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THE PRESIDENT’S AND OTHER BIPARTISAN 

PROPOSALS TO REFORM MEDICARE 

POST-ACUTE CARE PAYMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JUNE 14, 2013 

Serial No. 113–HL05 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

JIM MCDERMOTT, Washington 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


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C O N T E N T S 

Page 

Advisory of June 14, 2013 announcing the hearing .............................................. 2 

WITNESSES 

Mr. Jonathan Blum, Deputy Administrator and Director, Center of Medicare, 

Centers for Medicare and Medicaid Services ..................................................... 6 

Mr. Mark Miller, Executive Director, Medicare Payment Advisory Commission ........................................................................................................................ 26

SUBMISSIONS FOR THE RECORD 

American Hospital Association, AHA, statement ................................................. 63 

American Health Care Association & National Center for Assisted Living, 

statement .............................................................................................................. 69 

American Medical Rehabilitation Providers Association, AMRPA, statement ... 75 

Coalition to Preserve Rehabilitation, CPR ............................................................ 84 

HealthSouth, letter .................................................................................................. 88 

National Association for Home Care & Hospice, NAHC, statement ................... 97 

The Nebraska Association of Home & Community Health Agencies, 

NAHCHA, statement ........................................................................................... 103 

The Visiting Nurse Associations of America, VNAA, statement ......................... 105 


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(1) 

THE PRESIDENT’S AND OTHER BIPARTISAN 

PROPOSALS TO REFORM MEDICARE 

POST-ACUTE CARE PAYMENTS 

FRIDAY, JUNE 14, 2013 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC. 

The Subcommittee met, pursuant to call, at 9:29 a.m., in Room 

1100, Longworth House Office Building, the Honorable Kevin 

Brady [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Brady Announces Hearing on 

The President’s and Other Bipartisan Proposals to 

Reform Medicare Post-Acute Care Payments 

The House Committee on Ways and Means, Subcommittee on Health Chairman 

Kevin Brady (R–TX) today announced the fourth in a series of hearings to explore 

bipartisan proposals, including those contained in President Obama’s Fiscal Year 

(FY) 2014 Budget to reform Medicare. This hearing will focus on review of proposals 

to reform post-acute care under the Medicare program. The hearing will take 

place on Friday, June 14, 2013 in 1100 Longworth House Office Building, 

beginning at 9:30 A.M. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

In 2011, Medicare spending on Post-Acute Care (PAC), defined as Home Health 

Agencies (HHA), Skilled Nursing Facilities (SNF), Inpatient Rehabilitation Facilities 

(IRF) and Long-Term Care Hospitals (LTCH) totaled nearly $62 billion. Medicare 

post-acute providers play an important role in the continuum of care for Medicare 

beneficiaries, providing recuperation and rehabilitation services to Medicare beneficiaries recovering from an acute hospital stay. However, the lack of placement 

guidelines for beneficiaries in PAC settings, the uneven availability of PAC providers across markets, and multiple PAC payment systems result in wide variation 

in the use, cost and quality of post-hospitalization care for Medicare beneficiaries. 

To address these and other concerns, the Obama Administration has identified 

several policies to reform PAC within the Medicare program. In the President’s 

FY14 Budget, the Administration focused on five PAC reform policies: (1) reducing 

market basket updates for HHAs, SNFs, IRFs and LTCHs; (2) creating site neutral 

payments between IRFs and SNFs for certain procedures; (3) modifying the criteria 

required for IRF status (the so-called ‘‘75 percent rule’’); (4) establishing a SNF readmissions program; and (5) creating PAC bundled payments. 

The President’s FY14 Budget estimates that these five policies will save $94 billion over 10 years. However, the Congressional Budget Office estimates these policies will save $53 billion. In addition to the President’s budget, several other bipartisan policy organizations, such as the Bipartisan Policy Center, The Moment of 

Truth project and the Medicare Payment Advisory Commission, have collectively 

made recommendations to reform Medicare’s PAC payment systems. 

In announcing the hearing, Chairman Brady stated, ‘‘The new Medicare Trustees report confirms this important program remains in deep financial trouble, with only 13 years left of solvency in the main trust fund. Democrats 

and Republicans recognize one solution to extending the life of Medicare 

is to improve how care is delivered to seniors once they leave the hospital. 

Finding the right reforms in post-acute care can both improve care for today’s seniors and help save Medicare for the future generations.’’ 

Ranking Member McDermott stated, ‘‘The Affordable Care Act put us on a 

path towards reforming post-acute care and many promising ideas are 

being developed and tested. As the Medicare Trustees’ Report illustrates, 

the Medicare program is stable and strong, however, we should always 

look for ways to continue to strengthen it and improve the quality of care 


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for its beneficiaries. Improvements in post-acute care are a better approach for reform than policies that merely shift costs to beneficiaries.’’ 

FOCUS OF THE HEARING: 

The hearing will review proposals to reform post-acute care under the Medicare 

program. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on Friday, June 28, 2013. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman BRADY. Good morning. The subcommittee will come 

to order. 

And I want to welcome everyone to today’s hearing on bipartisan 

proposals, including those in the President’s budget, to reform how 

Medicare pays for care after patients are hospitalized. 


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This is the fifth hearing for our subcommittee this Congress and 

the fourth in a series focusing on bipartisan proposals to reform 

Medicare and Social Security. I am proud to say that today’s effort 

is truly a bipartisan hearing, that the Ways and Means Health 

Subcommittee staffs from both majority and minority staffs have 

collaborated on this hearing. 

Today’s discussion focuses on reforming how care delivered after 

a hospitalization in the Medicare program is paid for. We will focus 

on five policies from the President’s 2014 budget that are also supported by several bipartisan organizations. 

Our goal is to discuss the details around the following specific 

policies: one, reducing Medicare market basket updates for home 

health, nursing homes, rehab hospitals, and long-term-care hospitals; creating site-neutral payments between hospitals and nursing homes; establishing more stringent criteria for rehab hospitals; 

tackling readmissions from nursing homes; and creating bundled 

payments. The President’s budget estimates these five policies will save $93 

billion over 10 years, and CBO estimates these policies would save 

less, $54 billion. These are real savings, in any case, for a program 

that is facing bankruptcy in just 13 years. 

The topic for today’s hearing was chosen, in part, from listening 

to my colleagues. Mr. McDermott, during our last hearing, suggested that we may be cherry-picking proposals from the President’s budget that only focus on beneficiaries. Though we still firmly support redesigning the Medicare benefit, we know it is only one 

factor in the Medicare program that needs reform, and we should 

look at other items in the President’s budget. 

Today we are exploring after-hospitalization care because it is in 

desperate need of reform. It has been over a decade since Congress 

has made meaningful changes to the way after-hospitalization care 

is reimbursed. 

While we recently received some good news from the Medicare 

Trustees Report, which noted the life of Medicare’s main trust fund 

was extended by 2 additional years, I think some additional perspective is necessary. To me, 2 years is equivalent to the Titanic 

hitting the iceberg an hour later. We are still in deep financial 

trouble for this very important program. 

So I challenge this committee and our witnesses today to think 

bolder. A question we should be asking ourselves is, how can we 

extend the life of Medicare for an additional 10 years? An additional 20 years? Perhaps an additional 30 years? Because we owe 

it to current and future seniors to meet these goals. These will require hard decisions, but making them now will ensure a vibrant 

Medicare for generations to come. 

Before I recognize Ranking Member McDermott for the purposes 

of an opening statement, I ask unanimous consent that all Members’ written statements be included in the record. 

Without objection, so ordered. 

Chairman BRADY. I now recognize Ranking Member McDermott 

for his opening statement. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. I appreciate your 

willingness to approach this topic on a bipartisan basis because I 

suspect there is quite a bit we agree on. 


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Post-acute care is really a broad clinical term for all the activities 

that come after the acute incident or acute hospitalization. Their 

health is stable and the question is, what do we do with you now? 

It is something everyone in this room will have or has had at some 

point a chance to deal with. It can be messy. It is sometimes the 

road to the end. 

My experience with my parents living to 97 and 93 is I had quite 

a bit of time to operate in this area. And when I came to Congress, 

there was a group of about nine of us who would meet at the back 

of the floor when we got off the plane from the West Coast and discuss our experiences over the weekend of dealing with the problems of our parents’ post-acute care. 

And there is no manual for this. You find yourself stumbling 

around, trying to navigate a system, while you watch someone you 

love declining. We all want the same thing for our parents and any 

other loved ones who we have in this situation; it is the best care 

possible. We want them to have the highest quality we can get for 

them, but we also want it to be efficient. So when we talk about 

reform, we have to remember the people behind it. 

