[Extensions of Remarks]
[Page E144]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

SUPPORT GREATER MEDICARE EQUITY AND FAIRNESS BY REFORMING THE AAPCC
PAYMENT FORMULA

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HON. JIM RAMSTAD

of california

in the house of representatives

Tuesday, February 4, 1997

Mr. RAMSTAD. Mr. Speaker, I rise today to introduce legislation to
respond to an issue of great importance to Medicare beneficiaries and
health care providers in my district and throughout the country--
reforming the payment for Medicare risk-based managed care plans.
Currently, Medicare payments to risk-based health care plans are
calculated on the basis of Medicare spending in each county's fee-for-
service section--medical care outside of managed care plans. The
variation in the adjusted average per capita cost [AAPCC] formula
reflects different utilization of health care services.
In 1996, Dr. John E. Wennberg, the director of the Center for the
Evaluative Clinical Studies at Dartmouth Medical School, published
``The Dartmouth Atlas of Health Care.'' The atlas shows that the rates
of hospital beds and physicians per 1,000 residents determines how much
care Medicare beneficiaries use. Revising the highly variable AAPCC
payment formula will result in greater equity for Medicare
beneficiaries regardless of where they live, allowing choices among
plans and more equitable distribution of out-of-pocket costs and
additional benefit packages.
Because of the need to correct the inequity in the AAPCC payment
formula for millions of Medicare beneficiaries, I strongly supported
changes to the formula during consideration last session of the
Medicare Preservation Act. Regrettably, congressional efforts to reform
the geographic disparity and inequities in the AAPCC formula were
denied by the stroke of the President's veto pen.
The legislation I am introducing today narrows the AAPCC payment gap
between rural and urban areas in a budget neutral fashion. At a
minimum, a county would receive 80 percent of the national input-price-
adjusted capitation rate. This change helps reflect the true cost of
doing business, taking into consideration uncontrollable factors such
as wage rates or supply costs. The language also implements a 3-year
average for the baseline rather than 1 year. This change provides
greater representation of historical health care costs for an area.
This bill is based on the Physician Payment Review Commission's ``1996
Annual Report to Congress.''
When the Health Care Financing Administration [HCFA] released the
1997 payment rates for Medicare managed care plans, the agency told us
that payments nationally to Medicare-managed care plans would increase
an average of 5.9 percent as of January 1, 1997--significantly lower
than the 1996 national average increase of 10.1 percent.
This is good news in terms of the solvency of the Medicare trust
fund--we need to slow the rate of growth of Medicare spending to stave
off its imminent bankruptcy. The bad news is that this average increase
reflects wide variation in percentage increases from county to county.
Four counties: Valencia, N.M.; and three New York State counties Bronx,
Monroe and New York, actually will receive negative growth--real
decreases. Because the actual dollar variations are also extreme, many
low-payment areas get a double whammy--lower percentage increases off a
lower base.
This situation continues a trend inherent in the flawed payment
formula. The following table illustrates the vast variation between
counties across the country. I believe it is important to point out
that even though the 1996 AAPCC payment increased an average of 10.1
percent not all counties shared in the bounty of that increase. The
same is also true for the 1997 AAPCC payments.
Counties that typically lost ground were those in efficient markets
and rural counties with historically lower reimbursement rates. Because
of these lower payment rates and lower annual increases, these regions
will continue to lack the ability to attract managed case options to
their area or offer enhanced health care benefits often found in higher
payment communities.

MONTHLY PAYMENT RATES TO MEDICARE-MANAGED CARE PLANS
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1995 1996 1997
Area/county 1995 percent 1996 percent 1997 percent
payment increase payment increase payment increase
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National average....................................... $400 5.9 $440 10.1 $466 5.9
Richmond, NY........................................... 668 6.2 758 13.4 767 1.1
Kern, CA............................................... 439 5.8 478 8.9 512 7
Hennepin, MN........................................... 359 2 386 7.6 405 4.8
Tulare, CA............................................. 333 2.9 360 7.9 390 8.4
Vernon, WI............................................. 209 6.6 237 13.2 250 5.5
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The payment rates also illustrate the overall instability and
unpredictability of AAPCC's--factors that discourage health plans from
entering new markets and remaining in other markets.
If there is a silver lining to HCFA's release of the 1997 risk-based
managed care payment rates, it was contained in Dr. Vladeck's remarks:
``The formula used to set HMO payment rates is flawed. It shortchanges
rural areas and markets where care is delivered more efficiently, and
may limit beneficiary choice.''
Dr. Vladeck's comments indicate HCFA's understanding of the inequity
in the current AAPCC formula and the need for change if we are to offer
all Medicare beneficiaries true choices in the type and form of health
care they want to receive. I see this as a signal that in the months
ahead we can work in a bipartisan, pragmatic way to improve the AAPCC
payment formula.
Mr. Speaker, correcting the AAPCC payment formula is vital. The 105th
Congress has the opportunity to make the formula more equitable. I look
forward to working with you and my colleagues on the Committee on Ways
and Means to make the needed changes to the AAPCC payment formula. The
longer we continue to use the current formula, the longer efficient
health care markets will be penalized and rural areas will lag behind,
leaving many Medicare beneficiaries with fewer choices.

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