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Hon. DAN ROSTENKOWSKI,

[Mailgram]

EUREKA, CALIF., June 12, 1975.

Chairman, House Ways and Means Health Subcommittee,
Washington, D.C.

DEAR MR. ROSTENKOWSKI: Congratulations to you and your committee on your "oversight hearings". I hope they can do something for the confusion now prevalent in HEW. Congress passes many good and useful laws but leaves the enforcement and management of these laws to the bureaucrats who twist them to suit their own desires. Further these same bureaucrats find time to haunt committees to see to the passage of such legislation as suits their desires, often without opportunity for proper debate on the issue (as in the PSRO issue). I hope you will trace the laws governing payments to beneficiaries through the regulations of HEW to their fiscal intermediaries where they become a confused, irratic, and largely unpredicable mess. The law indicates that the reasonable and customary few of the provider shall determine the Medicare allowances, instead, in California, in consort with California Blue Shield, they have a wild system based on data they compiled in God knows that fashion and mutilating the California relative value studies. I would hope that the Congress could forcibly mandate that HEW adopt pricing methods which are employed currently by the providers and at prices based on the private sector charges since the price freeze lifting (i.e., after May 1974). If funds are not available the pricing should be kept honest and the 20PC "COPAY" increased to whatever.

Analyzed my May 1964 collections where the payment achieved per unit of service was about equal for county and private cases. In May 1974 (fresh off the medically prolonged price freeze) 12.5pc of the unit price collected from my private patients went to make up the difference between the unit price medi-cal paid and the private patient unit price. In other words, if medi-cal made good on their promise (and I believe legal requirement) that they equal the private sector in payments, I could have charged my private patients 12.5pc less in May of 1974 or to put it yet another way, medi-cal created a 12.5pc tax on my private patients.

If funds are not available for implementation of programs adopted by the Congress, I feel that this "oversight" should be dealt with by the Congress itself by either eliminating programs or specifically constricting those programs, rather that leave it to HEW for their game of pitting the beneficiary against the providers with their rules and regulations guided by their fiscal agents who give them yet another interpretation. A further example of this is the proposed regulations (probably adopted by now) in which HEW muddles the new pricing factors voted by Congress into an even more confused pricing system for medicare patients. Another point with HEW why not eliminate from their budget those thousands of dollars they spend on "future planning" for laws not even thought of yet. I means specifically their current "five year plan". Another oversight is the Federal funding of heart & stroke research, from this has come many means of prolonging life (nearly all expensive). Now they talk of breakthrough in preventing deterioration of the protein membrane surrounding the individual cells-a principal factor in aging.

This means in 10 to 20 years your average life span may be past 100 years. Will these be useful ears? But is medicare prepared for this? In closing I trust the Congress can make HEW over from a Commissariat to a respectable unit of the executive branch devoted to carrying out our laws in the most accurate and fair means possible.

Sincerely,

E. KENNETH SMITH, M.D.

STATEMENT OF THE SOUTH CAROLINA HOSPITAL ASSOCIATION, WILLIAM L. YATES, EXECUTIVE DIRECTOR

The South Carolina Hospital Association, on behalf of its 89 institutional members, strongly opposes the Social Security Administration's proposal to revise the schedule of limits on hospital inpatient general routine service costs (40 Fed. Reg. 17190, et seq., April 17, 1975.)

Section 1861 (v) (i) (a) of the Social Security Act (42 USC 139) x (v) (1) (A) accords the Secretary of HEW the right to promulgate regulations establishing a method to be used in determining reasonable costs, and the items to be included in determining such costs for various types and classes of institutions. In enacting this Section, Congress specifically instructed the Secretary to construct classes of hospitals to take into account the broad variances and characteristics of hospitals and the broad variances in the treatment accorded by such hospitals. For example, in the House report accompanying P.L. 92-603, the Committee on Ways and Means stated that reimbursement methods should take into account differences in patient mix, scope of services provided, and other economic factors, as well as the size of the institutions. In addition, the committee specifically cited intensity of services as another cost variable.

