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SECTION 2. MEDICARE

CONTENTS

Overview

Eligibility and Coverage

Aged

Disabled

Number of Beneficiaries

Benefits and Beneficiary Cost Sharing

Part A

Part B

Financing

Hospital Insurance Trust Fund—Income

Supplementary Medical Insurance Trust Fund—Income

Financial Status of Hospital Insurance Trust Fund

Financial Status of Supplementary Medical Insurance

Trust Fund

Comparison of Medicare Lifetime Benefits with Beneficiary Contributions

Part A Services—Coverage and Payments

Inpatient Hospital Services

Skilled Nursing Facility Services

Home Health Services

Hospice Services

Part B Services—Coverage and Payments

Physicians Services

Services of Nonphysician Practitioners

Clinical Laboratory Services

Durable Medical Equipment and Prosthetics and

Orthotics

Hospital Outpatient Department Services

Ambulatory Surgical Center Services

Other Part B Services

End-Stage Renal Disease Services

Coverage

Reimbursement

Medicare+Choice

Selected Issues

Utilization and Quality Control Peer Review Organizations

Secondary Payer

Supplementing Medicare Coverage

Legislative History, 1980–99

CBO Savings and Revenue Estimates for Budget Reconciliation and Related Acts, 1981–99

Medicare Historical Data

References

98

OVERVIEW

Medicare is a nationwide health insurance program for the aged

and certain disabled persons. The program consists of two parts—

part A, hospital insurance (HI) and part B, supplementary medical

insurance (SMI). Total program outlays were $212.0 billion in fiscal

year 1999. Net outlays after deduction of beneficiary premiums

were $190.5 billion.

COVERAGE

Almost all persons over age 65 are automatically entitled to

Medicare part A. Part A also provides coverage, after a 24-month

waiting period, for persons under age 65 who are receiving Social

Security cash benefits on the basis of disability. Most persons who

need a kidney transplant or renal dialysis may also be covered, regardless of age. In fiscal year 1999, part A covered an estimated

38.8 million aged and disabled persons (including those with chronic kidney disease).

Medicare part B is voluntary. All persons over age 65 and all

persons enrolled in part A may enroll in part B by paying a monthly premium—$45.50 in 2000. In fiscal year 1999, part B covered an

estimated 36.9 million aged and disabled persons.

BENEFITS

Part A provides coverage for inpatient hospital services, up to

100 days of posthospital skilled nursing facility (SNF) care, some

home health services, and hospice care. Patients must pay a deductible ($776 in 2000) each time their hospital admission begins

a benefit period. (A benefit period begins when a patient enters a

hospital and ends when she has not been in a hospital or SNF for

60 days.) Medicare pays the remaining costs for the first 60 days

of hospital care. The limited number of beneficiaries requiring care

beyond 60 days are subject to additional charges. Patients requiring SNF care are subject to a daily coinsurance charge for days 21–

100 ($97 in 2000). There are no cost-sharing charges for home

health care and limited charges for hospice care.

Part B provides coverage for physicians’ services, laboratory services, durable medical equipment (DME), hospital outpatient department (OPD) services, and other medical services. The program generally pays 80 percent of Medicare’s fee schedule or other approved

amount after the beneficiary has met the annual $100 deductible.

The beneficiary is liable for the remaining 20 percent.

PAYMENTS FOR SERVICES

Taken together, spending for inpatient hospital and physicians’

and related services accounts for close to 70 percent of Medicare

fee-for-service payments (spending for managed care plans is not

broken down by service category). Medicare makes payments for inpatient hospital services under a prospective payment system

(PPS); a predetermined rate is paid for each inpatient stay based

on the patient’s admitting diagnosis. Payment for physicians’ services is made on the basis of a fee schedule. Specific payment rules

are also used for other services.

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ADMINISTRATION

Medicare is administered by the Health Care Financing Administration (HCFA) within the U.S. Department of Health and Human

Services (DHHS). Much of the day-to-day work of reviewing claims

and making payments is done by intermediaries (for part A) and

carriers (for part B). These are generally commercial insurers or

Blue Cross Blue Shield plans.

FINANCING

Medicare part A is financed primarily through the HI payroll tax

levied on current workers and their employers. Employers and employees each pay a tax of 1.45 percent on all earnings. The self-employed pay a single tax of 2.9 percent on earnings.

Part B is financed through a combination of monthly premiums

levied on program beneficiaries and Federal general revenues. In

2000, the premium is $45.50. Beneficiary premiums have generally

represented about 25 percent of part B costs; Federal general revenues (i.e., tax dollars) account for the remaining 75 percent.

FEDERAL OUTLAYS

Total program outlays were $212.0 billion in fiscal year 1999.

Net outlays (i.e., net of premiums beneficiaries pay for enrollment,

largely for part B) were $190.5 billion.

Tables 2–1, 2–2, and 2–3 provide historical spending and coverage data for Medicare. Table 2–4 provides State-by-State information for fiscal year 1998.

ELIGIBILITY AND COVERAGE

AGED

Part A

Most Americans age 65 or older are automatically entitled to protection under part A. These individuals (or their spouses) established entitlement during their working careers by paying the HI

payroll tax on earnings covered by either the Social Security or

Railroad Retirement Systems.

The HI tax was extended to Federal employment with respect to

wages paid on or after January 1, 1983. Beginning January 1,

1983, Federal employment is included in determining eligibility for

protection under Medicare part A. A transitional provision allows

individuals who were in the employ of the Federal Government

both before and during January 1, 1983, to have their prior Federal

employment considered as employment for purposes of providing

Medicare coverage. Employees of State and local governments,

hired after March 31, 1986, are also liable for the HI tax.

Persons age 65 or older who are not automatically entitled to

part A may obtain coverage, providing they pay the full actuarial

cost. The 2000 monthly premium is $301 ($166 for persons who

have at least 30 quarters of covered employment).

100

TABLE 2–1.—MEDICARE OUTLAYS, SELECTED FISCAL YEARS 1967–2010

[In millions of dollars]

Fiscal year Part A Part B

Total

Medicare

outlays

Medicare

premium

offsets

Net

Medicare

outlays

Percent increase (over

prior year)

1967 ......... $2,597 $798 $3,395 ¥$647 $2,748 NA

1970 ......... 4,953 2,196 7,149 ¥936 6,213 9.1

1972 ......... 6,276 2,544 8,820 ¥1,340 7,480 13.0

1973 ......... 6,842 2,637 9,479 ¥1,427 8,052 7.6

1974 ......... 8,065 3,283 11,348 ¥1,708 9,640 19.7

1975 ......... 10,612 4,170 14,782 ¥1,907 12,875 33.6

1976 ......... 12,579 5,200 17,779 ¥1,945 15,834 23.0

TQ ............. 3,404 1,401 4,805 ¥541 4,264 NA

1977 ......... 15,207 6,342 21,549 ¥2,204 19,345 NA

1978 ......... 17,862 7,350 25,212 ¥2,443 22,769 17.7

1979 ......... 20,343 8,805 29,148 ¥2,653 26,495 16.4

1980 ......... 24,288 10,746 35,034 ¥2,945 32,089 21.1

1981 ......... 29,248 13,240 42,488 ¥3,340 39,148 22.0

1982 ......... 34,864 15,559 50,423 ¥3,856 46,567 19.0

1983 ......... 38,551 18,317 56,868 ¥4,253 52,615 13.0

1984 ......... 42,295 20,374 62,669 ¥4,942 57,727 9.7

1985 ......... 48,667 22,730 71,397 ¥5,562 65,835 14.0

1986 ......... 49,685 26,217 75,902 ¥5,739 70,163 6.6

1987 ......... 50,803 30,837 81,640 ¥6,520 75,120 7.1

1988 ......... 52,730 34,947 87,677 ¥8,798 78,879 5.0

1989 ......... 58,238 38,316 96,554 ¥11,590 84,964 7.7

1990 ......... 66,687 43,022 109,709 ¥11,607 98,102 15.5

1991 ......... 70,742 47,021 117,763 ¥12,174 105,589 7.6

1992 ......... 81,971 50,285 132,256 ¥13,232 119,024 12.7

1993 ......... 91,604 54,254 145,858 ¥15,305 130,553 9.7

1994 ......... 102,770 59,724 162,494 ¥17,747 144,747 10.9

1995 ......... 114,883 65,213 180,096 ¥20,241 159,855 10.4

1996 ......... 127,683 68,946 196,629 ¥20,088 176,591 10.5

1997 ......... 137,884 72,553 210,437 ¥20,421 190,016 7.6

1998 ......... 137,298 76,272 213,570 ¥20,747 192,823 1.5

1999 ......... 131,500 80,518 212,018 ¥21,561 190,457 ¥1.2

2000 1 ...... 133,100 88,300 221,300 ¥21,800 199,500 4.7

2001 1 ...... 140,600 98,800 239,400 ¥23,300 216,100 8.3

2002 1 ...... 143,600 103,500 247,100 ¥25,400 221,700 2.6

2003 1 ...... 153,500 114,300 267,800 ¥28,100 239,800 8.2

2004 1 ...... 163,200 123,800 287,000 ¥31,100 255,900 6.7

2005 1 ...... 176,800 136,600 313,400 ¥34,200 279,200 9.1

2006 1 ...... 182,400 141,600 324,000 ¥37,200 286,700 2.7

2007 1 ...... 198,000 155,300 353,200 ¥40,300 312,900 9.1

2008 1 ...... 211,300 167,400 378,800 ¥43,600 335,300 7.2

2009 1 ...... 226,100 181,300 407,500 ¥47,200 360,200 7.4

2010 1 ...... 241,600 196,800 438,400 ¥51,000 387,400 7.6

1 Congressional Budget Office projections.

NA—Not applicable.

Note.—Totals may not add due to rounding. TQ = transitional quarter.

Source: For 1967–99: Office of the President, 2000.

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Part B

Part B of Medicare is voluntary. All persons age 65 or older (even

those not entitled to part A) may elect to enroll in the SMI Program by paying the monthly premium. The 2000 premium is

$45.50 per month. Persons who voluntarily enroll in part A are required to enroll in part B.

DISABLED

Part A

Part A also covers, after a 2-year waiting period, people under

age 65 who are either receiving monthly Social Security benefits on

the basis of disability or receiving payments as disabled Railroad

Retirement System annuitants. (Dependents of the disabled are not

eligible.) In addition, most people who need a kidney transplant or

renal dialysis because of chronic kidney disease are entitled to benefits under part A regardless of age.

Part B

Persons eligible for part A by virtue of disability or chronic kidney disease may also elect to enroll in part B.

NUMBER OF BENEFICIARIES

In fiscal year 1998, 33.4 million aged and 5.1 million disabled

had protection under part A. In fiscal year 1998, 32.3 million aged

and 4.4 million disabled were enrolled in part B (table 2–2).

BENEFITS AND BENEFICIARY COST SHARING

PART A

Part A coverage includes:

Inpatient hospital care.—The first 60 days of inpatient hospital services in a benefit period are subject to a deductible ($776 in calendar year 2000). A benefit period begins when a patient enters a

hospital and ends when he has not been in a hospital or SNF for

60 days. For days 61–90 in a benefit period, a coinsurance amount

($194 in calendar year 2000) is imposed. When more than 90 days

are required in a benefit period, a patient may elect to draw upon

a 60-day lifetime reserve. A coinsurance amount ($388 in calendar

year 2000) is imposed for each reserve day.

Skilled nursing facility care.—SNF care is up to 100 days (following hospitalization) in an SNF for persons in need of continued

skilled nursing care and/or skilled rehabilitation services on a daily

basis. After the first 20 days, there is a daily coinsurance ($97 in

calendar year 2000) amount.

Home health care.—Home health visits are provided to persons

who need skilled nursing care on an intermittent basis, or physical

therapy, or speech therapy. The Balanced Budget Act (BBA) of

1997 gradually transfers from part A to part B home health visits

that are not part of the first 100 visits following a beneficiary’s stay

in a hospital or SNF (i.e., postinstitutional visits) and during a

home health spell of illness. The transfer is being phased in over

6 years, between 1998 and 2003, with the Secretary transferring

one-sixth of the aggregate expenditures associated with transferred

TABLE 2–2.—NUMBER OF AGED AND DISABLED ELIGIBLE ENROLLEES AND BENEFICIARIES, AND AVERAGE MEDICARE BENEFIT PAYMENTS 

ENROLLEE, SELECTED YEARS 1975–99

[Beneficiaries in thousands]

Fiscal year 1975 (actual) 1980 (actual) 1985 (actual) 1990 (actual) 1995 (actual) 1998 (actual) 1999 (actual) 2000 (est.) 1 2001 (est.) 1

Average

annual

growth

1975–85

(percent)

Average

annual

growth

1985–95

(percent)

Part A

Persons enrolled (monthly

average):

Aged ....................... 21,795 24,572 27,121 30,050 32,649 33,384 33,585 33,816 34,059 2.2 1.9 Disabled ................. 2,047 2,968 2,944 3,313 4,366 5,070 5,259 5,445 5,643 3.7 4.0 

Total ................... 23,842 27,540 30,065 33,363 37,015 38,454 38,844 39,261 39,702 2.3 2.1 

Average annual benefit

per person enrolled: 2 3

Aged ....................... $432 $853 $1,563 $1,947 $3,078 $3,550 $3,366 $3,331 $3,577 13.7 7.0 Disabled ................. 460 948 1,808 2,176 2,955 3,118 3,055 3,042 3,195 14.7 5.0 

Total ................... 434 863 1,587 1,970 3,063 3,493 3,324 3,291 3,523 13.8 6.8 

Part B

Persons enrolled (average):

Aged ....................... 21,504 24,422 27,049 29,426 31,622 32,257 32,350 32,550 32,759 2.3 1.6 Disabled ................. 1,835 2,698 2,672 2,907 3,874 4,422 4,582 4,730 4,892 3.8 3.8 

Total ................... 23,339 27,120 29,721 32,333 35,496 36,679 36,932 37,280 37,651 2.4 1.8 

Average annual benefit

per person enrolled: 2

Aged ....................... 153 348 705 1,250 1,728 1,989 2,108 2,395 2,628 16.5 9.4 Disabled ................. 259 610 1,022 1,603 2,282 2,623 2,388 2,667 2,897 14.7 8.4 

Total ................... 161 374 734 1,282 1,788 2,066 2,143 2,430 2,663 16.4 9.3 

1 Represents projections of current law. Does not include legislative proposals.2 Does not include administrative cost.3 Includes part A catastrophic benefits in fiscal year 1990.

Source: Health Care Financing Administration, Division of Budget Formulation.

TABLE 2–3.—BENEFIT PAYMENTS BY SERVICE UNDER MEDICARE PARTS A AND B, SELECTED FISCAL YEARS 1975–2001

[In millions of dollars]

Service

1975 1980 1985 1990 1 1995 2000 (est.) 2 2001 (est.) 2 Average annual

growth rate

(percent)

Project

age 

grow

(per

Percent Amount Per- cent Amount Per- cent Amount Per- cent Amount Per- cent Amount Per- cent Amount Per- cent Amount 1975–

85

1985–

95 1995– 2000 

Part A

Inpatient hospital .. 70.5 $9,947 67.4 $22,877 65.0 $45,218 55.3 $59,285 49.4 $87,449 40.0 $87,930 38.3 $91,932 16.3 6.8 0.1 Skilled nursing facility ................... 1.9 273 1.2 392 0.8 550 2.6 2,821 5.1 9,104 5.7 12,598 6.2 14,823 7.3 32.4 6.7 Home health 3 ........ 0.9 133 1.5 524 2.7 1,908 3.1 3,297 8.5 14,995 1.8 3,876 1.5 3,504 30.5 22.9

¥23.7

Hospice ................... 0 0 0 0 0 34 0.3 318 1.0 1,854 1.2 2,597 1.1 2,730 NA 49.2 7.0 Managed care ........ 0 (4)0 (4)0 (4)0 (4)0 (4) 10.1 22,215 11.2 26,880 NA NA NA 

Total benefit

payments .. 73.3 10,353 70.1 23,793 68.6 47,710 61.3 65,721 64.1 113,402 58.8 129,216 58.2 139,869 16.5 9.0 2.7 

Part B

Physician ................ 21.7 3,067 23.0 7,813 24.1 16,788 27.0 28,920 (5) (5) (5) (5) (5) (5) 18.5 (5) (5

Outpatient .............. 3.7 529 5.3 1,803 5.6 3,917 7.8 8,365 (5) (5) (5) (5) (5) (5) 22.2 (5) (5Home health ........... 0.5 75 0.7 232 0.1 40 0.3 75 (5) (5) (5) (5) (5) (5) ¥6.1 (5) (5

Other medical and

health ................ 0.7 94 0.9 296 1.5 1,063 3.8 4,090 (5) (5) (5) (5) (5) (5) 27.5 (5) (5

Physician fee

schedule ............ (5) (5) (5) (5) (5) (5) (5) (5) 17.6 31,101 16.2 35,619 15.3 36,647 (5) (5) 2.8 

Durable medical

equipment .......... (5) (5) (5) (5) (5) (5) (5) (5) 2.0 3,576 2.0 4,443 2.0 4,714 (5) (5) 4.4 

Carrier laboratory 6 (5) (5) (5) (5) (5) (5) (5) (5) 1.6 2,819 0.9 2,038 0.9 2,062 (5) (5) ¥6.3

Other carrier ........... (5) (5) (5) (5) (5) (5) (5) (5) 2.6 4,513 3.1 6,852 3.1 7,343 (5) (5) 8.7 

Hospital 7 ................ (5) (5) (5) (5) (5) (5) (5) (5) 4.8 8,449 4.1 9,087 4.7 11,356 (5) (5) 1.4 

Home health 3 ........ (5) (5) (5) (5) (5) (5) (5) (5) 0.1 223 2.6 5,790 2.9 6,884 (5) (5) 91.8 

Intermediary laboratory 8 .................. (5) (5) (5) (5) (5) (5) (5) (5) 0.8 1,437 0.7 1,607 0.7 1,667 (5) (5) 2.3 

Other intermediary 9 (5) (5) (5) (5) (5) (5) (5) (5) 2.9 5,111 2.7 6,037 2.7 6,511 (5) (5) 3.4 Managed care ........ (5) (5) (5) (5) (5) (5) (5) (5) 3.5 6,253 8.7 19,102 9.63 23,089 (5) (5) 25.0 

Total benefit

payments .. 26.7 3,765 29.9 10,144 31.4 21,808 38.7 41,450 35.9 63,482 41.2 90,574 41.8 100,273 19.2 11.3 7.4 

Total parts A

and B ........ 100.0 14,118 100.0 33,937 100.0 69,518 100.0 107,171 100.0 176,884 100.0 219,790 .......... 240,142 17.3 9.8 4.4 

1 Includes part A catastrophic benefits in fiscal year 1990.2 Represents current law. Does not include legislative proposals.3 Reflects the Balanced Budget Act of 1997’s partial shift of home health to part B, beginning January 1, 1998.4 Part A managed care amounts for fiscal years 1995 and earlier are reflected within the four other service categories.5 Service categories were revised beginning in 1992.6 Laboratory services paid under the laboratory fee schedule performed in a physician’s office laboratory or an independent laboratory. 7 Includes the hospital facility costs for Medicare part B services which are predominantly in the outpatient department. The physician reimbursement associated with th

ices is included on the ‘‘physician fee schedule’’ line. 8 Laboratory fee services paid under the laboratory fee schedule performed in a hospital outpatient department.

9 Includes end-stage renal disease (ESRD) freestanding dialysis facility payments and payments to rural health clinics, outpatient rehabilitation facilities, psychiatric hosp

federally qualified health centers.

NA—Not available.Note.—Totals may not add due to rounding.Source: Health Care Financing Administration, Division of Budget Formulation.

TABLE 2–4.—MEDICARE ESTIMATED BENEFIT PAYMENTS, ENROLLMENT, AND PAYMENTS PER ENROLLEE, BY JURISDICTION, FISCAL YEAR 1

State Managed care Fee for service Total estimated benefit payments HI and/or SMI Medicare enroll- ment Es

paym

e

Alabama ............................................................. $205,426,344 $3,355,291,164 $3,560,717,508 662,299 Alaska ................................................................. NA 159,758,199 159,758,199 36,522 Arizona ................................................................ 1,239,778,917 1,745,752,051 2,985,530,968 636,450 Arkansas ............................................................. 49,224,065 1,879,525,269 1,928,749,334 431,020 California ............................................................ 8,773,118,477 13,784,518,629 22,557,637,106 3,738,081 Colorado .............................................................. 643,203,173 1,635,431,750 2,278,634,923 442,452 Connecticut ......................................................... 400,112,935 2,728,217,584 3,128,330,518 507,927 Delaware ............................................................. NA 405,179,514 405,179,514 105,693 District of Columbia ........................................... 144,373,478 777,918,684 922,292,162 78,151 Florida ................................................................. 4,524,774,836 13,378,150,436 17,902,925,272 2,727,545 Georgia ............................................................... 176,623,168 4,110,432,452 4,287,055,620 869,443 Hawaii ................................................................. 239,875,943 398,863,192 638,739,135 156,103 Idaho ................................................................... 10,980,148 589,589,258 600,569,407 155,810 Illinois ................................................................. 834,190,968 7,656,027,597 8,490,218,565 1,622,181 Indiana ............................................................... 65,964,275 4,197,139,053 4,263,103,328 835,183 Iowa .................................................................... 12,850,611 1,797,001,383 1,809,851,994 475,786 Kansas ................................................................ 25,109,448 1,783,589,354 1,808,698,803 387,589 Kentucky ............................................................. 53,879,786 2,843,156,472 2,897,036,258 602,570 Louisiana ............................................................ 538,912,807 3,754,572,687 4,293,485,495 592,543 Maine .................................................................. 366,850 792,926,706 793,293,556 207,784 Maryland ............................................................. 517,992,313 3,123,552,630 3,641,544,943 619,700 Massachusetts .................................................... 1,117,102,982 4,689,557,576 5,806,660,558 946,879 Michigan ............................................................. 257,643,533 7,452,965,590 7,710,609,123 1,369,629 Minnesota ........................................................... 355,714,448 2,442,292,853 2,798,007,301 639,293 Mississippi .......................................................... NA 2,216,407,663 2,216,407,663 407,440 Missouri .............................................................. 602,636,855 4,092,810,974 4,695,447,829 844,920 

Montana .............................................................. 4,359,566 529,898,775 534,258,341 133,089 Nebraska ............................................................. 54,981,437 1,024,707,802 1,079,689,239 251,029 Nevada ................................................................ 399,145,276 706,198,480 1,105,343,755 213,742 New Hampshire .................................................. 43,577,945 603,936,891 647,514,836 161,759 New Jersey .......................................................... 697,261,271 6,210,460,644 6,907,721,916 1,182,204 New Mexico ......................................................... 167,306,872 662,125,184 829,432,056 221,061 New York ............................................................. 2,592,564,064 14,472,498,088 17,065,062,152 2,651,677 North Carolina .................................................... 87,759,036 5,207,921,577 5,295,680,613 1,073,564 North Dakota ...................................................... 1,024,727 479,367,786 480,392,514 102,764 Ohio .................................................................... 1,175,552,456 7,658,951,361 8,834,503,816 1,683,167 Oklahoma ............................................................ 170,664,498 2,201,883,236 2,372,547,734 497,066 Oregon ................................................................ 679,992,754 1,151,812,303 1,831,805.057 477,022 Pennsylvania ....................................................... 2,783,739,255 10,399,395,849 13,183,135,104 2,084,565 Puerto Rico ......................................................... NA 1,085,621,690 1,085,621,690 502,760 Rhode Island ...................................................... 222,688,282 799,438,068 1,022,126,351 169,359 South Carolina .................................................... 8,107,599 2,555,180,022 2,563,287,620 534,827 South Dakota ...................................................... NA 503,514,478 503,514,478 117,931 Tennessee ........................................................... 69,099,978 4,659,088,195 4,728,188,173 796,692 Texas ................................................................... 1,566,883,357 13,099,231,346 14,666,114,703 2,162,917 Utah .................................................................... 100,786,356 787,529,116 888,315,472 195,326 Vermont .............................................................. 1,282,393 287,952,764 289,235,157 85,562 Virginia ............................................................... 61,555,988 3,595,463,713 3,657,019,701 849,493 Washington ......................................................... 735,189,539 2,147,994,124 2,883,183,663 708,607 West Virginia ...................................................... 13,047,291 1,515,162,298 1,528,209,589 333,217 Wisconsin ............................................................ 89,029,594 3,178,402,378 3,267,431,972 770,405 Wyoming ............................................................. NA 218,451,250 218,451,250 62,654 Outlying areas .................................................... NA 53,543,743 53,543,743 323,287 

Total all areas ........................................... 32,515,455,895 177,586,359,882 210,101,815,777 38,444,739 

NA—Not available.Source: Health Care Financing Administration, Office of Information Services.

108

visits in 1998; two-sixths in 1999; three-sixths in 2000; four-sixths

in 2001; five-sixths in 2002; and six-sixths in 2003. Beginning January 1, 2003, part A will cover only postinstitutional home health

services for up to 100 visits during a home health spell of illness,

except for those persons with part A coverage only, who will be covered for services without regard to the postinstitutional limitation.

Hospice care.—Hospice care services are provided to terminally

ill Medicare beneficiaries with a life expectancy of 6 months or less

for two 90-day periods, followed by an unlimited number of 60-day

periods. The medical director or physician member of the hospice

interdisciplinary team must recertify, at the beginning of 60-day

periods, that the beneficiary is terminally ill.

PART B

Part B of Medicare generally pays 80 percent of the approved

amount (fee schedule, reasonable charge, or reasonable cost) for

covered services in excess of an annual deductible ($100). Services

covered include:

Doctor’s services.—This category includes surgery, consultation,

and home, office and institutional visits. Certain limitations apply

for services rendered by dentists, podiatrists, and chiropractors and

for the treatment of mental illness.

Other medical and health services.—This category includes laboratory and other diagnostic tests, x ray and other radiation therapy, outpatient hospital services, rural health clinic services, DME,

home dialysis supplies and equipment, artificial devices (other than

dental), physical and speech therapy, and ambulance services.

Specified preventive services.—These services include: an annual

screening mammography for all women over age 40; a screening

Pap smear and a screening pelvic exam once every 3 years, except

for women who are at a high risk of developing cervical cancer;

specified colorectal screening procedures; diabetes self-management

training services; bone mass measurements for high-risk persons;

and prostate cancer screenings.

Drugs and vaccines.—Generally Medicare does not pay for outpatient prescription drugs or biologicals. Part B pays for immunosuppressive drugs for a minimum of 36 months following a covered

organ transplant, erythropoietin (EPO) for treatment of anemia for

persons with chronic kidney failure, and certain oral cancer drugs.

The program also covers flu shots, pneumococcal pneumonia vaccines, and hepatitis B vaccines for those at risk.

Home health services.—Home services include an unlimited number of medically necessary home health visits for persons not covered under part A. The 20-percent coinsurance and $100 deductible

do not apply for such benefits. As noted above, BBA 1997 gradually

transfers some home health costs from part A to part B, beginning

in 1998.

Table 2–5 illustrates the deductible, coinsurance and premium

amounts for both part A and part B services from the inception of

Medicare.

109

FINANCING

The Medicare Hospital Insurance (HI) Trust Fund finances services covered under Medicare part A. The Supplementary Medical

Insurance (SMI) Trust Fund finances services covered under Medicare part B. The trust funds are maintained by the Department of

the Treasury. Each trust fund is actually an accounting mechanism; there is no actual transfer of money into and out of the fund.

Income to each trust fund is credited to the fund in the form of

interest-bearing government securities. The securities represent obligations that the government has issued to itself. Expenditures for

services and administrative costs are recorded against the fund.

HOSPITAL INSURANCE TRUST FUND—INCOME

The primary source of income to the HI fund is HI payroll taxes.

This source accounted for $134.4 billion (87.8 percent) of the total

$153.0 billion in income for fiscal year 1999. Additional income

sources include premiums paid by voluntary enrollees, government

credits, interest on Federal securities, and taxation of a portion of

Social Security benefits.

Payroll taxes

The HI Trust Fund is financed primarily through Social Security

payroll tax contributions paid by employees and employers. Each

pays a tax of 1.45 percent on all earnings in covered employment.

The self-employed pay 2.9 percent. Prior to 1994, there was an

upper limit on earnings subject to the tax. An upper limit of

$76,200 in 2000 continues to apply under Social Security. Table 2–

6 shows the history of the contribution rates and maximum taxable

earnings base for the HI Program.

Other income

The following are additional sources of income to the HI fund:

1. Railroad retirement account transfers.—In fiscal year 1999,

$430 million was transferred from the railroad retirement

fund. This is the estimated amount that would have been in

the fund if railroad employment had always been covered

under the Social Security Act.

2. Reimbursements for uninsured persons.—HI benefits are provided to certain uninsured persons who turned 65 before 1968.

Persons who turned 65 after 1967 but before 1974 are covered

under transitional provisions. Similar transitional entitlement

applies to Federal employees who retire before earning sufficient quarters of Medicare-qualified Federal employment provided they were employed before and during January 1983.

Payments for these persons are made initially from the HI

Trust Fund, with reimbursement from the general fund of the

Treasury for the costs, including administrative expenses, of

the payments. In fiscal year 1999, $652 million was transferred

to HI on this basis.

TABLE 2–5.—PART A AND PART B DEDUCTIBLE, COINSURANCE AND PREMIUMS,1 SELECTED YEARS 1966–2000

Calendar year

Inpatient hospital 2 Skilled nursing facility 21st–100th

day coinsurance

per day 5

HI monthly premium6

SMI deductible

SMI premi

First 60

days deductible

61st–90th day

coinsurance

per day 3

60 lifetime reserve

days (nonrenewable)

coinsurance per day 4

Effective

date

Full

amount

Reduced

amount

Effective

date 

1966 .............. $40 $10 (7) (7) (8) (8) NA $50 7/66 1968 .............. 40 10 $20 $5.00 (8) (8) NA 50 4/68 1970 .............. 52 13 26 6.50 (8) (8) NA 50 7/70 1972 .............. 68 17 34 8.50 (8) (8) NA 50 7/72 1973 .............. 72 18 36 9.00 7/73 $33 NA 60 9 9/73 

1974 .............. 84 21 42 10.50 7/74 36 NA 60 7/74 1975 .............. 92 23 46 11.50 7/75 40 NA 60 (8) 

1976 .............. 104 26 52 13.00 7/76 45 NA 60 7/76 1977 .............. 124 31 62 15.50 7/77 54 NA 60 7/77 1978 .............. 144 36 72 18.00 7/78 63 NA 60 7/78 1979 .............. 160 40 80 20.00 7/79 69 NA 60 7/79 1980 .............. 180 45 90 22.50 7/80 78 NA 60 7/80 1981 .............. 204 51 102 25.50 7/81 89 NA 60 7/81 1982 .............. 260 65 130 32.50 7/82 113 NA 75 7/82 1983 .............. 304 76 152 38.00 (8) 113 NA 75 (8) 

1984 .............. 356 89 178 44.50 1/84 155 NA 75 1/84 1985 .............. 400 100 200 50.00 1/85 174 NA 75 1/85 1986 .............. 492 123 246 61.50 1/86 214 NA 75 1/86 1987 .............. 520 130 260 65.00 1/87 226 NA 75 1/87 1988 .............. 540 135 270 67.50 1/88 234 NA 75 1/88 1989 .............. 10 560 NA NA 11 25.50 1/89 156 NA 75 1/89 

1990 .............. 592 148 296 74.00 1/90 175 NA 75 1/90 1991 .............. 628 157 314 78.50 1/91 177 NA 100 1/91 1992 .............. 652 163 326 81.50 1/92 192 NA 100 1/92 1993 .............. 676 169 338 84.50 1/93 221 NA 100 1/93 

1994 .............. 696 174 348 87.00 1/94 245 $184 100 1/94 1995 .............. 716 179 358 89.50 1/95 261 183 100 1/95 1996 .............. 736 184 368 92.00 1/96 289 188 100 1/96 1997 .............. 760 190 380 95.00 1/97 311 187 100 1/97 1998 .............. 764 191 382 95.50 1/98 309 170 100 1/98 1999 .............. 768 192 384 96.00 1/99 309 170 100 1/99 2000 .............. 776 194 388 97.00 1/00 301 166 100 1/00 

1 For services furnished on or after January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible for the year in which the services were 

For services furnished prior to January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible applicable for the year in which the individualperiod began. 2 For care in psychiatric hospital there is a 190-day lifetime limit.

3 Always equal to one-fourth of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.4 Always equal to one-half of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.5 Always equal to one-third of inpatient hospital deductible through 1988 and for 1990 and later. For 1989 it was equal to 20 percent of estimated Medicare covered 

cost per day. 6 Not applicable prior to July 1973. Applies to aged individuals who are not fully insured, and to certain disabled individuals who have exhausted other entitlement. Th

amount is available to aged individuals who are not fully insured but who have, or whose spouse has or had, at least 30 quarters of coverage under title II of the SociaAct. The reduced amount is 75 percent of the full amount in 1994, 70 percent in 1995, 65 percent in 1996, 60 percent in 1997, and 55 percent in 1998 and thereafter

7 Not covered.8 Not applicable.9 For August 1973 the premium was $6.10.10 In 1989, the HI deductible was applied on an annual basis, not a benefit period basis (unlike the other years).11 In 1989, the skilled nursing facility coinsurance was on days 1–8 of the 150 days allowed annually; for the other years it is on days 21–100 of 100 days allowed 

fit period.

