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For Immediate Release
November 25, 2003

Grassley: Senate Passes Historic Medicare Legislation

? Sen. Chuck Grassley today praised Senate approval of historic legislation that would add a prescription drug benefit to Medicare for the first time in the program's 38-year history and dramatically increase Medicare payments to Iowa and other rural states.

Grassley was the lead Senate architect of the bipartisan legislation from his position as chairman of the Senate Finance Committee. Senators voted 54 to 44 for the proposal, which will now go to the President.

"Forty million seniors and Americans with disabilities shouldn't have to wait any longer for prescription drug coverage. Medicare is part of our country's social fabric. We're not only saving it, but we're also improving it," Grassley said.

In addition to adding a prescription drug benefit and making other improvements to Medicare, the bill also would increase Medicare funding for doctors, hospitals and other health care providers, especially in rural areas, where reimbursement levels are far below what is paid in other regions of the country.

"The rural package is the most dramatic improvement in rural health care any Congress has ever considered. It is a $25 billion commitment over 10 years. The provisions are offset by other program changes, not by seniors' prescription drug money. Thanks to this legislation, hospitals, doctors, home health agencies, and ambulance companies in states like Iowa will see dramatic improvements in their Medicare payments," Grassley said.

Under the Grassley-sponsored bill, Iowa hospitals and health care providers would receive an additional $438 million over the next 10 ten years from Medicare, and Iowa hospitals would receive an additional $141 million over the next 10 years from Medicaid. Details are included at the end of this news release.

According to the Iowa Hospital Association, the legislation provides Iowa hospitals with the second largest percentage increase per Medicare beneficiary of any state. The association said that this amounts to a per-beneficiary increase of $583, which is the thirteenth highest increase of any state in the Union.

Grassley also won inclusion in the overall Medicare bill of a provision to make additional chiropractic services available through the Medicare program. He said that this was a victory for the national leadership provided by the Palmer College of Chiropractic in Davenport.

"Seniors need affordable access to prescription drugs. We're giving it to them," Grassley said. "Seniors need an improved Medicare program, with more choices and better benefits. We're giving it to them. Seniors need to be able to keep what they have if they like it, with no changes, and still get prescription drugs. We're giving it to them. And finally, seniors in Iowa and other rural states need improved access to basic health care services. We're giving it to them. I look forward to the President's signing this bill. It's time to finish the job."

Under the bill, Medicare recipients would have the option of purchasing drug plans for about $35 a month and, after paying a $250 deductible, would have 75 percent of their medicine bills covered, up to $2,250. The benefit would reduce the typical beneficiaries' drug costs by about half. The up-front costs would be waived for low-income seniors, who would be charged no more than $5 in drug co-payments. For these lower income seniors, the benefit covers 85 percent to 98 percent of the cost of their prescriptions.

Next April, seniors could purchase drug discount cards until the full benefits are implemented. Seniors would save 10 percent to 25 percent off the cost of most medicines through a Medicare-approved drug discount card. This card program would be entirely voluntary. In addition to receiving discounts through the drug card, low-income seniors under 135 percent of the federal poverty level would receive a $600 subsidy until the drug benefit begins in January 2006.

The bill also lowers drug costs for all Americans, no just those with Medicare, by speeding the delivery of new generic drugs to the marketplace.

Additionally, the legislation would establish a new opportunities for seniors to choose Medicare coverage via private plan options. Every senior could choose between these new options and staying in traditional Medicare.

The bill protects retiree coverage by providing plan sponsors $89 billion over 10 years to encourage them to retain the health coverage they provide their retirees. While companies have been dropping the health coverage they provide for retirees in the absence of a prescription drug benefit, the additional funding is meant to encourage companies to retain that health coverage.

The bill also establishes tax-preferred health savings accounts for individuals with high-deductible insurance coverage.

The Medicare bill has been endorsed by the AARP, the Alzheimer's Association, the Mayo Clinic, the Rural Hospital Coalition, the Iowa Hospital Association, the Iowa Medical Society, the Iowa Osteopathic Medical Association, the Generic Pharmaceutical Association, and numerous other national patient groups and health care organizations.

Here is a description of the various components of the rural health care package in the Medicare bill and their effect on Iowa's health care system.

1) Increased payments for all physicians.

Explanation: Medicare pays for physician services based on a specific formula in law. For fiscal year 2004, physician fees were to be cut by 4.5 percent. This provision reverses that cut, and provides a guaranteed 1.5 percent payment increase for physicians for fiscal years 2004 and 2005. Iowa Impact: This payment policy will provide an additional $103 million for Iowa physicians over the next ten years.

