Compendium Of Recommendations Sensitive To Rural Health
And Relevant To The Anticipated 1997 Medicare Reform Debate,
Organized By Issue


Received by the NRHA Health Policy Board, 11/15/96


NRHA Health Policy Board Medicare Reform Work Group

Gail Bellamy
Marvin Cole
Bonnie Post
Keith Mueller
Wayne Myers
Jennifer Rapp
Tim Size (Chair)


Background

Rural health advocates bring a unique perspective to any debate that focuses on reforming Medicare:


(Above data from Medicare And The American Health Care System, Report To The Congress, Prospectiv Payment Assessment Commission, June 1996)

Rural health has a troubled legacy from the Medicare program. The overwhelming and disproportionate share of patients seen by rural providers are Medicare enrollees while in a contrary manner, rural health represents a very minor portion of Medicare program expenditures. The small portion of Medicare expenditures for rural communities makes it difficult for them to gain the attention needed to solve long-standing rural equity issues. In summary:

Medicare casts a long shadow over rural health while
rural health is largely ignored by Medicare.

Sources Of Prior Recommendations

The following documents were used in the development of this report [any source not included is due to an oversight rather than as the result of any screening process]:

CFM: What is the Solution, Essential Elements of a Fair Medicare Program, an Information Sheet from the Coalition For Fairness In Medicare, c/o APCO Associates Inc., 1615 L Street, N.W., Suite 900, WDC 20036.

NACRH: Seventh Annual Report on Rural Health, Recommendations to the Secretary of Health and Human Services by the National Advisory Committee on Rural Health, December 1994.

NRHA-I: National Rural Health Association, Adopted Policies and Positions, 1985-1993, June 14, 1993.

NRHA-II: Essential Community (Access) Providers, An Issue Paper Prepared by the National Rural Health Association-May, 1995

NRHA-III: Managed Care As A Service Delivery Model In Rural Areas, An Issue Paper Prepared by the National Rural Health Association-May, 1995

NRHA-IV: Medicare Issues, Prepared by the National Rural Health Association, September, 1995.

NRHA-V: Funding Of Graduate Medical Education, National Rural Health Association, May, 1996.

NRHA-VI: Letter to Representatives Gunderson and Poshard from NRHA re the Rural Health Improvement Act, June, 1996

PROPAC Report And Recommendations To The Congress, Prospective Payment Assessment Commission, , March 1, 1996

PPRC 1996 Annual Report to Congress, Physician Payment Review Commission

RUPRI-I THE RURAL PERSPECTIVE ON MEDICARE POLICY REFORM, Implications for Rural Health Care Delivery, by the Rural Policy Research Institute, Health Delivery Panel, July, 1995

RUPRI-II: RURAL IMPACTS OF MEDICARE POLICY CHANGES: QUESTIONS AND ANALYSIS WITH REFERENCE TO H.R. 2491 by the Rural Policy Research Institute Rural Health Delivery Expert Panel & Rural Medicare Task Force, December 5, 1995.

RUPRI-III: ANTICIPATED IMPACTS OF THE RURAL HEALTH IMPROVEMENT ACT OF 1996 by the Rural Policy Research Institute Rural Health Delivery Expert Panel, July 15, 1996.

RWHC: Medicare & Rural Health, Medicare casts a long shadow over rural health while rural health is largely ignored by Medicare. Written Testimony For The One Hundred Fourth Congress, The Committee on Ways & Means Subcommittee On Health: Tim Size, Executive Director, Rural Wisconsin Health Cooperative, July 13th, 1995

TWMH: Proposal developed by Tony Wellever and Mary Huntley; mailed to NRHA on June 19th, 1996.


Organization Of Recommendations

Recommendations are first grouped by category, then by source and last by date; the categories used include:


Note: some of the referenced items were not originally published as recommendations but are included below as a reasonable reader may infer important recommendations from them, particularly as specific legislative language is reviewed.


Medicare Reform - General Principles

(CFM#4) Allow Reasonable Growth in Medicare Program--All proposals should acknowledge that reasonable annual growth rates in the Medicare program must be permitted so that Americans do not lose benefits. The Fairness Coalition supports efforts to protect and preserve the TRust Fund while acknowledging the need for reasonable growth rates. Fair payment will help distribute more choices with fairer benefits to all beneficiaries while preserving the future for future generations.

(NACRH#94-01) Rural Representation--The Committee recommends that all governing and advisory boards that are established to implement any further health reform be specifically required to have rural representative among their members. In particular, any alliance that includes a rural population should be required to have substantial rural representation on its governing board and professional advisory board. In addition, any requirements for these boards to consult with outside interests should include a requirement to consult with individuals and organizations representing rural interests.

(NACRH#94-07) Alternatives To Historical Costs--The Committee recommends that the Secretary consider alternatives to the use of historical costs as the basis for setting fee schedules, premium caps, or any other cost containment mechanisms introduced as part of health care reforms. Health care reforms at the state or national levels will inevitably include mechanisms to control costs. The Committee is extremely concerned that the use of historical costs as the basis for setting fees, caps, or other cost containment mechanisms would perpetuate the long-term disparity in payments between rural and urban providers. The disparity in payments has contributed to the difficulty rural communities face in building and maintaining adequate health care services. It also contributes to reduced access to health care practitioners in rural communities.

