Statement of the Hon. Peter J. Visclosky, a Representative in Congress from the State of Indiana

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

Hearing on Medicare's Geographic Cost Adjustments

July 23, 2002

Ms. Chairwoman, Mr. Stark, members of the Subcommittee, I thank you for providing me the opportunity to testify before you today, and I thank the Subcommittee for its previous help in reclassifying Lake County, Indiana under the Chicago Metropolitan Statistical Area for Medicare reimbursement purposes.

As you may know, I have been working with two of the counties in my district to deal with the burdens they face because of the inequities set up under the Omnibus Budget Reconciliation Act of 1989.  Both Lake and Porter Counties need to be reclassified under the current Medicare reimbursement system or the system needs to be changed.

These counties are significant because of their size and their current economic turmoil.  Lake County is a metropolis with over 485,000 residents.  It is comprised of a racially and ethnically diverse community, with over a quarter of the population being African-American.  It also includes three steel mills.  Porter County, in turn, has close to 150,000 residents and two steel mills, one of which, Bethlehem Steel, recently filed for bankruptcy.

It is not surprising that Lake and Porter Counties produce more steel than any other congressional district in the United States; making steel is the economic backbone of Northwest Indiana.  However, the steel industry has been threatened by the surge of illegally dumped foreign steel, and has been fighting to stay viable for the past four years.  As jobs in traditional manufacturing industries in the State of Indiana continue to be threatened, the local tax burden has increased along with the need for Medicare services for the maturing populations of these two industrial counties.  Now more than ever these counties need to be reclassified.

In 1999, Senator Bayh, Senator Lugar and I successfully reclassified Lake County into the Chicago Metropolitan Statistical Area for Medicare reimbursement purposes via the Balanced Budget Adjustment Act of 1999.  The bill was officially included in the Consolidated Appropriations Act of 1999, which reclassified Lake County for Fiscal Year (FY) 2000 and FY 2001.  At the end of 2000, the county was also reclassified for another three years.  Thus, hospitals in Lake County continue to receive these funds through FY 2004.

The case for Lake County is quite sound.  Eight hospitals in Lake County, Indiana are contiguous to the Chicago Metropolitan Statistical Area ("MSA") and are a part of the Chicago-Gary-Kenosha Consolidated Metropolitan Statistical Area ("CMSA").   They are St. Catherine’s Hospital, St. Margaret Mercy Hospital of Hammond, Community Hospital of Munster, St. Margaret Mercy Hospital of Dyer, St. Mary’s Medical Center, Methodist Hospital of Merrilville, Methodist Hospital of Gary, and St. Anthony’s Medical Center of Crown Point.  These hospitals have been reclassified in FY 1995, 1996, 1997, 1998 and 1999.  Since that year, they have been unable to obtain regulatory reclassification.

All eight hospitals, as well as all other businesses and services in the area, are fully a part of the Chicago metropolitan area.  They are in the same labor pool, purchase supplies from many of the same vendors, and pay parallel costs for utilities and other necessities.

Since 1999 we have been assisting these eight hospitals in their efforts to continue to receive fair and reasonable Medicare payments comparable to those paid to hospitals located in the Chicago MSA.  However, unless Congress acts, the Lake County hospitals will lose $29 million per year in Medicare payments, effective October 1, 2003.

The Lake County hospitals are completely integrated within the greater Chicago metropolitan area.  In fact, one Lake County hospital, St. Margaret Hospital located in Hammond, Indiana, is only about 15 feet from the dividing line between Chicago and Lake County.  In addition, the costs incurred by Lake County hospitals for the same services is virtually the same.  The only difference between the Chicago and Lake County hospitals is a county line dividing Cook County, Illinois and Lake County, Indiana.

In 1999, Lake County hospitals had Medicare costs of $4,266.00 per standardized case.  Chicago hospitals per case cost was $4,481.00, a difference of only 4.8 percent.  Lake County costs are clearly comparable to Chicago.  In addition, the Lake County hospitals case mix index, which measures the type and severity of care needed, was 1.4343, while that of Chicago hospitals is 1.4277.  This shows that for similar services, Lake County patients are actually in need of more acute care than their counterparts in Chicago.

Our second county facing hardship is Porter County, located less than 30 miles from the Chicago city limits. Though Porter County has never been reclassified, continuing hardships and new developments make them an excellent candidate for higher reimbursement.

Porter County has a single hospital, Porter Memorial Hospital.  Due to the inequities between it and Chicago MSA, Porter Memorial Hospital has been forced to discontinue two services, lay off 32 employees and freeze over 100 other positions.

The main contention of Porter Memorial Hospital is that it is currently unable to compete for skilled labor because of the demands placed on it due to the vicinity to Chicago.  Currently, Porter County hospitals are facing employee shortages, especially in the fields of skilled nurses.  Due to the concentration of hospitals in the region, all health care providers share the same employment pool with Chicago.  Porter Memorial finds it difficult to compete with the compensation offered by the Chicago hospitals for qualified employees. It continually attempts to match the trends of salary increases and large sign-on bonuses offered by the Chicago hospitals, but this is becoming increasingly difficult to do with a different reimbursement rate.  Porter’s wage index value is approximately 86 percent of Chicago MSA.  The requirement for inclusion in Chicago MSA is 84 percent.

