APPENDIX DEFINITIONS OF TERMS USED Reasonable Charge Determinations A. Number of claims on which reasonable charge reductions were made.-Claims processed to completion for which all or part of the billed charges were reduced as a result of the carrier's reasonable charge determination. B. Percent of claims paid or applied to deductible.-(Number of claims on which reasonable charge reductions were made (number of claims paid + number of claims applied toward deductible)) x 100. C. Amount of Reduction: 1. Total.-Total dollar amount reduced as a result of reasonable charge determinations. 2. Percent of covered charges.-(Total dollar amount reduced total amount of covered charges) x 100. Covered charges exclude charges for services which were denied for any reason. 3. Average amount per claim.-(Total dollar amount reduced) ÷ (number of claims paid number of claims applied toward deductible). Claim Denials A. Number of claims denied in part or in full.-Claims processed to completion which were denied in full plus claims denied in part, i.e., claims on which one or more services were denied for any reason while the remainder of the claim was paid or applied toward the deductible. B. Percent of claims processed.--(Number of claims denied in full or in part ÷ (number of claims paid + number of claims applied toward the deductible + number of claims denied)) x 100. C. Amount Disallowed 1. Total.-Total dollar amount disallowed on claims which were denied in full or in part. 2. Percent of billed charges-(Total amount disallowed for all calims + total amount disallowed)) x 100. (total covered charges D. Total Items Denied.-Represents the number of separate items coded by the carrier which were denied. An item is generally defined as a single service but can be comprised of more than one service when multiple occasions of the same type of service are coded as one item by the carrier on a claim. 8. Question. What is the difference in the average cost of processing an assigned claim and an unassigned claim? Answer. The average unit cost of processing Part B Medicare claims was $3.23 for fiscal year 1974 (7/73-6/74); $3.37 for the 7/74-9/74 calendar quarter; and $3.35 for the 10/74-12/74 calendar quarter. On the whole, assigned claims that are completed by physicians usually have fewer errors and omitted items of information than unassigned claims that are completed by elderly Medicare beneficiaries. The processing of assigned claims consequently entails less development and other work by the carriers. However, the Social Security Administration does not maintain separate processing cost data for assigned and unassigned claims. Mr. ROSTENKOWSKI. The subcommittee will now have to decide Mr. Secretary, whether or not we are going to pursue this any further Secretary WEINBERGER. Surely. Mr. ROSTENKOWSKI. I am sure that this will be a decision made by the entire membership. I should mention that you will be hearing from us. This hearing will stand adjourned and again our sincere thanks, Mr. Secretary. Mr. DUNCAN. Mr. Chairman, I have a point. Mr. ROSTENKOWSKI. Mr. Duncan. Mr. DUNCAN. I have a few statements I would like to enter in the record later and some more questions that I would like to submit to the Secretary in writing. Mr. ROSTENKOWSKI. Without objection, so ordered. [The questions and answers follow:] Question 1. (a) Why did HEW choose geographical location and bed size as its criteria for setting cost reimbursement limits and not consider such factors as patient mix and range of services? (b) What evidence does HEW have to show that hospital costs are a direct function of geographical location and bed size, and more closely correlated to hospital costs than these other factors I mentioned? The hospital cost limits have been set on routine costs, that is basically the costs of room, board and nursing service. A statistical analysis of variables which impact on routine cost per day shows that bed size is a more important variable in expaining such cost than is patient mix. This analysis also showed a good relationship between bed size and range of services. As valid data on the range of services for all hospitals is difficult to obtain and given the strong relationship between services and bed size, it was decided to use the readily available bed size as a proxy for range of services. Bed size also bears a strong relationship to educational programs and is also included as a teaching proxy. Question 2.-Doesn't the cost reimbursement schedule unfairly penalize those hospitals located in non-SMSA areas which have a similar patient mix and range of services as hospitals of comparable size in urban areas? Analysis of cost report data demonstrates that hospitals in nonurban areas have lower costs than comparable urban hospitals. In addition, the cost reimbursement schedule is developed from actual hospital cost data. Thus those hospitals in nonurban areas with a wide range of facilities exert an influence on the limit for their group. The exceptions process also gives relief to those hospitals which have justifiably higher costs than those in their comparison group. Also, we believe that there are relatively few hospitals in Non-SMSA's that could be considered to have a wide range of services. Moreover, the sole community provider exception might well