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Testimony

Chairman Greenwood, Rep. Deutsch, thank you for inviting me to speak with you about the role the Centers for Medicare & Medicaid Services plays in how hospitals and other Medicare providers bill patients who are uninsured or under-insured.   I want to acknowledge the Subcommittee for their efforts in bringing to the forefront the problem of providing quality health care for patients of limited means and I applaud you for making this important issue the focus of your hearing today.

Combined, the Medicare and Medicaid programs provide health insurance for over 80 million Americans.  The provider reimbursement rules for those programs –should in no way restrict the ability of hospitals and other providers to offer free or discounted care to patients who do not have coverage under these two programs.  I am here today to talk about how the Medicare program provides the flexibility for providers to do so if they choose.

Hospital billing for the uninsured and underinsured is a very timely issue and an issue in which CMS and, in particular, the Center for Medicare Management, which I direct, have been deeply involved for over a year.  It was a year ago that we received a request from some hospitals in the country for guidance on whether it was permissible to discount charges to low income uninsured or under-insured patients.  Some months later, after responding to numerous inquiries on the issue, CMS began discussions with your staff in the fall of 2003.  In December of 2003, Secretary Thompson received a letter from the American Hospital Association that alleged that Medicare program rules, as well as restrictions imposed by the HHS Office of Inspector General, hindered the ability of hospitals to provide discounts to low-income patients or to patients who were medically indigent.  Secretary Thompson responded to the AHA letter in February, and subsequently responded to a letter and request for information from this Subcommittee. CMS also briefed your staffs in preparation for this hearing.

There are three central topics that most commonly arise when providing guidance on this issue.  I’d like to address those topics for you today.  Then, to conclude, I’d like to say a few words about what the Medicare and Medicaid programs are currently doing to assist hospitals that treat the uninsured.  Finally, I’d like to conclude by mentioning the many initiatives that the Administration has taken to reduce the number of uninsured.

Three Topics of Focus on Billing the Uninsured

      1  Discounts: Medicare billing requirements do not prevent discounts as long as:

• Full charges, not discounted charges, are reported on the cost report.
• Accounts and records are maintained in a manner that would be necessary for any business.

     2  Indigency

• Medicare indigency requirements do not prevent discounting to uninsured patients.
• Providers may make indigency (including medical indigency) determinations using their customary methods.
• In order to protect all patients and the Medicare program, the methods used in determining indigency for non-Medicare patients should be similar to those used for Medicare patients.
• Indigency should be supported by documentation (good business practices would dictate that).
• Indigence should be determined on a patient-by-patient basis because financial need is specific to each patient.
• Medicare does not reimburse the bad debts of non-Medicare patients.

Once indigence is determined, collection is no longer undertaken with regard to the patient for the forgiven amount.

     3  Bad Debt

Medicare does not require providers to be aggressive in their collection of accounts.   Medicare rules state that:

• Efforts to collect from non-Medicare patients must be similar to the efforts to collect from Medicare patients.   Medicare wants parity in the treatment of Medicare and non-Medicare patients to protect the program and all patients, not just our beneficiaries.
• Efforts to collect on accounts should be more than a token effort.   Rather, they should be positive efforts that would be used in any business.

Since the enactment of the Medicare program in 1965, the program’s rules have attempted to prevent “cross-subsidization” – in other words, preventing the Medicare program from subsidizing a service that should be paid for by another payor, or preventing another payor from subsidizing a service the Medicare program should be reimbursing.  One way that Medicare’s regulations do that is to require hospitals to list their stated charges for a service on their cost reports for a service and maintain a uniform charge for a service.  To repeat, nothing in CMS regulations prevents a hospital from providing a discount off of that stated charge.  But when filing its cost report, the hospital must list its full charges.

Without question, a hospital can provide free care or discount charges to uninsured or underinsured patients.   As we noted in our response to the American Hospital Association, “[n]othing in the Centers for Medicare & Medicaid Services’ (CMS’) regulations, Provider Reimbursement Manual, or Program Instructions prohibit a hospital from offering discounts to any patients, Medicare or non-Medicare, including low-income, uninsured or medically indigent individuals.” 

In reference to the ability of a hospital to develop an indigency policy, it may be overstating matters to say that the Medicare program imposes a “restriction” on this.  Hospitals – not the federal government – set their own indigency policies and have the discretion and flexibility to define eligibility indicators including income level.  This makes sense because a hospital, as a community institution, is in the best position to know what policy best suits the community that it serves.

As I have stated earlier, if a hospital wishes to provide a discount off of its customary charges as part of an indigency policy, it can do so, but it must report the full charge for that service on its Medicare cost report.

Turning to the issue of bad debt, we often hear from hospitals that Medicare somehow “requires” aggressive collection efforts that include attaching a patient’s home, use of a bill collector, and other similar tactics.  The reality is otherwise.  The Medicare program does not require any particular level of collection activity.  It does not require that collection activities be “aggressive.”  It does not require that hospitals seize patient’s homes or bank accounts.  What the program does require, however, is that if the hospital wants to bill the Medicare program for bad debt related to unpaid deductibles and coinsurance by Medicare beneficiaries, it must use the same level of collection activity to secure collection of those debts by Medicare patients as it does to secure collection of debts by non-Medicare patients.  For example, if a hospital wants to use a bill collection agency for its bad debts, it cannot turn only non-Medicare patient bills over to that collection agency; rather, the hospital must treat all bad debts the same.  The principle, again to prevent cross-subsidization, is that collection of Medicare and non-Medicare debts need to be treated similarly.