NA—Not available.Note.—In addition to the deductible and coinsurance amounts shown in the table, the first three pints of blood are not reimbursed by Medicare. Currently there is n

ible or coinsurance on home health benefits. From January 1973 to June 30, 1982, there was a $60 annual deductible and prior to July 1, 1981, benefits were limited to its per benefit period under part A and 100 visits per calendar year under part B. Special limits apply to certain benefits: (1) Outpatient physician services for mental ipercent of approved charges, up to a maximum of $250 in benefits per year, July 1, 1966 through December 31, 1987; $450 in benefits per year, January 1, 1988 thrcember 31, 1988; $1,100 in benefits per year, January 1, 1989 through December 31, 1989; beginning January 1, 1990, the limit was removed; (2) physical and occupatiapy services furnished by physical therapists in independent practice: maximum annual approved charges July 1, 1973 through December 31, 1981, $80 per year; January through December 31, 1982, $400 per year; January 1, 1983 through December 31, 1989, $500 per year; January 1, 1990 through December 31, 1993, $750 per year; an1, 1994 through December 31, 1998; in 1999 there was an annual $1,500 limit on all physical therapy services (except those provided by a hospital) and an annual $1on all occupational therapy services (except those provided by a hospital); and no limit in 2000.

Source: Health Care Financing Administration, Office of the Actuary.

112

TABLE 2–6.—CURRENT LAW SOCIAL SECURITY PAYROLL TAX RATES FOR EMPLOYERS

AND EMPLOYEES AND TAXABLE EARNINGS BASES, 1977–2000

Calendar year

Employee and employer rates, each

(percent) HI taxable

earnings base

Maximum HI

tax OASDI

combined HI OASDHIcombined

1977 ............................... 4.95 0.90 5.85 $16,500 $148.50

1978 ............................... 5.05 1.10 6.05 17,700 194.70

1979 ............................... 5.08 1.05 6.13 22,900 240.45

1980 ............................... 5.08 1.05 6.13 25,900 271.95

1981 ............................... 5.35 1.30 6.65 29,700 386.10

1982 ............................... 5.40 1.30 6.70 32,400 421.20

1983 ............................... 5.40 1.30 6.70 35,700 464.10

1984 ............................... 5.70 1.30 7.00 37,800 491.40

1985 ............................... 5.70 1.35 7.05 39,600 534.60

1986 ............................... 5.70 1.45 7.15 42,000 609.00

1987 ............................... 5.70 1.45 7.15 43,800 635.10

1988 ............................... 6.06 1.45 7.51 45,000 652.50

1989 ............................... 6.06 1.45 7.51 48,000 696.00

1990 ............................... 6.20 1.45 7.65 51,300 743.85

1991 ............................... 6.20 1.45 7.65 1 125,000 1,812.50

1992 ............................... 6.20 1.45 7.65 130,200 1,887.90

1993 ............................... 6.20 1.45 7.65 135,000 1,957.50

1994 ............................... 6.20 1.45 7.65 2 no limit no limit

1995 ............................... 6.20 1.45 7.65 no limit no limit

1996 ............................... 6.20 1.45 7.65 no limit no limit

1997 ............................... 6.20 1.45 7.65 no limit no limit

1998 ............................... 6.20 1.45 7.65 no limit no limit

1999 ............................... 6.20 1.45 7.65 no limit no limit

2000 ............................... 6.20 1.45 7.65 no limit no limit

1 Prior to 1991, the upper limit on tax earnings was the same as for Social Security. The Omnibus

Budget Reconciliation Act of 1990 raised the limit in 1991 to $125,000. Under automatic indexing provisions, the maximum was increased to $130,200 in 1992 and $135,000 in 1993. 2 The Omnibus Budget Reconciliation Act of 1993 eliminated the ceiling on the earnings base beginning in 1994.

Source: Health Care Financing Administration.

3. Premiums from voluntary enrollees.—Certain persons not eligible for HI protection either on an insured basis or on the uninsured basis described above may obtain protection by enrolling

in the program and paying a monthly premium ($309 in 2000;

for persons who have at least 30 quarters of covered employment, $170 in 2000). This accounted for an estimated $1.4 billion of financing in fiscal year 1999.

4. Payments for military wage credits.—Sections 217(g) and

229(b) of the Social Security Act, prior to modification by the

Social Security Amendments of 1983, authorized annual reimbursement from the general fund of the Treasury to the HI

Trust Fund for costs arising from the granting of deemed wage

credits for military service prior to 1957, according to quinquennial determinations made by the Secretary of the U.S. Department of Health and Human Services (DHHS). These secVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00112 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
113

tions, as modified by the Social Security Amendments of 1983,

provided for a lump-sum transfer in 1983 for costs arising from

such wage credits. In addition, the lump-sum transfer included

combined employer-employee HI taxes on the noncontributory

wage credits for military service after 1965 and before 1984.

After 1983, HI taxes on military wage credits are credited to

the fund on July 1 of each year. The Social Security Amendments of 1983 also provided for: (1) quinquennial adjustments

to the lump-sum amount transferred in 1983 for costs arising

from pre-1957 deemed wage credits; and (2) adjustments as

deemed necessary to any previously transferred amounts representing HI taxes on noncontributory wage credits. In fiscal

year 1999, this adjustment was $67 million.

5. Tax on Social Security benefits.—Beginning in 1994, the trust

fund acquired an additional funding source. The Omnibus

Budget Reconciliation Act of 1993 (OBRA 1993) increased the

maximum amount of Social Security benefits subject to income

tax from 50 to 85 percent and provided that the additional revenues would be credited to the HI Trust Fund. Revenue from

this source totaled $6.6 billion in fiscal year 1999.

6. Interest.—The remaining income to the trust fund consists almost entirely of interest on the investments of the trust fund.

Interest amounted to an estimated $9.5 billion in fiscal year

1999.

SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND—INCOME

Part B is financed from premiums paid by the aged, disabled and

chronic renal disease enrollees and from general revenues. The premium rate is derived annually based on the projected costs of the

program for the coming year. The monthly premium amount in calendar year 2000 is $45.50.

When the program first went into effect in July 1966, the part

B monthly premium was set at a level to finance one-half of part

B program costs. Legislation enacted in 1972 limited the annual

percentage increase in the premium to the same percentage by

which Social Security benefits were adjusted for changes in cost of

living (i.e., cost-of-living adjustments). Under this formula, revenues from premiums soon dropped from 50 to below 25 percent of

program costs because part B program costs increased much faster

than inflation as measured by the Consumer Price Index (CPI) on

which the Social Security cost-of-living adjustment is based.

Beginning in the early 1980s, Congress regularly voted to set

part B premiums at a level to cover 25 percent of program costs,

in effect overriding the cost-of-living adjustment limitation. The 25-

percent provisions first became effective January 1, 1984. General

revenues covered the remaining 75 percent of part B program

costs. BBA 1997 permanently sets the part B premium equal to 25

percent of program costs.

FINANCIAL STATUS OF HOSPITAL INSURANCE TRUST FUND

The Hospital Insurance Trust Fund balance is dependent on total

income to the HI Trust Fund exceeding total outlays from the fund.

Tables 2–7 and 2–8 show historical information from the 2000

TABLE 2–7.—OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED FISCAL YEARS 1970–2009

[In millions of dollars]

Fiscal year 1

Income Disbursements

Net increase

in fund

Ba

Payroll en

taxes

Income

from taxation of

benefits

Railroad

retirement

account

transfers

Reimbursement

for uninsured

persons

Premiums

from

voluntary

enrollees

Payments

for military

wage credits

Interest and

other income 2 Total in- come Benefits payments 3

Administrative

expenses 4

Total disbursements

1970 .......... $4,785 NA $64 $617 NA $11 $137 $5,614 $4,804 $149 $4,953 $661 1975 .......... 11,291 NA 132 481 $6 48 609 12,568 10,353 259 10,612 1,956 1980 .......... 23,244 NA 244 697 17 141 1,072 25,415 23,790 497 24,288 1,127 1985 .......... 46,490 NA 371 766 38 86 3,182 50,933 47,841 813 48,654 5 4,103 

1990 .......... 70,655 NA 367 413 113 107 7,908 79,563 65,912 774 66,687 12,876 1991 .......... 74,655 NA 352 605 367 6¥1,011 8,969 83,938 68,705 934 69,638 14,299 

1992 .......... 80,978 NA 374 621 484 86 10,133 92,677 80,784 1,191 81,974 10,703 1993 .......... 83,147 NA 400 367 622 81 7 12,484 97,101 90,738 866 91,604 5,497 

1994 .......... 92,028 $1,639 413 506 852 80 10,676 106,195 101,535 1,235 102,770 3,425 1995 .......... 98,053 3,913 396 462 998 61 10,963 114,847 113,583 1,300 114,883

¥36 

1996 .......... 106,934 4,069 401 419 1,107 8¥2,293 10,496 121,135 124,088 1,229 125,317

¥4,182 

1997 .......... 112,725 3,558 419 481 1,279 70 10,017 128,548 136,175 1,661 137,836

¥9,287 

1998 .......... 121,913 5,067 419 34 1,320 67 9,382 138,203 9 135,487 1,653 137,140 1,063 

1999 .......... 134,385 6,552 430 652 1,401 67 9,523 153,011 9 129,463 1,979 131,441 21,570 

2000 .......... 136,327 7,200 458 470 1,397 68 10,629 156,549 9 131,541 2,310 133,851 22,698 2001 .......... 146,921 6,883 463 453 1,403 10

¥1,264 12,176 167,035 9 141,106 2,464 143,570 23,465 

2002 .......... 153,981 7,446 481 205 1,476 68 13,826 177,484 9 144,634 2,603 147,237 30,246 

2003 .......... 160,831 8,052 489 176 1,571 68 15,345 186,532 9 154,335 2,748 157,083 29,449 2004 .......... 168,031 8,646 494 167 1,681 68 16,834 195,920 163,103 2,829 165,932 29,988 2005 .......... 177,923 9,211 510 174 1,804 69 18,460 208,151 176,833 2,911 179,744 28,407 2006 .......... 185,688 9,856 528 183 1,938 69 20,026 218,288 183,591 2,997 186,588 31,700 2007 .......... 195,121 10,593 548 195 2,078 70 21,619 230,223 199,209 3,091 202,300 27,923 

2008 .......... 204,366 11,464 569 204 2,218 71 23,182 242,074 212,680 3,192 215,872 26,203 2009 .......... 214,167 12,534 592 212 2,357 71 24,752 254,685 226,774 3,298 230,072 24,613 

1 Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 

year. 2 Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and a small amount of miscellaneous income. 3 Includes costs of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983). 4 Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by Public Law 104–191. 5 Includes repayment of loan principal from the Old-Age and Survivors Insurance Trust Fund of $1,824 million.

6 Includes the lump-sum general revenue adjustment of 

¥$1,100 million, as provided for by section 151 of Public Law 98–21. 7 Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102–394.

8 Includes the lump-sum general revenue adjustment of 

¥$2,366 million, as provided for by section 151 of Public Law 98–21. 9 For 1998–2003, includes moneys transferred to the SMI Trust Fund for home health agency costs, as provided for by Public Law 105–33.

10 Includes a preliminary estimate of 

¥$1,332 million for the lump-sum general revenue adjustment provided for by section 151 of Public Law 98–21.

NA—Not applicable.Note.—Totals do not necessarily equal the sums of rounded components.Source: Board of Trustees, Federal Hospital Insurance Trust Fund (2000) and Health Care Financing Administration unpublished tables.

TABLE 2–8.—OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED CALENDAR YEARS 1970–2009

[In millions of dollars]

Calendar year

Income Disbursements

Net increase

in fund

Ba

Payroll en

taxes

Income

from

taxation

of benefits

Railroad

retirement

account

transfers

Reimbursement

for uninsured

persons

Premiums

from

voluntary

enrollees

Payments for

military wage

credits

Interest

and other

income 1

Total income Benefits payments 2

Administrative

expenses 3

Total disbursements

1970 .......... $4,881 NA $66 $863 NA $11 $158 $5,979 $5,124 $157 $5,281 $698 1975 .......... 11,502 NA 138 621 $7 48 664 12,980 11,315 266 11,581 1,399 1980 .......... 23,848 NA 244 697 18 141 1,149 26,097 25,064 512 25,577 521 1985 .......... 47,576 NA 371 766 41 4¥719 3,362 51,397 47,580 834 48,414 5 4,808 

1990 .......... 72,013 NA 367 413 122 6¥993 8,451 80,372 66,239 758 66,997 13,375 

1991 .......... 77,851 NA 352 605 432 89 9,510 88,839 71,549 1,021 72,570 16,269 1992 .......... 81,745 NA 374 621 522 86 10,487 93,836 83,895 1,121 85,015 8,821 1993 .......... 84,133 NA 400 367 675 81 7 12,531 98,187 93,487 904 94,391 3,796 

1994 .......... 95,280 $1,639 413 506 907 80 10,745 109,570 103,282 1,263 104,545 5,025 1995 .......... 98,421 3,913 396 462 954 61 10,820 115,027 116,368 1,236 117,604

¥2,577 

1996 .......... 110,585 4,069 401 419 1,199 8 2,293 10,222 124,603 128,632 1,297 129,929

¥5,325 

1997 .......... 114,670 3,558 419 481 1,319 70 9,637 130,154 137,762 1,690 139,452

¥9,298 

1998 .......... 124,317 5,067 419 34 1,316 67 9,327 140,547 9 133,990 1,782 135,771 4,776 

1999 .......... 132,306 6,552 430 652 1,447 67 10,139 151,593 9 128,766 1,866 130,632 20,961 

2000 .......... 141,141 7,200 458 470 1,380 10

¥1,264 11,404 160,789 9 134,075 2,336 136,411 24,377 

2001 .......... 148,750 6,883 463 453 1,411 68 12,983 171,011 9 141,222 2,500 143,721 27,289 

2002 .......... 155,748 7,446 481 205 1,497 68 14,582 180,028 9 148,682 2,638 151,320 28,708 2003 .......... 162,906 8,052 489 176 1,595 68 16,084 189,370 9 156,710 2,768 159,478 29,892 2004 .......... 170,576 8,646 494 167 1,709 68 17,648 199,307 165,857 2,849 168,706 30,601 2005 .......... 179,205 9,211 510 174 1,835 69 19,250 210,254 177,342 2,931 180,273 29,981 2006 .......... 187,868 9,856 528 183 1,972 69 20,825 221,302 189,780 3,019 192,799 28,503 2007 .......... 197,497 10,593 548 195 2,113 70 22,410 233,425 202,840 3,115 205,955 27,470 

2008 .......... 207,076 11,464 569 204 2,253 71 23,973 245,610 216,431 3,217 219,648 25,962 2009 .......... 217,557 12,534 592 212 2,391 71 25,466 258,823 230,714 3,325 234,039 24,784 

1 Other income includes recoveries of amounts reimbursed from the trust fund, receipts from the fraud and abuse control program, which are not obligations of the trust 

a small amount of miscellaneous income. 2 Includes cost of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983). 3 Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by Public Law 104–91. 4 Includes the lump-sum general revenue adjustment of 

¥$805 million, as provided for by section 151 of Public Law 98–21. 5 Includes repayment of loan principal from the Old-Age and Survivors Insurance Trust Fund of $1,824 million.

6 Includes the lump-sum general revenue adjustment of 

¥$1,100 million, as provided for by section 151 of Public Law 98–21. 7 Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102–394.

8 Includes the lump-sum general revenue adjustment of 

¥$2,366 million provided for by section 151 of Public Law 98–21. 9 For 1998–2003, includes moneys transferred to the SMI Trust Fund for home health agency costs, as provided for by Public Law 105–33.

10 Includes a preliminary estimate of 

¥$1,332 million for the lump-sum general revenue adjustment provided for by section 151 of Public Law 98–21.

NA—Not applicable.Note.—Totals do not necessarily equal the sums of rounded components.Source: Board of Trustees, Federal Hospital Insurance Trust Fund (2000) and Health Care Financing Administration, unpublished tables.

118

Trustees’ Report (as amended) on the operation of the trust fund.

The Trustees’ Report also included projections that were subsequently revised. The revised figures are reflected in tables 2–7 and

2–8.

Each year, the HI Trustees make projections for the date the

trust fund will become insolvent (table 2–9). The 1997 report stated

that under the Trustees intermediate assumptions, the fund would

become insolvent in 2001. Subsequent reports significantly delayed

the projected insolvency date. The 2000 report (as amended)

projects that the fund will become insolvent in 2025. The improveTABLE 2–9.—HISTORICAL PROJECTIONS OF HI TRUST FUND INSOLVENCY, 1970–2000

Year of Trustees’ Report Projected year of

insolvency

Projected

number of

years until

insolvency

1970 ................................................................................ 1972 2

1971 ................................................................................ 1973 2

1972 ................................................................................ 1976 4

1973 ................................................................................ none indicated NA

1974 ................................................................................ none indicated NA

1975 ................................................................................ late 1990s NA

1976 ................................................................................ early 1990s NA

1977 ................................................................................ late 1980s NA

1978 ................................................................................ 1990 12

1979 ................................................................................ 1992 13

1980 ................................................................................ 1994 14

1981 ................................................................................ 1991 10

1982 ................................................................................ 1987 5

1983 ................................................................................ 1990 7

1984 ................................................................................ 1991 7

1985 ................................................................................ 1998 13

1986 ................................................................................ 1996 10

1986 amended ................................................................ 1998 12

1987 ................................................................................ 2002 15

1988 ................................................................................ 2005 17

1989 ................................................................................ (1) NA

1990 ................................................................................ 2003 13

1991 ................................................................................ 2005 14

1992 ................................................................................ 2002 10

1993 ................................................................................ 1999 6

1994 ................................................................................ 2001 7

1995 ................................................................................ 2002 7

1996 ................................................................................ 2001 5

1997 ................................................................................ 2001 4

1998 ................................................................................ 2008 10

1999 ................................................................................ 2015 16

2000 2 ............................................................................. 2025 25

1 Contained no long-range projections.

2 As amended.

NA—Not applicable.

Source: Intermediate projections of various HI Trustees’ Reports, 1970–2000.

119

ments can be attributed to a number of factors including improvements in the economy as a whole (which are reflected in higher

payroll tax revenues) and a lower rate of growth in program expenditures. A key factor was the enactment of BBA 1997. This legislation provided for the transfer of a portion of home health spending (which at the time was the fastest growing component of part

A expenditures) from part A to part B. It also included additional

provisions to stem the growth in part A expenditures. These provisions included the implementation of new payment limits for home

health services, a prospective payment system (PPS) for skilled

nursing facility (SNF) services, and limits on the increases in hospital payments. BBA 1997 also established the Medicare+Choice

(M+C) Program and modified the calculation of payments to managed care entities.

Following enactment of BBA 1997, a number of observers

claimed that the actual savings achieved by BBA 1997 were larger

than was intended when the legislation was enacted. As a result,

legislation was enacted in 1999 (Balanced Budget Refinement Act

(BBRA) of 1999) which mitigated the impact of BBA 1997 on providers. Notwithstanding enactment of BBRA 1999, the 2000 Trustees’ Report (as amended) delays the trust fund insolvency date an

additional 10 years over that projected in the 1999 report (from

2015 to 2025).

The 2000 report states that the fund meets the Trustees’ test of

short-range financial adequacy for the first time since 1991. The

projected long-range actuarial balance is moderately improved, but

a substantial long-range deficit remains. The Trustees note that future operations will be very sensitive to future economic, demographic, and health cost trends and could differ substantially from

the intermediate projections.

Beginning in 2011, the program will begin to experience the impact of major demographic changes. First, baby boomers (persons

born between 1946 and 1964) begin turning age 65. Second, there

will be a shift in the number of covered workers supporting each

HI enrollee. In 1999, there were 4 workers for every beneficiary; in

2030 there will only be an estimated 2.3.

FINANCIAL STATUS OF SUPPLEMENTARY MEDICAL INSURANCE TRUST

FUND

Because the SMI Trust Fund is financed through beneficiary premiums and Federal general revenues, it does not face the prospect

of depletion, as does the HI Trust Fund. However, the rising cost

of the program is placing a burden on the trust fund, and by extension on beneficiaries (in the form of premiums) and Federal general

revenues. Table 2–10 shows historical information from the 2000

Trustees’ Report (Board of Trustees, Federal Supplementary Medical Insurance Trust Fund, 2000).

COMPARISON OF MEDICARE LIFETIME BENEFITS WITH BENEFICIARY

CONTRIBUTIONS

Medicare beneficiaries typically get back considerably more in

Medicare benefits than they contribute in payroll taxes and premiums over their lifetimes. The Congressional Budget Office (CBO)

TABLE 2–10.—OPERATIONS OF THE SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND (CASH BASIS), SELECTED FISCAL YEARS 1970–20

[In millions of dollars]

Fiscal year 1

Income Disbursements

Ba

end 

Premium from

enrollees

Government

contributions 2

Interest and

other income 3 Total income Benefit pay- ments Administra- tive expenses Total dis- bursements

1970 ..................................... $936 $928 $12 $1,876 $1,979 $217 $2,196 1975 ..................................... 1,887 2,330 105 4,322 3,765 405 4,170 1980 ..................................... 2,928 6,932 415 10,275 10,144 593 10,737 1985 ..................................... 5,524 17,898 1,155 24,577 21,808 922 22,730 1986 ..................................... 5,699 18,076 1,228 25,003 25,169 1,049 26,218 1987 ..................................... 6,480 20,299 1,018 27,797 29,937 900 30,837 1988 ..................................... 8,756 25,418 828 35,002 33,682 1,265 34,947 1989 ..................................... 5 11,548 30,712 5 1,022 5 43,282 36,867 5 1,450 5 38,317 5 

1990 ..................................... 5 11,494 33,210 5 1,434 5 46,138 41,498 5 1,524 5 43,022 5 1991 ..................................... 11,807 34,730 1,629 48,166 45,514 1,505 47,019 1992 ..................................... 12,748 38,684 1,717 53,149 48,627 1,661 50,288 1993 ..................................... 14,683 44,227 1,889 60,799 6 54,214 1,845 56,059 

1994 ..................................... 16,895 38,355 2,118 57,368 58,006 1,718 59,724 1995 ..................................... 19,244 36,988 1,937 58,169 63,491 1,722 65,213 1996 ..................................... 18,731 61,702 1,392 82,025 67,176 1,771 68,946 1997 ..................................... 19,141 59,471 2,193 80,806 71,133 1,420 72,553 1998 ..................................... 19,427 59,919 2,608 81,955 7 74,837 1,435 76,272 1999 ..................................... 20,160 62,185 2,933 85,278 7 79,008 1,510 80,518 2000 ..................................... 20,405 65,209 3,054 88,667 7 89,571 1,510 91,081 2001 ..................................... 22,102 71,015 3,048 96,166 7 96,043 1,696 97,738 2002 ..................................... 24,389 78,322 2,976 105,687 7 102,855 1,753 104,608 

2003 ..................................... 26,909 86,262 2,917 116,088 7 114,036 1,827 115,863 2004 ..................................... 29,347 92,268 2,898 124,513 7 122,053 1,903 123,956 2005 ..................................... 31,863 99,291 2,916 134,070 133,145 1,981 135,126 

2006 ..................................... 34,319 106,725 2,969 144,013 137,601 2,063 139,665 2007 ..................................... 36,865 114,591 3,056 154,512 150,385 2,150 152,535 2008 ..................................... 39,716 124,009 3,192 166,918 161,939 2,242 164,180 2009 ..................................... 42,885 135,079 3,396 181,360 174,789 2,336 177,125 

1 For 1970 and 1975, fiscal years cover the interval from July 1 through June 30; fiscal years 1980–2005 cover the interval from October 1 through September 30. 2 General fund matching payments, plus certain interest-adjustment items.3 Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and other miscellaneous income. 4 The financial status of the program depends on both the total net assets and the liabilities of the program.5 Includes the impact of the Medicare Catastrophic Coverage Act of 1988 (Public Law 100–360).6 Includes the impact of the transfer to the HI Trust Fund of the SMI catastrophic coverage reserve fund on March 31, 1993 as specified in Public Law 102–394. Actu

payments for 1993 were $52,409 million and the amount transferred was $1,805 million. 7 Benefit payments less moneys transferred from the HI Trust Fund for home health agency costs, as provided for by the Balanced Budget Act of 1997.

Source: Board of Trustees, Federal Supplementary Medical Insurance Trust Fund (2000).

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has estimated (based on the 1999 Trustees’ Report) the extent to

which Medicare enrollees’ contributions (through the HI payroll tax

and the SMI premium) cover the expected value of their benefits

under the program. Results are presented only for self-insured men

and women (i.e., those who obtain benefits on the basis of their

own work history) who worked each year at an average wage from

1966 until retirement at age 65 (table 2–11). Three groups are

shown—persons who reach 65 as of 1985, 1995, and 2005. All estimates are dependent on uncertain projections of future health

spending.

TABLE 2–11.—CONTRIBUTIONS AS A PERCENT OF EXPECTED LIFETIME BENEFITS

UNDER MEDICARE FOR SELECTED SELF-INSURED ENROLLEES REACHING AGE 65 AS

OF 1985, 1995, OR 2005

Category

Year

1985 1995 2005

Self-insured men who earned average wages:

Hospital insurance (HI) ....................................... 33.1 69.5 111.3

Supplementary medical insurance (SMI) ............ 24.3 22.8 22.1

Medicare total ............................................ 29.8 49.6 68.8

Self-insured women who earned average wages:

Hospital insurance .............................................. 30.3 62.2 99.1

Supplementary medical insurance ..................... 25.3 24.2 23.7

Medicare total ............................................ 28.3 45.4 62.4

Note.—Contributions include employers’ and employees’ HI payroll taxes, interest, and SMI premiums.

Any other taxes paid by enrollees are not included. Estimates are for beneficiaries with sufficient work

history to qualify for benefits. However, up to 20 percent of Medicare beneficiaries qualify on the basis

of their spouse’s work history, not their own. For spouse-insured beneficiaries, contributions as a percent

of benefits are lower because spouse-insured beneficiaries paid little or no HI payroll taxes. Estimates

assume an expected lifetime at age 65 of 15 years for men (to age 80) and 19 years for women (to

age 84). Present discounted values for expected benefits were obtained using the average interest rate

projected for HI Trust Fund earnings over the same years.

Source: Congressional Budget Office, unpublished tables.

For a self-insured man who worked continuously at an average

wage from 1966 (when Medicare began) until retirement in 1985,

the present discounted value of their contributions is about 30 percent of the expected value of lifetime Medicare benefits. For men

retiring in 1995, contributions represent about 50 percent of benefits; for those retiring in 2005, contributions represent about 69

percent. Contributions through HI payroll taxes increase relative to

HI benefits for later retirees because the HI payroll tax (which

began in 1966) was paid for a greater proportion of their working

years (table 2–11).

Contributions by self-insured women as a percentage of expected

benefits are smaller than they are for men. Actual contributions by

men and women are the same in the illustrative calculations. However, a woman’s lifetime benefits are larger because a woman’s lifetime expectancy is 4 years longer at age 65 (table 2–11).

123

In 1995 dollars, the present discounted value of Medicare benefits net of contributions (i.e., the net transfer or subsidy value) is

estimated at $30,742 for men and $35,623 for women who retired

in 1985. For those retiring in 1995, the value is estimated at

$31,429 for men and $39,069 for women. CBO projects that values

will decline in the future, reaching $26,429 for men and $36,354 for

women by 2005 (table 2–12).

TABLE 2–12.—PRESENT DISCOUNTED VALUE OF LIFETIME BENEFITS, CONTRIBUTIONS,

AND NET TRANSFER UNDER MEDICARE FOR SELECTED SELF-INSURED ENROLLEES

REACHING AGE 65 IN 1985, 1995, OR 2005

[In constant 1995 dollars]

Category

Year

1985 1995 2005

Self-insured men who earned average

wages:

Benefits ............................................. $43,780 $62,336 $84,627

Contributions ..................................... ¥13,038 ¥30,907 ¥58,198

Net transfer .............................. 30,742 31,429 26,429

Self-insured women who earned average

wages

Benefits ............................................. 49,673 71,570 96,802

Contributions ..................................... ¥14,051 ¥32,502 ¥60,448

Net transfer .............................. 35,623 39,069 36,354

Note.—Contributions include employers’ and employees’ HI payroll taxes, interest, and SMI premiums.

Any other taxes paid by enrollees are included. Net transfer is benefits net of contributions. Estimates

are for beneficiaries with sufficient work history to qualify for benefits. However, up to 20 percent of

Medicare beneficiaries qualify on the basis of their spouse’s work history, not their own. Spouse-insured

beneficiaries qualify on the basis of their spouse’s work history, not their own. For spouse-insured beneficiaries, contributions as a percent of benefits are lower and the net transfer is larger because spouseinsured beneficiaries paid little or no HI payroll taxes. Estimates assume an expected lifetime at age 65

to 15 years for men (to age 80) and 19 years for women (to age 84). Present discounted values for unexpected benefits were obtained using the average interest rate projected for HI Trust Fund earnings over

the same years. The Consumer Price Index for All Urban Consumers (CPI–U) was used to get constant

1995 dollars.

Source: Congressional Budget Office, unpublished tables.

PART A SERVICES—COVERAGE AND PAYMENTS

INPATIENT HOSPITAL SERVICES

Medicare part A provides reimbursement for inpatient hospital

care through the prospective payment system (PPS), established by

Congress in the Social Security Amendments of 1983 (Public Law

98–21). Before the enactment of PPS, Medicare paid hospitals retrospectively for the full costs they incurred, subject to certain limits

and tests of reasonableness. Congress had previously acted to contain growing hospital costs by placing certain limits on routine inpatient care operating costs. However, medical costs continued to

124

grow faster than the rate of inflation in the early 1980s, so PPS

was enacted to constrain the growth of Medicare’s inpatient hospital costs by providing incentives for hospitals to provide care

more efficiently (see appendix D for further information about hospital services).

Under PPS, fixed hospital payment amounts are established in

advance of the provision of services on the basis of a patient’s diagnosis. Hospitals that are able to provide services for less than the

fixed PPS payment may keep the difference. Hospitals with costs

that exceed the fixed PPS payment lose money on the case. The

system’s fixed prices are determined in advance on a cost-per-case

basis, using a classification system of about 500 diagnosis-related

groups (DRGs). Each Medicare case is assigned to one of the DRGs

based on the patient’s medical condition and treatment. DRGs are

assigned relative weights to reflect the variation in the costs of

treating a particular diagnosis. The DRG-based payment rate is designed to represent the national average cost per case for treating

a patient with a particular diagnosis. Payments for a particular

DRG will vary among different hospitals depending on the hospital’s location and certain other characteristics. In a particular

hospital, all cases assigned to the same DRG are reimbursed at the

same predetermined rate.

The PPS payment rates are updated each year using an update

factor which is determined, in part, by the projected increase in the

hospital market basket index (MBI). The hospital MBI measures

the cost of goods and services that are purchased by hospitals,

yielding one price inflator for all hospitals in a given year.

In addition to the basic DRG payment for each case, PPS hospitals may also receive certain supplemental Medicare payments.

Additional hospital payments include indirect medical education

costs, disproportionate share hospital (DSH) payments, outlier payments, and payments for inpatient dialysis provided to end-stage

renal disease (ESRD) beneficiaries. Certain categories of hospital

expenses, including direct medical education costs, are not included

in the PPS rates and are reimbursed in some other way. Certain

facilities receive special treatment under PPS, particularly certain

types of isolated or essential hospitals in rural areas, including regional referral centers, sole community hospitals, and Medicaredependent small rural hospitals.

Specialized facilities are excluded from PPS and are paid on the

basis of reasonable costs subject to rate of increase limits. PPSexempt facilities include psychiatric hospitals, rehabilitation hospitals, children’s hospitals, cancer research centers, and long-term

care hospitals. States are also allowed to apply for a waiver from

PPS and establish a prospective system for setting hospital rates

instead of what would be paid under PPS; Maryland is the only

State that continues to operate under such a waiver.

Table 2–13 provides calendar year 1998 data on the utilization

of inpatient hospital services by type of enrollee and type of hospital.

TABLE 2–13.—USE OF INPATIENT HOSPITAL SERVICES BY MEDICARE ENROLLEES, BY TYPE OF ENROLLEE AND TYPE OF HOSPITAL, CALENDAR 

1998 1

Type of enrollee and type of

hospital

Bills 2 Covered days of care Reimbursement

Number in

thousands

Per 1,000

enrollees

Number in

thousands Per bill Per 1,000 enrollees Amount in millions Per bill 

All enrollees:

All hospitals ................................................................... 11,834 308 69,924 5.9 1,819 $74,153 $6,266 

Short stay .................................................................. 11,335 295 64,454 5.7 1,677 70,813 6,247 Long stay ................................................................... 499 13 5,470 11.0 142 3,340 6,693 

Psychiatric ............................................................ 205 5 1,837 9.0 48 712 3,473 All other ................................................................ 294 8 3,633 12.4 95 2,628 8,939 

Aged:

All hospitals ................................................................... 10,021 300 58,849 5.9 1,761 63,372 6,324 

Short stay .................................................................. 9,249 277 55,133 6.0 1,650 60,868 6,581 Long stay ................................................................... 772 23 3,716 4.8 111 2,504 3,244 

Psychiatric ............................................................ 52 2 563 10.8 17 242 4,654 All other ................................................................ 720 22 2,295 3.2 69 2,262 3,142 

Disabled:

All hospitals ................................................................... 1,775 353 11,075 6.2 2,205 10,780 6,073 

Short stay .................................................................. 1,553 309 9,322 6.0 1,856 9,945 6,404 Long stay ................................................................... 222 44 1,753 7.9 349 835 3,761 

Psychiatric ............................................................ 153 30 1,274 8.3 254 470 3,072 All other ................................................................ 69 14 479 6.9 95 365 5,290 

1 Preliminary data. Totals may not add due to rounding.2 Discharges not available by type of hospital.

Note.—Only services rendered by inpatient hospitals are included.Source: Health Care Financing Administration, Office of Information Services, unpublished data.