This sector has a lot of challenges. Double-digit inflation margins 

in several post-acute settings indicate that Medicare payments far 

exceed costs. Some parts of the country—it is true, 10 years ago, 

I remember a hearing just like this on this issue—had unusually 

high use of post-acute care. So there are concerns about utilization 

patterns and, certainly, fraud. 

Providers operate in silos, creating disincentives to coordinate 

care and improve transitions between settings. And I am sure our 

witnesses will talk more about this, so I am not going to belabor 

the point. 

We can be happy that the Affordable Care Act has put Medicare 

on a path toward post-acute reform. CMS is now testing the concept of bundled payments, which could break down the silos and 

encourage better-coordinated and more efficient delivery of care. 

Providers are starting down the path toward value-based purchasing with pay-for-reporting and demonstration projects to test 

that concept. The ACA has also provided new fraud tools to weed 

out the unscrupulous providers and took steps to recoup and rein 

in overpayments. 

But more can and will have to be done. Right now, there are billions of dollars of savings that can be had by further reconfiguring 

payments to better match actual costs. And that will help us address the extremely high Medicare margins of post-acute providers. 

Now, the real savings that will go toward a Medicare physician 

fix rather than loading more costs onto beneficiaries with incomes 

of $22,500 is really, I think, what we have to begin thinking about. 

We can also find longer-term reforms, and I look forward to hearing these ideas from CMS and from MedPAC. 

While there are a whole lot of interesting concepts and policy in 

this arena, we need to learn from the A.C. efforts under way. We 

have put them in motion, and we are now watching them. I don’t 

think we should move too quickly, because we need to let them see 

if they really work to ensure that models work in a way that 

doesn’t compromise access and provides high quality for our beneficiaries. 


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And then, finally, as Chairman Brady did, I would like to address something that the majority has raised. While we agree on 

the need for post-acute reform and much of the problem, I have to 

take issue with the notion that Medicare is broke and that postacute reform is the simple fix. There is no simple fix to the question of increasing health care. 

The Supreme Court made a decision yesterday that there is no 

ability to patent genes. And what gene therapy is going to do over 

the next 20 years, it is impossible for us to sit here today and predict. Nobody predicted where Medicare would be today 20 years ago 

or 40 years ago because medicine has advanced, and it is simply 

impossible to have any kind of system where you have it funded 

out there for 20 or 30 or 40 years. 

Reform is a worthy goal in and of itself, but let’s not cloak it in 

alarmist rhetoric about the program’s finances. Medicare’s finances 

are strong. The trustees just announced the solvency, as you heard, 

is extended by 2 years. Medicare spending per beneficiary—per 

beneficiary—grew at the low rate of 1.7 percent from 2010 to 2012. 

And projected spending growth will continue to be slower with the 

overall economy. 

So let’s agree that changes to the post-acute system are needed, 

that we can improve quality for our parents and loved ones as well 

as rein in overpayments. We don’t need hyperbolic statements to 

motivate to us action. We need to do it for our families. 

I yield back the balance of my time. 

Chairman BRADY. Thank you. 

Today, we will hear from two witnesses: Jonathan Blum, deputy 

administrator and director of the Center of Medicare at the Centers 

for Medicare and Medicaid Services; and Mark Miller, executive director of the Medicare Payment Advisory Commission. 

Thank you both for being here, and I look forward to your testimony. You will both be recognized for 5 minutes for the purposes 

of providing your oral remarks. 

Mr. Blum, we will begin with you. 

STATEMENT OF JONATHAN BLUM, ACTING PRINCIPAL DEPUTY ADMINSTRATOR AND DIRECTOR, CENTER FOR MEDICARE & MEDICAID SERVICES 

Mr. BLUM. Chairman Brady, Ranking Member McDermott, 

Members of subcommittee, reforming Medicare’s post-acute-care 

policy should be one of our highest priorities to improve the delivery of care and to reduce overall costs of the Medicare program. We 

thank you for the opportunity to offer our thoughts and perspectives. 

Payment for Medicare post-acute-care services has challenged 

the program for many, many years. Patients with similar needs 

overlap the current silos of post-acute care. We don’t have a great 

definition for what constitutes a SNF patient or an LTC patient, 

for example. We don’t know what the right mix of post-acute-care 

services are for a given condition. As a result, post-acute care is 

one of our fastest-growing areas. 

Over the past several years, CMS has spent much time analyzing 

geographic differences in health spending and outcomes, particularly for the Medicare fee-for-service program. Our work comVerDate Sep 11 2014 08:29 Oct 13, 2016 Jkt 021106 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21106.XXX 21106

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plements efforts performed by the Institute of Medicine, the Dartmouth Atlas, and MedPAC. 

While there are many drivers for these spending differences, several conclusions are clear to us. 

One, what really drives differences in Medicare fee-for-service 

spending is what happens to the patient after he or she leaves the 

hospital. For example, for a 30-day episode of care for a common 

heart procedure, the costs across the country can vary by a factor 

of two to one, with the differences being driven by the degree of 

post-acute-care services provided and whether there is a high probability for a hospital readmission. 

Two, higher quality of care is not associated with this degree of 

higher spending in some areas of the country. For example, high 

overall spending levels of post-acute-care services are not correlated with lower hospital readmissions. Despite some arguments 

from the industry, more spending on post-acute-care services over 

current levels will not necessarily reduce spending in other health 

care channels. Indeed, many of our highest-performing areas of the 

country, in terms of quality and cost, use relatively few post-acutecare services following a hospital stay. 

In short, we have to pay for post-acute-care services in a better 

way to improve the quality of care and reduce overall costs. Developing these better payment policies will require a combination of 

interventions and approaches. 

Over the long term, we are hopeful that our new payment approaches and pilot programs will lead to new care-delivery models 

that better integrate post-acute-care services with hospital services 

and community services to better manage patient transitions and 

episodes of care. For example, we are in the process of implementing four bundled payment models. Two of them will have a 

distinct focus on aligning financial incentives of post-acute-care 

providers with the overall cost of care. We are confident these models will lay the groundwork for a permanent payment policy. 

We also believe that a key success factor for our more than 250 

ACOs, or accountable care organizations, will be to establish better 

models for delivery of post-acute-care services. However, while we 

establish new models of payment and delivery, we also believe that 

we must take incremental but forceful steps to make our current 

payment systems more accurate and to ensure that post-acute-care 

providers treat patients that are most appropriate for their care 

setting. 

Over the past several years, we have made changes to our postacute-care payment systems to rebalance them to have stronger incentives to care for the sickest patients. We have taken significant 

steps, some required by the Affordable Care Act, to reduce spending where there is clear evidence the program overpays relative to 

the cost of care. 

And we have also put in place new requirements to ensure that 

benefits are being provided consistent with clinical need and care 

planning. For example, beneficiaries now receiving home health 

benefits must be seen by a physician in a face-to-face encounter to 

better ensure the integrity of the service. 

This year’s President’s budget also proposes some additional 

changes that we feel are very important to achieve the President’s 


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goal of reducing Medicare spending by about $371 billion over the 

next 10 years without compromising the quality of the care the program provides. 

Given the current growth trends and Medicare post-acute-care 

payments, we believe it is very important to take more steps, but 

careful steps, to further reduce spending to ensure these payment 

systems remain sustainable while better serving our beneficiaries. 

I would be happy to answer your questions. 

Chairman BRADY. Thank you, Mr. Blum. 

[The prepared statement of Mr. Blum follows:] 


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Chairman BRADY. Mr. Miller, you are recognized. 

STATEMENT OF MARK E. MILLER, PH.D., EXECUTIVE 

DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. MILLER. Thank you. 

Chairman Brady, Ranking Member McDermott, and distinguished Members of the Subcommittee, I would like to thank you 

for asking the Commission to testify here today. 

MedPAC’s work in this area has been guided by three objectives: 

to assure that the beneficiary gets high-quality, coordinated care; 

to protect taxpayers’ dollars; and then to pay providers in a way 

to achieve those two goals. MedPAC has been trying to move the 

payment systems away from fragmented fee-for-service that encourages volume growth and discourages coordination toward systems that focused on payment and delivery that are organized 

around patient need. 

But post-acute-care reform is difficult. There are few clinical 

guidelines regarding the services that are necessary, and as you 

have already heard, there are wide variations in the utilization of 

services. For example, in McAllen, Texas, there are seven times 

more home health services per person than the national average. 

In Miami, there are five times more home health services than the 

neighboring county. 

Related to that, there is not a uniform way to assess patient 

needs or outcomes. Some of our payment systems require a common assessment instrument, but they are different in each setting, 

and we cannot compare outcomes and needs across setting. And 

some settings don’t have an assessment instrument. This is extremely important. It encumbers the process of linking payment to 

quality and the process of developing a more rational payment system. 