The classification system set forth in the regulations on routine services published on April 17, 1975 fails to take into account the variables specified by Congress. Although the regulations included variances for differing sizes of hospitals and geographical areas, they wholly fail to consider intensity, mix, scope of services offered, and such other economic variables as census or age of hospitals, thus ignoring in the latter instance, the higher interest and depreciation cost of newer facilities. With respect to the consideration of differing sizes and geographical areas, the affect of the proposed schedule produces some rather irrational results. For example, in the state of South Carolina such cities as Rock Hill, Orangeburg, Anderson, etc. are classified as non-urban areas when only a cursory examination would indicate their close proximity to densely populated areas. Further, the classification system is made more unrealistic under the bed groupings whereby hospitals in Berkeley, Charleston and Dorchester counties of South Carolina are limited to $65 for those under 100 beds, $72 for those with 100 to 404 beds and $84 for those with 405 beds and over Thus a difference of one bed can mean either $7 or $12 per day difference. It is totally incomprehensible to us that a responsible federal agency could contrive such an absurdly based classification system.

It should be apparent to the most naive that the revised schedules forego the use of modern statistical methods and in its place substitute a rudimentary system that totally ignores not only the most elementary problems but the more complicated problems of health care.

Under the original Medicare law hospitals were assured reimbursement of reasonable costs. Certainly the arbitrary establishment of cost limitations without consideration to those very basic items which may affect individual hospitals says, in effect, that reasonableness will no longer be a criterion in the determination of costs.

The exceptions process is not only contrary to the intent of 223 but also ill defined and unreasonable. Section 223 was designed to establish limits on a "prospective" rather than "restrospective" basis in order that hospitals would know the limits in advance. There is no practical way that the provider would know the results of the exception process prior to the commencement of its current fiscal year. Those hospitals entering the exceptions process would be required to justify their costs retrospectively. The requirement that hospitals demonstrate that their particular costs are "atypical" but also reasonable with those in which the proposed schedule has placed them borders on the ridiculous. Where does a hospital get the data for its particular group which would determine what costs are "typical" as opposed to "atypical"? Are hospitals to be required to analyze all other hospitals within their groupings whether they be located in Alaska or Florida in order to determine certain differences and the causes of those differences? When we look at the proposed classification system and compare it with the burden of cost justification placed upon hospitals it is impossible for us to understand the SSA reasoning as set forth in the exceptions process.

For the foreging reasons as well as those which are obivous by the most cursory examination of the proposed schedules, the South Carolina Hospital Association respectfully urges that the Social Security Administration be asked to withdraw the proposed schedule.

It is our recommendation that the schedules be eliminated in their entirety. Sufficient regulations and guidelines are now in effect, which in themselves, not only provide for the determination of reasonable cost but also in many instances over burden, unduly penalize and under-reimburse providers. In any event, this is an area that deserves careful and intelligent study if the hospitals and the patients they serve are to be protected in accord with the Medicare statute.

CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., June 17, 1975.

Hon. AL ULLMAN,

Chairman, House Committee on Ways and Means,

Washington, D.C.

DEAR MR. CHAIRMAN: In connection with the hearing recently held by your Committee on H. R. 7000 and related issues, I would deeply appreciate your including the attached letter in the official hearing record.

Thank you for your cooperation in bringing the contents of this letter to the attention of the Committee members.

My kindest regards and best wishes.
Sincerely,

Enclosure.

Re H.R. 7000.

Hon. LINDY BOGGS,

LINDY (Mrs. HALE) BOGGS, M. C.

SOUTHERN BAPTIST HOSPITAL,
New Orleans, La., May 22, 1975.

U.S. House of Representatives, Longworth House Office Building,
Washington, D.C.

MADAM: I should like to urge your support of H.R. 7000 introduced by Representative Mark Hannaford (D-CA). This bill would provide for the allowance of an inpatient routine nursing salary cost differential of at least 8.5%, as a reimbursable cost of inpatient nursing care, in recognition of the above-average cost of furnishing such care to aged patients. The Social Security Administration has proposed to eliminate the nursing differential. This would mean additional cost to health care institutions and that cost would, of necessity, have to be shifted to other private patients receiving care in the same institution if this true cost is disallowed by the Social Security Administration under the reimbursement formula for health care institutions providing care to the beneficiaries of the medicare program.

I trust you will give careful consideration to this bill and vote in support of it. Sincerely,

EDWARD H. CLARKSON,
Health Care Administrator.

STATEMENT OF THE SOUTHERN CALIFORNIA HOSPITAL COUNCIL, STUART J. MARYLANDER, PRESIDENT, ON BEHALF OF 250 MEMBER HOSPITALS

I. Termination of the inpatient routine nursing salary cost differential (Federal Register: May 23, 1975)

In P.L. 89-97 (Medicare Law) Congress mandated that Medicare costs be borne by the Medicare program. The termination of the nursing differential violates this congressional intent for it will shift Medicare program costs to nonMedicare patients, an amount SSA estimates at $120 million per year. If SSA enacts this change, it will force hospitals to increase their charges to non-Medicare patients as their only means of recovering their losses. We do not think this is desirable or in the best interests of hospitals or the public.