(NRHA-I#93-B) NRHA opposes freezing fees or other short or long term price controls that perpetuates geographic differentials and other inequities in reimbursement of rural providers.

(NRHA-IV#7a) NRHA supports the retention of seasonable cost-based federally qualified health center and rural health clinic (FQHC and RHC), disproportionate share (DSH), and Essential Access Community Hospital/Rural Primary Care Hospital (EACH/RPCH).

(NRHA-IV#7b) NRHA would support other reimbursement methodologies only when they are designed to ensure access to health care and adequate revenue to maintain and protect the fragile rural health care system.

(PROPAC#1) Slowing the Rise in Medicare Spending--The Commission supports the efforts of the Congress and the President to reduce the growth in Medicare expenditures. Over time, spending for services furnished to Medicare enrollees should increase at rates comparable to those in a cost- and quality-conscious private sector.

(PROPAC#2) The Failsafe Budget Mechanism--Any failsafe budget mechanism should include a more effective risk adjustment factor to ensure payment equity between the Medicare capitation and traditional fee-for-service programs. In addition, changes in inflation that differ substantially from CBO forecasts could require modifications to the Medicare benefit budget over time. Revisions to the proposed fee-for-service sector budget allocations could also be needed as medical practices change.

(RUPRI-I#Ov.) Careful consideration be given to the potential rural effects of any major changes in Medicare policy given the importance of Medicare payments to rural providers and Medicare benefits to rural citizens,.

(RUPRI-I#1) Rural providers need adequate and stable funding from Medicare--Rural providers are often quite dependent on public programs for funding, because rural communities are characterized by lower household income, more elderly people, and more part time or part year work. In this fiscal environment, reductions in Medicare revenue or increases that do not keep pace with costs will be difficult, and in some cases impossible, to absorb. Because of the very high proportion of elderly in rural areas, Medicare is a very large and critical source of payment for rural health care providers. Generating cost-savings in Medicare through such strategies as reducing disproportionate share payments, lowing payment increases below market basket adjustments, and shifting to a restricted capitation payment could jeopardize the financial life of rural providers. Achieving cost savings by designing new systems of payment (such as risk-based capitation) could threaten rural providers with financial ruin, particularly if such systems are based on historical charges, which have been much lower in rural than in urban counties. Where Medicare revenues are a large proportion of all revenues, and where charges have been low, because of cost advantages that may no longer exist, or deliberate policies to subsidize low charges from non patient revenue, using historical charges to set current reimbursements will create negative operating margins.

(RUPRI-I#2a) The importance, and vulnerability, of rural facilities must be acknowledged--Rural hospitals, primary care clinics, long-term care facilities and special facilities such as mental health facilities are critical for rural communities. The financial condition of these facilities and how they are integrated into rural delivery networks are critical issues in rural health system development. Between 1980 and 1990, 330 rural hospitals in this country were closed. In rural hospitals today, Medicare payments account for approximately 40 percent of net patient revenue. In 1992, 31 percent of rural hospitals had negative total operating margins, comparing total revenue with total expenditures. Rural hospitals and other facilities are often the core institutions in the integrated health delivery systems in rural areas. While there is a need for some rationalization of the form and function of many rural facilities, the financial stability of the lead institution in these communities is essential to ensure the continued viability of new networks.

(RUPRI-I#2b) The importance of flexibility in payment and regulation is a key rural issue--As rural communities continue to experiment with new configurations for their essential facilities, such as medical assistance facilities or rural primary care hospitals, reimbursement policies will need to keep pace with changes that permit appropriate payment. Community leaders and providers may also need technical assistance to align local changes with federal policies related to conditions of participation and reimbursement. Any specifications of essential community providers in new approaches which expand Medicare Select, while assuring access, should also acknowledge the diversity of providers in rural areas of different states. Designating only particular types of providers (e.g., federally qualified health centers and sole community hospitals) as essential providers to receive guaranteed payment fails to recognize the diversity of rural providers, including those in states with few of these designated provider types which have underserved areas being serviced by other types of rural providers.

(RUPRI-I#3a) The supply and appropriate distribution of primary care and other health professionals are critical issues for the future of rural health--For most rural areas, the only type of physician that is feasible and rational is a primary care physician-- especially general and family practitioners. To improve the availability of primary care physicians in rural communities, there is a need for a substantial expansion in the national supply of primary care physicians, and programs and incentives that encourage those physicians to practice in rural communities. For rural areas to achieve the standard physician-to-population ratio of 1 for every 3,500 persons, at least 5,085 primary care physicians would be required. Shortages have also been documented in the following professions, at least 70 percent of which are in rural areas: dental, 1,115 areas requiring 3,592 professionals; mental health, 832 areas requiring 4,033 professionals. The need for a substantial increase in primary care physicians has become even more critical given the recent increase in competition for primary care physicians from urban based, managed care systems. This is especially the case in some specific regions of the country, including the southeast. Many non-physician providers can provide high quality primary care in a cost-effective fashion that is acceptable to those living in rural areas. Those providers include nurse practitioners, physician assistants, and certified nurse midwives. They are especially effective as participants in multi-disciplinary teams of health professionals that serve rural areas -- for example, non-physician providers may staff clinics that are parts of systems that include physicians in other locations.

