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Department of Health and Human Services
The National Advisory Committee on Rural Health and Human Services

Key Rural Issues for Medicare Reform

Background

The National Advisory Committee on Rural Health, which advises the Secretary of the U.S. Department of Health & Human Services on rural health issues, will focus on Medicare reform issues for the coming year. In June, the Committee, with analytical support from the Rural Policy Research Institute (RUPRI), reviewed the Presidents Medicare Reform Plan and the leading Congressional reform proposal put forth by Senator John Breaux (D-LA) and Senator Bill Frist (R-TN). The Committee offers the following list of concerns.

Reliance on a Competitive Model

The Committee believes that any Medicare reform plan that relies heavily on a competitive managed care model to expand benefits and cut spending will not be applicable in many rural areas. Rural areas tend to have fewer residents spread over large geographic areas, coupled with a limited provider network due to a shortage of health care professionals. This situation is exacerbated by historically lower Medicare payments to rural providers both in fee for service and Medicare + Choice. These factors make it difficult to create a true competitive environment. Medicare managed care has been most successful in areas that had multiple plans competing for business in a county with payments that are high enough to allow the plan to offer extra benefits such as prescription drugs and eye care. There are fewer plans interested in the rural markets and lower payments to rural areas make it difficult to offer any kind of increased benefit package. As a result of these factors, the Committee believes that traditional fee-for-service payment will continue to be the dominant delivery system for rural areas. The Committee supports the Presidents proposal for increasing current Medicare payment rules to promote new methods of delivery such as primary care case management, disease management and preferred provider networks.

The Need for Rural Representation

The Committee believes that a diverse mix of rural representatives should be included in the design and implementation of Medicare reform plans. That representation should be both geographically balanced and culturally sensitive. The Committee is concerned that the lack of proper representation may result in a one-size-fits-all approach, based on urban markets, that will have little relevance for rural communities.

Adequate Payments Needed to Ensure Access

The Committee believes any Medicare reform plan must address the long-standing payment differential between rural and urban areas. From its inception, Medicare payment has reflected a belief that the cost of providing care is more expensive in urban areas than in rural under the assumption that it costs more to provide a service for a Medicare beneficiary in New York City than it does in Yankton, South Dakota. As the Medicare program moved into prospective payment, the rural-urban differential continued. Congress developed several new payment designations to address these concerns both on the inpatient settings (Critical Access Hospitals, Medicare Dependent Hospitals, Sole Community Hospitals and Rural Referral Centers) and in ambulatory care (Federally Qualified Health Centers, Rural Health Clinics, and the HPSA bonus payment). We are concerned that the essential connections are likely to be lost. Furthermore, any Medicare reform plans needs to also take into account the reality that rural hospitals and clinics are often multiple service providers (primary care, home health, skilled nursing and outpatient care) and are part of an integrated and interdependent local delivery system. Payment changes coalesce in these settings. As a result, protections have been made to reflect that financial dynamic. If these payment distinctions are not carried into a newly designed Medicare, other protections need to be built in to ensure access to care for Medicare beneficiaries.

Reasonable Access Standards Are Needed

The Committee believes reasonable access standards both in terms of distance and culture are needed under any Medicare reform plan. Rural beneficiaries should not have to travel greater distances for basic health care in a reform system than they did under traditional Medicare.

Studies Needed

The Committee believes the Department and the Congress should commission studies to inform the Medicare reform process. Studies are needed to examine the best way to structure any new payment system beginning with the way from how capitation payments are made to how to adjust for geographic variation. The use of the hospital wage index to adjust for regional wage differences has significant shortcomings for rural providers. Similarly, the new risk-adjustment methodology relies only on inpatient data, which disadvantages rural areas where most of the care is delivered in post-acute care. Current policy in both of these areas creates problems for rural providers, which ultimately affects access to care for beneficiaries. The Department and the Congress might also benefit from looking for successful models of service delivery here and in other countries health plans.