1. With regard to extension of Medicare benefits to beneficiaries below 65, disabled beneficiaries and beneficiaries with end-stage renal disease, current Medicare reimbursement procedure does not recognize the differential for nonaged and special beneficiaries. Specifically, the nursing differential applies to only those program participants over 65, which constitute 91% of Medicare beneficiaries. It is illogical to discontinue such reimbursement based on inclusion of these special beneficiaries when they, in fact, are not included in computation of reimbursement which includes the differential. And certainly, that same reasoning cannot justify discontinuation of the differential for a great majority of program participants. Additionally, it could be effectively argued that the special beneficiaries previously referenced indeed require more intensive nursing care than that given the aged Medicare patient. 2. With regard to the marked increases in special care beds since the 1969 study documenting the differential, H.E. W. has failed to recongize that the proportion of Medicare participants treated in special care units has not increased significantly and that a vast majority continue to require more intensive routine nursing care. Additionally, the H.E.W. argument that more care is being provided in special care units is particularly inapplicable in Texas as in 1974 only 22.4% of short term general hsopitals had coronary care units and 47% had intensive care units, compared to the National average of 35% with coronary care units and 64.3% with intensive care units. The H. E. W. assertion that more intensive care is being provided in special care units is undocumented and particularly inapplicable in Texas where the termination will have particularly adverse effects. Additionally, no new study has yet been completed which would document termination of the differential. In fact, if studies were initiated, it would be found that the 82% factor is inadequate for the volume of additional care rendered. 3. With regard to the H.E. W. assertion that special cost finding and apportionment mechanisms are available to provide reimbursement for special care units; this argument pre-supposes that more program participants are receiving care in special care units, an undocumented and incorrect assertion. Additionally, cost finding in special care units is applicable only to the care in those units and does not recognize the need for more intensive nursing care outside the special care setting, in which over 80% of Medicare participants receive their care. The use of special care beds for some cannot justify discontinuation for a majority of program participants. The result of the discontinuation of the nursing differential will have varied and dramatic results for Medicare participating hsopitals, the sum of which will be an overall reduction in reimbursement which will result in either reduction in the quality of care, or reallocation of Medicare expenses to non-Medicare participants, expressly in opposition to the intent of the original legislation, or both. The effects on dollar volume of reimbursement vary according to patient mix, intensity and nature of service, local economic conditions and other factors, but the trend is clear, witness the following examples: Reimbursement for a seventy-five bed hospital with 62% Medicare utilization would be reduced by $23,000 in 1974. Reimbursement for a 400 bed facility would be reduced by $28,000 according to 1974 cost report. Reimbursement for a 225 bed facility would have been reduced by $16,200 in 1974. A 54 bed facility would have to raise room charges for private pay patients approximately $.60 per day to recoup losses in reimbursement attributable to the nursing differential. A 169 facility with 8,000 Medicare patient/days would lose over $10,000 in reimbursement. The preceeding examples from actual Medicare cost reports of Texas hospitals serve to substantiate the assertion that termination of the 8%% differential would reduce reimbursement for services rendered, not reduce the services provided. The alternatives available to the hospital are to reduce the overall quality of care to reflect the reduced reimbursement or to increase charges to non-Medicare participants, in direct opposition to the intent of the Medicare Law, in order to recoup lost revenue. Neither of these alternatives are acceptable. In summary, the Texas Hospital Association is opposed to termination of the 82% routine nursing salary differential as such termination is unlawful, not substantiated by evidence of its appropriateness, and expressly in conflict with the intent of the original Medicare legislation. Proposed revision in the schedule of limits on hospital inpatient general routine service costs The Texas Hospital Association strongly opposes the proposed revision in the schedule of limits on hospital inpatient general routine service costs in the Medicare Program. The Department of Health, Education, and Welfare, proposal would change the limitation on reimbursement from the 90 percentile to the 80 percentile, modify the classification methodology by making the SMSA the major geographical factor for urban areas, and change the classification system to reduce the number of classification cells from 