Statement of the Hon. Collin C. Peterson, a Representative in Congress from the State of Minnesota
Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means
Hearing on Medicare's Geographic Cost Adjustments
July 23, 2002
Good afternoon. I am Collin Peterson and I represent the 7th District of Minnesota. I’d like to thank Chairman Johnson and the Subcommittee for inviting me to testify today.
Health Care Worker Shortage
The Committee is well aware of the severe labor shortages within health care professions. The health care industry relies on the majority of its personnel to be licensed and hospitals are experiencing difficulties recruiting and retaining qualified personnel. Facilities are now having to offer signing bonuses and other recruiting incentives which encourage employees to “job hop” between employers, thus increasing turnover costs.
In Minnesota, these shortages are felt across-the-board, including direct caregivers and non-patient care professionals such as nurses, X-ray technologists, pharmacists, medical lab technologists, and others. According to recent findings from the Minnesota Department of Economic Security, the health care industry had 12,543 vacancies this spring. This study also reports 4,532 vacancies in the area of nursing, 69 in hospital pharmacy, and 230 lab technologists.
These vacancies mean patients wait longer before seeing a health practitioner, may be diverted to another facility that could be more than 60 miles away, or experience limited availability to care because there are no personnel to safely expand patient capacities. Facilities are now competing for workers not only across the state but also across the country and around the world. Rural areas are especially hurt by these shortages not only because rural areas lack the cultural advantages that bring in new personnel but also because these facilities lack competitive wages. Rural hospitals are the main employer in the community and if the hospital goes under so does the community.
The wage index needs to reflect only legitimate differences in area wage rates; and the reclassification system needs to be adjusted so that facilities can compete for workers on a level playing field with their urban counterparts. While rural hospitals have a cost structure similar to their urban counterparts, they are paid 10-15% less for comparable services provided to Medicare beneficiaries. Not only are these facilities forced to pay higher wages in order to be competitive with other hospitals, but they also receive significantly lower reimbursement from Medicare for services provided to Medicare patients.
The Centers for Medicare and Medicaid Services (CMS) implemented the Inpatient Prospective Payment System (PPS) in the early 1990’s. The agency used the Metropolitan Statistical Areas (MSA’s) developed by the Census Bureau to organize the varying levels of reimbursement in the Medicare program. CMS created the MGCRB (Medicare Geographic Classification Review Board) to address specific issues of cost and reimbursement arising from the proximity of providers to adjacent urban places with higher costs and reimbursements. CMS developed criteria and a process to determine which providers qualify for reclassification (on an annual basis) into the larger, adjacent MSA’s for purposes of Medicare reimbursements.
St. Cloud Hospital, for example, qualified for wage index reclassification in 1992 (for FFY 1993). In 1993 (for FFY 1994), CMS made changes to the reclassification criteria formula that disqualified St. Cloud Hospital from reclassification in subsequent years. CMS added a requirement that a hospital’s average wage be 108% of the average wage of all hospitals, in its home MSA, inclusive of its own wages. Only a small number of hospitals in the nation that are candidates for geographic reclassification pay more than 80% of all hospital wages in their home MSA. This change made it statistically impossible for hospitals like St. Cloud to meet the reclassification criteria from 1994 to the present because this hospital pays 90% of all hospital wages in the St. Cloud MSA.
St. Cloud Hospital is a “dominant hospital” in the St. Cloud MSA. The hospital’s average hourly wage is about 15% higher than the average paid by the other hospitals in the St. Cloud MSA. Even so, it is not possible to pay 108% of a wage base where 90% of that base is St. Cloud Hospital’s own wages.
In BBA’97, Congress addressed the dilemma of dominant hospitals (hospitals which pay a disproportionately high percentage of hospital wages in their MSA’s) by creating the dominant hospitals exception to the reclassification process. Dominant hospitals (paying more than 40% of the hospital wages in their home MSAs) are required to pay average hourly wages above 106% of the average hourly wage in their home MSA’s exclusive of their own wages. To qualify for reclassification under the dominant hospitals’ exception, dominant hospitals must pay at least 40% of the adjusted un-inflated wages in their home MSA and meet all other criteria for reclassification.
