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MEDICARE BALANCED BUDGET ACT REHNEMENTS HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS HOUSE OP REPRESENTATIVES ONE HUNDRED SIXTH CONGRESS FIRST SESSION OCTOBER 1, 1999 Serial 106-66 Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 65-699CC WASHINGTON 2000 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC20402 COMMITTEE ON WAYS AND MEANS BILL ARCHER, Texas, Chairman PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York BILL THOMAS, California FORTNEY PETE STARK, California E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania AMO HOUGHTON, New York SANDER M. LEVIN, Michigan WALLY HERGER, California BENJAMIN L. CARDIN, Maryland JIM McCRERY, Louisiana JIM McDERMOTT, Washington DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas MICHAEL R. McNULTY, New York JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana MAC COLLINS, Georgia JOHN S. TANNER, Tennessee ROB PORTMAN, Ohio XAVIER BECERRA, California PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida WES WATKINS, Oklahoma LLOYD DOGGETT, Texas J.D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY HULSHOF, Missouri SCOTT McINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida AL. Singleton, ChiefofStaff Janice Mays, Minority ChiefCounsel Subcommittee on Health BILL THOMAS, California, Chairman NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia SAM JOHNSON, Texas JIM McDERMOTT, Washington DAVE CAMP, Michigan KAREN L. THURMAN, Florida JIM RAMSTAD, Minnesota PHILIP S. ENGLISH, Pennsylvania Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of tho Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions ofthe hearing record, the process of converting betweenvariouselectronicformatsmayintroduceunintentionalerrorsoromissions. Suchoccur- rences are inherent in the current publication process and should diminish as the process isfurtherrefined. ii CHS Library C2-07-13 7500 Securltv/ B!vd. Bcdtimore, Marytend 21244 CONTENTS Page AdvisoryofSeptember24, 1999, announcingthe hearing 2 WITNESSES Health Care FinancingAdministration, Michael Hash, DeputyAdministrator 9 Medicare Payment Advisory Commission, Hon. Gail R. Wilensky, Ph.D., Chair 49 U.S. General Accounting Office, William J. Scanlon, Ph.D., Director, Health Financingand Public HealthIssues 58 American Association of Health Plans, and Group Health Cooperative of Puget Sound, Maribeth Capeloto 103 American Health Care Association, and Legacy Health Care, Blaine Hendrickson 112 American Hospital Association, and Providence Hospital, Sister Carol Keehan 87 AmericanMedicalAssociation House ofDelegates, Richard F. Corlin 95 American Speech-Language-HearingAssociation, and Swigert and Associates, NancyB. Swigert 124 Visiting Nurse Associations of America, and Visiting Nurse Association of theMidlands, Pamela Bataillon 119 SUBMISSIONS FOR THE RECORD AmericanAcademyofFamily Physicians, statement 132 AmericanAssociation ofDiabetes Educators, Chicago, IL, David S. Holtzman, letter 134 American Association of Homes and Services for the Aging, Len Fishman, statement 136 American Clinical LaboratoryAssociation, statement 141 American College ofPhysicians-American Society ofInternal Medicine, statement 143 American Medical Group Association, Alexandria, VA, statement and attachments 148 American Medical Rehabilitation Providers Association, Englewood, CO, Den- nis O'Malley, statement 152 AmericanNursesAssociation, statement 155 American OsteopathicAssociation, statement and attachments 156 American PhysicalTherapyAssociation,Alexandria, VA, statement 157 American Society for Gastrointestinal Endoscopy, Manchester, MA, statement 164 Association ofAmericanMedical Colleges, statement and attachments 168 Association ofCommunityCancer Centers, Rockville, MD, statement 178 Boulter, Beau, United Seniors Association, Fairfax, VA, joint letter and attachment (see listingfor Seniors Coalition) 215 CenterforPatientAdvocacy, McLean,VA, statement 180 Christian Senior Alliance, Robert C. Conover, joint letter and attachment (see listingfor Seniors Coalition) 215 Council forAffordable Health Insurance, Alexandria, VA, Nona Bear Wegner, jointletterand attachment(seelistingfor Seniors Coalition) 215 Elderplan, Inc., Brooklyn, NY, SCAN, Long Beach, CA, and Sierra Health Services/Health Plan of Nevada, Las Vegas, NV, joint statement and attachments 181 ExactLaboratories, Inc., Majmard, MA, StanleyN. Lapidus, statement 186 Fishmen, Len, American Association for Homes and Services for the Aging, statement 136 iii Page Holtzman, David S., American Association of Diabetes Educators, Chicago, IL, letter 134 Home Health Services & StaffingAssociation, statement 188 House Rural Health Care Coalition, et al,joint statement and attachment 191 Lapidus, StanleyN., Exact Laboratories, Inc., Maynard, MA, statement 186 Martin, Jim, 60 Plus Association, Inc., Arlington, VA,joint