(RUPRI-I#3b) Current cost-effective programs are designed to impact the supply of providers and the infrastructure of the rural health care system.--Programs are in place which are designed to serve areas with special needs in a cost- effective manner. Examples include the National Health Service Corps, Migrant and Community Health Centers, and Rural Health Clinics. While changes may be appropriate in these programs and others, efforts to support innovative strategies for delivering health care in sparsely populated areas help sustain providers in those communities.

(RUPRI-I#4) Incentives are needed to serve underserved areas and facilitate network development through reimbursement policies--Many rural communities and providers are beginning efforts to develop integrated service delivery networks that will provide more cost-effective care and potentially serve as the vehicles for introducing managed care to rural America. Networks developed in large rural communities, or those developed in urban communities that extend into rural areas, may need special incentives in order to serve more sparsely populated areas. Rural communities wanting to develop locally-based networks, before potential incursion of urban-based systems, may need special financial and/or regulatory considerations in order to become viable. Programs designed to assist in developing rural networks should be used to continue assistance where needed, and provide analysis to use in developing payment and regulatory policies. Payment policies can include special incentives to provide care in underserved, sparsely populated areas. Examples exist now: sole community hospital designation, bonus payments for physicians in small rural hospitals, and demonstration programs for new classifications of rural facilities.

(RUPRI-II#P.34b) Reductions in the Medicare PPS update will result in increased cost shifting to private payers. The effects of these cost shifts are likely to raise health insurance premiums for businesses and individuals.

(RUPRI-II#P.35) The reductions in the Medicare PPS updates will have a significant, negative effect on rural employment levels and wages (with corresponding ripple effects throughout the rest of the rural economy).

(RUPRI-II#P.42) The failure of managed care and other provisions to produce the savings necessary to achieve spending targets will trigger the further reductions in fee for service payment rates under the Failsafe budget mechanism. Reductions in fee for service payments hurt rural providers disapproportionately due to the higher proportion of such payments in rural practices.

(RWHC#1) Prior to application of any budget cuts to rural communities embodied in Congressional enactment of the FY 1996 budget reconciliation, the Prospective Payment Advisory Commission and the Physician Payment Review Commission should analyze the rural impact, by state, of the Appropriations Committees' proposals for cutting the projected expenditures in the Medicare and Medicaid programs. Moreover, impact analyses are needed to assess the combined effects of reduced expenditures in the two programs and upcoming changes in the private health care insurance sector.

(RWHC#3) The annual market basket of input costs calculated for rural hospitals shall not be decreased by any reduction in baseline projections for the average hourly wage. The issue with Medicare is not whether the rate of growth in the Medicare program will be slowed (the $250 billion "cut") but by how much and through what mechanism. Many Medicare patients and hospital administrators may prefer addressing Medicare cuts through slower wage growth rather than fewer nurses at the bedside or in the clinic. But the current proposals to reduce future Medicare spending encourages just the opposite national response­p;cutting staff rather than slowing wage growth.


Effect Of Medicare Reform On Beneficiaries

(NRHA-IV#6) NRHA favors using sliding scales for any cost sharing changes in Medicare policy.

(PROPAC#26) Beneficiary Liability for Hospital Outpatient Services--The growing financial burden for Medicare enrollees who receive services in hospital outpatient departments should be alleviated immediately. Beneficiary coinsurance for these services should be limited to 20 percent of the Medicare-allowed payment, as it is in other settings. For services not paid on a prospective basis, the Secretary should establish a beneficiary copayments based on estimated allowed payments since they cannot be calculated precisely when services are delivered.

(RUPRI-II#P. 23) In general, the financial capacity to adjust to across-the-board increases in beneficiary cost sharing (i.e., increases in premiums, deductibles, and co-payments) is much less among the rural elderly than among the urban elderly. Hence, an income-related or means testing approach to beneficiary cost sharing will be helpful in reflecting the very different income profiles that exist between rural and urban areas.

(RWHC#12) Any subsidy of Medicare enrollees for benefits in excess of their total contribution (including employee and employer contributions, any interest the government earns on those taxes, and all Medicare premiums paid) should be subject to means testing. "It is widely believed that Medicare aged and disabled recipients 'pay their own way' by contributing payroll taxes to a hospital trust fund during their working lifetimes and by paying annual insurance premiums after they retire. The reality is that retiree health expenditures represent a substantial burden on current workers... someone retiring in 1990, even though contributing nearly $18,000 to Medicare, will receive an $82,000 subsidy as expected program outlays are projected to reach nearly $100,000 per retiree (in 1991 dollars)." (The Nation's Health Care Bill: Who Bears the Burden?, prepared by the Center for Health Economics Research, Waltham, Massachusetts, July, 1994.)


Medicare Risk & Alternative Plans

(CFM#1) Decouple Medicare Health Plan Payment From Fee-For Service Spending--Health plans should be paid a sufficient premium to offer a high quality Medicare package. Payment should not be based on fee-for-service spending. Congress must decouple risl contract payments from the AAPCC Formula.