70 to 32. The rationale asserted by H.E. W. in justifying the reduction of reimbursement level to the 80th percentile indicates this action is necessary to control costs from inefficient hsopital operations and unnecessary care delivered in "luxury" hospitals. However, these arguments are arbitrary, and have not been documented. Setting reasonable reimbursement at the 80th percentile financially penalizes those special treatment facilities which do not fall within the established norms due to their unique care situations. Additionally, the 80th percentile factor does not take into consideration factors such as education programs, patient mix, or scope of services in determining the appropriate reimbursement level. Section 405.460 of the existing regulations authorizes the Secretary to use these additional factors in determining classification systems. The establishment of a reasonable reimbursement level at the 80th percentile level in order to avoid reimbursement to inefficient hospitals has no foundation. No data has been developed which categorically establishes inefficiency at any level above the 80th percentile. It appears this action is an arbitrary determination and does not take into account the factors listed previously that affect the hospital's cost of operation. Additionally, current Medicare cost reporting procedures should identify and disallow any item categorized as a "luxury" item, thus refuting the assertion that the 80th percentile reimbursement level is necessary to control unnecessary luxury expenditures. The second stated rationale of H.E.W. in justifying the change in comparison groupings maintains that there is a significant correlation between per capita income and medical costs, and thus maximum reimbursement levels should be established according to per capita income within these arbitrary income groupings. Statistical correlation does not necessarily establish a cause and effect relationship, and this is certainly the case with regard to per capita income categorization. There is no dependable relationship between per capita income and medical costs that can be applied consistently and fairly without recognizing such important factors as patient mix, scope of services and educational programs, which have not been recognized. Finally with regard to the reduction in the number of bed size categories, H.E.W. maintains this will result in more homogenous grouping of similar facilities. In fact what will result is more disparity in comparable reimbursement levels as, for example, hospitals with just over 100 beds will be compared with hospitals of over 400 beds, on no national basis. It is grossly unfair to expect that costs or care in a 100 bed hospital will compare reasonably with the costs of care in a 400 bed hospital, especially for reimbursement purposes. Again, these groupings were developed without consideration for patient mix, scope of service or educational programs. Of utmost importance is the fact that Congress in enacting Section 223 of P.L. 92-603, the section authorizing the referenced changes, intended to preclude reimbursement for costs resulting from marked inefficiency or excessive services. The regulations as proposed do not reflect the intent of Congress, but rather serve as an other example of a cost reduction program that will shift legitimate Medicare program costs to private patients in contradiction to the Medicare Law. The long range consequences of such continued efforts on the ability of hospitals to deliver services to both the Medicare and private patient cannot be ignored. The proposed reduction in the schedule of limitations would affect 54 Texas hospitals, according to SSA data, and it appears that the real reason behind the proposed 80th percentile reduction is arbitrary budget cutting, not any new cost containment methodology or better classification system, and for that reason the Texas Hospital Association strongly opposes implementation of such regulations. Utilization review The Utilization Review regulations have had the most dramatic effect on the health system of any regulations recently promulgated. These regulations have such great significance in that they affect not only the hospital's reimbursement but also its medical staff relations, and can significantly influence the hospital's relationship with its community. Yet the Utilization Review requirements primiarly establish cost controls, while only obliquely espousing quality controls. Utilization Review and Professional Standards Review were incorporated in P.L. 92-603 in an effort to control costs by controlling excessive utilization. Both programs were developed with very little provider input. Consequently, the results of Utilization Review and its effect on the hospital have been ignored, and more importantly, the impact on the quality of care received by the patient has been downgraded. The Texas Hospital Association has supported effective utilization review by our hospitals as a mechanism to improve care and to control costs to the patient. However, the manner in which such review is performed can be the determining factor in the effectiveness of the program. Current Utilization Review Regulations require ongoing review of admissions and the addition of personnel to perform the requisite