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Testimony on Strengthening Medicare Trust Fund & Balancing the Budget by The Honorable Donna E. Shalala
Secretary
U.S. Department of Health and Human Services

Before the House Ways and Means Committee
February 13, 1997


Mr. Chairman and members of the committee: Thank you for giving me the opportunity to testify today, about the President's Fiscal Year 1998 Budget proposal. We in the Administration look forward to working closely with you as we move toward our shared goals of strengthening the Medicare trust fund and balancing the budget.

Someone once described America as "the only country deliberately founded on a good idea."

That good idea is "We the people," and it has emboldened our nation to face -- and overcome -- great challenges with courage and unity.

In the 1940s, we faced a broken Europe, but we summoned the will to fight and win -- and saved the world from tyranny.

In the 50s, we faced the terrible scourge of polio. But children contributed their dimes, and America's best scientists dedicated their lives to finding a vaccine. And we found one.

And, in the 1960s, we faced a Soviet Union that had taken the lead in the race for space. But, President Kennedy issued a challenge to land an American on the moon by the end of the decade. We did, and no country has done it since.

What do all of these triumphs have in common? They came during times of great social and political change. But with a deep sense of urgency, Americans put aside partisan differences, answered the call to unity, and achieved a critical national goal. Today, we must do the same.

Because today, we face another great challenge: At a time when we have fewer resources, a population that is rapidly aging, and a deficit that while much improved, still plagues us, we must come together again: This time to balance the budget and truly reform Medicare, Medicaid, and welfare, while still keeping our promises to the citizens we serve.

MEDICARE

For more than thirty years, Medicare has provided a blanket of health security for older Americans and people with disabilities. It has helped lift a generation of senior citizens out of poverty and into the middle class. It has helped change what it means to be old in America; what it means to be sick in America; what it means to be disabled in America. And it has often served as a fault line between a life of comfort and good health and a life of struggle and illness.

The gift that Medicare has given to those who came before us must be preserved for those who come after us -- for our children and our grandchildren, for every generation. That is our moral responsibility.

But you and I know that Medicare now faces several short-term and a long-term financing challenges that demand action. For nearly four years, we have been unable to come to a consensus on the best way to preserve Medicare and improve it for the future. The President has made it clear that he wants to work with the Congress to make this the year of bipartisan agreement on this vital program.

In this budget, the President has reached out to the congressional majority by offering a plan to meet them halfway. His Medicare proposals will extend the life of the Hospital Insurance Trust Fund into 2007, ten years from today. I have with me today a letter from the independent chief actuary of the Medicare program that verifies that fact. I will be happy to submit it for the record.

The President's plan contributes $100 billion to the five-year balanced budget, which corresponds to $138 billion over six years.

And we do that by maintaining a system that guarantees access to a defined set of services rather than creating a defined contribution per beneficiary.

These proposals are made in good faith and are based on sound policy. They make sense for both the Medicare program and its beneficiaries. Our savings are scoreable. I ask for your careful consideration of our proposals, and for your partnership in enacting them.

But Medicare reform is not and cannot be simply an exercise in number crunching. The actions we take this year to preserve the Medicare trust fund also must prepare Medicare for the future. Not many of us would drive cross country in a car that's more than 30 years old. Likewise, we can't move into the next century with a health insurance program built in 1965. That's why to preserve Medicare, we must modernize it. This modernization requires us to do six things:

  • First, we must make Medicare a more prudent purchaser of health care services.

  • Second, we must add new choices to compete with today's private market.

  • Third, we must strengthen our rural health care system.

  • Fourth, we must protect beneficiaries, by ensuring that beneficiaries receive higher quality health care.

  • Fifth, we must continue to root out waste, fraud, and abuse so that we spend our hard-earned tax dollars wisely and effectively.

  • And sixth, we must add new cost effective benefits to reflect development in today's science.
Prudent Purchasing

Mr. Chairman, it is imperative that Medicare -- which is the largest purchaser of health care services in our nation -- be a more prudent purchaser. Unfortunately, in too many cases, because of limitations in the law, Medicare is now paying the highest price in the market for certain drugs, lab services and durable medical equipment when, given the volume of beneficiaries, we should be paying one of the lowest. From managed care premiums to medical devices, the reforms we propose will make sure that Medicare isn't paying retail while everyone else is paying wholesale.

These proposals are sound health policy and they require a shared burden. They will result in a slower rate of growth in Medicare spending and ensure that Medicare is paying a competitive price for the services it buys. The savings that these proposals generate are spread across all providers of health care and are focused, as they should be, on those areas where growth is the greatest.

Managed Care. Experts agree that Medicare's payment methodology for managed care, which was created in 1982, results in serious overpayments for services. For example, under contract to HCFA, Mathematica Policy Research, came to such a conclusion with its 1993 review of the Medicare Risk Program. Both the Physician Payment Review Commission and HCFA studies indicate that Medicare should be paying managed care plans at a rate between 88 and 90 percent of fee-for-service costs. At the same time, however, payments to many smallebe reduced by one percentage point every year from fiscal year 1998 through 2002 to reflect increases in hospital productivity and efficiency.

The Prospective Payment Assessment Commission (ProPAC), created by Congress to offer advice on policies affecting Medicare payments to hospitals and other facilities, recently announced preliminary data showing that the majority of the nation's hospitals have record-setting Medicare margins. ProPAC believes that these margins are evidence that hospitals have become more efficient. Accordingly, ProPAC recommends that hospitals receive no update in their Medicare payments in FY 1998; this would be equivalent to "market basket - 2.8 percent."

In light of its other hospital savings provisions, the Administration does not propose the deeper update reduction as recommended by ProPAC. Instead, the Administration spreads the hospital reductions across a number of different areas of hospital payment. When viewed as a whole, the Administration's hospenrollment in managed care plans.

And, third , we will reduce the Medicare payment from 95 percent of the average adjusted per capita cost or AAPCC to 90 percent. However, to give plans a sufficient amount of time to adjust to these new payment levels, we would not begin this policy until 2000.

Hospital payments. We propose a series of Medicare hospital payment changes to safeguard the program and to reflect market changes. Under the President's budget, the hospital payment update will be reduced by one percentage point every year from fiscal year 1998 through 2002 to reflect increases in hospital productivity and efficiency.

The Prospective Payment Assessment Commission (ProPAC), created by Congress to offer advice on policies affecting Medicare payments to hospitals and other facilities, recently announced preliminary data showing that the majority of the nation's hospitals have record-setting Medicare margins. ProPAC believes that these margins are evidence that hospitals have become more efficient. Accordingly, ProPAC recommends that hospitals receive no update in their Medicare payments in FY 1998; this would be equivalent to "market basket - 2.8 percent."

In light of its other hospital savings provisions, the Administration does not propose the deeper update reduction as recommended by ProPAC. Instead, the Administration spreads the hospital reductions across a number of different areas of hospital payment. When viewed as a whole, the Administration's hospital proposals balance the need to contain Medicare costs with ensuring access to quality care.

Home health care. Home health care is one of the fastest growing components of Medicare, with a projected average annual growth rate of 10.6 percent over the period FY 1997-2002. The average number of home health visits per user increased over 40 percent between FY 1992 and FY 1997. The average payment per visit also has increased, rising from $57 per visit in FY 1992 to an estimated $68 per visit by FY 1997.

We know that this growth has its roots in changes in medical practices and technology, in the expansion of the benefit, and in our current reimbursement system, which can contribute to overpayment and abusive practices. And we know that we must reduce the rate of growth in Medicare home health spending and keep it under control. And, that's what our reforms will help us do.

We will immediately revise our cost limits to establish a set of interim limits that will curb excessive spending and institute a new per-beneficiary payment limit for each home health agency.

We will implement a new prospective payment system for home health services in 1999. This system, which has been recommended by experts to control spending, will reduce incentives for overutilization.

We will eliminate periodic interim payments for home health agencies, which were originally established as an incentive for new agencies to serve Medicare patients. With 100 new agencies joining Medicare each month, this incentive clearly is no longer necessary.

In addition, we will pay for home health services based on where the service is delivered. Frankly, many agencies are taking advantage of a loophole by locating their billing offices in expensive urban areas to take advantage of higher prevailing payments, regardless of where services are actually rendered. We will close that loophole.

Along with our strategy to control home health spending, we propose to reassign payment for home health services that are not associated with post-hospital recovery from Part A to Part B. This reallocation is not counted in the overall $100 billion Medicare savings number that we submitted to the Congress. We would limit Part A home health coverage to the first 100 visits following a 3-day hospital stay, just as this part of the program covers 100 days of skilled nursing care following hospitalization. But, visits beyond 100, and those not following a 3-day hospital stay, would be paid under Part B, along with other outpatient services.

This return of non-post-hospital visits to Part B -- Medicare policy prior to 1980 -- makes the home health benefit consistent with the original intent of the Medicare statute and its division of services between Part A and Part B. It relieves the Part A trust fund of the responsibility for financing care that doesn't belong there, thereby significantly extending the life of the trust fund. And it achieves these goals without subjecting beneficiaries to increases in premiums and cost-sharing.

