Table Of ContentBALANCED BUDGET ACT OF 1997: IMPACT ON
COST SAVINGS AND PATIENT CARE
HEARING
BEFORE THE
SUBCOMMITTEE ON
HEALTH AND ENVIRONMENT
OFTHE
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SDCTH CONGRESS
FIRST SESSION
SEPTEMBER 15, 1999
Serial No. 106-67
Printed for the use ofthe Committee on Commerce
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COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. "BILLY" TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, CaUfomia
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, CaUfomia PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, CaUfomia
RICHARD BURR, North CaroUna RON KLINK, Pennsylvania
BRIAN P. BILBRAY, CaUfomia BART STUTAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KARENMcCarthy, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, CaUfomia DIANA DeGETTE, Colorado
JOHN SHIMKUS, IlUnois THOMAS M. BARRETT, Wisconsin
HEATHERWILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, CaUfomia
CHARLES W. "CHIP' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, ChiefofStaff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority StaffDirectorand ChiefCounsel
Subcommittee on Health and Environment
MICHAEL BILIRAKIS, Florida, Chairman
FRED UPTON, Michigan SHERROD BROWN, Ohio
CLIFF STEARNS, Florida HENRY A. WAXMAN, CaUfomia
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia PETER DEUTSCH, Florida
RICHARD BURR, North CaroUna BART STUPAK, Michigan
BRIAN P. BILBRAY. CaUfomia GENE GREEN, Texas
ED WHITFIELD, Kentucky TED STRICKLAND, Ohio
GREG GANSKE, Iowa DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma LOIS CAPPS, CaUfomia
Vice Chairman RALPH M. HALL, Texas
RICK LAZIO, New York EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming ANNA G. ESHOO, CaUfomia
JOHN B. SHADEGG, Arizona JOHN D. DINGELL, Michigan,
CHARLES W. "CHIP' PICKERING, (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
(Ex Officio)
(II)
CMS Ubrary " '
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CONTENTS
Page
Testimonyof:
Corlin, Richard F., Speaker ofthe House ofDelegates, American Medical
Association 128
Crippen, Dan L., Director, Congressional BudgetOffice 97
Hash, Michael, Deputy Administrator, Health Care Financing Adminis-
tration 28
Holveck, David P., CEO, Centocor, on behalf of Biotechnology Industry
Organization 134
Rapp, Sally, Independent Owner, Saint Francis Extended Care, on behalf
ofAmericanHealth CareAssociation 114
Roberts, Nancy, Presidentand CEO, Kent CountyVisitingNurseAssocia-
tion, on behalf ofVisiting Nurse Association ofAmerica and National
AssociationforHome Care 120
Ross, Murray N., Executive Director, Medicare Payment Advisory Com-
mission 80
Scanlon, WiUiam J., Director, Health Financing and Public Health, Gen-
eralAccounting Office 89
Warden, Gail L., President and CEO, Henry Ford Health System, on
behalfofAmerican HospitalAssociation 149
Material submitted forthe recordby:
AmericanAcademy ofFamilyPhysicians, prepared statementof 172
American HeartAssociation, prepared statement of 174
American Medical Group Association, letter dated September 14, 1999,
enclosingstatementfortherecord 166
Hash, Michael, Deputy Administrator, Health Care Financing Adminis-
tration, letter dated November 16, 1999, enclosing reponse for the
record 174
(III)
BALANCED BUDGET ACT OF IMPACT ON
1997:
COST SAVINGS AND PATIENT CARE
WEDNESDAY, SEPTEMBER 15, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Health and Environment,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in room
2322, Rayburn House Office Building, Hon. Michael Bilirakis
(chairman) presiding.
Members present: Representatives Bilirakis, Upton, Stearns,
Greenwood, Deal, Burr, Bilbray, Whitfield, Ganske, Norwood,
Cubin, Shadegg, Pickering, Bryant, Bliley (ex officio). Brown,
Pallone, Deutsch, Stupak, Green, Strickland, DeGrette, Barrett,
Capps, Hall, Towns, Eshoo, and Dingell (ex officio).
