Iowa hospitals will gain $377 million and Iowa physicians will reap $8 million from the proposal over the next ten years. (Details of how these dollars would flow to Iowa are provided at the end of this news release.) The Iowa Hospital Association and Iowa Medical Society enthusiastically supported Grassley's amendment.
As chairman of the Senate's tax-writing committee, Grassley is managing the floor debate on the tax bill. He said he brought up the Medicare equity issue because communities across Iowa are hurt economically by the program's flawed payment structure.
"Today's vote is a major step forward in our fight for Medicare fairness for Iowa," Grassley said. "The legislation goes a long way to fixing the shortcomings in Medicare that shortchange Iowa and other rural states. It makes a clear statement that health care providers and hospitals in rural areas should no longer be penalized for doing more with less."
Senators voted an overwhelming 86 to 12 for the Grassley amendment. Final Senate approval of the tax bill is expected later today. A conference committee must reconcile differences between the Senate and House of Representatives-passed tax legislation and both chambers must approve a conference report before the legislation is sent to the President's desk for his signature. Grassley has said he hopes to deliver the Jobs and Economic Growth Reconciliation bill by Memorial Day.
As it stands today, Medicare's complex funding formula penalizes states such as Iowa for practicing cost-effective medicine with an inequitable reimbursement rate. Iowa health care providers and hospitals get less money back from Medicare for the same procedure performed in Florida or New York. Grassley said this creates a disincentive for physicians to practice medicine in Iowa and pinches an already razor-thin operating margin for vulnerable hospitals. "This adversely affects the quality of care available in communities in Iowa. It's not fair to Iowans who pay the same Medicare payroll tax as every worker in the country," he said.
Grassley first introduced his comprehensive plan to address unfair treatment by the Medicare program a year ago. The amendment he got passed today contains many of these provisions for rural hospitals and more robust measures for rural physicians. Grassley said the legislation includes reducing the payment inequity that hurts rural physicians; improving an existing program which offers a 10-percent bonus to physicians serving patients in medically under-served rural areas; boosting the base payment to put all Iowa hospitals on equal footing with their urban counterparts; protecting the funding stream for outpatient services provided by rural hospitals and better protection for 40 small-town hospitals which qualify as Critical Access Hospitals; creating a five-percent payment boost for home health care services provided in rural areas; improving the hospital wage index that currently pulls down Iowa's reimbursements; and, assisting rural ambulance services.
Grassley said his Medicare amendment is mostly paid for by reducing the high prices Medicare pays for currently covered prescription drugs. His legislation would also slow the growth of Medicare spending on certain items of durable medical equipment and add reasonable co-payments to covered laboratory services. These co-payments don't exist in current law.
In addition to tax policy, the Senate Finance Committee which Grassley chairs has legislative and oversight jurisdiction over Medicare. In January, Grassley won passage of targeted, short-term fixes to smooth out critical inequities in the system until permanent relief can be achieved.
Details of how the provisions of Grassley's Medicare amendment would benefit Iowa follow here:
A Full and Permanent Equalization of the Standardized Payment Amount. The fiscal 2003 Omnibus Appropriations bill included temporary measures to equalize the Medicare inpatient standardized amount payment. Prior to this provision being enacted, urban hospital payments that were paid 1.6 percent higher than rural and small urban facilities. Grassley's amendment would make the standardized payment fix permanent. Over a ten-year period, Iowa's hospitals would receive $173 million.
Revising the Labor Share. Under current law, the labor share of a hospital's wage index is set nationally at 71 percent, which means that the wage index is applied to 71 percent of each inpatient payment. This policy recommendation is important, too. Many hospitals tend to have wage index values below 1.0, which means that currently 71 percent of each inpatient payment is adjusted downward as a result of their relatively low wage index. Grassley's amendment would reduce the labor share percentage to 62 percent. Over a ten-year period, Iowa's hospitals would receive $112 million.
Assistance for Low-Volume Hospitals. This provision provides a new low-volume adjustment payment for certain rural hospitals. This adjustment would increase the inpatient payments for the very smallest hospitals by 25 percent. The payment adjustments would decrease as the level of inpatient admissions rises, and phase out completely for facilities that discharge more than 2,000 patients per year. Over a ten-year period, Iowa's hospitals would receive $83 million.
Equalizing Medicare Disproportionate Share Payments. While urban facilities can receive unlimited add-ons corresponding with the amount of uninsured patients served, payments for rural hospitals are capped at 5.25 percent. Grassley's amendment would remove the cap on rural providers. Over a ten-year period, Iowa's hospitals would receive $611,000.
Eliminate Geographic Adjustment for Physician Payments. Medicare pays for physician services in rural states at a lower rate than those same services performed in urban areas. Physician payments are determined using three components: physician work, practice expense and malpractice insurance. The physician work component reflects a physician's time and effort. The practice expense component accounts for the cost a physician incurs for office space, supplies and wages for employees. The malpractice insurance component reflects the cost of purchasing malpractice insurance in Iowa. Grassley's amendment would eliminate these disparities. Over a ten-year period, Iowa physicians would receive $2.28 million for the physician work component. Over a ten-year period, Iowa physicians would receive $4.81 million for the practice expense component. Over a ten-year period, Iowa physicians would receive $1.06 million for the malpractice insurance component.