Statement of the Federation of American Hospitals
Madam Chairwoman,
The Federation of American Hospitals would like to thank Chairwoman Nancy Johnson (R-CT), Ranking Member Pete Stark (D-CA), and other Members of the Subcommittee for their attention to rural health care. The House Ways and Means Committee, under your leadership, has remained committed to the needs of rural providers--recently helping to mitigate a number of rural reimbursement problems through the Balanced Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid and SCHIP Benefits Improvements and Protection Act of 2000 (BIPA).
The Federation of American Hospitals (FAH) represents nearly 1,700 privately owned and managed community hospitals across the United States, including over 400 rural facilities. On a daily basis, our doctors and nurses face the daunting task of trying to provide the best and most affordable care to rural communities--all with fewer dollars. This is not a recent development. The communities in which we serve have historically suffered under inequitable Medicare reimbursement rates.
Rural hospitals serve a critical role in the health and well-being of our nation's seniors. With nearly one-in-four Medicare beneficiaries living in rural America, the Federation believes it is vital that Congress more fully understand the unique challenges that these hospitals face. Specifically, hospitals in rural communities: 1) tend to have higher per unit costs; 2) are more dependent on Medicare revenues than are urban hospitals; 3) are often the only provider of the services they render (i.e., when such facilities close, it can affect beneficiaries for miles in all directions); and 4) often have difficulty recruiting physicians and nurses as well as maintaining their patient base.
As you will hear from the Medicare Payment Advisory Commission (MedPAC) today, despite modest legislative adjustments over the past several years, Medicare continues to reimburse rural America far below their urban counterparts. This is despite the fact that rural providers are expected to provide the same standard and level of quality care to their community. The Federation is delighted that MedPAC has made some proactive recommendations, some of which would certainly improve the delivery of care in rural America. However, FAH is concerned that some of these provisions continue to remain too targeted.
In fact, the Federation believes that Congress should look at broader solutions. In particular, we would like to see as part of any rural hospital legislation enacted this year: 1) full Medicare Disproportionate Share (DSH) equity and 2) a Medicare Hospital base payment increase, both with new monies.
Medicare DSH payments are distributed through a hospital-specific percentage add-on applied to the basic DRG payments rates. The intent of these payments is to reimburse facilities for the high cost of treating poor patients. BIPA made some important changes to Medicare DSH payments; most notably, it extended the eligibility threshold of 15% low income share (previously enjoyed by only urban hospitals with 100 or more beds), and increased the DSH cap for rural or small urban to 5.25%
While the Federation appreciates Congress' efforts last year to address the issue of Medicare DSH equity, we would like Congress to take another step forward in correcting this inequity and ensure full Medicare DSH equity. In short, a rural hospital or small urban currently receives a Medicare DSH add-on to each DRG payment -- the add-on is limited under current law to 5.25% above the DRG. FAH believes that the 5.25% is arbitrary and artificial, and if new money were to be used, the Federation would support eliminating the cap altogether.
The Federation would also like to see Congress once and for all address the Medicare base payment rate--an unequal and inequitable payment difference with no justification in policy. Medicare payment for inpatient care in hospitals is determined by a formula based on a dollar amount known as the base payment. That amount is multiplied by the DRG to reflect the costs of the treatment the patient receives for a particular diagnosis, and adjusted by the relevant wage index, DSH, IME, transfer, etc. There are currently two separate base rates for inpatient payments--one for large urban areas with a population greater than one million ($4,197), and a second encompassing rural and urban areas less than one million ($4,130). The base payment for large urban areas is 1.6% higher. The intent of this rate is to reimburse for the cost of a typical Medicare patient.
The Federation would like to establish one base payment rate at the level of large urban areas. We believe that increasing the standardized amount for the rural and small urban hospitals to the rate of the large urban areas would not only bring more equity to the table, but it would also help these hospitals attract and retain critical hospital labor. The standards of care are the same regardless of location. Whether a patient is being treated in a rural or urban setting, the standards of care the physician employ are the same and should, therefore, be reimbursed the same rate as the large urban areas.
The Federation believes that any comprehensive solution to rural health care should also address the uninsured in rural America. The Federation remains concerned about the health and well-being of those who forego essential health coverage. Clearly, the absence of coverage is a significant contributor to poor health, and delaying or not receiving treatment can lead to more serious illness and avoidable health problems. America's hospitals have and will continue to do their part to treat the uninsured and indigent in their communities; because every American deserves access to basic and affordable health care services -- services that provide the right care, in the right setting, at the right time.
We certainly hope that this testimony sheds some light on what we believe to be constructive solutions to health care delivery in rural America. Thank you and we look forward to working with all Members to address these concerns.