Staffpresent: Tom Giles, majority counsel; Pat Morrissey, major-
ity counsel; Robert Simison, legislative clerk; Bridgett Taylor, pro-
fessional staff member; and Amy Droskowski, professional staff
member.
Mr. Bilirakis. Good morning. I am being accused of diverting
the hurricane from Florida and sending it to Virginia and messing
up Mr. Blile/s boat, the chairman's boat. So I had better get this
hearing started.
Well, I am pleased to convene this hearing on BBA 1997. It is
time certainly for us to step back and review the impact ofthe BBA
on providers and beneficiaries, and certainly we have been doing
that for some time.
Just over 2 years ago we enacted landmark changes to the Medi-
care program. Many of these changes were designed to provide for
more beneficiary choice and to help guarantee the solvency of the
Medicare program well into the next century.
I am proud of that legislation and this committee's vital role in
its creation. The BBA was enacted with bipartisan support and I
believe it is critical that we work together in considering any
changes to the law.
I am pleased to report that we are achieving many of the objec-
tives ofthe BBA. Wasteful spending is down; medical solvency has
been extended and many seniors have increased access to health
care services and providers. Also, the amount of money lost to the
Medicare program through fraud and abuse has dropped consider-
ably due to the new abilities of the Department of Health and
Human Services' Inspector General and the Justice Department.
However, as we all know, and the room is full, the BBA has also
had some unfortunate unintended consequences. In some cases
(1)
2
more savings were realized from providers than originally antici-
pated. In other cases, HCFA has failed to act in a manner con-
sistent with beneficiaries' interests and congressional intent. We
hope to address these problems through legislative action this year.
Today we will hear from both providers and HCFA about the
most recent problems facing the Medicare program. This sub-
committee has already held two hearings on issues related to Medi-
care Plus Choice and I am committed to protecting seniors' health
care options under that program.
This hearing will focus on a multitude of other areas affected by
the BBA. As we begin crafting legislation to correct some of these
unintended consequences, the testimony from this hearing will help
us make informed decisions about the scope ofany legislation.
I am very interested in hearing from our distinguished panels
today and obviously am grateful to them for taking time away from
their schedules to be here. Each witness can provide valuable in-
sight into the effects of the BBA on providers and on beneficiaries'
access to health care services. With the imminent implementation
of a prospective payment system for hospital out-patient depart-
ments and home health agencies, we hope to hear some construc-
tive suggestions about how these regulations can best be refined.
However, I would caution that the days of runaway Medicare
spending are over. While we work to ensure patients' access to nec-
essary services we must remain vigilant guardians of public funds.
As we draft legislation to amend BBA, we certainly will not be re-
opening every provision.
Funds must go to those areas of demonstrated and compelling
need. HCFA, however, must also be sensitive to the legitimate
issues raised by many of the provider groups here today. Many of
these concerns can, and should, be resolved administratively, and
I would like to emphasize that. Many can and should be resolved
administratively, and we will get into that later with our wit-
nesses.
One particular area is the plight of the cancer hospitals. I ask
HCFA to work with this committee to revise the ambulatory pa-
tient classification, APC system, in a manner consistent with statu-
tory intent. The proposed APC system will erode patient quality
and access to needed services. If the current proposal becomes ef-
fective, many procedures will simply migrate to the more expensive
in-patient settings, thus ultimately increasing costs to the Medicare
program. Site of service recommendations by providers will be
made with an eye toward reimbursement levels rather than focus-
sing on patient access and convenience.
This is just one issue that I hope we can address today. Obvi-
ously there are many.
Again I would Uke to thank our witnesses who will testify and
I particularly appreciate, and I want to accent this, appreciate
HCFA's agreement to have a high-level official present for the du-
ration of the hearing to better understand and take notes and
share back with his or her HCFA personnel the stakeholder issues.
I look forward to productive dialog and I recognize Mr. Brown for
an opening statement.