Another issue is that providers select the patients they care for. 

And on the one hand, this really makes sense; you want to pair up 

patients with providers who can provide the necessary care. But in 

our payment systems, this means providers can select patients for 

financial reasons. We believe that, over time, certain SNFs in home 

health, skilled nursing facilities, and home health agencies, have 

focused on basic rehab patients and avoided medically complex patients because the former are more profitable than the latter. 

As Jon has mentioned, we pay different rates for similar services 

and similar patients. This creates incentives to move patients 

across payment systems, involving unnecessary transitions and additional costs. For example, long-term-care hospital payments are 

generally higher than acute-care hospital payments for the same 

patient, but a recent analysis suggests that as many as 50 percent 

of the patients in long-term-care hospitals could be treated in different settings. 

If you think in terms of time frames, MedPAC’s efforts in the 

past and in the short term have been focused at improving fee-forservice and encouraging movement to better systems. This involves 

reforming the underlying payment system to pay providers fairly; 

limiting and reducing payment rates to protect beneficiaries out of 

pocket, and the taxpayer; expanding program integrity to focus on 

bad actors; and linking payment to quality. 


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Let me illustrate a couple of these principles. The underlying 

skilled nursing facility payment system, as I have mentioned, encourages providers to take basic rehab patients and avoid medically 

complex patients. We have recommended changes that would pay 

the provider more accurately based on the patient that they take. 

We also believe that the original base rates for skilled nursing 

facilities were set too high, and this has contributed to very high 

profit margins for more than a decade, currently running about 14 

percent. We have recommended reducing the payment rates to be 

more consistent with the level of effort. 

Now, if you think about these two ideas together, this allows you 

to lower the rates but not to harm the agencies that are taking the 

most complex patients. We have made similar recommendations for 

home health. 

In the near term in order to encourage a more coordinated system, we have called for a unified assessment instrument that can 

be used to assess the patient regardless of what setting they go to. 

We have recommended for skilled nursing facilities with excessive 

readmission rates back to the hospital. And we have just begun our 

discussions of a site-neutral payment system for long-term-care 

hospitals and acute-care hospitals, but those discussions have just 

begun. 

In the long run in order to move to more fully coordinated care, 

we have recommended demonstrations to bundle payments around 

hospitalizations and post-acute care. And we have given extensive 

guidance to both Congress and the CMS on the design and implementation of two-sided risk accountable care organizations. 

In closing, I think what the Commission is looking for is a postacute-care system with a unified patient assessment instrument, a 

payment that matches resources to needs, but puts the provider at 

risk for unnecessary services, but then clears out unnecessary feefor-service rules to allow that provider to determine the ideal mix 

of post-acute-care services. 

Thank you for your attention. I look forward to your questions. 

Chairman BRADY. Thank you, Mr. Miller. 

[The prepared statement of Mr. Miller follows:] 


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f 

Chairman BRADY. To both of you, the last time Congress mandated comprehensive reform of Medicare payments was in 1997 

with the Balanced Budget Act. We are considering changes and reforms to extend the life of Medicare similar or greater in magnitude to those reforms. Many believe Congress took reform too far 

in 1997 and consequently gave back some of those reforms in 1999 

and beyond. 

So a broader question in the beginning: How does Congress aggressively pursue reform that extends the life of Medicare without 

repeating some of the mistakes of the past? 

Mr. Blum. 


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44 

Mr. BLUM. So, a couple points. 

I mean, one, I think Congress should recognize that there was 

many changes made to the Affordable Care Act to reduce spending 

on post-acute-care savings. Of the Medicare savings that were included in the Affordable Care Act, home health, skilled nursing, all 

the different payment systems did experience payment reductions. 

I believe that over the long term what we need to do is to shift 

the system, as Mark suggested, to ensure more accountable total 

care models. And I think what Congress can do is to provide clear 

direction, clear roadmaps for how that system should change over 

time. 

The President’s budget set a goal or a target for post-acute-care 

bundling by 2017. Really, our intent there is to send a clear signal, 

give a direction of how the health delivery system should move. 

We also feel in the interim that we have to take other payment 

steps in the short term to ensure that our payments are more accurate relative to the cost of the care. The President’s budget has several ideas how to achieve that. 

But I think the most important thing long term is to ensure that 

we can achieve more of a site-neutral payment or realign the incentives of post-acute-care providers—— 

Chairman BRADY. Got it. All right. 

Mr. Miller. 

Mr. MILLER. The things I would say is you want to probably 

move in steps. So when you are taking rates down, because they 

are overstated, you move in a series of steps over time. 

As I said in my opening comments, you try and also get the underlying payment system to follow the payments to the complex patients so that you are not taxing the facilities that are going after 

the most difficult payments. 

And then I agree with the comment over here that if you can get 

to payment systems that are more population- or episode-based, 

you give the provider flexibility and allow them to move the resources around, as long as you have protected the risk to the program. 

Chairman BRADY. Mr. Miller, you referenced MedPAC’s work on 

neutral payments in your original testimony. We have a real interest in that area. 

Why have you focused on that policy area? How important is it 

that we pursue that? 

Mr. MILLER. I think the Commission believes it is very important. This has been a problem that has been around for 15, 20, 30 

years. When I started, people talked about it, and it is still—I 

think the fundamental problem is twofold. 

One is, at the seams of these payment systems, you create odd 

incentives. So if one payment system pays more than another for 

the same service or the same patient, then people begin to behave 

in ways that are not clinically driven and, instead, driven to maximize payments. And you get behaviors that affect the beneficiaries 

out of pocket and behaviors that affect the program expenditures, 

but you also stimulate changes in the environment. 

We think that some—ambulatory care—one second, off-point—we 

think that that payment has stimulated purchase of physician 

practices, for example. 


ralbany on LAP520R082 with HEARINGS
45 

One quick, well, you know, wrap up, the Commission has talked 

about site-neutral payments in the ambulatory setting, with more 

of that coming out in our report today. Here, we are looking at the 

site-neutral payment between hospitals and long-term-care hospitals and just beginning to think about some of the relationship 

between the in-patient rehab facility and skilled nursing facilities. 

Chairman BRADY. Tell us about the unified assessment tool that 

you referenced in your testimony, how does that work? How far 

along is it? What kind of insight does it provide us as we are looking at reimbursement issues? 

Mr. MILLER. And I may throw this over to Jon because he will 

probably know more about what the current state of play is. 

But the fundamental situation is, and particularly in post-acute 

care, the two things you are generally looking for is the diagnosis 

and condition of the patient, but beyond that what you want is 

their functional status—their ability to walk, their ability to do 

things like that. 

What we have are these instruments in different settings that 

measure that different ways. And, in some settings, they don’t have 

a consistent instrument. And that means you can’t compare the patients across settings and figure out whether the payments and the 

outcomes are calibrated. 

There was a demonstration done by CMS. And we had called for 

this a long time back, that an instrument needed to be created. 

And CMS developed one and did a demonstration. And my view of 

it is that demonstration is pretty promising in saying that you can 

measure patients consistently across a lot of these categories. 

Its status, et cetera, I would hand off. 

Chairman BRADY. What is the status, Mr. Blum? 

Mr. BLUM. The status is that we have spent the past several 

years demonstrating, working with providers, the CARE tool. We 

feel confident that the CARE tool shows promise in how we push 

it out to all our different payment systems. Through our Center for 

Innovation Projects, we intend to use the CARE tool, to some degree, to assess how patients fare once you integrate the payments. 

So we are at a point where we feel confident within the CARE 

tool that it still needs refinement, but we believe that it holds tremendous promise, as Mark said, to assess patients across different 

care settings. And CMS plans to deploy it for the first time through 

our payment innovation—— 

Chairman BRADY. Would you, by letter, share with us how the 

tool works and methodologies—— 

Mr. BLUM. Absolutely. 

Chairman BRADY [continuing]. For arriving at it and the status 

of it? That would be very helpful. 

Mr. BLUM. Absolutely. 

Chairman BRADY. One of my concerns, that you referenced earlier on, is that we don’t have criteria in the SNFs and rehab hospitals, and we are getting to bundling payments. But my impression has been that CMS has had the requirement and direction 

from Congress for many years to develop these criterias and to 

move toward bundled payments. I guess my overall question is, 

why is it taking so long? 

Mr. BLUM. Well, I think, to me, there are several challenges. 


ralbany on LAP520R082 with HEARINGS
46 

Number one is that post-acute-care marketplace has been established over time very differently across the country. Different parts 

of the country have a different mix of services. So defining one unifying definition to what an episode is is challenging, given the current marketplace. 