126

SKILLED NURSING FACILITY SERVICES

Coverage

The Medicare Program covers extended care services provided in

nursing homes for beneficiaries who require additional skilled

nursing care and rehabilitation services following a hospitalization.

These extended care services, commonly known as skilled nursing

facility (SNF) benefits, are covered under part A of the program for

up to 100 days per spell of illness and must be provided in an SNF

certified to participate in Medicare. A spell of illness is that period

which begins when a beneficiary is furnished inpatient hospital or

SNF care and ends when the beneficiary has been neither an inpatient of a hospital nor an SNF for 60 consecutive days. A beneficiary may have more than one spell of illness per year.

In order to be eligible for SNF care, the beneficiary must have

been an inpatient of a hospital for at least 3 consecutive days and

must be transferred to an SNF, usually within 30 days of discharge

from the hospital. Furthermore, a physician must certify that the

beneficiary is in need of skilled nursing care or other skilled rehabilitation services, which, as a practical matter, can only be provided on an inpatient basis and which are related to the condition

for which the beneficiary was hospitalized.

Covered SNF services include the following:

—Nursing care provided by or under the supervision of a registered nurse;

—Room and board;

—Physical or occupational therapy or speech-language pathology;

—Medical social services;

—Drugs, biologicals, supplies, appliances, and equipment ordinarily furnished by an SNF for the care of patients;

—Medical services of interns and residents in training under an

approved teaching program of a hospital with which the SNF

has a transfer agreement; and

—Other services necessary to the health of patients that are generally provided by SNFs.

Reimbursement

Prior to the Balanced Budget Act (BBA) of 1997 Medicare reimbursed SNF care on a retrospective cost-based basis. This meant

that SNFs were paid after services were delivered for the reasonable costs (as defined by program) they incurred for the care they

provided. SNFs had few incentives to maximize efficiency and minimize their costs, and little inducement to control the amount or

number of services they provided.

Prospective payment system.—In BBA 1997, Congress required

that a prospective payment system (PPS) for SNF care be phased

in over 3 years, beginning with the SNF’s first cost reporting period

after July 1, 1998. Prospective payment involves grouping patients

according to the type and intensity of services they require and setting a daily payment rate for each payment group before the services are provided. Like other PPSs that pay health care providers

for care to Medicare beneficiaries on the basis of predetermined,

fixed amounts, Medicare payments to SNFs are intended to pay the

provider for its Medicare beneficiary costs on average. That is, alVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00126 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
127

though the payment is a fixed daily rate, a facility’s actual costs

may be above or below that amount for an individual patient. The

goal for the facility is to incur costs that, on average, over time, do

not exceed the PPS average amounts.

Under BBA 1997 provisions, an SNF is paid a daily rate (‘‘Federal per-diem rate’’), prospectively determined, for all covered services provided to beneficiaries while they are eligible for SNF benefits. These include all routine, ancillary, and capital-related costs.

An amount is added to this daily rate to cover part B services received by SNF-eligible patients; some part B services are excluded

from this ‘‘add on’’—primarily the services of physicians and certain nonphysician practitioners such as physician assistants, nurse

practitioners, and psychologists, who are paid separately under

part B.

The SNF PPS required by BBA 1997 reflects the resource utilization group (RUG) design developed by HCFA. It is a hierarchical

classification system accounting for the type and level of care needed by SNF patients and the relative amount of resources needed

to provide a patient’s care. Under the original RUG system implemented in 1998, there were seven basic categories of care, including, in hierarchical order: (1) rehabilitation; (2) extensive services;

(3) special care; (4) clinically complex; (5) impaired cognition; (6)

behavior problems; and (7) reduced physical function. These seven

categories were further broken down into 44 specific patient

groupings. The system ascribed a per-diem payment amount for

each of the 44 groupings. These amounts are adjusted by a wage

index to account for geographic variations in wages among urban

and rural areas. The rates are updated annually using an SNF

MBI. HCFA issued a final rule implementing the PPS on July 30,

1999 (64 Federal Register 41644–701).

Transition period.—BBA 1997 provided that the Federal perdiem rate would apply immediately to all SNFs that received their

first Medicare payment on or after October 1, 1995. For those that

received their first Medicare payment before that date, a 3-year

transition period was established. During the transition period, the

PPS has two components: a Federal PPS component under the

RUG system and a ‘‘facility-specific’’ component. This latter is computed separately for each SNF to reflect the facility’s own average

costs under the pre-PPS system. Payments for the first cost reporting period beginning on or after July 1, 1998, are a blend of 75 percent facility-specific rate and 25 percent Federal rate. For the second cost reporting period, the facility-specific percentage is 50 percent and the Federal, 50 percent. For the third period, the facilityspecific percentage is 25 percent and the Federal, 75 percent. For

all subsequent years, payments will be based entirely on the Federal per-diem rate.

Consolidated billing.—Congress also included a consolidated billing provision in BBA 1997 to address the potential for fraud and

duplicate billing for SNF services. Under this provision, the SNF

is responsible for billing Medicare for all services (with certain exceptions) provided to its residents under both parts A and B. This

provision applies to beneficiaries residing in an SNF or in any part

of a nursing home which contains a Medicare-certified SNF portion.

It applies both to patients who are in a part A covered stay and

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those who are not. Although the SNF might provide these services

under arrangements with outside providers, the outside provider

must get its payment through the SNF rather than by billing Medicare directly.

BBA 1997 excluded some services from the SNF consolidated billing requirement, including those provided by physicians and certain nonphysician practitioners, and dialysis-related services and

supplies. Regulations excluded hospice care related to a beneficiary’s terminal illness and certain ambulance trips to and from

SNFs. Providers of these services, which are covered under part B,

bill Medicare directly.

BBA 1997 established the PPS for SNFs with the purpose of

slowing the rate of growth in SNF payments under Medicare. In

January 1998, a few months after enactment of BBA 1997, CBO

projected that Medicare spending on SNFs for 1998 would remain

at 1997 levels. However, actual spending in 1998 was much lower

than anticipated. In March 1999, CBO revised its 1998 estimate to

indicate a decrease in SNF spending of $900 million. It has also revised downward its 5- and 10-year estimates for total SNF spending. A number of factors contributed to the reductions in Medicare

spending for SNFs. These include lower inflation, which results in

lower payments to providers; and HCFA’s heightened efforts to

combat fraud and abuse, resulting in a reduction in incorrect overpayments. However, SNF industry spokespersons said that these

reductions indicate that changes made to Medicare’s reimbursement policies were too drastic, causing financial problems for

SNFs, and that they should be reexamined.

In addition, industry representatives and others (including the

Medicare Payment Advisory Commission) were concerned that the

RUG system based on 44 payment categories might not adequately

cover the costs of treating patients with clinically complex problems

requiring skilled nursing care (high acuity patients), and those

needing extensive ancillary nontherapy services, such as laboratory

tests, drugs and biologicals, imaging services, and transportation.

Balanced Budget Refinement Act (BBRA) of 1999.—In response to

concerns about the adequacy of payments under the RUG system,

Congress enacted, in BBRA, temporary increases for Medicare payments for 15 of the 44 RUGs. These 20-percent increases apply to

SNF care furnished to patients categorized as needing extensive

services, special care, clinically complex care, and certain high level

and medium level rehabilitation services. The special payments are

available beginning April 1, 2000, and ending the later of October

1, 2000, or the date of implementation of a refined, revised RUG

system.

BBRA also provided for a 4-percent increase in the Federal perdiem rate for SNF services for fiscal year 2001 and fiscal year

2002. This increase is not to be considered in the base amount used

to compute updates to the Federal per-diem rate.

Other changes made by BBRA include the following items:

1. SNFs may elect to receive Medicare payments based 100 percent on the Federal per-diem rate, rather than under the

phase-in schedule, if it would be more advantageous for them

to do so.

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2. Starting April 1, 2000, separate payments above the RUG perdiem rate would be made for certain ambulance services for dialysis patients, certain prostheses, and certain chemotherapy

drugs for SNF patients.

3. If at least 60 percent of an SNF’s patients are

immunocompromised, RUG payments will be based 50 percent

on the facility specific rate and 50 percent on the Federal perdiem rate (rather than moving to 100 percent of the Federal

rate) until October 1, 2001.

CBO estimates that the changes in payments to SNFs made by

BBRA will increase spending for SNF care by $2.2 billion in the

first 5 years.

SNF payments and utilization

For a number of years, SNF care was one of Medicare’s fastest

growing benefits. Tables 2–14 and 2–15 show that SNF utilization

and spending first began to increase substantially in 1988 and

1989. These increases can be traced to changes that occurred in the

benefit at that time.

TABLE 2–14.—ESTIMATED MEDICARE PAYMENTS FOR SKILLED NURSING FACILITY CARE,

1983–99

Payments

(in billions)

Percent

change 1

Calendar year:

1983 ........................................................................... $0.5 NA

1984 ........................................................................... 0.5 0.2

1985 ........................................................................... 0.5 0.7

1986 ........................................................................... 0.6 4.9

1987 ........................................................................... 0.6 10.4

1988 ........................................................................... 0.8 29.3

1989 ........................................................................... 2.8 242.5

1990 ........................................................................... 2.5 ¥11.5

1991 ........................................................................... 2.5 ¥0.3

1992 ........................................................................... 3.5 42.4

1993 ........................................................................... 5.0 41.0

1994 ........................................................................... 6.9 38.3

1995 ........................................................................... 9.2 34.1

1996 ........................................................................... 11.1 20.2

1997 ........................................................................... 13.0 17.1

1998 ........................................................................... 13.5 3.8

1999 ........................................................................... 11.8 ¥12.6

1 Rounding in payments may not reflect actual change.

NA—Not applicable.

Note.—Payments reported here are incurred expenditures, net of beneficiary copayments.

Source: Health Care Financing Administration, Office of the Actuary.

130

TABLE 2–15.—MEDICARE SKILLED NURSING FACILITY UTILIZATION AND PAYMENTS PER

PERSON SERVED, 1983–99

People served Days Payment per day

Number Per 1,000

enrollees

Number

(in millions)

Per person

served Amount Percentchange

1983 ....................... 265,000 9 9.3 35.1 $56 NA

1984 ....................... 299,000 10 9.6 32.2 58 3.2

1985 ....................... 314,000 10 8.9 28.4 65 11.1

1986 ....................... 304,000 10 8.2 26.8 71 9.6

1987 ....................... 293,000 9 7.4 25.4 84 19.3

1988 ....................... 384,000 12 10.7 27.8 87 2.6

1989 ....................... 636,000 19 29.8 46.8 117 34.6

1990 ....................... 638,000 19 25.1 39.5 98 ¥16.1

1991 ....................... 671,000 20 23.7 35.3 123 25.9

1992 ....................... 785,000 22 29.0 36.9 157 27.1

1993 ....................... 908,000 25 34.4 37.9 188 20.1

1994 ....................... 1,068,000 29 37.1 39.7 226 20.1

1995 ....................... 1,240,000 33 43.3 34.9 222 9.5

1996 ....................... 1,384,000 37 47.7 34.4 240 8.5

1997 ....................... 1,570,000 41 50.6 32.2 262 9.1

1998 ....................... NA NA 48.6 NA 268 2.2

1999 ....................... NA NA 50.1 NA 243 ¥9.3

NA—Not applicable.

Source: Health Care Financing Administration, Office of the Actuary.

First, HCFA issued new coverage guidelines that became effective early in 1988. Prior to this time, studies had pointed to a lack

of adequate written guidance on coverage criteria that led to inconsistencies in coverage decisions for a benefit that was intended to

be uniform across the country. As a result, many SNFs were reluctant to accept Medicare beneficiaries because of the possibility that

a submitted claim would be retroactively denied. The 1988 guidelines clarified coverage criteria by providing numerous examples of

covered and noncovered care. Furthermore, the guidelines explained that even when a patient’s full or partial recovery is not

possible, care could be covered if it were needed to prevent deterioration or to maintain current capabilities. Previously, some care

had been denied coverage because patients’ health status was not

expected to improve.

The second major, though temporary, change in Medicare’s SNF

benefit came in 1988 with the enactment of the Medicare Catastrophic Coverage Act (MCCA). Effective beginning in 1989, this

legislation eliminated the SNF benefit’s prior hospitalization requirement; revised the coinsurance requirement to be equal to 20

percent of the national average estimated per-diem cost of SNF

services for the first 8 days of care; and authorized coverage of up

to 150 days of care per calendar year (rather than 100 days per

spell of illness). These changes were repealed in 1989, and the SNF

benefit’s structure assumed its prior form.

Studies have suggested that the coverage guidelines and MCCA

changes together might have caused a long-run shift in the nursing

131

home industry toward Medicare patients that would not end with

repeal of MCCA. Table 2–14 shows that SNF spending in calendar

year 1990 stood at $2.5 billion; by 1997 it had increased to $13.0

billion, for an average annual growth rate of 27 percent. With implementation of the RUG payment system in mid-1998, however,

the rate of increase dropped precipitously: between 1997 and 1998

the increase was 3.8 percent, and payments decreased by 12.6 percent in 1999.

Table 2–15 shows that between 1992 and 1997 the number of

Medicare beneficiaries receiving SNF care doubled from 785,000 to

1.57 million. The number of covered days grew from 29 million to

50.6 million, or by 74 percent. Payments per day grew from $157

in 1992 to $262 in 1997, a 67-percent increase. However, in 1998

when the RUG system went into effect, these payments increased

by only 2.2 percent to $268, and decreased to $243 per day in 1999,

a 9.3 percent decrease. These decreases in payments led to the

changes enacted in BBRA described above.

HOME HEALTH SERVICES

Coverage and eligibility

Medicare home health services are covered under part A of the

program and, in certain circumstances, under part B. Prior to BBA

1997, home health care was paid under part A unless an individual

was ineligible for part A but had purchased part B coverage. In

BBA 1997, Congress transferred payment for some home health

care from part A to part B. The transfer applies to home visits beyond the first 100 visits that follow a stay in a hospital or an SNF,

beginning in 1998, phased in over 6 years. No beneficiary

deductibles or coinsurance are required for home health care.

To qualify for home health care under Medicare an individual

must be homebound. A homebound individual is defined as one

who cannot leave home without a considerable and taxing effort

and only with the aid of devices such as a wheelchair, a walker,

or through use of special transportation. Absences from home may

occur infrequently for short periods of time for such purposes as to

receive medical treatment.

Homebound individuals qualify for coverage of home health care

if they need intermittent skilled nursing care, physical therapy, or

speech-language pathology services. Beneficiaries needing one or

more of these ‘‘qualifying services’’ may also receive occupational

therapy, the services of a medical social worker, or a home health

aide. Occupational therapy can continue to be provided after the

need for skilled nursing care, physical therapy, or speech therapy

ends, but social work or aide services may not.

Home health care is covered by Medicare as long as the care is

medically reasonable and necessary for the treatment of illness or

injury. Although the number of home health visits a beneficiary

may receive is unlimited, services must be provided pursuant to a

plan of care that is prescribed and periodically reviewed by a physician. In general, Medicare’s home health benefit is intended to

serve beneficiaries needing acute medical care requiring the services of skilled health care personnel. It was never envisioned as

providing coverage for the nonmedical supportive care and personal

132

care assistance needed by chronically impaired persons. It is not a

long-term care program for the disabled or the frail elderly.

For beneficiaries meeting the qualifying criteria, Medicare’s

home health benefit covers the following services:

1. Part-time or intermittent nursing care provided by or under

the supervision of a registered nurse;

2. Physical or occupational therapy or speech-language pathology

services;

3. Medical social services;

4. Part-time or intermittent services of a home health aide who

has successfully completed a training program approved by the

Secretary;

5. Medical supplies (excluding drugs and biologicals) and durable

medical equipment (DME);

6. Medical services provided by an intern or resident in training

under an approved training program with which the agency

may be affiliated; and

7. Certain other outpatient services which involve the use of

equipment that cannot readily be made available in the beneficiary’s home.

Home health services are provided by private or public home

health agencies (HHAs) that specialize in provision of such services

and that are certified to participate in Medicare by HCFA. HHAs

may be public or government-sponsored entities, private nonprofit

agencies, or proprietary for-profit agencies. Hospitals may own or

sponsor an HHA. Home health care givers may be employees of the

HHA or may work for an agency under contract. HCFA characterizes a typical HHA as having 486 Medicare admissions and 30,000

visits per year and an 18 person staff. Often, Medicare beneficiaries constitute the great majority of an HHA’s caseload, although other users include individuals covered by Medicaid and

those with private insurance or who pay out of pocket.

According to HCFA data, the overall average number of home

health care visits received by Medicare home health patients in

1997 was 82, up from 23 in 1987. On average, Medicare beneficiaries qualifying for home health care have one episode of covered care, and the average number of visits received in one episode

of coverage is 36.

Background of the Medicare home health benefit

In the early years of the program, Medicare part A covered up

to 100 home health visits for beneficiaries who had an immediate

prior hospitalization or care in an SNF. Home health care was also

covered under part B, up to 100 visits, for beneficiaries who had

no prior hospitalization, or who had exhausted their 100 part A visits, or who had part B coverage only. It was required that a physician determine that the individual could be discharged to his or her

home but would require skilled nursing care on less than a fulltime basis, or physical therapy, or speech therapy.

The Omnibus Budget Reconciliation Act of 1980 (Public Law 96–

499) made several liberalizing changes in the rules governing Medicare’s coverage of home health services, including elimination of

the requirement for a prior hospitalization and removal of the limitation on the number of visits. It also allowed the need for occupaVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00132 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
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tional therapy to trigger coverage of home health services furnished

after June 1981, although less than a year later, as part of a larger

strategy to meet budget targets for reductions in Medicare spending, Congress removed occupational therapy as a qualifying trigger

for home health care (Public Law 97–35, the Omnibus Reconciliation Act of 1981).

Growth in volume of services and payments.—During the first 10

years of the Medicare Program, home health care accounted for less

than 2 percent of total Medicare spending. Between 1977 and about

1990 it accounted for 2–3 percent of total program spending. This

small increase reflected the 1980 liberalizations and, many say, the

delayed response to implementation in 1983 of a PPS for hospital

inpatient care under Medicare. Some analysts had predicted that

the inpatient PPS would lead to large growth in home health care

utilization by Medicare beneficiaries. However, home health care

spending increases that might have occurred as a result of the inpatient PPS were offset by changes in the law and in certain administrative procedures. For instance, the 1984 Deficit Reduction

Act required HCFA to reduce the number of ‘‘fiscal intermediaries’’

with which HCFA contracts to process Medicare home health care

claims. These entities approve or deny beneficiary eligibility for

home health care as well as HHA claims for payment. As HCFA

reduced the number of fiscal intermediaries, eligibility and claims

decisions became more standardized. HCFA also intensified educational programs for claims processors, required HHAs to submit

increased documentation with each claim, and increased the number of claims subjected to indepth medical reviews. Some say these

actions tempered the effect of early hospital discharges prompted

by the hospital inpatient PPS, noting that the home health care

claims denial rate rose from 3.4 percent in 1985 to 7.9 percent in

1987.

A significant event in the history of the Medicare home health

benefit was settlement of a class action lawsuit filed in 1988

(Duggan v. Bowen) which sought to liberalize HCFA’s interpretation of benefit coverage requirements. As a result of the suit, in

1989, HCFA revised the home health eligibility criteria to cover patients needing ‘‘part-time or intermittent care’’ instead of the previous requirement that patients need ‘‘part-time and intermittent

care.’’ This change allowed the number of visits to be increased because they no longer had to be ‘‘intermittent’’ but could be made

on a daily basis. HCFA’s revised guidelines also loosened the

claims procedures that had been tightened between 1985 and 1987.

The revised guidelines may have opened the door to eligibility for

persons who have ongoing medical problems that require personal

care assistance associated more with long-term care rather than

acute care.

Home health spending rose from $2.1 billion in 1988 to $18.1 billion in 1996, an average annual increase of over 31 percent (table

2–16). Medicare payment increases were driven by the increase in

the number of beneficiaries served and the average number of visits per beneficiary served. The number of beneficiaries served more

than doubled during this time period, and the average number of

visits per home care patient increased more than threefold, from 23

visits in 1987 and 1988 to 82 in 1997 (table 2–17). The number of

134

HHAs participating in Medicare also increased sharply, growing

from 5,686 agencies in 1989 to 10,492 in 1997. However, the average cost per home care visit rose relatively modestly, from $55 in

1988 to $71 in 1999, an increase of only 16 percent.

TABLE 2–16.—MEDICARE PAYMENTS FOR HOME HEALTH, 1983–99

Calendar year Payments

(in billions) Percent change

1983 .................................................................................... $1.6 NA

1984 .................................................................................... 1.8 15.4

1985 .................................................................................... 1.9 7.6

1986 .................................................................................... 2.0 1.6

1987 .................................................................................... 1.7 ¥12.6

1988 .................................................................................... 2.1 19.2

1989 .................................................................................... 2.5 20.4

1990 .................................................................................... 3.7 51.0

1991 .................................................................................... 5.3 40.8

1992 .................................................................................... 7.2 37.0

1993 .................................................................................... 10.3 42.6

1994 .................................................................................... 13.3 28.9

1995 .................................................................................... 16.6 25.2

1996 .................................................................................... 18.1 8.9

1997 .................................................................................... 17.9 ¥0.8

1998 .................................................................................... 12.0 ¥33.4

1999 .................................................................................... 9.3 ¥22.3

NA—Not applicable.

Source: Health Care Financing Administration.

Medicare payment policies for home health care.—Prior to the

changes made by BBA 1997, Medicare reimbursed HHAs for the

lesser of: (1) their reasonable costs; or (2) a limited amount per

visit, applied in the aggregate. The per-visit limit was set at 112

percent of the national average cost, which was calculated separately for each type of service (nursing, therapy, etc.). It was based

on costs for freestanding agencies (i.e., agencies not affiliated with

hospitals) and varied according to whether an agency was located

in an urban or rural area and according to wage level differentials

from area to area. Per-visit cost limits were updated annually by

applying an MBI to base-year data derived from HHA cost reports.

These limits, however, were applied to aggregate agency payments

and not to individual visits; that is, an aggregate cost limit was set

for each agency equal to the sum of the agency’s limit for each type

of service multiplied by the number of visits of each type provided

by the agency.

This cost-based reimbursement system was criticized as providing few incentives for HHAs to maximize efficiency or control the

volume of services they delivered because HHAs were paid for

every visit their workers made.

Balanced Budget Act of 1997

The Balanced Budget Act (BBA) of 1997 made several changes

to home health eligibility, coverage, and payment rules. In general,

135

through these changes, Congress sought to curtail the steep annual

rates of increase in the volume of Medicare home health services

and payments. In addition, BBA 1997 provided for the transfer of

some home health spending from part A to part B; the purpose of

this transfer was to reduce part A spending and thereby extend the

solvency period of the part A trust fund.

TABLE 2–17.—MEDICARE HOME HEALTH CARE UTILIZATION AND PAYMENTS PER VISIT,

1983–99

Calendar year of

service

People served Visits

Payment per

visit

Percent

change Number Per 1,000

enrollees

Number

(in millions)

Per 1,000

enrollees

Per person

served

1983 ........... 1,318,000 45 36.9 1,264 28 $43 (1)

1984 ........... 1,498,000 50 40.4 1,378 27 46 7.2

1985 ........... 1,549,000 51 39.4 1,327 25 49 6.4

1986 ........... 1,571,000 51 38.0 1,263 24 50 3.4

1987 ........... 1,544,000 49 35.6 1,163 23 53 5.2

1988 ........... 1,582,000 49 37.1 1,193 23 55 3.8

1989 ........... 1,685,000 51 46.3 1,459 27 55 ¥0.4

1990 ........... 1,940,000 58 69.4 2,146 36 56 1.7

1991 ........... 2,223,000 65 98.6 2,996 44 56 1.1

1992 ........... 2,523,000 72 132.5 3,958 53 58 3.9

1993 ........... 2,868,000 80 167.8 4,939 59 61 4.1

1994 ........... 3,175,000 87 218.8 6,388 69 62 2.2

1995 ........... 3,457,000 93 266.3 7,801 77 62 0.7

1996 ........... 3,583,000 95 284.4 8,439 79 63 1.7

1997 ........... 3,370,000 88 276.5 8,390 82 64 0.6

1998 ........... NA NA 161.0 4,980 NA 67 5.1

1999 ........... NA NA 97.0 3,027 NA 71 6.2

1 Not applicable.

NA—Not available.

Source: Health Care Financing Administration.

Clarification of coverage rules.—BBA 1997 included several provisions that clarified coverage criteria for home health care, including:

1. Clarification of the definition of ‘‘part-time’’ and ‘‘intermittent’’

regarding skilled nursing care and home health aide services

for purposes of eligibility for, and coverage of home health care.

First, patients needing skilled nursing care are eligible for

Medicare’s home health benefit if the need is for ‘‘intermittent’’

care, defined as skilled nursing care that is either provided or

needed on fewer than 7 days each week, or less than 8 hours

of each day for periods of 21 days or less (with extensions in

exceptional circumstances when the need for additional care is

finite and predictable). Second, for beneficiaries who qualify for

home health care and who need both skilled nursing and home

health aide services, coverage is provided only to the extent

that these two services combined is ‘‘part-time or intermittent,’’

defined as skilled nursing and home health aide services furnished any number of days per week as long as they are furVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00135 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
136

nished (in combination) less than 8 hours each day and 28 or

fewer hours each week (or, subject to review on a case-by-care

basis as to the need for care, less than 8 hours each day and

35 or fewer hours per week);

2. Elimination of eligibility based solely on needing a skilled

nurse to draw blood;

3. A requirement that claims include a physician identifier;

4. A requirement that home health workers report their activities

during a visit in 15-minute intervals (the data are used in designing a home health PPS);

5. Extension of savings from a July 1994–June 1996 freeze on

home health cost limit updates;

6. A requirement for a study of the definition of ‘‘homebound’’ and

a study to establish guidelines to standardize the frequency

and duration of home health services for patients with similar

needs and circumstances (‘‘normative guidelines’’). (The Secretary determined that no change was needed for the definition

of homebound, and the first results from the study of normative guidelines will be available in fall 2000);

7. A requirement for ‘‘consolidated billing’’ for services to home

health patients, under which payment for any Medicare-covered service or item provided for a beneficiary during a spell

of home health care coverage is to be made to the HHA. The

HHA would then pay the provider of the service or item.

(BBRA 1999 later excluded the supply of DME from consolidated billing.)

Transfer certain coverage from part A to part B.—BBA 1997

transfers from part A to part B payments for home health visits

that are not part of the first 100 visits following a hospitalization.

Part A benefits are financed through the Hospital Insurance (HI)

Trust Fund, whereas part B benefits are financed by beneficiary

premiums and general revenues. Thus, the solvency of the HI

Trust Fund is extended by removing from it some of the costs of

home health benefits. The transfer is being phased in over 6 years,

between 1998 and 2003, with the Secretary transferring one-sixth

of the aggregate expenditures associated with transferred visits in

1998 and an additional one-sixth each year thereafter until fully

implemented in 2003. Beginning January 1, 2003, part A coverage

for home health care will apply only to postinstitutional home

health services for up to 100 visits during a spell of illness, except

for those persons with part A coverage only, who will be covered

for services without regard to the postinstitutional limitation.

Moving home health care costs to part B could increase beneficiary premiums for that component of Medicare. The increase in

the part B premium attributable to transferred expenditures will

be phased in over a period of 7 years, between 1998 and 2004. For

1998 the part B premium was increased by one-seventh of the

extra costs due to the transfer; for 1999 it was increased by twosevenths, etc., until 2004 when the total cost of the transfer will

be included in the part B premium. The increases have been very

small, only slightly over $1 a month in 1999.

Postinstitutional home health services are defined for these purposes as services furnished to a Medicare beneficiary: (1) after an

inpatient hospital or rural primary care hospital stay of at least 3

137

1Public Law 105–277 increased the limit from 105 percent of the national median cost of a

service (estimated at the time of BBA 1997 enactment to be about 98 percent of the mean) to

106 percent of the median.

consecutive days, initiated within 14 days after discharge; or (2)

after a stay in an SNF, initiated within 14 days after discharge.

A home health spell of illness is defined as the period beginning

when a patient first receives postinstitutional home health services

and ending when the beneficiary has not received inpatient hospital, SNF, or home health services for 60 days.

Claims administration for transferred visits will continue to be

done by part A fiscal intermediaries.

Requirement for a PPS.—BBA 1997 required that a PPS be implemented for home health care beginning in 1999 and required

that the PPS be designed to reduce home health payments by 15

percent. It specified that the 15-percent reduction was to go into effect even if the PPS was not ready for implementation in 1999. In

Public Law 105–277 (the Omnibus Consolidated and Emergency

Supplemental Appropriations Act for fiscal year 1999) Congress delayed the implementation date for the PPS until October 1, 2000,

and moved the 15-percent reduction to coincide with commencement of the PPS. BBRA 1999 subsequently postponed the 15-percent reduction to 12 months after implementation of the PPS.

Implementation of an interim payment system.—Because of concern about the rapidly rising costs of Medicare’s home health benefit, Congress included in BBA 1997 an ‘‘interim payment system’’

(IPS) for home health care in order to achieve immediate spending

reductions prior to implementation of the PPS. This interim system

was effective for HHA cost reporting periods starting on or after

October 1, 1997, and will remain in effect until the PPS is implemented in October 2000.

Table 2–16 shows the substantial reductions in Medicare payments for home health services that have coincided with implementation of the IPS. In 1999, total payments were almost half the

1996 level. The IPS achieves cost savings by establishing a new

methodology for limiting aggregate annual Medicare payments to

individual HHAs. Under this procedure, an agency receives payments totaling the least of three amounts (pre-IPS payments were

the lesser of the first two of these amounts): (1) the agency’s reasonable costs; or (2) payments determined under the per-visit limits, with the limit set at 106 percent of the national median cost

per visit by service type (pre-IPS limit was 112 percent of the national average cost per visit); 1 or (3) aggregate payments under a

new formula based on per-beneficiary limits.

HCFA estimates that 79 percent of HHAs are subject to the new

per-beneficiary limit; the others receive less under the reasonable

cost or per-visit limit. Determining an agency’s aggregate Medicare

payment limit under the new per-beneficiary formula includes four

steps:

1. Divide the total payments the agency received from Medicare

for cost reporting periods ending in fiscal year 1994 by the

number of Medicare patients it served that year to get an average amount per beneficiary (certain wage adjustments and cost

updates are applied to bring the amount up to values in the

year to which the limits are being applied, e.g., in 2000). PerVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00137 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
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beneficiary limits for agencies that were not operational in

1994 are set at the national median;

2. Reduce that average amount per beneficiary to 75 percent of

the full amount;

3. Add a sum that is 25 percent of the average Medicare per-beneficiary costs of all agencies in the same census region to get

a new average cost per beneficiary;

4. Multiply the agency’s average cost per beneficiary from step

three by the number of Medicare patients the agency is serving

in the current year or cost reporting period. The result is an

aggregate annual payment limit that an agency is held to for

serving all its Medicare patients in a cost reporting period

under the IPS.

If an agency’s average costs for its patients are lower than others

in the region, it benefits from the sum that is added based on the

average regional per-beneficiary limits (step 3, above); if an agency’s costs are higher than others in the area, it loses money from

the regional component of the formula. This regional component of

the formula also decreases disparities that had existed among

agencies in the same general area.

The per-beneficiary aggregate limit does not restrict the amount

an HHA can spend on any individual beneficiary. It is simply a

technique for arriving at an aggregate budget amount for an agency’s Medicare patients. However, many HHAs misunderstood how

this limit works, and there are reports that some agencies ended

a patient’s care when spending for that individual reached the

amount of the per-beneficiary payment (i.e., the amount arrived at

by step three above). In reality, agencies have some patients whose

costs are below the per-beneficiary average and some whose costs

are above it. The idea behind the new formula was that payments

on behalf of patients whose costs were lower than average would

‘‘subsidize’’ more costly patients; the balance of low and high cost

patients would determine whether an agency would exceed its aggregate per beneficiary cap.

Congress based the per-beneficiary calculation on fiscal year

1994 levels of operation in order to discount the large volume

growth that still appeared to be occurring after that year (program

costs grew by nearly 25 percent from 1994 to 1995). Using fiscal

year 1994 as the base year caused agencies that had increased

their costs per patient after that time (generally by increasing the

number of visits per patient) to have a larger reduction in their

Medicare revenues under the IPS than agencies that had maintained relatively constant average costs per beneficiary.

Response to BBA 1997 and the IPS.—Table 2–16 shows the significant decrease in Medicare spending for home health care that

occurred with implementation of the provisions in BBA 1997 and

the IPS. Table 2–17 shows the sharp drop after 1997 in the number

of home health visits covered by Medicare. At the same time, the

average payment per visit increased. Most analysts agree that the

reduction in the number of home health visits is attributable largely to the IPS, but note also that the provision of BBA 1997 that

eliminated venipuncture (the drawing of a blood specimen) as the

sole home health service qualifying an individual for home care

also contributed to the reduction in visits. Presumably, elimination

139

of less costly visits (e.g., home health aide visits) resulted in an increase in the average payment per visit from $64 in 1997 to $71

in 1999. Moreover, the Health Insurance Portability and Accountability Act of 1996 included civil money penalties for physicians

who falsely certify that a beneficiary needs home health care, a

provision some say has had a chilling effect on physician referrals.