(CFM#2) Adequate Minimum Payment Floor--Every county should have an adequate minimum payment rate for Medicare health plans. The payment floor must be high enough to attract qualified plans who offer AT LEAST the Medicare benefits required by law. The Fairness Coalition supports a payment floor for 1997 of at least 80% of the national average, and in no case lower than $350.

(CFM#3) Reduce The Regional Variation Over Time--The wide geographic variation from county to county must be reduced over time. The goal is to raise the lower payment areas closer to the average while taking into account actual differences in input costs that exist from region to region. The Fairness Coalition supports the blending of national and local rates to bring the highest aand lowest payment areas closer together.

(NACRH#94-17) Risk Adjustments--The Committee recommends that explicit attention be paid to rural concerns as risk adjustment methodologies are developed in conjunction with health insurance reforms. Such concerns include the lack of good cost data on rural minority populations and occupational illness and injury. The Committee urges the Secretary to consult rural experts, including the Committee, in developing data bases and methodologies for risk adjusters that include rural populations. It is widely recognized that state or national health insurance reforms that require community rating also will require risk adjustments to protect health plans that enroll large numbers of high cost patients. States may look to the federal government for technical assistance with developing risk adjustment methodologies.

(NRHA-II/3) Cost studies done regarding efficiency of managed care plans need to include hidden costs (transportation, time lost, etc.) to consumers.

(NRHA-III#1a) Any efforts to promote managed care or case management systems should be flexible and recognize the unique barriers and system development challenges created by geography and other limitations inherent to rural areas.

(NRHA-III#1b) Managed care systems in rural areas should require community representation and involvement in local planning and development efforts.

(NRHA-III#2) In multiple delivery system options (e.g., managed care, private practice, community clinics) it is critical to take into consideration unique population characteristics, geography, and consumer choice. Federal guidelines should provide the necessary flexibility to ensure that consumer choice will be protected.

(NRHA-III#3a) Strong financial incentives should be established to encourage providers to improve the health of the population and take more responsibility toward building a healthier community.

(NRHA-III#3b) State legislation should be enacted that would place ceilings on the percentage of premiums or membership fees that can be used by a managed care organization to cover administrative costs.

(NRHA-III#4a) Each state should set standards and provide oversight to ensure that high quality health care services are accessible and affordable.

(NRHA-III#4b) Federal and state governments should enact a "Patient Protection Act" that would ensure choice of providers, continuity of care, and a clear explanation of benefits.

(NRHA-III#5a) No health insurance plan should be able to refuse to cover an individual based on prior health history or pre-existing conditions. Modified community rating should be required in a given geographic area.

(NRHA-III#5b) All managed care plans should be required to serve adjacent rural areas if they are operating in urban areas. States should determine these boundaries.

(NRHA-III#5c) All health insurance plans should have open enrollment to allow individual and small group coverage as well as large group enrollment.

(NRHA-III#5d) Unless limited by state policy, all managed care plans must enroll any individual with Medicaid coverage.

(NRHA-III#6a) In rural areas, health care providers should be allowed to participate in more than one managed care plan.

(NRHA-III#6b) Any willing provider law should be used as needed to sustain health care delivery systems in rural areas.

(NRHA-III#6c) Providers should work together to develop clinical protocols that give them guidance in providing quality health care. These protocols should take into consideration the rural practice environment. Also, if these protocols are followed, practitioners could not be disenrolled.

(NRHA-III#6d) Educational programs should be available to rural providers to teach them how to negotiate and work with managed care organizations.

(NRHA-III#6e) Strategies should be developed that protect and strengthen the health care networks that are forming in rural areas. Communities should be empowered to maintain decision making at the local level. Technical assistance should be provided to encourage the development of community-responsive managed care networks.

(NRHA-III#6f) State and federal antitrust policies should clarify business integration practices and develop guidelines that encourage cooperative rural managed care networks.

(NRHA-IV#1a) TheHospitals in underserved and sole community provider areas should be exempt from further relative (to the market basket indicator) decreases in reimbursement.

(NRHA-IV#1b) The wage index reflect the price of labor by reimbursing rural hospitals with a fair occupational mix adjustment.

(NRHA-IV#1c) The hospitals' area wage indices should be adjusted to reflect a single statewide rate for hospital professional employees in all states having a single payment locality.

(NRHA-VI#1) Equalization of Medicare Reimbursement Rates to HMOs - NRHA supports a minimum payment of $350 in 1997 dollars for Medicare reimbursement of plans participating in the HMO risk contract program.

(NRHA-IX#1) The governance of Provider Service Networks should be required to have proportional representation of local essential providers (including FQHCs, RHCs, Community Health Networks funded under Title II) in those instances that HCFA develops Medicare risk contracts with special allowances for provider networks in underserved areas.

(PROPAC#3) Expanding Medicare's Capitation Program--The Commission supports reforming the Medicare capitation program to control spending while expanding beneficiary choice.

(PROPAC#4) Setting and Updating the Capitation Rates--Geographic variation in the capitation rates and the volatility of the rates from year to year should be reduced. The Secretary should develop and test alternative payment methods that would allow the payment rates to reflect changes in local market conditions.