letter and attachment(see listingforSeniors Coalition) 215 Mayo Foundation, Rochester, MN, Michael B. Wood, letter (forwarded by the Hon. Gil Gutknecht, a Representative in Congress from the State ofMinnesota) 195 Medical Device ManufacturersAssociation, statement 196 Murray, Major General Richard D., National Association for Uniformed Serv- ices, Springfield, VA, joint letter and attachment (see listing for Seniors Coalition) 215 NationalAssociationfor Home Care, statement 197 National Association for Uniformed Services, Springfield, VA, Major General Richard D. Murray, joint letter and attachment (see listing for Seniors Coalition) 215 NationalAssociation ofPsychiatric Health Systems, statement 202 National Grange, Kermit N. Richardson, joint letter and attachment (see listingfor Seniors Coalition) 215 NationalRuralHealthAssociation, statement 203 O'Malley, Dennis, AmericanMedical RehabilitationProvidersAssociation, En- glewood, CO, statement 152 Organizations ofAcademic FamilyMedicine, statement 209 Powell, John J., Seniors Coalition, Fairfax, VA, joint letter and attachment (see listingfor Seniors Coalition) 215 Richardson, Kermit N., National Grange, joint letter and attachment (see listingfor Seniors Coalition) 215 Riley, Hon. Bob, a Representatives in Congress from the State ofAlabama, letter and attachment 211 SCAN, Long Beach, CA, joint statement and attachments (see listing for Elderplan, Inc.) 181 Seniors Coalition, Fairfax, VA, John J. Powell; Council for Affordable Health Insurance, Alexandria, VA, Nona Bear Wegner; Christian Senior Alliance, Robert C. Conover; 60 Plus Association, Inc., Arlington, VA, Jim Martin; National Association for Uniformed Services, Springfield, VA, Major Gen- eral Richard D. Murray; TREA Senior Citizens, League, Alexandria, VA, Mike Zabco; United Seniors Association, Fairfax, VA, Beau Boulter; and National Grange, KermitN. Richardson,jointletter and attachment 215 Sierra Health Services/Health Plan of Nevada, joint statement and attachments (see listingforElderplan, Inc.) 181 60 Plus Association, Inc., Arlington, VA, Jim Martin, joint letter and attachment (seelistingforSeniors Coalition) 215 TREA Senior Citizens League, Alexandria, VA, Mike Zabco, joint letter and attachment (see listingfor Seniors Coalition) 215 United SeniorsAssociation, Fairfax,VA, Beau Boulter,jointletterand attachment(seelistingforSeniors Coalition) 215 Wegner, Nona Bear, Council for Affordable Health Insurance, Alexandria, VA,jointletterand attachment(see listingfor Seniors Coalition) 215 Wood, Michael B., Mayo Foundation, Rochester, MN, letter (forwarded by the Hon. Gil Gutknecht, a Representative in Congress from the State ofMinnesota) 195 Zabco, Mike, TREA Senior Citizens League, Alexandria, VA, joint letter and attachment (see listingfor Seniors Coalition) 215 iv MEDICARE BALANCED BUDGET ACT REFINEMENTS FRIDAY, OCTOBER 1, 1999 House of Representatives, Committee on Ways and Means, Subcommittee on Health, Washington, DC, The Subcommittee met, pursuant to call, at 10:05 a.m., in room 1100, Longworth House Office Building, Hon. Bill Thomas (Chair- man ofthe Subcommittee) presiding. [The advisory announcing the hearing follows:] (1) 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON HEALTH FORIMMEDIATE RELEASE CONTACT: (202) 225-3943 September 24, 1999 No. HI^IO Thomas Announces Hearing on Medicare Balanced Budget Act Refinements Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearingon refinements to the Medicare provisions includedin the Balanced Budg- etAct of1997 (P.L. 105-33). The hearingwill take place on Friday, October 1, 1999, inthe main Committee hearingroom, 1100 Longworth House Office Building, begin- ningat 10 a.m. In view of the limited time available to hear witnesses, oral testimony at this hearingwillbe from invited witnesses only. However, anyindividual or organization not scheduled for an oral appearance may submit a written statement for consider- ationbythe Committee andforinclusioninthe printedrecordofthehearing. BACKGROUND: The Medicare provisions in the Balanced Budget Act of 1997 (BBA) contained more than 300 provisions related to the programs administered by the Health Care FinancingAdministration (HCFA), and represented the most extensive Medicare reforms since the enactment ofthe program in 1965. Amongthe positive changes were Medicare's expanded coverage of preventive benefits, additional choices for seniors through the new Medicare+Choice program, new tools to combat health care waste, fraud and abuse, and many initiatives to modernize and strengthen Medicare's fee- for-service payment systems. New payment methodologies were established affecting virtually every segment ofthe health care industry including managed care plans, hospitals, skillednursingfacilities, and homehealth agencies. In many cases, however, HCFAhas missed deadlines for implementingpolicies or