The other challenge, is who gets the money? Does the hospital 

get the money and then decide where the patient goes and then 

pays the provider, versus having a locus of payment being more 

with the post-acute-care provider system. 

Those are very important questions that we are testing. Through 

our current work on bundled payments, we are, for the first time 

I think, really establishing common payment episodes, testing four 

different models. And there really is no off-the-shelf model that we 

know of that CMS can simply put to our payment systems. 

We are working very collaboratively with the hospital industry, 

post-acute-care industry, to define those episodes. And I think for 

the first time, the agency is building the infrastructure, not for just 

micro-tests but for large-scale transformation, to move to a more 

integrated post-acute-care system. 

So it is challenging, to be sure, but we feel confident that for the 

first time the industry, the health care delivery system, is building 

the platform to develop a very extensive bundled payment system. 

Chairman BRADY. Thank you, Mr. Blum. 

Before I recognize Mr. McDermott, at some point, Mr. Miller, 

during the hearing I hope you will address the President’s budget’s 

focus on market basket updates. MedPAC has included rebasing as 

part of your recommendations, as well. At some point, I would like 

to hear why. 

Mr. McDermott is recognized. 

Mr. MILLER. If you don’t get to that, make sure that you come 

back to me. 

Chairman BRADY. Okay. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

One of the issues—we have made reforms since 1997. It was 

called the Affordable Care Act. And that has made real changes in 

what is going on, I think. And we shouldn’t ignore the law of the 

land, as the Supreme Court has now described it. 

One of the questions that Mr. Brady raises and I would like to 

follow a little bit is, if you look at the numbers, it is Florida, it is 

Texas, it is Mississippi, it is Louisiana, it is Oklahoma, where there 

is higher home health use and aberrant—they are outliers in the 

system. 

Explain to me from a clinical point of view why that is. Why do 

you have that part of the country that has this outlying status, 

while all the rest of us are kind of clustered in the middle? 

Mr. BLUM. I think there are many reasons for the extensive variation that we see in health care spending. And I think you really 

have to break it down by different payment systems and different 

spending categories. There is no one uniform rule—— 

Mr. MCDERMOTT. I think it is 25 counties in those 5 States are 

the furthest out. It is very clustered. So is it just who is practicing 

in those counties? Is that what is going on? 

Mr. BLUM. I believe, and based upon our work with law enforcement, there is tremendous fraud going on in certain parts of the 


ralbany on LAP520R082 with HEARINGS
47 

country, particularly with home health areas. That has been an extensive focus for our work, to reform payments, to do more HEAT 

Task Force, working very closely with our partners in law enforcement. 

To respond to the variation, that a payment solution or an integrated payment bundle is not going to be the only solution that I 

believe that we need to consider. For different areas of the country, 

for different sectors, there are different responses. Some might be 

law enforcement responses, some might be better coverage policies, 

some might be payment reforms, but there are different reasons 

that drive different spending variations. 

And I think the home health example that you cite, particularly 

in some parts of the country, are not due to payment incentives but 

due to fraudulent behavior. 

Mr. MCDERMOTT. I remember when we had this debate in 

1997. The State of Washington had an average of 17 home health 

visits per year, or per patient, and Louisiana had a 125 or 140 or 

something. And it was very hard to see what the difference was, 

I mean, why that was going on. 

So you are telling me that same thing is going on now, 15 years 

later, and we haven’t figured out a way to get to it. Is that a fair 

estimate of where we are? 

Mr. BLUM. I think that it is clear to us that the higher uses of 

home health services, particularly in the areas of the country that 

you cite, are not correlated with better quality of care or lower hospital readmissions. The parts of the country that we see that have 

really managed readmissions well use relatively few home health 

services compared to the areas that you cite. 

So the long-term strategy really is to build the global payment 

incentive, but the short-term strategy is to respond through fraud 

and abuse controls, payment reductions, to ensure that we both 

control the integrity of the payment system against the long-term 

vision. 

Mr. MCDERMOTT. Let me ask you about the—now, Mr. Brady 

has asked about the issue of an instrument to measure who should 

go where. And we have this rule, this 3-day rule. And I have never 

understood what the clinical basis for the 3-day rule was. Is there 

such a clinical basis? 

Mr. BLUM. Well, my understanding is that the 3-day rule is set 

by statute. It was set a long time ago. And I believe that the rationale when Congress established the 3-day rule was to ensure 

that patients who are discharged to a skilled nursing facility have 

a high clinical demonstrated need for therapy services. 

Mr. MCDERMOTT. And that requires 3 days in the hospital to 

establish that; is that correct? 

Mr. BLUM. Correct. 

Now, that is a statutory requirement. And we are very interested 

in testing models that give more flexibility to the 3-day stay. But 

our belief is that those should be tested in contexts where we have 

global payment accountability, to ensure that we don’t overuse 

services. 

But, you know, within those contexts, like ACOs, for example, we 

are very interested to test more flexibility for the 3-day stay, to 

give more clinical discretion to discharge direct, for example, to the 


ralbany on LAP520R082 with HEARINGS
48 

skilled nursing facility. But it has to be with a common assessment 

tool, to our belief, and also in a global payment arrangement. 

Mr. MCDERMOTT. Now, tell me the difference, if two patients 

are standing here before us, and one of them is going to go to a 

nursing home because they—or they need skilled nursing care— 

they both need skilled nursing care. One of them goes into the hospital and gets admitted, and one of them goes into the hospital and 

goes into observational status. 

What is the difference? And who pays for what? Would you 

please explain that for me? 

Mr. BLUM. Sure. Well, I think we are definitely seeing a growing trend in outpatient observational services. 

Mr. MCDERMOTT. You have a huge spike. 

Mr. BLUM. Huge spike. And there are different reasons for that. 

And I think some hospitals argue that it is because of the RAC, recovery audit reviews, to ensure they get it right the first time. 

Some argue that a patient walks into the ER, has no place to go, 

doesn’t merit an in-patient stay, but the physician doesn’t feel comfortable sending that patient home. 

But it is clear to our rules that to qualify for the 3-day stay, the 

observation services do not count, that the in-patient stay does 

count. 

Chairman BRADY. Thank you. 

Mr. Johnson is recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Miller, MedPAC is focused on both reducing market basket 

updates and rebasing for home health and skilled nursing. Can you 

articulate why MedPAC has focused on rebasing in addition to 

market basket reductions and the Obama administration has only 

focused on market basket reductions? 

Mr. MILLER. Okay. There are a couple of sets of arguments. 

So, on the skilled nursing side, as I said, there has been a decade 

of very high profits. There does not appear to be a relationship between profitability and patient characteristics. What drives cost 

does not seem to be very clear. 

And when we look at the data, we can organize the data into efficient providers, providers that have low cost and high quality, and 

they can make higher profits at lower payment rates. We also noticed that, in managed care, many managed care plans don’t pay 

at these rates for skilled nursing facilities. So our argument is, 

don’t continue to inflate a rate that is already too high; stop inflating and reduce the rate. And that is what we call rebasing. 

But our concern, and this is what I tried to say in my opening 

5 minutes—and I am trying to answer your question, Mr. Chairman, as well—our concern is, let’s make sure that if there are certain skilled nursing facilities that are focused on the most complex 

patients, that we are also changing the underlying payment system 

so that the dollars move to those kinds of providers, so when the 

rate is reduced, that you don’t harm the facilities taking the complex patients. 

Now, just let me—one other thing. On home health, the story is 

a little bit different. In home health, when the base rate was created, there were about 30 visits provided over 60 days, and the 

base rate was based on 60 days. Over time, home health agencies 


ralbany on LAP520R082 with HEARINGS
49 

now provide about 22, 20-some-odd visits per 60 days. They are 

tilted a little bit more to more skilled visits, but it was based on 

many more visits. 

And, again, here is a situation where the profit margins for the 

home health agencies have been very high for a decade. And so, 

once again, we have suggested that the rate should come down. 

And, just like I told you on the skilled nursing facility side, alter 

the underlying payment system so you don’t harm the home health 

agencies that take the complex patients. 

I am sorry that was so long. 

Mr. JOHNSON. That is all right. 

Nearly a decade ago, when CMS implemented the modified 75 

percent rule, it did so partly based on the high number of relatively 

simple joint replacement cases being treated instead of less intensive settings. 

Isn’t it true that the number of these types of patients treated 

in IRFs has declined substantially? And isn’t it the case that IRFs 

are treating more medically complex patients than they were 6 or 

8 years ago? 

