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The Subcommittee on Health & Environment of the House Commerce Committee held a hearing July 19 to discuss whether the Balanced Budget Act of 1997 (BBA 97), which reduced Medicare provider reimbursement for nursing homes, home health agencies, and Medicare managed care plans, has adversely affect patient access to care.

The subcommittee heard testimony from witnesses representing both government agencies and providers. Some of the strongest statements of the day were made by Mr. William J. Scanlon, Director of the Health Financing and Public Health General Accounting Office (GAO). He strongly discounted the complaints of providers that reduced Medicare reimbursement lead to closure of home health agencies, nursing home bankruptcies, and massive withdrawals of Medicare HMOs from the Medicare+Choice program.

On the problems of the home health industry, he said, "Home health utilization has dropped substantially, well below what would have been required to remain within the BBA-imposed payment limits. We expect the new Medicare payment system for home health services, scheduled for implementation in October, to generally provide agencies a comfortable cushion to deliver necessary services...Between 1997 and 1998, Medicare home health spending fell by nearly 15 percent, while total home health visits dropped an unprecedented 40 percent...Our ongoing work on home health spending shows that these declines continued in 1999 and that the drop in utilization was most pronounced in areas where, pre-BBA, use had grown the most and beneficiary utilization was the highest...These findings suggest that part of the contraction in service delivery since the BBA may be a correction of the excessive use when Medicare did little to control home health spending. However, it may also reflect an inappropriate response to the IPS by home health agencies."

On the problems of the nursing home industry, his comments were "Some corporate (nursing home) chains have declared bankruptcy. The new Medicare payment system for SNF services adequately covers the cost of beneficiaries' services but no longer supports the extensive capital expansions or the ancillary service business that corporate chains relied on to boost revenues...Our published and ongoing work identifies several factors that contributed to the poor financial performance of these corporations. Some corporations invested heavily in the nursing home and ancillary service businesses in the years immediately before the enactment of the PPS, both expanding their acquisitions and upgrading facilities to provide higher-intensity services. Under tighter payment constraints, these debt-laden enterprises are particularly challenged...There are indications that SNF payment rates under the BBA are likely to provide sufficient--or, in some cases, even generous--compensation for services provided to a facility's Medicare beneficiaries. "

On the massive withdrawal of Medicare HMOs from the Medicare+Choice program, he said, "Many (Medicare+Choice) plans are withdrawing from Medicare. The withdrawals are tied to a combination of Medicare program changes and plans' business decisions In addition, our ongoing work shows that payments to plans for their Medicare enrollees continue to exceed the expected fee-for-service costs of these individuals. The significance of this finding is that Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost...Our published and ongoing work suggests that several factors influenced plans' decisions about whether to participate in Medicare+Choice or to participate only in certain areas. As we reported last year, the 1999 withdrawals represented plans that were recent market entrants, had enrolled few beneficiaries, or faced competitors that had substantially larger market shares, suggesting that plans made business decisions or used business strategies that could be sustained only in an era of more generous Medicare payments...in our ongoing work, when we compared plan payments for enrolled beneficiaries in 1998 with the estimated Medicare fee-for-service costs for these individuals, we found that plans received payments that substantially exceeded what Medicare would have paid for the plans' enrollees had they been covered under the fee-for-service program."

His views are, of course, completely counter to those of industry representatives who are calling for payment increases.