REVISED SCHEDULE OF LIMITS ON HOSPITAL INPATIENT GENERAL ROUTINE SERVICE COSTS COMPARED TO PER

.66r.9852..significance exists with correlation at a "moderate"1 level

From tables.

1 J. P. Guilford, Fundamental Statistics in Psychology & Education (New York: McGraw-Hill, Inc., 1956), p. 145.

JAMES CARDWELL,

Commissioner of Social Security, Department of Health, Education, and Welfare, Baltimore, Md.

DEAR MR. CARDWELL, On May 13th, this hospital sent you a mailgram voicing objections to the proposed system of Medicare Reimbursement Limitations as stated in the Federal Register, Vol. 40, No. 75, April 17th, 1975. That mailgram also promised a detailed analysis supportive of our objections. This letter now presents the details of our argument.

The proposed schedule of limits set forth in the 17th of April Federal Register indicates that a system of limitations for Medicare Reimbursement is to be

established based on the theory that Per Capita Income provides a measure which exhibits a high degree of correlation with the cost of providing medical care in any given area. Your methodology further suggests that reimbursement limits be "classified on the basis of Per Capita income . . ." This system is suggested as an answer to the question of how to promote the "efficient delivery of health care".

We object to the above system and propose to demonstrate:

A. that the basic validity of Per Capita Income as a predictor of the cost of medical care is suspect and may in fact be an inappropriate measure,

B. that the five groupings, proposed by HEW are contradictory and in direct violation of the self-set methodology of reimbursement based on Per Capita Income, and

C. that the proposed grouping of SMSAS will not promote the "efficient delivery of health care" in Austin, Texas. Rather, it will work to create a system of inequity which will encourage hospitals to heavily penalize private patients by forcing them to assume a portion of the financial burden of caring for medicare patients.

I. Per Capita Income As A Predictor of Medical Cost

HEW suggests that per capita income is a means of comparing geographical areas with regard to similarities of economic environment. They further suggest that income levels measured in per capita income "tend to reflect wages, costs of construction and services". Your notice further suggests that correlation analysis suggests a dependable relationship between per capita income and the cost of medical care.

We note that no evidence of empirical research has been offered to support the above contention. We note further that simple correlation as a statistical technique is inadequate to establish a causal relationship. One may for instance demonstrate a high degree of correlation between spring floods and raincoats, but to suggest that raincoats cause floods would be ludicrous. Similarly, we suggest that the use of per capita income as a reliable predictor of the cost of medical care carries with it parallel errors in assumption. One example in point would be the cost of construction of medical facilities; a remote, rural areas would not enjoy lower costs in construction and building materials simply because its per capita income is lower than that of some metropolitan area-in fact, these costs would likely be higher due to the problems of transportation and storage. Again we can no more stop floods by banning raincoats than we can predict medical costs by measuring income. We contend that such a technique is inappropriate and fraught with opportunity for error.

II. The Inappropriate Application of Established HEW Methodology

HEW proposes to limit medicare reimbursement using, as a basis, the per capita income of each Standard Metropolitan Statistical Area (SMSA). As per capita income decreases, so decreases the cost of medical care and the amount of reimbursement needed to provide the "efficient delivery of needed health services". A listing of Texas SMSAs, along with their respective per capita incomes and the HEW suggested reimbursement limits appear in enclosure one to this letter. We note with alarm that Austin, Texas, with a per capita income of $3,014.00 is grouped in the lowest possible reimbursement category, Group V. This, in spite of the fact that Austin enjoys a per capita income higher than any SMSA in Group Four or Group Three. We further note with the greatest indignation that Group Two, the highest reimbursement level grouping in Texas, contains SMSA Wichita Falls with a per capita income of $2,785.00. This per capita income is a full $229.00 below Austin, Texas SMSA. We submit that this is a flagrant violation of stated methodology without reason, cause, or justice, and is an open admission of the inapplicability of the offered reimbursement groupings. We further submit that this inequity invalidates the entire group classification and justifies immediate revocation of these groupings.

III. The Potential for Inequity and Increase in Cost of Medical Care to Private Patients

Given the aforementioned concerns with regard to the validity of the correlation of per capital income to medical costs, and the violations of methodology in the group classifications, it is easy to understand the potential for error that exists in the proposed system, even if one accepts the basic methodology. In the case of Austin and other SMSAS such as Odessa and Galveston-Texas City, the proposed groupings would place their reimbursement levels below their suggested costs.