Mr. MILLER. It is true, those types of patients have moved to 

skilled nursing facility and home health settings in the data that 

we see. In-patient rehab facilities are treating a different mix of patients over time as a result of—I think it is actually the 60 percent 

rule. That used to be the 75 percent rule. 

Mr. JOHNSON. So we cut their reimbursement because they are 

treating more complex cases? 

Mr. MILLER. I think, actually, their margins are still in the 7, 

8 percent range, if I am not mistaken. I think that what went on 

there is there were strong incentives given to have a different mix 

of patients as opposed to a rate reduction. 

Mr. JOHNSON. What can Congress do to make sure that patients are getting the right care in the right setting? 

Mr. MILLER. I think what both of us have been saying is, you 

know, like your 3-day rule question and the 75 percent rule, or 60 

percent rule, whichever it is at the moment, these are all things 

that, you know, we as Congress and Jon as CMS have to put in 

place because you have this fee-for-service system and you are sort 

of chasing these payment systems around, which are all siloed. 

I think Jon was saying and I think the Commission would agree, 

if you could get to a more bundled payment, either on an episode 

basis or a population basis, you could step back from these rules, 

have the provider decide what the actual mix of services is, as long 

as the Government’s risk has been—and the beneficiary’s out-ofpocket risk has been managed for the episode or for the population. 

Mr. JOHNSON. Thank you for your response. 

Mr. Chairman, I yield back. 

Chairman BRADY. Thank you, Mr. Johnson. 

Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. 

I want to thank our witnesses for your testimony. 

I think this is an important hearing. I think there is tremendous 

opportunity to enhance the quality of care in the post-acute-care 

setting, at a substantial cost savings as well. But it is frustrating, 

because this is really a subset of a larger issue that we are trying 


ralbany on LAP520R082 with HEARINGS
50 

to get at, overall health care reform. I think MedPAC has done a 

good report, and CMS has been dialed in on the utilization variation that exists throughout the country and certain outliers, as 

Dr. McDermott just pointed out. 

My question is whether or not we can address that issue with a 

scalpel as opposed to a hatchet, as opposed to just rate reduction, 

so that we are not penalizing those areas that aren’t overutilized 

and still producing great results, and whether or not we have the 

wisdom to distinguish between the two. 

I mean, I reviewed again last night MedPAC’s report of March 

of this year, page 199. And you highlighted Wisconsin being way 

below the national average on episodic care and yet producing 

great results. And the fact that 25 counties with the highest utilization had an average utilization of 88 episodes per 100 beneficiaries. 

If the policies to reduce fraud could lower utilization just 18.5 

episodes in those areas, it would have declined by 290,000 episodes, 

or about 80 percent, at a cost savings of close to $800 million in 

2011 alone. 

You indicated, Mr. Blum, that there may be some fraud involved 

with that, but there is also, I would assume, a high concentration 

of providers in those areas, too, which is driving a lot of the utilization patterns, as well. 

Is that part of what is going on in these outlier areas, is the intense concentration, and therefore you are going to get a lot more 

episodes of care and prices being driven that way? 

Mr. BLUM. I think it is clear in our data, and I think this is also 

mirrored in data by MedPAC, the IOM, that there are certain parts 

of the country that use a distinctively different mix of services, particularly for post-acute-care services, and seem to have the same 

outcomes, if not higher outcomes. And our data that we see for a 

given DRG episode of care, that total cost over a 30-day episode can 

vary from a factor of two to one, sometimes even more. 

And it is really the post-acute-care services, not what happens to 

the patient in the hospital per our payment rates, but what happens after that patient leaves the hospital. Is there a high probability for readmission? 

There are parts of the country that demonstrate that the program can do a lot better overall to reduce hospital readmissions, 

better manage care transitions. But if you run the correlation between post-acute-care spending, even controlling for the patient 

risk, there is no correlation for the quality of the care that the patient receives that we can see. 

So I think there is tremendous opportunity to change the payment system over time. It will take a transition. But what is clear 

is that certain parts of the country use relatively few post-acutecare services and seem to have better outcomes, measured by readmissions, for example. 

Mr. KIND. Well, it seems like we need better data, too. And it 

sounds like the Center on Innovation has been dialed in on this. 

Are there any comparative effectiveness research studies going 

right now in post-acute-care settings to get us better evidencebased practices and protocols out there? 


ralbany on LAP520R082 with HEARINGS
51 

Mr. BLUM. I mean, I think, to our analysis, there is some very 

good work that says when you really target those services really 

well—a home health visit for the patient that has just been discharged—that there are better outcome. We need to figure out 

what can be scalable, and that is the work that the Innovation 

Center is doing. 

But it is clear that some parts of the country really have figured 

this out well, and we need to understand that and then disseminate it through more parts of the country. 

Mr. KIND. I think the key is trying to figure out what the proper 

setting is, what the proper treatment is, to get better results at a 

better price. 

Mr. BLUM. Absolutely. 

Mr. KIND. I mean, that is really the name of the game here. 

You have just mentioned the four bundled payment models that 

you are moving forward on right now. But it is my understanding 

that, even under the bundled payment being tested, it typically retains the existing fee-for-service payment rates with kind of a virtual bundle above that. 

Isn’t that kind of counterintuitive to where we need to go? 

Mr. BLUM. Well, I think we are testing different models. And I 

think we are also testing how fast we can establish these models. 

And similar to the accountable care organization model, a very 

quick way for us to move forward, given our current infrastructures, payment systems, and just the marketplace realities, is to 

continue to pay on a fee-for-service basis but then do kind of postepisode, post-year-end reconciliations to determine savings and 

quality of care. 

But the tradeoff really is speed versus—— 

Mr. KIND. Do you know, of the $15 billion we have been able 

to recapture under the ACA on Medicare fraud, how much of that 

came from the PACS, post-acute-care setting? 

Mr. BLUM. I don’t have that number offhand. But what I can 

tell you, Congressman, is that a lot of the fraud that we see in the 

program really comes from those providers that are very mobile: 

home health, durable medical supplies. And, really, that is, you 

know—we see less fraud in permanent institutions. 

Mr. KIND. Okay. Thank you. 

Thank you, Mr. Chairman. 

Chairman BRADY. Thank you. 

Mr. Roskam. 

Mr. ROSKAM. Thank you, Mr. Chairman. 

Mr. Miller, a couple minutes ago, you mentioned that we 

shouldn’t be taxing those providers going after the medically complex patients. Isn’t that sort of implicitly what is happening with 

the 75 percent rule? In other words, there is this burden that is 

being placed upon these institutions; it is a limitation upon them. 

Shouldn’t we move away from the 75 percent rule, you know 

what I mean, and just make sure that it is something that is not 

revisited? 

Mr. MILLER. I want to deal with two things, because the end 

of your comment I agreed with, but I wanted to do the set-up at 

the beginning. 


ralbany on LAP520R082 with HEARINGS
52 

I think the intent of the 75 percent rule is that the in-patient 

rehab facilities were taking patients that didn’t need to be there, 

that could have been treated elsewhere. And so I think the intent 

of the rule, clunky and, you know, regulatory as it was, was to do 

that. 

Now, to the second part of your question, I think, which is, yes, 

I think that objective is to get away from rules like that. And, 

again, I think you are hearing a fairly consistent message, which 

is, set the payment, allow the provider to manage within that patient, and if it is a couple of days in the IRF and then 2 weeks of 

home health versus a different patient has a different mix, fine. 

But the payment has been tied to what the patient needs, and then 

the exact mix the provider will execute. 

Mr. ROSKAM. What I am hearing from a Tier 1 rehab facility 

in my district is sort of the—really the heartache of stories of, look, 

we can’t care for this person, who desperately needs our help, 

based on our census. And so I am sensing from you, look, let’s move 

away from this. 

Mr. MILLER. Move away from that, but also remember those 

rules. It is not that each and every patient has to meet that criteria; 60 percent of the patients have to meet that criteria. 

So there is some flexibility to pick up a patient that you say, 

well, they might be on the other side of the line, but I am going 

to take them because of their need because my overall census, to 

use your word, falls within the rule. 

But, again, that is clunky and not the ideal place to be. 

Mr. ROSKAM. And even the 60 percent, that is not driven by 

any data, is it? I mean—— 

Mr. MILLER. Well—— 

Mr. ROSKAM [continuing]. What is the argument for 59? What 

is the argument against 58? 

Mr. MILLER. Oh, the actual percentage. My understanding of 

how the rules got set up is that clinicians came together and sort 

of looked at what types of patients needed to be in these types of 

facilities and struck a rule. Whether it is 60 percent or 75 percent, 

I don’t think there is a lot of science in that. 

Mr. ROSKAM. Right. And the other thing is, the clinicians were 

induced based on what? Either we are going to make a rule or you 

are going to make the rule, so come up with the rule? 

