Chairman Cochran, Senator Kohl, distinguished Subcommittee members, thank you for
inviting us to testify about our efforts to support America's rural health care providers.
This hearing provides a timely focus, as our monitoring and analyses suggest that some
Balanced Budget Act (BBA) payment reforms may be having a disproportionate affect on rural
Medicare beneficiaries' access to care. The
President's Medicare reform plan includes
several provisions to help ensure that rural Medicare beneficiaries continue to have
access to the quality care they need, and we look forward to working with you to enact
these essential reforms.
About one in four Medicare beneficiaries live in rural America, and rural hospitals
serve a critical role in areas where the next nearest hospital may be hours away. Yet
rural hospitals face special challenges. They have higher per unit costs, difficulty
maintaining enough patients to break even, and difficulty recruiting physicians. Medicare
has made exceptions and special arrangements to address the unique needs of rural areas
and strengthen these vital facilities. Even before the BBA, Medicare provided special
payment support to more than half of all rural hospitals.
The BBA includes several new provisions to strengthen the rural health care
infrastructure. It provides extra support for small critical access and other rural
hospitals, and it authorizes payment for telemedicine to bring urban expertise to rural
providers and their patients. As a result, average Medicare payment per rural patient is
However, because other BBA payment reforms may have a disproportionate impact on rural
hospitals, and thus on beneficiary access to care, the President's Medicare reform plan
includes provisions to:
- make it easier for rural hospitals to qualify for higher urban payment rates;
- help rural hospitals adjust to the new outpatient prospective payment system;
- make additional administrative adjustments that will increase funding for rural
- give rural hospitals larger rate increases than they would receive under a straight
extension of the BBA from 2003 to 2009; and
- maintain the improvements in managed care payments built into the BBA, which have an
indirect effect on hospitals.
The President's Medicare reform plan also sets aside $7.5 billion over 10 years to fund
appropriate and justified modifications that may be necessary to smooth the transition to
BBA reforms where beneficiary access to care is being compromised. That money could well
be used to address specific concerns raised at this hearing. However, the BBA reforms are
critical to strengthening and protecting Medicare. We are proactively monitoring the BBA's impact on beneficiary access to care. And we want
to work with Congress, providers and beneficiary groups to determine how to address
documented problems in the most carefully targeted and fiscally responsible way.
Most importantly, for rural (and other) health care providers, the President's plan dedicates a portion of the surplus to
strengthen Medicare. Combined with reforms, this surplus dedication secures the life of
the Medicare Trust Fund for over the next quarter of a century. This averts the need for
excessive provider payment reductions that would be inevitable without new financing as
the baby Boom generation begins to retire.
The President's plan also helps nearly half
of rural Medicare beneficiaries who today do not have any coverage for prescription drugs.
Rural beneficiaries have less access to employer-based retiree health insurance because of
the job structure in rural areas. Also, three-quarters of rural beneficiaries do not have
access to Medicare managed care, which typically offers free drug coverage to
beneficiaries living in high-cost areas like Los Angeles or southern Florida -- despite
the fact that all beneficiaries pay the same premium. This leaves rural beneficiaries at
greater risk of not being able to afford medications that are central to their health. The
President's plan gives all beneficiaries the
option to pay a modest premium for a prescription drug benefit. This benefit will cover
half of all prescription drug costs up to $5,000 when fully phased in, with no deductible
-- all for a modest premium that will be less than half the price of the average private
Medigap policy. As such, it provides an affordable choice for rural beneficiaries with
unstable or expensive coverage, and a lifeline for those beneficiaries who simply have no
Even as this plan is being debated, we are redoubling our efforts to actively address
the special circumstances of rural beneficiaries. We are meeting with rural providers,
visiting rural facilities, reviewing regulations'
impact on rural health care, and conducting more research on rural health care issues. And
we are participating in a workgroup with the Health Resources and Services Administration's Office of Rural Health Policy to make sure that we
stay abreast of rural issues.
