Statement of the Hon. Jerry Moran, a Representative in Congress from the State of Kansas
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 inviting me to testify before the House Ways and Means Subcommittee on Health, regarding geographic inequities in the Medicare program.
The issue of geographic disparity greatly affects rural areas in my home state of Kansas. Our doctors, nurses, hospitals and other health care providers are struggling to meet the needs of our communities. Hospitals and health care providers are not only important for our quality of life, but are also essential for the survival of our communities. Our seniors, as well as our younger families, will not be able to remain in communities that lack adequate health care services.
The Medicare program represents a significant portion of funding for health care in our state. 80% of patients visiting hospitals in my district depend on Medicare. Unfortunately, Medicare payments have not kept pace with rising costs and the majority of hospitals now lose money when caring for Medicare patients. Since Medicare reimbursements do not meet actual costs, county hospitals are putting pressure on local property taxes, and Kansas’ citizens and businesses are subsidizing Medicare's shortfall.
Federal payments vary dramatically from state to state, and city to city. Rural areas, like Kansas, continue to receive lower reimbursements than other parts of the country. Rural residents pay their fair share of taxes and should have the same access to hospitals and health care as anyone else. Whether we are young or old, sick or healthy, we all want to know that health care will be available when we need it.
As Chairman of the Rural Health Care Coalition, a group of 182 House members working together on behalf of health care in rural America, my goal is to bring this issue to the attention of my urban colleagues. Legislation too often is directed toward large hospitals and metropolitan areas, while overlooking the unique challenges of smaller, rural communities. I would like to thank Chairwoman Johnson for her recent efforts to provide help for our rural hospitals and other health care providers in the Medicare reform legislation that passed the House last month.
The Medicare Prospective Payment system does not work in rural areas. The Congressional mandate to create a predictable, one-size-fits-all, payment system for acute, inpatient Medicare patients in the early 1980's was based upon a lot of assumptions that have proven over time to be inaccurate. Those assumptions were that if Medicare paid every hospital the same amount for the same procedures, based upon Diagnostic Related Groups (DRG's), and adjust those payments based upon geographic and labor variances the Part A Trust Fund would remain solvent well into the future. And while this concept was simplistic in design, it soon became apparent that the "Devil was in the details."
Geographic Adjustment: The first payment adjustment was to differentiate hospitals based upon where they were located geographically. According to Section 1886(d)(3)(E) of the Act, the Secretary of HHS must adjust the standardized amounts "for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level." In accordance with this broad directive, the Secretary divided the country into payment areas based upon Metropolitan Statistical Areas (MSA's), Primary MSA's (PMSA's), New England County Metropolitan Areas (NECMA's), Consolidated MSA's (CMSA's) and statewide rural areas. MSA's were further subdivided into large urban MSA's and small urban MSA's. PMSA's, NECMA's and CMSA's were included after the inception of the PPS system when data showed that MSA's alone did not adequately differentiate variances in labor markets - in other words - it didn't work as designed originally.
Wage Index Adjustment: In 1993, Section 1886(d)(3)(E) of the Act was further amended requiring the Secretary to "update the wage index annually based upon a survey of wages and wage-related costs of short-term, acute care hospitals." This gave birth to Worksheet S-3 of the Medicare Cost Report. The instructions for the completion of this worksheet from HCFA (CMS) to their intermediaries and providers could best be described as vague, contradictory and confusing from the beginning. Again it was believed that labor markets would routinely behave homogeneously within each labor area as previously designed.
Payment Fixes - Hospital Re-Classifications: As promising as the Prospective Payment System seemed to policy makers early on, it soon became apparent that the one-size-fits-all approach was not working. As a result a plethora of payment "fixes" have been proposed and passed, particularly to address the inadequacies of PPS for rural hospitals. Among those are Sole Community Hospitals, Medicare Dependent Hospitals, Medicare Geographically Reclassified Hospitals and Critical Access Hospitals. Each of these "fixes" has as its goal to remove certain hospitals from the Prospective Payment System because of problems with the wage index and geographic classification.
Although these payment fixes to the Prospective Payment System have helped, our rural hospitals are still struggling. There are 70 hospitals located with the First Congressional District of Kansas. While the specific classifications are constantly changing, as of the close of FY 2000, there were 14 Critical Access Hospitals; 17 Medicare Dependent Hospitals; 25 Sole Community Hospitals; 2 Geographically Reclassified Hospitals, and 14 rural hospitals. There are no urban hospitals in the district. Eighty percent of the hospitals in the district qualify for some form of payment fix. However, of the 70 hospitals in the District only 24 were able either break even or make a small profit treating Medicare patients. Even under reasonable cost-based reimbursement, half the Critical Access Hospitals in my district are operating in negative Medicare margins and only two of my rural hospitals are operating in positive Medicare margins.
For these reasons, I introduced HR 4515, the Rural Community Hospital Assistance Act. This bill would provide enhanced cost-based reimbursement for critical access hospitals and extend such reimbursement to post-acute care services. It would also provide an option for rural hospitals with less than 50 inpatient beds to receive enhanced cost-based reimbursement for inpatient, outpatient and select post-acute care services. An alternative payment structure based on a reasonable cost-based reimbursement system is necessary to ensure that the survival of these essential providers of care and to ensure that Medicare beneficiaries located in small rural areas continue to receive access to quality health care services.
Standardized Payment and Wage Index Problems
Changes with the standardized base payment and wage index are also needed to help rural communities to recruit and retain health care professionals.
Standardized Payment: The base payment or “standardized amount” set by the government was designed to recognize distinctions in operating costs between urban and rural areas. However, the assumptions that led the government to develop different payments to urban and rural areas are no longer valid. Given the shortage of nurses, physicians, and other skilled hospital labor, rural areas struggle to compete with their urban counterparts in the current labor market. In addition, the assumption that it costs less to perform medical procedures, less to purchase durable medical equipment, and less to administer small rural hospitals is erroneous.
I would like to thank Chairwoman Johnson for working with the Rural Health Care Coalition to include a provision to standardize the base payments between rural and urban hospitals in the Medicare reform bill that passed the House last month.
HR 4954, the Medicare Modernization and Prescription Drug Act, would standardize hospital base payments in two years.
Wage Index Survey: There remains considerable variance in the data supplied to CMS for the compilation of the wage index between Medicare Fiscal Intermediaries (FI's). For instance, hospitals in Kansas that use Mutual of Omaha as their FI versus Kansas Blue Cross are subject to different audits and allowances of the basically the same data. Further, the data CMS uses for the calculation of the wage index is four (4) years old. For this upcoming fiscal year (FY 2003), data from the FY 1999 Medicare Cost Report is used. This time frame cannot possible reflect changes in costs or availability of labor.
Relevance of Labor Areas: The original concept of labor market areas was probably fairly adequate in the early 1980's but they do not reflect reality in 2002. Due to the decreased supply of skilled health care workers, hospitals are expanding their labor markets by up to 150 miles routinely, often offering to house workers for a workweek. This has caused a significant shift in what local areas now have to pay for workers. Rural hospitals now have to compete in both wages and benefits with their urban counterparts or risk losing their employees to them.
I look forward to continuing to work with you to improve the access to affordable health care in rural communities. Again, thank you for the opportunity to testimony on this important issue.