Statement of the Hon. Paul E. Kanjorski, 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
Madame Chair, Ranking Member Stark and Members of the Committee, I appreciate the opportunity to come before you today to testify about geographic cost adjustors used for Medicare payments and the need for payment revision in the current system. These issues are of great concern and importance to the people of my Congressional district in Northeastern and Central Pennsylvania.
While almost no hospital in the nation has been left unaffected by the cost pressures brought about by the passage of the Balanced Budget Act of 1997, hospitals in my district face a unique set of problems because of the demographic composition of the area and its geographic location. First, the Metropolitan Statistical Area, or MSA, that makes up most of my district has an extremely high number of senior citizens. Of nearly 600,000 residents in the Scranton/Wilkes-Barre/Hazleton MSA, more than 18% are over the age of 65. The population of my district is old, relatively low-income and located close enough to areas in which Medicare reimbursement rates are much higher that skilled personnel are recruited away for higher salaries. Because we have such a high concentration of senior citizens, our hospitals are therefore much more dependent on Medicare reimbursements than most hospitals in other parts of the country. The Medicare patient utilization rate is well over 50% for most hospitals and as high as 76% in one hospital. Unfortunately, hospital officials have told me that the current reimbursement rate falls far short of covering the cost of treating senior citizens, so that hospitals in our region lose money caring for seniors.
Medicare reimbursements to hospitals are based largely on the wage index for each MSA. The Scranton/Wilkes-Barre/Hazleton MSA has a wage index so low that hospitals are reimbursed at the rural wage index. This classification sets in motion a vicious cycle, however: Medicare reimbursements are lower for rural areas than for urban areas, meaning that hospitals in my district get less money back from Medicare and must consequently pay their employees less than those in urban areas. Because employee wages are lower, these hospitals continue to be classified under a lower paying rural wage index. Even as hospitals are forced to raise wages to keep qualified nurses and other personnel, the three-year lag in adjusting the reimbursement rate costs them hundreds of thousands of dollars. The hospitals are caught in this vicious cycle and cannot catch up. Meanwhile, hospitals in parts of the state that are just adjacent to my district continue to be classified under the higher paying wage index, and are consequently able to offer higher wages to their employees. A nurse working at a hospital in Hazleton, for example, has to drive just sixteen miles to work instead at a hospital in the Allentown MSA, which has a reimbursement rate 13% higher than that in my district.
This introduces the second problem caused by inadequate reimbursement rates. The health care industry is currently experiencing a nursing shortage. There are shortages in other areas of skilled health care labor as well. These deficiencies combine to create a highly competitive market among health care employers. In this environment, it has become increasingly difficult for hospitals in Northeastern and Central Pennsylvania to recruit and retain skilled health care professionals. Because these hospitals are receiving significantly lower revenues in the form of Medicare reimbursement payments than hospitals in surrounding counties, they have experienced serious labor disputes and poor morale.
Finally, this problem of proximity to areas under the higher wage index illustrates another concern. Although hospitals in my district receive Medicare payments under the lower rural wage index and thus take in less revenue than neighboring hospitals, their costs remain virtually the same as those of hospitals that are classified under the higher urban wage index. Therefore, these hospitals in my district experience an even greater financial burden than hospitals in general are experiencing.
Working with Ways and Means Committee staff two years ago, I developed legislation that would have specifically addressed the problems of economically distressed hospitals, which serve a disproportionately high number of senior citizens and receive a relatively low reimbursement rate from Medicare. Under my Essential Hospital Preservation Act (HR 4622 in the 106th Congress), hospitals which met a number of criteria, including a greater than 40% Medicare patient load, would be eligible for special funds as determined by the Department of Health and Human Services in order to develop an economic recovery plan. While I realize that this approach may not be everyone’s ideal, I submit my bill as a starting point for a discussion on finding a way to address the unique problems of a small number of areas of the country which have a high proportion of senior citizens, a low reimbursement rate and a proximity to MSAs with more generously reimbursed hospitals.
I recognize that this is a highly complex and politically treacherous issue and I commend the subcommittee for addressing it. I look forward to working with you to find equity in a system that has for too long been greatly inequitable. Thank you again, Madame Chair, Ranking Member Stark and Members of the committee, for giving me the opportunity to present these facts to you today.