As the apparent effects of the IPS began to be evident, representatives of the home health industry claimed that (1) the IPS was

limiting HHAs’ ability to provide necessary care; (2) agencies with

low average costs per beneficiary in the fiscal year 1994 base period were realizing the severest reductions; and (3) these older

agencies were being paid inequitably in comparison with newer

agencies because agencies that had not been in business long

enough to have had a cost reporting period ending in fiscal year

1994 were assigned a per-beneficiary limit equal to the national

median.

Because the payment limits imposed by the IPS induce agencies

to balance the number of expensive patients against the number of

inexpensive patients they serve in order to stay within their total

Medicare payment limit, questions arose about whether the IPS

created incentives for HHAs to refuse to serve beneficiaries with

the most serious medical needs and who require extensive home

health visits. An HHA might refuse to accept certain expensive patients if it were concerned that the balance of patients in its caseload would be tipped too far toward costly cases and result in expenditures exceeding the agency’s total funding limit.

In January 1998, the Congressional Budget Office (CBO) pro- jected 10-year BBA 1997 home health care savings of almost $75

billion. In March 1999, CBO reestimated the effects of BBA 1997,

and the new projections showed an additional $56 billion in savings. The original CBO estimate reflected an annual rate of growth

in home health spending of 8.3 percent a year over 10 years, but

the revised estimate showed an annual increase of 5.6 percent a

year. (Under the old law, in the early 1990s, Medicare home health

spending had been growing at rates of between 20 and 30 percent

a year.) However, CBO’s revised estimates included changes in

their underlying economic assumptions as well as revised estimates

of the effects of BBA 1997. Additionally, HCFA officials cautioned

that reduced Medicare payments for home health care since 1997

reflect an intensified case review process HCFA required claims

processors to implement along with the IPS as well as stepped-up

fraud and abuse detection activities.

To address concerns about the impact of the IPS and the large

decrease in estimates of program payments for home health care,

in Public Law 105–277, Congress modified the IPS formula to increase per-visit limits for HHAs from 105 percent of the median to

106 percent and increased payments to agencies whose per-beneficiary limits under the IPS were less than the national median

per-beneficiary limits. The per-beneficiary limits for older agencies

(those in operation in fiscal year 1994) were increased by one-third

of the difference between the agency’s per-beneficiary limit and the

national median of per-beneficiary limits; per-beneficiary limits for

agencies starting operation after fiscal year 1994 but before fiscal

year 1999 were set at the national median limit; new HHAs that

140

2OASIS is a data collection instrument on which a home health worker records, for new or

renewing patients, clinical and other data required to plan the individual’s course of care. Data

from OASIS are also used in the definition of the payment categories under the home health

PPS.

began treating Medicare patients on or after October 1, 1998, were

set at 75 percent of the national median, with a 2-percent reduction. These modifications to home health payments were estimated

to increase Medicare payments to 65 percent of HHAs.

Home health prospective payment system

As noted above, BBA 1997 required a prospective payment system (PPS) to be implemented for Medicare payments for home

health care. Final PPS rules were published in the Federal Register

on July 3, 2000. Under those rules, beneficiaries are categorized

into one of 80 home health resource groups, each of which carries

a standard payment for a 60-day episode of care for a beneficiary.

The standard payment is computed using the average national cost

per visit (computed and weighted by visit type, that is, skilled

nursing, physical therapy, etc.) multiplied by the national average

number of visits (by type) in a 60-day period. Average costs for

nonroutine medical supplies, certain therapy services, and administration of the outcome and assessment information set (OASIS)

interview questionnaire are added.2 The payments include adjustments to reflect geographic wage levels among HHAs, to account

for unusually costly patients (‘‘outlier’’ payments), and to achieve

‘‘budget neutrality.’’ The budget neutrality adjustment ensures that

total home health payments under the PPS in fiscal year 2001 will

be equal to the estimated total payments that would have been

made by Medicare in that year had the IPS continued in effect in

fiscal year 2001, including limits on the market basket index

(MBI). Total fiscal year 2001 payments will equal the IPS projected

to that year minus 1.1 percentage points.

Special payment arrangements are made for beneficiaries receiving fewer than five visits, or who transfer from one HHA to another, or who have a significant change in their condition during

an episode of illness.

HHAs will be paid 60 percent of the PPS amount after completing an OASIS questionnaire for each new or renewing patient and

receiving a physician’s certification and plan of care. The remainder of the payment will be made when the episode is completed (or,

if earlier, when care is completed). If, at the end of an initial 60-

day episode, a physician orders care to be continued, payment for

the subsequent episode (or episodes) is split to provide 50 percent

of the payment at the start of the episode and 50 percent at the

end of care or the episode.

Balanced Budget Refinement Act (BBRA) of 1999

As a result of concern that many provisions of BBA 1997 had

caused unanticipated reductions in Medicare payments across the

spectrum of health care providers, Congress included modifications

to Medicare in BBRA 1999. That act included the following provisions pertaining to Medicare home health care:

1. Delays the 15-percent payment reduction required under the

PPS by BBA 1997 until 12 months after implementation of the

141

PPS and requires the Secretary to report within 6 months after

implementation of the PPS on the need for the 15 percent or

some other reduction.

2. Provides HHAs with a payment of $10 per beneficiary for administration of the OASIS questionnaire to new home health

patients for services furnished during cost reporting periods in

fiscal year 2000. One-half of the payment will be made in April

2000 and the remainder at cost report settlement. It requires

GAO to study the costs of collecting these data and to report

by April 2000.

3. Requires that per-beneficiary limits under BBA 1997 IPS be increased by 2 percent in cost reporting periods starting in fiscal

year 2000 for those HHAs for which the per-beneficiary limit

is below the national median; the increase will not be included

in the base for determining the budget neutral PPS amounts.

4. Establishes the surety bond requirement for HHAs as the lesser of $50,000 or 10 percent of an HHA’s Medicare payments in

the previous year and requires the bond to be in effect for 4

years (or longer if ownership of the HHA changes). Prior periods covered by a bond may be counted and Medicare and Medicaid bond requirements are to be coordinated.

5. Excludes DME from the home health consolidated billing requirement of BBA 1997.

6. Clarifies that the increase in the home health PPS in fiscal

year 2002 and fiscal year 2003 will be the MBI minus 1.1 percentage points.

7. Requires the Medicare Payment Advisory Commission to study

and report within 2 years of enactment on the feasibility and

advisability of excluding rural HHAs and beneficiaries living in

rural areas from the home health PPS.

Because the new PPS will go into effect in fiscal year 2001, the

BBRA 1999 provisions pertaining to home health care under Medicare were not extensive. However, the provision that had caused

substantial concern in the industry was the requirement that the

PPS be designed to reduce total Medicare payments for home

health care by 15 percent compared with pre-PPS levels. Because

of the sharp declines in payments to HHAs under the IPS, some

said that a further 15-percent reduction would affect the availability of home health services and make care inaccessible to beneficiaries, particularly those with extensive and costly care needs.

Congress addressed that issue in BBRA 1999 by delaying implementation of the 15-percent reduction until 12 months after implementation of the PPS and requiring the Secretary to evaluate and

report, within 6 months of implementation of the PPS, on the need

for payment reductions.

HOSPICE SERVICES

Coverage and benefits

Medicare covers hospice care, in lieu of most other Medicare benefits, for terminally ill beneficiaries. Hospice care emphasizes palliative medical care, that is, relief from pain, and supportive social

and counseling services for the terminally ill and their families.

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uity and Fiscal Responsibility Act of 1982 (TEFRA), Public Law

97–248, first authorized Medicare part A coverage for hospice care

(for the period November 1, 1983 to October 1, 1986); in 1986, Congress made the hospice benefit a permanent part of the Medicare

Program, effective April 7, 1986.

For a person to be considered terminally ill and eligible for Medicare’s hospice benefit, the beneficiary’s attending physician and the

medical director of the hospice (or physician member of the hospice

team) must certify that the individual has a life expectancy of 6

months or less. As a result of an amendment in BBA 1997, persons

electing hospice are covered for two 90-day periods, followed by an

unlimited number of 60-day periods. The medical director or physician member of the hospice team must recertify at the beginning

of each new election period that the beneficiary is terminally ill.

Services must be provided under a written plan of care established

and periodically reviewed by the individual’s attending physician

and by the medical director of the hospice.

Covered hospice services include the following: (1) nursing care

provided by or under the supervision of a registered nurse; (2)

physical or occupational therapy or speech-language pathology

services; (3) medical social services; (4) services of a home health

aide who has successfully completed a training program approved

by the Secretary of the U.S. Department of Health and Human

Services (DHHS); (5) homemaker services; (6) medical supplies (including drugs and biologicals) and the use of medical appliances;

(7) physician services; (8) short-term inpatient care (including both

respite care and procedures necessary for pain control and acute

and chronic symptom management); (9) counseling, including dietary counseling, for care of the terminally ill beneficiary and for adjustment to the patient’s death (bereavement counseling is not a reimbursable service); and (10) any other item or service which is

specified in a patient’s plan of care and which Medicare may pay

for.

Medicare’s hospice benefit is intended to be principally an inhome benefit. For this reason, Medicare law prescribes that respite

care, or relief for the primary care giver of the terminally ill patient, may be provided only on an intermittent, nonroutine, and occasional basis and may not be provided consecutively over longer

than 5 days. In addition, the aggregate number of inpatient care

days provided in any 12-month period to Medicare beneficiaries

electing hospice care can not exceed 20 percent of the total number

of days of hospice coverage provided to these persons.

Only two covered hospice services—outpatient drugs or

biologicals and respite care—are subject to coinsurance. Outpatient

drugs and biologicals are subject to a coinsurance amount that approximates 5 percent of the cost of the drug to the hospice program,

except that the amount may not exceed $5 per prescription. For

respite care, coinsurance equals 5 percent of program payments for

respite, but may not exceed Medicare’s inpatient hospital deductible during a hospice coinsurance period (defined as the period

when hospice election is not broken by more than 14 days).

Covered services must be provided by a Medicare-certified hospice. Certified hospices must be either public agencies or private

organizations primarily engaged in providing covered hospice servVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00142 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
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ices and must make services available on a 24-hour basis, in individuals’ homes, on an outpatient basis, and on a short-term inpatient basis. Hospices must routinely and directly provide substantially all of the following ‘‘core’’ services: nursing care, medical social services, and counseling services. The remaining hospice services may be provided either directly by the hospice or under arrangements with others. If services are provided through arrangements with other providers, the hospice must maintain professional

management responsibility for all such services, regardless of the

facility in which the services are furnished.

The hospice program must also have an interdisciplinary group

of personnel which includes at least one registered professional

nurse and one social worker employed by the hospice; one physician employed by or under contract with the hospice; plus at least

one pastoral or other counselor.

Reimbursement

In implementing Medicare’s hospice benefit, HCFA established a

prospective payment methodology. Under this methodology, hospices are paid one of four prospectively determined rates, which

correspond to four different levels of care, for each day a Medicare

beneficiary is under the care of the hospice. Reimbursement will

thus vary by the length of the patient’s period in the hospice program as well as by the characteristics of the services (intensity and

site) furnished to the beneficiary.

The four rate categories for reimbursing hospices are:

1. Routine home care day.—Routine home care day is a day on

which an individual is at home and is not receiving continuous

home care. The routine home care rate is paid for every day

a patient is at home and under the care of the hospice regardless of the volume or intensity of the services provided on any

given day as long as less than 8 hours of care are provided.

This rate is $98.96 for services provided between October 1,

1999 and September 30, 2000.

2. Continuous home care day.—A continuous home care day is a

day on which an individual receives hospice care consisting

predominantly of nursing care on a continuous basis at home.

Home health aide or homemaker services or both may also be

provided on a continuous basis. Continuous home care is furnished only during brief periods of crisis and only as necessary

to maintain the terminally ill patient at home. Home care

must be provided for a period of at least 8 hours before it

would be considered to fall within the category of continuous

home care. Payment for continuous home care will vary depending on the number of hours of continuous services provided. Currently this rate is $577.59 for 24 hours or $24.07 per

hour.

3. Inpatient respite care day.—An inpatient respite care day is

one on which the individual who has elected hospice care receives care in an approved facility on a short-term (not more

than 5 days at a time) basis for the respite of his caretakers.

Currently this rate is $102.37.

4. General inpatient care day.—A general inpatient care day is

one on which an individual receives general inpatient care in

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an inpatient facility for pain control or acute or chronic symptom management which cannot be managed in other settings.

Care may be provided in a hospital, skilled nursing facility

(SNF), or inpatient unit of a freestanding hospice. Currently

this rate is $440.22.

To reflect differences in wage levels from area to area, each of

these four payment rates is adjusted by the hospital area wage

index used by Medicare for adjusting payments to hospitals, SNFs,

and HHAs. HCFA separates each of the national payment rates for

hospice care into components which reflect the estimated proportion of the rate attributable to wage and nonwage costs. The wage

component of each rate is then adjusted by the index applicable to

the area in which the hospice is located.

The Omnibus Budget Reconciliation Act (OBRA) of 1989 required

that the payment rates be increased by the hospital market basket

percentage increase each fiscal year. OBRA 1993, however, reduced

the updates for the prospective rates as follows: for fiscal year

1994, the hospital market basket percentage increase minus 2.0

percentage points; for fiscal years 1995 and 1996, the hospital market basket minus 1.5 percentage points; and for fiscal year 1997,

market basket minus 0.5 percentage points.

BBA 1997 reduced the hospice payment update to market basket

minus 1.0 percentage point for each of fiscal years 1998–2002.

Medicare law requires that payments to a hospice for care furnished over the period of a year be limited to a ‘‘cap amount.’’ The

cap amount is applied on an aggregate rather than a case-by-case

basis. Therefore, each individual hospice’s cap amount is calculated

by multiplying the yearly cap amount by the number of Medicare

beneficiaries who received hospice care from the hospice during the

cap period. Medicare defines a cap year as the period from November 1 through October 31 of the following year. The cap amount for

the period November 1, 1999 through October 31, 2000, is $15,313.

Updates to hospice payment amounts

Hospice daily payment rates for routine home care, continuous

home care, inpatient respite care, and general inpatient care are

updated annually by the increase in the hospital MBI. BBA 1997

reduced these updates to the market basket increase minus 1.0

percentage point for fiscal years 1998–2002. However, BBRA 1999

increased the rates otherwise in effect for fiscal year 2001 by 0.5

percentage points and for fiscal year 2002 by 0.75 percentage

points.

The hospice cap amount is adjusted annually by the percentage

change in the medical care component of the Consumer Price Index

for All Urban Consumers (CPI–U).

Hospice program data

Table 2–18 shows that the number of hospices participating in

Medicare grew from 553 in fiscal year 1988 to 2,293 in fiscal year

1998.

Total Medicare payments for hospice care in fiscal year 1988, 2

years after it became a permanent part of the Medicare Program,

totaled less than $120 million. Daily payment rates in effect in

1989 were increased by 20 percent in 1990, which led to more servVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00144 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
TABLE 2–18.—NUMBER OF HOSPICES BY PROVIDER TYPE, 1988–98

Provider type

Month and year

7/88 7/89 5/90 9/91 1/92 5/93 8/94 6/95 10/96 12/97 

Freestanding ....................................................................... 191 220 260 394 404 499 608 656 762 875 Hospital based ................................................................... 138 182 221 282 291 341 401 447 507 559 Skilled nursing facility based ............................................ 11 13 12 10 10 10 12 18 21 23 Home health agency based ................................................ 213 286 313 325 334 438 583 674 800 829 

Total ........................................................................... 553 701 806 1,011 1,039 1,288 1,604 1,795 2,090 2,286 

Source: Health Care Financing Administration, Bureau of Program Operations.

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ices becoming available. As shown in table 2–19, Medicare payments for hospice care increased to $445.4 million in fiscal year

1991 and subsequently to nearly $2.2 billion in fiscal year 1998.

From fiscal year 1991 through fiscal year 1998 the number of

beneficiaries using Medicare’s hospice benefit increased nearly

fourfold, from 108,413 to 401,140, although the average payment

per beneficiary increased by less than one-third, from $4,108 to

$5,412.

The data show that the average number of days of hospice utilization increased sharply from fiscal year 1991 to fiscal year 1992,

reflecting the 20-percent increase in payment rates and concomitant increase in availability and utilization of this care. However,

after 1995 the average duration of coverage declined. The decline

may be the result of: (1) continued reluctance of physicians to refer

patients to hospice rather than continue treatment; (2) the availability of new treatment therapies; and (3) increased regulatory

scrutiny and focused medical reviews.

PART B SERVICES—COVERAGE AND PAYMENTS

PHYSICIANS SERVICES

Medicare pays for physicians services on the basis of a fee schedule which went into effect in 1992. The fee schedule assigns relative values to services. Relative values reflect three factors: physician work (time, skill, and intensity involved in the service), practice expenses, and malpractice costs. These relative values are adjusted for geographic variations in the costs of practicing medicine.

Geographically-adjusted relative values are then converted into a

dollar payment amount by a dollar figure known as the conversion

factor. The 2000 conversion factor is $36.61.

The annual percentage update to the conversion factor equals the

Medicare economic index (which measures inflation) subject to an

adjustment to match spending for physicians services under the

sustainable growth rate system. This adjustment sets the conversion factor at a level so that projected spending for a year will meet

allowed spending by the end of the year. Allowed spending for a

year is calculated using the sustainable growth rate. However, in

no case can the conversion factor update be more than 3 percentage

points above, nor more than 7 percentage points below, the Medicare economic index.

For a discussion of how Medicare calculates payments to physicians, see appendix D.

Anesthesiologists are paid under a separate fee schedule which

uses base and time units. A separate conversion factor ($17.77 in

2000) applies.

Medicare payments are made for physicians’ services after the

annual deductible requirement of $100 has been satisfied. Payment

is set at 80 percent of the fee schedule with beneficiaries responsible for the remaining 20 percent, which is referred to as coinsurance.

Medicare payment is made either on an ‘‘assigned’’ or ‘‘unassigned’’ basis. By accepting assignment, physicians agree to take

the Medicare fee schedule amount as payment in full. Thus, if assignment is accepted, beneficiaries are not liable for any out-ofVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00146 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
TABLE 2–19.—SELECTED MEASURES OF MEDICARE HOSPICE CARE, FISCAL YEARS 1991–98

[By claim approved]

Category

Fiscal year

1991 1992 1993 1994 1995 1996 1997 

Cash outlays by provider type:

Freestanding .................................. $219.2 $444.2 $620.4 $724.2 $977.1 $1,042.3 $1,123.1 $Hospital based .............................. 92.0 168.0 205.3 226.1 319.3 331.1 345.3 Skilled nursing facility based ....... 8.6 17.1 22.6 17.7 26.0 24.5 12.9 Home health agency based .......... 125.7 224.3 303.7 348.7 508.1 546.1 543.0 

Total ..................................... 445.4 853.6 1,151.9 1,316.7 1,830.5 1,944.0 2,024.5 

Cash outlays by care type:

Routine home care ........................ 376.6 720.0 1,004.9 1,158.6 1,611.6 1,701.5 1,769.5 Continuous home care .................. 3.9 10.4 12.2 14.5 25.6 29.2 28.5 Inpatient respite care ................... 1.3 2.5 2.6 2.7 4.4 4.7 4.8 General inpatient care .................. 59.7 114.0 125.5 134.1 179.1 197.6 209.5 Physician services ......................... 3.9 6.7 6.7 6.8 9.8 11.0 12.1 

Total ..................................... 445.4 853.6 1,151.9 1,316.7 1,830.5 1,944.0 2,024.5 

Average dollar amount per beneficiary:

Freestanding .................................. 4,121 5,668 6,065 6,355 6,451 6,157 5,796 Hospital based .............................. 4,234 5,296 5,361 5,631 5,740 5,333 5,028 Skilled nursing facility based ....... 4,198 5,538 5,344 5,428 6,079 5,953 5,079 Home health agency based .......... 3,993 5,169 5,239 5,408 5,569 5,313 4,949 

Total 1 ................................... 4,108 5,452 5,681 5,935 6,049 5,747 5,402 

Number of beneficiaries:

Freestanding .................................. 53,184 78,374 102,283 113,959 151,466 169,285 193,765 

TABLE 2–19.—SELECTED MEASURES OF MEDICARE HOSPICE CARE, FISCAL YEARS 1991–98—Continued

[By claim approved]

Category

Fiscal year

1991 1992 1993 1994 1995 1996 1997 

Hospital based .............................. 21,717 31,734 38,295 40,156 55,631 62,081 68,688 Skilled nursing facility based ....... 2,040 3,084 4,221 3,262 4,272 4,124 2,547 Home health agency based .......... 31,472 43,391 57,969 64,472 91,239 102,783 109,723 

Total ..................................... 108,413 156,583 202,768 221,849 302,608 338,273 374,723 

Average number of days a beneficiary

elects hospice care:

Freestanding .................................. 46.2 59.1 62.0 63.7 62.9 58.5 63.4 Hospital based .............................. 44.2 54.6 53.8 55.4 56.7 51.6 47.9 Skilled nursing facility based ....... 37.6 44.5 42.7 45.5 49.3 47.7 39.9 Home health agency based .......... 42.5 52.6 52.2 53.3 53.8 50.0 45.9 

Total 1 ................................... 44.5 56.1 57.2 58.9 58.8 54.5 50.1 

Number of units by care type:

Routine home care—days ............ 4,667,703 8,564,904 11,324,524 12,699,617 17,257,734 17,862,843 18,189,764 18,Continuous home care—hours ..... 199,309 442,968 565,903 654,667 1,129,697 1,193,623 1,190,982 1,Inpatient respite care—days ........ 14,867 28,495 27,887 28,769 45,932 47,218 47,790 General inpatient care—days ...... 161,211 297,190 303,245 299,823 418,093 451,396 470,593 Physicians—procedures ................ 53,491 111,716 115,560 110,790 165,066 185,970 200,376 

1Weighted by the number of beneficiaries in each hospice type.

Note.—Totals may not add due to rounding.Source: Health Care Financing Administration.

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pocket costs other than standard deductible and coinsurance payments. In contrast, if assignment is not accepted, beneficiaries may

be liable for charges in excess of the Medicare approved charge,

subject to limits. This process is known as balance billing.

Medicare’s Participating Physician Program was established to

provide beneficiaries with the opportunity to select physicians (designated as ‘‘participating physicians’’) who have agreed to accept

assignment on all services provided during a 12-month period.

Nonparticipating physicians continue to be able to accept or refuse

assignment on a claim-by-claim basis. There are a number of incentives for physicians to become participating physicians, the chief of

which is that the fee schedule payment amount for nonparticipating physicians is only 95 percent of the recognized amount paid to

participating physicians. Additional incentives include more rapid

claims payment and widespread distribution of participating physician directories.

Nonparticipating physicians may not charge more than 115 percent of Medicare’s allowed amount for any service. Medicare’s allowed amount for nonparticipating physicians is set at 95 percent

of that for participating physicians. Thus, nonparticipating physicians are only able to bill 9.25 percent (115 percent times 95 percent) over the approved amount for participating physicians.

SERVICES OF NONPHYSICIAN PRACTITIONERS

The physician fee schedule is also used for calculating payments

made for certain services provided by nonphysician practitioners.

Physician assistants and nurse practitioners

Separate payments are made for physician assistant services,

when provided under the supervision of a physician. Separate payments are also made for nurse practitioner services, provided in

collaboration with a physician.

Payment for these services can only be made if no facility or

other provider charges are paid in connection with the service. Payment equals 80 percent of the lesser of either the actual charge or

85 percent of the fee schedule amount for the same service if provided by a physician. For assistant-at-surgery services, payment

equals 80 percent of the lesser of either the actual charge or 85

percent of the amount that would have been recognized for a physician serving as an assistant-at-surgery. The physician assistant

may be in an independent contractor relationship with the physician.

Certified nurse midwife services

Certified nurse midwife services are paid at 65 percent of the

physician fee schedule amount.

Certified registered nurse anesthetists

Certified registered nurse anesthetists are paid under the same

fee schedule used for anesthesiologists (see above). Payments for

services furnished by an anesthesia care team composed of an anesthesiologist and a certified registered nurse anesthetist are

capped at 100 percent of the amount that would be paid if the anVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00149 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
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esthesiologist were practicing alone. The payments are evenly split

between each practitioner.

Clinical psychologists and clinical social workers

Diagnostic and therapeutic services provided by clinical psychologists are paid under the physician fee schedule. Payments for services provided by clinical social workers are equal to 75 percent of

the amount allowed for clinical psychologists. Some services are

subject to the psychiatric services limitation which limits Medicare

payments for some services to 50 percent of incurred expenses.

Physical or occupational therapists

Payments for physical therapy and occupational therapy services

are made under the physician fee schedule. In 1999, an annual

$1,500 per-beneficiary limit applied to all outpatient physical therapy services (including speech-language pathology services), except

for those furnished by a hospital outpatient department (OPD). A

separate $1,500 limit applied to all outpatient occupational therapy

services except for those furnished by hospital OPDs. Therapy services furnished as incident to physicians professional services were

included in these limits.

The $1,500 limits were to apply each year. However, BBRA 1999

suspended application of these limits in 2000 and 2001. Thus, no

limits apply in these 2 years. The limits are slated to apply again

in 2002.

CLINICAL LABORATORY SERVICES

Medicare provides coverage for diagnostic clinical laboratory

services. These services may be provided by an independent laboratory, a physician’s office laboratory, or a hospital laboratory to outpatients. Since 1984, Medicare has paid for clinical laboratory services on the basis of a fee schedule. Fee schedules have been established on a carrier service area basis. The law set the initial payment amount for services performed in physicians’ offices or independent laboratories at the 60th percentile of the prevailing charge

established for the 12-month period beginning July 1, 1984. Similarly, the initial fee schedule payment amount for services provided

by hospital-based laboratories serving hospital outpatients was set

at the 62d percentile of the prevailing charge level. Subsequent

amendments to the payment rules limited application of the hospital fee schedule to ‘‘qualified hospitals.’’ A qualified hospital is a

sole community hospital (as that term is used for payment purposes under Medicare’s hospital prospective payment system (PPS))

which provides some clinical diagnostic tests 24 hours a day in

order to serve a hospital emergency room which is available to provide services 24 hours a day, 7 days a week.

The fee schedule payment amounts have been increased periodically since 1984 to account for inflation. The updates have generally occurred on January 1 of each year. The Balanced Budget

Act (BBA) of 1997 eliminated the updates for 1998–2002. It also set

the national ceiling on payment amounts at 74 percent of the median for all fee schedules for that test. BBA 1997 required the Secretary to adopt uniform coverage, administration, and payment

policies for laboratory tests using a negotiated rulemaking process.

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The policies would be designed to eliminate variation among carriers and to simplify administrative requirements. A proposed rule

was issued March 10, 2000.

BBA 1997 also required the Secretary to divide the country into

no more than five regions and designate a single carrier for each

region to process laboratory claims (excluding those for services

provided to inpatients of hospitals and SNFs). The allocation of

claims to a particular carrier would be based on whether the carrier served the geographic area where the specimen was collected

by another method selected by the Secretary. The requirement

would not apply to those physicians’ office laboratories that the

Secretary determined would be unduly burdened by the application

of billing responsibilities with respect to more than one carrier.

This requirement has not been implemented.

Payment for clinical laboratory services (except for those provided by a rural health clinic) may only be made on the basis of

assignment. The law specifically applies the assignment requirement to clinical laboratory services provided in physicians’ offices.

Payment for clinical laboratory services equals 100 percent of the

fee schedule amount; no beneficiary cost sharing is imposed.

Laboratories must meet the requirements of the Clinical Laboratory Improvement Act Amendments of 1988. This legislation, which

focused on the quality and reliability of medical tests, expanded

Federal oversight to virtually all laboratories in the country, including physician office laboratories.

DURABLE MEDICAL EQUIPMENT AND PROSTHETICS AND ORTHOTICS

Medicare, under part B of the program, covers a wide variety of

medical supplies if they are medically necessary and are prescribed

by a physician. Under the program, durable medical equipment

(DME) includes such items as hospital beds, intermittent positive

pressure breathing machines, blood glucose monitors, and wheelchairs. Guidelines define DME as equipment that: (1) can withstand repeated use; (2) is primarily and customarily used to serve

a medical purpose; (3) generally is not useful to a person in the absence of an illness or injury; and (4) is appropriate for use in the

home. All of these requirements must be met before an item can

be covered. The benefit also includes related supplies, such as

drugs and biologicals that are necessary for the effective use of the

product.

Medicare also covers prosthetic devices. These are defined as

items that replace all or part of an internal body organ, such as

colostomy bags, pacemakers, breast prostheses for postmastectomy

patients, parental and enteral nutrients, and intraocular lenses.

Prosthetics and orthotics include such items as leg, arm, back and

neck braces, and artificial legs, arms, and eyes.

Reimbursement for durable medical equipment

Medicare pays for DME on the basis of a fee schedule originally

established by the Omnibus Budget Reconciliation Act of 1987

(OBRA 1987). Under the DME fee schedule, Medicare pays the

lower of either 80 percent of the item’s actual charge or the fee

schedule amount. For payment purposes, covered DME items are

classified into five groups: (1) inexpensive or routinely purchased

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DME (defined as equipment that costs less than $150, or is purchased at least 75 percent of the time); (2) items requiring frequent

and substantial servicing; (3) customized items (defined as equipment constructed or modified substantially to meet the needs of an

individual patient); (4) other items of DME (frequently referred to

as the ‘‘capped rental’’ category); and (5) oxygen and oxygen equipment. Some items that do not meet the definition of DME, such as

disposable surgical dressings, are also covered under the fee schedule.

In general, the fee schedule payment rates for DME are determined locally (on a statewide basis). However, these local payments

are subject to floor and ceiling limits determined nationally. Medicare will not pay less than 85 percent of the median of all local

payment amounts (floor), and will not pay more than 100 percent

of this median (ceiling).

Prosthetics and orthotics are also paid according to a fee schedule similar to the DME fee schedule. The payment rates are determined regionally and are subject to national limits which also have

ceilings and floors. The floor is 90 percent of the weighted average

of all regional payment amounts, and the ceiling is 120 percent of

this weighted average.

The fee schedules are generally updated annually by the CPI–U.

However, BBA 1997 froze payments for DME at the 1997 level for

fiscal years 1998–2002. For oxygen and oxygen equipment, BBA

1997 reduced payment limits beginning in fiscal year 1999 to 70

percent of 1997 levels. The update for prosthetics and orthotics was

limited to 1.0 percent through fiscal year 2002. The Balanced

Budget Refinement Act (BBRA) of 1999 amended this provision as

it related to DME (including oxygen), allowing an update for fiscal

year 2001 equal to 0.3 percent over fiscal year 2000 levels; for fiscal

year 2002 the update is 0.6 percent over fiscal year 2000 levels.

Prosthetics and orthotics updates were not affected by BBRA 1999.

Medicare pays for a few items of medical equipment on a reasonable cost basis, rather than under the fee schedule. These include

splints, casts, home dialysis equipment, therapeutic shoes, and

blood products. BBA 1997 authorized the Secretary to establish fee

schedules for these items; regulations were proposed in July 1999.

Table 2–20 shows total Medicare spending in calendar year 1998

for DME, prosthetics and orthotics, and certain other items.

Inherent reasonableness authority.—If the Secretary determines

that using standard procedures to calculate payment for an item

under the fee schedule results in an amount which is ‘‘grossly excessive or grossly deficient and not inherently reasonable,’’ the Secretary is authorized to increase or decrease the payment amount

accordingly. The authority to make these adjustments is generally

referred to as the inherent reasonableness authority. It involves a

complex procedure of investigation, commentary, and notification.

BBA 1997 sought to simplify the procedure and widen the application of this authority, requiring HCFA to publish criteria for determining if a fee schedule charge was inherently unreasonable,

and the factors to be used in determining charges that are realistic

and equitable. Using these criteria, the Secretary would be permitted to adjust payment levels. HCFA published interim final regulations (63 Federal Register 687, January 7, 1998) naming criteria

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such as competitiveness in a particular marketplace, changes in

technology or supplier costs, and amounts paid by other purchasers

in the same area. However, industry voiced concerns about how use

of this authority might affect prices and beneficiary access to services. As a result, in BBRA 1999, Congress prohibited use of the inherent reasonableness authority until the GAO reports on how the

authority is used.

TABLE 2–20.—MEDICARE SPENDING FOR DURABLE MEDICAL EQUIPMENT,

PROSTHETICS, ORTHOTICS, AND CERTAIN OTHER ITEMS, CALENDAR YEAR 1998

[In millions of dollars]

Category Medicare

spending

Inexpensive/routinely purchased 1 ................................................................... $633.9

Items with frequent maintenance 2 ................................................................ 168.1

Customized items 3 ......................................................................................... 43.5

Capped rental 4 ............................................................................................... 1,102.3

Oxygen 5 ........................................................................................................... 1,621.3

Prosthetics/orthotics 6 ..................................................................................... 937.5

Surgical dressings ........................................................................................... 54.3

Supplies/accessories ....................................................................................... 64.6

Parenteral/enteral nutrients ............................................................................ 803.0

Other ................................................................................................................ 8.0

Total ................................................................................................... 5,436.6

1 Inexpensive defined as equipment for which the purchase price does not exceed $150. Routinely purchased defined as equipment that is acquired 75 percent of the time by purchase. These items include

commode chairs, electric heat pads, bed rails, and blood glucose monitors. 2 Paid on a rental basis until medical necessity ends and includes such items as ventilators and continuous and intermittent positive breathing machines. 3 Includes such items as wheelchairs adapted specifically for an individual. Payment based on individual determination. 4 Items of DME paid on a monthly rental basis not to exceed a period of continuous use of 15

months. Includes such items as hospital beds and wheelchairs. 5 Payment for oxygen and oxygen equipment based on a monthly rate per beneficiary. Payment not

made for purchased equipment except where installment payments continue. 6 These items include covered prosthetic and orthotic devices (except for items included in the categories ‘‘customized items’’ and ‘‘items requiring frequent maintenance,’’ transcutaneous electrical nerve

stimulators, parenteral/enteral nutritional supplies and equipment, and intraocular lenses).

