CHALLENGES IN RURAL HEALTH CARE

SUBMITTED TO CONGRESSIONAL RECORD BY U.S. SENATOR BYRON DORGAN
9/17/02

Mr. DORGAN: Mr. President, I wanted to take a few minutes to describe some of the challenges facing rural health care systems and why I feel it is critical for the Senate to act now to reduce the inequities in Medicare funding between rural and urban providers.

Rural America depends on its small town hospitals, physicians and nurses, nursing homes, those who provide emergency ambulance services, and other members of our rural health care system. And because past and proposed cuts in Medicare reimbursement, plus historical unfairness in Medicare payments, these vital services are in jeopardy.

Like most of my Senate colleagues, I supported the Balanced Budget Act (BBA) of 1997 when it was enacted by Congress with strong bipartisan support. Prior to the passage of this law, Medicare was projected to be insolvent by 2001, so it was imperative that we took action to extend Medicare=s financial health and to constrain its rate of growth to a more sustainable level.

We later found that the Balanced Budget Act worked to reduce Medicare program costs, but many health care providers were adversely affected by payment reductions that were larger than intended. To address these concerns, Congress in 1999 made adjustments in the Balanced Budget Refinement Act (BBRA), followed in 2000 by the Medicare Beneficiary Improvement and Protection Act (BIPA). Without these needed changes, frankly, as many as a dozen of North Dakota's hospitals might be closed today.

But, additional legislation is still needed to improve Medicare reimbursement for health care providers in order to stabilize the Medicare program and ensure that beneficiaries, especially in rural areas, will continue to have access to their local hospitals, physicians, nursing homes, home health, and other services. Many small rural hospitals in particular serve as the anchor for the full range of health care services in their communities, from ambulatory to long-term care. Medicare is the single most significant payer for services at these hospitals, and as such, it has an impact on the whole community.

Part of the problem in North Dakota is simply demographics: North Dakota's population is the second oldest in the nation, and our population is shrinking daily. In fact, in 13 of North Dakota=s counties, there were 20 or fewer births for the entire county last year. Admissions to rural hospitals have dropped by a drastic 60 percent in the last two decades, and those patients who do remain tend to be older, poorer, and sicker. This means that rural hospitals tend to be disproportionately dependent upon Medicare reimbursement, to the extent that Medicare accounts for 85 percent of their revenue. Obviously, given this reality, changes in Medicare reimbursement have a major impact on the financial health of rural hospitals.

Another part of the problem is that Medicare has historically reimbursed urban health care providers at a much higher rate than their rural counterparts. Of course, some of this difference can be explained by regional differences in the cost of health care and variations in the health status of older Americans. But this is not the whole explanation. Even after adjusting for these factors, a recent report by health care economists found that, for example, Medicare=s per beneficiary spending was about $8,000 in Miami, but only $3,500 in Minneapolis. When average Medicare payments for the same procedure are compared, the disparities in payment in different areas of the country are dramatic. The table below compares payments for two of the most common procedures in North Dakota: hospitalization for heart failure and shock, and hospitalization for treatment of pneumonia.

As you can see, the average payment for these same hospital procedures, in larger and more urbanized states like New York and California, is 150 percent of the Medicare payment for the same procedure in North Dakota. The average Medicare payment for these same procedures is twice as high in the District of Columbia. In my opinion, the difference is largely explained by a Medicare reimbursement system that is skewed in favor of urban areas, and past legislation has done little to address that concern, despite efforts by some of us to do so.

I have cosponsored legislation in the Senate, the Area Wage and Base Payment Improvement Act (S. 885), that would address the rural inequity in Medicare reimbursement in two ways. First, this bill would equalize the "standardized payment" which forms the basis for Medicare's reimbursement to hospitals. You would think something called the "standardized payment" would already be standard, but the fact is that hospitals in rural and small urban areas, including all of North Dakota, receive a smaller standardized payment than large urban hospitals. This bill would raise all hospitals up to the same standardized payment.

Second, S. 885 would increase the wage index for most of North Dakota's hospitals. This is a major area of concern that I hear about from North Dakota hospital administrators. The current wage index, which is an important factor in a hospital's total Medicare reimbursement, is based on an antiquated theory that it costs more to hire hospital staff in urban areas than it does in rural areas. That may have been true once, but it is no longer true today. Today, hospitals in North Dakota are competing with hospitals in Minnesota, Chicago and elsewhere for the same doctors and nurses, and they have to pay competitive wages in order to recruit staff.

I am also a cosponsor of the Rural Health Care Improvement Act of 2001 (S. 1030). This legislation introduced by Senator Conrad would, among other things, provide for a new Alow volume@ adjustment payment for hospitals with a smaller number of patients and establish a revolving loan fund to help rural health care facilities make much-needed capital improvements.

I also want to mention a positive impact of the Balanced Budget Act of 1997. That legislation created the Critical Access Hospital program, which has proven to be critically important to the survival of North Dakota's smallest and most rural hospitals. Twenty-eight of North Dakota's rural hospitals, serving about 181,000 North Dakotans, have now converted to Critical Access Hospital status, which allows them to receive cost-based reimbursement from Medicare. I strongly support continuing this program and making some modest changes to strengthen the program. We also need to reauthorize the Rural Hospital Flexibility program, which provides grants to states to assist small rural hospitals in making the switch to Critical Access Hospitals.

In addition, Congress also must make some other changes to Medicare reimbursement to head off some upcoming reductions in payments. For instance, Medicare reimbursement to physicians and allied health providers is scheduled to be reduced by 12 percent over the next three years because of problems with the payment formula. In addition, reimbursement to home health agencies is scheduled to be cut by 15 percent on October 1, and a 10 percent payment boost for rural home health agencies expires at the end of this year. And skilled nursing homes will be facing a 10 percent reduction in their Medicare payment rates in 2003 and a 19 percent cut in 2004 unless Congress acts to avert this "cliff" in funding. I support making changes in all of these areas to help address these concerns.

In closing, I think we as a nation need to acknowledge that a strong health care system is an important part of our rural infrastructure. Over the years, we have determined that rural electric service, rural telephone service, an interstate highway system through rural areas, and rural mail delivery, to name a few services, make us a better, more unified nation. We need to make the same determination in support of our rural health care system, and I will be fighting for policies that reflect rural health care as a strong national priority.

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Funding for Life Support is provided by a grant from USDA Rural Development