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Puerto Rico Fights For Equal Medicare Treatment

As losses mount, local hospital operators are pessimistic about receiving fair share of benefits from U.S. Congress; call for united action


October 16, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Down to the wire: Local hospitals could get another $30 million a year under a Medicare bill pending congressional approval this week. Will it pass?

As a conference committee of members of the U.S. Senate and the U.S. House of Representatives grapples with the complex matter of reforming the $261 billion Medicare program, leaders of the hospital industry in Puerto Rico are increasingly gloomy about the prospects of Puerto Rico achieving better treatment in Medicare’s hospitalization program during this Congress.

"The amendment covering Puerto Rico is attached to the prescription drug bill. If it passes, hospitals in Puerto Rico will get the increase in reimbursement, and that would be great news," said Milton Cruz, vice president of the 431-bed San Pablo Hospital in Bayamon, who has been active in the lobbying efforts in Washington. "Some say it has a 50-50 chance of passage, so we are keeping up the fight."

"Reports from our representatives in Washington indicate the matter has landed in the conference committee and is bogged down in disputes among members from both houses on how pending related bills can be merged," said Alfred Volckers, executive vice president of Pavia Health Inc. and president-elect of the Puerto Rico Hospital Association (PRHA). "The question of equitability in Medicare for Puerto Rico is stuck in the middle."

A matter of fairness

Workers in Puerto Rico and their employers pay the same federal Medicare payroll tax as people living on the U.S. mainland, and senior citizens in Puerto Rico pay the same deductibles and copayments. The problem for hospitals in Puerto Rico is that they are paid substantially less than hospitals on the U.S. mainland because the Medicare law requires that payments to hospitals in Puerto Rico be made according to a different formula.

"[Local hospitals in Puerto Rico] are losing $74 on every one of the 137,000 elderly Medicare patients in Puerto Rico," said Volckers. "That translates into a net loss annually by member hospitals of $10 million. This means it will be difficult to improve patient services, raise salaries, and improve equipment." Volckers pointed out that Pavia Group member hospitals now have a total 700 beds.

The payments for Medicare benefits are made by the Center for Medicaid & Medicare Services (CMS) of the U.S. Department of Health & Human Services (HHS).

It isn’t easy to get information on the total of completed transfers, but analyst Danielle Grufh in the Region II CMS Office in New York provided some details. She indicated that in federal fiscal year (FY) 2001 (ended Sept. 30, 2001), Medicare transfers to Puerto Rico totaled $1.5 billion, divided about evenly between the Part A and Part B categories. Part A covers hospital care while Part B covers everything else, including physicians, laboratory, and other specialized work.

She said that most of the payments to Puerto Rico are made through two insurance carriers: Triple-S and Cosvi (Cooperativa de Seguros de Vida).

Grufh added that preliminary partial figures for FY02 (ended Sept. 30, 2002) reflect that $541 million was provided, broken down between inpatient ($478 million) and outpatient ($63 million) services. The office of Resident Commissioner Anibal Acevedo Vila reported that FY02 payments totaled $1.41 billion. An aide said $541 million was for Medicare Part A payments and $874.8 million for Part B.

"Comparing the figures provided by CMS for FY2001 with those reported by the Office of the Resident Commissioner demonstrates the point we’re trying to get across in Washington," said Pavia’s Volckers. "Even though the number of recipients grows every year along with the cost of providing the services they require, there was actually a decrease of $100 million from the FY01 figure of $1.5 billion to the FY02 total of $1.41 billion."

‘We don’t like this one bit’

"PRHA members don’t like this one bit," said Volckers. "We feel very strongly that we should receive a 100% reimbursement from Medicare because, basically, it is a question of civil rights and of equality. Puerto Rico residents shouldn’t be treated differently than other Americans, in part because Puerto Ricans pay the same Medicare tax as the residents of the rest of the nation. Medicare recipients in Puerto Rico aren’t receiving the same benefits as their counterparts elsewhere in the U.S. They aren’t receiving equal treatment."