developed policies in need of refinement. In addition, meeting the year 2000 computer challenges has continued to create a series of delays for HCFA in implementing the remaining major payment systems and changes required by the BBA. In announcingthe hearing. Chairman Thomas stated: "When this landmark legislation was adopted in 1997, Congress relied on the data and estimates available at the time, and expected the Administration to provide us with the necessary monitoring and feedback on the operation of these reforms. Not unexpectedly, with sweeping legislation that makes majorrevisions in Medicare payment policies, some refinements are needed. This refinement process should be a shared responsibility between the Administration and Congress. Where changes can be made through administrative action, the Administration should make them. Where it is necessary to make legislative changes. Congress should certainly do its part to make sure beneficiaries receive the healthcare services theydepend on." 3 FOCUS OF THE HEARING: The hearing will provide the opportunity to hear from the Administration, Con- gressional advisory bodies, and providers about the implementation, impact, and proposedrefinements to BBApolicies. DETAH^SFORSUBMISSIONOFWRITTENCOMMENTS: Any person or organization wishingto submit a written statement for the printed record ofthe hearing should submit six (6) single-spaced copies oftheir statement, along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with their name, address, and hearing date noted on a label, by the close of business, Friday, October 15, 1999, to A.L. Singleton, ChiefofStaff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. Ifthose filingwritten statements wish to have their statements distributed to the press and interested public at the hearing, they may de- liver 200 additional copies for this purpose to the Subcommittee on Health office, room 1136 Longworth House Office Building, by close ofbusiness the daybefore the hearing. FORMATTINGREQUIREMENTS: Each statement presented forprintingto the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request forwrittencomments mustconformtotheguidelines listedbelow. Anystatementorexhibitnot incompliancewiththeseguidelineswillnotbeprinted,butwillbemaintainedintheCommittee filesforreviewandusebytheCommittee. 1. All statements and any accompanying exhibits for printing must be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not ex- ceed a total of10 pages including attachments. Witnesses are advised that the Committee will relyonelectronicsubmissionsforprintingtheofficialhearingrecord. 2. Copies ofwhole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use bytheCommittee. 3.Awitness appearingatapublichearing, orsubmittingastatementforthe record ofapub- lic hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list ofall clients, persons, ororganizationsonwhosebehalfthewitnessappears. 4. Asupplemental sheetmustaccompanyeach statementlistingthe name, company, address, telephone andfaxnimibers wherethe witness orthe designatedrepresentative maybe reached. Thissupplementalsheetwillnotbeincludedintheprintedrecord. The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course ofa public hearing may be submitted in otherforms. Note: All Committee advisories and news releases are available on the World WideWeb at'HTTP:/AVWW.HOUSE.GOVAVAYS_MEANS/'. The Committee seeks to make its facilities accessible to persons with disabilities. Ifyou are in need ofspecial accommodations, please call 202-225-1721 or 202-226- 3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including avail- ability ofCommittee materials in alternative formats) may be directed to the Com- mittee as noted above. Chairman Thomas. Good morning. A little over 2 years ago, the Congress and the Administration reached agreement on the most extensive changes to the Medicare program since its inception in 4 1965. Among the improvements were Medicare's expanded coverage of preventative benefits, additional choices for seniors through the new Medicare+Choice program, new tools to combat healthcare waste, fraud, and abuse and initiatives to modernize the future of the fee-for-service portion ofthe program. When we crafted this legislation. Congress relied on the data in the estimates available at the time. We expected the administration to provide us with the necessary monitoring and feedback on the operation of these reforms and the measuring tools that were to be provided. Since August 1997, the administration has imple- mented many of the more than 300 changes to the Medicare program. In some cases, however, the Health Care Financing Admnnis- tration has missed deadlines for implementation or has developed policies, but some of those policies we now are coming to realize lack the necessary refinement. In addition, their stated Year 2000 computer problem has pro- duced a series of delays