In addition, BBA’97 required that a reclassifying hospital have been approved for designation each year from 1992-1997. Hospitals like St. Cloud and Hutchinson meet all requirements for geographic reclassification other than the arbitrary requirement that hospitals have been reclassified from 1992-1997. These hospitals provide a level of service to their communities that are more commensurate with services provided by hospitals in the neighboring urban MSA and at similar costs.
In St. Cloud’s case, more then 30 hospitals in the neighboring Minneapolis-St. Paul MSA have a higher wage index than St. Cloud Hospital. Some of theses are very small hospitals, yet they have 9.16 percent higher Medicare base rate than St. Cloud Hospital. The case mix index measures the complexity of Medicare patients served. Of the 30-plus hospitals in the Minneapolis-St. Paul MSA, only four hospitals have a higher case mix index than St. Cloud Hospital’s. This means St. Cloud hospital is treating patients who have more complex cases than all but four of these Twin City hospitals—at a significantly lower rate of reimbursement. This is not how the system should work.
Solutions
Some possible solutions to leveling the playing field between competing hospitals could be to change the wage index to reflect only legitimate differences in area wage rates, not the average per employee expenditures that are biased towards urban areas.
Some less costly adjustments could be eliminating the BBA’97 criteria requiring that a hospital be approved for reclassification each year from 1992-1997, and, eliminating the requirement that hospitals have been approved for reclassification from 1992-1997 when hospitals pay more than 80% of adjusted, un-inflated wages in their home MSA.
Congress could also modify the requirement that hospitals pay 108% of the average, adjusted, un-inflated wage in their home MSA inclusive of their own wages when the hospital pays more than 80% of the adjusted, un-inflated wages in its home MSA. A hospital paying more than 80% of the adjusted, un-inflated wages in its home MSA could be held to criteria requiring that it pay 108% of the average, adjusted, un-inflated wage in its home MSA exclusive of its own wages.
In conclusion, I would like to thank the Chairman and the Members of the Subcommittee for inviting me to testify today on these important issues.
Minnesota Hospital Snapshot
St. Cloud Hospital
St. Cloud Hospital is located in the City of St. Cloud and in the St. Cloud MSA, consisting of Stearns and Benton Counties in Central Minnesota.
The St. Cloud MSA is immediately adjacent to the Minneapolis-St. Paul CMSA. St. Cloud Hospital is physically located about 1.8 miles north of the boundary between the St. Cloud MSA and the Minneapolis-St. Paul CMSA.
St. Cloud Hospital is a regional referral center, providing a full range of specialty and emergency services to a 12-county area in which it is the only regional referral hospital. The services provided by St. Cloud Hospital are more complex than those of the other hospitals in the St. Cloud MSA and are more complex than most hospitals in the adjacent Minneapolis-St. Paul CMSA.
Medicare insures forty-five percent of all patients served by St. Cloud Hospital. In Fiscal 2001 (ending 6/30/01), St. Cloud Hospital was reimbursed $11 million below its costs for services provided to Medicare patients.
Hutchinson Community Hospital
Hutchinson Community Hospital is located in the City of Hutchinson, which is in McLeod County adjacent to the Minneapolis-St. Paul CMSA.
Hutchinson Community Hospital is physically located 20 miles southwest of Minneapolis-St. Paul CMSA.
Hutchinson Community Hospital is a regional referral center, providing a full range of specialty and emergency services in the area. The services provided by Hutchinson Community Hospital are more complex than other hospitals in the surrounding area and are more complex than some hospitals in the Minneapolis-St. Paul CMSA.
Medicare insures forty-one percent of all patients served by Hutchinson Community Hospital.