The BBA includes many provisions to aid rural hospitals and reform Medicare payment
systems to promote efficiency and quality. We have implemented all of the provisions that
provide assistance to rural facilities. These include:
- allowing very small "critical access" rural hospitals, those with no more than
15 inpatient beds that offer 24 hour emergency care and are located more than a 35 mile
drive from any other hospital, to be reimbursed based on what they spend for each patient,
rather than on the average expected cost for specific diagnoses that most hospitals are
- reinstating the "Medicare dependent hospital@ designation, which provides higher reimbursement for
rural facilities with less than 100 beds serving large numbers of Medicare beneficiaries;
- permanently grandfathering special "rural
referral center@ status for any hospitals
designated as such in 1991, which provides higher reimbursement to facilities with 275 or
more beds that serve large numbers of beneficiaries living more that 25 miles away from
the facility or referred from other hospitals;
- allowing more rural hospitals to obtain special "disproportionate
share@ payments available to hospitals serving
large numbers of low income patients; and
- authorizing payment for telemedicine, in which medical consultations are conducted via
phones and computers, for beneficiaries residing in rural areas that have a shortage of
health care professionals.
We also have implemented several BBA payment reforms. For example, we have:
- modified inpatient hospital payment rules;
- established a prospective payment system for skilled nursing facilities to encourage
facilities to provide care that is both efficient and appropriate;
- refined the physician payment system, as called for in the BBA, to more accurately
reflect practice expenses for primary and specialty care physicians;
- implemented the Medicare+Choice program which increases payment rates for rural health
plans and allows beneficiaries to be offered options such as provider sponsored
organizations and private fee-for-service plans;
- established a National Medicare Competitive Pricing Advisory Commission to design and
implement an essential demonstration project using competition to set rates for managed
- begun implementing an important test of whether market forces can help Medicare and its
beneficiaries save money on durable medical equipment; and
- initiated the development of prospective payment systems for home health agencies,
outpatient hospital care, and rehabilitation hospitals that will be implemented once the
Year 2000 computer challenge has been addressed.
In most cases the BBA prescribes in great detail the changes we are required to make.
However, we understand that rural providers may have more difficulty than others in
adapting to some of these changes. We are committed to working with rural providers to
help them adjust, and to affording maximum flexibility within our limited discretion as we
implement BBA reforms.
The President's Medicare reform plan also
recognizes rural beneficiaries' and providers= special circumstances and the disproportionate
impact of BBA payment reforms on rural payments, and includes additional provisions
targeted specifically to rural providers.
The President's plan will make it easier for
rural hospitals to receive higher urban payment rates. Right now, rural facilities can
obtain urban rates if the wages they pay their employees are at least 108 percent of
average wages in their rural area, and at least 84 percent of average wages in a nearby
urban area. The President's plan will adjust
those wage thresholds so more rural hospitals can be paid the same as their urban
The President's plan adjusts the BBA's new outpatient prospective payment system to
increase payments to low-volume rural hospitals and other facilities that would otherwise
be disproportionately affected by the new system, which we expect to implement next year.
An analysis included in our Notice of Proposed Rule Making shows that rural hospitals
would be disproportionately affected by the new system.
We are therefore considering a budget-neutral three year transition to the new system
that will limit the impact on rural hospitals. We are also delaying implementation of a
volume control mechanism on the system that was called for in the BBA, which also will
give hospitals extra time and money to adjust. And we may use the same wage index for
calculating rates that is used to calculate inpatient prospective payment rates and take
into account the effect of hospital rural/urban reclassifications and redesignations.
The President's plan includes other
administrative actions that will help many rural hospitals. It will postpone extension of
limits on payment when hospitals transfer patients with specific diagnoses to skilled
nursing facility beds, home health agencies, or another hospital or hospital unit. And it
will provide relief to home health agencies, including those affiliated with rural
hospitals. It extends the time for agencies to repay overpayment without interest from one
year to three years. It also postpones the requirement for agencies to obtain surety bonds
until October 1, 2000, and limits the amount of bonds to $50,000 rather than 15 percent of
annual Medicare revenues as was proposed earlier.