Mr. MILLER. Hit me one more time? 

Mr. ROSKAM. In other words, there is one thing to say, let’s 

come up with some sort of artful way. There is another thing to 

say, there is going to be a rule that is going to be imposed, come 

up with the percentage. Do you follow me? How they are prompted 

and the environment in which a rule is created. 

So I am not necessarily satisfied that even this 60 percent rule 

is something that they would come up with on their own. They 

were told, look, there is going to be a number, on the bus or under 

the bus. You write the number, or we are going to write the number. 

Mr. MILLER. And I will say this. And I understand your thinking here, and it is thinking that was very consistent with my own. 

But, for example, I don’t know how many years ago now, I am 

going to say 7 or 8 years ago, the Commission has been pushing 


ralbany on LAP520R082 with HEARINGS
53 

on the need for criteria for long-term-care hospitals. I have many 

times sat with the industry and said, where are the criteria? And 

it has been pulling teeth. 

And the criteria, bluntly, that have come forward are, in many 

instances, very self-serving. They basically codify exactly what is 

out there. 

Mr. ROSKAM. Right. I have heard some of that. I get that vibe. 

Mr. Blum, just quickly, CMS is proposing to pay rehab hospitals 

a nursing home rate based on certain types of conditions. What 

animates your hope that that is ready for prime time? And if you 

are proposing to do that as a cost-saving measure, what are you 

proposing to reduce in terms of regulations to allow them to administer that service at that price? 

Mr. BLUM. Well, I think, as Mark and others have said, there 

are clear areas where we can see overlap, where patients with 

similar needs, similar clinical characteristics, are treated in different silos of payment that we currently operate. And I think what 

we are trying to get to is payment that is neutral. 

And what I believe the President’s budget says, for a very small 

step, to neutralize the payment, given the payment differences, for 

conditions that we see a lot of overlap. This, to me, as small step 

until we get to a more permanent, longer-term payment policy. 

I think it is a fair question for Congress to ask; well, how do we 

assess that the patients are kind of treated similarly? I think one 

area for consideration is that, if this change were authorized, to direct us to use the CARE tool as a step to ensure that we do see 

consistent outcomes. 

But I personally would frame this policy as one small step towards site-neutral payments, but one that we are comfortable proposing. 

Chairman BRADY. Thank you. 

Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

And thank you to the witnesses. You have been clear, succinct. 

I am astounded, Administrator Blum, as to how candid you have 

been, not just today, about fraud in the system. And I wasn’t going 

to talk about this, but the amount of money, when we know that 

health care is part of the entire economy, and it is growing, that 

we are losing every day because of these mobile, for instance, providers. 

Do we know who they are? 

Mr. BLUM. I think we are much better able today than previously to spot fraud before it happens. And one of the things that 

we have built at CMS that was mandated by the Congress was 

what we called the fraud prevention system, where we now, before 

claims are paid, we can spot patterns, we can see things, we can 

refer them to further investigation. 

But I think, to us, the key is to use claims systems much more 

smartly, more wisely, so we can spot behavior that is problematic. 

Because we know that behavior that is fraudulent isn’t isolated, 

that it moves; once we bring in law enforcement resources, that it 

tends to move. 

So we have to be smarter, we have to get away from pay-andchase, and much more about predictive data—— 


ralbany on LAP520R082 with HEARINGS
54 

Mr. PASCRELL. Most of the fraud is still on the side of the providers, not the folks that are getting the care; isn’t that correct? 

Mr. BLUM. I think, traditionally, we have been focused on the 

providers. I think there are some instances where the beneficiaries 

are complicit, whether they know it or not, that their IDs got stolen. But I think, to us, we have to move away from the past payand-chase system and move toward a smarter, wiser system to stop 

payments before they happen. 

Mr. PASCRELL. One of the elements of the Affordable Care 

Act—I had a personal interest in it, a professional interest in it— 

is the Innovation Center. I think it is very, very, very critical in 

terms of moving forward, as you have used the term before, both 

of you. 

I am very excited about the promising payment and delivery reform models that can transform both Medicare and Medicaid, as 

CMMI takes time to test and evaluate these models. 

While I understand that the Innovation Center is an important 

avenue for us to collaborate with health care providers and partners in the private sector to improve how our health care system 

works, I strongly advocated for the continuing care hospital pilot 

in ACA, and Congress ultimately authorized the pilot with the 

goals. 

Now, can you tell me what the status specifically is of the implementation of the continuing care hospital model? 

Mr. BLUM. We are happy to provide you with a more complete 

response through writing. But my understanding is that our bundled payment models, the four models that I talked about, permit 

the same kinds of care model that I think the legislation calls for. 

So we believe that the spirit, the goals of the continuing care hospital model are being established through our bundled payment 

systems. 

We are working with a wide range—I think it surprised us, the 

interest—of hospitals’ post-acute-care providers. We plan to test 

more models over time. We have four that we have now established. I think the goal is—— 

Mr. PASCRELL. But we haven’t implemented them, correct? 

Mr. BLUM. They are in the process of being implemented, and 

our target is to have them up and running by October 1st. 

Mr. PASCRELL. And the Congress directed CMS to test the 

model. CMS does not have the discretion on this matter, as I understand it. To be clear, Section 3023 mandates that the Secretary 

implement the CCH pilot as well as the national bundling pilot. 

Can you tell me when we expect CMS to begin pilot testing the 

CCH model? 

Mr. BLUM. I think what I can say to you today is that there are 

four models. To me, they include the spirit of that language. And 

I will be happy to get back to you with a more precise answer. 

Mr. PASCRELL. Thank you very much. 

And I yield back. Thank you, Mr. Chairman. 

Chairman BRADY. Thank you. 

Dr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. And I want to thank you 

as well for holding this hearing. 

And I want to thank our witnesses. 


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I always like to try to talk about patients, and just as a little, 

maybe a non sequitur, but there is an urgent issue, Mr. Blum, as 

you well know, with the whole issue of DME and going to phase 

two and round two of the competitive bidding model, that many of 

us believe—in fact, a letter was sent to Ms. Tavenner, signed by 

a 226 bipartisan group from Congress, to urge a delay in this, because real people in real communities across this land, we believe, 

are going to be harmed in very specific ways. And so I would draw 

your attention to that letter and urge you to take that message 

back to Ms. Tavenner, please. 

A delay of 6 months, we believe, would be a zero cost, because 

the current requirement is to have it done by the end of the year, 

so we can move toward a positive system, market price purchasing 

system. 

I do want to follow up on the issue of fraud, obviously, 25 counties that have the highest level of fraud. And the providers get 

whacked with this. There is a significant number of just fraudulent 

actors, not even providers, who take the Government for significant 

amounts of money and then move on when they get identified. 

Mr. Blum, do you know what that percent is? 

Mr. BLUM. I think it is hard for us to quantify what a precise 

rate of fraud is. The Congress did direct us to try and calculate 

that. What we do know is that there is a substantial number, too 

high a number, to our minds, of bad actors that bill the system. 

We are moving the system from the pay-and-chase model. We are 

trying to find those actors. But I do agree with you that it is a 

small percentage but that it is one that creates vulnerabilities that 

we have to respond to. 

Mr. PRICE. Most of the providers out there that are trying to 

care for these patients in oftentimes very, very difficult situations 

and decreased reimbursement that has challenged them to a significant degree are just trying as hard as they can. 

Reducing market basket updates. It seems to me that modifying 

this payment that CMS is talking about is being done more with 

the budget in mind as opposed to patients in mind. 

And what are your metrics that relate to being able to determine 

the cost of compliance with the regulations and the rules for the 

folks? Is that part of your equation for what you pay in a market 

basket? 

Mr. BLUM. Well, I think the main metric that we look to is margins and how are the Medicare payment rates relative to the cost 

of care. And what we see in all of our post-acute-care payment systems, SNF and home health and in-patient rehab, is very high 

margins. 

Mr. PRICE. But what is a margin that CMS finds acceptable? 

How much? 

Mr. BLUM. We don’t have a defined standard, but I think when 

we see margins that are in the double-digit rates, that gives us 

very strong concerns that our payment rates are too high relative 

to the cost of care. 

Mr. PRICE. Is CMS the one defining the cost, or are the folks 

actually paying the bills defining the cost? 

Mr. BLUM. Well, we have cost report processes where we collect 

costs based upon the costs of care that are submitted to us by CMS. 


ralbany on LAP520R082 with HEARINGS
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But it is really the cost of—excuse me, to CMS. But it is really the 

cost of the care provided to that beneficiary. 

