RECOMMENDATIONS REGARDING FUTURE DIRECTIONS IN THE MEDICARE PROGRAM HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION APRIL 30, 1996 Serial 104-47 Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 25-630CC WASHINGTON : 1996 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053589-1 COMMITTEE ON WAYS AND MEANS BILL ARCHER, Texas, Chairman PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida BILL THOMAS, California CHARLES B. RANGEL, New York E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jr., Indiana JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee AMO HOUGHTON, New York ROBERT T. MATSUI, CaUfornia WALLY HERGER, California BARBARA B. KENNELLY, Connecticut JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin JIM NUSSLE, Iowa JOHN LEWIS, Georgia SAM JOHNSON, Texas L.F. PAYNE, Virginia JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts MAC COLLINS, Georgia MICHAEL R. McNULTY, New York ROB PORTMAN, Ohio JIMMY HAYES, Louisiana GREG LAUGHLIN, Texas PHILIP S. ENGLISH, Pennsylvania JOHN ENSIGN, Nevada JON CHRISTENSEN, Nebraska Phillip D. Moseley, ChiefofStaff Janice Mays, Minority ChiefCounsel Subcommittee on Health BILL THOMAS, California, Chairman NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland JOHN ENSIGN, Nevada JIM McDERMOTT, Washington JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin PHILIP M. CRANE, IlUnois JOHN LEWIS, Georgia AMO HOUGHTON, New York SAM JOHNSON, Texas (II) CONTENTS Page Advisory ofApril 23, 1996, announcingthe hearing 2 WITNESSES Congressional Budget Office, Paul N. Van de Water, Ph.D., Assistant Direc- tor, BudgetAnalysis 17 Prospective Payment Assessment Commission, Joseph P. Newhouse, Ph.D., Chairman; accompaniedby Don Young, M.D., Executive Director 42 Physician Payment Review Commission, Gail R. Wilensky, Ph.D., Chair; ac- companied by Lauren B. LeRoy, Ph.D., Executive Director 65 U.S. General Accounting OfRce, Janet L. Shikles, Assistant Comptroller Gen- eral, Health, Education, and Human Services Division; accompanied by Edwin P. Stropko, Associate Director, and Tom Dowdal 87 Shays, Hon. Christopher, a Representative in Congress from the State of Connecticut 6 SUBMISSIONS FOR THE RECORD Health Insurance Association of America, Bill Gradison, letter and attach- ments 105 Visiting Nurse Service System, Runnemede, NJ, and Visiting Nurse Associa- tions ofAmerica, Marianne Czech, statement and attachment 110 (HI) RECOMMENDATIONS REGARDING FUTURE DIRECTIONS IN THE MEDICARE PROGRAM TUESDAY, APRIL 30, 1996 House of Representatives, Committee on Ways and Means, Subcommittee on Health, Washington, DC. The Subcommittee met, pursuant to notice, at 2:09 p.m., in room 1310, Longworth House Office Building, Hon. Bill Thomas (Chair- man ofthe Subcommittee) presiding. [The advisory announcing the hearing follows:] (1) 2 ADVISORY FROM THE COMMITTEE ONWAYSANDMEANS SUBCOMMITTEEONHEALTH FORIMMEDIATERELEASE CONTACT:(202)225-3943 April23,1996 No.HL-18 Thomas Announces HearingOn Recommendations RegardingFutureDirections in theMedicareProgram CongressmanBillThomas(R-CA),ChairmanoftheSubcommitteeonHealthofthe CommitteeonWaysandMeans,todayannouncedthattheSubcommitteewillholdahearingon recommendationsregardingfuturedirectionsintheMedicareprogram. Thehearingwilltake placeonTuesday,April30,1996,inroom1310LongworthHouseOfficeBuilding, beginningat2:00p.m. Inviewofthelimitedtimeavailabletohearwitnesses,oraltestimonyatthishearingwill beheardfrominvitedwitnessesonly. WitnesseswillincluderepresentativesoftheProspective PaymentAssessmentCommission(PROPAC),thePhysicianPaymentReviewCommission (PPRC),andtheU.S.GeneralAccountingOffice(GAO). However,anyindividualor organizationnotscheduledforanoralappearancemaysubmitawrittenstatementfor considerationbytheCommitteeandforinclusionintheprintedrecordofthehearing. BACKCROUNP: Twomajorfactorshavebroughttheissueoffutiu-edirectionsfortheMedicareprogram totheforefrontforCongress. ForemostistheconcernthatratesofgrowthinMedicarespending continuetooutstripinflationinthegeneraleconomy,andevenmoreimportantly,therecent indicationsthatMedicare'sPartATrustFundisdeterioratingmorerapidlythanwasanticipated intheApril1995ReportoftheBoardofTrustees. Secondly,thebroaderevolutionofthe Americanhealthcaresystemtowardintegratedhealthcaredeliverysystemshasanimportant