Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - August 01, 2006)

By Mr. GRASSLEY (for himself and Mr. BAUCUS):

S. 3767. A bill to delay the full implementation of the occupational mix adjustment to the wage index under the Medicare inpatient hospital prospective payment system; to the Committee on Finance.

Mr. GRASSLEY. Mr. President, I am pleased to join once again my good friend and colleague Senator Baucus to introduce the Wage Index Accuracy Improvement Act.

The Wage Index Accuracy Improvement Act enables the Centers for Medicare & Medicaid Services, CMS, to improve the accuracy of Medicare payments for acute care hospital services.

Under Medicare, acute care hospitals are paid for inpatient services through the hospital inpatient prospective payment system, IPPS. Around 3,500 hospitals received payment through the IPPS totaling approximately $100 billion in fiscal year 2004.

As you know, hospitals in the United States vary greatly in terms of size, geographic location, types of patients served and staffing. Since a ``one size fits all'' approach to paying hospitals would not fairly compensate hospitals for the inpatient services they provide to Medicare patients, payments under the IPPS are adjusted to take into account these differences.

CMS has been refining one such adjustment, as required by law, and has limited its application until it has been adequately developed. This significant adjustment, the area wage index, is intended to account for differences in prices for labor in different markets.

In order to ensure that the wage index accurately reflects the difference in labor costs among different areas and not a hospital's employment choices, an occupational mix adjustment is also applied to the wage index.

For example, a hospital choosing to employ predominantly registered nurses would have higher labor costs than a hospital employing--less-expensive--licensed practical nurses. Because a hospital's staffing practices are unrelated to area wages, its staff composition should not influence the area wage index.

CMS collected data in 2004 from hospitals for purposes of calculating the occupational mix adjustment; however, because of reasons including the agency's lack of confidence in the data, only 10 percent of the wage index was adjusted for occupational mix in fiscal years 2005 and 2006.

Questions concerning the reliability of these data can be seen in my home State of Iowa. Since the State is largely rural, Iowa hospitals generally employ a less expensive mix of personnel. One would expect the occupational mix adjustment to the wage index to benefit these hospitals; however, the opposite effect has occurred. In fact, it is estimated that the occupational mix adjustment has adversely affected 8 of the 10 geographic locations in Iowa.

CMS originally proposed to continue this limited adjustment for occupational mix in fiscal year 2007, but a Federal appellate court ordered the agency to apply the occupational mix adjustment, based on data collected in 2006, to 100 percent of the wage index effective for fiscal year 2007.

CMS collected these data hurriedly, using only 3 months of data, and will not be able to post the final wage index information until after the fiscal year 2007 inpatient hospital rates are announced. Moreover, since the data collection instrument has changed from the last time CMS collected data, CMS will not have sufficient time to analyze fully the data and determine their accuracy.

Given the lack of opportunity to ensure data accuracy, the uncertainty of how the occupational mix adjustment will affect hospital payments, and the disruption that can occur in moving immediately from a 10-percent adjustment for occupational mix to a 100-percent adjustment, the Medicare Wage Index Improvement Act would limit application of the occupational mix to the current rate for a 2-year period.

This legislation would give CMS the opportunity to look at the data and act accordingly both to apply the occupational mix adjustment to the wage index appropriately and to avoid disruptions.

In the meantime, the Medicare Wage Index Improvement Act would require CMS to evaluate the way in which they collect data for and calculate the occupational mix adjustment and present us with recommendations by January 1, 2008.

I would also like to point out that the changes required under this legislation would be budget neutral because the Social Security Act requires that aggregate payments under this adjustment not be greater or less than payments made without the adjustment.

Mr. President, adjusting inpatient hospital payments under Medicare can have significant effects on a hospital's financial health. These adjustments should therefore be adequately developed to ensure that payments are accurate and not fully implemented until they are ready.

In the case of the wage index adjustment, let's provide CMS the opportunity to get the job done right.

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