exempt such a provider from cost limits. Question . (a) How many hospitals do you estimate currently receive cost reimbursement at rates greater than those that would be allowed under the reimbursement schedule? (b) How would those hospitals exceeding the schedule limits obtain relief, assuming that their costs were reasonable? We estimate approximately 740 hospitals potentially may be affected by the cost limits with many of these only slightly over the limits. These estimates are imprecise and do not take into account exceptions, exemptions or the actions which can be taken by hospital management to reduce costs. If a hospital does have costs which exceed the limits it can be given an exception to the extent that it can justify that these excess costs are due to specifically allowable factors. Question 4.-Isn't the exception process for obtaining relief from the reimbursement limits unfairly time consuming and expensive for hospitals? While initial exception requests took some time to analyze since we were. developing policy on each issue as it was raised, we have subsequently developed guidelines which allow quicker responses. We do not believe that the preparation of an exception request should be particularly burdensome to the hospitals as the determination of reasonableness and the justifications of the costs should be part of the hospital's budgetary process. This material should then be readily available to the hospital. For example, the exception for education cost is essentially a mechanical process and we have developed a standardized methodology. Also, the limits are applicable to only general routine costs and this is defined in regulations as room, board, nursing services and related overhead; including depreciation and interest on the building and equipment. Thus any exception request must address why the hospital's costs in these areas are justifiably higher than the comparable costs for the bulk of its peer group. Question 5.-What standards and criteria are applied to judge which hospitals receive and which hospitals are denied exceptions? The standards used to evaluate exception requests are basically those of reasonable costs. For educational costs we have developed an accounting methodology which allows a determination of the size of educational programs that is included in the general routine cost limit. In effect we identify the educational programs of peer hospitals and thus allow a determination of atypical educational activities and give an exception for the costs of such programs. An exception is granted to those hospitals which have larger educational programs. To date we have had so few requests that the extent to which we should prepare similar systems for other components of routine cost is not clear. However, to assist in such evaluations we use data such as the Hospital Administrative Services reports when available or make comparisons with similar providers whose cost reports have been reviewed. Mr. ROSTENKOWSKI. Thank you, Mr. Secretary. [The following was submitted for the record:] STATEMENT OF HON. FRANK CHURCH, A U.S. SENATOR FROM THE STATE OF IDAHO Mr. Chairman, I appreciate this opportunity to present testimony to your subcommittee, and I commend you for so promptly convening these hearings to study regulations promulgated recently by the Social Security Administration with respect to operation of the Medicare program. Of special concern to me, as Chairman of the Senate Special Committee on Aging, is the proposed Administration plan to terminate the 81⁄2 percent inpatient nursing cost differential for Medicare beneficiaries. As you know, regulations to this effect are to become effective July 1, 1975. It is evident that the Administration did not adequately study the matter of nursing costs for elderly patients prior to issuing this regulation. Not only is the S1⁄2 percent reimbursement necessary for hospitals to recover their expenses, but it may well be inadequate to cover the actual costs. A recent study by the Kaiser Foundation, for instance, revealed the Medicare beneficiaries require 14 to 18 percent more nursing care than non-Medicare patients. Elimination of the 81⁄2 percent nursing differential would serve, therefore, only to lower the quality of health care services to the elderly population or, alternatively, to increase the cost of health services to other payors-private patients, third-party payors and Medicaid. I have introduced legislation to require the continued application of the nursing differential reimbursement to providers under Medicare. This legislation, S. 1906, is identical to the proposal of Representative Hannaford, H.R. 7000, which is pending before your Committee, and about which, you have heard comment today. In my introductory remarks on S. 1906, which I submit for your record, I address the additional barriers that the inception of the Administration's regulation would create for elderly patients. Again, I commend you for your interest in quality health care services for older Americans, and urge that the Committee support legislation to retain the 81⁄2 percent nursing differential. THE 82-PERCENT NURSING DIFFERENTIAL UNDER MEDICARE Mr. CHURCH. Mr. President, in April the administration announced its proposed plans to terminate the 82-percent inpatient nursing cost