In addition, a hospital may make an individualized indigency determination for a particular Medicare patient and excuse that patient from any efforts to collect unpaid deductibles and coinsurance.  Doing so would not prevent the hospital from collecting Medicare bad debt payments from other payors on those unpaid amounts, provided the hospital treats all indigent patients the same.  This is also true if the patient is a dually-eligible Medicare and Medicaid beneficiary.  In such a case, the hospital would submit a bill for the unpaid deductible and coinsurance amounts to the state Medicaid plan.  If the state Medicaid plan was not liable and denied payment on the account, the hospital could bill the Medicare program for it as a bad debt.

It is also important to note that in very limited circumstances, Medicare reimbursement could be affected by the “lesser of cost-or-charges,” or “LCC” principle.  This principle was of significant importance in the early years of the program, but is admittedly less so now that most providers are reimbursed on the basis of a prospective payment methodology rather than on the basis of costs.  However, where the LCC principle is applicable, a Medicare provider is paid the lesser of its actual costs or its actual charges.  Implementing a reduced charge program for uninsured patients could potentially trigger the LCC principle because if a hospital lowered charges for enough patients, a hospital’s fiscal intermediary could take the position that a hospital’s charges were not its posted, or stated, charges, but rather, the charges applicable to most of its patients who were receiving discounted services.  If the FI did take that position, it could then invoke the LCC principle and pay the hospital that lower charge-based amount.

Few providers are subject to the principle at all.  The only example I am aware of is a pediatric or cancer hospital in its first year of operation, before it becomes subject to the TEFRA methodology, because there are no base year costs upon which to calculate a TEFRA target rate limitation.  Other providers, including critical access providers, are not subject to the LCC provision.

The Office of Inspector General Guidelines

I cannot speak for the Office of Inspector General (OIG), but I will note that shortly after we released our letter to the AHA, the OIG put on its website a document addressing the application of its fraud and abuse authorities to discounts for uninsured patients and cost-sharing waivers for financially needy Medicare beneficiaries.

Lewis Morris, the Chief Counsel to the Inspector General, is here with me today to address the OIG’s perspective on these issues.

Funding Programs for Uninsured Individuals

CMS has done its share to reimburse hospitals for the treatment of uninsured individuals.  Since 1986, select hospitals have received reimbursement under the Medicare disproportionate share  (DSH) program.  Hospitals qualify for Medicare DSH payments if they treat a “disproportionate share” of low-income patients – defined in the statute as the share of a hospital’s total inpatient days attributable to Medicare patients who are also eligible for SSI compared to all Medicare patients plus days attributable to Medicaid patients compared to all patients.  As I mentioned above, Medicare also reimburses hospitals for the bad debt that arises from treating low-income Medicare beneficiaries who are unable to pay their cost sharing and deductible amounts.  Finally, the Medicaid program requires states to designate certain hospitals as disproportionate share under their state Medicaid plans, and make additional payments to those DSH hospitals.  The Medicaid DSH program is also advantageous for states because DSH payments to a hospital under a state plan are not counted in determining whether or not the state has breached the Medicaid upper payment limit, thus enabling states to increase payments to other providers participating under their state plan.

Other Administration Initiatives for the Uninsured

In addition to providing the guidance to hospitals on the uninsured, this Administration has undertaken other initiatives to address the plight of individuals who otherwise lack access to health insurance or who may be under-insured.  For example, the Administration has dramatically increased funding to federally qualified community health centers, the “front line” treatment option for low-income uninsured individuals.  The Administration provides an advanceable health coverage tax credit to certain individuals who are receiving a pension from the Pension Benefits Guaranty Corporation or who have become unemployed due to the adverse effects of international trade and are eligible for Trade Adjustment Assistance.  This tax credit pays 65% of the premium for qualifying health insurance, including either employer-sponsored “COBRA” coverage or a state-designated private health insurance plan.  The Administration’s Medicaid waivers, state plan amendments, and HIFA waivers have provided health insurance for 2.6 million people who would have otherwise lacked coverage, and enhanced existing benefits for nearly 7 million individuals.

Many of you in Congress voted for and deserve credit for the provisions in the Medicare Modernization Act that will revolutionize health savings accounts and help make insurance more affordable for millions of Americans.  In addition to creating a Medicare prescription drug benefit and providing interim savings and subsidies through Medicare-approved discount cards, this historic legislation allows people to establish health savings accounts (HSAs) in conjunction with affordable, high-deductible major medical coverage.  These new products will make health insurance more affordable to businesses large and small, as well as to individuals whose employers do not sponsor coverage.  The President has proposed to provide further assistance to such individuals by allowing them to claim an above-the-line deduction of the major medical insurance premiums.

For working individuals and families who would not benefit from tax deductibility because their incomes are too low, the President has proposed $70 billion in refundable, advanceable tax credits.   He also proposed allowing expanded use of association health plans that allow small businesses to more easily pool resources to purchase health insurance.  Combined with the steps that we have already taken, enactment of these and other measures will further reduce the number of individuals without health insurance in the United States.

Mr. Chairman and Congressman Deutsch, thank you for your invitation to testify this morning.  I am happy to answer any questions that you may have.