If inequities in reimbursement occur due to faulty assumptions on the cost of care in rural areas, reimbursements may again be set below the true cost of providing "efficient medical care". Should such inequity occur, hospitals would be forced to seek funds to cover losses created by inadequate payment for medicare patients. We are gravely concerned that inadequate payment for medicare patients, in Austin and other areas, will encourage hospitals to seek payment from all other classes of patients to recoup the losses incurred in treating medicare patients. We believe this is inequitable and would create another form of Social Security Taxation to the working public. We submit that the proposed methodology, while it may indeed conserve funds within the Department of Health, Education, and Welfare, will in its larger effect impose additional burdens upon the working public in the form of artificially increased medical costs.

In view of all the above, we suggest that the basic assumptions of methodology are invalid, we know the application of methodology to be incorrect, and we point out the possibility of forcing an artificial and inequitable increase in the cost of medical services.

For the above reasons, we propose the withdrawal of the suggested change in the Medicare Reimbursement Methodology until such time as a responsible and equitable formula, the entire methodology and empirical proof of which is made public, can be offered.

This hospital would be pleased to offer any data or information which HEW would deem useful in the pursuit of a meaningful system of reimbursement. We would be particularly happy to receive any comments and/or requests for additional information pertinent to the contents of this letter.

Mr. JAMES CARDWELL,
Commissioner of Social Security,
Baltimore, Md.

ST. DAVID'S COMMUNITY HOSPITAL,
Austin, Tex., May 15, 1975.

DEAR MR. CARDWELL: This letter is in response to the proposed regulations concerning a revised "Schedule of Limits on Hospital Inpatient General Routine Service Costs in the Medicare Program", published in the April 17, 1975, Federal Register:

To quote from this issue of the Federal Register:

"It has been recognized by providers and others that certain urban areas (SMSA's) within a State may have income levels and related economic characteristics which are significantly different from those of other SMSA areas in the same State. It is believed that income levels tend to reflect wages and costs of construction, goods and services.

"To take account of these concepts, the major change in the revised methodology is for the SMSA to replace the State as the major geographical grouping factor for urban areas."

Therefore, according to the proposed regulations, per capita income is to be the main basis for placing various urban areas into groups for the purpose of applying the Inpatient Routine Limits on Medicare Reimbursement. Accordingly, Austin is now proposed for inclusion in "Group V". However, according to the U.S. Census of Population: 1970, Table 89, the per capita income of Austin is $3,014. This is higher than the per capita income of any Texas city in Groups III, IV or V. Therefore, we ask that this inequity be corrected by placing Austin in Group II.

Sincerely,

JOSEPH M. GUINN, Fiscal Director, St. David's Hospital.

Mr. PICKLE. Also, I would like to object briefly to the termination of the 8%1⁄2-percent nursing cost differential in medicare. I have been informed by the hospitals in my district that this means medicare patients will not be paying an equitable amount.

Congress fully intended that inpatient care would be reimbursed on the basis of reasonable costs. The 8-percent nursing care differential represents a valid charge for the extra care medicare patients require in eating, in routine care of their bodily functions, and in secondary problems they often have of hearing, seeing, or coping with fractures or paralysis, plus problems of mental depression or confusion. Obviously, dealing with patients with these problems will take more nursing time in even routine cases. These costs do not disappear just because HEW no longer compensates for them; it merely means that the hospital has to absorb these costs or put them on other patients in higher general charges.

So I would hope that some changes could be made, and that the 8.5 differential would not be terminated just on the face of it.

One additional and last matter, Mr. Chairman. My district includes a number of rural counties. It has been a continuing source of worry to these hospitals to try to meet the standards imposed by HEW. In many rural counties there simply are no registered nurses. In order for them to meet the HEW requirements, they have to recruit nurses. This is not easy, and it seems to me that the rigid application of HEW standards has resulted in a grave injustice to these rural counties that are doing their best to comply while filling a definite need. The elaborate requirements of the PSRO regulations will now compel these hospitals to hire additional staff, increase their administrative and recordkeeping requirements and, in many cases, simply close down and cease to operate.