(PROPAC#5) Improving Risk Adjustment Methods--The risk adjustment methods used to set Medicare capitation payments should better reflect variation in the likely use of services. Even as research on the development of new methods continues, the Secretary should implement interim improvements as soon as possible.

(PROPAC#6) Medical Savings Accounts--The Congress's high deductible/MSA option would provide an additional choice for Medicare enrollees. ProPAC is concerned, however, that the current Medicare risk adjustment method is not sufficient to protect the program from adverse selection and resulting excess spending. The likelihood that rates would better reflect risk would be enhanced if Medicare enrollees were required to remain in the MSA option at least for several years.

(PROPAC#8) Information for Beneficiary Health Plan Choices--Medicare should make available to beneficiaries information about the performance of plans and local providers. The Secretary should identify the information beneficiaries need to make appropriate choices and develop innovative ways to improve access to it.

(PROPAC#9) Health Plan Accountability--Medicare must hold health plans accountable for the appropriate use of Medicare funds. In addition, standards must be developed and enforced to ensure that Medicare beneficiaries will receive services of appropriate quality.

(RUPRI-II#P. 5) Rural providers will compete effectively for enrollment. However, rural providers will compete more effectively in areas where the local conditions are favorable, where capitation rates are more favorable, and where local involvement of beneficiaries is greater.

(RUPRI-II#P. 15) Adverse selection between MedicarePlus choices will result in a triggering of the "failsafe" budget mechanisms and this is likely to lead to significant adverse consequences for rural residents who stay in traditional FFS Medicare through cuts in provider reimbursement rates.

(RUPRI-II#P. 34a) Although the penetration of managed care in rural areas is limited, the expansion of PPO and HMO arrangements involving significant hospital discounts and resulting in decreased hospital volume represent an additional threat to the financial viability of some rural hospitals.

(RUPRI-II#P. 47) If the requirement for managed care organizations to provide care in reasonable proximity to beneficiaries' homes is enforced, rural provider recruitment and retention will be strengthened.

(RWHC#5) The Health Care Financing Administration shall substantially change the current HMO system of reimbursement (based on historic adjusted average per capita costs of rural residents) to more accurately reflects the current cost of providing managed care to rural residents with equitable access to covered services. A competitive bidding process among Medicare HMOs shall not be implemented in rural communities before this new process is carefully piloted in several rural areas.

(RWHC#10) Protect rural community choice of local providers and local access to care by requiring Medicare HMOs to contract with those rural providers who are able and willing to meet specific managed care organization standards for quality, utilization, license and cost. As managed care systems move to capture local markets, conflict is naturally developing with rural communities who wish their local providers to develop or retain relationships with multiple systems. The growing economic power of large HMOs to threaten the lock-out of local providers from the insured population can be used to force de facto exclusive relationships.


Traditional Medicare, Part A

(NACRH#94-18) Adjust For Occupational Mix In The Medicare Wage Index--The Committee recommends that the Secretary base the wage index, which is used to calculate Medicare hospital payments, on relative labor costs adjusted to a standard occupational mix. To accomplish this, the Secretary should establish a data base for making a labor market specific occupational mix adjustment. In its Second Annual Report to the Secretary, the Committee made two recommendations for improving the wage index. Recommendation 89-3 asked the Secretary to implement a refined area wage adjustment to better reflect differences in hospital wages. Recommendation 89-4 requested annual updates of the data used to calculate the wage index. It also sought the collection of data by occupational category. Since those recommendations were made, the Health Care Financing Administration (HCFA) has begun to update the wage index annually and has made other improvements to the wage index, such as including contract labor. However, despite the Committee's previous recommendations, and similar recommendations made since 1987 by the Prospective Payment Assessment Commission (ProPAC), the Secretary has yet to include an occupational mix adjustment in the wage index. At this time, the Committee wishes to reiterate that portion of its previous recommendations requesting that the wage index be adjusted for occupational mix.

(NRHA-I#87-D) NRHA supports equal access to and equal treatment under the Medicare disproportionate share adjustment for hospitals.

(NRHA-I#92-G1) NRHA supports the ongoing need to challenge and correct the injustice of Medicare rules that create a payment bias against rural providers. These inequities dangerously restricts the ability of rural communities to access needed local services. From its inception the prospective payment system has been biased against rural providers. We recognize and support continuing the phase out of the urban/rural differential in standardized hospital inpatient rates, however substantial system bias continues in large part, including in Federally Qualified Health Center and physician payments, through a misunderstanding and manipulation of the models used to describe all rural provider relevant labor markets, specifically:

(NRHA-I#92-G2) Medicare's view of wages has been based on a simplistic and erroneous model of a labor market, isolated mesas of high wages towering over lower wage rural plains. In reality, professional markets are now generally flat over large areas of a state and variation in non-professional labor markets can be seen as gently rolling hills.

(NRHA-I#92-G3) Rural providers adversely affected by earlier inequities have not been able to spend money that they did not have; wage components of reimbursement formulas for rural providers have been artificially suppressed. Historical expense data for these facilities and practitioners is a particularly poor proxy for local labor markets.