Mr. Brown. Thank you, Mr. Chairman.
3
I am glad, Mike, you could join us today and I would like to wel-
come other distinguished witnesses to the three panels.
Mr. Chairman, I want to commend you for arranging this hear-
ing. Our subcommittee surely has a lead role in addressing con-
cerns related to the Medicare provisions of BBA, and this hearing
is timely and appropriate.
Our focus today reflects the subcommittee's jurisdiction over
Medicare Part B. We cannot appreciate the impact of the Part B
changes unless they are viewed in the context ofthe entire package
ofcuts. Providers have surely been hit from all sides.
I am sure all of my colleagues, like me, have received hundreds
of letters and postcards, faxes and phone calls in the aftermath of
BBA. Health care administrators and providers whom I have
known for years and whose counsel I value very highly say the
BBA cuts are jeopardizing their financial viability and compro-
mising access to care.
These are serious issues. Congress must address them. Access,
quality and universality are the foundations of Medicare and BBA
cuts have potentially placed two ofthose three at risk. I cannot em-
phasize strongly enough that we need to assess the BBA concerns
now because what providers are telling us is that if the damage is
being done now, much ofit will be irreversible.
I also cannot emphasize strongly enough to those ofyou who are
living with the BBA changes the importance of providing Congress
with information that can help us determine what the next steps
actually are. We need to know specifics. We need to get a sense of
how BBA is affecting health care on a day to day basis, to the
greatest extent possible see analysis and data that target the worst
trouble spots.
This information is critically important because we cannot turn
back the clock. One of the reasons we cannot turn back the clock
relates to the three foundations ofMedicare that I mentioned a mo-
ment ago: quality, access and universality. As the premium support
campaign clearly illustrates, any changes we make in Medicare can
be coopted for purposes that could ultimately undermine all three
objectives.
When we lose BBA savings we are not only accelerating Medi-
care insolvency; we're risking the consequences ofmaking Medicare
a more expensive program to run. What I mean by this is every
step we—take that weighs Medicare down provides fodder for privat-
ization ^the "Medicare is too expensive, managed care plans can do
it better" rhetoric. And that is a big price to pay. Ifproviders think
it is an uphill battle with Medicare, just wait until managed care
gets hold ofit. Ifwe are worried about access and quality now, wait
until Medicare beneficiaries' only choice is a managed care plan.
Mr. Chairman, I want to raise one more issue that I—believe is
inexorably linked and tied to any discussion ofBBA fixes tax cuts.
If your representative tells you that he favors or she favors BBA
fixes and also says that she favors or he favors a tax cut, let's say
in the $600 billion, $700 billion, $800 billion range, they are either
being disingenuous or they are looking at a very, very different
Federal budget.
Tax cuts anywhere near that size would not only obliterate any
flexibility to restore BBA funding; the BBA cuts would pale, the
4
BBA cuts that many providers have received, have been hit by,
would pale in comparison to what providers would face in the years
ahead ifa large tax cut goes forward.
This is not a threat; it is a fact. The $792 billion majority tax
cut proposal assumes one, favorable economic conditions will be
locked into place for a decade. Two, it assumes no emergency
spending during those 10 years. Three, it would require a 10 to 12
percent reduction in every Federal program. Think about that.
Medicare Part B comes out of general revenues. If there is a $790
billion tax cut, austerity, severe cuts would be our only option.
We have been through this before. I think many of us in this
room recall the original BBA envisioned cutting Medicare and Med-
icaid by $270 billion. Against the odds, we defeated that. But as
we look at the pain caused by BBA savings so far, I urge you to
keep in mind what we could be facing if our resources now and in
the future, even the resources we need to support current Medicare
spending, if our resources now and in the future are instead chan-
neled into tax cuts. Beware. Thank you, Mr. Chairman.
Mr. BiLlRAKis. I thank the gentleman.
Mr. Bliley, chairman of the full committee, for an opening state-
ment.