for HCFA in implementing the remaining major pa5anent systems and changes that we agreed upon in the Balanced Budget Act. Not surprisingly, when legislation makes sweeping changes in payment policy, we need to go back and make corrections and refinements. Today we are going to explore the impact to date ofthe Balanced Budget Act on health care providers and, ultimately, beneficiaries in an attempt to identify any refinements that need to be made to the Balanced Budget Act so that seniors continue to receive the highest quality health care and taxpayers get value for their tax dollars. The goal of this hearing is to examine reforms, not repeal of the landmark Balanced Budget Act of 1997. The adjustment and refinement process should be, in my opinion, a shared responsibility between the administration and Congress. After all, both Congress and the President worked together to enact this historic legislation. It is only right that we now work together to perfect, to refine it and modify it. Where changes can be made through administrative action, we would hope that the administration would make them. Where it is necessary to make legislative changes, then Congress should certainly do its part. This morning I am anxious to hear what steps the Health Care Financing Administration specifically has in mind to address those Medicare payment areas where they can act administratively. Today, I want to hear what the administration can do, and prob- ably more importantly, what it ^s willing to do. Hopefully, they are one and the same so that we can ensure a vibrant health care sys- tem for all of our Medicare beneficiaries. Clearly, our Nation's seniors should get no less. This morning we have witnesses from the administration, our policy experts from the Medicare Payment Advisory Commission, the General Accounting Office, and we will hear from a group of providers who wish to discuss from their particular point of view the Balanced Budget Act and how it has had an impact on their particular area ofthe health care delivery service to seniors. I look forward to a full and spirited exchange on suggested refinements. And prior to that, I would call on my colleague from California, the Ranking Minority Member, Mr. Stark. 5 Mr. Stark. Well, thank you, Mr. Chairman, thank you for holding this hearing. You are quite correct, there is much to be actually proud of in the Balanced Budget Act. It did away with a lot of fraud, it extended the life of the medicare trust fund to 2015 from 2001—the second longest extension of solvency in the program's history—and it showed that HCFA (or Medicare) could be a good purchaser. Now, while it did a lot to stop unfettered growth in certain areas, there are places—I think we all agree—where there were excessive or unwise cuts. The $1,500 cap for rehabilitation has resulted in patients' care being underpaid. That is one of the problems I think we all agree need to be fixed. On the other hand, I think we have to be careful about give- backs and not get panicked into trying to douse this conflagration with buckets of money. Every dollar that we give back raises the Part B premiums on seniors or reduces the solvency of the trust fond. And unless we pay for the Part B give-backs, we are dipping into the Social Security surplus. So we just don't have a lot of funds available to us and we have to be very careful to see that this package is paid for. Over the next 30 years, as the Chair knows, we are going to need to make a combination of pro\'iders' cuts, beneficiary cuts, and/or increased taxes. There is no other way. So I hope that we will be prepared as we go along in making our corrections to the Balanced Budget Act to suggest how we anticipate paying for them, either now or in the future. Now, finally, we as legislators always have to get grumpy with the executive, whether it is our executive or it is the opposition's executive department. But a lot of Members today are blaming HCFA for basically enforcing laws that we wTote. And I don't think we can say, "Hey, I wrote the law, but you guys ignore it". I think that we have to be willing to not play Pontius Pilate and pretend that we had nothing to do with this. I would like to go back to my old school of goose and gander, what-is-sauce-for-one-is-sauce-for- the-other school of politics, and say I too would like to hear from the administration exactly what they intend to do and what they recommend be done: No. 1, what they are going to do administratively, what they think they can do? No. 2, what they would like us to do in the way ofmaking legislative changes? But I would also ask the Chair if he would care to inform us about the upcoming schedule. I understand we are going to mark up something, sometime next week, and I wonder if the Chair could give us some idea of when that is scheduled. The rumors are coming that we are going to markup on Monday. When