Volckers pointed out that if the 100% formula were being applied to Puerto Rico, PRHA member institutions "would be receiving approximately $316 for every Medicare patient [given the current 137,000 patients discharged every year], which would translate into approximately $43 million more annually for the hospitals to improve their financial situation."

A call for equal treatment

Medicare pays different rates for inpatient hospital services in Puerto Rico than it does anywhere else in the nation. The Puerto Rico rates are 50% based on the national rates and 50% based on local cost factors, primarily wages.

"This formula dates to 1997, when then-President Bill Clinton, at the request of the Puerto Rico Hospital Association and then-Resident Commissioner Carlos Romero Barcelo, convinced Congress to change it from 25% national rates and 75% local costs," said former Clinton aide Jeffrey Farrow.

Congress had established the special formula for the commonwealth to more accurately reflect local costs and save money, according to Farrow. That approach wasn’t applied to the states, however, because they had votes in Congress. It wasn’t applied to other U.S. territories, like the U.S. Virgin Islands, because their small populations meant they had low Medicare expenditures.

The formula change and a companion Clinton administration regulation altering the calculation of the local costs increased Puerto Rico’s payments approximately $44 million in 1998.

In 2000, Farrow explained, Clinton proposed changing the formula again, this time to 75% national rates and 25% local costs, in a Medicare reform bill, the centerpiece of which was adding an outpatient prescription drug benefit to Medicare. The proposed subsidy for beneficiaries’ medicines was to be the biggest addition to Medicare benefits since the program was established.

Washington observers recall that with lobbying by then-Gov. Pedro Rossello, as well as by Romero and the PRHA, there was general agreement in Congress on changing the Puerto Rico formula in 2000. However, it was blocked by then-Senate Majority Leader Trent Lott (R-Miss.), a close ally of both Sila Calderon and Anibal Acevedo Vila, at the time candidates to governor and resident commissioner. "Lott was a key figure in blocking the overall Medicare reform bill," a Washington insider recalled.

The reform has been a political hot potato since then, a number of Washington insiders indicate. At issue has been which national political party gets the credit for the drug benefits as well as the pharmaceutical industry’s concerns about the impact of government rates on drug prices.

After the 2002 midterm congressional election, the national parties seemed to have agreed on enacting a law this year. The ballooning federal deficit, however, exacerbated this year by unbudgeted expenses such as Iraq, has made passage of the bill an uphill battle. The bill would cost an estimated $400 billion over 10 years.

The Senate passed a bill that would have applied the national rates to Puerto Rico, a proposal made by Sens. John Kerry (D-Mass.) and Rick Santorum (R-Penn.). But the House bill would have phased-in payments, 75% based on the national rates and 25% on local costs.

According Farrow, who spearheaded the Clinton proposals, the conference committee of House and Senate leaders has agreed to phase in a 75%/25% blend, but progress on the overall bill has been slow.

Under a 75%/25% blend, Volckers said, hospitals in Puerto Rico could realize a gain of $123 on every Medicare patient because the current net loss of $10 million would change to $17 million profit annually.

Volckers explained that under the pending proposal, the 75% / 25% formula "has been adjusted to a two-year phase-in, meaning that if adopted, it would increase 12.5% the first year and 12.5% the second year. This means we will be losing more money as we wait for the new rate to kick in completely." He indicated that the proposed increase (from the current $10 million to $13 million a year) would only result in hospitals breaking even, or eliminating losses.

"The problem is that time is running out; the conference committee is committed to completing its work by Oct. 17, the deadline set by President George W. Bush for him to receive the prescription drug bill. It contains the amendment by which Puerto Rico’s Medicare payments would increase," Volckers said.

The debate stems from the position of some members of Congress that drug coverage should be added to Medicare. But fiscal conservatives and others are opposed to the mounting cost of Medicare. Hospital operators on the U.S. mainland as well as in Puerto Rico are concerned as members of Congress argue over whether to cut or add billions of dollars in Medicare payments to hospitals.