review within the time frame required. Obviously, these additional costs must be borne by the patient and/or the providers, thus reducing its overall cost effectiveness. Significant opposition to the cost effectiveness of such review can certainly be raised, when viewed in light of alternatives available on a less expensive basis. Certainly it seems highly inadvisable to implement such an involved and expensive program as enunciated in the regulations when the methodologies for the much less complex retrospective review have not yet been developed. Certainly we should crawl before we walk. In that regard we would recommend development of a new review procedure, utilizing provider input, to more effectively address the problems of cost control and the assurance of quality patient care. The patient's welfare should be the focal point of any such program with any cost savings therefrom an important but secondary consideration. Summary The Texas Hospital Association strongly opposes the implementation of regulations terminating the routine inpatient nursing cost differential as the regulations are illegal, expressly in opposition to Congressional intent and would result in additional costs which must be borne by non-Medicare participants. The Texas Hospital Association strongly opposes the implementation of regulations implementing the revision in the schedule of limits on hospital inpatient general routine service costs as arbitrary and irrational and an apparent effort to reduce budgetary expenditures under the guise of refusing to pay for inefficiency. The Texas Hospital Association supports the concept of Utilization Review, but encourages Congress to consider programs which will assure quality of care along with effecting cost control. STATEMENT OF THE VALLEY PRESBYTERIAN HOSPITAL, HENRY X. JACKSON,1 ADMINISTRATOR AND EXECUTIVE VICE PRESIDENT SUMMARY Statement regarding the illegality of the termination of the 82% inpatient routine nursing salary cost differential under the Medicare program, P.L. 89-97. Discussion includes validation of a differential in the requirement for services provided for elderly patients (in excess of 20%), and objection to the necessity of passing on this labor cost differential to non-Medicare patients. STATEMENT I would like to make a statement regarding the discontinuation of the 84% nursing differential announced in April 3, 1975, Federal Register, and which is to 1 Mr. Jackson is immediate Past President of the Association of Western Hospitals encompassing the 13 Western States; Governor over nine Western States for the American College of Hospital Administrators; and, immediate Past Chairman of Regional Advisory Board No. IX of the American Hospital Association. be discussed at the June 12, 1975, Public Hearing by the Subcommittee on Health of the House Ways and Means Committee. It appears to me that the action intended by the Social Security Administration in dissolving the nursing salary cost differential is in direct opposition to the intent of the Medicare Law, P.L. 89-97, which clearly states that "The cost with respect to individuals covered by the [Medicare] insurance programs will not be borne by individuals not so covered . . ." (emphasis added). This 82% differential was established by studies conducted by SSA in which the hospital I represent took part. In fact, the studies conducted at this hospital bore out evidence of additional nursing care being required by the elderly in excess of 20%. This is further supported by studies completed by the Commission for Administrative Services in Hospitals (CASH), which offers shared service industrial engineering services to a large number of hospitals throughout California. In accordance with the studies by CASH, our efficiency standards for nursing care allow an additional 22% in labor hours for the care of patients over 65 years of age. Since the action proposed by SSA to eliminate the nursing care differential has not been supported by additional studies or surveys, it must be assumed that such action is based solely upon budgetary constraints faced by the department. Such action not only violates the law as quoted above, but also must necessarily transfer the expense for the additional care required by elderly patients from the Federal government which has contracted to underwrite such services to nonMedicare patients. A discontinuation of the 82% differential places each contracting hospital in an untenable dilemma. Should the hospital continue to provide the standard of care required by the elderly? If so, then the cost of providing that care which is in excess of that which the Federal government will underwrite must be passed on to other patients—thus, unnecessarily escalating the cost of health care. (Differential reimbursed by Medicare amounted to over $32,000 at Valley Presbyterian Hospital during the last fiscal year. A point in fact, nursing services actually provided for the elderly at this facility amounted to over $73,000, since our standards allow for an additional 22% staffing for patients over 65.) The remaining option is for hospitals to curtail services provided to Medicare patients to the level at which the Federal government is willing to pay? This alternative would unfairly jeopardize the well-being of