Beneficiary Centered Purchasing. To become a more prudent purchaser of other health services, our plan gives the Secretary payment authorities to secure better deals for Medicare and the citizens it serves. From setting payments based on competitive bidding to selectively paying centers of excellence a single rate for all services associated with a specific diagnosis, these -- and our other purchasing reforms -- will help us economize, modernize, and create a Medicare program that will not only survive, but thrive, to serve every generation.

New Choices

When it comes to health care for older Americans -- or any Americans for that matter -- there should be no conflicts between choice and quality. We need both. We are proud of our record of increasing choice for Medicare beneficiaries while continuing to protect the quality of care. Since 1993 the number of beneficiaries in managed care has increased by 108 percent and is rising at a rate of 80,000 per month. Today, approximately 13 percent of our Medicare beneficiaries -- about 5 million -- are enrolled in managed care plans.

The President's budget continues this process by adding new choices to Medicare plans. We will include preferred provider organizations or PPOS, which offer patients a greater ability to choose their doctors and other providers. And we will offer beneficiaries the chance to enroll in provider sponsored organizations or PSOS, offered by hospitals and physicians under integrated arrangements that we hope will improve care and reduce cost.

At the same time, to promote real and informed choice among health plans, Medicare will establish coordinated annual open enrollment periods as well as additional enrollment opportunities to subscribe to managed care and Medigap plans.

To make sure that choice is real and that beneficiaries who choose managed care have an open door to go back to fee-for-service, if they so choose, we will prohibit Medigap insurers from imposing pre-existing condition waiting periods when beneficiaries initially enroll or any time they switch plans. In addition, Medicare will establish continuous Part B enrollment opportunities for beneficiaries.

Rural Health

The Administration continues to promote Medicare reforms that strengthen health care in rural America.

For example, our plan would expand the Rural Primary Care Hospital Program to all 50 states. It would update the payment for sole community hospitals, improve the rural referral center program, and reinstate the Medicare Dependent Hospital program to provide resources to those rural hospitals that need it most.

The reforms will create a national floor to better assure that managed care products can be offered in low payment areas, which are predominantly rural communities. In addition, the proposal includes a blended payment methodology, which combined with the national minimum floor, will dramatically reduce geographical variations in current payment rates.

Protect Beneficiaries

We believe we can balance the budget, preserve the Medicare Trust Fund and modernize Medicare for the 21st century, while still protecting our beneficiaries.

The fact is, more than three-fourths of seniors have incomes of $25.000 or less. We believe that balance billing limits must protect all beneficiaries, regardless of which Medicare coverage option they choose.

Our plan proposes Medigap reforms to assure portability, protect against preexisting condition limits, and provide equitable and affordable premium rates.

It keeps Part B premiums at 25 percent of program costs. This division of costs, first enacted in the Tax Equity and Fiscal Responsibility Act of 1982, has protected beneficiaries while ensuring that the cost of Part B is shared by those who use it. As noted, the plan creates an opportunity for continuous Medicare Part B enrollment.

For hospital outpatient services, it brings the patient co-insurance rate down from about 50 percent to the 20 percent charged for most other Part B services by 2007.

And, it ensures that managed care plans pay for emergency services when a "prudent layperson" would have reasonably believed they were necessary.

Quality Protection

We must also ensure that beneficiaries receive higher quality health care. We will institute a series of reforms to further improve the quality of care provided to all citizens who rely upon Medicare. We will adopt a new, integrated quality management system for Medicare and Medicaid. This will replace quality related requirements focusing on each provider entity individually. We will also collect and disclose more of our survey data on safety, quality of care, and program integrity so that citizens can have better comparative information on plans and providers. And we will replace the so-called 50-50 rule for managed care plans with more modem quality measures. Protecting and improving health, and increasing satisfaction with the care received are the goals of then program.

Fighting Fraud and Abuse

Modernizing Medicare for the 21st century also requires eliminating the fraud and abuse that robs our health care system and our taxpayers. Since I took office a little more than four years ago. I have made this a top priority by setting a policy of "zero tolerance" for health care fraud and abuse.

Just two years ago, the President and I unveiled a pilot project called "Operation Restore Trust" to target our anti-fraud efforts to fight fraud and abuse in 5 key states. We have significantly increased the resources of our Inspector General and have strengthened our payment reviews using technology to prevent fraud, and to detect it when it occurs.

And, it's paid off. We estimate that every dollars we invest in our anti-fraud effort yields $10 dollars in savings for the American people. In fact, just last month, Inspector General June Brown reported that "Labscam," her investigation of payment fraud by independent clinical labs, could net the Medicare program millions in recoveries and penalties.

We intend to maintain and intensify these efforts. I will be submitting to Congress a fraud and abuse bill that will enable us to strengthen the identification and enrollment procedure to ensure that only legitimate providers bill Medicare. The President's Budget includes provisions to prevent home health agencies from using a loophole in the current reimbursement system to bill a higher urban rate for service provided in rural areas. We will require insurers to reject insurance coverage so that Medicare does not pay inappropriately for beneficiaries covered by private insurance. We would repeal the anti-kickback exemption for managed care plans, and the requirement that we provide advisory opinions on the anti-kickback statutes enacted last year and scored by the Congressional Budget Office as a considerable cost to the Medicare program. And we propose to reinstate the requirement that providers use reasonable diligence when submitting accurate claims to Medicare. Finally, we will strengthen our ombudsman function in the States. building a cadre of elderly volunteers.

New Benefits

The Medicare benefit package has remained relatively unchanged since 1965. But our science has not. From decades of research, we know that preventive services not only can save money, but also can save lives. Now we're putting our money where our science is. I am very pleased by the bipartisan support for expansion of the Medicare benefit package. The President's plan will cover the following:

We expand the availability of annual mammograms for Medicare beneficiaries to eliminate economic barriers to mammography. We also will waive the Part B deductible and coinsurance for both screening and diagnostic mammograms.

To save lives, we want to provide annual screening to detect signs of colon cancer.

Because better management of diabetes leads to better health, we include monitoring of blood glucose levels and outpatient self-management training for diabetes.

To improve access to adult vaccinations and help seniors avoid serious and sometimes deadly illnesses, we would increase provider payments for vaccines against pneumonia, influenza, and hepatitis B and waive patient cost-sharing for the hepatitis B vaccine.

And, finally, to offer some relief for the families who are primary caregivers of a relative with Alzheimer's disease and other dementias, we would provide a new respite care benefit of 32 hours per beneficiary per year.

MEDICAID

Mr. Chairman, I'd like, now, to turn to Medicaid. The President s budget strengthens the Medicaid program -- so that we can better reach the vulnerable Americans it is designed to serve. Our plan controls the costs of Medicaid and gives new flexibility to the states, without compromising the Federal guarantee of coverage for low-income children, pregnant women, frail senior citizens, and persons with disabilities.

We should all be proud that growth in Medicaid spending has declined significantly over the past two years. CBO's baseline projects five-year Medicaid spending to be more than $80 billion lower than projected just a year ago for the same period. The President's budget ensures that the success we have achieved with our State partners will continue.

Our plan saves, on net, about $9 billion over five years. Total savings are about $22 billion: roughly two-thirds from a reduction in disproportionate share hospital DSH payments and roughly one-third from the per capita cap. At the same time, the Presidents plan invests $13 billion in improvements to Medicaid including some of the health initiatives to expand coverage for children, changes to last year's welfare reform law, and new policies to help people with disabilities return to work.

Per Capita Cap

Let me take a minute to explain our per capita cap. Under the President's proposal, the Federal government will continue to match state Medicaid spending for each individual enrolled. In this way, there is absolutely no incentive for states to deny coverage to a needy individual or family.

Under the per capita cap, maximum Federal matching expenditures will then be established for each state based on per person spending, the number of beneficiaries, the types of beneficiaries, and the current Federal matching rate. The Federal government would only match expenditures up to a State's total allowable limit. States will have flexibility to use savings from one group to support expenditures for other groups or to expand benefits or coverage.

Not all Medicaid spending would be subject to the per capita cap. Spending for state fraud control units, DSH payments, Medicare premiums and cost sharing, payments to Indian Health Service and other Indian health providers, and the Vaccines for Children program would be excluded. Administrative costs would be included in the base year calculation.

Let me be clear: This per capita cap is neither a block grant nor a cost shift to the States - it's a sensible way to make sure that the people who need Medicaid are able to receive it. When economic downturns occur, population growth and other factors cause Medicaid enrollment to expand, the Federal spending limit will increase as well. This budget keeps our promise of health care to our most vulnerable citizens. but it does so in a smart, responsible way.

State Flexibility

How will we help states keep spending within these per capita limits? The President's budget includes a series of reforms that increase state flexibility by throwing away mountains of red tape and regulations. For example:

  • We would repeal the Boren amendment for hospitals and nursing homes and establish a public notice process for determining those reimbursement rates.

  • We allow states to expand Medicaid coverage to new groups and to enroll beneficiaries in Managed Care without waivers.