In a sample of twenty of our hospitals, we have documented the average nursing salary cost differential for aged Medicare in-patients to be in excess of $38,000 per year, per hospital. When we apply this average to our entire hospital membership the total effect approximates $9.5 million of Medicare costs which nonMedicare patients in Southern California will have to finance. Needless to say, this figure amounts to an indirect and unauthorized taxation of significant dimensions to a small segment of our population, citizens suffering the misfortune of acute illness, i.e. the non-Medicare hospitalized patients. If not outright illegal, this action is certainly unjust.

In providing the 8% nursing salary cost differential for aged Medicare patients (retroactive to July 1, 1969) Medicare regulations and SSA explicitly acknowledged (see 36 Federal Register 12606, July 2, 1971) the well known fact that aged patients require more routine nursing care than other patients. These 1971 regulations were based on valid empirical studies and the regulations provide that SSA would

conduct further studies on the nursing care needs of hospitalized patients prior to any revision in the 82% (see CFR, section 405.430(c) (1)). We understand that no such studies have been undertaken and no evidence exists to justify the absurd suggestion that the elderly do not need more nursing care than other patients in our hospitals. To eliminate the 82% differential without any credible evidence is arbitrary, capricious and totally unacceptable to the health care industry.

SSA offered three reasons for its decision to eliminate the 82% (40 Federal Register 11934, April 3, 1975). These reasons do not justify the action of SSA and close inspection reveals the absence of evidence and logic. Our comments on them follow:

1. SSA reason. Medicare benefits have been expanded since 1972 to include a significant number of beneficiaries below age 65.

Comments.-These new Medicare beneficiaries constitute a very small portion of the Medicare population. Approximately 20 million of the 21.4 million Medicare beneficiaries of 93% are over 65 years of age. In addition, virtually all of the under 65 Medicare beneficiaries are not, by definition, qualified for the nursing care differential. Hence, SSA's reason is irrelevant both by virtue of statistics and by virtue of the rules of logic.

2. SSA reason.-Since July, 1969 there has been a marked increase in the number of special-care units and aged Medicare patients have utilized these units to a greater degree than the general routine-care areas.

Comments. It is true that there has been a marked increase in the number of special-care units in hospitals and this has been necessary for hospitals to keep current with the practice of modern medicine. However, the vast majority of our aged Medicare patients in Southern California are still treated in routine-care areas and this fact can readily be verified from filed Medicare Cost Reports. In addition, the existing regulations do not allow any routine nursing care differential for Medicare patients requiring specialcare units.

3. SSA reason.-Changes in the 1972 Medicare cost apportionment regarding special-care units somehow eliminates the need for the 82% differential.

Comments.-The 1972 cost apportionment changes merely assure that the 82% differential is paid only for routine nursing care of aged Medicare beneficiaries. This is, by no means, a valid reason for its elimination. In summary, the 8% nursing differential is now paid for aged Medicare inpatients because valid studies have determined something every nurse knows, that the elderly hospital patient requires more nursing care than younger patients. This cost differential must be retained if the Medicare program is to function in good faith with hospitals, the public and in accordance with the intent of Congress and the Medicare Law.

On behalf of the hospitals in Southern California, we respectfully request that you take appropriate legislative action to require the Social Security Administration to continue the routine nursing salary cost differential in accordance with the 1971 Medicare regulations (see CFR, section 405.430 (c)(1)).

II. Revision in the schedule of limits on hospital inpatient general routine service costs-reduction from 90th to 80th percentile (Federal Register: May 30, 1975) The revised schedule of limits on hospital inpatient general routine service costs is a misapplication of Section 223 of P.L. 92-603. Section 223 intended to promote hospital efficiency by permitting SSA to disallow hospital costs which were unreasonable either because of inefficiency or because the service was of a luxury nature and not medically necessary. We support the principle of efficiency in hospitals but the revised regulations limiting hospital inpatient general routine service costs do not, for they financially punish hospitals irrespective of their level of efficiency. The revised schedule relates only to costs, not to the justification, necessity or legitimacy of these costs. SSA estimates that over 750 hospitals in the U.S. will be denied full reimbursement of Medicare patient costs. In California alone, this will affect 183 community hospitals (34% of all such hospitals in the State), or 24% of the total of 750 in the U.S.

