Chuck Grassley

United States Senator from Iowa





Grassley Works for Rural Health Care

Feb 25, 1997

Grassley Works for Rural Health Care

Iowa Senator Advances Bill to Secure Fair Treatment for Iowa, Common Sense Reform

Jill Kozeny


Seeking to increase health care coverage and establish fair treatment for Iowans in the Medicare payment system, Sen. Chuck Grassley today joined in introducing legislation that replaces the current system of Medicare managed care payments with a method that is fairer to low-cost regions of the country.

"A dramatic disparity exists even though all Americans pay the same payroll tax of 2.9 percent to the Medicare Trust Fund," Grassley said. "While Iowa may have an ability to provide services at a lower cost than in some other areas of the country, the difference in the Medicare payment rate for Iowa as compared to New York or Miami is far greater and more egregious than any reasonable measurement of the cost of providing health care services."

Grassley sponsored The Medicare Payment Equity Act of 1997 with Sen. Craig Thomas of Wyoming. "This bill takes a very aggressive approach to HMO payment reform. It works to correct a fundamentally unfair formula which allows a 300 percent disparity on average between Medicare reimbursement rates in rural and urban areas of the country. As it stands today, rural beneficiaries are prevented from having access to the benefits and choices provided by managed care plans," Grassley said.

In Iowa, Allamakee County receives the lowest monthly Medicare payment rate, known as the adjusted-average-per-capita-amount (AAPCC). It is $252 per Medicare beneficiary. The highest rate in Iowa is $411 in Pottawattamie County. These rates contrast sharply with other areas of the country. For instance, Richmond County, New York, receives $767 per Medicare beneficiary. HMOs in Miami receive $748 per month per beneficiary.

"The current payment plan leaves Iowans without the additional benefits -- including eyeglasses, prescription drugs and payment of premiums at no extra cost -- enjoyed by many urban Medicare beneficiaries," Grassley said. "Congress and the President must correct this injustice. Rural providers must be given the same opportunity to provide benefit options to rural residents."

The Thomas/Grassley bill seeks to "uncouple" payments to Health Maintenance Organizations (HMOs) from fee-for-service Medicare payments. This is important because the current system rewards managed care plans in regions with inefficient patterns of medical practice, while punishing areas, such as Iowa, where health care costs have been kept low. The legislation would:

  • Establish for managed care plans in all counties a floor of 80 percent of the national input-price-adjusted capitation rate. Grassley said that setting the floor at a percentage of thenational average ensures that the disparity between high-cost and low-cost areas will not grow too large. Today, the national average is $467. Eighty percent of this amount is $374. Because all but a few Iowa counties currently are below $374, the rates in those counties would be increased more by the 80 percent floor than with the $350 floor set by the 1995 Balanced Budget Act and the Clinton administration's current proposal.
  • Establish a 50/50 blend of the local and national average rates for plans in counties currently above the 80 percent floor. Grassley said this is more equitable than the less aggressive 70 percent local/30 percent national blend advocated by the administration's current proposal and included in the 1995 Balanced Budget Act. In addition, Grassley said that the nine Iowa counties currently above the 80 percent floor would benefit more from the 50/50 blend than from a 70/30 blend.
  • Phase in over five years the 50/50 blend of local and national rates. Grassley said this should give plans in high-cost areas ample opportunity to increase their efficiency.
  • Base the local component of the 50/50 blended rate upon averages of the rates for fiscal years 1995 through 1997, rather than on the rate of the preceding year only, as at present.
  • Remove disproportionate share payments and graduate medical education funds from the managed care payment rate, effective immediately in fiscal year 1998. The bill does not propose a new system for the provision of such funds to hospitals.
  • Require the Health Care Financing Administration (HCFA) to institute competitive bidding demonstration projects in at least the five counties with the highest current payment rates, in order to test alternative market-based approaches. The five highest cost areas are located in New York, Miami and New Orleans.
  • Affect the federal budget in a neutral manner. Payments for HMOs in high-cost areas will be reduced to offset the increased payments to low-cost areas.

Overall, the Thomas/Grassley initiative reflects recommendations put forth by the Physician Payment Review Commission in its 1996 Annual Report to Congress. It also incorporates changes advocated by the Rural Policy Research Institute.

Grassley serves as a senior member of the Finance Committee, where all legislation affecting the Medicare program is considered.