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nursing facilities prescribed in this section. We do so in the context of the present medicare payment system in that we do not feel that medicare's current rate of return, after taxes, is competitive with that of other service industries.

Mr. Chairman, at this time we would like to express our concern about the manner in which professional standards review organizations have approached skilled nursing and intermediate care services and patients. It is not the type of a situation which this committee intended when it approved enabling legislation in the Social Security Amendments in 1972.

Very few PSRO's have implemented programs for skilled nursing and intermediate care patients, and very little functional guidance has been provided to the facilities in this regard.

As a result, rather than PSRO's functioning in a manner that would alleviate much of the confusion in the review of services and the need for them by patients, they have only added to the mysteries of the utilization and quality review process.

We would recommend that the committee consider an amendment to S. 1470 which first would clearly delineate the functional relationships of the PSRO's for both skilled nursing and intermediate care services under the medicare and medicaid programs. Second, we would urge that all other medical utilization review authorities established for purposes of the medicare and medicaid programs be immediately consolidated and assumed by the PSRO's.

Third, that it be specified that a PSRO's authority is related to the determination of the medical appropriateness of a given service and that the appropriate medicaid or medicare authority retains the ultimate jurisdiction over program eligibility criteria of their beneficiaries.

Mr. Chairman, while we feel there are problems in the manner in which PSRO's are functioning in the long-term care area, we do not support their piecemeal elimination. They can be effective and beneficial to everyone concerned, including the patient, provider, government and the public.

Mr. Chairman, in conclusion, again, we appreciate the initiative which you have taken in holding these hearings and shown by introducing S. 1470. The need for reforming the administrative structure of the Medicare and Medicaid programs is clear. The National Council of Ilealth Care Services feels that S. 1470 represents a large step in that direction and on that basis, we concur with the scope of the reform proposed in the bill.

Thank you.

Senator TALMADGE. Thank you very much for your very constructive testimony, Mr. Asmus.

Do you have any questions, Senator Dole?

Senator DOLE. No. I think it is an excellent statement. You raised a number of good points; it is very helpful.

[The prepared statement of Mr. Asmus follows:]

STATEMENT OF HIARRY ASMUS ON BEHALF OF THE NATIONAL COUNCIL OF HEALTH

CARE SERVICES The National Council commends Senator Talmadge and the Committee members for taking the initiative reflected in this bill to correct, and hopefully, reform

the Medicare and Medicaid programs. We strongly support the intent of S. 1470 as reflected in the title of the bill "Medicare-Medicaid Administrative and Reimbursement Reform Act". That title effectively delineates the two areas which are the cause of the major problems of the Medicare and Medicaid programs.

The present diffusion and confusion in the administration of the Medicare and Medicaid programs has created a regulatory quagmire which has prevented the effective operation of the two programs. It has also created problems in the enforcement of standards which in many instances have led to the abuses noted by various critics of the health industry.

These problems involve eligibilty criteria for beneficiaries, the delivery of services, certification of providers, and payment for services rendered under the programs.

A more effective administration is required if this situation is to be corrected. This can only result, however, if a single authority has the overall responsibility and accountability for

(1) determining the acceptable scope and levels of services, and

(2) monitoring and assuring that the budgetary constraints are met for services rendered to beneficiaries. Though one might argue that Medicaid is significantly different from Medicare because it is administered by the States, nevertheless, the States are administering the Medicaid program under Federally mandated regulations. These regulations presently leave the States with little flexibility once they have determined the beneficiary's eligibility and that individual's need for services under the Medicaid program. For these reasons, the proposed consolidation and restructing of the responsible Federal agencies under a single authority, the Assistant Secretary for Health Care Financing, as set forth in S. 1470, would greatly assist in resolving the confusion in the administration of the Medicare and Medicaid programs.

The National Council applauds the initiative shown by the Secretary of HEW, Joseph Califano in administratively establishing the "Health Care Financing Administration”, this has, in effect, resulted in the conceptualized reorganization which is described in Section 30.

