Letter to Department of Health and Human Services Secretary Tommy Thompson

July 7, 2003

The Honorable Tommy Thompson
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, D.C. 20201

Re: Comments on the June 10, 2003 Proposed Rule for the Medicare Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities-Update

Dear Secretary Thompson:

I write to comment on your proposed rule, which considers an adjustment to the annual update for skilled nursing facilities (SNFs) that would account for forecast errors. My understanding is that this would result in increased payments to these facilities of $450 million in FY 2004, $2.9 billion over five years, and almost $6.9 billion over the next ten years. While there may be agreement among actuaries and some analysts that such an adjustment is warranted to account for past forecast errors in the payment rates, and that the Centers for Medicare and Medicaid Services (CMS) currently makes this type of adjustment in other existing payment systems, I have several concerns about adopting such a mechanism.

I strongly agree with the statement on page 34769 that "it is absolutely essential that the adjustment be applied uniformly--not only in those instances where the forecasted percent change is lower than the actual percent change..., but also in those instances where the forecasted percent change is higher than the actual percent change." I am concerned, however, that SNF providers do not fully recognize the possible downward effect this policy could have on future payments, which could result in a net decrease in payment rates. As you state, this policy of uniformity, which I support, would introduce significant uncertainty into the prospective payment system, making it very difficult to plan for future activities.

Secondly, the correction for forecast error should be applied uniformly to all prospective payment systems throughout Medicare where the agency has the authority to do so. I understand that this authority exists for some prospective systems, but not for others. Consequently, if this adjustment is made to skilled nursing facilities' prospective rates, it should be applied to other payment systems in a uniform manner. I look forward to your assessment of the agency's authority in this area with respect to other prospective payment systems.

Finally, I object to such an adjustment, which would substantially increase SNF payments, without a strong commitment from CMS to direct skilled nursing facilities to use the additional payments for direct care services provided to nursing home residents. Specifically, I expect CMS to devise and implement a plan to improve quality, beyond the agency's current initiatives, through more aggressive direction and evaluation relying on guidance and instructions to monitor how the additional payments are being used by SNFs to improve direct patient care.

Thank you for the opportunity to comment on this proposed rule.

Sincerely,

Charles E. Grassley
Chairman