Committee on Ways and Means, Subcommittee on Health, 7-23-02 Testimony

Statement of the Hon. Jim Nussle, a Representative in Congress from the State of Iowa

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

Hearing on Medicare's Geographic Cost Adjustments

July 23, 2002

Chairwoman Johnson, Ranking member Stark, I’m pleased to have been invited to testify before the Health Subcommittee about the impact of Medicare’s Geographic Cost Adjustors on my home state of Iowa. Maintaining a high quality of health care in rural communities such as my hometown of Manchester has been one of my top priorities since being elected to Congress. In fact, just last year, I had the pleasure of hosting the Chairwoman of the Health Subcommittee, Mrs. Johnson, at several meetings with hospital administrators, physicians, and other health care providers in Dubuque.

The erroneous assumption that providing quality health care in rural states costs less than those in urban areas has persisted since the Medicare program was initiated in 1965. As you probably know, Iowa ranks 8^th in overall quality of health care delivery while it remains 50^th in overall Medicare reimbursement. The stability of our healthcare system across the state is threatened.

While I applaud the steps the House has taken to improve these inequities in the Medicare Modernization and Prescription Drug Act by including both a separate title with a number of rural health care improvements as well as an amendment I offered providing relief to those states with hospitals most in need, clearly more action is needed to keep health care providers from leaving small, rural communities. Among the biggest contributors to these inequities faced by rural health care providers are the geographic adjusters on both hospital and physician wages.

While the geographic adjusters for both physicians and hospitals are in essence supposed to provide an accurate reflection of area wages for particular markets and communities, in reality they have hampered the urgent efforts of small communities to retain and recruit health care personnel to serve in rural communities. The most pronounced examples of the inequities in geographic adjusters are the hospital wage index and the geographic practice cost index (GPCI).

Hospital Wage Index

The area wage index is a scale used to adjust Medicare inpatient and outpatient payments to account for varying wage rates paid by hospitals for workers in difference market areas across the country. Hospitals in areas with a higher wage index receive higher Medicare payments than those with a lower wage index for the same services.

The hospital wage index is the single greatest factor promoting geographic Medicare payment differences between urban areas and rural areas such as Iowa because it makes inaccurate assumptions about cost of living differences. I believe the current index itself is flawed because the inpatient wage index often contains wage and salary data relating to “overhead” for non-patient related healthcare personnel. The effect of this flaw dilutes the facility’s average hourly wage because of the portion of total salaries attributed to lower paid employees. This phenomenon is particularly true in Iowa and other rural states where it is fairly common for a rural hospital to operate additional facilities such as nursing homes.

Also, there is an assumption that Iowa hospitals can and do pay workers less. But in reality, Iowa hospitals are handicapped by the Medicare wage index adjustment because they must compete in a regional, interstate market for labor in what is a growing work force crisis. In my district, for example, hospitals in Osage, Cresco, and Decorah with a Medicare wage index of .8147 compete in the same labor market as Rochester, Minnesota, which has a wage index well above the national average of 1.1462. Hospitals in these rural areas simply do not have the resources to compete with larger urban areas in surrounding areas and states.

It is critical that the hospital wage index be addressed to bring equity to Iowa and other poorly reimbursed states. Currently, the Iowa Hospital Association reports that the percentage of Iowa’s hospitals with negative Medicare margins is growing every year. One promising idea proposed in H.R. 1609, of which I am a cosponsor, is the establishment of a wage index “floor” of .925. By establishing such a floor, significant relief could be provided to Iowa’s under-compensated hospitals.

Physician Work Component of the Physician Fee Schedule

In a recent news article, Ed O’Neill, a surgeon in Dubuque, Iowa, stated correctly that, “Recruitment and Retention of quality physicians is made that much harder by sub-par reimbursement.” I wholeheartedly agree.

The implementation of the Resource Based Relative Value Scale (RBRVS) was the first major change to Medicare Part B since the program’s inception. This new payment system was based on three geographic practice cost indexes (GPCI’s) meant to narrow the geographic differences among localities: physician work, practice expense, and professional liability insurance costs. In reality, the GPCI’s have had the opposite effect. A particular troubling component is the Centers for Medicare and Medicaid Services definition of physician work as the amount of time, intensity, and skill, a physician provides in a patient visit. Clearly, physicians in Iowa provide the same time, intensity, and skill of those in all areas of the country, but yet Iowa ranks 81^st out of 89 payment localities based on physician work component of the geographic practice cost index (Iowa - .959). Why should there be any difference among localities for physician’s work at all? Iowa physicians provide high quality health care delivery and this inequity must be fixed.

Similar to the wage index floor for hospitals, an idea that has emerged in the House is establishing a floor for the physician work component of this system. I have cosponsored H.R. 3569, the REPAIR Act, which would phase in a floor of 1.000 over five years so that rural states like Iowa can continue to recruit and retain physicians and so that they can continue to serve Medicare patients.

Summary

I appreciate the opportunity to testify before the Subcommittee today and again applaud the efforts of the Committee and the House in passage of the Medicare Modernization and Prescription Drug Act (H.R. 4954). This bill provides significant measures to eliminate the inequities that currently exist, but clearly more must be done. I look forward to working with the Chairwoman and the committee to eliminate the current discrimination that rural states face under the geographic adjustment systems for hospitals and physicians.