MEDICARE HEARINGS ON CONTROLLING COSTS AND IMPROVING CARE HEARINGS BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION FEBRUARY 6, 7, AND 10, 1995 Serial 104-19 Printed for the use of the Committee on Ways and Means oe U.S. GOVERNMENT PRINTING OFFICE gi-as4 cc WASHINGTON : 1995 Forsale by the U. ‘Superintendent of Documents, Con ee ISBN 0-16-052043-6COMMITTEE ON WAYS AND MEANS BILL ARCHER, Texns, Chairman PHILIP M. CRANE, Mlinois ‘SAM M. GIBBONS, Florida BILL THOMAS, California CHARLES B. RANGEL, New York E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR, Indiana JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee AMO HOUGHTON, New York ROBERT T. MATSUI, California WALLY HERGER, California BARBARA B. KENNELLY, Connecticut JIM MCCRERY, Louisiana WILLIAM J. COYNE, Penneyivania MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin JIM NUSSLE, Iowa JOHN LEWIS, Georgia SAM JOHNSON, Texas LF. PAYNE, Virginia JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts MAC COLLINS, Georgia ROB PORTMAN, Ohio PHILIP S. ENGLISH, Pennsylvania JOHN ENSIGN, Nevada JON CHRISTENSEN, Nebraska PHILP D. Moss.ex, Chief of Staff JANICE MAYS, Minority Chief Counsel SuBcoMMITT£e ON HEALTH BILL THOMAS, California, Chairman NANCY L. JOHNSON, Connecticot FORTNEY PETE STARK, California JIM MOCRERY, Louisiana BENJAMIN L. CARDIN, Maryland JOHN ENSIGN, Nevada JIM McDERMOTT, Washington JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin PHILIP M. CRANE, IMinois JOHN LEWIS, Georgia AMO HOUGHTON, New York SAM JOHNSON, Texas anCONTENTS Page Advisories announcing the hearings .. 2 ISSUES REGARDING EXTRAORDINARY GROWTH IN CERTAIN MEDICARE COSTS—FEBRUARY 6, 1995 WITNESSES Physician Payment Review Commission, John M. Eisenberg, M.D., Chairman, accompanied by Lauren Leroy, Acting Director 8 Prospective Payment Assessment Commission, Sivart H. Altman, Ph.D. ac- companied by Donald Young, M.D., Executive Director 22 US. Department of Health and Human Services, Michael F. Mangano, Brin: cipal Deputy Inspector General 60 US. General Accounting Office,” William J.” Scanion,” “Associate Director, Health Financing and Policy, Health, Education, and Human Services Divi- sion, accompanied by Edwin P. Stropko, Assistant Director, Health Financ- ing Issues 4 American Association of Retired Persons, Eugene Lehrmana 200 ‘American Clinical Laboratory Association, David N. Sundwal 167 ‘American College of Surgeons, Paul A. Ebert, M.D 152 American Health Care Association, Paul Willging 14 ‘American Hospital Association, Richard Pollack 93 ‘American Medical Association, Donald T. Lewers, M. 101 ‘Association of American Medical Colleges, Nelson Ford 113 Health Industry Manufacturers Association, Richard Do} 161 National Association for Home Care, Mary Suther 184 National Association for Medical Equipment Service 161 National Association of Public Hospitals, 8. M43 Visiting Nurse Association of Texas, Mary Suther 184 INCOME RELATING THE PART B PREMIUM OF MEDICARE— FEBRUARY 7, 1995 WITNESSES American Association of Retired Persons, Margaret Dixon Butler, Stuart M., Heritage Foundation Concord Coalition, Martha Phillips Gregg, Hon. Judd, a U.S. Senator from the State of New Hampshire 281 234 Kerrey, Hon. J. Robert, a U.S, Senator from the State of Nebraska 225 Kies, Kenneth J,, Mary Schmitt and Carolyn Smith, Joint Committee on Taxation . 246 National C Se) [ax Richtman 290 i 266 Project HOPE, Seniors Coalition, Jay Hopkins’ 279 anIV MEDICARE REFORM AND INNOVATION—FEBRUARY 10, 1995 WITNESSES Health Care trator US. Ger eral, Health, Education, and ifuman Services Division Blue Cross of California, Leonard D. Schaeffer Consumers Union, Gail Shearer Group Health Association af America, Inc., Karen gpg Healtheare Leadership Council and Oxford Heal National Association of Insurance Commissioners, Josephine W. Olympic Health Management Systems, Inc., C. Paul Gauthier Paper, Hon. Earl, a Representative in Congress from the ota SUBMISSIONS FOR THE RECORD Air Force ™_— Alicea-Cruz, Valeriano, MD., Puerto Rico Medical Assoc’ American Academy of Family Physicians, statement American ‘Academy of Ophehalmolony, Allan Jensen, ‘American Association for Res} ‘Care, statement and attach American Association of Colleges of Narsiog, American Association 9 ‘Ancathetista, and American Organization-of Nurse Executives, joint stato. ‘ment ‘American Institute of Certified Public Accountant ‘American Organization of Nurse Executives, joint statement ‘American Association of Colleges of Nursing) American Rehabilitation Association, statements and attachments Associated Group, Susan J. Smith, statement College of American Pathologists, statement ai Comprehensive Health