The President's plan further acknowledges the
special circumstances many rural facilities face by giving rural hospitals larger rate
increases than urban hospitals for inpatient care. Specifically, payment rate increases
for inpatient rural hospitals would be larger than they would receive under a straight
extension of the BBA from 2003 to 2009. The difference in rate increases between rural and
urban facilities will decrease by 0.1 percent each year until the same update applies for
rural and urban hospitals in 2009. Although this update is less than the full market
basket, which would be the update under current law, it is higher than anytime during the
BBA (1998 to 2002), and in fact, most years since the prospective payment system has been
And the President's plan includes $7.5
billion over 10 years to fund appropriate and justified modifications that may be
necessary to smooth the transition to BBA reforms. That money could well be used to
address specific access problems, such as those that may be developing in rural areas.
The President called on Congress to work with him to reach a bipartisan consensus on
needed reforms this year. Any action we take to smooth the transition to BBA payment
reforms must be fiscally prudent and carefully targeted to address areas where there is
clear evidence that beneficiary access to quality care is in jeopardy. BBA payment reforms
are critical to strengthening and protecting Medicare, and it is clear that they are
succeeding in promoting efficiency and extending the life of the Medicare Trust Fund.
MONITORING BENEFICIARY ACCESS
We are therefore actively monitoring the impact of the BBA to ensure that beneficiary
access to covered services is not compromised. Our regional offices are gathering
information from around the country to help us determine whether specific corrective
actions may be necessary. We are gathering data from media reports, beneficiary advocacy
groups, providers, Area Agencies on Aging, State Health Insurance Assistance Programs,
claims processing contractors, State health officials, and other sources to look for
objective information and evidence of the impact of BBA changes on access to quality care.
We are working with the National Rural Health Association to evaluate rural access to
care. The Association has sent a questionnaire to all its members on the impact of BBA
reforms on rural health services. They are asking for anecdotal descriptions of how
services have been affected, and they expect to receive responses by the end of this
We also are monitoring Census Bureau data, which allow us to gauge the importance of
Medicare in each health service industry, looking at financial trends in revenue sources
by major service sectors, and tracking profit margin trends for tax-exempt providers.
We are monitoring the Bureau of Labor Statistics monthly employment statistics for
employment trends in different parts of the health care industry. Such data show, for
example, that the total number of hours worked by employees of independent home health
agencies is at about the same level as in 1996. That provides a more useful indicator of
actual home health care usage after the BBA than statistics on the number of agency
closures and mergers.
We are being assisted by our colleagues at the HHS Inspector General's office. They
have agreed to study the impact of the BBA's
$1500 limits on outpatient rehabilitation therapy. They have also agreed to interview
hospital discharge planners as to whether they are having difficulty placing beneficiaries
in home health care or skilled nursing facilities. Results of that study should help
provide information in addition to surveys done for the General Accounting Office and the
Medicare Payment Advisory Commission of home health agencies. And, because home health
beneficiaries are among the most vulnerable, we have established a workgroup to develop an
ongoing strategy for monitoring beneficiary access and agency closures.
However, it is important to note that the BBA is only one factor contributing to
changes in Medicare spending. We have significantly decreased the number of improper
payments made by Medicare. And some payments have been slowed during the transition to new
payment systems. The BBA also is only one factor contributing to provider challenges in
the rapidly evolving health care market place. Efforts to pay right and promote efficiency
may mean that Medicare no longer makes up for losses or inefficiencies elsewhere. Our
first and foremost concern has always been, and will continue to be, the effect of policy
changes on beneficiaries' access to affordable, quality health care.
We are all committed to ensuring rural beneficiaries'
continued access to quality care, and we are all concerned about the disproportionate
impact of BBA reforms on rural health care providers. The President's Medicare reform plan addresses these concerns with
specific proposals targeted to assist rural hospitals, and it provides funding to smooth
the transition to BBA reforms which could well be used to address problems that may
jeopardize rural beneficiaries' access to care.
We are very grateful for the opportunity this hearing provides to discuss concerns facing
rural hospitals and to explore how we might address them in a prompt and fiscally prudent
manner. I thank you again for holding this hearing, and I am happy to answer your