(NRHA-I#92-G5) Professional labor shortages in rural areas have put disproportionate upward pressure on rural salaries; an additional cost to rural hospitals not reflected in wage indices calculated using old non-representative data on rural provider expenses.

(NRHA-IV#3) NRHA opposes opposes wholesale elimination of the disproportionate share hospital program, but would support appropriate reform.

(RUPRI-II#P. 32) Reductions in the Medicare PPS update factor will result in the closure, conversion and/or consolidation of some rural hospitals.

(RWHC#4a) The Health Care Financing Administration (HCFA) shall occupationally mix adjust the data used to develop Medicare Wage Indices; a long-standing technical short coming that tends to over pay large hospitals and underpay small hospitals and inhibit the develop of an improved Wage Index model.

(RWHC#4b). Until an occupational mix adjustment is implemented, HCFA shall be prohibited from including the lower wages related to skilled nursing facilities operated by rural hospitals into those hospitals' Medicare average hourly wages. You would not expect wages to vary significantly between neighboring rural hospitals. as shown in a recent HCFA study. But you can't compare apples and oranges. Medicare is including the lower wages related to skilled nursing facilities operated by rural hospitals into those hospitals' Medicare average hourly wages.

(NRHA-VI#7) NRHA supports the inclusion of a provision to reinstate the Medicare Dependent Hospital program which expired on April 1, 1993.

(PROPAC#17) Disproportionate Share Hospital Payments--The Commission is concerned about the potential impact of reductions in DSH payments. Hospitals that treat a large number of the uninsured could be particularly vulnerable because of recent changes in the health care environment. Large reductions in DSH payments would threaten the reductions in DSH payments would threaten the continued ability of many of these hospitals to serve populations who depend on them for access to care.

(PROPAC#18) Method for Distributing Disproportionate Share Payments--The structure of the DSH adjustment should be reviewed to make certain that available funds are distributed equitably among the hospitals most in need of assistance. This may require collecting new data to develop a better measure of the services hospitals provide to indigent patients.


Traditional Medicare, Part B

(NACRH#94-03) Payments For Physician Services.--The Committee supports the goal of providing incentives for physicians to provide primary care, as contained in the Health Security Act, and urges the Secretary to continue to support such provisions in the absence of national health reform. The committee has made previous recommendations to improve payments to primary care practitioners in rural areas (Recommendations 93-14 and 92-5). It was pleased that the Health Security Act mirrored a previous recommendation to apply the savings from reductions for certain procedures (where intensity exceeds thresholds established by the Secretary), and increase payments for primary care services on a budget neutral basis. The Committee anticipates that as Medicare and Medicaid payments are revised to realize greater efficiencies and savings, primary care incentives should be supported. Further, the Committee is concerned that without such support from the Secretary, the savings might be used for purposes other than payments for primary care.

(NRHA-I#86-B) NRHA supports equitable reimbursement for rural physicians.

(NRHA-I#87-A) NRHA opposes any mandate to force hospitals into a role of fiscal intermediary between HCFA and physicians.

(NRHA-I#88-A) NRHA supports medical reimbursement so that services for all Medicare patients in the United States are reimbursed equal amounts by Medicare for the same C.P.T. code.

(NRHA-IV#5a) NRHA continues to oppose any Medicare payment policies that create a payment bias against rural providers.

(NRHA-IV#5b) The use of geographic practice costs indices for the work and overhead components should be eliminated.

(NRHA-IV#5c) NRHA believes that higher payments for primary care services can be achieved through a single conversion factor.

(NRHA-IV#5d) NRHA supports 20 percent bonus payments to primary care providers, primary care physicians, nurse practitioners, certified nurse mid-wives and physician assistants who practice in health professions shortage areas.

(NRHA-VI#4) Incentives for Health Professionals to Practice in Rural Areas - The NRHA supports increasing the current 10 percent Medicare bonus payment in rural HPSAs to 20 percent for all primary care providers (including mid-level practitioners.)

(NRHA-IX#2) HCFA needs to fully implement the resource based practice expense methodology by January 1st, 1998 as originally mandated by Congress.

(RUPRI-II#P. 41) The reinstatement of Medicare bonus payments will facilitate physician recruitment and retention and promote greater access to primary care and specialty services in underserved areas.

(RUPRI-II#P. 48) Direct reimbursement to physician assistants and nurse practitioners in rural areas provides a marginally increased incentive to practice in underserved and rural communities.

(RWHC#2) Until final regulations are published, the Health Care Financing Administration (HCFA) shall be required to immediately effectuate the recommendation from Congress's Physician Payment Review Commission to establish Medicare single physician payment localities in all but a handful of very large states. HCFA shall also adjust hospitals' area Wage Indices to reflect a single statewide rate for hospital professional employees in all states having a single payment locality. The Health Care Financing Administration has failed to eliminate the historical anti-rural geographic differentials currently used in the allocation of Medicare's payment for physician services and professionals employed by hospitals.

(RWHC#11) Prohibit the bundling of Medicare outpatient services provided in rural communities. Bundling would require that all non-physician services received during a Medicare patient encounter be bundled into one payment. While supporting the integration of physician and hospital services in rural communities, the Cooperative believes that the development of these relationships needs to be the result of careful local negotiation and not government fiat.