Source: Health Care Financing Administration, Office of Information Services. Data from the Division of

Information Distribution.

Administering the DME benefit

HCFA enters into contracts with insurance companies known as

carriers under part B of Medicare, to administer the program, i.e.,

to process claims and make payments. In the case of DME, administration is centralized in four regional carriers (known as DME regional carriers, or DMERCs) who are responsible for processing

claims for all beneficiaries living within their areas. As a result of

the consolidation, which occurred in 1992, variation in coverage

policy and utilization patterns has been reduced.

Suppliers provide Medicare beneficiaries with medical equipment

and bill the regional carrier in their area. Most suppliers are small

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entities located in areas where the demand is greatest. Before

being issued a Medicare supplier number, suppliers must comply

with various standards. These include maintaining a physical location, filling orders from their own inventories or under contract

with another company, being responsible for deliveries to beneficiaries and honoring all product warranties, and providing proof

of appropriate liability insurance. BBA 1997 required that suppliers provide a $50,000 surety bond issued by a company approved

by the Treasury Department. Although regulations have been proposed for this requirement, they have not been finalized.

Competitive bidding

Investigations have shown that Medicare pays higher prices for

certain medical supplies than those paid by other health care insurers and other government agencies, including the Department of

Veterans Affairs. In order to lower payments, the Secretary currently must initiate the inherent reasonableness process or rely on

legislation. Many observers suggested granting HCFA the authority to engage in a competitive bidding arrangement similar to the

one used by the Department of Veterans Affairs. BBA 1997 provided such authority on a limited basis. HCFA was authorized to

establish five 3-year competitive bidding demonstration projects.

With the demonstration projects, HCFA intends to test how effective competitive bidding is for the Medicare Program. Goals for the

projects are to maintain beneficiary access to services and limit

their out-of-pocket expenses while lowering Medicare’s payment for

medical equipment. The projects will also prevent Medicare from

dealing with suppliers who engage in fraudulent business practices.

The first demonstration project site selected was in Polk County,

FL. Beginning in 1999, suppliers submitted bids to HCFA, competing for the right to supply certain medical equipment to the 92,000

Medicare beneficiaries in the area. Bids were evaluated on the

basis of quality and price. To maintain beneficiary access to the

medical equipment, HCFA named between 4 and 13 companies for

each item. HCFA expects that savings will average 17 percent on

medical equipment overall, and will be as high as 30 percent for

some products.

A second demonstration project is expected to begin in January

2001 in the San Antonio area of Texas. The project, involving about

112,000 Medicare beneficiaries, will be similar to the Polk County

project, although different products will be involved. In 1998, Medicare paid an average of $287 per beneficiary in the San Antonio

area for medical equipment.

HOSPITAL OUTPATIENT DEPARTMENT SERVICES

Hospital outpatient department (OPD) services for Medicare

beneficiaries are paid under Medicare part B. Services provided in

OPDs include: (1) emergency room and clinic services; (2) surgery

and operating rooms; (3) laboratory and pharmacy services; (4)

physical therapy and rehabilitation services; (5) DME; and (6)

chemotherapy and radiation therapy. OPDs also provide diagnostic

and preventive procedures such as radiology, computer axial tomography (CAT) scans, magnetic resonance imaging, endoscopies,

and colonoscopies.

155

Table 2–21 shows the percent distribution of hospital OPD

charges by type of service provided to Medicare beneficiaries in

1998. For example, it shows that, of the $50.6 billion in hospital

outpatient charges (table 2–22) for Medicare beneficiaries, 20.6 percent were for radiology services, 12.8 percent were for laboratory

services, and so forth.

TABLE 2–21.—PERCENT DISTRIBUTION OF HOSPITAL OUTPATIENT DEPARTMENT

CHARGES UNDER MEDICARE, BY TYPE OF SERVICE, 1998

Service OPD charges

Radiology ...................................................................................................... 20.6

Laboratory ..................................................................................................... 12.8

Operating room ............................................................................................. 11.4

End-stage renal disease .............................................................................. 6.6

Pharmacy ...................................................................................................... 6.1

Emergency room ........................................................................................... 3.3

Clinic ............................................................................................................. 1.6

Rehabilitation ............................................................................................... 2.7

Medical/surgical supplies ............................................................................. 9.1

All other 1 ...................................................................................................... 25.9

Total ............................................................................................ 100.0

1 Includes computerized axial tomography, durable medical equipment, blood, and so forth.

Note.—Total may not add due to rounding.

Source: Health Care Financing Administration.

TABLE 2–22.—MEDICARE HOSPITAL OUTPATIENT CHARGES AND REIMBURSEMENTS BY

TYPE OF ENROLLMENT AND YEAR SERVICE INCURRED, SELECTED YEARS 1974–98

Type of enrollment and

year of service

Number of

SMI 1 enrollees

(in thousands)

Charges for

covered services (in thousands)

Program payments

Amount (in

thousands) Per enrollee Percent of covered charges

All beneficiaries:

1974 ............. 23,166,570 $535,296 $323,383 $14 60.4

1976 ............. 24,614,402 974,708 630,323 26 64.7

1978 ............. 26,074,085 1,384,067 923,658 35 66.7

1980 ............. 27,399,658 2,076,396 1,441,986 52 69.4

1982 ............. 28,412,282 3,164,530 2,203,260 78 69.6

1983 ............. 28,974,535 3,813,118 2,661,394 92 69.8

1984 ............. 29,415,397 5,129,210 3,387,146 115 66.0

1985 ............. 29,988,763 6,480,777 4,082,303 136 63.0

1986 ............. 30,589,728 8,115,976 4,881,605 160 60.1

1987 ............. 31,169,960 9,794,832 5,690,786 183 58.2

1988 ............. 31,617,082 11,833,919 6,371,704 202 53.8

1989 ............. 32,098,770 14,195,252 7,160,586 223 50.4

1990 ............. 32,635,800 18,346,471 8,171,088 250 44.5

1991 ............. 33,239,840 22,016,673 8,612,320 259 39.1

1992 ............. 33,956,460 26,799,501 9,941,391 293 37.1

1993 ............. 34,642,500 32,026,576 10,938,545 316 34.2

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TABLE 2–22.—MEDICARE HOSPITAL OUTPATIENT CHARGES AND REIMBURSEMENTS BY

TYPE OF ENROLLMENT AND YEAR SERVICE INCURRED, SELECTED YEARS 1974–98—

Continued

Type of enrollment and

year of service

Number of

SMI 1 enrollees

(in thousands)

Charges for

covered services (in thousands)

Program payments

Amount (in

thousands) Per enrollee Percent of covered charges

1994 ............. 35,178,600 36,323,649 11,813,522 336 32.6

1995 2 .......... 31,806,740 40,476,180 12,933,358 407 31.9

1996 ............. 31,775,280 44,564,665 13,896,048 437 31.2

1997 ............. 31,022,040 47,888,129 14,382,561 464 30.0

1998 ............. 30,304,340 50,607,564 14,212,983 469 28.1

Average annual rate of growth:

1974–98 ...... 1.1 20.9 17.1 15.8 NA

1974–84 ...... 2.4 25.4 26.5 23.4 NA

1984–98 ...... 0.2 17.8 10.8 10.6 NA

Aged:

1974 ............. 21,421,545 394,680 220,742 10 55.9

1976 ............. 22,445,911 704,569 432,971 19 61.5

1978 ............. 23,530,893 1,005,467 648,249 28 64.5

1980 ............. 24,680,432 1,517,183 1,030,896 42 69.9

1982 ............. 25,706,792 2,402,462 1,645,064 64 68.5

1983 ............. 26,292,124 2,995,784 2,066,207 79 69.0

1984 ............. 26,764,150 4,122,859 2,679,571 100 65.0

1985 ............. 27,310,894 5,210,762 3,211,744 118 61.6

1986 ............. 27,862,737 6,529,273 3,809,992 137 58.4

1987 ............. 28,382,203 7,859,038 4,522,841 159 56.4

1988 ............. 28,780,154 9,790,273 5,098,546 177 52.1

1989 ............. 29,216,027 11,855,127 5,767,589 197 48.7

1990 ............. 29,691,180 15,384,510 6,563,454 221 42.7

1991 ............. 30,183,480 18,460,835 6,842,329 227 37.1

1992 ............. 30,722,080 22,253,657 7,741,774 252 34.8

1993 ............. 31,162,480 26,556,415 8,522,089 273 32.1

1994 ............. 31,443,800 29,768,892 9,116,610 290 30.6

1995 2 .......... 28,020,760 33,110,441 9,900,199 353 29.9

1996 ............. 27,849,640 36,099,678 10,542,937 379 29.2

1997 ............. 27,046,120 38,728,484 10,861,323 402 28.0

1998 ............. 26,243,140 41,945,972 10,681,369 407 26.0

Average annual rate of growth:

1974–98 ...... 0.8 21.5 17.5 16.7 NA

1974–84 ...... 2.3 26.4 28.4 25.9 NA

1984–98 ...... ¥0.1 18.0 10.4 10.5 NA

Disabled:

1974 ............. 1,745,019 140,617 102,641 59 73.0

1976 ............. 2,168,467 270,139 197,352 91 73.1

1978 ............. 2,543,162 378,600 275,409 108 72.7

1980 ............. 2,719,226 559,213 411,090 152 73.5

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TABLE 2–22.—MEDICARE HOSPITAL OUTPATIENT CHARGES AND REIMBURSEMENTS BY

TYPE OF ENROLLMENT AND YEAR SERVICE INCURRED, SELECTED YEARS 1974–98—

Continued

Type of enrollment and

year of service

Number of

SMI 1 enrollees

(in thousands)

Charges for

covered services (in thousands)

Program payments

Amount (in

thousands) Per enrollee Percent of covered charges

1982 ............. 2,705,490 762,068 558,195 206 73.2

1983 ............. 2,682,411 817,335 595,187 222 72.8

1984 ............. 2,651,247 1,006,351 707,575 267 70.3

1985 ............. 2,677,869 1,270,015 870,560 325 68.5

1986 ............. 2,726,991 1,586,703 1,071,613 393 67.5

1987 ............. 2,787,757 1,773,664 1,167,945 417 65.8

1988 ............. 2,836,928 2,043,646 1,273,158 449 62.3

1989 ............. 2,882,743 2,340,124 1,392,897 483 59.5

1990 ............. 2,944,620 2,961,961 1,607,634 546 54.3

1991 ............. 3,056,360 3,555,838 1,769,991 579 49.8

1992 ............. 3,234,380 4,545,843 2,199,617 680 48.4

1993 ............. 3,480,020 5,470,161 2,416,456 694 44.2

1994 ............. 3,734,800 6,463,757 2,696,912 722 41.7

1995 2 .......... 3,785,980 7,465,739 3,033,158 801 40.6

1996 ............. 3,925,640 8,464,987 3,353,211 854 39.6

1997 ............. 3,975,920 9,159,645 3,521,238 886 38.4

1998 ............. 4,061,200 9,561,592 3,531,614 870 36.9

Average annual rate of growth:

1974–98 ...... 3.6 19.2 15.9 11.9 NA

1974–84 ...... 4.6 27.4 26.4 20.9 NA

1984–98 ...... 3.1 17.4 12.2 8.8 NA

1 1974 is the first full year of coverage for disabled beneficiaries under Medicare.

2 Beginning in 1995, Medicare enrollees in managed care plans are not included in the data.

NA—Not applicable.

Source: Health Care Financing Administration, Office of Strategic Planning.

Background

In the early years of the Medicare Program, Medicare paid for

both inpatient and outpatient hospital care based on a hospital’s

reasonable costs attributable to caring for Medicare beneficiaries.

These were retrospective payment systems, meaning payment for

the costs incurred in providing care was determined and made

after the service was rendered.

Payment systems for hospital inpatient care and outpatient services were separated in 1983 when a new prospective system was

implemented for inpatient care. Under that arrangement, a hospital receives a fixed payment, known in advance of providing care,

covering all care and services required by a patient during a hospital stay (exclusive of physician fees) and determined by the diagnosis-related group (DRG) into which the patient is classified at admission. However, outpatient services remained under the costs-orcharges retrospective payment arrangement.

158

Throughout the 1980s, Medicare payments for hospital outpatient services grew as the volume of services provided in that

setting increased. Although growth in the Medicare population contributed to increased utilization of outpatient care, a substantial

share of the growth in the volume of outpatient services is attributable to advances in medicine and technology that permit procedures formerly restricted to the inpatient hospital setting to be provided safely on an outpatient basis. Implementation in 1983 of the

inpatient PPS, which included aggressive management of inpatient

utilization, also led to a shift in care from hospital inpatient to outpatient departments. Currently, on average, outpatient services

generate about half of all hospital revenues.

Since the early 1980s, Medicare’s payments for OPD services

have grown for reasons other than increased volume, and that

growth is often attributed to the lack of incentives for efficiency or

cost control inherent in the retrospective cost-based payment system. Congress sought to contain the rate of increase in Medicare

payments for certain outpatient services by requiring implementation of ‘‘fee schedules’’ (a form of PPS) to pay for those services. For

example, Congress required HCFA to establish fee schedules for

many outpatient diagnostic procedures and tests; provision of

orthotics, prosthetics, and other DME; dialysis for persons with

end-stage renal disease (ESRD); and surgeries that might also take

place in another outpatient setting such as ambulatory surgical

centers (ASCs). These fee schedules save Medicare money because

the amounts paid are generally less than payments under retrospective cost reimbursement systems.

In the Omnibus Budget Reconciliation Acts of 1986 and 1990,

Congress directed the Secretary of the U.S. Department of Health

and Human Services (DHHS) to develop a PPS for all hospital OPD

care. In addition, to achieve more immediate savings, legislation required across-the-board reductions in Medicare payments for hospital operating costs and capital costs (including those associated

with outpatient care) starting in 1990.

Although Medicare currently uses fee schedules for some OPD

services, payment for other OPD services have remained under the

retrospective costs-or-charges system, resulting in an extremely

complex set of payment rules. For instance, payments for OPD

services such as clinic and emergency room visits have been paid

based on the lesser of hospital costs or charges. Certain surgeries

carried out in OPDs, but which are also approved by Medicare to

be provided in ASCs are paid the lower of costs, charges, or a

blended payment that incorporates the ASC fee schedule amount

(again, excluding physician charges). Payment for costs for certain

radiology services and diagnostic procedures are based on a blended payment that includes, in part, the Medicare fee schedule for

physician services. To add to the complexity, blended payment calculations may vary among different types of hospitals. Some OPD

services are paid for exclusively according to a fee schedule (e.g.,

laboratory tests, physical therapy, prosthetics and orthotics, mammography screening, and some surgical dressings and supplies).

Kidney dialysis services, which are often provided in specialized dialysis centers to which a PPS applies, are also paid under the dialysis PPS if provided in an OPD.

159

Beneficiary and hospital overpayment issues

The complex arrangements under which Medicare’s payments for

OPD care have been determined has meant that, often, the final

Medicare approved payment amount is not known until a hospital’s

annual cost reports are settled with Medicare, which might be long

after services to any individual beneficiary are rendered. However,

the Social Security Act permits providers to charge Medicare beneficiaries 20 percent of the reasonable and customary charges for

part B-covered services. In the case of OPD services for which payment is based on the blended rate formula, the amount Medicare

eventually would approve for the service might be considerably less

than the hospital’s charge. Thus, hospital OPDs have often billed

beneficiaries at the time of service for 20 percent of charges rather

than 20 percent of the amount computed and approved under

Medicare’s formulas. As a result, beneficiaries are ‘‘overcharged,’’

sometimes paying as much as 50 percent of the Medicare approved

amount. The Medicare Payment Advisory Commission reported in

1999 that beneficiary coinsurance for OPD care represented about

47 percent of the total Medicare payment hospitals received for outpatient services. ‘‘Medigap’’ insurance policies, which Medicare

beneficiaries may purchase to pay Medicare’s deductibles, copayments and coinsurance, relieve policyholders from these high

charges, but the insurance industry has noted that the prices of

their policies reflect such overcharges.

When Medicare paid for hospital outpatient services under the

blended rate formula, the program’s share of the payment to the

hospital was computed as if the beneficiary had paid only 20 percent of the Medicare approved amount, including the limited fee

schedule payment, instead of 20 percent of the hospital’s charges,

which generally disregarded the limitations of a fee schedule. Thus,

the Medicare formula that assumed the beneficiary had paid a lesser amount resulted in a larger Medicare payment, and, consequently, hospitals were ‘‘overpaid’’ by Medicare. This hospital

overpayment situation was referred to as the ‘‘formula-driven overpayment.’’

The Balanced Budget Act (BBA) of 1997

Despite implementation of certain fee schedules and across-theboard reductions in payments, Medicare payments to hospital

OPDs rose at an annual rate of over 12 percent from 1983 to 1997

and increased from 7 percent to 20 percent as a share of all Medicare payments to hospitals. Many saw the patchwork payment arrangements for OPD care as fraught with disincentives for hospitals to provide care efficiently. Congress responded to these cost

issues in BBA 1997. In order to end the complex and inequitable

retrospective cost and charge-based reimbursement system, the law

directed the Secretary of DHHS to implement the OPD PPS in

1999. It eliminated the formula-driven overpayment, effective at

the start of fiscal year 1998, a move that resulted in an almost immediate reduction in Medicare payments to hospitals for those

OPD services for which Medicare payments duplicated beneficiary

payments. BBA 1997 also extended the across-the-board reductions

of 5.8 percent for operating costs and 10 percent for capital costs

through 1999.

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BBA 1997 established a procedure to bring beneficiary cost sharing for OPD services gradually into line at 20 percent of Medicare

approved amounts by ‘‘freezing’’ the dollar amount hospitals may

charge beneficiaries at 20 percent of the median of all hospital outpatient charges per procedure in 1996, updated to the time of implementation of the PPS. Thus, over time, as Medicare’s payments

under the new PPS rise according to an indexing formula, the ‘‘frozen’’ dollar amounts hospitals may charge beneficiaries will come

to equal 20 percent of Medicare’s PPS payments, and Medicare’s

payment will be 80 percent of the full amount approved under the

new system. However, for those services for which the spread between the median charge and the PPS approved amount is large,

it could take many years before the beneficiary copayment is 20

percent of the amount specified in the PPS. The law allows hospitals voluntarily to limit beneficiary copayments to 20 percent and

to disseminate information regarding their reduced beneficiary

charges.

On September 8, 1998, HCFA published proposed OPD PPS regulations for comment. Although the new PPS was then scheduled

for implementation in 1999, HCFA delayed implementation until

after the start of the year 2000 in order to accommodate resolution

of ‘‘Y2K’’ data processing problems. HCFA extended the public comment period on the proposed regulations through July 30, 1999,

and published final rules on April 7, 2000. Implementation began

August 1, 2000.

Design and implementation of the outpatient department PPS

Under the hospital outpatient PPS included in final rules published by HCFA, individual OPD services that are similar clinically

and also in terms of resource utilization are arranged into groups

according to an ambulatory payment classification (APC) system.

The system includes 451 payment groups. A payment amount is established for each group and is the same for each service in the

group. The payments cover hospital facility and nonphysician personnel costs. The labor component of a payment is adjusted to reflect regional variations.

Services delivered in an OPD that are already covered by a PPS

or fee schedule are excluded from the OPD PPS, but will continue

to be paid under the existing applicable system. The OPD PPS does

not apply for outpatient services provided to patients receiving

services under part A in a skilled nursing facility (SNF) when the

service is part of a patient’s SNF plan of care and which is furnished by the hospital under an arrangement with the SNF.

Hospitals excluded from the outpatient PPS altogether include

certain facilities in Maryland that are paid under a special State

program and critical access hospitals that are paid under a reasonable cost-based system according to rules in the Social Security Act.

Balanced Budget Refinement Act (BBRA) of 1999

The proposed PPS regulations promulgated on September 8,

1998, raised concerns about the adequacy of the payments under

that system for certain kinds of services, patients, and hospitals.

As a result, in BBRA 1999 (Public Law 106–113, November 19,

1999), Congress legislated several major changes to Medicare payVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00160 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
161

ments under the hospital OPD PPS. The BBRA 1999: (1) requires

the Secretary of DHHS to provide payments (within specified limits, and on a budget neutral basis) over and above PPS payments

for certain high cost (‘‘outlier’’) patients; (2) as a transition to the

PPS, for 2–3 years, on a budget neutral basis, requires the Secretary of DHHS to provide ‘‘passthrough payments’’ to hospital

OPDs above and beyond PPS payments for costs of certain ‘‘current

innovative’’ and ‘‘new, high cost’’ devices, drugs, and biologicals; (3)

limits the cost range of items or services that are included in any

one PPS payment category so that the highest median (or mean)

cost of an item or service in the group cannot be more than two

times higher than the lowest median (or mean) cost for an item or

service within the group; (4) requires the Secretary of DHHS to review the PPS groups and amounts annually and to update them as

necessary; (5) as a transition to the PPS, through 2003, establishes

‘‘transitional corridors’’ which phase in reductions in aggregate

Medicare payments individual hospitals experience due to the PPS;

(6) provides special ‘‘hold harmless’’ payments until January 1,

2004, for small, rural hospitals to ensure that they receive no less

under the outpatient PPS than they would have received in aggregate under the ‘‘pre-BBA’’ system and provides the same protection

permanently for cancer hospitals; (7) caps beneficiary copayments

for OPD care at the amount of the beneficiary deductible for inpatient care ($776 in 2000, and indexed for subsequent years); (8) requires that the pre-PPS payment base used as the budget neutrality benchmark for Medicare spending under the PPS include beneficiary coinsurance amounts as paid under the pre-PPS system (i.e.,

20 percent of hospital charges); (9) requires coverage of the cost of

implantable items; (10) allows the Secretary of DHHS to use either

the mean or the median of hospital costs when establishing weights

that determine payment amounts under the PPS; (11) extends

across-the-board reductions to payments for hospital operating

costs and capital costs until implementation of the PPS; (12) allows

reclassification of certain hospitals as urban or rural.

The ‘‘budget neutral’’ requirement applicable to some of these

changes means that the total cost of the Medicare Program is to

be the same with the change as it would have been without the

change. Thus, program cost increases would require payment adjustments elsewhere to offset those increases.

According to HCFA data, on average, hospitals would receive 4.6

percent more in payments under the new outpatient PPS, including

the BBRA 1999 changes, than under the retrospective cost-based

system.

On December 8, 1999, the Congressional Budget Office (CBO) estimated that the provisions of BBRA 1999 applicable to Medicare

OPD payments would add $11.2 billion in payments to hospitals

over the period fiscal years 2000–2009.

Medicare payments to outpatient departments

Table 2–22 summarizes the history of Medicare payments for

hospital outpatient services from 1974 through 1998. (Starting in

1995, the data include only beneficiaries enrolled in traditional feefor-service Medicare and exclude those who elected to enroll in a

managed care plan.) The total number of beneficiaries enrolled in

162

part B grew by about 31 percent during this time period, at an average annual rate of about 1 percent, although disability caseload

growth rates were higher than the rate of increase of elderly beneficiaries. The table documents the dramatic increase in hospital

outpatient utilization and Medicare payments for OPD services

since the early 1980s. Medicare payments increased 44-fold, from

$323 million in 1974 to $14.2 billion in 1998, with annual rates of

increase averaging as high as 26.5 percent from 1974 to 1984. The

substantial rates of increase in OPD payments per part B enrollee

(from $14 in 1974 to $469 in 1998) reflect the increase in the volume of services provided in OPDs as well as growth in payments

for those services under the retrospective cost-based payment system.

Since 1983, hospital charges for OPD care for Medicare beneficiaries increased by 17.8 percent per year, on average. Medicare’s

payments for OPD services increased by 10.8 percent per year during that time period (table 2–22). The table shows that Medicare’s

payments as a percent of hospital charges for Medicare-covered

OPD services has declined from nearly 70 percent in 1983 to 28.1

percent in 1998. This declining ratio reflects primarily the high

rates of increase in hospital charges and, to a lesser extent, limits

on the rate of increase in Medicare’s payments for OPD services

due to fee schedules and blended payment formulas. It also reflects

the increasing share of charges billed to beneficiaries. Payment systems under Medicare have included incentives for hospitals to increase their OPD charges. For example, since implementation in

1983 of the PPS for hospital inpatient care, some hospitals have

shifted costs and charges from inpatient accounts to OPD accounts

because they receive higher payments from Medicare under the

outpatient payment formulas. In addition, because hospitals have

routinely billed Medicare beneficiaries (or their Medigap plan) for

20 percent of charges, higher charges generate greater revenues

from beneficiaries.

AMBULATORY SURGICAL CENTER SERVICES

Services provided in an ambulatory surgical center (ASC) are

paid under Medicare part B. An ASC is a facility where surgeries

that do not require an inpatient hospital admission are performed.

ASCs treat only patients who have already seen a health care provider and for whom surgery has been selected as an appropriate

treatment. All ASCs must have at least one dedicated operating

room and the equipment needed to perform surgery safely and to

provide for recovery from anesthesia. Patients electing to have surgery in an ASC arrive for a scheduled appointment on the day of

the procedure, have the surgery in an operating room, and recover

under the care of the nursing staff before leaving for home.

Medicare began covering ASC services in 1982 as a way to reduce costs for surgeries generally carried out on a hospital inpatient basis but that could be performed safely in a less costly outpatient setting. ASCs must meet certain conditions specified by

Medicare in order to participate in the program. Some ASCs limit

services to one type of surgery, such as ophthalmology, and others

provide a variety of procedures, including gastroenterological, orthopedic, pain block, urology, podiatry, and ear, nose, and throat

163

procedures. About half of all ASC procedures provided under Medicare in 1999 were related to cataracts or other types of eye surgery.

Currently, over 2,500 procedures are included on the Medicareapproved list of ASC procedures. HCFA determines which procedures will constitute the ASC list on the basis of certain criteria

related to the safety, appropriateness, and effectiveness of performing the procedure in an ASC setting.

Table 2–23 shows the procedures most often carried out for Medicare beneficiaries in ASCs in 1999, the volume of those procedures

for Medicare beneficiaries, and Medicare’s total payments per procedure in that year.

TABLE 2–23.—AMBULATORY SURGICAL CENTER UTILIZATION BY MEDICARE BENEFICIARIES IN 1999: INCIDENCE OF HIGH VOLUME PROCEDURES AND MEDICARE PAYMENTS

Current procedural

terminology code Short descriptor Volume of Medicare cases

Medicare payments (in thousands)

66984 ............... Remove cataract, insert lens ..... 688,700 $689,700

66821 ............... After cataract laser surgery ....... 208,342 208,342

43239 ............... Upper GI endoscopy, biopsy ....... 133,783 39,791

45378 ............... Diagnostic colonoscopy ............... 114,330 37,283

45385 ............... Colonoscopy, lesion removal ....... 74,883 24,210

45380 ............... Colonoscopy and biopsy ............. 58,143 18,321

45384 ............... Colonoscopy ................................ 41,948 12,985

52000 ............... Cystourethroscopy ....................... 35,359 8,348

43235 ............... Upper GI endoscopy, diagnosis .. 33,685 7,057

43248 ............... Upper GI endoscopy, guidewire .. 16,029 4,824

Note.—Data for calendar year 1999 are preliminary and are about 95 percent complete.

Source: Health Care Financing Administration.

Payment for ambulatory surgical centers

From the start of Medicare coverage of ASC services, Medicarebased payments on a prospective payment fee schedule. This system was one of the first applications of a fee schedule for outpatient, or ambulatory, care.

The two primary cost components of a surgical procedure are the

physician’s (or practitioner’s) professional fees for performing the

procedure and the costs associated with services furnished by the

facility where the surgery is performed. Medicare pays ASCs for facility and nonphysician personnel costs incurred in connection with

performing specific surgical procedures. Payments are based on

‘‘reasonable overhead allowances.’’ For example, items included

among those covered by the allowances are nursing and technician

services; supplies; drugs and biologicals; surgical dressings; housekeeping services; and use of the facility. As with other Medicare

services, physician and certain practitioner fees are paid under a

separate system.

The Medicare-approved ASC procedures (about 2,500 procedures)

are consolidated into 8 payment groupings, each of which has 1

payment amount; that amount is adjusted for different geographic

164

regions using the hospital wage index. After a beneficiary meets

the part B annual deductible, Medicare pays ASCs 80 percent of

the prospectively determined rate, and the beneficiary is responsible for 20 percent. In addition, Medicare and the beneficiary pay

the physician or surgeon separately, with Medicare paying 80 percent of the approved amount under the physician fee schedule and

the beneficiary being responsible for 20 percent.

Growth in services

At the end of 1983, 1 year after Medicare began coverage of ASC

care, 239 ASCs were approved to provide services for beneficiaries.

Use of ASCs grew rapidly, and, at the end of 1998, over 2,300 facilities participated in Medicare. From 1993 through 1998, the volume of Medicare-covered ASC services provided grew from 1.06

million to 1.9 million. Medicare payments to ASCs increased at an

average of 12.8 percent per year, from $495 million in 1993 to $902

million in 1998. Table 2–24 shows the annual volume of ASC services and Medicare payments since 1993. Note that calendar year

1999 data do not include a full year of payments.

TABLE 2–24.—AMBULATORY SURGICAL CENTERS: UTILIZATION AND MEDICARE

PAYMENTS, 1993–99

Year Number of services

Medicare payments to

ASCs

1993 ...................................................................... 1,059,644 $495,313,388

1994 ...................................................................... 1,298,740 572,001,981

1995 ...................................................................... 1,499,866 664,437,432

1996 ...................................................................... 1,655,538 743,098,264

1997 ...................................................................... 1,827,410 832,846,641

1998 ...................................................................... 2,012,271 902,920,576

1999 ...................................................................... 1,921,356 898,137,203

Average annual increase 1993–98 ...................... 12.8 percent

Note.—Calendar year 1999 data are preliminary and are about 95 percent complete.

Source: Health Care Financing Administration.

Starting January 1, 1995, the Secretary of DHHS has been required to update ASC rates every 5 years based on a survey of the

actual audited costs incurred by a representative sample of ASCs

for a representative sample of procedures, and to increase annual

payments in the intervening years by the Consumer Price Index for

All Urban Consumers (CPI–U). However, for fiscal years 1998–

2002, BBA 1997 reduced the annual update to the CPI–U increase

minus 2 percentage points. Because the fiscal year 1999 adjustment would have been very small, HCFA made no adjustment for

that year.

Effective October 1, 1999 (for fiscal year 2000), payments for the

eight categories into which all ASC procedures are grouped were

updated by the CPI–U increase minus 2 percentage points. The increase was 0.8 percent. As of October 1, 1999, the base rates (prior

to geographic adjustments) are:

165

Group 1 ... $317 Group 5 ... 683

Group 2 ... 425 Group 6 ... 644 + 150 for an intraocular lens

Group 3 ... 486 Group 7 ... 949

Group 4 ... 600 Group 8 ... 784 + 150 for an intraocular lens

Group 5 ... 683

Proposed changes to ASC Medicare payments

On June 12, 1998, HCFA issued proposed rules which would

make major changes in Medicare payments to ASCs. The major

changes include replacing the eight payment groupings with an

APC system comprised of 105 payment groups; updating underlying cost data using 1994 survey data updated to the present; and

making additions to and deletions from the list of Medicare covered

ASC procedures. Payments would range from $53 to $2,107 and

would be updated by the CPI–U annually on a calendar year basis.

As of this writing, HCFA had received extensive comments on the

proposed new APC groups and payments and estimates that final

rules will be published in November 2000 for implementation in

April 2001.

Some surgical procedures approved for ASCs are also performed

in hospital outpatient departments (OPDs). In designing the new

OPD prospective payment system (PPS) and the new APC groups

for ASC procedures, HCFA aimed to keep the grouping of surgical

procedures comparable.

BBRA 1999 did not address ASC payment rates, the APC system, or update procedures. However, it requires that, if the Secretary implements new rates based on the 1994 data (or any rates

based on pre-99 Medicare cost survey data), those new rates must

be phased in by basing payments one-third on the new rates in the

first year, two-thirds in the second year, and fully in the third year.

OTHER PART B SERVICES

Preventive services

Screening mammograms.—Medicare covers an annual screening

mammography for all women over age 40. Payment for a mammogram is based on the lesser of the actual charge, the amount established for the global procedure under Medicare’s fee schedule, or

the payment limit established for the procedure. The 2000 limit is

$67.81.

Screening Pap smears; pelvic exams.—Medicare authorizes coverage for a screening Pap smear and a screening pelvic exam once

every 3 years; annual coverage is authorized for women at high

risk. Payment is based on the clinical diagnostic laboratory fee

schedule (see above). BBRA 1999 requires a minimum payment of

$14.60 for Pap tests furnished in 2000.

Prostate cancer screening tests.—BBA 1997 authorized coverage,

beginning January 1, 2000, for an annual prostate cancer screening

test for men over age 50. The test could consist of any (or all) of

the following procedures: (1) a digital rectal exam; (2) a prostatespecific antigen blood test; and (3) after 2002, such other proceVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00165 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
166

dures as the Secretary finds appropriate for the purpose of early

detection of prostate cancer.