We have to be mindful that our regulations don’t—I mean, are 

smart, that are wise. We have taken regulations off the books in 

the last couple of years to create more flexibility. But, to our analysis, when we see margins that are in the double-digit rate, that 

is a clear signal that the program overpays relative to—— 

Mr. PRICE. And I appreciate that. I think it is important for people to make certain that we are hearing what is being said, and 

that is that the Federal Government believes that there is a certain 

amount of a margin that is correct and a certain amount that is 

not. Many of us find that fairly chilling. 

I want to move to the issue of the unified assessment rule and 

this CARE tool that is being considered. Do you know the cost of 

the compliance with this CARE tool that is being set up? 

Mr. BLUM. One thing that we do hear from providers that have 

tested the CARE model, that there are many questions, too many 

questions. And we don’t have a set number of questions in mind. 

We are very, I think, open to refining the tool based upon—— 

Mr. PRICE. But do you know the cost—is there a target cost to 

the provider that CMS is looking at for compliance with the CARE 

tool? 

Mr. BLUM. Not that I am aware of. But I think our goal is to 

make sure of two things: number one, that we, the Congress, 

MedPAC, all of us, can assess patients that are treated in different 

settings to assess, does it make sense for this patient to be in home 

health versus SNF—— 

Mr. PRICE. It is a different question, though, Mr. Blum. The 

providers have to comply with what you dictate. And if there is a 

cost to that compliance, if that is not being factored into what you 

are paying, then you are not paying attention to what happens out 

there in the real world. 

Mr. BLUM. What I can say is that all of our payment systems 

today require an assessment. SNF has their own system. Home 

health has their own system. IRF has their own system. So that 

is, to my analysis, already built into the system. 

Our goal is to simplify. Many post-acute-care providers both own 

SNF, home health, and long-term-care facilities, for example. So, 

hopefully, one common assessment should reduce provider burden, 

particularly those that have multiple care settings. 

Mr. PRICE. Thanks, Mr. Chairman. I look forward to following 

up. 

Chairman BRADY. Thank you. Thank you, sir. 

Mr. Buchanan. 

Mr. BUCHANAN. Thank you for holding this important hearing. 

And I also want to thank our witnesses for taking their time 

today. 

Mr. Blum, with regards to in-patient hospitals that provide 

rehab, I want to go back to the 60 percent rule. How do we know, 

from your standpoint, that it is not working? I guess that is the 

first thing. 

And the second thing, I am just concerned about a lot of patients. 

I am from Florida. It is a big issue in our area. I am very concerned about patients having access to quality care and that a lot 


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of them might be exempt as a result of going from 60 to 75 or 

whatever that number might be. So I would ask you that question. 

Mr. BLUM. I think our starting principle for post-acute-care payment systems is that we recognize that each of our payment silos 

has a distinct need and a distinct focus in the care delivery system. 

And so we feel that all of them are important and that serve beneficiaries well. 

We also know there is overlap. And given, as Mark described, differences in cost of care—quite significant between those patients, 

for example, who are treated in a skilled nursing facility and those 

in an in-patient rehab facility—that while we develop this longerterm strategy, that we need to do more to ensure that patients get 

treated in the right care setting, given the payment differentials. 

Mr. BUCHANAN. But you are confident that people will have 

the same quality of care in terms of access to facilities by raising 

that bar? 

Mr. BLUM. Well, I think we know there is overlap, we know that 

quality varies across the country. As during the previous question, 

the question was, how did the agency come to the 60 percent? That 

was done with the collaboration of clinical input. And I would say 

that if the Congress chooses to authorize this policy to change the 

60 percent to the 75 percent, one thing the Congress might want 

to consider is to make sure that change does have clinical validation and input. 

But we do think it is appropriate for us to take some more incremental steps to make sure patients are treated at the right place 

at the right time while we develop more of the longer-term strategies. 

Mr. BUCHANAN. And, Mr. Miller, in your written testimony, 

you conclude that post-acute-care spending has doubled since 2000. 

What are the biggest contributors to that, based on your statement? 

Mr. MILLER. I think, you know, at a conceptual level, I think 

probably the biggest contributor is how difficult it is to define the 

need for the service. And so it is very hard to decide when to start 

and when to stop. 

If you want to get more mechanical about what is going on, the 

underlying trends, there has been in some of the post-acute-care 

providers a large influx of providers, and I think that that is, in 

part, because some of the rates are so attractive, that people come 

in. You have more users of the service and more services per user. 

So if you think about the growth-driving factors, that is what has 

been happening in a lot of the environments. 

But I think the fundamental concern is the payment rates have 

been set very high in some of these settings and providers have 

come in. 

Mr. BUCHANAN. Mr. Blum, real quick, I want to echo a little 

bit what Dr. Price mentioned about competitive bidding. I can tell 

you that it is a big issue. I have talked to a lot of people across 

the State of Florida. But I have one person in my district, they are 

looking at a 40 percent cut on one product that they sell. Talking 

about 500 employees; probably going to have to lay off half of them. 

This is a big issue all over Florida. I know that Dr. Price mentioned there are 227 Members on a bipartisan basis. Someone like 


ralbany on LAP520R082 with HEARINGS
58 

myself that has been in business 30 years, the whole concept of 

competitive bidding or bidding, you have to make sure these are legitimate bids, and ‘‘legitimate’’ meaning people can deliver based 

on what they are talking about under these contracts. 

But there are a lot of people that are going to be negatively affected with this bidding process if this isn’t done in the proper way. 

And I know locally we are talking about a lot of jobs, not just in 

my district but across Florida, because of this process. 

And I hope that you guys—and I just don’t know how you cut 

someone 40 percent. That is not staged in a whole industry, and 

this is just one industry. So I would just like to have you respond 

quickly to that. 

Mr. BLUM. We understand that the competitive bidding model 

is a transition and one that is complex and one that is a significant 

change from the current way that the Medicare program pays for 

durable medical supplies. 

I would say there are three things why we think this program 

is so vitally important. Number one, the program currently overpays relative to what we know private payers pay. The program 

will save substantially relative to the current payment rates. 

Number two, I think, going back to the fraud issue that was 

raised previously, by working with a better-screened set of suppliers, we are confident that we can reduce the error, the fraud 

that historically we have seen in the program. 

And I think, number three, what I would say is, we have tested 

this program in nine parts of the country. And the arguments that 

we are hearing today we heard before we started the nine areas of 

the country: Beneficiaries would go without supplies, there would 

be waits for supplies. That hasn’t happened. And we have tracked 

this program more carefully than the Medicare program has 

tracked ever before. We have not seen the disruption that the industry argued would happen back in 2011. That gives us great confidence we can move forward. 

We will pledge to work with this committee, with the Congress 

to share the same data we look at, 100 percent claims analysis, to 

ensure that our beneficiaries have the supplies they need and have 

the best possible care delivery. 

Mr. BUCHANAN. Thank you, Mr. Chairman. 

Chairman BRADY. Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

And thank you to our witnesses here today for sharing your insight and your recommendations. 

As well, I am concerned about the sustainability of Medicare and 

want to look at not only the short-term but the long-term solutions 

so that we can see Medicare in a more sustainable fashion. 

We know that there is a large difference in terms of delivery to 

urban areas compared to rural areas. Obviously, I represent a very 

rural constituency. And I want to ensure the changes we make to 

Medicare do not further limit access to critical services to people 

living in rural areas. 

Mr. Miller, when MedPAC was looking at ways to reform payments to post-acute-care services, did you research whether these 

reforms would impact access to our rural communities? And if so, 

how? 


ralbany on LAP520R082 with HEARINGS
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Mr. MILLER. We did. 

And we recently, I think it was in June 2012, did a fairly extensive report on rural services, access, quality, that type of thing. 

And when you look at service use, whether we are talking about 

physicians, hospitals, skilled nursing facilities, home health, ESRD 

drugs—we looked at a range of different things—the utilization 

rates between urban and rural areas are not all that different. 

The only real place that we found a difference is, in the most 

frontier counties of the country, there is a lower home health utilization rate. But everything else, pretty consistent. 

Mr. SMITH. Can you elaborate on ‘‘most frontier counties’’? 

Mr. MILLER. I may get this wrong. I think it is six persons per 

square mile, something like that. 

Mr. SMITH. Okay. 

Mr. MILLER. And I may have that all wrong. I can tell you, just 

not this second. 

Mr. SMITH. Okay. Thank you. 

Mr. MILLER. The thing to keep in mind that I want to get 

across to you and the committee, it is not about urban and rural. 

If you go to Louisiana, the highest utilization rates in the country 

in Louisiana, Texas, areas like that, it is urban and rural. If you 

go to South Dakota, you have low utilization urban and rural. It 

is much more a phenomenon of practice pattern and sort of entrepreneurial service utilization than it is an urban and rural phenomenon. 