2) Establish a floor for the work geographic index for physicians.

Explanation: Medicare adjusts physician payments based on geographic adjustment factors. The purpose of the geographic adjustment is to reflect the relative cost difference in a given area compared to the national average. One factor, the work component, represents the value of a physician's time and effort. Payments to physicians in rural areas are adjusted downward by this work factor. In effect, Medicare de-values rural physicians' time and effort as compared with physicians practicing in an urban area. The pending legislation provides for a floor in the impact of the work component for three years.

Iowa Impact: Establishing the floor in the work component will provide an additional $45 million to Iowa physicians over the next ten years.

3) Create incentive payments in physician scarcity areas.Explanation: Physicians practicing in rural areas with physician shortages will be eligible for a five- percent bonus payment in their fee schedule payment amounts for the next three years. Iowa Impact: Establishing the floor in the work component will provide an additional $12 million to Iowa physicians over the next ten years.

4) Equalize standardize amount for rural and small urban hospitals

Explanation: This provision will eliminate the disparity between large urban hospitals and rural and small urban hospitals by equalizing the inpatient base payment starting April 1, 2004. Previous legislation passed earlier this year eliminated this disparity from October 1, 2003 through March 30, 2004.Iowa Impact: Equalizing the rates will bring over $163 million to Iowa hospitals over the next ten years.

5) Increase Medicaid Disproportionate Share allotments.

Explanation: Hospitals that serve a large number of uninsured patients and Medicaid enrollees receive additional Medicaid Disproportionate Share Hospital (DSH) payments. The Balanced Budget Act of 1997 capped the federal share of DSH payments at specific amounts for each state. States like Iowa (extremely low-DSH states) will receive a 16 percent increase in their allotments for the next five years.

Iowa Impact: Iowa will receive a $141 million increase over current law for the next ten years. The main Iowa beneficiaries of this provision are the University of Iowa Hospital and Blank Childrens Hospital and Broadlawns Medical Center in Des Moines.

6) Lower labor share of hospital wage index to 62 percent.

Explanation: Beginning October 1, 2004, the labor-related share of the Inpatient Prospective Payment System will be reduced to from 71 percent to 62 percent of the standardized amount, only if this reduction would result in higher payments to the hospital.Iowa Impact: A revision of the labor share will result in over $100 million to Iowa hospitals over the next ten years. This gives Iowa hospitals the ability to offer more attractive salaries and benefits to health care workers.

7) Improve payments to Critical Access Hospitals (CAHs).

Explanation: The Critical Access Hospital Program was created in 1997 to assist small rural, limited-service hospitals. Unlike larger facilities, CAHs are reimbursed based on their costs. To receive this cost-based reimbursement, CAHs must meet certain service guidelines such as bed limits, staffing, and emergency care. The bill will provide additional funding and flexibility by increasing in payments to 101 percent of costs; increasing the bed limit to 25 acute care beds; authorizing periodic interim payments; paying for costs of an expanded number of emergency room on-call providers; permitting psychiatric and rehabilitation distinct part units; and providing four additional years of special grant funding.

Iowa Impact: Nearly half of Iowa's hospitals, 54 in total, are Critical Access Hospitals. The CAH improvements in the bill will provide over $12.5 million to Iowa's Critical Access Hospitals over the next ten years.

8) Increased Indirect Medical Education payments.

Explanation: Medicare provides additional payments to hospitals that incur the costs of providing graduate medical education. Current law sets this payment level at 5.5 percent. This provision boosts that percentage over the next three years.Iowa Impact: Iowa's teaching facilities will receive an additional $2.2 million over the next ten years.

9) Full market basket update for 2004-2007 with submission of data on quality.

Explanation: Hospitals paid on the Prospective Payment System will receive a full market basket update for FY 2004. For FY 2005-2007, these hospitals will receive a full market basket update each year they submit data on the 10 quality indicators in the National Voluntary Hospital Reporting Initiative. Iowa Impact: The Iowa Hospital Association has endorsed the National Voluntary Hospital Reporting Initiative. Currently, approximately 30 Iowa hospitals have begun the process of voluntarily submitting facility-specific information in three main practice areas: heart attack, heart failure and pneumonia. Grassley worked with Iowa providers and businesses on various initiatives to incorporate payment-for-quality into Medicare's reimbursement system. This will be the first step in that process by garnering direct evidence about Iowa's high-quality health care system.