differential for medicare beneficiaries. These regulations were issued last month and will become effective July 1, 1975. The 8-percent nursing differential reimbursement originated under regulations promulgated by the Social Security Administration in 1969 to recognize that the cost of providing nursing care for aged patients under medicare was generally greater than providing care for younger patients. This regulation replaced a 2-percent overall allowance for increased costs. A recent study by the Kaiser Foundation revealed that medicare beneficiarics require 14 to 18 percent more nursing care than nonmedicare patients. Now, 6 years later, administration policy is to change once more. This time, however, no substitute plan is being offered-just complete elimination of the nursing reimbursement provision. Without actual study of the possible ramifications, the administration has arbitrarily reached the conclusion that the dif ferential is no longer justified. They base their decision on two premises: First, there are younger persons now receiving medicare benefits-such as those with chronic renal diseases and the disabled, and second, there has been an increase since 1969 in the number of special care beds where more intensive nursing care is provided. Even though medicare coverage is now available to disabled persons under 65, this group constitutes less than 8 percent of all medicare beneficiaries. Moreover, no studies have been undertaken to show that these individuals require substantially less nursing attention than aged medicare patients. In the same vein, it has not been demonstrated that the larger number of intensive care units has lessened the amount of attention patients in general care require. In any event, under existing regulations, the nursing differential is not even applied to special care units. The administration's logic is further subject to challenge, because the additional intensive care units are located primarily in larger urban hospitals. These special units are the exception rather than the rule in our smaller rural hospitals. In fact, the majority of medicare patients are still being treated in regular care facilities. The administration further indicated that the elimination of the differential would result in a savings. It takes only commonsense, however, to recognize that the costs of providing the extra care necessary for elderly patients will not just evaporate into thin air. If the Federal Government reneges on its commitment to pay full costs for all medicare beneficiaries, these expenses will be transferred to other payors-private patients, third-party payors, and medicaid. So it would not be a real saving, but a superficial one. It is clearly evident that the termination of the nursing differential will have the greatest impact on the rural hospitals which ordinarily do not have special care units. They will experience a greater burden proportionately for each Federal dollar that is withdrawn. In Idaho for instance, a majority of the hospitals have under 40 beds. They do not have the financial capacity for picking up losses under the medicare program, nor should they be asked to accept such a burden. Several hospital directors have indicated that this administration's policy on medicare is placing Idaho's health care system in jeopardy. As the administrator of the Caldwell Memorial Hospital, Donald Francis, put it to me bluntly: "All hospitals find it impossible to come out even on Medicare, utilizing every crumb tossed us by HEW and Social Security. . . . But where we (Caldwell Memorial) might live with it (elimination of the 81⁄2 percent differential) by raising prices to regular patients, some smaller, rural hospitals could go under." In addition, Mrs. Pearl Fryar, administrator of the Caribou Memorial Hospital in Soda Springs, Idaho, recently wrote the Social Security Administration and expressed her opposition to eliminating the 81⁄2-percent differential: "We enjoy taking care of the Medicare patients. They are senior citizens who have given much to the communities in which we live during their productive life time. They deserve the best treatment that we can give them. A reduction in the reimbursement from Medicare of the 8% percent nursing differential would eliminate the possibility of putting extra help on to provide these extra needs that the Medicare patient has. It would lower the quality of patient care for the Medicare patient. Please do not do this to the hospitals and the patients dependent upon the Medicare program." The legislation I introduce today would amend medicare to insure that a nursing differential of at least 81⁄2 percent be an allowable reimbursement. Similar legislation has been introduced by Representative Hannaford. Over one-third of the House Members have sponsored this proposal. In addition, it is supported by the American Hospital Association, the National Retired Teachers AssociationAmerican Association of Retired Persons, the American Nurses Association, and numberous other groups. The retention of the 81⁄2-percent nursing differential is absolutely vital if we are to have adequate care for elderly patients in rural hospitals. Although urban hospitals would probably not close their doors without these payments, the quality of care for medicare patients would definitely