However, we are of the firm opinion that this type of massive restructuring of the administrative bureacuracy of HEW requires the "advice and consent" of the legislative process. Therefore, we firmly support Section 20 in S. 1470.

While there is a strong need to restructure the administration systems of the two programs, there is a counter-balancing need to stabilize the Medicare and Medicaid payment standards for long term care providers. The changes made as a result of the Social Security Amendments of 1972, Public Law 92-603, need to be evaluated as to their impact before any major revisions such as instituting percentage caps on revenues are made involving the skilled nursing and intermediate care facilities. Mr. Chairman, in our opinion, this can best be achieved under the format proposed by S. 1470.

Based on that view, the National Council offers specific comments and recommendations concerning the following sections of S. 1470. Sec. 2. Criteria for determining reasonable cost of hospital services

It is our understanding that this section, as proposed in S. 1470, only pertains to hospitals. As a result, it would not preclude the use of Medicaid payment systems for nursing home services which have been developed by States pursuant to section 249 of Public Law 92-603. These systems we feel should not be encumbered by the system outlined in Section 2 of S. 1470 or the concept of revenue caps which has been introduced in other legislation currently pending in Congress.

It is our recommendation that the Secretary should be strongly encouraged to utilize section 2.19 of Public Law 92-603 as the means to develop "improved methods” for establishing prospective payment systems which contain costs for nursing home services for both the Medicaid and Medicare programs. Sec. 3. Payments to promote closing and conversion of underutilized facilities

The National Council would acknowledge the fact that there may be, at the present time, an excess of hospital beds in some parts of the country. However, we are concerned with the possible long-range results of these sections of S. 1470.

It should be noted that the shifting of excess hospital beds to another purpose could easily result in an excess of beds in that latter area. At the same time, it might be necessary at a later date to switch the hospital beds back to their original purpose, which could result in a shortage in the alternative service area.

We would also point out that there is a difference in physical plant standards between hospitals and nursing homes. Nursing facilities are now being required to have more floor space available than hospitals for patients outside, as well as inside their rooms, for what the regulations define as general "activities of daily living”.

It is, therefore, our recommendation that the Committee should carefully weigh and consider the possible ramifications of the conversion of excess hospital beds on other segments of the industry. To put it simply, we are concerned that the suggested cure might be worse than the disease. SEC. 20. Hospital providers for long-term care services

It is our understanding that this section would require parity in payments between free standing skilled nursing facilities and hospital skilled nursing units on the basis of "an average rate per patient-day paid for routine services". The National Council strongly endorses the payment provisions set forth in this section for the payment for skilled nursing services furnished by a hospital. SEC. 4. Federal participation in hospital capital expenditures

In regard to subsection (d) of this section we would like to call to the attention of the Committee the problems created by the interpretation and resulting regulations implementing the existing Section 1122 (g) of the Social Security Act. The Department of Health, Education, and Welfare issued regulation (42 CFR 100.103 (a) (1)) on November 9, 1973, which require that the purchaser of an existing facility must obtain approval for that purchase from the appropriate comprehensive health planning agency.

We would urge the Committee to give consideration to clarifying the intent of the existing section as well as subsection (d) of S. 1470 in regard to the simple acquisition of existing facilities. We would urge that such simple acquisitions be exempted when there is no increase in the size of the facility or a change in the services which they provide. SEC. 21. Reimbursement rates under Medicaid for skilled nursing facilities and

intermediate care facilities We strongly support this provision. It is our opinion that this section would clarify the intent to allow State Medicaid agencies the discretionary authority to include a “reasonable profit" in cost related payment systems and rates, developed pursuant to section 249 of Public Law 92-603.

We would also like to draw the Committee's attention to the fact that subsection (b) of section 249 of Public Law 92–603 has still not been implemented by the Department of Health, Education, and Welfare. Subsection (b) would provide an excellent opportunity to simplify the payment structure faced by nursing facilities participating in the Medicare and Medicaid program. This would be accomplished under subsection (b) in that the Secretary of HEW is permitted to utilize a State's Medicaid payment method developed in accordance with subsection (a) for purposes of the Medicare programs.