Services of Detroit, James R. Patton, attachments .. Feliciano de Mel statement and attachments Ferrara, Peter J., National Ce Home Care Coalition, statement Jensen, Allan, American Academy of Op! Kaiman, Edward D., National Association of Long Term Hospitals, ietier and attachments .. Lokovic, James E., Air Nationel Alliance for Infusion Therapy, statement.” National Association for the Advancement of Orthoii ment National and attachments .. National Association of Me pir fare, a National Center for Policy Analysis, Peter J. Ferrara, statement National Committee to Preserve Social Security and Medicare, statement .. Parker, Gerald S., Old Greenwich, Conn., statement .. Patton, James R., Comprehensive Health Services of attachments Puerto Ricans in famirez Puerto Rico Department ‘of Health, Hon, Carmen 1. Feliciano’ de Melecio, statement and attachments . Puerto Rico Medical Association, Valeriano Ramirez de Ferrer, Miriam J., M.D., Puerto ment Page 318 383 359 438 402 412 395 431 456 470 590 472 480 484 489 492 494 499 513 515 622 566 532 480 470Retired Officers Association, Frank G, Rohrbough, statement .. Richard, Steven, SUN Home Health Services, Inc., letter Rohrbough, Frank G., Retired Officers Association, statement Smith, Susan J., Associated Group, statement... SUN Home Health Services, Inc., Steven Richa: Wheeler, Gordon B., American i tions, letter .. Page 595 602 5O5 513 602 492ISSUES REGARDING EXTRAORDINARY GROWTH IN CERTAIN MEDICARE COSTS MONDAY, FEBRUARY 6, 1995 HOUSE OF REPRESENTATIVES, COMMITTEE ON WaYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, D.C. The subcommittee met, pursuant to call, at 10:05 a.m., in room 1100, Longworth House Office Building, Hon. Bill Thomas (chair- man of the subcommittee) presiding. {The press releases announcing the hearings follow:] @ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON HEALTH FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943 January 30, 1995, ALS ‘THOMAS ANNOUNCES THREE HEARINGS ON MEDICARE ISSUES Focus on Controlling Costs and Improving Care- Congressman Bitl Thomas (R-CA). Chairman of the Subcommiriee on Health of the Committee on Ways and Means, today announced that the Subcommittee next ‘week will hold three hearings on Medicare related issues. The hearings will examine issues related to controlling growth in Medicare costs; income-relating Medicare Part B premiums; and improving care through Medicare reform and innovation. ‘The first hearing op issues regarding the growth in certain Medicare costs will be held Monday, February 6, 1995, at 10:00 a.m. The second hearing on Medicare part B premiums will be held on Tuesday, February 7, at 2:00 p.m. ‘The third hearing ou Medicare reform and innovation will be held on Friday, February 10, at 10:00 a.m. All three hearings will be held ia the main ‘Committee hearing room, 1100 Longworth House Office Building. Invited witnesses will include representatives from the Administration, Physician Payment Review Commission, Prospective Payment Assessment ‘Commission, General Accounting Office. a variety of health experts. and other interested parties. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for ‘inclusion in the printed record of the hearing. BACKGROUND: Several areas of the Medicare program have grown at alarming rates over the last several years and may represent significant fraud and abuse. These areas include spending for post-acute services furnished by skilled nursing facilities, home health agencies, and rehabilitation and long-term care hospitals. For example, real average growth rates per enrollee for nursing home care have risen 39.3 percent from 1991 10 1993. Similarly, home health services per enrollee have grown at 31.1 percent over the same period The Medicare Part B Supplementary Medical Insurance (SMI) Trust Fund finances primarily physician and outpatient services. The Part B trust fund is financed by premium payments from enrollees and by general revenues from the U.S. Treasury SMI is voluntary and all individuals electing the program receive a 7S percent premium subsidy regardless of their income, Medicare is currently engaged in some innovative programs providing beneficiaries access to managed care. These include Risk Contracts, Medicare Select, Cost Contracts, Health Care Prepayment Plans. Group Prepayment Plans, and Social Health Maintenance Organizations, Enrollment of Medicare beneficiaries in these ‘managed-care alternatives has lagged far behind enrollment in the private sector, Several features of these programs act as impediments which discourage some plans from panicipating and deter beneficiaries from enrolling,In announcing the hearing, Chairman