we might expect to see what our part of the bargain is going to be? Ifwe get the administration to come up today with what they want, when are we going to do our part and what are we going to do? I yield to the Chair. [The opening statements of the Hon. Fortney Pete Stark and Hon. Jim Ramstad follow:] Statement ofHon. FortneyPete Stark, a Representative in Congress from the State ofCalifornia Mr. Chairman: Thank you for holding this hearing. There is much to be proud ofin the Balanced Budget Act. It created new prospective pa\Tnent systems, fought 6 fraud, and helped extend the hfe ofthe Part A Trust Fund from 2001 to 2015-the second longest extension ofsolvency in the program's history. The BBA showed that Medicare could be agoodbuyer. Pre-BBA, costs were clearly out ofcontrol and everyone was saying "what a ter- rible buyer Medicare is compared to the private sector." Home health spending was going up $2 billion a year, even though the number of Medicare beneficiaries was fairly flat. CBO predictedthatbetween 1996 and 2003, home health spendingwould double from about $16 biUion to about $32 biUion. Between 1994 and 1997, 883 new home health agencies opened in the State of Texas alone—an 85% increase—and those receiving home health care were getting an average of 134 visits, compared to anational average of69 and 30 inthe State ofWashington. Same in nursing homes. Payments were going up $2 billion a year, quadrupling from about $3 billion in 1990 to $12 billion in 1997-and predicted to double to $24 billionby2007. These growth rates were simplyunsustainable—especially since we have not even begunto dealwiththe impactofthe retirementofthe BabyBoomers. We cannot return to those rates ofinflation—and even with the new, March, 1999 CBO baseline, Medicare spending will double over the next ten years, although therewillbelittle growthinthe niunberofbeneficiaries. As for hospitals, many ofthem are losing money on managed care contracts and are asking Medicare to bail them out ofbad contracts. Is it Medicare and the taxpayers'job to make hospitals whole on below cost private sector deals driven bythe excessbed capacityinmost markets? While BBA did much to stem unfettered growth in certain sectors, there are places where the BBA made excessive or unwise cuts. The $1500 cap on rehab comes to mind. Care for some ofthe sickest SNF patients is underpaid. These problems needtobe fixed. But we need to be careful aboutthe give-backs. The GAO and MedPAC will report that there is little hard evidence that the sky is falling or that we should be pan- ickedinto dousingproviders withnewbuckets ofmoney. Every dollar wegive back will raise PartBpremiums on seniors or reduce the solvency ofthe Part A Trust Fund. And unless we pay for the Part B give-backs, we willhurtthe Social Security surplus, thatwe are all pledgingnotto spend. In the next 30 years the number ofpeople on Medicare will double. To fond the program, we will need to make acombination ofprovider cuts, beneficiary cuts, and increased taxes. There is no other way. So, Mr. Chairman, as we proceed to "give back" some of the BBA, we make meeting the future challenges more difficult. Therefore, I hope the Members will be prepared to suggest ways to pay for the future ofthe program. Finally, as legislators, we are often grumpy when Executive Branch agencies do not follow the laws we write. There are a lot ofMembers blaming HCFA for enforcing the laws we have written—and that's kind of strange: Members are saying "I didn't mean it; please ignore the law." If we don't like what HCFA is doing, let's change the law, and be willing to pay for it. But let's don't play Pontius Pilate and pretend we had nothingto do with the BBA and extendingthe life ofMedicare Part A to 2015. StatementofHon.JimRamstad, aRepresentative inCongressfromthe StateofMinnesota Mr. Chairman, thank you for calling this important hearing to discuss changes tothe Medicare provisions inthe BalancedBudgetAct. As I stated on the House floor on Wednesday, I am really looking forward to this hearing today so that we might flush out some of the problems currently facing Medicare providers andbeneficiaries. As we all know, whenever you pass legislation of the historic magnitude of the Balanced Budget Act, there are bound to be unintended problems that will need to. be addressed. Certainly, any problematic situations that have arisen due to the ac- tual bill language we passed should be addressed with new, better bill language. But Mr. Chairman, complications that are a result ofthe way in which the Ad- ministration has chosen to implement the laws we passed should and must be fixed bytheAdministration. I considermyselfa reasonable Minnesotan, and I can understand that HCFAmay have trouble dealing with the massive legislation we passed. But that really isn't the major concern I have today. Today, I am frustrated with the way in which