The Report of the Committee on Finance of the United States Senate accompanying the 1972 Social Security Amendments shows quite clearly the Congressional concern over hospital inefficiency and unnecessary services (Senate Report No. 92-1230, p. 187). Accordingly, Congress authorized SSA to set prospective limits on a "class" and "presumptive basis." Those limits are to account for the legitimate variations in costs from one institution to another which

result from "differences in size, in the nature and scope of services provided, the type of patients treated, the location of the institution and various other factors affecting the efficient delivery of needed health services."

We do not feel that Congress realized the full impact of this law, viz., that over 750 hospitals would fail to receive full reimbursement on the bais of grounds other than inefficiency and lack of necessity. In effect, the regulations do not implement Congressional intent.

The May 30, 1975 Federal Register states that: "The results of lowering the limits to the 80th percentile were carefully considered before the notice of proposed Schedule of Limits was published. It continues to be the Secretary's view that because of the more homogeneous groupings resulting from the improved costlimit methodology, which more accurately reflect the necessary input costs of the hospitals, it is appropriate to set the limit at the 80th percentile plus 10 percent of the median of each classification group. The revised limits will better identify hospitals whose costs are substantially higher than those deemed necessary for efficient delivery of hospital inpatient general routine services."

We find the above statement illogical and completely unsupportable, based upon the following: The revised schedule modifies the classification methodology. Previously, hospitals were grouped by (1) seven bed size categories, (2) five state per capita income groupings, and (3) location in either a Standard Metropolitan Statistical Area (SMSA) or non-SMSA area. The major change is to substitute the SMSA for the states as the major geographical factor for urban areas. An individual state's SMSAS could, therefore, fall into different groupings. Nonurban (non SMSA) areas will continue to be grouped on a statewide basis. The apparent result is a reimbursement ceiling less than 1974-75 for most hospitals in California, in a period of rapid inflation (estimated to be 16% per annum in the health care field by SSA). See Attachment B.

The "improved cost limit methodology" referred to by the Secretary can be clearly disproven by referring to SMSA Groups I and II for hospitals of 685 beds and above. The revised regulations provide for a limit of $170 in Group I and $120 in Group II, a $50 or 40% difference in Group I as compared to Group II. Such differences are also prevalent in all size providers in Groups I and II and in certain size providers in Group III as compared with Group I and Group II also. Although it is possible that these differences are the natural result of a well conceived basis for groupings, this is highly unlikely. For example, the costs in a large teaching hospital in Philadelphia or Pittsburgh (Group If hospitals) would probably parallel a similar institution in Los Angeles, San Francisco, Chicago, Boston or Cleveland, all of which are in Group I. In any event, a difference of $50 per diem is obviously unjustified.

These comparisons strongly indicate that the economic environment, measured by per capita income, is not a rational basis for groupings. Since the limits relate to hospital costs, apparently a presumption has been made that costs fluctuate in direct proportion to per capita income. The revised limits tend to prove that this is not the case. To further illustrate this irrational conclusion, Los Angeles, San Francisco, Chicago, and New York are deemed to be comparable, from a cost level standpoint, with such cities as Hartford, Wilmington, Rockford, Ann Arbor, Trenton and Richmond.

Another area in which the group data disprove the per capita income basis is in the groupings for nonurban SMSA's where the limits for Group I are lower than those for Group II. Per capita income, if it were a valid indication of relative cost levels, would result in descending costs from Group I through Group V. Since the non-SMSA areas have been classified according to per capita income of all non-SMSA counties within a state, per capita income is obviously not a sound basis for classification.

A further area of concern is the bed size classifications, which have been reduced in number from seven under the existing regulations to four for urban SMSA's and three for nonurban SMSA's under the proposed regulations. Perhaps some reduction was warranted, but we believe the reduction was too severe. For example, to group those hospitals slightly over 100 beds with those slightly under 405 beds appears quite extreme. The significant changes between classifications in the schedule of limits supports our concern.

We believe that another basic problem lies in the acknowledgement stated in the proposed regulations, that no direct provision has been made in the revised classification for the effects of factors such as educational programs, patient mix, or scope of services, for the reasons that bed size has been shown to be correlated with these factors and that the variables tested to reflect these factors more directly did not show promise of significant improvement. In a very general way it is probably true that costs relating to these factors, on the average, tend to

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