Grassley said that the current Medicare formula for paying hospitals for wages penalizes Iowa because the wage formula used presumes that labor costs are a greater percentage of Iowa's hospital costs than they actually are. This presumption drives down Medicare payment rates. The problem plagues low-cost parts of the country, and Iowa is at the top of the list.
Grassley's legislative solution -- the Geographic Adjustment Fairness Act of 2000 -- would base the wage payment calculation on each hospital's actual labor costs instead of using a general, arbitrary number. His bill would require the formula change to reflect true need, and it would mean more money for Iowa hospitals upon enactment.
Grassley is a senior member of the Senate Finance Committee, which has jurisdiction over the Medicare program. Here is his testimony from today's hearing:
Following is Sen. Grassley's testimony:
Senator Cochran, thank you for holding this hearing on the condition of our rural hospitals. The name of this subcommittee includes the phrase "Rural Development," and hospitals are essential to the economic development of rural America. Many rural areas are struggling economically and having a hard time retaining their population. It's difficult to attract major employers to an area with no hospital. So this isn't just about preserving hospitals; it's about preserving rural America as a viable place to live and work.
The Iowa Hospital Association has reported to me that over 60% of the state's rural hospitals lost money on patient care last year. I am sure the numbers are similar or even worse in many of your states. That's not an isolated problem, but a widespread one. With negative operating margins, how are those hospitals even hanging on? Well, in many cases, they are county hospitals requiring ever-increasing local tax subsidies ? but raising taxes is a sure way to scare employers off. It is not sustainable.
There are many reasons for this problem, but I'd like to focus on one that we're in a position to do something about: inadequate Medicare payment to low-cost hospitals. Rural areas tend to have older populations, so rural hospitals rely on Medicare more than most. The sad fact is that Medicare has never treated rural hospitals well, and the situation is now worse than ever.
We're probably all familiar with Medicare+Choice payment battles, but very few rural seniors are in private plans. So I'd like to focus on the inequity in fee-for-service payments to rural areas. On a per-capita basis, rural Medicare beneficiaries receive many fewer services than those in urban and suburban areas. Much of this is due to differences in medical practice; we in rural America simply do not go to the doctor as much as those in places like Washington, D.C.
I wish there were a magic wand we could wave to correct this, but there's not, because Medicare is an entitlement program. What we can do is identify the unfair aspects of the current payment system, one by one, and try to fix them.
One such flaw is the hospital wage index, which is meant to adjust payments to reflect local labor costs. But one of the many problems with the wage index is that it is applied to a larger share of rural hospitals' costs than it should be.
My proposed fix is Senate Bill 2828, which I introduced just before the recess with your cosponsorship, Senator Cochran. The bill simply says that Medicare will apply the wage index adjustment -- which lowers payments to hospitals in low-cost rural areas -- ONLY to an individual hospital's actual labor costs, not to a national average. It's a simple reform, and who can argue with a change that makes the system more accurate?
It's an example of a proposal that came to us from the grassroots; rural hospital administrators examined their payments to figure out why they were so low, and identified this flaw in Medicare. There are other proposals for wage index reform that differ from mine, and I'm open to them; the main thing is that we get it done this year.
What are some of the other changes we need to make to preserve rural hospitals? Let me list some key ones, from Senate Bills 980, 2505, and 2537:
We need to update the Medicare Dependent Hospital program, and make it permanent. This program benefits hospitals that are over 60% dependent on Medicare ? but only if they met that level way back in 1988! This is a good example of how outdated the Medicare program has become for rural America. Opposition in the House prevented us from fixing this last year, so we'll have to try again.
We need to restore to rural hospitals a full market basket increase on inpatient care.
We need to accept MedPAC's recommendation and finally equalize the urban and rural standards for receiving Disproportionate Share funds.
We need to change Medicare's payment rules so that rural hospitals can begin to take advantage of telehealth technology.
These are all examples of the hard work of addressing the rural flaws in Medicare fee-for-service. It's not easy or glamorous, and politically it's always an uphill battle to help rural America, but it has to be done.
It now seems likely that the Finance Committee will consider Medicare provider payment issues again this year. Last year, rural health care did not do as well in conference as it should have. So as far as I'm concerned, this year rural hospitals should be at the front of the line. I look forward to fighting for them, and I thank you for holding this hearing and helping to build momentum for that fight.