Colorectal screening.—BBA 1997 authorized coverage of and established frequency limits for colorectal cancer screening tests, effective January 1, 1998. A covered test is any of the following procedures furnished for the purpose of early detection of colorectal

cancer: (1) screening fecal-occult blood test (for persons over 50, no

more than annually); (2) screening flexible sigmoidoscopy (for persons over 50, no more than one every 4 years); (3) screening

colonoscopy for high-risk individuals (limited to one every 2 years);

and (4) such other procedures as the Secretary finds appropriate

for the purpose of early detection of colorectal cancer. Payment limits are established for the tests.

BBA 1997 required the Secretary, within 90 days of enactment,

to publish a determination on the coverage of screening barium

enema. The Secretary determined that barium enema tests, as an

alternative to either a screening flexible sigmoidoscopy or a screening colonoscopy, are to be covered in accordance with the same

screening parameters specified for those tests.

Diabetes screening tests.—Medicare’s covered benefits include diabetes outpatient self-management training services. These services

are defined as including educational and training services furnished to an individual with diabetes by a certified provider in an

outpatient setting. They are covered only if the physician who is

managing the individual’s diabetic condition certifies that the services are needed under a comprehensive plan of care to ensure therapy compliance or to provide the individual with necessary skills

and knowledge (including skills related to the self-administration of

injectable drugs) to participate in the management of their own

condition. Certified providers for these purposes are defined as physicians or other individuals or entities that, in addition to providing

diabetes outpatient self-management training services, provide

other items or services reimbursed by Medicare. Providers must

meet quality standards established by the Secretary. They are

deemed to meet the Secretary’s standards if they meet standards

originally established by the National Diabetes Advisory Board and

subsequently revised by organizations that participated in the establishment of standards of the Board, or if they are recognized by

an organization representing persons with diabetes as meeting

standards for furnishing such services.

In addition, Medicare covers blood glucose monitors and testing

strips for type I or type II diabetics (without regard to a person’s

use of insulin, as determined under standards established by the

Secretary in consultation with appropriate organizations). The national payment limit for testing strips was reduced by 10 percent

beginning in 1998.

Bone mass measurements.—Bone mass measurement is covered

for the following high risk persons: an estrogen-deficient woman at

clinical risk for osteoporosis; an individual with vertebral abnormalities; an individual receiving long-term glucocorticoid steroid

therapy; an individual with primary hyperparathyroidism; or an individual being monitored to assess osteoporosis drug therapy. The

Secretary is required to establish frequency limits.

167

Drugs/vaccines

Medicare generally does not cover outpatient prescription drugs.

Despite the general limitation, Medicare law specifically authorizes

coverage for the following drugs: —Erythropoietin (EPO).—EPO for the treatment of anemia for

persons with chronic kidney failure. —Osteoporosis drugs.—Injectable drugs approved for the treatment of postmenopausal osteoporosis provided to an individual

by a home health agency (HHA). A physician must certify that

the individual suffered a bone fracture related to postmenopausal osteoporosis and that the individual is unable to

self-administer the drug. —Oral cancer drugs.—Oral drugs used in cancer chemotherapy

when identical to drugs which would be covered if not selfadministered. Also covered are oral antinausea drugs used as

part of an anticancer chemotherapeutic regimen, subject to

specified conditions.

Medicare also covers immunosuppressive drugs (such as

cyclosporin) for 36 months following a covered organ transplant.

BBRA 1999 provides for a temporary extension of the 36-month

limit on immunosuppressive drugs for persons otherwise exhausting their coverage in 2000–2004. In each calendar year, there will

be an extension specified by the Secretary (as the number of

months or partial months), applicable to persons who exhaust their

benefits in that calendar year. The increase for persons exhausting

their benefits in 2000 is 8 months. The minimum increase for persons exhausting their benefits in 2001 is 8 months.

By May 1, 2001, the Secretary may increase the number of

months for the cohort exhausting their benefits in 2001. At the

same time, the Secretary is also required to announce the additional months of benefits that will be available for the cohort exhausting their benefits in 2002. Similarly by May 1, 2002 and

2003, the Secretary is required to announce the number of months

that will apply to the cohort exhausting their benefits in the following year. Total expenditures over the 5-year period are limited to

$150 million.

Medicare payment for drugs (not made on a cost or prospective

payment basis) equals 95 percent of the average wholesale price.

The Secretary is authorized to pay a dispensing fee to pharmacies.

A special payment limit ($10 per 1,000 units) applies for EPO.

Medicare also pays for influenza virus vaccines (flu shots), pneumococcal pneumonia vaccine, and hepatitis B vaccine for persons at

risk of contracting hepatitis B. Cost-sharing charges do not apply

for pneumococcal pneumonia or influenza virus vaccines; costsharing charges do apply for hepatitis B vaccines.

Ambulance services

Medicare pays for ambulance services provided certain conditions

are met. The services must be medically necessary and other methods of transportation must be contraindicated. Ambulance services

are currently paid on the basis of reasonable costs when such services are provided by a hospital; otherwise the payment is based on

reasonable charge screens developed by individual carriers based

on local billings (which may take a variety of forms). Based on

168

these local billing methods, carriers develop screens for one or more

of the following four main billing methods: (1) a single all inclusive

charge reflecting all services, supplies, and mileage; (2) one charge

reflecting all services and supplies, with separate charge for mileage; (3) one charge for all services and mileage, with separate

charges for supplies; and (4) separate charges for services, mileage,

and supplies. Within each broad payment method, additional distinctions are made based on whether the service is basic life support service or advanced life support, whether emergency or nonemergency transport was used, and whether specialized advanced

life services were rendered.

The Balanced Budget Act (BBA) of 1997 specified that the reasonable cost and charge limits would apply through 1999, with annual increases equal to the Consumer Price Index (CPI) minus 1.0

percentage point. A fee schedule was to be implemented in 2000.

The aggregate amount of payments in 2000 could not exceed what

would be paid if the interim reductions remained in effect in that

year. Annual increases in subsequent years would equal the CPI

increase, except that in 2001 and 2002 there would be a 1.0-

percentage point reduction. Implementation of the fee schedule has

been delayed until at least 2001.

END-STAGE RENAL DISEASE SERVICES

COVERAGE

Medicare’s End-Stage Renal Disease (ESRD) Program established in the Social Security Amendments of 1972, covers individuals who suffer from ESRD if they are: (1) fully insured for OldAge and Survivors Insurance benefits; (2) entitled to monthly Social Security benefits; or (3) spouses or dependents of individuals

described in (1) or (2). Such persons must be medically determined

to be suffering from ESRD and must file an application for benefits.

Benefits for qualified ESRD beneficiaries include all part A and

part B medical items and services. ESRD beneficiaries are automatically enrolled in the part B portion of Medicare and must pay

the monthly premium for such protection. Medicare+Choice (M+C)

plans may provide ESRD benefits to the Medicare beneficiary who

has been enrolled in an M+C organization and subsequently develops ESRD. However, beneficiaries with ESRD cannot enroll in an

M+C plan.

Table 2–25 shows expenditures, number of beneficiaries, and the

average expenditure per person for all persons with ESRD (including the aged and disabled) from 1974 through 2005. Total projected

program expenditures for the Medicare ESRD Program for fiscal

year 2000 are estimated at $10.7 billion. In fiscal year 2000, there

are an estimated 320,005 beneficiaries, including successful transplant patients and persons entitled to Medicare on the basis of disability who also have ESRD.

169

TABLE 2–25.—END-STAGE RENAL DISEASE MEDICARE BENEFICIARIES AND PROGRAM

EXPENDITURES, 1974–2005

Fiscal year

Expenditures

(HI & SMI) in

millions of dollars

HI beneficiaries Per person cost

1974 ........................................................... $229 15,993 $14,319

1975 ........................................................... 361 22,674 15,921

1976 ........................................................... 512 28,941 17,691

1977 ........................................................... 641 35,889 17,861

1978 ........................................................... 800 43,482 18,398

1979 ........................................................... 1,009 52,636 19,169

1980 ........................................................... 1,245 54,725 22,750

1981 ........................................................... 1,464 61,487 23,810

1982 ........................................................... 1,640 69,267 23,676

1983 ........................................................... 1,984 78,361 25,319

1984 ........................................................... 2,325 87,609 26,538

1985 ........................................................... 2,835 96,965 29,237

1986 ........................................................... 3,165 106,568 29,699

1987 ........................................................... 3,490 117,020 29,824

1988 ........................................................... 3,998 128,075 31,216

1989 ........................................................... 4,653 140,324 33,159

1990 ........................................................... 5,251 154,575 33,971

1991 ........................................................... 5,634 170,718 33,003

1992 ........................................................... 6,115 182,826 33,445

1993 ........................................................... 7,059 201,168 35,091

1994 ........................................................... 7,902 220,972 35,758

1995 ........................................................... 8,751 239,056 36,608

1996 ........................................................... 9,634 256,096 37,620

1997 ........................................................... 9,841 271,880 36,198

1998 ........................................................... 9,943 287,589 34,573

1999 ........................................................... 9,880 303,476 32,557

2000 ........................................................... 10,748 320,005 33,585

2001 ........................................................... 11,580 337,351 34,327

2002 ........................................................... 12,316 355,488 34,645

2003 ........................................................... 13,257 374,769 35,374

2004 ........................................................... 14,242 395,953 35,969

2005 ........................................................... 15,351 415,597 36,938

Note.—Estimates for 1982–2005 are subject to revision by the Office of the Actuary, Office of Medicare and Medicaid Cost Estimates; projections for 1998–2005 are under the fiscal year 1996 budget assumptions.

Source: Health Care Financing Administration, Office of the Actuary.

When the ESRD Program was created, it was assumed that program enrollment would level out at about 90,000 enrollees by 1995.

That mark was passed several years ago, and no indication exists

that enrollment will stabilize soon.

Table 2–26 shows that new enrollment for all Medicare beneficiaries receiving ESRD services grew at an average annual rate

of 4.6 percent from 1992 to 1998. Most of the growth in program

participation is attributable to growth in the numbers of elderly

people receiving services and growth in the numbers of more seriously ill people entering treatment. Table 2–26 shows the greatest

TABLE 2–26.—MEDICARE END-STAGE RENAL DISEASE PROGRAM INCIDENCE BY AGE, SEX, RACE, AND PRIMARY DIAGNOSIS, 1992–98

Age, sex, race, and primary

diagnosis

Number of new enrollees Percent

change

1997–98

Ave

nua

c

1

1992 1993 1994 1995 1996 1997 1998

Age:

Under 15 years .............................. 410 428 444 465 428 373 342

¥8.3

15–24 years ................................... 1,359 1,301 1,298 1,351 1,288 1,099 1,093

¥0.6

25–34 years ................................... 3,545 3,562 3,638 3,497 3,342 3,120 3,030

¥2.9

35–44 years ................................... 5,892 5,738 6,068 6,438 6,342 5,951 5,891

¥1.0 

45–54 years ................................... 7,575 7,856 8,968 9,327 9,448 9,589 9,880 3.0 55–64 years ................................... 11,429 11,561 12,843 13,266 13,220 13,753 14,140 2.8 65–74 years ................................... 16,530 17,147 18,832 18,640 19,550 21,472 21,712 1.1 75 years or older ........................... 10,443 11,065 12,571 13,072 14,605 17,405 18,694 7.4 

Sex:

Male ............................................... 30,401 31,430 34,434 35,221 36,878 39,021 40,100 2.8 Female ............................................ 26,782 27,228 30,228 30,835 31,345 33,741 34,682 2.8 

Race:

Asian .............................................. 1,317 1,441 1,684 1,509 1,570 1,415 1,531 8.2 African-American ........................... 16,621 17,115 18,675 19,162 19,790 20,451 21,145 3.4 White .............................................. 37,606 38,080 41,597 41,251 42,359 46,611 47,806 2.6 Native American ............................. 774 660 749 1,001 1,109 771 1,133 47.0 Other/unknown ............................... 865 1,362 1,957 3,133 3,395 3,514 3,167

¥9.9 

Ethnicity:

Non-Hispanic .................................. 1,302 1,400 1,980 45,103 59,796 64,188 66,085 3.0 Hispanic ......................................... 133 142 186 5,379 7,281 7,327 7,816 6.7 Unknown ......................................... 55,748 57,116 62,496 15,574 1,146 1,247 881

¥29.4

Primary diagnosis:

Diabetes ......................................... 21,292 21,751 25,289 27,679 29,486 31,962 33,359 4.4 

Glomerulonephritis ......................... 6,535 6,565 7,161 7,267 7,361 7,078 6,933

¥2.1 

Hypertension ................................... 17,685 17,447 19,755 17,677 17,947 19,601 20,297 3.6 Cystic/hereditary disease ............... 2,247 2,236 2,359 2,479 2,313 2,256 2,242

¥0.6 

Interstitial nephritis ....................... 2,532 2,314 2,646 2,918 2,870 2,784 2,925 5.1 Other .............................................. 3,388 3,551 3,876 4,802 5,072 5,488 5,501 0.2 Unknown ......................................... 2,623 2,393 2,459 2,446 2,645 2,787 2,991 7.3 Not reported ................................... 881 2,401 1,117 788 529 806 534

¥33.8

Total number of new enrollees 57,183 58,658 64,662 66,056 68,223 72,762 74,782 2.8 

Source: Health Care Financing Administration, Office of Clinical Standards and Quality.

172

rate of growth in program participation is in people over age 75,

at 10.2 percent, followed by people of ages 65–74 with a growth

rate of 4.6 percent. The largest rate of growth in primary causes

of people entering ESRD treatment was diabetes. People with diabetes frequently have multiple health problems, making treatment

for renal failure more difficult.

The rates of growth in older and sicker patients entering treatment for ESRD indicate a shift in physician practice patterns. In

the past, most of these people would not have entered dialysis

treatment because their age and severity of illness made successful

treatment for renal failure less likely. Although the reasons that

physicians have begun treating older and sicker patients are not

precisely known, it is clear that these practice patterns have resulted, and will continue to result, in steady growth in the number

of patients enrolling in Medicare’s ESRD Program.

ESRD is invariably fatal without treatment. Treatment for the

disease takes two forms: transplantation and dialysis. Although the

capability to perform transplants had existed since the 1950s, problems with rejection of transplanted organs limited its application as

a treatment for renal failure. The 1983 introduction of a powerful

and effective immunosuppressive drug, cyclosporin, resulted in a

dramatic increase in the number of transplants being performed

and the success rate of transplantation.

Table 2–27 indicates that a total of 13,272 kidney transplants

were performed in Medicare-certified U.S. hospitals in 1998. Despite the significant increases in the number and success of kidney

transplants, transplantation is not the treatment of choice for all

ESRD patients. A chronic, severe shortage of kidneys available for

transplantation now limits the number of patients who can receive

transplants. Even absent a shortage of organs, some patients are

not suitable candidates for transplants because of their age, severity of illness, or other complicating conditions. Finally, some ESRD

patients do not want an organ transplant.

For all of these reasons, dialysis is likely to remain the primary

treatment for ESRD. Dialysis is an artificial method of performing

the kidney’s function of filtering blood to remove waste products.

There are two types of dialysis: hemodialysis and peritoneal dialysis. In hemodialysis, still the most common form of dialysis, blood

is removed from the body, filtered and cleansed through a dialyzer,

sometimes called an artificial kidney machine, before being returned to the body. There are three types of peritoneal dialysis.

Intermittent peritoneal dialysis and continuous cycling peritoneal

dialysis (CCPD) requires the use of a machine while continuous

ambulatory peritoneal dialysis does not require the use of a machine. Under peritoneal dialysis, filtering takes place inside the

body by inserting dialysate fluid through a permanent surgical

opening in the peritoneum (abdominal cavity). Toxins filter into the

dialysate fluid and are then drained from the body through the surgical opening. Hemodialysis is usually performed three times a

week, Intermittent peritoneal dialysis is performed once or twice a

week, while continuous ambulatory peritoneal dialysis and CCPD

require daily exchanges of dialysate fluid.

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TABLE 2–27.—TOTAL KIDNEY TRANSPLANTS PERFORMED IN MEDICARE-CERTIFIED U.S.

HOSPITALS, 1979–98

Calendar year Total

transplants

Living donor Cadaveric donor

Number Percent Number Percent

1979 ........................... 4,189 1,186 28 3,003 72

1980 ........................... 4,697 1,275 27 3,422 73

1981 ........................... 4,883 1,458 30 3,425 70

1982 ........................... 5,358 1,677 31 3,681 69

1983 ........................... 6,112 1,784 29 4,328 71

1984 ........................... 6,968 1,704 24 5,364 76

1985 ........................... 7,695 1,876 24 5,819 76

1986 ........................... 8,976 1,887 21 7,089 79

1987 ........................... 8,967 1,907 21 7,060 79

1988 ........................... 8,932 1,816 20 7,116 80

1989 ........................... 8,899 1,893 21 7,006 78

1990 ........................... 9,796 2,091 21 7,705 79

1991 ........................... 10,026 2,382 24 7,644 76

1992 ........................... 10,115 2,536 25 7,579 75

1993 ........................... 10,934 2,828 26 8,106 74

1994 ........................... 11,312 3,000 26 8,312 73

1995 ........................... 11,902 3,416 29 8,426 71

1996 ........................... 12,198 3,084 25 8,495 70

1997 ........................... 12,427 3,210 26 8,512 68

1998 ........................... 13,272 3,453 26 8,752 70

Source: Health Care Financing Administration, Office of Clinical Standards and Quality.

REIMBURSEMENT

Medicare reimbursement for facility-based dialysis services provided by hospital-based and independent facilities are paid at prospectively determined rates for each dialysis treatment session.

The rate, referred to as a composite rate, is derived from area wage

differences and audited cost data adjusted for the national proportion of patients dialyzing at home versus in a facility. Adjustments

are made to the composite rate for hospital-based dialysis facilities

to reflect higher overhead costs.

Beneficiaries electing home dialysis may choose either to receive

dialysis equipment, supplies, and support services directly from the

facility with which the beneficiary is associated (method I) or to

make independent arrangements for equipment, supplies, and support services (method II). Under method I, the equipment, supplies,

and support services are included in the facility’s composite rate.

Under method II, payments are made on the basis of reasonable

charges and limited to 100 percent of the median hospital composite rate, except for patients on CCPD, in which case the limit is 130

percent of the median hospital composite rate.

Typically, neither the composite rate nor the reasonable charge

payment for method II is routinely updated. To the extent that kidney transplantation services are inpatient hospital services, they

are subject to the Medicare PPS. There is no specific update policy

for reasonable costs of kidney acquisition, and 100 percent of reaVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00173 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.002 WAYS3 PsN: WAYS3
174

sonable costs is reimbursed. However, the composite rate for renal

dialysis was updated in the Medicare Balanced Budget Refinement

Act (BBRA) of 1999 (Public Law 106–113). The act increased the

composite rate by 1.2 percent above the revised composite rate that

was in effect in 1999. In fiscal year 2000, the composite rate is

$132 for hospitals and $128 for freestanding facilities, following an

additional increase of 1.2 percent in the rates in effect in 1999.

MEDICARE+CHOICE

Medicare has a longstanding history of offering its beneficiaries

an alternative to the traditional fee-for-service program, beginning

with private health plans contracts in the 1970s and the Medicare

Risk Contract Program in the 1980s. Then, in 1997, Congress

passed BBA 1997 (Public Law 105–33), replacing the Risk Contract

Program with the new Medicare+Choice (M+C) Program. The M+C

Program established new rules for beneficiary and plan participation, along with a new payment methodology. In addition to controlling costs, the M+C Program was also designed to expand

health plans to markets where access to managed care plans was

limited or nonexistent and to offer new types of health plans. Most

recently, Congress enacted legislation in order to address some of

the issues arising from the BBA changes. BBRA 1999 (Public Law

106–33) changed the M+C Program in an effort to make it easier

for Medicare beneficiaries and plans to participate in the program.

By March 2000, M+C plans were available to about 72 percent

of the 39 million Medicare beneficiaries, and about 16 percent of

them chose to enroll in one of over 260 available M+C plans. The

rapid growth rate of Medicare managed care enrollment in the

1990s has leveled off since the implementation of the M+C Program, and there was even a small decline in enrollment in 2000.

Despite this recent trend, the Congressional Budget Office (CBO)

projects that M+C enrollment will almost double by 2010, covering

31 percent of the Medicare population.

In order to increase enrollment in Medicare managed care and

to allow beneficiaries to better meet their health care needs, the

M+C Program offers a diverse assortment of managed care plans.

However achieving the goals of the M+C Program has been difficult, in part because the goal to control Medicare spending may

have dampened interest by managed care entities in developing

new markets, adding plan options, and in maintaining their current markets (see appendix E for further information about the

M+C Program).

SELECTED ISSUES

UTILIZATION AND QUALITY CONTROL PEER REVIEW ORGANIZATIONS

The Medicare Utilization and Quality Control Peer Review Organization (PRO) Program was established by Congress under the

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA, Public

Law 97–35). Building on the former Professional Standards Review

Organizations, the new PROs were charged by the 1982 law with

reviewing services furnished to Medicare beneficiaries to determine

if the services met professionally recognized standards of care, were

175

medically necessary, and delivered in the most appropriate setting.

Major changes were made to the PRO Program by the Social Security Act Amendments of 1983 (Public Law 98–21) and subsequent

budget reconciliation acts. Most PRO review is focused on inpatient

hospital care. However, there is limited PRO review of ambulatory

surgery, postacute care, and services received from Medicare health

maintenance organizations (HMOs).

There are currently 53 PRO areas, incorporating the 50 States

and the territories. Organizations eligible to become PROs include

physician-sponsored and physician-access organizations. In limited

circumstances, Medicare fiscal intermediaries may also be eligible.

Physician-sponsored organizations are composed of a substantial

number of licensed physicians practicing in the PRO review area

(for example, a medical society); physician access organizations are

those which have available to them sufficient numbers of licensed

physicians so that adequate review of medical services can be assured. Such organizations obtain PRO contracts from the Secretary

of the U.S. Department of Health and Human Services (DHHS)

through a competitive proposal process. Each organization’s proposal is evaluated by HCFA for technical merit using specific criteria that are quantitatively valued. Priority is given to physiciansponsored organizations in the evaluation process. Effective October 1, 1999, all 53 PROs are operating under the sixth round of

contracts (also referred to as the ‘‘sixth scope of work’’).

In general, each PRO has a medical director and a staff of nurse

reviewers (usually registered nurses), data technicians, and other

support staff. In addition, each PRO has a board of directors, comprised of physicians and, generally, representatives from the State

medical society, hospital association, and State medical specialty

societies. The Omnibus Budget Reconciliation Act of 1986 (Public

Law 99–509) requires each board to have a consumer representative. Because the board is usually consulted before a case is referred by the PRO to the DHHS inspector general for sanction, it

assumes a major role in the PRO review process. Each PRO also

has physician advisors who are consulted on cases in which there

is a question regarding the nurse reviewer’s referral. Only physician advisors can make initial determinations about services furnished or proposed to be furnished by another physician.

PROs are paid by Medicare on a cost basis for their work. Outlays for PROs in fiscal year 1998 and in fiscal year 1999 totaled

$221.6 million and $213.4 million, respectively, with fiscal year

2000 outlays projected to be $484.9 million. Spending varies considerably from year to year depending on where the PROs are in their

contract cycles. HCFA has indicated that actual outlays for fiscal

year 2000 may be considerably lower than their current projection.

Currently HCFA uses an allocation of 80 percent from the Medicare Hospital Insurance (HI) Trust Fund and 20 percent from the

Supplementary Medical Insurance (SMI) Trust Fund to finance

PRO activity.

The PRO review process combines both utilization and quality review. In conducting utilization review, the PRO determines whether the services provided to a Medicare patient were necessary, reasonable, and appropriate to the setting in which they were provided. Although some utilization review is done on a prospective

176

basis, the bulk of the reviews are done retrospectively. When a

PRO determines that the services provided were unnecessary or inappropriate (or both), it issues a payment denial notice. The providers, the physicians, and the patient are given an opportunity to request reconsideration of the determination.

The PRO checks for indications of poor quality of care as it is

conducting utilization review. If a PRO reviewer detects a possible

problem, further inquiry is made into the case. If it is determined

that the care was of poor quality, the PRO must take steps to correct the problem. Specific sanctions are required if the PRO determines that the care was grossly substandard or if the PRO has

found that the provider or the physician has a pattern of substandard care. In addition, under section 9403 of COBRA (Public

Law 99–272), as amended by Public Law 101–239, authority exists

for the PROs to deny payments for substandard quality care. This

provision, however, has never been used.

Each of the contracts between DHHS and the PROs must contain

certain similar elements outlined in a document known as the

Scope of Work. Under the third and previous scopes of work, PRO

review was centered on case-by-case examinations of individual

medical records, selected primarily on a sample basis. This approach to medical review was criticized by the Institute of Medicine

and others as being costly, confrontational, and ineffective. The

fourth scope of work incorporated a new review strategy called the

Health Care Quality Improvement Initiative. PROs were required

to use explicit, more nationally uniform criteria to examine patterns of care and outcomes using detailed clinical information on

providers and patients. Instead of focusing on unusual deficiencies

in care, the PROs were instructed to focus on persistent differences

between actual indications of care and outcomes from those patterns of care and outcomes considered achievable. HCFA believed

that this approach would encourage a continual improvement of

medical practice in a way that would be viewed by physicians and

providers as educational and not adversarial.

The fifth scope of work similarly emphasized continuous quality

improvement. Sample case reviews, other than those mandated by

law (such as those relating to hospital notices of noncoverage and

to beneficiary complaints) are no longer required. Instead, each

PRO is required to conduct 4–18 quality improvement projects each

year, depending on the size of their beneficiary populations.

The sixth scope of work includes national and local quality improvement projects which address clinical priorities that are designed to improve the health status of Medicare beneficiaries. The

intent is to increase the PRO’s experience in collaborating with providers, practitioners, plans, purchasers, and beneficiaries to improve quality of care, test quality indicators and intervention strategies. One more controversial task has also been included in this

most recent scope of work. PROs will implement a Payment Error

Prevention Program to identify incorrect payments that result from

billing errors. This is a cooperative program and does not include

punitive actions. In the first year of the contract, PROs will implement review activities to identify unnecessary admissions and

miscoded diagnosis-related group (DRG) assignments.

177

SECONDARY PAYER

Generally, Medicare is the ‘‘primary payer,’’ that is, it pays

health claims first, with an individual’s private or other public

health insurance filling in some or all of Medicare’s coverage gaps.

However, in certain cases, the individual’s other coverage pays

first, while Medicare is the secondary payer. This phenomenon is

referred to as the Medicare Secondary Payer Program.

An employer (with 20 or more employees) is required to offer

workers age 65 and older (and workers’ spouses age 65 and older)

the same group health insurance coverage as is made available to

other employees. Workers have the option of accepting or rejecting

the employer’s coverage. If the worker accepts the coverage, the

employer’s plan is primary for the worker and/or spouse who is

over age 65; Medicare becomes the secondary payer. Employers

may not offer a plan that circumvents this provision.

Similarly, a group health plan, offered by a large employer with

100 or more employees, is the primary payer for employees or their

dependents who are on the Medicare Disability Program. The provision applies only to persons covered under the group health plan

because the employee (generally the spouse of the disabled person)

is in ‘‘current employment status’’ (i.e., is an employee or is treated

as an employee by the employer).

Secondary payer provisions also apply to ESRD individuals with

employer group health plans (regardless of employer size). Prior to

enactment of BBA 1997, the group health plan was the primary

payer for 18 months for persons who became eligible for Medicare

ESRD benefits. The employer’s role as primary payer was limited

to a maximum of 21 months (18 months plus the usual 3-month

waiting period for Medicare ESRD coverage). The BBA extended

the application of the secondary payer provisions for the ESRD

population from 18 to 30 months. This applies to items and services

furnished on or after August 5, 1997 for periods beginning on or

after February 5, 1997.

Medicare is also the secondary payer when payment has been

made, or can reasonably be expected to be made, under workers’

compensation, automobile medical liability, all forms of no-fault insurance, and all forms of liability insurance.

The law authorizes a data match program which is intended to

identify potential secondary payer situations. Medicare beneficiaries are matched against data contained in Social Security Administration and Internal Revenue Service files to identify cases in

which a working beneficiary (or working spouse) may have

employer-based health insurance coverage. Cases of previous incorrect Medicare payments are identified and recoveries are attempted. The BBA clarifies that recoveries can be initiated up to

3 years after the date the service was furnished. Further, recoveries may be made from third-party administrators except where

such administrators cannot recover amounts from the employer or

group health plan.

Table 2–28 shows savings attributable to these Medicare secondary payer provisions. In fiscal year 1998, combined Medicare part

A and B savings are estimated at $3.4 billion.

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TABLE 2–28.—MEDICARE SAVINGS ATTRIBUTABLE TO SECONDARY PAYER PROVISIONS

BY TYPE OF PROVISION, FISCAL YEARS 1988–98

[In millions of dollars]

Year and Medicare part

Workers’

compensation

Working

aged

End-stage

renal diseaseAutomobile Disability Total

1988:

Part A ................. $110.1 $786.7 $88.4 $149.6 $275.5 $1,410.3

Part B ................. 18.1 313.8 20.2 22.3 93.5 467.9

Total ............... 128.2 1,100.5 108.6 171.9 369.0 1,878.2

1989:

Part A ................. 99.4 867.7 75.0 179.6 399.3 1,621.0

Part B ................. 27.5 337.1 25.1 28.2 137.0 554.9

Total ............... 126.9 1,204.8 100.1 207.8 536.3 2,175.9

1990:

Part A ................. 120.9 981.6 144.1 220.1 498.4 1,965.1

Part B ................. 21.6 325.8 21.5 26.4 123.2 518.5

Total ............... 142.5 1,307.4 165.6 246.5 621.6 2,483.6

1991:

Part A ................. 107.4 932.7 144.9 235.6 526.6 1,947.2

Part B ................. 21.2 417.5 40.2 26.6 186.2 691.7

Total ............... 128.6 1,350.2 185.1 262.2 712.8 2,638.9

1992:

Part A ................. 118.9 1,044.9 140.8 233.9 600.9 2,139.4

Part B ................. 17.3 398.3 37.4 34.5 182.9 670.4

Total ............... 136.2 1,443.2 178.2 268.4 783.8 2,809.8

1993:

Part A ................. 100.4 1,073.1 133.6 239.6 657.8 2,204.5

Part B ................. 11.3 392.2 32.8 28.9 192.3 657.5

Total ............... 111.7 1,465.3 166.4 268.5 850.1 2,862.0

1994:

Part A ................. 96.5 1,101.1 130.2 265.9 682.3 2,276.0

Part B ................. 13.0 398.1 31.8 32.7 211.8 687.4

Total ............... 109.5 1,499.2 162.0 298.6 894.1 2,963.4

1995:

Part A ................. 107.0 1,068.0 142.0 295.5 728.9 2,341.4

Part B ................. 10.5 360.3 39.0 40.2 215.5 665.5

Total ............... 117.5 1,428.3 181.0 335.7 944.4 3,006.9

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TABLE 2–28.—MEDICARE SAVINGS ATTRIBUTABLE TO SECONDARY PAYER PROVISIONS

BY TYPE OF PROVISION, FISCAL YEARS 1988–98—Continued

[In millions of dollars]

Year and Medicare part

Workers’

compensation

Working

aged

End-stage

renal diseaseAutomobile Disability Total

1996:

Part A ................. 93.6 1,062.5 133.4 335.0 728.5 2,353.0

Part B ................. 11.1 295.1 34.3 50.1 196.4 586.9

Total ............... 104.7 1,357.6 167.6 385.0 924.9 2,939.9

1997:

Part A ................. 99.7 1,046.5 114.3 366.8 697.5 2,324.9

Part B ................. 11.8 276.4 32.4 63.7 178.9 563.2

Total ............... 111.5 1,322.9 146.7 430.6 876.3 2,888.0

1998:

Part A ................. 96.7 1,303.0 108.1 219.2 810.8 2,683.9

Part B ................. 11.6 364.3 35.0 28.0 238.4 707.7

Total ............... 108.3 1,667.3 143.1 247.1 1,049.3 3,391.6

Note.—Totals may not add due to rounding.

Source: Health Care Financing Administration, Bureau of Program Operations.

SUPPLEMENTING MEDICARE COVERAGE

Most beneficiaries depend on some form of private or public coverage to supplement their Medicare coverage. In 1996, only about

11.3 percent of beneficiaries relied solely on the traditional fee-forservice Medicare Program for protection against the costs of care;

an additional 8.0 percent were enrolled in managed care organizations.

The majority of the Medicare population (62.5 percent in 1996)

have private supplemental coverage. This private insurance protection may be obtained through a current or former employer (29.9

percent had such coverage in 1996). It may also be obtained

through an individually-purchased policy, commonly referred to as

a ‘‘Medigap’’ policy (28.4 percent had these plans in 1996). Some

persons have both (4.2 percent in 1996). In addition, a smaller percentage (about 16.5 percent in 1996) have Medicaid coverage; a

small group (1.7 percent in 1996) have supplemental coverage from

one of a variety of other public sources (such as the military) (table

2–29).