  • We eliminate the requirement for cost-based payments for health clinics and create a new pool for supplemental payments to those clinics that may be adversely affected by this policy.

  • We replace the 75/25 enrollment composition rule for Medicaid managed care plans with new quality data standards.

  • We give States the option of extending Medicaid coverage to certain workers with disabilities, thus removing a potential barrier to employment faced by Americans with disabilitrance for the families of workers who are in between jobs initiative, which provides up to six months of premium assistance, is expected to add another 700,000 children to the private-sector insurance rolls.

Second, we will make available to the states $750 million annually to support innovative programs designed to purchase insurance for an estimated one million uninsured children in families that receive neither Medicaid nor employer-sponsored insurance.

Third, we will give states the option to allow 12 months of continuous Medicaid coverage for all children who are eligible. By stopping the churning of children in and out of Medicaid, we can provide stable coverage for children and better continuity of services. We estimate this change will help one million children annually.

Fourth, the Department will work closely with the states to enroll 1.6 million of the estimated three million children who are eligible for Medicaid today but who, for a variety of reasons, are not enrolled. We are committed to working with the nation's governors, communities, providers, and businesses to make this a reality.

And fifth, States will enroll an additional 250,000 low-income children in each of the next four years as part of the current law expansion of coverage to children between the ages of 14 and 18 under current law.

Mr. Chairman, let me say that we view these proposals as a package. My Department estimates they will dramatically reduce the number of uninsured children in Americrance for the families of workers who are in between jobs initiative, which provides up to six months of premium assistance, is expected to add another 700,000 children to the private-sector insurance rolls.

Second, we will make available to the states $750 million annually to support innovative programs designed to purchase insurance for an estimated one million uninsured children in families that receive neither Medicaid nor employer-sponsored insurance.

Third, we will give states the option to allow 12 months of continuous Medicaid coverage for all children who are eligible. By stopping the churning of children in and out of Medicaid, we can provide stable coverage for children and better continuity of services. We estimate this change will help one million children annually.

Fourth, the Department will work closely with the states to enroll 1.6 million of the estimated three million children who are eligible for Medicaid today but who, for a variety of reasons, are not enrolled. We are committed to working with the nation's governors, communities, providers, and businesses to make this a reality.

And fifth, States will enroll an additional 250,000 low-income children in each of the next four years as part of the current law expansion of coverage to children between the ages of 14 and 18 under current law.

Mr. Chairman, let me say that we view these proposals as a package. My Department estimates they will dramatically reduce the number of uninsured children in America, thereby improving their health and their parents' peace of mind. And, they will create an affordable Medicaid program that fulfills the promises we have made to our most vulnerable citizens.

Welfare

Now let me turn to welfare reform. When the President signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, he made it clear that this was the beginning - not the end -- of welfare reform. He made it clear that we all have a responsibility to come together and make this law work -- especially for our children. And, he made it clear that this was an opportunity for us to create a welfare system that requires work, promotes parental responsibility, and protects children.

I'm proud of the progress we've made together. Before welfare reform became law, we gave 43 states the flexibility they need to test innovative welfare strategies. Paternity establishments have gone up 50 percent since 1992. In 1996, we collected a record of over $12 billion in child support payments. And the tough new provisions in the welfare law are projected to increase child support collections by an additional $24 billion over 10 years.

The result? Because of the intensity of our efforts and because of the strength of our economy, welfare rolls have gone down by 2.5 million since the beginning of President Clinton's first term -- the largest drop in history. Moving people from welfare to work, enabling them to support their families and maintain their independence -- that's the goal upon which all of us have always agreed.

We are committed to combining all of the leadership, talent and resources possible to implement the new welfare law. The effort to make welfare reform a success is one in which many departments and agencies -- SSA, the Departments of Treasury, Labor, Transportation, HUD, and others -- have joined together.

Let me briefly give you a progress report on our implementation of the new Temporary Assistance for Needy Families (TANF) program. Although states have until July 1997 to implement the TANF program, we have already given the green light to 35 states (as of 2/10/97) to begin their reforms. HHS has provided guidance indicating that States have flexibility in designing their TANF programs, but at the same time emphasizing the importance of moving families from welfare to work and ensuring that Federal costs do not increase due to the potential loss of child support collections.

At the Federal level, we are challenging States to transform the very culture of the system from a welfare program to a work program. We must launch a national effort in every State and every community to make sure there are jobs for people making the transition from welfare to work. So they can leave the welfare rolls, they must have opportunities not only to find jobs, but to keep them.

As I indicated earlier, the hallmark of this welfare law is the broad flexibility it gives states to design innovative reforms that address their unique challenges. We are confident that States will use this considerable new flexibility and the Presidents new initiatives to strengthen their focus on work as well.

We will be monitoring state performance and, Pursuant to the statute, ranking them accordingly. We will be identifying and studying the high performers and the low performers, tracking child poverty, and providing an overall assessment of the legislation's impact on children and families.

We will look closely at how states comply with some key statutory requirements, including child support enforcement, work participation rates, maintenance of effort, and data reporting.

We also will assume major new responsibilities for compiling and disseminating information. As the number of options continues to grow, states will need better information about these options, and the Congress will need better information to assess how effectively federal funds are used.

I know that several members of Congress have suggested a wait-and-see approach to the new welfare system. They advise that state implementation should be carefully reviewed before undertaking major policy changes to the TANF program. Our Department has proposed a number of technical and conforming changes to the TANF program that I believe maintain the spirit and intent of its policies.

Our Administration believes that welfare reform has always been -- and must always remain - a bipartisan issue. But, just as we came together to make work and responsibility the law of the land, we believe it is time to come together again to ensure that the centerpiece of welfare reform remains a real effort designed to find work for everyone who is able to work.

Creating these opportunities will take a commitment from business and labor, from religious organizations and communities, from officials at the federal, state, and local levels. And, it will take the bipartisan Congressional spirit that brought us this far -and must continue to carry us down the road to success.

That is why the President's FY 98 budget contains funds to help States and cities create new jobs, prepare individuals for them, and provide employers with incentives to create new job opportunities for long-term welfare recipients.

To help welfare recipients move from welfare to work, and to supplement TANF funds, the President proposes two new initiatives: A Welfare-to-Work Jobs Initiative to help States and cities create job opportunities for the hardest-to-employ welfare recipients and a greatly enhanced Work Opportunities Tax Credit to provide powerful new private-sector financial incentives to create jobs for long-term welfare recipients.

The Welfare-to-Work Jobs Initiative, which would be administered by the Department of Labor, would provide $3 billion in mandatory funding over three years for job placement and job creation to move a million recipients off the welfare rolls by the year 2000. We will encourage States and cities to use voucher-like arrangements as they deploy these funds to empower individuals with the tools and choices to help them get jobs and keep them.

Under the enriched Work Opportunities Tax Credit for hiring long-term welfare recipients, employers could claim a tax credit of 50 percent of the first $10,000 in wages paid to these hires.

Another major focus for the Administration is to change parts of the welfare reform law that have nothing to do with welfare reform. When the President signed the welfare reform bill he made clear his disappointment with the harsh provisions in the bill relating to benefits to immigrants. The President stated:

"My Administration supports holding sponsors who bring immigrants into this country more responsible for their well-being. Legal immigrants and their children however, should not be penalized if they become disabled and require medical assistance through no fault of their own."

The President's FY 1998 budget makes good on his promise to correct provisions that were included to save money, and which burden States and punish children and the disabled who cannot work. Legal immigrants should have the same opportunities, and bear the same responsibilities, as other members of society. The welfare law denies most legal immigrants access to fundamental safety net programs unless they become citizens - even though they are in the U.S. legally, are working and paying taxes and are responsible members of our communities.

The Administration has always supported making individuals who encourage their relatives to emigrate to the United States more responsible for the immigrant's well being. However, as a nation, we should not turn our backs on anyone who has lost their ability to earn a living due to injury, disease or illness. The Nation should protect legal immigrants and their families -- people admitted as permanent members of the American community - when they suffer accidents or illnesses that prevent them from earning a living.

Consequently, the budget proposes to make legal immigrants who become disabled after entering the United States eligible for SSI and Medicaid. This proposal would allow 320,000 legal immigrants who experienced an accident or illness which resulted in disability after entering the U.S. to receive SSI and Medicaid benefits. We are pleased that the governors, in an NGA resolution last week, agreed - we must not balance the budget on the backs of States or legal immigrants.

The budget would lengthen the five year exemption from the ban for refugees to seven years in order to give them a more appropriate amount of time to naturalize. The United States admits refugees and asylees into this country on a humanitarian basis. Assistance for this population while they adjust to their new circumstances is a matter of simple decency. The budget also would delay the Food Stamp ban on legal immigrants until the end of FY 1997 in order to give immigrants more time to naturalize.

The budget would also provide poor children of legal immigrants the same Medicaid health care coverage low income citizen children receive. In addition, under our budget, disabled children who are currently eligible for Medicaid because they are receiving SSI benefits will be able to retain their Medicaid coverage -- even if they lose their SSI benefits as a result of the tightened definition of childhood disability. Under this proposal, the families of these needy disabled children will be assured that medical assistance will continue to be provided.

