Reflections on a town hall meeting - demands for changes to Medicare's prospective payment system arose from a meeting arranged by the Health Care Financing Administration

Nursing Homes, August, 1999 by Jade Gong

Medicare's Prospective Payment System (PPS) has been under fire for some time now. Demands for change are intensifying not only from providers, but from congressmen and government commissions. The attack on PPS has its origins in a unique "town hall" meeting that was held last April. It was then that the depth of concern and confusion about PPS that exists in the long-term care industry today became manifestly clear to the Washington powers-that-be.

The federal Health Care Financing Administration (HCFA) called the meeting with more than 500 people in attendance in response to a request by Congressman Bill Thomas (R-TX). SNF topics were divided into four panels, each moderated by a HCFA senior staff person. Each representative of various professionals and consumer interest groups was given 10 minutes to speak.

In his opening comments, Tom Hoyer, director of HCFA's Division of Institutional Care Policy, expressed his sincere hope that this town hall meeting would be an opportunity for the various interests in the room to listen to all sides of the issues. HCFA viewed this as a time to listen to these outside perspectives, and thus did not react substantively to the remarks by the panelists.

The following themes were expressed poignantly and vividly throughout the day:

* Since the Medicare cuts have been far deeper than expected by the industry, some of this funding should be restored to the SNF industry as soon as possible.

* The outpatient therapy caps, particularly the combined cap on speech and physical therapy, are already causing access issues and should be eliminated or modified. Several speakers observed that patients are being forced to choose between "walking or talking" as a result of the combined cap.

* The methodology for incorporating non-therapy ancillaries, particularly medications, needs to be modified immediately. Access problems are already emerging for medically complex patients. The industry will not survive until October 2000 for the "perfect fix" on the timetable offered by HCFA.

* There is a need to return to a spirit of cooperation between the industry, the state survey agencies and HCFA. The stress of surviving under PPS and dealing with increasingly adversarial surveyors are driving out good staff at all levels of the industry at a time when the very best talent is needed.

There has always been a desire on the part of HCFA and the industry to work to ensure that PPS would achieve its intended goals. Indeed, two primary goals seemed attainable: matching payment to the resource needs of patients, and removing inconsistency from coverage decisions. Industry insiders had no doubt that the first year would be bumpy and that some providers might fail. All hoped, though, that a combination of factors, including the natural resourcefulness of long-term care providers and HCFA's long-standing history of working with the industry, would override these initial problems, at least until they could be fixed. But that was before it was learned that HCFA would not consider any major system fixes, choosing instead to focus on making its current programs Y2K-compliant.

As a result, many providers with significant participation in the Medicare program are struggling - whether for-profit or not-for-profit, whether hospital-based or freestanding. Although hard-core research findings do not yet exist, anecdotal reports of serious problems abound.

Clearly, a complex array of factors has contributed to this dismal state of affairs. I respectfully differ with comments recently attributed to HCFA Administrator Nancy Ann Min DeParle in a recent Associated Press report:

"What you're seeing is the failure of the industry to react quickly enough to what they knew was coming."

In other words, it is the long-term care industry's fault. In fact, HCFA and others can share the responsibility.

No doubt some providers did, in fact, keep their heads in the sand, hoping that PPS would just go away. But many providers diligently prepared for these changes as soon as the Balanced Budget Act (BBA) passed in August 1997. Everyone understood that SNF expenditures were expected to decline by $9 billion over five years. Fiscal reality only became apparent, however, when the interim final regulation was published on May 12, 1998.

All who work in the long-term care industry sincerely appreciated HCFA's hard work in seeing that at least an interim final regulation was published. It was not until then, however, that each SNF could estimate its own per-diem payment. In effect, SNFs that transitioned to the new system on July 1, 1998, had less than two months to reduce their operating costs to the level necessary to remain solvent under the new rates.

Furthermore, publication of that regulation left many unanswered questions for providers to grapple with. For example, we are often offered reassurance that since hospitals survived DRGs, SNFs will survive PPS. While it is true that, after a few turbulent years, hospitals did well under DRGs, the PPS system is different in many fundamental respects: