businesses. While it is doubtful that anyone can produce a folding walker that can yield profit at this price, some companies who have little interest in quality or effectiveness will enter the market. HCFA will price legitimate American companies out of the market opening the door to foreign products of dubious quality and questionable clinical effectiveness. The offshore products are not as durable, well engineered and, often, are not as clinically appropriate as those manufactured by American companies, like Invacare. Why should Medicare beneficiaries have to settle for less than America's best?

An interesting side note: Many of the offshore products flooding the market do not even meet Medicare's definition of medical equipment. To be considered a medical device federal law requires that the manufacturing location be registered with the Food and Drug Administration. Registration with the FDA requires performance with that agency's good manufacturing practices (GMP). Many of these offshore companies are not known to, much less registered, with the FDA. Thus, Invacare and other American companies are placed at a competitive disadvantage by products that do not even meet the definition of medical equipment.

Congress should mandate that HCFA promulgate final rules that demonstrate "sound costing methodology" and define what constitutes "statistically valid and relevant data." The development of these final rules should be done in conformance with the Administrative Procedures Act and incorporate the active and substantial input of the HME services industry.

Conclusion: Home health care continues to evolve and expand to meet the increasingly complex needs of today's Medicare beneficiaries. By capitalizing on technical innovation, home care providers can conduct increasingly complex medical and therapeutic regimens in the comfort of beneficiary's own homes. In addition, recent studies have shown that an expanded home care benefit would reduce Medicare expenditures by avoiding costly institutionalization. We urge the Committee to recognize the many benefits of home care by strengthening Medicare's commitment to the home health benefit. You can do that by making sure that the following items are incorporated into any "BBA Fixer" or "Medicare Provider Give-back" legislation.

We ask that Congress acknowledge the contribution that home health agencies have made to Medicare cost containment and permanently eliminate the pending 15 percent cut. Further, Congress should restore the annual Costs Of Living Adjustment (COLA) for durable medical equipment. Finally, we believe that Congress must exercise its oversight responsibility and insist that final rules addressing IR be promulgated in full compliance with the Administrative Procedures Act and if the procedures outlined and that these rules reflect the a sound costing methodology that uses statistically valid and relevant data.

I want to thank the Chairman and Congressman Brown for providing me with the opportunity to offer this testimony today. I would be happy to answer any questions you may have at this time. However, if any member of the Committee needs additional information on any of the points raised in this testimony, please feel free to contact me as indicated below.

END

LOAD-DATE: July 26, 2000

Document 4 of 120.


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