Statement of the Hon. Marge Roukema, a Representative in Congress from the State of New Jersey

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

Hearing on Medicare's Geographic Cost Adjustments

July 23, 2002

Thank you for the opportunity to speak today about an issue that has a tremendous impact on healthcare in New Jersey – the Medicare wage index adjustment.  I commend you for convening a hearing on this important subject consistent with the request made by conferees in the Supplemental Appropriations Conference Report that we will be voting on today. The report reads: “the conferees express in the strongest terms their request that the authorizing committees of jurisdiction, the Senate Finance Committee and House Ways and Means Committee, develop legislation as soon as possible to address the geographic inequities that exist nationwide in Medicare reimbursements because of the wage indices used.”

We must find ways to provide fiscal relief to our hospitals. New Jersey hospitals are in a terrible financial condition and it threatens access to care for the state’s 8 million residents. 

I represent the fifth district of New Jersey, which consists of Bergen, Passaic, Sussex, and Warren counties in northern New Jersey. My district has become known as a bedroom community for thousands of men and women who work every day in the most important financial district on the planet ---- in New York City. Indeed, my district is literally a stone’s throw away from New York City, the largest city in the United States.

Northern New Jersey and New York City constitute one large, integrated labor market. In 1998, 300,000 New Jersey residents paid almost $1.3 billion in New York income taxes. Commuting patterns between the two areas illustrate the high level of integration. Everyday, the George Washington Bridge carries 155,000 cars eastbound into New York City.  The PATH train averages 180,000 daily riders on weekdays.

In total, over 300,000 commuters enter New York City every day from New Jersey. The bottom line is that the only thing separating New Jersey from Manhattan is a river.  There is perhaps no clearer illustration of the integration of New York City and northern New Jersey than the response to the Sept. 11 attacks.  Nearly 5,000 patients crossed the Hudson River that day for treatment at New Jersey hospitals.

Although the entire nation is facing a health care workforce shortage, New Jersey’s proximity to New York City has caused its problems to be particularly severe. Industry analysts say that a 10 percent vacancy rate of registered nurses constitutes a severe shortage. It is projected that New Jersey will have a vacancy rate of 18 percent by 2006. This is a crisis and can be directly attributed to the inequitable Medicare wage index. New Jersey hospitals receive lower levels of reimbursement from Medicare than New York City hospitals. New Jersey hospitals simply cannot continue to compete with the nation’s largest city while facing the strains of an unprecedented workforce shortage. More than 40 percent of New Jersey hospitals ended 2000 in the red, and with $21 billion looming budget cuts already set into law, the financial condition of hospitals will only become bleaker.

As you are well aware, Medicare adjusts its payments to hospitals using an adjustment factor, called a wage index, to account for labor costs.  New Jersey’s wage index is lower than neighboring areas, even though it must compete with hospitals in these nearby localities for labor. 

Caught in a catch-22, New Jersey hospitals cannot afford to pay its employees more money to get a higher wage adjustment.  Hospitals are losing their ability to attract physicians and nurses and other caregivers since they can work in higher paying hospitals in New York City.

The New Jersey delegation has fought long and hard for increased, fair Medicare reimbursement levels. We have been working with the Office of Management and Budget since the 1980s to recognize the similar labor costs between the New York City MSA and the MSAs in the northern part of New Jersey.

I would like to call the Committee's attention to the findings of the Metropolitan Area Standards Review Committee (MASRC), which was chartered in the fall of 1998 by the Office of Management and Budget (OMB) to examine the current metropolitan area standards and alternative approaches to defining those areas. The group recognized, in findings that were published in the October 1999 Federal Register, that the settlement patterns of the mid-Atlantic region constitute larger entities, suggesting that a larger “megapolitan” area for New York and New Jersey exists.

We were pleased that H.R. 4954, the Medicare Modernization and Prescription Drug Act of 2002 (passed the House on June 28, 2002), included the establishment of a GAO study on improvements that can be made in the measurement of regional differences in hospital wages. 

The study would specifically examine the use of metropolitan statistical areas for purposes of computing and applying the wage index and whether the boundaries of such areas accurately reflect local labor markets. The study would also examine whether regional inequities are created as a result of infrequent updates of such boundaries. This is a step in the right direction and I commend the leadership for working with us to pursue this issue that is so critical for New Jersey hospitals. However, I believe that current evidence leaves no question that the current metropolitan area standards distort local labor markets and result in gross inequities in Medicare reimbursements.

New Jersey hospitals deserve a wage index equitable to New York City. According to statistics provided by the New Jersey Hospital Association, the most recent Medicare data shows that the hospitals in my district have, on average, the lowest Medicare inpatient margins in the state. Let me offer you one example from a hospital located in my district. The Valley Hospital is a 474-bed acute care facility in Ridgewood, New Jersey. Over 50 percent of Valley’s volume is Medicare.  Like the other hospitals in my district, Valley only receives a 16 to 18 cent add-on to each labor related Medicare dollar as a wage index adjustment.  Neighboring hospitals located in the New York City Metropolitan Statistical Area (MSA), some of which are located just a few miles away, receive a 44-cent add-on. This disparity makes no sense!

Hospitals in New Jersey are in their worst financial condition in over a decade. Because of the Medicare wage index add-on that is over two times higher than that of northern New Jersey hospitals, nearby hospitals located in New York City can afford to pay their health care professionals more. New Jersey cannot.

 Let me remind you that behind this entire debate about “wage indexes” and “geographic classifications” is one simple fact.  This is about patients. It is about the millions of New Jerseyans who are threatened by a struggling hospital system. Patient care will be compromised if we don’t address this crisis immediately.

Additionally, our country is facing a situation today that we are totally unfamiliar with.  We are battling terrorists who can strike against our country at any time and in any manner.  Now more than ever, it is essential that our hospitals are capable of fully staffing their facilities. Future terrorist attacks would be even more devastating if our hospitals are not equipped with qualified staff to care for patients.  This is a situation that must be addressed immediately.  The safety of the residents of New Jersey is at stake.

I urge you to keep New Jersey patients in mind when examining the inequity in Medicare payment add-ons between New York City and northern New Jersey.