New York has more money at stake than any other jurisdiction. Sen. Hillary Rodham Clinton (D-N.Y.) is charging that adding prescription drug coverage to Medicare would raise costs for millions of New Yorkers and result in poorer coverage for many of them. Clinton said she would oppose any bill that emerges from the conference unless it comes up with one more generous than either house has been so far. "Either version, the Senate or the House, would represent a net loss for most retirees," said Clinton.

A number of PRHA members concede that putting the Puerto Rico amendment on the drug bill was a calculated risk that can’t now be changed by seeking to attach it to another bill. "There are pluses and minuses regarding the drug bill, but we’re hoping that the awareness of Puerto Rico’s problem has increased significantly in Congress, and we are counting on the backing of some powerful supporters," said one member. "We’re keeping our fingers crossed."

"Frankly, I’m pessimistic about hospitals in Puerto Rico achieving the proposed increase in the federal contribution for Medicare patients in Puerto Rico," said Volckers. "The chances right now are slim."

Growing elderly populationOf the 40 million people over age 65 throughout the U.S., 525,000 are in Puerto Rico. This is 14% of the island’s population. "The percentage of Puerto Rico’s population over 65 will increase to 20 within five to 10 years," Volckers said. "This means hospitals in Puerto Rico will be severely handicapped until equitability is achieved–always running to keep up, much less catch up." He cited a recent confidential study of the hospital industry by a major accounting firm that indicates hospitals on the U.S. mainland are making a 17% profit annually, whereas those in Puerto Rico are losing 1.1% annually.

"Hospitals are also handicapped in providing healthcare to people over 65 because seniors need more healthcare," said Volckers. "Sometimes we can’t purchase all of the equipment that we are required to have by Medicare because we lack sufficient capital, which really means insufficient revenue from patients."

Regarding the current consideration of Medicare in Congress, Volckers said, "Some representatives of our member hospitals are less than happy with the advocacy of Puerto Rico’s position by Resident Commissioner Anibal Acevedo Vila and his staff. There is a definite feeling among some .that improving Puerto Rico’s participation in Medicare was neglected in favor of Section 956. There seemed to some to be a lack of focus, not to mention enthusiasm, on the Medicare subject." San Pablo’s Cruz, however, said Acevedo Vila has been very helpful.

Call for united action

What would the PRHA like to see happen with this Medicare dilemma? "I think everybody in Puerto Rico should stand up and be counted on this important matter," said Volckers. "By that I mean the hospital industry, the public, the central and municipal governments, and the Medicare beneficiaries in Puerto Rico. Next year is an election year, so Puerto Rico is going to have even less leverage in Washington than usual."

According to Volckers, an option being considered by some PRHA members is "to sue the federal government for the same level of Medicare payments as that paid to Puerto Rico’s fellow citizens elsewhere in the nation, as they both make a full and equal contribution to the federal Medicare plan."

"Now that would really get attention, wouldn’t it?" said Volckers.

Hospital Association has top-notch lobbyists

A number of congressional staffers familiar with the Medicare Puerto Rico impasse on the Hill give high marks to the firms and individuals in Washington representing the Puerto Rico Hospital Association (PRHA) and the municipalities of San Juan, Bayamon, and Guaynabo. Among them are Luis Baco of McDermott Will & Emery, Juan Carlos Iturregui and Manuel Ortiz of Quinn Gillespie, former P.R. Secretary of Justice Jose Fuentes Agostini of Reed Smith, and The Washington Group. Also contributing to the tentative Puerto Rico increase are Hermanos Melendez Hospital owner Richard Machado of Bayamon and top Democratic fund-raiser Miguel Lausell.

"When the Puerto Rico increase finally goes through, these high-powered and influential firms and individuals should get the credit. They opened a lot of doors in Washington for the PRHA," said a House staffer. "Gillespie is Ed Gillespie, the Republican National chairman. His firm is responsible for much of the progress. Baco has also been very involved. Gov. Calderon may not like Machado or Lausell, but as big national Democratic contributors and as the initial link to many national Democrats and the Washington Group on this issue, they have contributed much more to an increase for Puerto Rico than she and [Resident Commissioner Anibal] Acevedo Vila have."