impactonthefiitureoftheMedicareprogram. Eachofthethreeorganizationsidentifiedabovehavestatutoryresponsibilitiesin providingnon-partisanadviceandassistancetotheCongress. PROPACandPPRCarerequired toreportannuallytotheCongresstheirrecommendations,withintheirrespectivespheresof responsibility,concerningtheMedicareprogram. BothPROPACandPPRCreleasedpublic reportsinMarch1996detailingavarietyofrecommendationsconcerningnearlyeveryaspectof theMedicareprogram. Separately,GAOhascompletedandalsohasunderwayarangeof studiesrelatingtopoliciesandojjerationsoftheMedicareprogram. Thecurrentwork,recent reports,andrecommendationsoftheseorganizationswillprovidethebasisfortheirtestimonyat thehearing. Inannouncingthehearing.ChairmanThomasstated: "Securingthefutureofthe MedicareprogramisanessentialobjectiveofthisCongress. Theadviceandreconmiendations ofthesewitnessesprovideanimportantopportunitytoenterintoasensibleandconstructive dialogueintheSubcommitteeonfiituredirectionsoftheMedicareprogram." FOCUSOFTHEHEARING ; Thehearingwillfocusontherecommendationsofthewimessesconcerningfiitiu-e directionsoftheMedicareprogram. 3 DETAILSFORSUBMISSIONOFWRITTENCOMMENTS : Anypersonororganizationwishingtosubmitawrittenstatementfortheprintedrecord ofthehearingshouldsubmitatleastsix(6)copiesoftheirstatement,withtheiraddressanddate ofhearingnoted,bythecloseofbusiness,Tuesday, May14,1996, toPhillipD.Moseley,Chief ofStaff,CommitteeonWaysandMeans,U.S.HouseofRepresentatives,1102Longworth HouseOfficeBuilding,Washington,D.C. 20515. Ifthosefilingwrittenstatementswishtohave theirstatementsdistributedtothepressandinterestedpublicatthehearing,theymaydeliver 200additionalcopiesforthispurposetotheSubcommitteeohHealthoffice,room1136 LongworthHouseOfficeBuilding,atleastonehourbeforethehearingbegins. FORMATTINGREQUIREMENTS: EaehtutamantprntntedtorpitiitloctottaaComiiiltleabjawiaaaa,usjwrttt«oftatamantorexUbtttabatttti(orttaaprtntsdrecordoraoy wcrolmtptUeoanceoemmwletatatattIanesreacsuplodnaiUentaoaawtrDsqnaoetstb«(oprrlwnrttatdt.antanetowmimnanbt«smamionattaicnoendfoIrnmtbteoCttoamam(lutlldaelelndaite*Ui(toradrebralloeww.anAdnyufatabtyatmtaaentCoomrmalxtttalebai.tnotIn 1. AUftatemenuandanyaeeompanyinceitalblti(orprintln;mostbetypedtaisingle(pacemlefal-iizepaperandmaynotexceeda totalo(10pagesindadlncattarhmami. 2. Copieso(wtaoledoenmentssubmittedasexhibitmaterialwillnotbeaccepted(orprinting.Instead,exhibitmaterialshouldbe re(erencedandquotedorparaphrased.AHexhibitmaterialnotmeetingthesespedOeatlonswlUbemaintainedIntheCommitteeflies(orrerlew andusebytbeCommittee. 3. AwitnessappearingatapnbUebearing,orsubmltUngastatement(orthereeardo(apublichearing,ormbmltdngwritten commentsInresponsetoapobllsbedrequest(orcommentsbytheCommittee,mustInclndeonhisstatementorsubmissionaUsto(aUellsnts. persons,ororganizationsonwbosebehaUthewitnessappears. 4. AsupplementalsheetmustaccompanyeachstatementUstlngthename,(niladdrasa.atelephonenumberwherethewitnessorttaa designatedrepresentatlremaybereachedandatopicaloutlineorlummaryofthecommentsandrecommendationsinthefullstatamenLThis supplementalsheetwiBnotbeincludedIntheprintedrecord. Theataorerestilctonsandlimitationsapplyonlytomaterialbeingsubmittedforprinting.Statementsandexhibitsorsupplementarymatertal submittedsolelyfordistributiontotheMembers,ttaapressandttaepublicduringttaecourseofapubUcbearingmaybesubmittedinottaerforma. Note:AllCommitteeadvisoriesandnewsreleasesarenowavailableovertheInternetat G0PHER.H0USE.GOV,under'HOUSECOMMITTEEINFORMATION'. 4 Chairman THOMAS. The Subcommittee will come to order. Today is the Health Subcommittee's meeting to discuss Medicare policy and means we have to save the program. We will hear about the latest projections which confirm the worst fears about the Med- icare Part A Trust Fund. According to the Congressional Budget Office, Medicare is in worse shape than we thought based upon what we were told last year, and its balance is declining more rapidly every day. The witnesses today will give the Subcommittee advice and guid- ance on how we can not only save Medicare, but also preserve the program for future generations. The CBO testimony will confirm that Medicare will be bankrupt by fiscal year 2001, much earlier than projected by CBO and Medi- care's board of trustees