Finally, the Administration is proposing to restore some of the overly deep benefit cuts to the Food Stamp program. The proposal includes replacing the 3 month time limit for childless workers with a real work requirement which would not punish those looking for but unable to find work. Also changes would be made to help families with high housing costs and to ensure that families' ability to purchase an adequate diet keeps up with inflation.

Overall, our proposals strengthen our commitment to a new welfare system focused on work and responsibility while addressing the concerns of State and local officials and restoring benefits to those who can't work - particularly children and the disabled. We must give all Americans a hand-up and get on with the real business before us; reforming our welfare system together.

Mr. Chairman, the budget I have discussed today discards tired old solutions and meets our challenges creatively and cooperatively. It balances the budget, without abandoning our values and commitments.

It makes tough choices and shows tough management.

Now we must act upon it.

Because, just like the past when we faced down diseases and tyranny, future generations will look back on today.

The question is, whether they will see a nation that put aside politics and came together to protect the health of its citizens in the 21st century.

The answer is up to us. Thank you.

***These are several charts Attached.



CHART 1
Modernizing Medicare

Prudent Purchasing

  • Centers of Excellence
  • Competitive bidding
  • Global payment for selected services
  • Inherent reasonableness authority
  • Post-acute services payment reform

Improving Choices

  • Expanded managed care options
  • Annual pen enrollment for Medigap and managed care plans
  • Comparative information on all choices
  • Medigap community rating
  • Medigap pre-existing condition reform
  • Standardized additional benefit packages
  • Revised managed care payment

Beneficiary Protections

  • Hospital outpatient coinsurance reform
  • Part B late enrollment surcharge reform
  • Improved financial protections for managed care enrollees

New Benefits

  • Diabetes education
  • Improved mammography benefits with no cost-sharing
  • Colorectal cancer screening
  • Increased payment for vaccines with no cost-sharing
  • Respite benefit for Alzheimers patients



CHART 2
1998 President's Budget Medicare Savings by Category (5-Year Totals, 1998 - 2002)

Chart of Budget Distributions (In Billions):

  • Managed Care ($34);
  • Hospitals ($33);
  • Home Health ($14);
  • Part B Premium ($10);
  • Fraud & Abuse ($9);
  • Doctors ($7);
  • Nursing Homes ($7);
  • Other ($2); and
  • Beneficiary Investments (minus $15).



CHART 3
Almost 75 Percent of Medicare Beneficiaries Have Incomes Under $25,000

Chart of Percentages of Beneficiaries in Income Ranges (In Thousands):

  • At $5 -- (7.3%);
  • $ 5-10 -- (24.7%);
  • $10-15 -- (19.0%);
  • $15-20 -- (13.2%);
  • $20-25 -- (10.0%);
  • $25-30 -- (6.7%);
  • $30-35 -- (4.7%);
  • $35-40 -- (3.1%);
  • $40-45 -- (1.9%);
  • $45-50 -- (2.2%); and
  • $50+ -- (5.0%).



CHART 4
  • Older Americans Spend Two and One-Half Times More of Their Income on Out-of-Pocket Costs Than the Non-Elderly

  • People Under 65 spend 8% of their income on Out-of-Pocket Costs in comparison to people 65 and Over who spend 21% of their income.



CHART 5
The President's Medicaid Proposal:
Flexibility for States

Promote Managed Care

  • Permits managed care without waivers
  • Replaces certain Federal contracting rules and 75/25 rule with an improved quality assurance process

Increase Flexibility in Eligibility/Benefits

  • Permits home and community-based care program without waivers
  • Allows eligibility simplification

Eliminate Federal Provider Payment Rules

  • Repeals Boren Amendment
  • Eliminates cost-based payment for health centers (FQHCs/RHCs)
  • Eliminates qualification requirements for certain physicians (Ob/Peds)

Streamline Administration

  • Eliminates annual State reporting requirements for certain providers
  • Simplifies computer system requirements



CHART 6
Children's Health Initiative
(Potential Number of Children Covered by 2000)

Low-Income Adolescents: 1 Million
Workers Between Jobs Initiative: 700,000
Partnership Grants with States: 1 Million
Allow States to Implement 12-Month Eligibility: 1 Million
Medicaid Outreach: 1.6 Million
  -----------------
TOTAL: 5 Million



MEDICARE FY 98 LEGISLATIVE PROPOSALS INDEX

BENEFICIARY IMPROVEMENTS

Beneficiary Improvements

Program Improvements

  • Definition of DME
  • PACE Demonstrations
  • Extend Social HMO for Three Years

Choice

Medicare Managed Care

  • Permit Enrollment of ESRD Beneficiaries
  • Limits on Charges for Out-of-Network Services
  • Coverage for Out-of -Area Dialysis Services
  • Clarification of Coverage for Emergency Services
  • Permit States with Programs Approved by the Secretary to Have Primary Oversight Responsibility
  • Modify Termination and Sanction Authority

Improved Quality

Accreditation

  • Modify the Deeming Provisions for Hospitals to Require that the JCAHO/AOA Demonstrate that AU of the Applicable Hospital Conditions are Met or Exceeded and to Enhance Monitoring and Enforcement of Compliance
  • Permit the Secretary to Disclose Accreditation Survey Data from Accrediting Organizations for Purposes Other than Enforcement

Survey and Certification

  • Permit Collection of Fees from Entities Requesting Initial Participation in Medicare
  • Create Authority for an Integrated Quality Management System Across HCFA Programs (Medicare and Medicaid)

Managed Care

  • Deem Privately Accredited Plans to Meet Internal Quality Assurance Standards
  • Replace 50-50 Rule with Quality Measurement System

Nurse Aide Training

  • Permit Waiver of Prohibition of Nurse Aide Training and Competency Evaluation Programs in Certain Facilities and Clarify that the Trigger for Disapproval of Nurse Aide or Home Health Aide Training and Competency Evaluation Program is Substandard Quality of Care (Medicare and Medicaid)

MODERNIZING MEDICARE

Prudent Purchasing

Post-Acute Payment Reform

  • Secretarial Authority to Create New Post Acute Care Payment System, and Collection of Assessment Data

Beneficiary Centered Purchasing

  • Centers of Excellence
  • Competitive Bidding Authority
  • Purchasing through Global Payments
  • Flexible Purchasing Authority
  • Inherent Reasonableness Authority

Contracting Reform

  • Reform contracting for FI's and Carriers

Improving Efficiency and Eliminating Overpayments

Hospitals

  • Hold-Harmless for DSH(technical)

Part B Issues

  • Replace "Reasonable Charge" Methodology (and "Reasonable Cost" Methodology for Ambulances) with Fee Schedules

FRAUD AND ABUSE

  • Clarify the Definition of "Homebound"
  • Provide Secretarial Authority to Make Payment Denials Based on Normative Service Standards
  • Requirement to Provide Diagnostic Information



MEDICAID FY 1998 PROPOSALS INDEX PROMOTING STATE FLEXIBILITY

Increase Flexibility in Provider Payment

  • Repeal Boren Amendment
  • Eliminate cost-based reimbursement for health clinics with one year delay

Increase Flexibility in Eligibility

  • Allow eligibility simplification and enrollment expansion
  • Guarantee eligibility for 12 months for children

Eliminate Unnecessary Administrative Requirements

  • Eliminate OB/Peds physician qualification requirements
  • Eliminate annual State reporting requirements for certain providers
  • Eliminate Federal Requirement for private health insurance purchasing
  • Simplify computer systems requirements
  • Eliminate unnecessary personnel requirements

Increase Flexibility regarding Managed Care:

  • Modify upper payment limit for capitation rates
  • Convert managed care waivers (1915(b)) to State Plan Amendments
  • Modify Quality Assurance with new data collection authority while eliminating 75/25 enrollment composition rule
  • Change Threshold for Federal Review of Contracts
  • Allow nominal copayments for HMO enrollees

Increase Flexibility regarding Long-Term Care:

  • Convert Home and Community Based Waivers (I 9 1 5(c)) to State Plan Amendments
  • Increase the Medicaid Federal financial participation rate from 75 percent to 85 for nursing home Survey and Certification activities
  • Permit waiver of prohibition of nurse aide training programs in certain facilities
  • Eliminate unnecessary repayment requirement for alternative remedies
  • Replace ineffective/duplicative Inspection of Care requirements in mental hospitals and ICFs/MR with survey and certification requirements
  • Create Alternative sanctions in ICFs/MR
  • Allow SSI beneficiaries who earn more than the 1619(b) thresholds to buy into Medicaid - working disabled
  • Grant Programs for All inclusive Care for the Elderly (PACE) permanent provider status



IMPROVEMENTS RELATED TO WELFARE REFORM

Disabled beneficiaries

  • Retain Medicaid for current disabled children who lose SSI

Immigrants

  • Exempt disabled individuals from the ban on SSI cash assistance
  • Exempt the following groups from 5 year Medicaid ban and deeming: Disabled individuals and children
  • Extend the Exemption for Refugees/Asylees from 5 to 7 Years

STRENGTHENING FINANCIAL ACCOUNTABILITY

  • FMAP Commission
  • Strengthen MEQC system
  • Increase Federal Payment Cap for Puerto Rico
  • Increase Federal Payment to District of Columbia



FISCAL YEAR 1998 LEGISLATIVE PROPOSALS
PROPOSALS FOR BENEFICIARY IMPROVEMENTS, MODERNIZING MEDICARE, AND FRAUD AND ABUSE
(Proposals with no Budgetary Impact)
February 11, 1997

Beneficiary Improvements

Program Improvements

  • Definition of DME

    Modify the definition of DME to include items needed "for essential community activities". The Secretary would have the authority to limit the benefit to assure the efficient provision of items needed by the beneficiary (e.g. through the use of prior authorization of equipment). Under current law, durable medical equipment (DUE) is limited to those items appropriate for use in the home. This definition was developed in 1965, when Medicare only applied to the elderly, and beneficiaries who used DME were not expected to function outside the home. The expanded definition will encourage independent activity by disabled beneficiaries.