Chairman Bliley. Thank you, Mr. Chairman. I would ask unani-
mous consent to put my full statement in the record.
Mr. BiLiRAKis. Without objection, the statement of all members
ofthe panel will be made a part ofthe record.
Chairman Bliley. Mr. Chairman, I thank you for having this
hearing. I did not know that there were so many providers of
health care in Virginia until we did the BBA but I think I have
seen them all and the story is pretty much the same, that we have
gone too far with these cuts, that hospitals are hemorrhaging, that
HCFA promised that ifthe hospitals did due diligence on trying to
collect bills, that they would reimburse them 100 percent for their
losses. Now they have cut it to 50 percent.
The DRG, which says that if a procedure calls for a 3-day stay
in a hospital and ifthe hospital is efficient and gets the patient out
in 2 days and they go to a skilled nursing home, HCFA cuts back
on the reimbursement. However, if the patient has to stay longer,
they do not get any extra for that. The same is true for home
health. The same is true for out-patient.
I want to thank the administration for having your staff here to
hear all the witnesses and I would like for the administration to
submit in writing for the record a list of all the concerns you hear
today that seek a change in policy. Please let us know what you
feel you have the authority to fix and what you feel needs congres-
sional action. To the extent you can provide as extensive a ration-
ale for your decision would be helpful. I look forward to reviewing
your responses.
I thank you, Mr. Chairman, and I am going to be in and out be-
cause there is another hearing downstairs in the Telecommuni-
cations Subcommittee that I need to make an appearance at.
[The prepared statement ofHon. Tom Bliley follows:]
Prepared Statementof Hon. Tom Bliley, Chairman, Committee on Commerce
Thankyou, Mr. Chairman.
5
I am pleased that the Health and EmTTonment Subcommittee is holding this
hearing today. This Committee made some very important changes to the Medicare
program two years ago, and it is important to monitor the impact those decisions
nave on our health care deHver>' system. In particular, I am most interested in
knovring ofany unintended consequences that may have an adverse affect on access
to care.
In the Balanced BudgetAct of 1997, this Committee made some difficult decisions
in how best to address the concern of the Nation that the Medicare program was
facing financial ruin, and changes needed to be made. Some significant changes
were enacted. Moving to a prospective payment system for hospital outpatient de-
partment services, skilled nursing facility services and home health services helped
reduce federal spending by $115 billion over 5 years, and created new efficiencies
within the Medicare program. I am proud ofthe BBA 97 for that reason.
Now there has been much discussion about revisiting some ofthose tough policy
decisions we made two years ago. As this Committee considers BBA 97 refinements,
I hope we learn today from our witnesses that the Administration has done all it
can within the law to foster the best, most efficient patient care.
This Committee takes a dim view ofregulations that exceed their statutory basis,
or when the Administration doesn't do enough within its administrative authority
to meet the legitimate concerns ofthe American people. That is why I hope we will
continue this series of formal inquiries by this Committee into this important pro-
gram and its implementation.
I look forward to hearing from our witnesses today. In addition, I am hopeful that
representatives from the Health Care Financing Administration are able to comply
with the request Mr. Bilirakis made when he invited you to this hearing, that you
willbe able to stay to listen to all ofthe -witnesses before us today. At pre\ious hear-
ings, we have heard concerns some witnesses have raised regarding HCFA's imple-
mentation of laws affecting the health care industry. I think it would be valuable
forHCFA to stay to hear those concerns first hand.
Again, Mr. Chairman, thank you for conveningthis hearingtoday.
Mr. Bilirakis. Thank you, Mr. Chairman. Thanks for being here.
Mr. Pallone for an opening statement.
Mr. Pallone. I want to thank the chairman for holding this
hearing. The Balanced Budget Act's impact on the hospitals in my
home State of New Jersey has been severe and unfortunately is
getting worse.
The situation is so bad in New Jersey that hospitals are starting
to close. Memorial Medical Center at South Amboy in my district
recently closed its doors to new patients during the break. And just
last Friday, St. Clair's Hospital in Dover, New Jersey announced
its closure as an acute care facility.