Thomas said: "There are many successful, private-sector programs that can serve as models for improving the Medicare system. This series of hearings will explore several of these programs. AS wwe lay the foundation for the work the Subcommiee will engage in over the next several months, we will examine how we can provide quality services while slowing the rate of growth in medicare spending,” FOCUS OF THE HEARING: The first hearing will focus on areas of alarming cost growth for the Medicare program, with an emphasis on underlying causes and recommendations 10 address these growth rates, The second hearing will review issues related to faimess under the Pari B premium. The third hearing will review existing Medicare managed-care programs, focusing on thei effectiveness, beneficiary satisfaction with the programs, {impediments 10 broader utilization of the programs, and way’ in which the program cean incorporate some of the more promising private sector innovations. DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: ‘Any person or organization wishing to submit a written statement for the printed record of the hearing should submit atleast six (6) copies of their statement by the close of business, Friday, February 17, 1995, 0 Phillip D. Moseley, Chief of Staff, Comminee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building. Washington, D.C. 20515. If those fling writen statements distributed to the press and interested public atthe hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Health office, room 1136 Longworth House Office Building, at least one hour before the hearing begins. FORMATTING REQUIREMENTS: toh ton pri ng wana 6 wa ny a sm we en euadert an) etae su rapaus i ra fr wn Gamat on Pn ies Si iran et ye un nm Pd RB 2 Almay ay mpg a yg et pt gt i aga co of wl cen eb a ma i at eg ag toa a mae ‘amie entenne st ant pungrun. Mee mal tt ceeeg ee pecan ‘omni an re alt Ye Cao 2 ena met ot na a acy wh wed lpn etn esate ae a ‘gry se pm en yp, ep oh ewe {pen de mar nsmgey sth ten oag nab fl ana ween wr ‘watt ov tad rr mt be nae a pa cat w mama fe omen an emma era secon e plans wl ot ne ee pd ee {ahr rent i py tsb nd pag, Rama Ad a ‘cece malta vat sce Be Membr ey kde a eg nee ae ‘tag maybe maa rm*** NOTICE - CHANGE IN LOCATION *** ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON HEALTH FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943 February 6, 1995 No. HL-3-Revised THOMAS ANNOUNCES CHANGE IN LOCATION FOR HEALTH SUBCOMMITTEE HEARING ON FRIDAY ON MEDICARE REFORM AND INNOVATION Congressman Bill Thomas (R-CA). Chairman of the Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee hearing on Medicare Reform and Innovation which was originally scheduled for Friday, February 10, 1995, at 10:00 a.m. in the main Committee hearing room, 1100 Longworth House Office Building, will be held instead in Room B-318 Rayburn House Office Building. Alll other details for the hearing remain the same. (See Health Subcommittee press release No. HL-3, dated January 30. 1995.)5 Chairman THomas, The subcommittee will come to order. Today, the Ways and Means Health Subcommittee begins a se- ries of three hearings on Medicare policy, which will continue on Tuesday and conclude on Friday. In this morning’s hearing, we will examine Medicare benefits, growth in Medicare costs and other areas of provider public policy which may require assignment. The second hearing on Tuesday, the 7th, will focus on the issue of income relating to Medicare part B premiums. The third hearing on Friday, February 10, will concentrate on the potential of managed care for Medicare beneficiaries. These hearings reflect the manner in microcosm, in essence which the Health Subcommittee will approach Medicare policy- making in the 104th Congress. We should continue the work of re- forming the current system, but we must also now look to the fu- ture to transforming Medicare in order to bring it into the nineties and prepare for the next century. First, as we will do in this hearing, we should closely examine the current fee-for-service side of Medicare. Where there are changes in law that can be made in the context of the current bene- fit and payment structure to curb costs and inappropriate uses of services, we should obviously take those steps. We have a respon- sibility to assure the beneficiaries and the taxpayers that a fee-for- service Medicare payment policy is designed with clear incentives to promote quality and cost-effective care at the best price that can be obtained. Then, on Tuesday, we will examine the financing of Medicare part B, which, as you know, is funded by beneficiary premiums and the Nation’s general fund. This