In terms of costs, Porter County hospitals had Medicare costs per standardized case of $4,424.00 for 1999.  As mentioned previously, Chicago hospitals per case cost was $4,481.00.  This is a difference of less than 1.2%.  Porter County’s costs are, once again, clearly comparable to Chicago.

Many other costs are comparable as well.  In a recent operating performance report comparing Porter Memorial with Chicago hospitals, the supply, capital and total costs per discharge were higher at Porter Memorial than two-thirds of the Chicago hospitals studied.

In conclusion, we are seeking a further legislative extension for the existing reclassification for the Lake County hospitals and the inclusion of Porter Memorial hospital into the Chicago MSA.  These hospitals are deserving of such support.  They need fair and reasonable Medicare payments.  They need permanent attachment to the Chicago MSA or successor entity, or they need a formula devised by CMS that fairly measures comparable costs.

I appreciate your time and hope this body can find a solution to this dilemma.  I would be pleased to provide any additional information you might need.  Thank you for your attention.

LAKE COUNTY, IN

Calculation of adjustment data for margin to remove Chicago
wage index and large urban standardized amount for 1999 year

The adjusted Medicare margin for Lake County is a negative 10.72 percent in total. Six of the eight hospitals had negative margins. Porter Memorial had a 20.24 percent negative margin.

 

	Medicare Margin
Hospital	Provider  Number	Fiscal Period	Medicare Inpatient Operating Revenue CMS Data	Decrease %	Decrease in Medicare Payments (Gary Rates)	Revised Medicare Revenue Gary Rates	Medicare Margin Per CMS Data	Subtract Decrease in Payment	Medicare Margin Gary Rates	Adjusted Margin %
Methodist - Gary	15-0002	FYE 12/31/99	27,873,101	0.0918	2,558,751	25,314,350	266,644	2,558,751	(2,292,107)	-0.0905
St. Margaret Mercy - North	15-0004	FYE 12/31/99	41,641,303	0.0918	3,822,672	37,818,631	6,396,283	3,822,672	2,573,611	0.0681
St. Catherine	15-0008	FYE 12/31/99	18,706,176	0.0918	1,717,227	16,988,949	874,851	1,717,227	(842,376)	-0.0496
St. Mary	15-0034	FYE 12/31/99	22,472,891	0.0918	2,063,011	20,409,880	(1,333,555)	2,063,011	(3,396,566)	-0.1664
St. Margaret Mercy - South	15-0090	FYE 12/31/99	11,044,174	0.0918	1,013,855	10,030,319	(508,472)	1,013,855	(1,522,327)	-0.1518
Community Hospital	15-0125	FYE 6/30/2000	46,168,771	0.0989	4,566,091	41,602,680	(2,237,686)	4,566,091	(6,803,777)	-0.1635
St. Anthony - Crown Point	15-0126	3/1/99-12/31/99	16,500,315	0.0933	1,539,479	14,960,836	(4,192,774)	1,539,479	(5,732,253)	-0.3832
Methodist - Broadway	15-0132	FYE 12/31/99	27,959,117	0.1059	2,960,870	24,998,247	383,051	2,960,870	(2,577,819)	-0.1031
Total			212,365,848		20,241,957	192,123,891	(351,658)	20,241,957	(20,593,615)	-0.1072
The above computations exclude the change in inpatient capital payments resulting from the adjustment of the Geographic Adjustment Factor (GAF) which is a derivative of the wage index.  This adjustment is not considered to be material.

	Operating Margin			Total Margin
Hospital	Net Patient Revenue Gary Rates	Operating Margin with Gary Rates	Adjusted Operating Margin %	Total Revenue Gary Rates	Net Income with Gary Rates	Total Margin Percentage
Lake County
Methodist - Gary	106,757,602	(15,140,510)	-0.1418	126,899,705	6,121,460	0.0482
St. Margaret Mercy - North	136,664,308	(346,365)	-0.0025	151,942,147	14,931,474	0.0983
St. Catherine	70,583,623	(6,298,559)	-0.0892	75,424,834	(2,057,348)	-0.0273
St. Mary	71,742,752	(2,304,366)	-0.0321	76,194,447	2,147,329	0.0282
St. Margaret Mercy - South	69,346,327	(2,911,241)	-0.0420	71,179,202	(1,078,366)	-0.0152
Community Hospital	168,139,821	1,442,533	0.0086	173,669,532	1,791,437	0.0103
St. Anthony - Crown Point	68,372,527	(8,796,563)	-0.1287	75,892,576	(1,276,514)	-0.0168
Methodist - Broadway	106,903,908	(3,254,283)	-0.0304	120,763,466	11,087,560	0.0918
Total Lake County	798,510,867	(37,609,355)	-0.0471	871,965,908	31,667,031	0.0363
Porter Memorial Hospital	140,077,043	-2,492,229	-0.0178	145,332,785	1,980,636	0.0136
(Per CMS Data at Gary Rates)
The above computations exclude the change in inpatient capital payments resulting from the adjustment of the Geographic Adjustment Factor (GAF) which is a derivitive of the wage index.  This adjustment is not considered to be material.

The operating margin (which include all patient income and expense) is a negative 4.71 percent for Lake County, IN hospitals and a negative 1.78 percent for Porter Memorial Hospital.  This indicates that these hospitals (in total) cost shifted a portion of the Medicare loss to non-Medicare patients, but still ended up in a loss position.  Seven of the eight Lake County hospitals had losses from operations.