  • PACE Demonstrations

    Grant full permanent provider status for Program of All-inclusive Care for the Elderly (PACE) demonstration sites that currently meet the PACE protocol. PACE has proven to be a successful model for a unique service delivery system for frail-elderly persons who live in the community.
    • Extend Social Health Maintenance Organization (SHMO) Demonstrations

      Extend both the first and second generation of SHMO demonstrations until December 3 1, 2000. SHMOs enroll a cross-section of the elderly living in community and provide standard Medicare benefits, together with limited long-term care benefits. These congressionally-mandated demonstrations are currently set to expire on December 3 1, 1997. A three-year extension would provide additional time to evaluate this delivery model.

    Choice

    Medicare Managed Cart

    • Permit Enrollment of ESRD Beneficiaries

      Permit beneficiaries with ESRD to enroll in a managed care plan. Currently, while beneficiaries who develop ESRD can stay enrolled in a plan, beneficiaries with ESRD are prohibited from enrolling. ESRD beneficiaries should not have their coverage options limited because of their health status.

    • Limits on Charges for Out-of-Network Services

      Expand current limits on charges to plans by non-contracting entities for authorized services. Limits which now apply in the case of inpatient hospital SNF, physician and dialysis services would apply in regard to all services for which there is a fee schedule or limit under fee-for-service Medicare. Apply these same limits to unauthorized, out-of-network services. Providers should not have a windfall payment as a result of providing an authorized or unauthorized service to a Medicare beneficiary enrolled in a managed care plan. Beneficiaries who decide to receive unauthorized services should have the same protections as beneficiaries who remain in fee-for-service Medicare.

    • Coverage for Out-of-Area Dialysis Services

      Require plans to pay for out-of-area dialysis services when an enrollee is temporarily out of the plan's service area. Under current law, plans are only obligated to pay for out-of-area services in two instances: emergency care and urgent care. Since services such as did* are foreseeable, plans have no obligation to pay for them As a result, managed care enrollees with ESRD are effectively barred from ever leaving their home town.

    • Clarification of Coverage for Emergency Services

      Clarify the obligation of managed care plans to pay for emergency services provided to their phis enrollees (whether through the plan or by a non-plan provider) by defining "emergency services as services that a "prudent laypersons would, from his or her perspective, reasonably believe were needed immediately to prevent serious harm to his or her health. This clarification of Medicare policy will be helpful to states as they determine what requirements should apply in regard to emergency services provided to commercial managed care enrollees.

    • Permit States with Programs Approved by the Secretary to Have Primary Oversight Responsibility

      Authorize States, with programs approved by the Secretary, to certify whether a plan is eligible to contract with Medicare and to monitor certain aspects of plan performance. Such certification and monitoring would be subject to Federal standards. The Secretary would retain final authority in regard to contracting and compliance actions. User fees would be collected from plans for both the certification and monitoring activities. Effective 1/l/98. The proposal would eliminate certain duplication of effort that exists between States! traditional licencing role and HCFA oversight of managed care contractors.

    • Modify Termination and Sanction Authority

      Authorize the Secretary to terminate a contract prior to a hearing in cases where the health and safety of Medicare beneficiaries are at-risk. Delete requirement for corrective action plans and for hearing and appeals prior to imposing intermediate sanctions. Conform sanctions options add by the existing sanction authority. When the health and safety of beneficiaries is at risk, HCFA should not be required to hold a hearing prior to terminating a contract. in regard to intermediate sanctions, HCFA already provides plans with the opportunity to respond to findings that the plan has committed an act subject to an intermediate sanction. Requiring a hearing and an appeal in all instances, however, would unnecessarily hinder enforcement actions.

    Improved Quality > Accreditation

    • Modify the "Deemed Status" Provisions for Hospitals to Require that the JCAHO Demonstrate that All of the Applicable Hospital Conditions are Met or Exceeded and to Enhance Monitoring and Enforcement of Compliance

      This would require the Joint Commission on the Accreditation of Health care organizations (JCAHO) to demonstrate that, under its accreditation process and standards, accredited hospitals meet or exceed all federal health and safety standards (called the Medicare "conditions of participation). Further, the JCAHO would be required to enforce compliance with the standards and monitor those entities that are found out of compliance. Under current law, hospitals that receive JCAHO accreditation are automatically deemed to have met Medicare conditions of participation and the Secretary has no statutory authority to require the JCAHO to monitor compliance. The Omnibus Consolidated Rescissions and Appropriations Act of 1996 raised the standards for deemed status of other (non-hospital) providers by authorizing the Secretary to grant Medicare deemed status to providers if the accrediting body has demonstrated to the Secretary that a provider category meets or exceeds all of the Medicare conditions and requirements. This proposal would bring hospital "deemed status" requirements in line with deeming requirements for other providers.

    • Permit the Secretary to Disclose Accreditation Survey Data from Accrediting Organizations for Purposes Other than Enforcement

      This would broaden the instances when the Secretary may disclose accreditation survey information to include instances where the Secretary deems disclosure to be in the interests of beneficiary safety, quality of care, and program integrity. Under current law, the Secretary may not publicly disclose any accreditation survey result unless the information relates to an enforcement action taken by the Secretary. Such limited authority restricts the Secretary from fully safeguarding quality.

    Surv>ey and Certification

    • Permit Collection of Fees from Entities Requesting Initial Participation in Medicare

      This would permit the Secretary to charge entities (including dually-participating Medicare/Medicaid providers but excluding clinical labs under CLIA) a fee for the initial survey required for participation in the Medicare program. Under ties new authority, HCFA would charge fees through its agreements with State survey agencies. As HCFA's agents, States would collect and retain these fees and apply them to their survey costs. HCFA's survey and certification budget has been held constant since 1993, while the number of entities seeking to enter the Medicare program has grown dramatically each year. This under-funding has forced HCFA to prioritize State survey workloads and has resulted in extensive delays of initial certification surveys. This proposal would allow a greater number of providers to enter the Medicare program in a timely fashion, thereby enhancing beneficiary access to, and choice of, providers. In addition, program certification allows providers to derive a financial benefit from participating in Medicare and Medicaid. Charging for initial program participation surveys is consistent with the fee-based approach for other government services.

    • Create Authority for an Integrated Quality Management System Across HCFA Programs (Medicare and Medicaid)

      This proposal would provide for a uniform authority for all Medicare and Medicaid quality management activities. A re-engineered, integrated quality management approach would include, but not be limited to: authorities for data collection, quality conditions, enforcement, publication of provider-level data, user fees, deeming flexibility, and designated accountability. Prior to full implementation of an integrated quality management system, HCFA would test out various models through demonstrations. For the last five years, HCFA has been building the foundations of a truly re-engineered approach to survey and certification activities, which creates a new conceptual framework and reshapes many operational features of the current system and breaks through current limitations. HCFA would like to test this re-engineering concept through a demonstration.

    Managed Care

    • Privately Accredited Plans Deemed to Meet Internal Quality Assurance Standards

      Authorize the Secretary to deem plans with private accreditation as meeting internal quality assurance requirement. This proposal, without reducing Federal standards, would eliminate certain duplication of effort that exists between private accreditating organizations' review of plans internal quality assurance programs and HCFA's own efforts.

    • Replace 50/50 Rule with Quality Measurement System

      Eliminate the current requirement that managed care plans maintain a level of commercial enrollment at least equal to public program enrollment, once the Secretary, in consultation with the consumers and the industry, develops a system for quality measurement. Authorize the Secretary to terminate plans that do not meet standards under the quality measurement system Until the quality measurement system is in place, expand the Secretary's waiver authority for 50/50 (e.g., plans with good track records). The Administration believes that the 50/50 rule should be retained until an adequate quality measurement system is in place. This system, once in place, should drive contracting decisions.