elderly patients and could never be seriously considered by this hospital, or any other hospital with concern for the welfare of the community it serves. The decision to pass on a portion of the cost of treating Medicare patients to other patients not only unjustifiably escalates the cost of health care, but is a form of double taxation to the non-Medicare patient. Such action would tax a non-Medicare patient first through Social Security payments and again as a patient when a portion of his hospital bill must subsidize the patients over 65. This double taxation already exists to the extent that Medicare departmentalizes hospital expenses and refuses to recognize the replacement cost of assets in its depreciation methodology. Such a double tax levied on sick people places a heavy burden on them at a time when they can least afford to pay. If the Federal government is going to mandate itself as an underwriter of health insurance, then it must recognize the full cost of providing the services it insures. It is an unfair exercise of Federal proclamation to attempt to solve its own fiscal and budgetary problems by attempting to transfer the cost of its program to noncovered recipients of health care services. [The following letter was forwarded for the record by Congressman Thomas N. Downing:] Hon. THOMAS N. DOWNING, VIRGINIA HOSPITAL ASSOCIATION, U.S. House of Representatives, Rayburn House Office Building, DEAR TOM: May we respectfully call to your attention another decision of the Federal Government which will compound the increasingly alarming financial plight of Virginia hospitals: The Department of HEW has recently announced that it will discontinue an 8% Percent Nursing Differential under the Medicare program. Their arguments are weak in support of this decision. They claim that increased use of special care units and Medicare coverage of the disabled and patients with chronic renal disease make the nursing differential unnecessary. We know this is not true. These arguments do nothing to refute the documented evidence that Medicare patients require 25 percent more nursing care than do other patients. Most of the smaller or rural hospitals in Virginia do not have special care units, but they do have a large proportion of Medicare patients. The eliminating of the nursing differential will have a decided impact on these hospitals particularly. By law, Title XVIII requires that the Medicare program pay for its full costs and not be subsidized by non-Medicare patients. This latest HEW decision seems to be in direct violation of Title XVIII requirements. If the decision holds and hospitals must pass on to their paying patients the cost of the $120 million estimated savings in Medicare costs through removing the nursing differential, can you imagine the impact on the public? The wrath of Congress, the government and the public would be loud and clear about "another increase in hospital costs". It it is not possible to pass on this loss to our paying patients, then hospitals in Virginia will have no recourse other than a reduction in services to all patients.. This too would bring down the wrath . . . etc. We would appreciate whatever influence you can exert in persuading Secretary Weinberger that his latest decision should be reversed. It will have a profound effect on the efforts of hospitals to remain financially viable and provide the health care services the public expects of them. Very truly yours, STUART D. OGREN, Hon. DAN ROSTENKOWSKI, Chairman, Subcommittee on Health, CONGRESS OF THE UNITED STATES, Committee on Ways and Means, Washington, D.C. DEAR MR. CHAIRMAN: I have received a letter from Dr. Robert K. Heide, Secretary-Treasurer of the Virginia Society of Internal Medicine, concerning the medicare reimbursement formula, and a regulation proposed by the Department of Health, Education, and Welfare. I would appreciate it if the views expressed by him, and the comments in the letter which he enclosed from Dr. Ralph F. Reinfrank, President of the American Society of Internal Medicine, could receive your careful consideration. Thank you. Enclosures. G. WILLIAM WHITEHURST. VIRGINIA SOCIETY OF INTERNAL MEDICINE, Re Hearing Subcommittee on Health Committee on Ways and Means section 224 (A) of Public Law 92–603. Hon. G. WILLIAM WHITEHURST, DEAR MR. WHITEHURST: The American Society of Internal Medicine is a society of practicing diagnosticians numbering over 14,000 nationally. I am writing on behalf of the Virginia chapter of the Society on Internal Medicine and we number approximately three hundred at this time. This letter is a cover letter transmitting a prepared letter by Dr. Reinfrank, President of American Society of Internal Medicine. Dr. Reinfrank speaks the Societies' view relating to the proposed regulation published in the April 14, 1975 Federal Register which describes implementing Section 224 (A) of Public Law 92-603. This Society would like to ask you to review the enclosed letter of Dr. Reinfrank which expresses our views relating to the Medicare reimbursement formula proposed for our senior citizens on Medicare. We feel that this enactment would essentially cost our senior citizens approximately thirty million dollars, while saving the Medicare program a like amount. We, as physicians, feel that the |