Receiving praise from all quarters of the hospital industry in Puerto Rico is Pennsylvania’s junior Sen. Rick Santorum, a Republican, and Sen. Bob Graham (D-Fla.), who recently withdrew as a Democratic presidential candidate. They are two of the 21 co-sponsors of the amendment to help Puerto Rico’s hospitals.

As a member of the Special Committee on the Aging, Santorum became interested in the Medicare problem in Puerto Rico. He has even visited the island and assigned one of his staff to follow the situation closely. Graham also has often visited Puerto Rico and is well-known as a strong advocate of issues involving the island.

When some of Santorum’s constituents question his interest in Puerto Rico, Santorum points to the discriminatory way in which Puerto Rico Medicare recipients are being treated. He also points to his growing Hispanic support as more Latinos, including Puerto Ricans, move into his state. "The difference between me and the resident commissioner [Acevedo Vila] is that I have a vote and Acevedo doesn’t," quipped Santorum.

Also mentioned is former Resident Commissioner Carlos Romero Barcelo, now a New Progressive Party (NPP) primary candidate for the post. One congressional staffer said Romero Barcelo was "the best representative Puerto Rico ever had in Washington; he knew how to open every door and get things done."

Another NPP candidate for resident commissioner, Luis Fortuño, gets high marks from a number of those involved because of his "access to Republican members in both the House and the Senate and his willingness to use them for the benefit of Puerto Rico’s funding in the Medicare program."

The staffer said, "These lobbyists and political figures outside the government are very savvy, very involved, and very hands-on. They’re doing a terrific job, not only for the PRHA but for all of Puerto Rico as well. I’m very impressed with all of them."

Virgin Islands treated better than Puerto Rico

An interesting aspect of the Medicare debate is that Medicare recipients and healthcare providers in the U.S. Virgin Islands (USVI) have achieved complete parity with the U.S. mainland.

"Congress has decided to extend different coverage to the territories of the USVI and Guam, for example, than to Puerto Rico," said Jeffrey Farrow, who has broad knowledge of the USVI and of Puerto Rico. "Puerto Rico’s population is so big [close to four million] compared with that of the USVI [only 114,000], that it often sets off alarms among some fiscal conservatives in Congress," he said. "That is despite the fact that Puerto Rican workers and their employers contribute to Medicare on the same basis."

"The Pavia Group knows well about this difference," said Alfredo Volckers, president-elect of the Puerto Rico Hospital Association, whose member hospitals treat numerous patients from the USVI annually. "What is so ridiculous about this different treatment of fellow citizens is that, in addition to being discriminatory and unfair, it just doesn’t make any sense."

Volckers said, "Pavia is reimbursed for treatment provided to a USVI patient in Puerto Rico according to the Puerto Rico rate, not the USVI rate." The same problem arises with Medicare beneficiaries from the U.S. mainland who are admitted to hospitals in Puerto Rico. "Island hospitals are reimbursed only at the Puerto Rico rate, not the rate that would apply in California or wherever the patient is from," Volckers said.

Puerto Rico’s Hospital Industry at a Glance

Number of hospitals: 59

Number of beds: 9,200

Number of patient-days per annum: 2.5 million

Number of Medicare recipients eligible for treatment: 550,000

Number of Medicare hospital patients treated annually: 137,000

Medicare reimbursements in fiscal year 2002

Part A (hospitals): $541.3 million

Part B (physicians, labs, etc.): $874.8 million

Total: $1.41 billion

Number of direct employees: 40,000

Annual gross revenue: $1.7 billion

Annual gross expenses: $1.6 billion*

*Alfredo Volckers indicates $100 million difference between revenue and expenses reflects contractual allowances for discounts to health plans.

Source: Puerto Rico Hospital Association

This Caribbean Business article appears courtesy of Casiano Communications.
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