    Nurse Aide Training

    • Permit Waiver of Prohibition of Nurse Aide Training and Competency Evaluation Programs in Certain Facilities and Clarify that the Trigger for Disapproval of Nurse Aide or Home Health Aide Training and Competency Evaluation Programs is Substandard Quality of Care (Medicare and Medicaid)

      This would allow States to waive the prohibition on nurse aide training and competency evaluation programs offered in (but not by) a SNF or Medicaid NF if the State: (1) determines that there is no other such program offered within a reasonable distance of the facility; (2) assures, through an oversight effort, that an adequate environment exists for operating the program in the facility; and (3) provides notice of such determination and assurances to the State long-term care ombudsman. The proposal would also make clear that a survey finding substandard quality of care, rather than the mere occurrence of an extended or partial extended survey is what triggers the sanction of the training program. The current prohibition on nurse aide traiar-, and geographic adjustments. The uniform payment system would be built upon the prospective payment system for home health and an expanded PPS for SNF that more appropriately reflects costs across all post-acute inpatient settings, including the higher intensity of service in rehabilitation and long-term care hospitals. It would authorize the Secretary to collect any and all data, on a national basis, that would be necessary to implement such a system. There is considerable overlap in the types of services provided and the types of beneficiaries that are treated in each of the post-acute settings. Despite this overlap, Medicare's current payment and coverage rules vary by setting and may create perverse incentives to treat patients in one setting rather than another in order to maximize reimbursement. A "site-neutral" integrated post-acute care payment would help to ensure that beneficiaries receive high quality care in the appropriate settings. This system would ensure that reimbursement is sufficient for all patient types including high intensity patients who in the current environment are cared for in rehabilitation hospitals. In addition, any transfers among settings occur only when medically appropriate and not in an effort to generate additional revenues. A consistent patient classification system would allow meaningful comparisons of the diagnoses, severity, and functional limitations of patients in all these settings; permit case-mix adjustment for payment purposes,ar-, and geographic adjustments. The uniform payment system would be built upon the prospective payment system for home health and an expanded PPS for SNF that more appropriately reflects costs across all post-acute inpatient settings, including the higher intensity of service in rehabilitation and long-term care hospitals. It would authorize the Secretary to collect any and all data, on a national basis, that would be necessary to implement such a system. There is considerable overlap in the types of services provided and the types of beneficiaries that are treated in each of the post-acute settings. Despite this overlap, Medicare's current payment and coverage rules vary by setting and may create perverse incentives to treat patients in one setting rather than another in order to maximize reimbursement. A "site-neutral" integrated post-acute care payment would help to ensure that beneficiaries receive high quality care in the appropriate settings. This system would ensure that reimbursement is sufficient for all patient types including high intensity patients who in the current environment are cared for in rehabilitation hospitals. In addition, any transfers among settings occur only when medically appropriate and not in an effort to generate additional revenues. A consistent patient classification system would allow meaningful comparisons of the diagnoses, severity, and functional limitations of patients in all these settings; permit case-mix adjustment for payment purposes, and permit greater coordination of care. ProPAC has cited the perverse incentives that currently operate under separate and distinct payment methods for post-acute care services.


  • Beneficiary-Centered Purchasing

    In general provide the Secretary with authority to pay on the basis of special arrangements as opposed to statutorily-determined, administered prices. This proposal has five components which are fully described below: Centers of Excellence; Competitive Bidding; Global Payments; Flexible Purchasing Authority; and Inherent Reasonableness Authority. Two years after enactment, and annually thereafter for the next three years, the Secretary would report to Congress by March 1st on the use of these new authorities, including the impacts on program expenditures and on the access and quality of services received by beneficiaries.

    • Centers of Excellence - Authorize the Secretary to pay selected facilities a single rate for all services (including potentially post-acute services) associated with a surgical procedure or hospital admission related to a medical condition, specified by the Secretary (The Secretary would be required by January 1, 1999 to establish Centers of Excellence for CABG surgery, other cardiac procedures and for hip and knee replacements across the country). Selected facilities would have to meet special quality standards. The single rate paid to a Center would have to represent a savings to the program. There would be no requirement for beneficiaries to receive services at Centers. However, Centers would be allowed, subject to approval by the Secretary, to provide additional services (such as private room) or other incentives (waiver of cost-sharing) to attract beneficiaries.

    • Competitive Bidding Authority - Authorize the Secretary to set payment rates for Part B services (excluding physician services) specified by the Secretary based on competitive bidding. The items included in a bidding process and the geographic areas selected for bidding would be determined by the Secretary based on the availability of entities able to furnish the item or services and the potential for achieving savings. Bids would be accepted from entities only if they met quality standards specified by the Secretary. The Secretary would have the authority to exclude suppliers whose bid was above the cut off bid determined sufficient to maintain access. Automatic reductions in rates for would be triggered for clinical laboratory services and DMEPOS(excluding oxygen services) if by 2001 a 20 percent reduction had not been achieved.

    • Purchasing Through Global Payments - Authorize the Secretary to selectively contract with providers and suppliers to receive global payments for a package of services directed at a specific condition or need of an individual (e.g. diabetes, congestive heart failure, frail elderly, cognitively or functionally impaired, need for DME). The Secretary would select providers on the basis of their ability to provide high quality services efficiently, to improve coordination of care (e.g. disease management, case management), and to offer additional benefits to beneficiaries (e.g. prescription drugs, respite, nutritional counseling, adaptive and assistive equipment, transportation.) Within the global payment, providers would have flexibility in how services are provided, and they may, subject to approval by the Secretary, offer additional non-covered benefits financed through the global payment. The global rate would have to represent a savings to the program. Beneficiaries would voluntarily elect on a month-to-month basis to participate in such arrangements and during that period would be "locked-m" for the services covered under the arrangement.

    • Flexible Purchasing Authority - Authorize the Secretary, after rulemaking, to negotiate alternative administrative arrangements with providers, suppliers and physicians who agree to provide price discounts to Medicare. These discounts could be based on current fee schedules or payment rates or could involve alternative payment methods. The alternative administrative arrangements could not include any changes to quality standards or conditions of participation. The Secretary would have the authority to permit sharing of these savings with beneficiaries who use these entities -- for example, through a reduced deductible in the case of hospital services or lower coinsurance payments in the case of other services.

    • Inherent Reasonableness Authority - Restore Medicare's carriers-authority to make "inherent reasonableness" payment changes for durable medical equipment, prosthetics and orthotics (DMEPOS) as well as surgical dressings.

      Medicare's statutory framework was based on a Blue Cross/Blue Shield model from the 60's. Although payment methodologies have improved over time, current payment authority is too rigid for the fee-for-service program to meet the challenges of the 21st century. Each component of this initiative represents an approach that has been used successfully by the private sector, other government program or under Medicare's demonstration authority.

    Contracting Reform

    • Reform Contracting for FIs and Carriers

      This proposal would end the requirement that an Medicare contractors perform all Medicare administrative activities, and would allow Medicare to contract with entities other than insurance companies. New contractors would be awarded contracts using the same competitive requirements that apply throughout the government- The proposal would give HCFA the tools to take advantage of innovations and efficiencies in the private sector when it comes to beneficiary and provider services, and claims processing. it builds on the Medicare Integrity Program contracting changes established in HIPAA.

    Improving Efficiency and Eliminating Overpayments

    Hospitals

    • Hold-Harmless for DSH

    • Freeze hospital-specific disproportionate share hospital (DSH) adjustments at current levels, for a period of 2 years. Require the Secretary to submit a legislative proposal to Congress by 18 months after enactment for revised qualifying criteria and Payment Methodology for hospitals that incur higher Medicare Costs because they Serve a disproportionate sham of low-income patients. Without action by FY 2000, the old (current) formula would be reinstated. The current formula for identifying DSH hospitals relies on counting the number of days the hospital serves Medicare/SSI beneficiaries (as a proportion of total Medicare days) and the number of days it serves Medicaid beneficiaries (as a proportion of total days). The resulting "DSH percentage" is plugged into a formula that computes the increase in Medicare payments for DSH hospitals.

      However, this measure is becoming increasingly unreliable. The recently enacted welfare reform law will have an impact both on the number of people eligible for SSI and the number of people eligible for Medicaid but not necessarily on the number of low-income individuals seeking hospital care. Furthermore, as the number of uninsured Americans increases, the reliability of this measure to reflect the a hospital's level of uncompensated care decreases. Concurrently, HCFA has lost a series of court cases on the DSH formula, resulting in varying definitions of "eligible Medicaid days" across the country. By freezing the current DSH levels for the next two years, the level of support for DSH hospitals will be sustained while the Secretary develops a proposal to refine the DSH criteria and adjustment.

    Part B Issues

    • Replace "Reasonable Charge" Methodology (and "Reasonable Cost" Methodology for Ambulances) with Fee Schedules

      Create fee schedules, on a budget neutral basis, for the few Part B services still paid according to -reasonable charge" methodology (the most significant services affected would be ambulances, and enteral and parenteral nutrition). Specify that ambulance services provided by hospitals or "under arrangements" would also be covered by the new ambulance fee schedule, with adjustments allowed for certain "core services" that may have higher costs. This proposal will make the payment methodology consistent for all Pan B services and improve administrative efficiency. including hospital based ambulance services under the fee schedule will remove incentives for independent suppliers to evade fee schedule limits by establishing costlier arrangements with hospitals.

