Statement of the Hon. John E. Peterson, a Representative in Congress from the State of Pennsylvania

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Medicare's Geographic Cost Adjustments

July 23, 2002

Madam Chairman, thank you for your gracious invitation allowing me to testify before you and the other distinguished Members of the Subcommittee this afternoon on an issue which I care so deeply about: bringing fairness to the way in which Medicare treats rural America. It is truly a pleasure to be here today. Thank you.

As you know, I have made a personal commitment over many years toward improving the viability of rural health care in America. As Chairman of the Health Committee in the Pennsylvania Senate for ten years, I began tackling the inefficiencies facing our health care delivery system, as well as identifying and growing the positive attributes. Upon coming to Washington, I made rural health care my top priority. In my view, rural America too often receives inadequate health care when viewed next to their urban/suburban counterparts by way of less reimbursement, less choice, less access, and thus, less quality of care. I thank the Subcommittee for recognizing this inequity by way of holding this hearing today on geographic adjusters.

Other Members of this panel have and will discuss the adjusters impacting our rural physicians, and I would like to particularly praise Mr. Bereuter for his efforts to bridge the payment gap between doctors practicing in rural versus urban areas. In fact, I am a proud original co-sponsor of Mr. Bereuter's legislation to do just that, and will let him and others make our case on that issue. I would like to address the wage index issue and its impact on our rural hospitals.

Madam Chairman, from our many personal conversations on the issue, you know how deeply I care about preserving rural health care providers; as it is so critically linked to preserving the rural way of life. Many times, the local hospital is the largest employer in a rural community -- acting as the economic engine and primary tax base. Additionally, a strong, vibrant rural hospital is necessary to attract potential employers to the region so they may be assured that their employees will have access to adequate care. If the local hospital is no longer viable, the entire community will no longer be viable. It is that simple. The disparity in the wage index is a major contributing factor of Medicare's unfair treatment toward rural hospitals, threatening their viability and the economic health of the entire region.

Medicare issues are compounded for rural hospitals because a majority of their patients are elderly. Coupled with above-average Medicaid volumes, most of my hospitals rely on government payers for 60 to 85 percent of their patients. One of these hospitals is Bradford Regional Medical Center in northwest Pennsylvania just a few miles south of the New York border. Approximately 55% of the volume of services they offer are utilized by Medicare-eligible patients with approximately another 20% utilized by Medicaid-eligible patients. Bradford is significantly impacted by Medicare's geographic adjustors. Underlying the notion of geographic adjustors are the assumptions that a differential in wages exists from one geographic area to another, and that those differences can be captured by the MSA's defined by the Office of Management & Budget. These assumptions are problematic for two reasons. First, while those differences may exist for some jobs, they either don't exist or are much less significant for key professional positions such as nursing and pharmacy. And second, the boundaries are arbitrary and frequently don't reflect the relevant job market. The difference in wages between MSA's in any region of the country for key health care personnel such as nurses and pharmacists and highly trained technical staff is rapidly diminishing. Additionally, as an example of the arbitrary nature of the boundaries, Bradford is located only 3 miles from the New York State border and competes actively for key staff with the hospital in Olean, New York. Olean is in the Buffalo MSA and therefore, better compensated in comparison to Bradford. The arbitrary nature of the wage boundaries places many rural hospitals at a competitive disadvantage by no fault of their own.

Madam Chairman, this impact is heightened by the current environment of shortages in health care personnel which are reaching crises proportions, creating a long-term drain on many organizations. These shortages are having the most severe negative impact on rural hospitals' abilities to recruit and retain staff. The problems with the wage index magnify the dilemma.

However, the wage index is only a part of the problem. Medicare reimbursements also obviously contribute to the financial plight of rural hospitals. In fact, given the complexity of the wage index and the cost associated with fixing it completely, perhaps a more realistic way to help rural hospitals immediately is to provide every single rural hospital in America with a simple, across-the-board rural add-on similar to what has been done for rural home health agencies and inpatient rehab facilities. This ensures that the many rural hospitals who do not fit one of the many special rural classifications do not fall through the cracks, as is happening now. I realize that this is a discussion for another hearing; however, this may be a simple solution until Secretary Thompson and the Centers for Medicare and Medicaid Services are able to fully complete their ongoing review of rural health care and provide recommendations to Congress.

Madam Chairman and Members of the Subcommittee, I thank you again for allowing me the opportunity to share with you my thoughts on an issue so important to rural America, and I look forward to working with you in strengthening rural health care. I applaud your concern and commitment.