I have been working, Mr. Chairman, with the New Jersey Hos-
pital Association to identify the worst of the problems affecting
New Jersey's hospitals and I would just like to briefly run through
them.
The first I want to mention is the out-patient prospective pay-
ment system, PPS. HCFA's interpretation, which exceeds congres-
sional intent, would reduce hospital out-patient payments by 5.7
percent nationwide. In New Jersey, however, this view of the BBA
will cost hospitals 16.6 percent on average and 40 percent of New
Jersey's 85 acute care hospitals have a negative Medicare operating
margin. This is unacceptably low and unfair, in my opinion.
Accordingly, while I am not opposed to an equitable PPS system,
I am opposed to the one HCFA has proposed. An appropriate rem-
edy to this problem would be either to try a demonstration project
first or to postpone the implementation of the PPS system alto-
gether until a better one can be developed.
Second, Mr. Chairman, graduate medical education pa>Tnents
needs to be rebased on data more current than 1984. New Jersey
was under a Federal waiver from 1983 to 1989 and was not re-
6
quired to file Federal Medicare cost reports. Consequently, the data
from which the New Jersey teaching hospitals are paid does not
adequately reflect New Jersey's teaching costs. A targeted rebasing
plan for those States that are reimbursed less than 70 percent of
their costs based on 1996 data would benefit hard-hitting teaching
hospitals.
Third, Mr. Chairman, the Medicare transfer policy is flawed. The
expansion of the definition to include Medicare patients who are
sent from an acute care hospital to any postacute setting inhibits
a hospital's ability to seek patient treatment in an appropriate set-
ting. The BBA moreover, allowed for this expanded definition to be
applied to further patient treatments, and this is having or will
have a devastating effect on New Jersey's hospitals.
More than 24 percent of New Jersey's seniors seek additional
care after a hospital stay and the cost to New Jersey's hospitals
will be $18 million a year. The transfer provision penalizes efficient
hospitals. The expansion ofthe transfer provision to other patients
is also a problem.
Fourth, the skilled nursing facilities, PPS, is also flawed. It is in-
adequate for individuals with complex medical needs. Because of
the poor reimbursement rates for patients in skilled nursing facili-
ties, patients are increasingly seeking placement in hospitals in-
stead of in the most appropriate settings. This, in turn, increases
the length of hospital stays, leaving hospitals susceptible to criti-
cism for not discharging patients fast enough. And this cycle could
and should be changed. In my view, HCFA needs to accurately rec-
ognize the added costs of nontherapy ancillary services for skilled
nursing facility patients.
And fifth and finally with regard to the hospital concerns, while
Congress alleviated some of the financial burdens associated with
the interim payment system for home health care providers, with
regard to home health care now, more needs to be done. The 15
percent across-the-board reduction in payment rates that will take
effect on October 1, 2000 if a PPS system is not implemented will
crush New Jersey's home health providers who provide the care at
rates well below the national average of home care spending per
patient and the 15 percent across-the-board reduction obviously is
a problem.
Mr. Chairman, I just want to say that because New Jerseys hos-
pitals cannot afford to wait, I am working on legislation that would
correct these problems. But before closing, I wanted to mention two
more concerns arising from the BBA.
Earlier this year I joined my colleague from North Carolina, Mr.
Burr, in introducing the Medicare Rehabilitation Benefit Improve-
ment Act. This bipartisan effort would amend the $1,500 caps im-
posed by the BBA on physical and speech therapy and occupational
therapy. Specifically it would provide for exceptions, allowing cer-
tain Medicare beneficiaries to obtain services beyond the $1,500
caps. These caps are denying some of the most vulnerable seniors,
particularly stroke victims and those with multiple injuries or dis-
eases in a single year, much-needed therapy, and exceptions need
to be made.
And last, Mr. Chairman, I wanted to mention the impact on
Medicare Plus Choice. I know we had hearings on this and that is