    FRAUD AND ABUSE

    • Clarify the Definition of "Homebound"

      This would redefine the "homebound" definition by adding several calendar month benchmarks to emphasize that home health coverage is only available to those who are truly unable to leave the home. The current definition of "confined to the home" is vague and over broad. It allows for considerable discretion in interpretation and fraud and abuse. Financial reviews show that Medicare routinely reimburses care to beneficiaries who are not truly homebound. Without a more concrete definition, this eligibility requirement is very difficult to enforce. The March 1996 GAO report cites the problematic homebound definition as contributing to excessive spending and fraud and abuse.

    • Provide Secretarial Authority to Make Payment Denials Based on Normative Service Standards This proposal would allow the BM Secretary to establish normative numbers of visits for specific conditions or situations. For example, HCFA could establish a normative number of aide visits for a particular condition, and deny payment for those visits that exceed this standard. Allowing the Secretary to establish more objective criteria will help HCFA gain more control over excessive utilization. A March 1996 GAO report criticizes current statutory coverage criteria as leaving too much room for interpretation and inviting fraud and abuse.

    • Requirement to Provide Diagnostic Information

      Extend to non-physician practitioners, the current requirement that physicians provide diagnostic information on all claims for services that they provide. Also require physicians and non-physician practitioners to provide information to document medical necessity for items or services ordered by the physician or practitioner, when such documentation is required by the Medicare contractor as a condition for payment for the item or service. Diagnostic information is needed by Medicare's contractors to determine the medical necessity of physician services and for use in quality/outcome research. Given the need for this data, there is no reason to exclude non-physician practitioners from the current requirement to include diagnostic codes on claims forms. Also, in regard to non-physician services and DMEPOS items, suppliers providing the services and items ordered by physicians or non-physician practitioners have reported having difficulty obtaining diagnostic information required by Medicare's contractors. This proposal will clarify that the ordering physician or non-physician practitioners is required to provide such information.



    MEDICAID FY 1998 PROPOSALS
    STATE FLEXIBILITY AND NEW INVESTMENTS

    PROMOTING STATE FLEXIBILITY

    Increase Flexibility in Provider Payment

    • Repeal Boren Amendment

      Repeal the Boren amendment for hospitals and nursing homes, while establishing a clear and simple public notice process for rate setting for both hospitals and nursing homes.

    • Modify the process for determining payment rates for hospitals, nursing facilities and intermediate Care Facilities for the Mentally Retarded (ICFs/MR) to add a public notification process that provides an opportunity for review and comment, which should result in more mutually agreeable rates.

    • Eliminate cost-based reimbursement for health clinics

      Federal requirements that most Federally Qualified Health Centers (FQHCS) and Rural Health Centers (RHCS) be paid based on costs would be removed beginning in 1999; and a capped, temporary funding pool would be established to help these facilities during the transition.

    Increase Flexibility in Program Eligibility

    • Allow Budget Neutral eligibility simplification and enrollment expansion

      Enable States to expand or simplify eligibility to cover individuals up to 150 percent of the Federal poverty level through a simplified and expedited procedure. Current rules would be retained to the extent they are needed to ensure coverage for those who do not meet the eligibility criteria of the new option. Federal spending would be restrained by the per capita cap for current eligibles and such expansions would be approved only if they were demonstrated to be cost neutral (i.e. no credit for persons who were not otherwise Medicaid eligible in the determination of cap number).

      This proposal enables States to expand to new groups that are not eligible under current law without a Federal waiver. Administration would be streamlined and simplified in that States would be able to use the same eligibility rules for everyone eligible under the new percent-of-poverty option in place of the current plethora of different rules for different groups. Integrity of Federal spending limits would be maintained by the cost neutrality requirement.

    • Guarantee eligibility for 12 months for children

      This proposal would permit States to provide 12-month continuous Medicaid eligibility for children ages 1 and older. (Continuous coverage was enacted for infants by OBRA 90.)

    • This proposal would provide stable health care coverage for children - particularly children in families with incomes close to the eligibility income limits, who often lose eligibility fc@r a month due to an extra pay period within a month. This proposal would also reduce State administrative burden by requiring fewer eligibility determinations.

    Eliminate Unnecessary Administrative Requirements

    • Eliminate OB/Peds physician qualification requirements

      Federal requirements related to payment for obstetrical and pediatric services would be repealed. States would only have to certify providers serving pregnant women and children based on their State licensure requirements.

      The minimum provider qualification requirements under current law do not effectively address quality of care. In addition, current law fails to recognize all bodies of specialty certification, so certain providers are precluded from participation in Medicaid (e.g., foreign medical graduates). Congress amended the law in 1996 to include providers certified by the American Osteopathic Association and emergency room physicians.

    • Eliminate annual State reporting requirements for certain providers

      States would no longer haverely to show that their State-de-signed system meets performance standards established under an outcome-oriented measurement process.

    • Reduce unnecessary personnel requirements

      We would work with States and State employees to replace the current, excessively detailed, and ineffective Federal rules regarding administrative issues that are properly under the purview of States, such as personnel standards, and training of sub-professional staff.

    Increase Flexibility Regarding Managed Care

    • Modify upper payment limit for capitation rates

      Modify upper payment limit and actuarial soundness standards for capitation rates to better reflect historical managed care costs by requiring actuarial review of the rates.

      The current Medicaid upper payment limit for managed care contracts (i.e., I 000/a of fee-for-service) is not an accurate payment measurement for Medicaid managed care plans. It does not reflect historical managed care costs and States claim it is inadequate to attract plans to participate. This proposal would modify the definition of the UPL to more accurately reflect Medicaid spending. It would also modify actuarial soundness standards.

    • Convert managed care waivers [1915(b)(1)] to State Plan Amendments

      Permit mandatory enrollment in managed care without federal waivers. States would be able to require enrollment in managed care without applying for a freedom of choice waiver erely to show that their State-de-signed system meets performance standards established under an outcome-oriented measurement process.

    • Reduce unnecessary personnel requirements

      We would work with States and State employees to replace the current, excessively detailed, and ineffective Federal rules regarding administrative issues that are properly under the purview of States, such as personnel standards, and training of sub-professional staff.

    Increase Flexibility Regarding Managed Care

    • Modify upper payment limit for capitation rates

      Modify upper payment limit and actuarial soundness standards for capitation rates to better reflect historical managed care costs by requiring actuarial review of the rates.

      The current Medicaid upper payment limit for managed care contracts (i.e., I 000/a of fee-for-service) is not an accurate payment measurement for Medicaid managed care plans. It does not reflect historical managed care costs and States claim it is inadequate to attract plans to participate. This proposal would modify the definition of the UPL to more accurately reflect Medicaid spending. It would also modify actuarial soundness standards.

    • Convert managed care waivers [1915(b)(1)] to State Plan Amendments

      Permit mandatory enrollment in managed care without federal waivers. States would be able to require enrollment in managed care without applying for a freedom of choice waiver [1915(b)(l)]. States would be allowed to establish mandate enrollment managed care programs through a State plan amendment. Qualified IRS, tribal and urban Indian organization providers would be guaranteed the right to participate in State managed care networks.

      This proposal would provide States greater flexibility in administering their State Medicaid programs by eliminating the freedom-of-choice waiver application process. states would not have to submit applications for implementation or renewal. The Administration is pursuing strategies to assure quality in Medicaid managed care that are more effective and less burdensome than the assurances added through the waiver process. Guaranteeing urban Indian organization providers the right to participate in State Medicaid managed care networks integrates unique into managed care delivery systems and recognizes their unique health delivery role.

    • Modify Quality Assurance with new data collection authority while eliminating 75/25 enrollment composition rule

      Replace the current enrollment composition rule with a new quality data monitoring system under a beneficiary purchasing strategy with new data collection authority.

      As part of the continuous effort to ensure Medicaid managed care beneficiaries receive quality care, HCFA proposes to implement a "beneficiary-centered purchasing"(BCP) strategy. BCP will replace certain current federal managed care contract requirements. The current enrollment composition rule (i.e., 75/25 rule) requires that no more than 75 percent of the enrollment can be Medicare and Medicaid beneficiaries. The current requirement is a process-related, ineffective proxy for quality. This requirement would be replaced with a quality monitoring system based on standardized performance measures.

      HCFA, in collaboration with States, would define and prioritize a new standard set of program performance indicators, including a new quality monitoring system. These measures would be used to quantify and compare plans' quality of care, provide purchasers and beneficiaries with the means to hold plans accountable, and provide HCFA with comparable data to compare the performance of State programs to effectively hold States accountable as well.

      This proposal would enhance the Secretary's ability to ensure that beneficiaries' interests are being protected as enrollment in managed care increases, and to detect and correct possible abuses by managed care plans. A more outcome oriented quality review process is vital to the Federal and State oversight of managed care plans to ensure that Medicaid beneficiaries are receiving the highest quality care possible. Data would be vital to the success of such an effort.