just last year. As you know, the trustees had projected a Medicare surplus in fiscal year 2002 of about $4.8 billion. The CBO report indicates that in that same year, 2002, the Medicare Trust Fund will be $86 billion in deficit. That is a $91 billion swing. Everyone, especially, I think, the President, must heed this ur- gent new warning about Medicare's deepening crisis. As a result of this new report, the President's existing Medicare proposal, the old $124 billion offer, is out of date, as it is based on old, overly opti- mistic projections, and it simply will not achieve the kind of results necessary based upon CBO numbers. The President is about to release to the Congress the 1996 report to the Medicare board of trustees. I believe and hope that the time has come for the President to show true bipartisan leadership when he releases the trustees' report. He should update his Medi- care proposal, in my opinion, to reflect the latest information, and he should submit to the Congress a new plan that would save Med- icare on the same day he releases the 1996 trustees' report. We will also do our part. At this hearing today, we will hear from the Prospective Payment Assessment Commission and its new chair. We will hear from the Physician Payment Review Commis- sion and the General Accounting Office. Each will provide the Sub- committee their views on recent proposals to save Medicare and will highlight new areas we should focus on to both reduce the cost of Medicare and reform the program to serve its beneficiaries bet- ter. It should be noted that the ProPAC testimony also provides new projections on hospital Medicare margins for 1996. Despite con- cerns raised during the development of the Medicare Preservation Act of 1995 by the hospital industry and other detractors, the re- port shows that hospitals on the whole are, in fact, doing extraor- dinarily well in terms oftheir Medicare business. Further, it is of particular interest that ProPAC and the GAO, as they did in testimony last year, again, identified home health and skilled nursing facilities services as two areas where spending is continuing to skyrocket. Clearly, these services are important to Medicare beneficiaries, but testimony today also points out specific concerns in these areas which I believe we must address. The testimony on these services is supportive ofthe efforts in the Medicare Preservation Act of 1995 to rein in the cost of these serv- ices through reform and a prospective pa3mient system. Any true 5 reform of Medicare will include expanding beneficiary choices of coverage under Medicare. Interestingly, the New York Times reported yesterday that the American Association of Retired Persons is moving into something similar to the Good Housekeeping Seal ofApproval. The AARP will be expanding managed care programs, and the rationale offered was that their members want more choices. The testimony from both Commissions gives us useful guidance on how to expand these choices. In that regard, it is important to state that concern over in- creased Medicare spending, although critical, is far from being all that is at stake. There are major changes occurring in the Amer- ican health care system, particularly relating to the evolution to- ward integrated care delivery and financing systems. It is our re- sponsibility, I believe, to extract the most promising developments from this evolutionary process and consider how they can be adapt- ed to strengthen the mission and the purposes ofthe Medicare Pro- gram, with the ultimate goal of creating a better Medicare for beneficiaries. The time has come, I think, to work together to save Medicare. I hope that the President does not agree that this is an election year and, therefore, you can't deal with Medicare, as his chief spokesman, Mike McCurry, indicated, as reported in the news media. I would hope the President would choose to lead this Nation by submitting a new plan without tax increases that addresses the financial concerns evidenced by the CBO report and that can achieve a strong bipartisan agreement in both the House and the Senate. Before welcoming our first witness, a gentleman from Connecti- cut, Congressman Shays, I would recognize the Ranking Member on the Committee, the gentleman