And I just want to get this last thing in here. I am sorry, I know 

you want to go again. But, you know, our view is, if you find a 

problem and you think that there is an access issue, target the solution to that, as opposed to saying, okay, here is a payment for 

anybody with ‘‘rural’’ in their name and then, you know—for example, in home health agencies, the rural margin is actually higher 

than urban. So our point is really about targeting it to access problems. 

Sorry. 

Mr. SMITH. Okay. Thank you. 

Mr. Blum, in your opinion, would any of these proposals be detrimental to providers in rural communities? 

Mr. BLUM. I think we always have to be mindful of that and to 

make sure that beneficiaries throughout the country have access to 

quality services. 

As Mark said, home health, for example, that we see high margins consistently throughout the entire industry, for-profit, not-forprofit. So that gives us confidence that we can lower payments 

without compromising quality of care. 

But I think it is a fair demand that Congress should put on the 

agency to monitor what happens to beneficiaries realtime with 

these payment changes. I talked about the work that we have done 

on dialysis care, for example. 

So I think, if Congress were to adopt these policies, one recommendation that I would have is for Congress to demand CMS to 

monitor what happens realtime to make sure the quality of care 

throughout the country is not compromised. 

Mr. SMITH. Okay. Thank you. 

I yield back. 


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60 

Chairman BRADY. Thank you. 

Mr. Gerlach. 

Mr. GERLACH. Thank you, Mr. Chairman. 

Gentlemen, let me go back to this 60 percent rule issue just so 

I can get some clarity in my mind over it. 

As I understand it, the in-patient rehabilitation facilities receive 

their reimbursements based upon a prospective payment system. Is 

that correct? That was transitioned into being somewhere around 

2000? Is that right? 

Mr. BLUM. [Nonverbal response.] 

Mr. GERLACH. Okay. So if that prospective payment system is 

properly structured, in terms of identifying the types of services 

that would be necessary for a patient with a certain diagnosis, and 

the bundling of the care that goes into that payment mix is appropriate, why is there a percentage rule at all as to how many patients overall that facility has that might be Medicare-eligible for 

certain services versus a patient that comes in needing rehab for 

a broken leg because of a motorcycle accident who is 23 years old? 

Why is there any percentage rule applied in any way, as long as 

the PPS payment system is appropriately structured? 

Mr. MILLER. I am sure Jon has things to say here, too, so I will 

try to keep it short. 

The issue that you always get with a prospective payment system is, if you set up a payment, what a provider may do—and I 

am not saying all of them do it—may try and figure out how do 

you maximize payment with minimum amount of effort. And so you 

have a set of categories, you classify a patient, you assign a dollar, 

but if I can figure out how to get a lower-severity patient in there, 

I can increase my revenue. 

And this isn’t just in-patient rehab facilities. You see this 

throughout the post-acute-care setting. I mentioned earlier, home 

health was built on the assumption of 30 visits. They are now delivering 22, on average. 

So, in a sense, and this is what is clunky and unhappy about 

these silos and fee-for-service, is you will observe patterns and then 

you will put in criteria trying to reorient the incentive structure for 

the provider. 

Mr. GERLACH. But, on that point, if I can—and, Mr. Blum, I 

would like your comment, too. On that point, you are saying that 

the provider is trying to, based on that payment structure, determine what the nature of the patient is coming in to get the service 

and trying to get a less-severe patient, from a health care conditions situation, into the facility, knowing you are going to get a better reimbursement out of that, versus taking on a more—— 

Mr. MILLER. Complicated. 

Mr. GERLACH [continuing]. Complicated situation. 

Mr. MILLER. Uh-huh. 

Mr. GERLACH. But the point still stands. As long as whatever 

the service is being provided meets the criteria, what difference 

does it make overall to the total patient mix? Whoever the patient 

is that comes into that facility needs a certain amount of care for 

a certain condition. 

Mr. BLUM. I would agree with you. 


ralbany on LAP520R082 with HEARINGS
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Mr. GERLACH. And if the bundling payment is a fair payment 

for the service provided, why is that an issue for you as to, what, 

it is 60 percent, 75? 

Mr. MILLER. It is whether it is fair based on who is coming in 

at that point in time versus when it was fair when it was set up. 

So you may have set it up and said this is the mix of patients and 

here is the payment, and then you find yourself 5 years down the 

road and there is a different mix of patients in there but the payment has continued to reflect the higher complexity. That is the 

problem. 

Mr. GERLACH. Mr. Blum. 

Mr. BLUM. I would agree with what Dr. Miller just said, is I 

think that if we have payments that were neutral to the patient’s 

conditions, that it shouldn’t matter which setting that they would 

be served in. But because we have such differentials in payments 

between skilled nursing facility payments versus in-patient rehab 

versus hospital, in order to protect the trust funds and also to ensure patients get served in the best setting, we have to think about 

these criteria, like the 75 percent rule, to make sure that the right 

patient gets treated at the same time. 

The rules also say that, for an in-patient patient, they have to 

withstand very intensive therapy, they have to withstand, you 

know, very intensive services. So we have to have determinations 

of who goes to the right place at the right time, both to make sure 

that the care is appropriate, but, given the payment differentials, 

that the trust funds are protected. 

We believe over the long term we need to move away from these 

more crude and clunky measures like 3-day stay, 75 percent rule. 

If we can figure out what the right mix of site-neutral payment is 

long term—we don’t have that definition, and no one does that I 

am aware of right now—that we can phase out some of these more 

clunky definitions. 

But until we can figure this out longer term, then I believe we 

need to have these definitions, but can test ways to relax them, so 

long as we have total cost accountability built into the system. 

Mr. GERLACH. Okay. 

And real quickly on home health care, if I can—and I would like 

to have both your comments. 

I had a constituent that went in for 3 days of home—or had 3 

days of home health care services. He was billed $1,500 for the 

services and turned that over to CMS. And the CMS folks reimbursed the home health care agency $3,000 for those 3 days of 

care—in essence, reimbursed the agency double what they billed 

for the service. And the explanation we got from CMS was that, 

well, over the course of a 30-day episode of care, a pro-rational reimbursement amount was $3,000. 

Why are you paying double what is billed in this system? Why 

don’t you have it in your regulations, it is that 30-day episode of 

care that determines the amount or what is billed, whatever is 

less? 

Mr. BLUM. I think that is a helpful suggestion. I would have to 

become more familiar with this case. We do have short-stay outlier 

mechanisms in our home health payment system. But, as Mark 


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said, the current home health payment system is based upon a 

visit assumption that is no longer valid. 

CMS is working, consistent with the Affordable Care Act, to 

rebase the home health payment system. So I hope that our future 

payment system won’t have the effect that you just described. 

Mr. GERLACH. Thank you. 

Chairman BRADY. Thank you. 

Mr. McDermott, for a brief follow-up. 

Mr. MCDERMOTT. Mr. Smith asked a question, and I want to 

just follow up a second. 

On the home health care issue, the ACA gave you the ability to 

put a moratorium on any more organizations in an area. Have you 

used that anyplace in the United States? If not, why not? I would 

like to hear your answer to that question. 

Chairman BRADY. And briefly, please. 

Mr. BLUM. We have not used it yet. We continue to receive recommendations from the industry associations, law enforcement, but 

we have not used it yet. 

Mr. MCDERMOTT. So you have not used it. 

Mr. BLUM. Yet. 

Mr. MCDERMOTT. Thank you. 

Chairman BRADY. I want to thank both of our witnesses and 

our Members here, as well, for their testimony today and the questioning. Your experience and ideas on how to reform Medicare’s 

payment for after-hospitalization care to keep the system solvent 

are appreciated. 

As a reminder, any Member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask the witnesses to respond in a timely manner. 

Chairman BRADY. With that, the subcommittee is adjourned. 

[Whereupon, at 10:47 a.m., the subcommittee was adjourned.] 

[Submissions for the Record follow:] 


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American Hospital Association, AHA 


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64 


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65 


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66 


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67 


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f 


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American Health Care Association & National Center for Assisted Living 


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70 


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71 


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f 


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American Medical Rehabilitation Providers Association, AMRPA 


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76 


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77 


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f 


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Coalition to Preserve Rehabilitation, CPR 


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f 


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HealthSouth 


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89 


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90 


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95 


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96 

f 


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National Association for Home Care & Hospice, NAHC 


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98 


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99 


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f 


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The Nebraska Association of Home & Community Health Agencies, 

NAHCHA 


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f 


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The Visiting Nurse Associations of America, VNAA 


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Æ 


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