    • Change threshold for federal review of contracts

      Raise the threshold for the federal review of managed care contracts from the current $100,000 threshold to $1 million contract amount (or base threshold for federal review on fives covered by plan).

      This proposal would provide greater State flexibility in management and oversight of Medicaid managed care programs. It would also reduce the number the of managed care plan contracts requiring HCFA review and approval.

    • Nominal copayments for HMO enrollees

      Permit States to impose nominal copayments on HMO enrollees.

      This proposal would bring policy on Medicaid copayments for HMO enrollees more in line with Medicaid copayments that a State may elect to impose in fee-for service settings. It would also allow HMOs to treat Medicaid enrollees in a manner similar to how they treat non-Medicaid enrollees. However, impact on beneficiaries would not be harmful since copayments. if imposed, would still have to be nominal.
    Increase Flexibility Regarding Long-Term Care
    • Convert Home and Community Based Waivers (1915(c)) to State Plan Amendments

      Give States the option to create a home and community-based services program without a Federal waiver, through a State plan amendment. This proposal would benefit States and beneficiaries by eliminating the constant and costly necessity of renewing the waivers, while ensuring a high level of care.

    • Increase the Medicaid Federal financial participation rate from 75 percent to 85 for nursing home Survey and Certification activities

      Raise the Medicaid Federal financial participation (FFP) rate to 85 percent.

      Federal funding is important to maintain both quality standards established by OBRA 87 and resulting enforcement activities. Increasing the Medicaid federal financial participation percentage to 85 percent would encourage States to increase total spending on nursing home survey and certification activities.

    • Permit waiver of prohibition of nurse aide training and competency evaluation programs in certain facilities Clarify that the trigger for disapproval of nurse aide or home health aide training and competency evaluation programs is substandard quality of care (Medicare and Medicaid).

      This would allow States to waive the prohibition on nurse aide training and competency evaluation programs offered in (but not by) a SNF or Medicaid NF if the State: (1) determines that there is no other such program offered within a reasonable distance of the facility; (2) assures, through an oversight effort, that an adequate environment exists for operating the program in the facility; and (3) provides notice of such determination and assurances to the State long-term care ombudsman. The proposal would also make clear that a survey finding substandard quality of care, rather than the mere occurrence of an extended or partial extended survey is what triggers the sanction of the training program.

      The current prohibition on nurse aide training and competency evaluation programs causes a special problem for rural nursing home where a community college or other training facility may be inaccessible to nurse aides. This proposal would safeguard the availability of nursing homes which might otherwise stop participation in Medicare and Medicaid as a result of losing a training program's approval. This proposal is also a part of the Vice-President's Reinventing Government initiative. A clarification of the circumstances under which a program must be sanctioned is needed because the fact that an extended or partial extended survey is conducted is not, in itself, an indication that substandard quality of care exists in the SNF, NF, or HHA.

    • Eliminate repayment requirement for alternative remedies for nursing home sanctions

      Eliminate the requirement for repayment of federal funds received if a State chooses to use alternative remedies to correct deficiencies rather than termination of program participation.

      This proposal would allow States to promote compliance by employing alternative remedies on nursing facilities. This provision for alternative remedies gives States the flexibility for more creative implementation of the enforcement regulations.

    • Delete Inspection of Care requirements in mental hospitals and Intermediate Care Facilities for the Mentally Retarded (ICFs/MR)

      Eliminate the duplicative requirement for Inspection of Care (IOC)reviews in mental hospitals and ICFs/MR. The survey and certification reviews that currently take place in mental hospitals and ICF/MR would remain in place.

      Inspection of Care (IOC) reviews were originally designed to ensure that Medicaid recipients were not being forgotten in long term care facilities. The current survey process has been improved through a new outcome-oriented process that protects recipients in mental hospitals and ICFs/MR from improper treatment. Consequently, IOC reviews are no longer needed and are, in fact, in direct conflict with the revised ICF/MR survey protocol. The current requirement for two reviews (IOC and the ICF/MR survey) has become duplicative. If the IOC were eliminated, the ICF/MR survey and certification process would remain in place.

    • Alternative sanctions in Intermediate Care Facilities for the Mentally Retarded (ICFs/MR)

      Provide for alternative sanctions in ICFs/MR that already are available for nursing homes. Alternative sanctions that currently are available in nursing homes include: directed in-service training, directed plan of correction, denial of payment for new admissions, civil monetary penalties and temporary management.

      Sanctions other than immediate termination were established for nursing homes under the OBRA-87 legislation, but not for ICFs/MR. This proposal would extend the alternative sanction option to ICFs/MR.



    SPECIAL POPULATIONS
    • Allow SSI beneficiaries who earn more than the 1619(b) thresholds to buy into Medicaid

      This proposal would give States the option of creating a new eligibility category for disabled persons to encourage them to work beyond the 1619(b) income thresholds. SSI beneficiaries who become eligible for this new category would contribute to the cost of the program by paying a premium. Premium levels would be on a sliding scale, based on the individual's income as determined by the States.

      Despite existing work incentives in SSL fewer than of 1 percent of beneficiaries return to substantial gainful employment annually. The fear of losing medical benefits has been identified as one of the most significant barriers to disabled beneficiaries returning to work or working for the first time. Under this proposal Medicaid would be used to extend access to coverage for the working disabled who no longer quality for health care benefits under current law.

    • Grant Programs for All inclusive Care for the Elderly (PACE)permanent provider status

      Grant full permanent provider status for Program of All-inclusive Care for the Elderly (PACE) demonstration sites that currently meet the PACE protocol. PACE has proven to be a successful model for a unique service delivery system for frail-elderly persons who live in the community.



    IMPROVEMENTS RELATED TO WELFARE REFORM
    Disabled Beneficiaries
    • Retain Medicaid for current disabled children who lose SSI

      Medicaid would be retained for children currently receiving Medicaid who lose their Supplemental Security Income (SSI)benefits because of changes in the definition of disability.

      Most of these children would requalify for Medicaid by meeting another eligibility category either by meeting other SSI disability listings or other Medicaid categories for non-disabled low-income children. Those who do not, and who would be grandfathered under this proposal, continue to have relatively extensive health and developmental needs which would not be met if these children lost their Medicaid coverage.

    Immigrants

    • Exempt certain disabled individuals from the ban on SSI cash assistance

      This proposal exempts immigrants who become disabled after entering this country from the recently enacted ban on SSI cash assistance for "qualified aliens", and ensures that they would retain their Medicaid benefits. The exemption would apply to immigrants who were already here on the date of enactment as well as to new arrivals.

      This proposal allows States to continue providing SSI and Medicaid benefits to immigrants who become disabled and who would otherwise be cut off due to welfare reform. It protects those who can no longer be expected to work due to circumstances beyond their control.

    • Exempt immigrant children and certain disabled immigrants from the Medicaid bans and deeming requirements

      This proposal would exempt immigrant children and immigrants who are disabled after entering this country from the bans on Medicaid benefits for current and future immigrants. Immigrant children and immigrants disabled after entry would also be exempt from the new deeming requirements that mandate that the income and resources of an immigrant's sponsor be counted when determining Medicaid eligibility.

      These proposals assist the most vulnerable groups of immigrants for whom lack of access to medical care may produce long-term negative consequences and whose medical care may result from an unexpected injury or illness that occurs after their arrival.

    • Extend the Exemption for Refugees/Asylees from 5 to 7 Years

      This proposal would extend the exemption from Medicaid bans and deeming requirements for refugees and asylees by an additional 2 years for a total of 7 years.

      Protection of refugees and asylees has been a consistent feature of U.S. immigration policy. Refugees and asylees often face challenges that other immigrants do not because of persecution. Extending the exemption for an additional two years allows for these unique circumstances and possible difficulties these individuals may have in becoming self-sufficient. In addition, more recent populations have included larger numbers of elderly individuals, who may take a longer time to adjust to new circumstances.



    STRENGTHENING FINANCIAL ACCOUNTABILITY
    • Establish a Federal Payment Commission

      Establish a commission to review equity among the States in Medicaid financing formula (FMAP), as well as the base year and growth rates in the per capita spending limits.

      The formula for determining the Federal and State contribution to the Medicaid program, which is based on per capita income in a State, has long been criticized as failing to adequately reflect State variations in their ability to raise revenues and in magnitude of State need. An impartial commission could make recommendations for a more refined formula. Similarly, once the per capita cap has an established track record, an impartial commission would make recommendations for further improvements to improve equity across States.

    • Strengthen Medicaid Eligibility Quality Control (MEQC)

      Modify and strengthen Medicaid Eligibility Quality Control (MEQC) system. Under a per capita cap limit on spending where Federal funding is tied to the number of beneficiaries in a State, it would become more important than ever to ensure Federal matching payments are provided to States only for their spending on people who actually meet the State's eligibility criteria. The current MEQC system is the appropriate tool for this task, but it must be modified to accommodate and measure population components of the per capita cap. States would have a reasonable error tolerance 1996/03/06; NIH Testimony; Neuroscience Research at NIH

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