Alternative Hospital Models (Conditions Of Participation)

(NACRH#94-14) Alternative Rural Health Care Delivery Systems--The Committee recommends that the Secretary support legislation to authorize the Health Care Financing Administration (HCFA) to conduct demonstrations of alternative rural health care delivery systems that require waivers of the Medicare conditions of participation for hospitals.

As health care practices change to a greater use of outpatient care and reduce provision of inpatient care, rural communities need the opportunity to experiment with alternative delivery systems that may better meet the needs of their residents. For example, a rural community that cannot sustain a hospital may want to have an emergency room and a health clinic. However, Medicare will only pay for non-hospital emergency room services at the outpatient rate, which does not adequately cover the costs of operating a 24-hour a day emergency room. Without adequate Medicare payment, alternative delivery systems generally are not financially viable in rural areas. Legislation is required for HCFA to conduct demonstrations of alternative rural health care delivery systems that do not meet the hospital conditions of participation. If demonstration authority is granted, the waiver process should assure expeditious handling of requests and operate in a manner that facilitates community exploration of alternative delivery systems.

(NRHA-I#93-L) Expand HCFA Waiver Authority To Include Projects Which Do Not Meet Hospital Conditions Of Participation.

NRHA endorses and proposes as policy that that the Social Security Act be amended to grant HCFA the authority to waive hospital conditions of participation for rural delivery systems that offer limited acute inpatient care and outpatient care. While the waiver criteria must carefully evaluate the quality of care implications of waiver requests, the process must be designated to assure exoedious handeling of requests and operate in a manner that is open to and facilitates community exploration of alternative rural delivery systems.

(NRHA-II/1) The National Rural Health Association believes there is a need for essential community provider designations.

Some designations may only be necessary as a transitional tool, allowing rural providers and communities to make a transition to a managed care model without losing crucial services during the process. Other traditionally underserved communities may need ongoing protection.

(NRHA-II/2) Designations should not be automatic, but should be requested as part of a community-driven process that would designate which community providers are essential - pervious designation should be taken into consideration and confirmed as long as ongoing community involvement is documented. (Providers may be health care practitioners and/or facilities.) Categorical designations may be needed to allow communities time to do needs assessment and planning.

(NRHA-II/4) Essential community provider status should be defined without regard to tax status or current funding sources on a state-by-state basis. Federal funding categories are not always appropriate for every state.

(NRHA-II/5) Essential community provider regulations should not limit the scope of services offered, should not impede access to reimbursement to providers (allowing affiliation with only one plan), and should not conflict with existing incentives to locate health professionals in rural personnel shortage areas (e.g., non-physician provider training efforts).

(NRHA-IV#2a) NRHA opposes eliminating all special hospital classifications.

(NRHA-IV#2b) NRHA supports the viability of an alternative facility law. This would be similar to the model in Montana, the medical assistance facility demonstration program. An alternative facility is a facility that is a little less than a hospital, yet more than a clinic. The facility would allow for vertical integration; have short stay beds for observation or short term illness; have a waiver of the hospital staffing requirements; allow emergency room coverage; probably would not have surgery capability, other than for outpatient surgery; would do low risk obstetrics; could be staffed by mid-levels, nurse practitioners, certified nurse mid-wives and physician assistants; allow Medicare compensation for facility charges such as emergency room charges.

(NRHA-VI#3) Establishment of Rural Limited Service Hospitals - NRHA strongly endorses the concept of moving to a single hospital designation. However, we believe that more time is needed to conduct a thorough examination of current law hospital designations (such as the EACH/RPCH and MAF programs) as well as those proposed in other legislation (REACH, CAH) before choosing one all-encompassing designation. Work has begun within the NRHA to address this issue. We look forward to sharing our results with you in the near future.

(NRHA-VIII#1) Number of Beds - The Limited Service Rural Hospital may have up to 15 acute care inpatient beds. The entire component of acute care beds may also be licensed as swing beds.

(NRHA-VIII#2) Service Limitation - Within a Limited Service Rural Hospital, inpatient care cannot exceed 96 hours, except in circumstances where the peer review organization (PRO) or equivalent organization may, on request, waive the 96-hour restriction on a case-by-case basis.

(NRHA-VIII#3) Geographic Limitation - The Limited Service Rural Hospital should be located no less than 20 miles from another hospital. The primary purpose for developing this program is to assure access to essential health services for rural areas.

(NRHA-VIII#4) Reimbursement - The reimbursement for Limited Service Rural Hospitals should be based upon reasonable cost (not subject to the lesser-of-cost-or-charges) including the cost of professional services and should allow for the inclusion of costs for networking with other providers.

(NRHA-VIII#5) Networking - Limited Service Rural Hospitals would be required to have formal agreements with at least one hospital and other appropriate providers for such services as patient referral and transfer, communication systems, the provision of emergency and non-emergency transportation and back-up medical and emergency services.