suffer, or the burden of care support would be shifted to other parties; neither alternative is desirable; neither is consistent with the basic purpose of medicare. During hearings before the Senate Special Committee on Aging on "Barriers to Health Care for Older Americans," it has been determined that the quality of care for seniors must be improved. It is evident to me that the administration's proposal to delete the nursing reimbursement bonus would create only a further impediment to quality health care for medicare patients. UNITED STATES SENATE, Hon. DAN ROSTENKOWSKI, DEAR CHAIRMAN ROSTENKOWSKI: I am writing to you with regard to the oversight hearings your subcommittee will be conducting June 12 concerning the elimination of the 81⁄2 nursing differential cost and the limits on inpatient costs. The Utah Hospital Association has been in touch with me and sent me a copy of their June 3 letter addressed to you, which pointed out their reasons for disagreeing with the HEW regulations. I am in agreement with the concerns expressed by the Utah hospitals and hope that the Subcommittee on Health will see to it that there is in fact no discrimination in the administering of the regulations. Sincerely, JAKE GARN. STATEMENT OF HON. EDWIN B. FORSYTHE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY Mr. Chairman; I am pleased to have this opportunity to present to you my observations on the proposed reorganization of prevailing charge increases for physicians under the Medicare Program. It is my belief that the proposal does not adequately safeguard the interests of the elderly and that it is not an effective means of slowing down the spiralling medical costs in this country. The proposed regulation is allegedly designed to "follow, rather than lead, any inflationary trend", however I respectfully submit that it will go along arm-in-arm with any rise in physicians' fees, and will for the most part shift the burden of meeting the rising costs from the public to the private sector, i.e. the elderly. If a physician objects to the "reasonable charges" established for his services, he may simply refuse to accept an assignment of the claim and bill the patient directly. It is then up to the patient to submit the claim to the carrier and accept their determination of the "reasonable charge". Any amount in excess of this determination must be made up by the elderly individual. In other words, the physicians not accepting assignments are passing through their increases directly to the consumer. In the period from 1950-1960, while the average Consumer Price Index rose 2.1% annually, physicians fees rose at an annual average of 3.4%. Between 1960 and 1965, the CPI climbed 1.3% annually and physicians' fees climbed 2.8% annually. From 1965-1970, the CPI averaged an increase of 4.2% annually, while physicians' fees registered an average increase of 6.6% annually. The higher rate of increase in physicians' fees between 1965 and 1970 is at least partly attributable to the Medicare Program (which "appears to have added about 3% to the average annual rate of increase").1 However, some of the "Medicare increase” is due to the extension of coverage to 20 million people and the rest is due to other factors including the methods of reimbursement. After the inception of price controls under the Economic Stabilization Program, when the physicians' fees were held at an artifically lower level, the assignment rate under Medicare decreased significantly indicating that the physicians were passing their fee increases along directly to the patients. In 1969, 61.5% of all Medicare claims were handled by assignment, in 1970-61.2%, in 1971-60.1% but then in 1972, the national average dropped to 56.4%, and in my own State of New Jersey, the assignment rate is now down to 44.5%. Correspondingly, the "reasonable charge" reduction rate rose from 22% in 1970, to 46% in 1971, and continued at 45% in 1972. I believe that such artificial devices as built in lags, i.e. un annual review of rates, and economic indexes as determinants for allowable increases (which often do not take into account localized variations in health cost and variables like rising malpractice insurance costs) are not an effective means of holding down physician fee increases in the Medicare Program. As long as there remains an “escape clause," the ability to refuse to accept an assignment, the physician will be able to continue to pass on any increases to the elderly, many of whom are living on fixed incomes and can least afford this additional burden. I realize that efforts must be made to prevent the unrestricted growth of physicians' fee, but we must be certain that our efforts will attain the desired end. I would heartily encourage the Subcommittee to reexamine the conclusions and recommendations of the Health Insurance Benefits Advisory Council in their study presented to Congress in January 1973. The Study of Methods of Reimbursement for Physicians' Services Under Medicare concluded that: "1. Any changes in the reimbursement for physicians' service under the Medicare program should not encourage a reduction in access to physicians' services by the beneficiaries, i.e., physician participation should not be discouraged. ▲ Study of Methods of Reimbursement for Physicians' Services Under Medicare p. 15. |