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TABLE 2–29.—SUPPLEMENTARY HEALTH INSURANCE FOR THE MEDICARE POPULATION,

1996

Type of coverage Number of

Persons

Persons

(in percent)

Medicare only .............................................................................. 7,609.0 19.3

Fee-for-service population ............................................... 4,462.3 11.3

Managed care population ................................................ 3,146.7 8.0

Medigap ..................................................................................... 11,180.4 28.4

Employer-sponsored coverage ................................................... 11,768.3 29.9

Both private types ..................................................................... 1,667.9 4.2

Medicaid, total .......................................................................... 6,494.1 16.5

Full coverage ..................................................................... 3,268.6 8.3

Qualified Medicare beneficiaries ....................................... 2,925.7 7.4

Specified low-income Medicare beneficiaries ................... 299.9 0.8

Other ........................................................................................... 665.4 1.7

Total ............................................................................. 39,385.1 100.0

Source: Eppig, et al., 1997.

Medigap

Medigap policies offer coverage for Medicare’s deductibles and coinsurance and for some services not covered by Medicare. Premiums vary widely by type of coverage, geographic location and

whether premiums are community-rated or based on a beneficiary

age. The Omnibus Budget Reconciliation Act of 1990 provided for

a standardization of Medigap policies; the intention was to enable

consumers to better understand policy choices and to prevent marketing abuses. Implementing regulations generally limit the number of different types of Medigap plans that can be sold in a State

to no more than 10 standard benefit plans, known as ‘‘plan A’’ to

‘‘plan J.’’ The standardized plan A covers a core benefits package.

Each of the other nine includes the core package plus a different

combination of additional benefits. Only plan H, plan I, and plan

J offer some drug coverage. Beneficiaries who purchased policies

prior to the standardization requirement may renew these policies;

however, policies issued after July 1992 must be one of the 10

standard plans.

The law contains certain requirements which guarantee the ability of beneficiaries to enroll in Medigap plans under certain specified conditions. These guaranteed issue provisions, which are outlined below, were significantly expanded by the Balanced Budget

Act of 1997.

Six-month open enrollment.—Federal law establishes an open enrollment period for the aged. All insurers offering Medigap policies

are required to offer open enrollment for 6 months from the date

a person first enrolls in part B (generally when the enrollee turns

65). During this time an insurer cannot deny the issuance, or discriminate in the pricing of a policy because of an individual’s medical history, health status, or claims experience This requirement is

known as guaranteed open enrollment.

There is no guaranteed open enrollment period for the nonaged

disabled population. However, when a disabled person turns 65,

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that individual has the same open enrollment guarantee as other

aged persons.

Guaranteed issue.—The law guarantees issuance of specified

Medigap policies (without an exclusion based on a preexisting condition) for certain persons whose previous supplementary coverage

was terminated. Guaranteed issue also applies to certain persons

who elect to try out an M+C plan but subsequently disenroll from

such plan. In these cases, the insurer is prohibited from discriminating in the pricing of the Medigap policy on the basis of the individual’s health status, claims experience, receipt of health care or

medical condition. In general, this right must be exercised within

63 days of termination of other enrollment. In the case of terminating M+C plans, beneficiaries may elect to obtain the Medigap policy within 63 days of the notice of termination (rather than within

63 days of the actual termination date).

Certain requirements enable persons whose previous supplementary coverage was terminated to obtain Medigap coverage.

These provisions may be particularly important to persons whose

HMO terminates its participation in the M+C Program.

The following groups of persons whose coverage is involuntarily

terminated are guaranteed issue of any Medigap plan A, B, C, or

F that is sold to new enrollees by Medigap issuers in the State:

1. An individual enrolled under an employee benefits plan that

provides benefits supplementing Medicare and the plan terminates or ceases to provide such benefits;

2. A person enrolled with an M+C organization whose enrollment

is discontinued because the plan’s certification is terminated or

the organization no longer provides the plan in the individual’s

service area; the individual moves outside of the entity’s service area; or the individual elects termination due to cause; and

3. An individual enrolled under a Medigap policy if enrollment

ceases because: (i) of the bankruptcy or insolvency of issuer

and there is no provision under State law for continuation of

such coverage; (ii) the issuer violates a material provision; or

(iii) the issuer materially misrepresented the policy’s provisions.

Guaranteed issue protections also extend to certain persons who

elect to try out one of the options available under the M+C Program. An individual is guaranteed issuance of the Medigap policy

in which he or she was previously enrolled if the individual terminated enrollment in a Medigap policy, enrolled in an M+C organization or similar entity, and terminated such enrollment within 12

months. (If the same policy is no longer sold by the insurer, the individual is guaranteed issuance of Medigap plans A, B, C, or F.)

The guarantee only applies if the individual was never previously

enrolled in an M+C or similar plan.

One group of persons are guaranteed issuance of any Medigap

policy sold in the State. These are persons who, when they first become entitled to Medicare at age 65, enroll in an M+C plan and

disenroll from such plan within 12 months.

Preexisting condition exclusions.—At the time insurers sell a

Medigap policy, they are generally permitted to limit or exclude

coverage for services related to a preexisting health condition; such

preexisting condition exclusions cannot be imposed for more than

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6 months. However, preexisting limitations may not be imposed in

the following cases:

1. During the first 6-month open enrollment period, if on the date

of application, the individual had health insurance coverage

meeting the definition of ‘‘creditable coverage’’ under the

Health Insurance Portability and Accountability Act.

2. An individual who has met the preexisting condition limitation

in one Medigap policy. The individual does not have to meet

the requirement under a new policy for previously covered benefits; however, an insurer could impose exclusions for newly

covered benefits (for example, for prescription drugs if not covered under the previous policy).

3. Any individual who falls into one of the qualifying events categories discussed above under ‘‘Guaranteed Issue.’’ These include persons whose previous coverage was involuntarily terminated or persons who elect to try out Medicare+Choice.

The prohibition applies to persons who had coverage under a

prior policy for at least 6 months. If the individual has less than

6 months prior coverage, the policy must reduce the preexisting exclusion by the amount of the prior coverage.

The Balanced Budget Act (BBA) provides for high deductible

Medigap plans. Specifically, it added 2 plan types to the list of 10

standard Medigap plans. These offer the benefit package of either

plan F or plan J, except for the high deductible feature. The high

deductible was set at $1,500 in 1998 and 1999. In subsequent

years, it is increased by the Consumer Price Index (CPI). The beneficiary would be responsible for expenses up to this amount. The

2000 deductible is $1,530.

Employer-based policies

In 1996, employer-based policies covered 34 percent of Medicare

beneficiaries. Employer-based plans are typically more comprehensive than Medigap plans. Generally they are defined benefit plans

which may overlap significantly with Medicare benefits. As a result, employers use a variety of approaches to coordinate their

plans with Medicare (which is the primary payer for retirees). The

costs of coverage are generally shared by the employer and retiree.

In recent years, the percentage of employers offering retiree

health coverage for their Medicare retirees has dropped. Between

1993 and 1999, the number of large firms (with 500 or more employees) offering such coverage dropped from 40 percent to 28 percent (Foster Higgins, 1999).

In addition, many other employers are pursuing strategies to

lower their liabilities for retiree health costs. Some employers are

moving toward a defined contribution model for retiree health benefits. Others are using Medicare risk plans and other managed care

organizations to deliver services to their retirees.

Impact of supplemental insurance on Medicare spending

Medicare cost-sharing requirements are intended, in part, to encourage cost-conscious utilization. Insurance that supplements

Medicare by covering deductibles and coinsurance removes these

incentives. Many analyses have addressed how supplemental insurance affects beneficiaries’ use of Medicare-covered services and the

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cost of those services to Medicare. Typically, these studies have estimated that Medicare spending for beneficiaries with supplemental coverage are one-quarter to one-third higher, on average,

than expenditures for beneficiaries without such coverage.

A Physician Payment Review Commission analysis (Physician

Payment Review Commission, 1997) of the Medicare Current Beneficiary Survey found a similar effect: Medicare expenditures for

beneficiaries covered by supplemental insurance were about 30-percent higher than they were for those without such coverage. Subsequent analysis showed that the effect of secondary coverage on

Medicare expenditures differs, depending on the source of coverage.

Expenditures for beneficiaries having Medicare only are less than

75 percent of those for beneficiaries with Medigap. Spending for

beneficiaries with employer-provided benefits average only about

10 percent less (chart 2–1).

CHART 2–1. COMPARISON OF PROJECTED PER CAPITA SPENDING FOR AVERAGE

BENEFICIARIES, BY TYPE OF SUPPLEMENTAL INSURANCE AND YEAR

Note.—These spending levels represent the expected differences in outlays after other factors have been

taken into account.

Source: Physician Payment Review Commission analysis of data from the 1993 and 1995 Medicare Current Beneficiary Survey. The sample size for 1993 was 11,285 and the sample size for 1995 was 13,261.

Higher utilization among beneficiaries with supplemental insurance translates into increased Medicare costs because Medicare is

the primary payer for those services. The Medicare Current Beneficiary Survey analysis found that per capita expenditures for

Medicare beneficiaries with Medigap insurance were from $1,000 to

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$1,400 higher than those for beneficiaries with Medicare only. Per

capita spending for beneficiaries with employer-provided supplements were from $700 to $900 higher than those for beneficiaries

with no supplemental coverage.

These results reflect the difference in spending by source of insurance, once other factors have been considered. High service use

among beneficiaries with secondary insurance appears to be a consequence of having such insurance, presumably reflecting the reduced financial burden associated with using additional services.

Medicaid

Some low-income aged and disabled Medicare beneficiaries are

also eligible for full or partial coverage under Medicaid. Persons entitled to full Medicaid protection generally have all of their health

care expenses met by a combination of Medicare and Medicaid. For

these ‘‘dual eligibles’’ Medicare pays first for services both programs cover. Medicaid picks up Medicare cost-sharing charges and

provides protection against the costs of services generally not covered by Medicare. Of particular importance for this population is

coverage for prescription drugs and long-term care services.

Several population groups are entitled to more limited Medicaid

protection. These include qualified Medicare beneficiaries (QMBs),

specified low-income Medicare beneficiaries (SLMBs), and certain

qualified individuals. Persons meeting the qualifications for coverage under one of these categories, but not otherwise eligible for

Medicaid, are not entitled to the regular Medicaid benefits package.

Instead, they are entitled to have Medicaid make specified payments in their behalf.

Qualified Medicare beneficiaries.—State Medicaid Programs are

required to make Medicare cost-sharing assistance available to

QMBs. A QMB is an aged or disabled Medicare beneficiary who

has: (1) income at or below the Federal poverty line ($8,592 for a

single, $11,496 for a couple in 2000, including the $20 per month

disregard); and (2) resources below 200 percent of the resources

limit set for the Supplemental Security Income (SSI) Program (the

QMB resource limits are $4,000 for an individual and $6,000 for a

couple). Certain items, such as an individual’s home and household

goods, are excluded from the calculation.

Persons meeting the QMB definition are entitled to Medicare

part A. Included is the relatively small group of aged persons who

are not automatically entitled to part A coverage, but who have

bought part A protection by paying a monthly premium. Not included are working disabled persons who have exhausted Medicare

part A entitlement but who have extended their coverage by payment of a monthly premium.

Medicaid is required to pay Medicare premiums and cost-sharing

charges for the QMB population as follows: (1) part B monthly premiums; (2) part A monthly premiums paid by the limited number

of persons not automatically entitled to part A protection; (3) coinsurance and deductibles under part A and part B including the

Medicare hospital deductible, the part B deductible, and the parts

A and B coinsurance; and (4) coinsurance and deductibles that

M+C plans charge their enrollees.

185

Payment of QMB benefits

States are required to pay part A and part B premiums in full

for the QMB population. They are also required to pay the requisite deductibles and coinsurance, though the actual amount of

the payment may vary. State Medicaid Programs frequently have

lower payment rates for services than those applicable under Medicare. Federal law permits States to either: (1) pay the full Medicare

deductible and coinsurance amounts; or (2) only pay those amounts

to the extent that the Medicare provider or supplier has not received the full Medicaid rate for the service.

All States have buy-in agreements with the Secretary that allow

them to enroll their QMB population in part B. Some States have

also elected to include payment of part A premiums under their

buy-in agreements. Payment of premiums under a buy-in agreement is advantageous to the State because premiums paid through

this method are not subject to delayed enrollment penalties which

might otherwise be applicable in the case of delayed enrollment or

reenrollment.

The buy-in agreements for the QMB population are in addition

to the traditional buy-in agreements that States have for other population groups. Under these traditional buy-in agreements, States

enroll in Medicare part B persons who are eligible for both Medicare and Medicaid. As a minimum, States may limit buy-in coverage to persons receiving cash assistance; alternatively, they may

add some or all categories of other persons who are eligible for both

programs.

Specified low-income Medicare beneficiaries.—States are also required to pay Medicare part B premiums for SLMBs. These are

persons meeting the QMB criteria except that their income is

slightly over the QMB limit. The SLMB income limit is 120 percent

of the Federal poverty line. In 2000 this is $10,260 for a single and

$13,740 for a couple (including the $20 per month disregard). Medicaid protection is limited to payment of the Medicare part B premiums, unless the beneficiary is otherwise eligible for Medicaid.

Qualifying individuals.—BBA 1997 required State Medicaid Programs, effective January 1, 1998 through December 31, 2002, to

pay part B premiums for beneficiaries with incomes up to 135 percent of poverty. These persons are referred to as QI–1s. For Medicare beneficiaries with incomes between 135 and 175 percent of

poverty, State Medicaid Programs are required to cover that portion of the Medicare part B premium attributable to the transfer

of home health visits from part A to part B. These persons are referred to as QI–2s.

The Federal Government will pay 100 percent of the costs associated with expanding Medicare part B premium assistance from 120

to 135 percent of poverty, as well as the extra premium cost attributable to the home health transfer for persons with incomes between 135 and 175 percent of poverty. To cover these costs, the

Secretary is required to provide for allocations to States based on

the sum of: (1) a State’s number of Medicare beneficiaries with incomes between 135 and 175 percent of poverty, and (2) twice the

number of Medicare beneficiaries with incomes between 120 and

135 percent of poverty, relative to the sum for all eligible States.

Total amounts available for allocations are $200 million for fiscal

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year 1998, $250 million for fiscal year 1999, $300 million for fiscal

year 2000, $350 million for fiscal year 2001, and $400 million for

fiscal year 2002. The Federal matching rate for each participating

State will be 100 percent up to the State’s allocation. If a State exceeds its allocation, the matching rate on the excess is zero. Payments are to be made from Medicare part B for the costs of this

program.

Qualified disabled and working individuals (QDWIs).—Medicaid

is authorized to provide partial protection against Medicare part A

premiums for QDWIs. QDWIs are persons who were previously entitled to Medicare on the basis of a disability, who lost their entitlement based on earnings from work, but who continue to have the

disabling condition. Medicaid is required to pay the Medicare part

A premium for such persons if their incomes are below 200 percent

of the Federal poverty line, their resources are below 200 percent

of the SSI limit, and they are not otherwise eligible for Medicaid.

States are permitted to impose a premium, based on a sliding

scale, for individuals between 150 and 200 percent of poverty.

Data

As of July 1998, Medicare reported that there were 331,924

Medicare part A beneficiaries for whom QMB payments for part A

premiums were being made. As of the same date, States reported

a total of 5,109,228 part B buy-ins of which 2,421,298 were separately identified as QMBs and 272,565 were separately identified

as SLMBs (table 2–30). However, these numbers are low due to reporting problems. The QMB and SLMB numbers include persons

who were eligible for the full Medicaid benefit package. No QMBonly or SLMB-only number is available. Nationwide there were 18

QDWIs in May 1997; this information is not broken down by State.

TABLE 2–30.—NUMBER OF QUALIFIED MEDICARE BENEFICIARIES, SPECIFIED LOWINCOME MEDICARE BENFICIARIES, AND STATE BUY-INS BY JURISDICTION, 1998

State Part A QMBs Part B buy-ins Part B QMBs Part B SLMBs

Alabama ............................ 3,315 121,990 30,575 8,649

Alaska ................................ 584 7,093 0 16

Arizona ............................... 451 51,141 32,763 1,944

Arkansas ............................ 3,708 78,514 20,966 4,792

California ........................... 94,202 776,832 377,822 10,774

Colorado ............................ 512 52,175 11,930 0

Connecticut ....................... 2,465 51,335 40,737 3,961

Delaware ............................ 462 8,900 1,938 514

District of Columbia .......... 1,152 14,582 390 1,599

Florida ............................... 41,860 313,744 199,721 16,584

Georgia .............................. 6,181 171,047 47,531 10,631

Hawaii ............................... 4,783 19,226 4,434 147

Idaho ................................. 250 14,909 8,473 864

Illinois ................................ 3,401 145,976 111,933 13,928

Indiana .............................. 1,739 81,184 52,626 11,585

Iowa ................................... 1,176 49,844 34,802 7,033

Kansas ............................... 635 39,008 15,064 1,675

Kentucky ............................ 3,242 106,537 29,826 8,029

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TABLE 2–30.—NUMBER OF QUALIFIED MEDICARE BENEFICIARIES, SPECIFIED LOW-INCOME MEDICARE BENFICIARIES, AND STATE BUY-INS BY JURISDICTION, 1998—Continued

State Part A QMBs Part B buy-ins Part B QMBs Part B SLMBs

Louisiana ........................... 5,132 115,031 26,461 4,519

Maine ................................. 14 33,006 14,128 2,715

Maryland ............................ 6,387 61,669 43,784 2,154

Massachusetts .................. 14,885 138,796 116,511 11,465

Michigan ............................ 6,387 135,769 40,969 15,115

Minnesota .......................... 3,766 57,559 14,871 3,354

Mississippi ........................ 6,814 106,336 68,307 5,169

Missouri ............................. 666 81,841 60,047 7,615

Montana ............................ 426 11,882 9,188 1,472

Nebraska ........................... 1 18,029 7,727 785

Nevada .............................. 1,047 17,191 12,590 1,839

New Hampshire ................. 25 6,295 1,411 0

New Jersey ......................... 7,420 137,598 88,668 15,065

New Mexico ........................ 496 34,411 7,914 2,427

New York ........................... 253 363,331 169,511 1,187

North Carolina ................... 11,254 210,388 45,553 10,195

North Dakota ..................... 6 5,612 1,394 388

Ohio ................................... 6,389 180,172 72,377 7,333

Oklahoma .......................... 4,373 63,142 55,936 6,858

Oregon ............................... 40 51,392 27,329 3,697

Pennsylvania ..................... 15,903 179,295 113,357 10,595

Rhode Island ..................... 744 17,729 1,540 8

South Carolina .................. 1,793 104,111 85,020 5,729

South Dakota ..................... 759 12,791 4,508 1,388

Tennessee .......................... 7,642 171,653 73,825 2,219

Texas ................................. 42,979 339,648 96,543 18,763

Utah ................................... 140 14,900 10,147 1,474

Vermont ............................. 218 13,197 3,330 1,829

Virginia .............................. 2,939 108,427 42,957 6,450

Washington ........................ 5,144 89,419 26,461 6,478

West Virginia ..................... 3,560 43,019 38,503 3,911

Wisconsin .......................... 4,021 74,429 16,880 6,896

Wyoming ............................ 196 5,963 2,020 747

Outlying areas ................... 0 1,160 1 0

Total ..................... 331,924 5,109,228 2,421,298 272,565

Note.—Total part B buy-ins include part B QMBs, part B SLMBs, and QI–1s (not separately broken

out).

Source: Health Care Financing Administration, Office of Information Services.

LEGISLATIVE HISTORY, 1980–99

This section summarizes major Medicare legislation enacted into

law since 1996. Previous editions of the Green Book review legislation enacted before 1996.

The summary highlights major provisions; it is not a comprehensive list of all Medicare amendments. Included are provisions

which had a significant budget impact, changed program benefits,

188

modified beneficiary cost sharing, or involved major program reforms. Provisions involving policy changes are mentioned the first

time they are incorporated in legislation, but not necessarily every

time a modification is made. The descriptions include either the

initial effective date of the provision or, in the case of budget savings provisions, the fiscal years for which cuts were specified.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF

1996, PUBLIC LAW 104–1

Added new criminal health care fraud provisions, strengthened

existing civil and criminal fraud and abuse provisions and provided

funding for new antifraud programs (generally effective on enactment or January 1, 1997).

BALANCED BUDGET ACT (BBA) OF 1997, PUBLIC LAW 105–33

Hospitals

Froze PPS hospital and PPS-exempt hospitals and units and limited updates for fiscal years 1999–2002. Established a PPS for inpatient rehabilitation hospitals, effective beginning in fiscal year

2001. Rebased capital payment rates and provided for additional

reductions over the fiscal year 1997–2002 period. Reduced the indirect medical education payment from the current 7.7 percent to 5.5

percent by fiscal year 2001 and reformed direct graduate medical

education payments (generally effective on enactment or October 1,

1997).

Skilled nursing facilities

Provided for a phase in of a PPS that will pay a Federal per-diem

rate for covered SNF services (generally effective July 1, 1998).

Home health

Provided for the establishment of a PPS for home health services.

Provided for a reduction in per-visit cost limits prior to the implementation of the PPS, clarified the definitions of part-time and

intermittent care, and provided for a study of the definition of

homebound. Provided for the transfer of some home health costs

from part A to part B (prospective payment effective October 1,

1999, reduction in cost limits effective on enactment, definition

clarification effective October 1, 1997, and transfer of costs effective

January 1, 1998).

Hospice

Reduced the hospice payment update for each of fiscal years

1998–2002, and clarified the definition of hospice care (generally effective on enactment).

Physicians

Provided for use of a single conversion factor; replaced the volume performance standard with the sustainable growth rate; provided for phased-in implementation of resource-based practice expenses; and permitted use of private contracts under specified conditions (generally effective January 1, 1998).

189

Hospital outpatient departments

Extended reductions in payments for outpatient hospital services

paid on the basis of costs through December 1999 and established

a PPS for hospital outpatient departments (OPDs) for covered services beginning in 1999 (generally effective on enactment).

Other providers

Froze payments for laboratory services for fiscal years 1998–

2002; provided for establishment of a fee schedule in 2000 for payment for ambulance services (generally effective on enactment).

Beneficiary payments

Permanently set the part B premium at 25 percent of program

costs and expanded the premium assistance beginning in 1998

available under the Specified Low-Income Medicare Beneficiary

(SLMB) Program (effective on enactment).

Prevention initiatives

Authorized coverage for annual mammograms for all women over

40. Added coverage for screening pelvic exams, prostate cancer

screening tests, colorectal cancer screening tests, diabetes selfmanagement training services, and bone mass measurements for

certain high-risk persons (generally effective in 1998, except prostate cancer screening effective 2000).

Supplementary coverage

Provided for guaranteed issuance of specified Medigap policies

without a preexisting condition exclusion for certain continuously

enrolled aged individuals (effective July 1, 1998).

Competitive bidding

Provided for competitive bidding demonstrations for furnishing

part B services (not including physicians services) (effective on enactment).

Commissions

Established a 17-member National Advisory Commission on the

Future of Medicare (with appointments to be made by December 1,

1997). Established the Medicare Payment Advisory Commission replacing the Prospective Payment Assessment Commission and the

Physician Payment Review Commission (with appointments to be

made by September 30, 1997).

Medicare+Choice

Established a new part C of Medicare called Medicare+Choice

(M+C). This program is built on the existing Medicare Risk Contract Program which enabled beneficiaries to enroll, where available, in health maintenance organizations (HMOs) that contracted

with the Medicare Program. The M+C Program expands, beginning

in 1999, the private plan options that could contract with Medicare

to other types of managed care organizations (for example, preferred provider organizations and provider-sponsored organizations), private fee-for-service plans, and, on a limited demonstration basis, high deductible plans (called medical savings account

190

plans) offered in conjunction with medical savings accounts (effective on enactment).

BALANCED BUDGET REFINEMENT ACT (BBRA) OF 1999 (INCORPORATED IN CONSOLIDATED APPROPRIATIONS ACT OF 1999, PUBLIC

LAW 106–113)

Prospective payment system hospitals

Froze the indirect medical education adjustment at 6.5 percent

through fiscal year 2000, reduced the adjustment to 6.25 percent

in fiscal year 2001 and to 5.5 percent in fiscal year 2002 and subsequent years. Froze the reduction in the DSH adjustment to 3 percent in fiscal year 2001; changed the reduction to 4 percent in fiscal

year 2002. Changed the methodology for Medicare’s direct graduate

medical education payments to teaching hospitals to incorporate a

national average amount calculated using fiscal year 1997 hospitalspecific per-resident amounts. Increased the number of years that

would count as an initial period for child neurology residency training programs. Provided for the reclassification of certain counties

and areas for the purposes of Medicare reimbursement.

PPS-exempt hospitals

Adjusted the labor-related portion of the 75-percent cap to reflect

the wage differences in the hospitals’ area relative to the national

average. Increased the amount of continuous bonus payments to eligible long-term care and psychiatric providers from 1 percent to

1.5 percent for cost reporting periods beginning on or after October

1, 2000 and before September 30, 2001 and to 2 percent for cost

reporting periods beginning on or after October 1, 2001 and before

September 30, 2002. Required the Secretary to report on a

discharge-based PPS for long-term care hospitals which would be

implemented in a budget neutral fashion for cost reporting periods

beginning on or after October 1, 2002. Required the Secretary to

report on a per-diem-based PPS for psychiatric hospitals which

would be implemented in a budget neutral fashion for cost reporting periods beginning on or after October 1, 2002. Required the

Secretary base the PPS for inpatient rehabilitation hospitals on

discharges and incorporate functional related groups as the basis

for payment adjustments.

Rural providers

Permitted reclassification of certain urban hospitals as rural hospitals. Updated existing criteria used to designate outlying rural

counties as part of metropolitan statistical areas for the purposes

of Medicare’s hospital PPS. Changed certain requirements pertaining to Medicare’s Critical Access Hospital Program. Extended the

Medicare dependent hospital classification through fiscal year

2006. Permitted certain sole community hospitals to receive Medicare payments based on their hospital specific fiscal year 1996

costs. Increased the target amount for SCHs by the full market

basket amount for discharges occurring in fiscal year 2001.

191

Skilled nursing facilities

Increased, from April 1, 2000, until October 1, 2000, per-diem

payments by 20 percent for 15 resource utilization groups (RUGs)

under the PPS. Permitted payment under the Federal PPS rate for

agencies for which it is more advantageous than under the transition rates. Provided for payment beyond the designated PPS rate

for ambulance services for dialysis patients and for specific chemotherapy items and services, radioisotope services, and prosthetic

devices. Until October 1, 2001, fixed PPS per-diem rates at 50 percent of the facility-specific rate and 50 percent of the Federal rate

for facilities in which 60 percent of the patients are

immunocompromised.

Home health agencies

Delayed the 15-percent reduction in home health payments until

12 months after implementation of the PPS but, within 6 months

of implementation, required the Secretary to assess the need for

any reductions. Increased per-beneficiary limits by 2 percent for

older agencies; excluded DME from consolidated billing, and provided $10 per beneficiary to offset HHA costs for collecting outcome

and assessment information set (OASIS) data.

Hospice

Increased payment rates otherwise in effect under the hospice

PPS for fiscal year 2001 by 0.5 percent and for fiscal year 2002 by

0.75 percent, provided that these increases are not to be included

in the base on which subsequent increases will be computed.

Physicians

Made technical changes to limit oscillations in the annual update

to the conversion factor beginning in 2001 and provided that the

sustainable growth rate is calculated on a calendar year basis. Required the Secretary, in determining practice expense relative values, to establish by regulation a process under which the Secretary

would accept for use and would use, to the maximum extent practicable and consistent with sound data practices, data collected by

outside organizations and entities.

Hospital outpatient departments

Made seven major changes to Medicare payments under the hospital OPD PPS: (1) required the Secretary of the U.S. Department

of Health and Human Services (DHHS) to provide payments (within specified limits, and on a budget neutral basis) over and above

PPS payments for certain high cost (‘‘outlier’’) patients; (2) as a

transition to the PPS, for 2–3 years, on a budget neutral basis, required the Secretary of DHHS to provide ‘‘passthrough payments’’

to hospital OPDs above and beyond PPS payments for costs of certain ‘‘current innovative’’ and ‘‘new, high cost’’ devices, drugs, and

biologicals; (3) limited the cost range of items or services that are

included in any one PPS category and required the Secretary to review the PPS groups and amounts annually and to update them as

necessary; (4) as a transition to the PPS, through 2003, limited the

reduction in Medicare payments individual hospitals experience

due to the PPS; (5) provided special payments until 2004 for small,

192

rural hospitals to ensure that they receive no less under the outpatient PPS than they would have received under the prior system

and provided the same protection permanently for cancer hospitals;

(6) limited beneficiary copayments for outpatient care to no more

than the amount of the beneficiary deductible for inpatient care;

and (7) required that the pre-PPS payment base used as the budget

neutrality benchmark for the PPS include beneficiary coinsurance

amounts as paid under the pre-PPS system (i.e., 20 percent of hospital charges).

Therapy services

Suspended for 2 years (2001 and 2002) application of the caps on

physical therapy and occupational therapy services.

Pap smears

Set the minimum payment for the test component of a Pap smear

at $14.60.

Immunosuppressive drugs

Extended the 36-month limit on coverage of immunosuppressive

drugs for persons exhausting their coverage in 2000–2004. Set the

increase for persons exhausting benefits in 2000 at 8 months, and

limited total expenditures to $150 million over the 5 years.

Studies

Required a number of studies including a Medicare Payment Advisory Commission comprehensive study of the regulatory burdens

placed on all classes of providers under fee-for-service Medicare

and the associated costs. Required GAO to conduct a study of

Medigap policies.

Medicare+Choice

Contained several provisions designed to facilitate the implementation of M+C. Changed the phase in of the new risk adjustment

payment methodology based on health status to a blend of 10 percent new health status method/90 percent old demographic method

in 2000 and 2001, and not more than 20 percent health status in

2002. Provided for payment of a new entry bonus of 5 percent of

the monthly M+C payment rate in the first 12 months and 3 percent in the subsequent 12 months to organizations that offer a plan

in a payment area without an M+C plan since 1997, or in an area

where all organizations announced withdrawal as of January 1,

2000. Reduced the exclusion period from 5 years to 2 years for organizations seeking to reenter the M+C Program after withdrawing. Allowed organizations to vary premiums, benefits, and cost

sharing across individuals enrolled in the plan so long as these are

uniform within segments comprising one or more M+C payment

areas. Provided for submission of adjusted community rates by July

1 instead of May 1. Provided that the aggregate amount of user

fees collected would be based on the number of M+C beneficiaries

in plans compared to the total number of beneficiaries.

Delayed implementation of the Medicare+Choice Competitive

Bidding Demonstration Project.

193

CBO SAVINGS AND REVENUE ESTIMATES FOR BUDGET

RECONCILIATION AND RELATED ACTS, 1981–99

Table 2–31 shows estimates of savings and revenue increases for

budget reconciliation legislation enacted from 1981 to 1997 and

spending increases enacted in 1999. These estimates were made at

the time of enactment by the Congressional Budget Office (CBO).

It should be noted that the estimates are compared with the CBO

budget baseline in effect at the time. The savings from the various

reconciliation bills cannot be added together.

MEDICARE HISTORICAL DATA

Tables 2–32 through 2–41 present detailed historical data on the

Medicare Program. Tables 2–32, 2–33, and 2–34 present detailed

enrollment data. Table 2–35 describes the percentage of enrollees

participating in a State buy-in agreement. Tables 2–36 and 2–37

show the distribution of Medicare payments by type of coverage

and by type of service. Tables 2–38 and 2–39 show the number of

persons served and the average reimbursement per person served

and per enrollee. Table 2–40 shows the utilization of short stay

hospital services. Table 2–41 shows the number of participating institutions and organizations.

194

TABLE 2–31.—MEDICARE SAVINGS ESTIMATES, 1981–99

[In billions of dollars]

Legislative act Savings

Omnibus Budget Reconciliation Act of 1981:

Spending reductions for fiscal years 1982–84 ..................................... $4.3

Tax Equity and Fiscal Responsibility Act of 1982:

Spending reductions for fiscal years 1983–87 ..................................... 23.1

Social Security Amendments of 1983:

Spending reductions for fiscal years 1983–88 ..................................... 0.2

Revenue increases for fiscal years 1983–88 ........................................ 11.5

Deficit Reduction Act of 1984:

Spending reductions for fiscal years 1984–87 ..................................... 6.1

Consolidated Omnibus Budget Reconciliation Act of 1985:

Spending reductions for fiscal years 1986–81 ..................................... 12.6

Omnibus Budget Reconciliation Act of 1986:

Spending reductions for fiscal years 1987–89 ..................................... 1.0

Omnibus Budget Reconciliation Act of 1987:

Spending reductions for fiscal years 1988–90 ..................................... 9.8

Omnibus Budget Reconciliation Act of 1989:

Spending reductions for fiscal years 1990–94 ..................................... 10.9

Omnibus Budget Reconciliation Act of 1990:

Spending reductions for fiscal years 1991–95 ..................................... 43.1

Revenue increases for fiscal years 1991–95 ........................................ 26.9

Omnibus Budget Reconciliation Act of 1993:

Spending reductions for fiscal years 1994–98 ..................................... 55.8

Revenue increases for fiscal years 1994–98 ........................................ 53.8

Health Insurance Portability and Accountability Act of 1996:

Spending reductions for fiscal years 1996–2002 ................................. 3.0

Balanced Budget Act of 1997:

Spending reductions for fiscal years 1998–2002 ................................. 116.4

Spending reductions for fiscal years 1998–2007 ................................. 393.8

Balanced Budget Refinement Act of 1999:

Spending increases for fiscal years 2000–2004 ................................... ¥15.0

Spending increases for fiscal years 2004–9 ......................................... ¥25.1

Note.—Savings relative to baseline at time of enactment. Figures cannot be summed.

Source: Committee on Ways and Means, (1998); Congressional Budget Office.