We would urge the Committee to reaffirm its original intent of this subsection as expressed in the Committee's “Report on Social Security Amendments of 1972". Sec. 22. Medicaid certification and approval of skilled nursing and intermediate

care facilities Mr. Chairman, the problem in the area of certification and enforcement of standards is not one of who should be certifying, inspecting, and enforcing, but rather one of unifying the standards and surveys under a single authority. There is presently no one authority empowered to say "yes" or "no" on a timely basis in response to a certification finding. As a result, this process can often be dragged out for an extended period of time.

Based on our experience, this process can be accomplished most expeditiously at the local level. However, as the Committee is aware, this has in the past resulted in a general lack of uniformity in the application of standards in nursing facilities. Therefore, the consolidation of this authority in the Secretary may be appropriate. We would offer a word of caution though that this will require a very streamlined administrative process at the Federal level if we are to avoid a massive log jam of administrative delays in the certification process. SEC. 23. Visits away from institution by patients of skilled nursing or inter

mediate care facilities The concept reflected in this section is extremely important to both the nursing home patient and the facility. Patients should be encouraged to make visits to their families and not discouraged. The latter has been the practice, we are sorry to say, of the Department in the past. Even though they have recently liberalized their policy, we commend Senator Talmadge for clarifying the statute in regard to this issue. Sec. 30. Establishment of Health Care Financing Administration

We support the proposed consolidation of agencies, as well as the administrative and policy responsibilities set forth by this section. An effective administration of the Federal Government's participation in the Medicare and Medicaid programs can only evolve if a single agency has the overall responsibility and authority to fully administer the programs. Anything less is both duplicative and cumbersome. Sec. 31. State Medicaid Administration

We strongly endorse this section in that it clarifies the relationship between the State Medicaid agencies and the Federal Government. This is particularly true in regard to the reas of the accountability and the responsibility of the Medicaid program to patients and providers. SEC. 32. Regulations of the Secretary

Mr. Chairman, this provision is long overdue. It would directly address the type of situation which has occurred under section 249 of Public Law 92-603 where the Department of Health, Education and Welfare delayed implementing that section for five-and-a-half years. The lack of timely iinplementation of provisions of the Social Security Act has plagued the Medicare and Medicaid programs since their inception. The damage which has occurred as a direct result should not be underestimated. SEC. 33. Repeal of Section 1867

We would like to recommend that the Committee consider carefully the impact of this section which would abolish the Health Insurance Benefits Advisory Council. This proposal would cut off one of the few formal inputs that the public, as well as the health industry, have into the agencies which govern and regulate them.

While the Health Insurance Benefits Advisory Council has not always functioned effectively, it could be a valuable source in the formalization of objectives for the Department's Health programs. We urge the Committee to consider revising it in terms of possibly its membership makeup and its stated purpose, but not eliminating it at this time. SEC. 46. Rate of return on net equity for for-profit hospitals

We support the percentage change in the rate of return on net equity for proprietary hospitals and skilled nursing facilities prescribed in this section.

We do so in the context of the present Medicare payment system, in that we do not feel Medicare's current rate of return, after taxes, is competitive with that of other service industries.

Senator TALMADGE. The committee will stand in recess until 8:30 tomorrow morning when we will hear from Bert Seidman, the AFL-CIO representative as the first witness; Raymond T. Holden, the chairman of the board of trustees of the American Medical Association; Anthony G. Weinlein, the secretary-treasurer of the Service Employees International Union; Neil Hollander, vice president for Health Care Services, Blue Cross Association; A. B. Davis, Jr., executive vice president, chairman of the board of directors, Kansas Hospital Association; Morton D. Miller, the vice chairman of Equitable Life Assurance Society of the United States; and Tom Greene III, vice president of Paine, Webber, Jackson & Curtis, Inc., on behalf of the Hospital Financing Study Group.

The committee will stand in recess until 8:30 a.m.

[Thereupon, at 10:30 a.m., the hearing in the above-entitled matter was recessed to reconvene at 8:30 a.m. on Thursday, June 9, 1977.]

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