Statement of the Hon. Max Sandlin, a Representative in Congress from the State of Texas
Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means
Hearing on Medicare's Geographic Cost Adjustments
July 23, 2002
Good afternoon, thank you for the privilege of being here today. Congresswoman Johnson, I also want to commend you for your decision to hold this hearing and to focus attention on this important issue.
When Congress passed the Balanced Budget Act of 1997, the goal was to set up a payment system under which health care providers would be adequately compensated for their marginal costs, while eliminating waste in the Medicare system. The new prospective payment systems were designed to take into account, among other factors, differences in costs based on local market factors. Under Medicare Part A, the factor that is supposed to reflect differences in local wages is known as the wage index.
While I support the intent of these geographic adjusters, in practice, many rural areas are receiving significantly lower Medicare reimbursements that do not necessarily reflect true cost differences. The result can be financial difficulties for rural doctors, hospitals and other health care providers. Congress must begin to address these inequities so that all health care providers – whether they live in Texarkana, Texas, or New York City – are adequately compensated for the services they provide under Medicare.
In its June 2001, Report to Congress, the Medicare Payment Advisory Commission, more commonly known as MedPAC, also raised concerns about the current use of geographic adjusters – and especially of the wage index. It acknowledged that Congress has taken some steps toward eliminating the unwarranted disparities, but also pointed out some areas where policy changes may be needed.
One of the most pressing problems is that the political boundaries of current MSAs – which determine a hospital’s wage index, according to the July 2001 report, “often arbitrarily separate facilities that participate in the same labor market.” To some extent Congress has helped to alleviate this problem by establishing a process to enable hospitals to appeal their labor market assignments and request reclassification. However, as you will hear, reclassification has not ended the disparities nor addressed the needs of many rural hospitals.
Approximately 15 hospitals in the 1st Congressional District of Texas face low Medicare reimbursement rates due to the current wage index formula. Several of these hospitals compete for health care talent – and thus face similar labor costs – with hospitals in Dallas, Tyler, and other urban areas, but are compensated at a lower rate due to the current wage index policy. Among the hardest hit is Christus St. Joseph’s Health System in Paris, Texas. Christus St. Joseph’s is the sole Rural Referral Center hospital in its eight-county service area in Northeast Texas and Southeast Oklahoma. Over 60 percent of Christus’ patients are on Medicare – and Christus is the only hospital with tertiary level services between Oklahoma City and Dallas and between Texarkana and Sherman.
Christus St. Joseph’s should be the type of hospital that Congress intended to help when we established the opportunity for hospitals to apply for wage index geographic reclassification. Christus is located in Lamar County, Texas, only 30 miles from the Dallas MSA and similarly close to the Sherman-Denison MSA. Because Christus is a high-skilled facility, and because of the geographic proximity to these markets, Christus competes with hospitals in those urban areas for skilled clinical personnel. As a result, Christus’ average hourly wage (AHW) is considerably higher – 105 percent higher– than other rural Texas hospitals.
Unfortunately, however, while Christus qualified for reclassification in FY 1999 and FY 2001, Christus has not met the strict requirements of the reclassification criteria for FY 2002 and FY 2003. The Medicare Geographic Reclassification Review Board requires that a hospital’s wage index be at least 82 percent of the closest MSA. While other MSAs surround Lamar County, Dallas is the closest and Christus’ average hourly wage is only 81 percent of hospitals in the Dallas MSA. However, Christus’ average hourly rate is 91 percent of hospitals in the Sherman-Denison MSA.
The wage index disparity means that Christus St. Joseph’s is receiving over $7 million less in Medicare reimbursements than similar hospitals would in a nearby urban MSA. Recently, Christus St. Joseph’s announced that it is losing between $1 million and $1.5 million a month, closing one of its two locations, and laying off over 200 employees. Unless it is reclassified this year, it will have to terminate the state-of-the-art heart center and will likely close altogether.
Christus St. Joseph’s CEO recently told me that even with the cutbacks and layoffs, that it will continue to lose money – and all the while it is operating at full capacity and having to turn away patients for a lack of beds. That is just not right.
Even more striking is that the Medicare Geographic Reclassification Review Board has already decided to reclassify Christus St. Joseph’s as of October 1, 2003. However, given the amount of money the hospital is losing every month – there is a good possibility that Christus – at least in its current form – may not last that long.
One potential problem with the wage index may be the use of MSAs in determining which wage index level is used to compensate individual hospitals. In fact, in a December 27, 2000, Federal Register announcement the Office of Management and Budget (OMB) cautioned that, “MSA definitions should not be used to develop and implement Federal, state, and local non-statistical programs and policies without full consideration of the effects of using these definitions for such purposes.” Further, OMB stated that MSAs “ may or may not be suitable for use in program funding formulas. Programs that base funding levels or eligibility on whether a county is included in a MSA may not accurately address issues or problems faced by local populations, organizations, institutions, or government units.”
In addition, since the reclassification process must be done on a case-by-case basis, it can be a time-consuming and costly effort for the small, rural hospitals that are affected by the wage index inequity.
The problems with the wage index are not unique to my rural, Northeast Texas district. In fact, there are 195 cosponsors of H.R 1609, legislation introduced by Congressman Phil English which would eliminate the wage index disparity across the country.
In addition, individual Members of Congress have sought to help out hospitals in their districts. The most recent example was the addition of the wage index reclassification provisions to the FY 2002 Supplemental Appropriations bill to help specific counties in New York and Pennsylvania.
While I will continue to help Christus St. Joseph’s – and other hospitals in my district that seek geographic reclassification – I hope that Congress will seek to find a long-term solution to this inequity. Health care providers who treat Medicare patients must be adequately compensated for their costs. And rural areas must not be discriminated against by the use of an unfair, inaccurate formula.
Again, thank you for the opportunity to testify here today. I appreciate your interest in this important issue.