from California, Mr. Stark. Mr. Stark. Thank you, Mr. Chairman. Before I comment, I wonder what happened to my portrait. The room looks better, I must say. Thank you for holding this hearing. Let me point out that what the CB—O testimony makes clear but was not clear in your re- marks CBO's estimate of total Medicare spending shows that their estimate has declined and that we are actually spending $35 billion less than they previously estimated over the next 10 years. It is true that the part A trust fund is heading down, but the part B portion is doing far better than expected, and the total spending picture, if one wants to give the true picture to the Amer- ican public, is getting better, not worse. As I read the ProPAC and PPRC reports, it is a good thing the President did veto the Medicare budget bill. The two reports con- tain certification that many of the Republican proposals would have destroyed Medicare and not saved it. The plan that was put forth by the Republicans wasn't cost containment. It was cost shift- ing to the beneficiaries. The report—s we will hear lay out the terrible flaws in those budg- et proposals medical savings accounts, excessive cuts in safety net hospitals, balanced billing on seniors, and a budget fail-safe provi- sion that would have destroyed the choice of doctor and hospital. 6 As the GAO makes clear, Medicare does need to do better, but we don't need to destroy the fee-for-service system or turn Medi- care from a benefit program into a voucher program where it is every senior strugghng by himself to find quality care. The trust fund is in trouble, and it is obvious the first thing we should do is not take more money out ofthe trust funds. In your House-passed version of Kennedy-Kassebaum, you take out $2.6 billion from the trust fund in Medicare antifraud money over the next 6 years and spend it on medical savings accounts and other tax breaks. The Senate version of Kassebaum-Kennedy takes a total of $20 billion in Medicare savings over the next 10 years and spends it on non-Medicare items. The week before last, Speaker Gingrich proposed to take another $36 billion out of the trust fund over 5 years to lower taxes for wealthy seniors. You can't save Medicare by spending the trust fund m.oney on new tax breaks. This Committee has yet to meet in the last 2 years to discuss how we are going to save Medicare. It is like sending the board of directors for a large insurance company, which Medicare is, on a sabbatical. If, indeed, we would pledge to take Medicare savings and commit them to the trust fund, I think this Committee could very quickly extend the life of that trust fund for another 4 or 5 years until we had the time to talk about the systemic changes that must come, perhaps, in the year 2010 or 2015. I would repeat the ofi'er, and I can speak for the caucus, to make $124 billion in Medicare savings and add 10 years to the life ofthe Medicare Part A Trust Fund without making the radical structural changes, which are criticized in the two Commission reports we will hear. So, if you are serious, we can get to work. Ifyou want to pay for tax cuts for the rich, Medicare will continue to stay in trouble. Chairman THOMAS. With the usual bipartisan atmosphere, the Subcommittee begins. It is a pleasure to have the gentleman from Connecticut, Chris Shays, with us. He has been involved notjust from his Subcommit- tee on Human Resources, but from the Budget Committee position, working on how we meet the needs of all Americans, and especially seniors. It is a pleasure to have you with us, Chris. Ifyou have a written statement, it will be made a part of the record without objection, and you may proceed to inform us as you see fit. STATEMENT OF HON. CHRISTOPHER SHAYS, A REPRESENTA- TIVE IN CONGRESS FROM THE STATE OF CONNECTICUT Mr. Shays. Thank you, Mr. Chairman. I want to thank you for the opportunity to testify before this Committee and to say as the Chairman on the Task Force on Medicare and Medicaid, which looks at the macronumbers, not the micronumbers, and also as the Chairman of the Human Resources and Intergovernmental Rela- tions Subcommittee of the Government Reform Committee, which oversees HHS for waste, fraud, and abuse, I come to you with some very strong concerns.