TABLE 2–32.—NUMBER OF MEDICARE ENROLLEES BY TYPE OF COVERAGE AND TYPE OF ENTITLEMENT, SELECTED YEARS 1968–98

[In thousands]

Type of entitlement

and coverage

Year Average annua

growth (pe

1968 1975 1980 1982 1984 1986 1988 1990 1995 1996 1997 1998 1968–

75

1975–

85

Total:

HI 1 and/or

SMI 2 ....... 19,821 24,959 28,478 29,494 30,456 31,750 32,980 34,203 37,535 38,064 38,445 38,825 3.3 2.

Total HI: 19,770 24,640 28,067 29,069 29,996 31,216 32,413 33,719 37,135 37,662 38,052 38,432 3.2 2.

HI only ......... 1,016 1,054 1,079 1,082 1,040 1,160 1,363 1,574 1,850 1,925 1,985 2,044 0.5 0.Total SMI ..... 18,805 23,905 27,400 28,412 29,416 30,590 31,617 32,629 35,685 36,140 36,460 36,781 3.5 2.SMI only ...... 51 318 411 425 460 534 567 484 400 402 393 393 29.9 4.

Aged:

HI and/or

SMI .......... 19,821 22,790 25,515 26,540 27,571 28,791 29,879 30,948 33,142 33,424 33,630 33,802 2.0 2.

Total HI ....... 19,770 22,472 25,104 26,115 27,112 28,257 29,312 30,464 32,742 33,022 33,237 33,410 1.8 2.HI only ......... 1,016 845 835 833 807 928 1,098 1,263 1,000 1,440 1,466 1,494

¥2.6 0.

Total SMI ..... 18,805 21,945 24,680 25,707 26,765 27,863 28,780 29,686 31,742 31,984 32,164 32,308 2.2 2.SMI only ...... 51 318 411 425 459 534 567 484 400 402 393 392 29.9 4.

All disabled:

HI and/or

SMI .......... (4) 2,168 2,963 2,954 2,884 2,959 3,102 3,255 4,393 4,640 4,815 5,023 NA 3.

Total HI ....... (4) 2,168 2,963 2,954 2,884 2,959 3,101 3,255 4,393 4,640 4,815 5,023 NA 3.HI only ......... (4) 209 244 249 233 232 265 311 451 485 519 551 NA 0.Total SMI ..... (4) 1,959 2,719 2,759 2,682 2,727 2,837 2,943 3,942 4,155 4,296 4,472 NA 3.

SMI only 3 .... (4) NA NA NA NA NA NA NA NA NA NA NA NA NA 

TABLE 2–32.—NUMBER OF MEDICARE ENROLLEES BY TYPE OF COVERAGE AND TYPE OF ENTITLEMENT, SELECTED YEARS 1968–98—Conti

[In thousands]

Type of entitlement

and coverage

Year Average annua

growth (pe

1968 1975 1980 1982 1984 1986 1988 1990 1995 1996 1997 1998 1968–

75

1975–

85

End-stage renal

disease only:HI and/or

SMI .......... (4) 13 28 27 30 39 53 65 71 73 75 77 NA 9.

Total HI ....... (4) 13 28 27 30 39 53 65 71 73 75 77 NA 9.HI only ......... (4) 1 1 2 2 3 4 6 8 8 9 10 NA 7.

Total SMI ..... (4) 12 27 26 28 36 49 59 63 65 66 67 NA 9.SMI only 3 .... (4) NA NA NA NA NA NA NA NA NA NA NA NA NA 

1 Hospital insurance.2 Supplementary medical insurance.3 Disabled and end-stage renal disease only must have HI to be eligible for SMI coverage.4Medicare disability entitlement began in 1973.

NA—Not available.Source: Health Care Financing Administration.

TABLE 2–33.—GROWTH IN NUMBER OF AGED MEDICARE ENROLLEES BY SEX AND AGE, SELECTED YEARS 1968–98

Sex and age

Year Average annual growth rate

(percent) Total aged

population

1998 1

En

p

to

po

1968 1975 1980 1990 1995 1996 1997 1998 1968–75 1975–84 1986–98

All persons .................. 19,496 22,548 25,515 30,948 33,142 33,424 33,630 33,802 2.1 2.3 1.3 34,401 

65–69 ..................... 6,551 7,642 8,459 9,695 9,517 9,445 9,317 9,184 2.2 1.6 0.0 9,593 70–74 ..................... 5,458 5,950 6,756 7,951 8,756 8,745 8,737 8,725 1.2 2.3 1.2 8,802 75–79 ..................... 3,935 4,313 4,809 6,058 6,563 6,749 6,932 7,055 1.3 2.4 2.08 7,218 80–84 ..................... 2,249 2,793 3,081 3,957 4,470 4,554 4,619 4,707 3.1 2.2 2.4 4,734 85 and older .......... 1,303 1,850 2,410 3,286 3,837 3,930 4,025 4,130 5.1 4.6 2.9 4,054 

Males .......................... 8,177 9,201 10,268 12,416 13,434 13,583 13,701 13,806 1.7 2.0 1.5 14,199 

65–69 ..................... 2,944 3,420 3,788 4,352 4,348 4,332 4,284 4,234 2.2 1.6 0.3 4,393 70–74 ..................... 2,322 2,504 2,841 3,406 3,791 3,796 3,808 3,819 1.1 2.4 1.4 3,857 75–79 ..................... 1,596 1,669 1,854 2,382 2,642 2,730 2,816 2,876 0.6 2.4 2.4 2,997 80–84 ..................... 864 1,005 1,062 1,369 1,593 1,636 1,670 1,717 2.2 1.6 2.9 1,764 85 and older .......... 450 604 722 906 1,060 1,090 1,122 1,159 4.3 3.1 2.9 1,188 

Females ...................... 11,319 13,347 15,247 18,532 19,708 19,841 19,929 19,996 2.4 2.4 1.2 20,203 

65–69 ..................... 3,606 4,222 4,671 5,343 5,169 5,113 5,032 4,950 2.3 1.5 0.2 5,201 70–74 ..................... 3,136 3,446 3,914 4,545 4,964 4,949 4,928 4,906 1.4 2.3 1.0 4,945 75–79 ..................... 2,338 2,644 2,954 3,676 3,921 4,019 4,116 4,179 1.8 2.4 1.7 4,221 75–84 ..................... 1,386 1,788 2,019 2,588 2,877 2,919 2,949 2,989 3.7 2.4 2.1 2,970 85 and older .......... 853 1,246 1,689 2,380 2,777 2,840 2,903 2,972 5.6 5.3 2.9 2,866 

1 U.S. residents only.

Source: Health Care Financing Administration, Bureau of Data Management and Strategy; and U.S. Department of Commerce, U.S. Census Bureau.

TABLE 2–34.—GROWTH IN NUMBER OF DISABLED MEDICARE ENROLLEES WITH HOSPITAL INSURANCE COVERAGE BY TYPE OF ENTITLEMENT AN

SELECTED YEARS 1975–98

Type of entitlement and age

Year Average annual percent gro

1975 1980 1990 1995 1996 1997 1998 1975–84 1984–94 1

All disabled persons ............... 2,058,424 2,425,231 3,254,983 4,393,287 4,640,180 4,814,782 5,022,811 3.8 3.7 

Under age 35 ................ 238,070 193,392 483,262 587,709 587,160 570,264 558,417 5.6 4.0 35–44 ............................ 251,142 258,374 654,953 973,328 1,030,456 1,057,583 1,093,962 5.9 8.0 45–54 ............................ 508,345 572,823 741,193 1,187,993 1,291,453 1,373,326 1,453,356 1.6 6.4 55–64 ............................ 1,060,967 1,400,642 1,375,575 1,644,257 1,731,111 1,813,609 1,917,076 3.8 0.5 

All disabled workers ............... 1,638,662 2,396,897 2,579,097 3,602,559 3,828,220 3,987,130 4,180,635 3.9 3.8 

Under age 35 ................ 100,439 184,619 257,760 357,794 357,442 343,052 333,963 7.5 6.0 35–44 ............................ 164,439 253,186 482,071 769,071 819,512 840,790 872,918 6.5 9.4 45–54 ............................ 426,451 565,846 612,692 1,023,616 1,120,184 1,195,960 1,269,628 1.4 6.7 55–64 ............................ 947,333 1,393,246 1,226,574 1,452,078 1,531,082 1,607,328 1,704,126 3.9 0.3 

Adults disabled as children ... 324,864 409,072 542,416 609,081 621,620 632,300 642,579 3.9 2.6 

Under age 35 ................ 151,708 173,684 208,901 213,973 213,456 210,936 208,220 2.1 1.4 35–44 ............................ 84,508 105,092 158,725 189,108 195,185 200,758 204,694 4.6 3.8 45–54 ............................ 71,484 80,381 107,092 132,484 137,704 142,839 148,336 2.3 3.9 55–64 ............................ 45,164 49,910 67,698 73,516 75,275 77,766 81,329 3.2 1.9 

Widows and widowers ............ 83,771 110,785 68,793 111,121 117,028 120,137 122,203 0.2 1.9 

Under 55 ........................ 7,446 7,577 5,615 12,420 13,014 13,198 13,162

¥5.2 9.5 

55–64 ............................ 76,325 103,208 63,178 98,701 104,014 106,939 109,041 0.6 1.3 

End-stage renal disease only 11,127 28,334 64,677 70,526 73,312 75,215 77,394 11.5 8.7 

Under age 35 ................ 3,729 8,773 16,601 15,942 16,262 16,276 16,234 10.5 5.6 35–44 ............................ 2,187 5,188 14,157 15,149 15,759 16,034 16,350 10.9 10.3 45–54 ............................ 2,966 6,977 15,794 19,473 20,551 21,328 22,230 9.7 10.4 55–64 ............................ 2,245 7,396 18,125 19,962 20,740 21,576 22,580 15.4 9.1 

Source: Health Care Financing Administration.

199

TABLE 2–35.—NUMBER AND PERCENTAGE OF INDIVIDUALS ENROLLED IN SUPPLEMENTARY MEDICAL INSURANCE UNDER STATE BUY-IN AGREEMENTS BY TYPE OF

BENEFICIARY AND BY YEAR OR 1998 AREA OF RESIDENCE, SELECTED YEARS 1968–

98

Year or area of residence 1

All persons Aged Disabled

Number in

thousands

Percent of

SMI enrolled

Number in

thousands

Percent of

SMI enrolled

Number in

thousands

Percent of

SMI enrolled

Year:

1968 .......................... 1,648 8.8 1,648 8.8 NA NA

1975 .......................... 2,846 12.0 2,483 11.4 363 18.7

1980 .......................... 2,954 10.9 2,449 10.0 504 18.9

1985 .......................... 2,670 9.0 2,164 8.0 505 19.2

1990 .......................... 3,604 11.0 2,714 9.1 890 30.2

1995 .......................... 4,895 13.7 3,369 10.6 1,526 38.7

1996 .......................... 5,001 13.1 3,404 10.6 1,597 38.4

1997 .......................... 5,089 13.2 3,445 10.7 1,644 38.3

1998 .......................... 5,109 13.2 3,492 10.8 1,775 39.7

Area of residence: 1

Alabama .................... 122 18.2 86 16.4 34 41.5

Alaska ........................ 7 18.4 4 14.8 2 50.0

Arizona ....................... 51 7.8 31 6.0 15 30.0

Arkansas .................... 79 18.2 58 16.7 22 41.5

California ................... 777 20.5 561 17.9 204 63.6

Colorado ..................... 52 11.5 32 9.0 17 42.5

Connecticut ................ 51 10.0 31 7.1 19 51.4

Delaware .................... 9 8.3 4 4.6 3 33.3

District of Columbia .. 15 19.7 11 17.5 4 57.1

Florida ........................ 314 11.4 211 9.0 77 42.3

Georgia ...................... 171 19.3 119 17.5 48 45.3

Guam and Virgin

Islands 2 ................ 1 5.3 1 9.1 0 6.3

Hawaii ........................ 19 11.9 14 10.8 4 44.4

Idaho .......................... 15 9.4 8 6.2 5 41.7

Illinois ........................ 146 9.0 89 6.4 54 37.8

Indiana ...................... 81 9.6 53 7.5 29 34.9

Iowa ........................... 50 10.5 33 7.8 18 48.6

Kansas ....................... 39 10.0 24 7.1 12 41.4

Kentucky .................... 107 17.5 67 14.3 35 42.2

Louisiana ................... 115 19.3 80 17.1 35 44.9

Maine ......................... 33 15.6 18 10.6 12 57.1

Maryland .................... 62 9.9 44 8.5 19 38.8

Massachusetts ........... 139 14.6 83 10.6 49 59.0

Michigan .................... 136 9.9 75 6.5 53 37.6

Minnesota .................. 58 9.0 35 6.3 26 53.1

Mississippi ................. 106 25.8 77 24.4 30 51.7

Missouri ..................... 82 9.6 48 6.7 28 34.1

Montana ..................... 12 9.0 7 6.3 5 38.5

Nebraska .................... 18 7.1 9 4.1 8 44.4

Nevada ....................... 17 7.6 10 6.1 5 33.3

New Hampshire ......... 6 3.6 3 2.2 3 23.1

New Jersey ................. 138 11.6 92 9.0 39 42.4

200

TABLE 2–35.—NUMBER AND PERCENTAGE OF INDIVIDUALS ENROLLED IN SUPPLEMENTARY MEDICAL INSURANCE UNDER STATE BUY-IN AGREEMENTS BY TYPE OF

BENEFICIARY AND BY YEAR OR 1998 AREA OF RESIDENCE, SELECTED YEARS 1968–

98—Continued

Year or area of residence 1

All persons Aged Disabled

Number in

thousands

Percent of

SMI enrolled

Number in

thousands

Percent of

SMI enrolled

Number in

thousands

Percent of

SMI enrolled

New Mexico ................ 34 15.1 22 12.6 9 40.9

New York .................... 363 13.6 232 10.5 105 42.7

North Carolina ........... 210 19.2 138 16.1 56 47.9

North Dakota ............. 6 5.8 4 4.3 2 25.0

Ohio ........................... 180 10.7 119 8.3 54 32.5

Oklahoma ................... 63 12.6 45 10.8 17 38.6

Oregon ....................... 51 10.6 29 7.1 16 42.1

Pennsylvania .............. 179 8.6 105 5.8 64 38.8

Puerto Rico ................ 0 0.0 0 0.0 0 0.0

Rhode Island ............. 18 10.6 10 7.0 6 40.0

South Carolina ........... 104 19.0 69 16.6 31 48.4

South Dakota ............. 13 11.0 9 8.8 4 44.4

Tennessee .................. 172 21.3 104 16.4 52 55.3

Texas .......................... 340 15.5 252 14.1 75 41.4

Utah ........................... 15 7.6 8 5.0 6 40.0

Vermont ..................... 13 14.9 8 11.4 5 62.5

Virginia ...................... 108 12.5 74 10.8 34 40.5

Washington ................ 89 12.4 46 7.8 29 49.2

West Virginia ............. 43 12.9 26 9.7 16 34.0

Wisconsin ................... 74 9.5 45 6.8 31 45.6

Wyoming .................... 6 9.4 3 5.8 2 40.0

United States .... 4,892 12.9 3,367 10.7 1,525 41.7

All areas ........... 5,109 13.2 3,369 10.6 1,526 41.0

1 State of residence is not necessarily State that bought coverage.

2 Data for these areas combined to prevent disclosure of confidential information.

NA—Not available.

Source: Health Care Financing Administration, Office of Strategic Planning.

TABLE 2–36.—DISTRIBUTION OF MEDICARE BENEFIT PAYMENTS BY TYPE OF COVERAGE AND TYPE OF SERVICE, CALENDAR YEARS 1995–

[In millions of dollars]

Type of coverage and type of service

Amount and distribution of payments for enrollees

1995 1996 1997 1998

Amount Percent Amount Percent Amount Percent Amount 

Hospital insurance ......................................................................... $116,176 100.0 $128,457 100.0 $137,592 100.0 $133,244 

Inpatient ..................................................................................... 81,984 70.6 85,756 66.8 88,498 64.3 87,029 Skilled nursing facility ............................................................... 9,236 8.0 11,101 8.6 12,995 9.4 13,487 Home health agency .................................................................. 16,373 14.1 17,825 13.9 17,680 12.8 11,789 Hospice ....................................................................................... 1,883 1.6 1,997 1.6 2,082 1.5 2,180 Managed care ............................................................................ 6,701 5.8 11,777 9.2 16,338 11.9 18,759 

Supplementary medical insurance ................................................. 64,972 35.9 68,598 37.9 72,757 40.2 76,673 

Physicians fee schedule 1 .......................................................... 31,660 17.5 31,631 17.5 31,901 17.6 32,456 Durable medical equipment ...................................................... 3,689 2.0 3,826 2.1 4,237 2.3 4,033 Carrier laboratory ....................................................................... 2,807 1.5 2,550 1.4 2,386 1.3 2,088 Other carrier ............................................................................... 4,530 2.5 5,059 2.8 5,582 3.1 5,937 Outpatient hospital .................................................................... 8,663 4.8 8,691 4.8 9,455 5.2 8,844 Home health agency .................................................................. 236 0.1 262 0.1 261 0.1 166 Intermediary laboratory .............................................................. 1,448 0.8 1,311 0.7 1,447 0.8 1,476 Other intermediary ..................................................................... 5,329 2.9 5,711 3.2 6,527 3.6 6,334 Managed care ............................................................................ 6,610 3.6 9,558 5.3 10,962 6.1 15,338 

Total payments ...................................................................... 181,148 100.0 197,055 100.0 210,349 100.0 209,917 

1 Includes other services.

Note.—See table 2–3 for historical fiscal year data.Source: Health Care Financing Administration, Office of the Actuary.

202

TABLE 2–37.—DISTRIBUTION OF MEDICARE BENEFIT PAYMENTS BY TYPE OF

COVERAGE, TYPE OF SERVICE, AND TYPE OF ENROLLEE, CALENDAR YEAR 1998

Type of coverage and service

Type of enrollee

All enrollees Aged Disabled

Amount

(in millions)

Percentage

distribution

Amount

(in millions)

Percentage

distribution

Amount

(in millions)

Percentage

distribution

Hospital insurance ....... $133,244 100.0 $117,066 100.0 $16,178 100.0

Inpatient ................... 87,029 65.3 73,945 63.2 13,084 80.9

Skilled nursing facility ......................... 13,487 10.1 12,825 11.0 662 4.1

Home health agency 11,789 8.8 10,659 9.1 1,130 7.0

Hospice ..................... 2,180 1.6 2,071 1.8 109 0.7

Managed care .......... 18,759 14.1 17,566 15.0 1,193 7.4

Supplementary medical

insurance ................. 76,673 100.0 65,882 100.0 10,791 100.0

Physicians fee

schedule .............. 32,456 42.3 28,491 43.2 3,966 36.8

Durable medical

equipment ............ 4,033 5.3 3,299 5.0 734 6.8

Carrier laboratory ..... 2,088 2.7 1,794 2.7 294 2.7

Other carrier ............. 5,937 7.7 5,136 7.8 801 7.4

Outpatient hospital .. 8,844 11.5 7,501 11.4 1,343 12.4

Home health agency 166 0.2 166 0.3 0 0.0

Intermediary laboratory ....................... 1,476 1.9 1,181 1.8 296 2.7

Other intermediary ... 6,334 8.3 3,989 6.1 2,346 21.7

Managed care .......... 15,338 20.0 14,326 21.7 1,012 9.4

Total payments .... 209,917 100.0 182,948 100.0 26,969 100.0

Source: Health Care Financing Administration, Office of the Actuary.

TABLE 2–38.—PERSONS ENROLLED AND PERSONS SERVED UNDER MEDICARE, AND PROGRAM PAYMENTS, BY TYPE OF COVERAGE AND SER

SELECTED CALENDAR YEARS 1967–97

Type of coverage and service

Year Average annual ra

change

1967 1980 1990 1994 1996 1997 1967–83 1983– 97 

Number of enrollees (in thousands)

Hospital insurance and/or supplementary medical insurance .................................................. 19,521 28,478 34,213 36,950 38,093 38,465 2.7 1.9 

Hospital insurance ..................................... 19,494 28,067 33,731 36,542 37,677 38,059 2.6 2.0 Supplementary medical insurance ............. 17,893 27,400 32,636 35,179 36,165 36,479 3.1 1.8 

Number of persons served (in thousands) 1

Hospital insurance .............................................. 3,960 6,752 7,036 7,886 8,175 8,118 4.0 0.7 

Inpatient hospital services ......................... 3,601 6,672 6,543 6,938 6,941 6,887 4.4

¥0.3 

Skilled nursing facility services ................. 354 257 638 1,063 1,373 1,503

¥1.8 14.3 

Home health agency services .................... 126 726 1,936 3,152 3,493 3,458 15.8 7.7 

Supplementary medical insurance ...................... 6,523 17,822 26,951 29,912 29,981 29,620 7.1 3.3 

Physician and other medical services ....... 6,415 17,258 26,350 29,222 29,332 28,961 7.0 3.3 Outpatient services 2 .................................. 1,511 7,538 15,511 18,945 20,305 20,543 11.9 6.5 

Home health agency services .................... 118 327 38 37 44 48

¥10.5 7.0

Total ................................................... 7,154 18,031 27,099 30,087 30,195 29,847 6.5 3.2 

Rate per thousand enrollees 3

Hospital insurance .............................................. 203 241 209 234 243 241 1.3

¥0.3 

Inpatient hospital services ......................... 185 238 194 206 206 205 1.7

¥1.3 

TABLE 2–38.—PERSONS ENROLLED AND PERSONS SERVED UNDER MEDICARE, AND PROGRAM PAYMENTS, BY TYPE OF COVERAGE AND SER

SELECTED CALENDAR YEARS 1967–97—Continued

Type of coverage and service

Year Average annual ra

change

1967 1980 1990 1994 1996 1997 1967–83 1983– 97 

Skilled nursing facility services ................. 18 9 19 32 41 45

¥4.3 13.2 

Home health agency services .................... 6 26 57 94 104 103 12.8 6.6 

Supplementary medical insurance ...................... 365 650 826 926 931 920 3.9 2.4 

Physician and other medical services ....... 359 630 807 905 911 899 3.8 2.5 Outpatient services 2 .................................. 84 275 475 586 630 638 8.5 5.6 

Home health agency services .................... 7 12 1 1 1 1

¥13.2 6.1

Total ................................................... 366 633 792 883 886 876 3.7 2.2 

Program payments (in millions of dollars)

Hospital insurance .............................................. $2,967 $23,119 $62,347 $94,205 $107,949 4 $114,327 16.9 9.2 

Inpatient hospital services ......................... 2,667 22,297 56,716 75,715 79,911 84,563 17.4 7.1 Skilled nursing facility services ................. 274 344 1,971 5,954 9,486 11,237 2.8 28.6 Home health agency services .................... 26 478 3,660 12,537 16,546 16,487 28.1 21.1 

Supplementary medical insurance ...................... 1,272 10,494 39,072 52,343 59,114 61,096 17.6 10.3 

Physician and other medical services ....... 1,217 8,358 30,222 38,490 42,510 43,621 16.3 9.3 Outpatient services 2 .................................. 38 1,962 8,773 13,696 16,387 17,256 32.5 13.2 

Home health agency services .................... 17 175 78 157 216 219 3.4 16.8 

Total ................................................... 4,239 33,613 101,419 146,549 167,062 175,423 17.2 9.6 

Program payments per person served

Hospital insurance .............................................. 749 3,424 8,861 11,945 13,205 14,082 12.4 8.5 

Inpatient hospital services ......................... 741 3,342 8,688 10,913 11,513 12,279 12.4 7.5 Skilled nursing facility services ................. 774 1,339 3,089 5,603 6,909 7,476 4.7 12.5 Home health agency services .................... 206 658 1,690 3,977 4,737 4,768 10.6 12.5 

Supplementary medical insurance ...................... 195 589 1,450 1,750 1,972 2,063 9.9 6.8 

Physician and other medical services ....... 190 484 1,147 1,317 1,449 1,506 8.7 5.8 Outpatient services 2 .................................. 25 260 566 723 807 840 18.5 6.3 

Home health agency services .................... 144 535 2,053 4,267 4,909 4,588 15.5 9.3 

Total ................................................... 593 1,864 3,743 4,871 5,533 5,877 10.0 6.1 

1 Does not reflect beneficiaries who received covered services but for whom no program payments were reported during the year. Detail does not add to totals by type 

because one person may have used several types of services. 2 Prior to April 1, 1968, outpatient hospital services were covered by health insurance and supplementary medical insurance. All outpatient hospital services for 1967 a

as supplementary medical insurance services for purposes of comparison. 3 Beginning with 1994, the utilization rates per 1,000 enrollees do not reflect managed care enrollment; that is, Medicare enrollees in managed care plans are not in

the denominator used to calculate the utilization rates. 4 Includes $2.0 billion for hospice services, not shown separately.

Note.—Medicare Program represents fee-for-service payments only. Numbers may not add to totals because of rounding.Source: Health Care Financing Administration.

206

TABLE 2–39.—PERSONS SERVED AND PROGRAM PAYMENTS FOR MEDICARE

BENEFICIARIES, BY DEMOGRAPHIC CHARACTERISTICS, CALENDAR YEAR 1997

Demographic characteristic

Persons served 1 Program payments

Number

in thousandsPercent Amount in

millions Percent

Average

amount

per person

served

Per enrollee 2

Sex:

Male ....................................... 12,113 40.6 $75,357 43.0 $6,221 $5,326

Female ................................... 17,734 59.4 100,066 57.0 5,643 5,306

Age:

Under 65 years ...................... 4,129 13.8 25,798 14.7 6,247 5,735

65–74 years .......................... 12,771 42.8 59,687 34.0 4,674 3,953

75–84 years .......................... 9,428 31.6 61,708 35.2 6,545 6,267

85 years or older ................... 3,519 11.8 28,231 16.1 8,023 7,919

Race: 3

White ...................................... 25,801 86.4 145,050 82.7 5,622 5,165

Nonwhite ................................ 2,550 8.5 21,447 12.2 8,409 4,509

Type of entitlement:

Aged ....................................... 26,130 87.5 151,655 86.5 5,804 5,319

Disabled ................................. 3,717 12.5 23,768 13.5 6,395 5,284

MSA type 4

Urban ..................................... 21,549 72.2 134,200 76.5 6,228 5,694

Rural ...................................... 7,956 26.7 40,142 22.9 5,048 4,648

Total .............................. 29,847 100.0 175,423 100.0 5,877 5,314

1 Does not reflect beneficiaries who received covered services but for whom no program payments were

reported during the year. 2 Beginning with 1994, the utilization rates per 1,000 enrollees do not reflect managed care enrollment; that is, Medicare enrollees in managed care plans are not included in the denominator used to

calculate the utilization rates. 3 Excludes unknown race.

4 Excludes outlying areas.

Note.—MSA is metropolitan statistical area. Numbers may not add to totals because of rounding.

Source: Health Care Financing Administration.

TABLE 2–40.—USE OF SHORT-STAY HOSPITAL SERVICES BY MEDICARE EMPLOYEES BY YEAR AND 1997 DEMOGRAPHIC CHARACTERISTICS, SE

YEARS 1975–97

Calendar year, period, and 1994 characteristic

Hospital insurance enrollees in

thousands

Discharges Total days of care Program payments

Number in

thousands

Per 1,000

enrollees

Number in

thousands

Per discharge Per 1,000 enrollees Amount in millions Per dis- charge Per covered day of care 

Year:

1975 ............................................ 24,640 8,001 325 89,275 11.2 3,623 $9,748 $1,218 $109 1980 ............................................ 28,067 10,279 366 109,175 10.6 3,890 22,099 2,150 202 1982 ............................................ 29,069 11,109 382 113,047 10.0 3,889 30,601 2,755 271 1984 ............................................ 29,996 10,896 363 96,485 8.9 3,217 38,500 3,533 399 1985 ............................................ 30,589 10,027 328 86,339 8.6 2,823 40,200 4,009 466 1986 ............................................ 31,216 10,044 322 86,910 8.7 2,784 41,781 4,160 481 1987 ............................................ 31,853 10,110 317 89,651 8.9 2,815 44,068 4,359 492 1988 ............................................ 32,483 10,256 316 90,873 8.9 2,798 46,879 4,571 516 1989 ............................................ 33,040 10,148 307 89,902 8.9 2,721 49,091 4,838 546 1990 ............................................ 33,719 10,522 312 92,735 8.8 2,750 53,708 5,104 579 1991 ............................................ 34,428 10,896 316 93,936 8.6 2,728 58,901 5,406 627 1992 ............................................ 35,154 11,111 316 92,900 8.4 2,643 64,976 5,848 699 1993 ............................................ 35,904 11,158 311 88,871 8.0 2,475 67,439 6,044 759 1994 ............................................ 36,543 11,471 314 85,734 7.5 2,346 70,623 6,157 824 1995 ............................................ 37,135 11,681 315 81,282 7.0 2,189 74,836 6,407 921 1996 1 .......................................... 33,301 11,796 354 77,193 6.5 2,318 78,546 6,953 1,018 1997 1 .......................................... 32,614 11,919 365 74,901 6.3 2,297 80,751 7,118 1,078 

Annual percentage change in period:

1975–85 ...................................... 2.2 4.8 2.4 1.0

¥2.8

¥1.5 18.7 14.2 17.6 

1985–95 ...................................... 2.0

¥1.3

¥3.1

¥1.2

¥1.7

¥3.1 6.3 5.7 7.5 

1975–97 1 .................................... 1.3 1.8 0.5

¥0.8

¥2.6

¥2.1 10.1 8.4 11.0 

TABLE 2–40.—USE OF SHORT-STAY HOSPITAL SERVICES BY MEDICARE EMPLOYEES BY YEAR AND 1997 DEMOGRAPHIC CHARACTERISTICS, SE

YEARS 1975–97—Continued

Calendar year, period, and 1994 characteristic

Hospital insurance enrollees in

thousands

Discharges Total days of care Program payments

Number in

thousands

Per 1,000

enrollees

Number in

thousands

Per discharge Per 1,000 enrollees Amount in millions Per dis- charge Per covered day of care 

Age:

Less than 65 years ..................... 4,829 1,637 364 10,686 6.5 2,213 10,856 7,064 1,016 65–69 years ................................ 9,217 1,765 230 10,442 5.9 1,133 12,886 7,816 1,234 70–74 years ................................ 8,641 2,193 303 13,197 6.0 1,527 15,807 7,613 1,198 75–79 years ................................ 6,830 2,269 393 14,294 6.3 2,093 16,005 7,389 1,120 80–84 years ................................ 4,581 1,914 487 12,352 6.5 2,696 12,503 6,790 1,012 85 years or older ......................... 3,960 2,141 610 13,930 6.5 3,518 12,694 6,118 911 

Sex:

Male ............................................. 16,383 5,208 371 32,652 6.3 1,993 37,436 7,619 1,147 Female ......................................... 21,676 6,712 361 42,249 6.3 1,949 43,315 6,736 1,025 

Race: 2

White ............................................ 32,526 10,078 361 62,058 6.2 1,908 67,239 7,010 1,083 All other ....................................... 5,349 1,766 388 12,347 7.0 2,308 12,993 7,739 1,052 

Area of residence:

Northeast ..................................... 6,807 2,496 367 21,858 8.8 3,211 19,812 7,938 906 Midwest ....................................... 8,456 3,018 357 19,414 6.4 2,296 19,937 6,606 1,027 South ........................................... 12,080 4,533 375 29,657 6.5 2,455 28,884 6,372 974 West ............................................. 4,862 1,730 356 9,477 5.5 1,949 11,718 6,773 1,236 

1 Prior to 1996, data were obtained from the Annual Person Summary Record. Beginning in 1996, utilization rates are based on persons receiving fee-for-service care 

persons not enrolled in prepaid health plans. 2 Excludes unknown race.

Source: Health Care Financing Administration, Office of Strategic Planning.

209

TABLE 2–41.—MEDICARE PARTICIPATING INSTITUTIONS AND ORGANIZATIONS, 1984,

1996, AND 1998

Institution or organization

Year

1984 1998

Hospitals ............................................................................. 6,675 6,116

Short stay ....................................................................... 6,038 5,038

Long stay ........................................................................ 637 1,078

Skilled nursing facilities .................................................... 5,952 15,032

Home health agencies ........................................................ 4,684 9,330

Laboratories registered under the Clinical Laboratory Improvement Act ................................................................ NA 166,817

Outpatient physical therapy providers ............................... 791 2,890

Portable x-ray suppliers ..................................................... 269 659

Rural health clinics ............................................................ 420 3,551

Comprehensive outpatient rehabilitation facilities ............ 48 590

Ambulatory surgical centers ............................................... 155 2,649

Hospices .............................................................................. 108 2,317

Facilities providing services to renal disease benefit ....... 1,335 3,581

Hospital certified as both renal transplant and renal

dialysis center ........................................................... 147 148

Hospital certified as renal transplant centers .............. 16 87

Hospital dialysis facilities ............................................. 117 27

Nonhospital renal dialysis facilities .............................. 645 NA

Dialysis centers only ...................................................... 359 319

Inpatient care ................................................................. 51 44

Hospital and skilled nursing facility beds:

Hospitals ........................................................................ 1,144,000 1,012,000

Short stay .................................................................. 1,023,000 891,000

Long stay ................................................................... 120,700 122,000

Skilled nursing facilities ................................................ 530,400 723,000

NA—Not available.

Source: Health Care Financing Administration, Bureau of Data Management and Strategy.

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Eppig, F.J., & Chulis, G.S. (1997, Fall). Trends in Medicare supplementary insurance: 1992–96. Health Care Financing Review,

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