hearing on income relating to part B will answer two simple questions: Should the taxpayers who now pay for almost 75 percent of the Medicare cost part B benefits sub- sidize Americans who can well afford to pay more of that cost? And if the Congress should income relate part B premiums, what are the design issues raised by such a change in the law? Under today’s program, if Donald Trump reaches 65, he will re- ceive the same 75-percent subsidy as other Americans under part B, whether they live from Social Security check to Social Security check or on top of the tower. This fact cannot be justified to the average taxpayer. So we should examine income relating part B of Medicare. This reform should be considered as the subcommittee discusses other incremental revisions of Medicare policy that will increase the financial integrity of the program without undermining its promise of protection for senior citizens. However, incremental change in payment policy or financing, as we know, is not sufficient to maintain the promise of Medicare. We need to assure all Americans that they will have health care when they get older. Fortunately, it is not written in stone that the structure of the Medicare program has to remain the same for all time. The fact is, in contrast to health insurance coverage in the private sector, which has evolved in recent years to meet the needs of customers concerned about both the cost of care as well as its quality, Medi- care continues to operate basically under midsixties rules.6 Of course, the Congress has refined the Medicare payment policy in ways that have had some beneficial effects. But the program re- mains fundamentally a fee-for-service health plan with incentives that increase volume and with little or no assurance that care will be cost-effective or high quality. And that is why the third hearing on Friday in this series is so important. It will begin to address the issue which reflects the pri- ority question for this subcommittee in 1995. How do we transform Medicare to improve it for the beneficiaries while making the pro- fan relevant to this decade and beyond? So Friday’s hearing will focus on managed care in Medicare, both the use of health mainte- nance organizations and Medicare Select. But this is only the start. We will begin a complete exploration of the models that the private sector may have to offer as examples for Medicare reform. The tinkering with Medicare payment. policy over the last decade and a half was done in good faith. Neverthe- less, we must now move on to ask more fundamental questions about the structure of Medicare if it is to survive. It is our responsibility, this subcommittee, to make Medicare all it can be. However, to enable Medicare to continue into the 21st century, we must begin to reform it now. Otherwise, the structure that is in place will lead to bankruptcy of the system, and future Congresses will not be able to keep the promise of health care made to this Nation’s elderly or will have to do so in such a drastic way in a short time that the popular support for Medicare may be greatly undermined. ‘And, with that, I will yield to the ranking member. Mr. STARK. Thank you, Mr. Chairman. These are indeed significant hearings, the stated purpose of which I thought was to identify areas of growth in the Medicare program that may represent significant fraud and abuse. And I congratulate the Chair on focusing on this, and we are ready to Jend a hand. In March 1993, I introduced the National Health Care Anti- Fraud and Abuse Act to combat health care fraud in the entire American health system. Mr. Gingrich forbade the Republican com- mittee members from supporting those efforts, but I again encour- age the members of the Republican Party to again seriously con- sider these initiatives. I will provide you, Mr. Chairman, with an additional list of anti- fraud and abuse items that I hope will prove useful. We could adjust the figure with which we reimburse Medicare HMOs. We know that the 1995 percent rate is somewhere between 6 and 28 percent too high. Hospital-owned DME and home health services I think bear close scrutiny. And we can show that banning hospital referrals to home health agencies that they own might be a productive way to save money. There is physician office abuse and other services we might look at. And there is a lot of waste in the transportation service that we might look at. We must, to combat fraud and abuse, be willing to invest in its enforcement. Over the past year, the Inspector General reports in- creased complaints of fraud and abuse in the neighborhood of 30 percent. Last year we passed legislation that would have expanded