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Brady Opening Statement: MedPAC Hearing on Hospital Payment Rates

July 22, 2015

WASHINGTON, DC — Today, House Ways and Means Health Subcommittee Chairman Kevin Brady (R-TX) delivered the following opening statement during a hearing held with MedPAC to discuss hospital payment issues, patient access to care, and options for reform.

“Good morning. It is my pleasure to welcome Mr. Miller back to the Health Subcommittee to help us continue our discussion on payment reform.

“Earlier this year, Congress took the first step in this area and passed legislation to fix the way Medicare pays our nation’s physicians. We did so in a broad, bipartisan, bicameral way, and I was glad to see the President sign this important legislation into law.

“Now we need to take the next step, and that means looking at Medicare’s acute-care payment systems. I want to raise the topic of ‘site-neutral payment’ reforms. This is a policy MedPAC has highlighted for several years now. The President’s most recent budget even included a site-neutral policy with respect to services provided in hospital outpatient departments. So this area of payment reform is not—or at least should not be—a new or contentious topic.

“This year’s June report brings us new information and data that should help elevate our discussion in this area.

“MedPAC has found that for some cases, we are paying as much as $4,000 more per case, simply because there is a discrepancy regarding ‘status.’ That is, was the patient supposed to be classified for inpatient status or outpatient status? Unfortunately, this is a real question that hospitals are faced with.

“But because the inpatient and outpatient payment systems are so different, it is hard to get an accurate assessment of what is driving this trend. More to the point, the codes that are used to determine what Medicare should pay for inpatient services are entirely different that those used for outpatient services.

“Not only does this mean hospitals are responsible for managing two different billing systems, but it means Medicare has to do the same. And the issues with payment disparity become magnified when we consider that Medicare is expected to spend more than $130 billion on inpatient services and $40 billion on outpatient services this year alone.

“Clearly, this is an area ripe for reform. MedPAC has proposed some innovative solutions, and I look forward to hearing more.

“Also, MedPAC’s testimony focuses on indirect medical education (IME) and disproportionate share hospital (DSH) payments—two ‘add-on’ payments that certain hospitals receive to help offset the cost of teaching medical students or treating a larger-volume of uninsured or underinsured patients.

“It is important to note that when we are talking about payment disparities between the inpatient and outpatient systems that these two add-ons—ME and DSH—are only included on the inpatient side. Outpatient discharges are not eligible to receive these payment adjustments. As a result, these important payments get caught up in a financial numbers game and end up driving incentives.

“I believe both of these programs are critical and need to be designed to deliver the most targeted payments possible. As arbitrary add-on payments, they are not achieving their mission.

“As MedPAC notes in the June report—and as Medicare’s own Trustees tell us annually—the program is facing serious fiscal and demographic headwinds. Spending is out of control, and the current financial underpinnings will soon not be able to sustain the program. Congress needs to tackle these issues, and we need to tackle them now.

“We have already started down this path by successfully reforming how Medicare pays physicians. My hope is that we can carry this progress over into other payment areas.”