(RUPRI-II#P. 36) New criteria for qualifying as a limited service hospital, and continued use of rural referral and Medicare dependent designations, will increase the likelihood that rural hospitals will convert to new classifications. However, the criteria remain restrictive and will not be used by all hospitals which might otherwise consider changing.

(RUPRI-III#P.21) The basis for classifying hospitals as limited service, or primary care, should evolve into using reasons for hospitalizations rather than the surrogates of bed limits and length of stay.

(RUPRI-III#P.22a) Limited service hospital designation should be included in a state access plan.

(RUPRI-III#P.22b) Instead of designating rural emergency care access hospitals, emergency care facilities should be promoted regardless of existence of hospitals. These facilities should also be part of a state access plan.

(RWHC#9) The current option of an EACH/PCH Medicare waiver shall be expanded to all fifty states.


Graduate Medical Education & Medicare

(NRHA-IV#4a) NRHA opposes eliminating Medicare reimbursement for the costs of direct or indirect graduate medical education, at least until such time as there are suitable substitutions.

(NRHA-IV#4b) NRHA continues to favor appropriate reforms in Medicare GME payments, particularly up-weighting direct and indirect medical education payments for primary care residency positions.

(NRHA-IV#4c) NRHA supports direct graduate medical education reimbursement to rural ambulatory, hospital and non-hospital sites and paying of local providers for their time to teach.

(NRHA-V#1) Funding for International Medical Graduates (IMGs). The NRHA agrees with the COGME's 1995 principle regarding expenditure of public funds, and is convinced by the data suggesting that specialists will be in significant oversupply if current trends continue. The association supports, with some reservations, the gradual reduction in support for IMGs. However, before such a program is implemented, the impact on rural communities in both the short and long terms must be carefully studied and, should potential negative consequences be identified, remedies put in place. Such remedies should include expansion of the NHSC and/or use of GME funds to support training of primary care providers in rural primary care training sites.

(NRHA-V#2) Changing the Specialty Mix. The NRHA supports the COGME 1995 recommendations with the following suggested improvements.

(NRHA-V#3) Transitional Payments. The NRHA supports the development of transition strategies that avoid inflicting undue hardship on IMG dependent institutions that maintain their commitment to providing services to disadvantaged populations.

(NRHA-V#4) Medicare Managed Care. The NRHA supports the separate identification of the GME components of the AAPCC and the use of these funds to support GME.

(NRHA-V#5) Consortia. The NRHA supports the concept of consortia, but believes that basic principles regarding allocation of resources for GME can be correlated at this time to guide support for demonstration projects. Specifically, allocation of Medicare funding for resident lines among states ought not to be tied to the current distribution, driven as it is by inpatient, tertiary care in urban hospitals. This mechanism has led to a grossly disproportionate geographic distribution of residents. The long-term objective of GME payment reform must be to allocate training opportunities in a manner that more closely approximates population distribution. As regards the nature of consortia, the NRHA concurs with COGME's April 25, 1994, letter clarifying its concept of consortia as outlined in the Fourth Report and suggesting flexibility in consortium administration. The NRHA believes that there may be circumstances in which rural-based training can be better served by entities other than academic medical centers and, therefore, concurs with the principle of flexibility in consortium structure. The NRHA also recommends that funding for demonstration projects be geographically dispersed according to general population distribution and not according to current resident position distribution.

(NRHA-IX#3) GME resources shall be allocated on the basis of population-based needs for the appropriate geographic distribution of primary and specialty care.

(PROPAC#13) Broadening Financial Support to Teaching Hospitals--Explicit financial support for graduate medical education activities should not be limited to the Medicare program. Mechanisms to broaden financial support for teaching-related activities in hospitals and other locations should be developed.

(PROPAC#14) Medicare Payments for Graduate Medical Education Costs--ProPAC supports changes in Medicare teaching payments that would encourage an appropriate distribution of residents across specialties and discourage inappropriate growth in the total number of residents.

(PROPAC#16) Distributing Additional Teaching-Related Payments--Funds that provide broader financial supports for graduate medical education should be distributed in a way that corresponds to the additional costs incurred by teaching facilities. Providers that treat enrollees in capitation plans should receive teaching-related payments for those patients as well as for the other patients they serve.


Other

(NACRH#94-09) Technical Assistance Programs--The Committee recommends that the Secretary develop technical assistance programs to strengthen rural health care delivery systems and prepare rural areas for health care reforms.

Rural community leaders, hospital boards, physicians, and other providers often lack the knowledge and expertise to provide local leadership in the development of more cost-effective systems of health care. Managed care systems, integrated service networks, capitated payment arrangements, and other elements of reform proposals are new and untried concepts for many small rural communities. Certainly, the movement towards managed care systems contained in almost every major proposal for health care reform to date would require both a service infrastructure and administrative expertise that is not found in many rural communities. There have been fewer opportunities for small rural communities to participate in larger systems of care and few incentives under existing policies for communities to collaborate rather than compete. Some rural states, moreover, are not well equipped to provide the level of expertise and support that rural communities will need to change their health delivery systems under proposed reforms.

(NRHA-VI#5) Establishment of Medicare Payment Methodology for Telemedicine Service to Rural Areas - NRHA supports directing the Secretary of HHS to establish a payment methodology for all telemedicine services.



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