June 30,2008

Grassley calls on CMS to account for payments to hospitals

M E M O R A N D U M

TO: Reporters and Editors
FR: Jill Kozeny, 202/224-1308 for U.S. Senator Chuck Grassley of Iowa
RE: GAO report on supplemental payments to hospitals
DA: Monday, June 30, 2008

Senator Chuck Grassley is urging the Centers for Medicare and Medicaid Services toimplement recommendations issued today in a new report of the Government AccountabilityOffice payments of disproportionate share (DSH) funds to hospitals. The report, GAO-08-614,is titled MEDICAID CMS Needs More Information on the Billions of Dollars Spent onSupplemental Payments and is posted at www.gao.gov. Senator Grassley also said he willcontinue to study the practices of non-profit hospitals to confirm that they are providing a publicbenefit commensurate with the public subsidies they receive.

Below is a statement from Senator Grassley. He is Ranking Member of the Committee on Finance, which is responsible for Medicare legislation and tax policy.

“Hospitals in America, particularly non-profit hospitals, receive numerous forms ofsupport from federal, states, and local governments. The Medicare and Medicaid programsprovide disproportionate share (DSH) funds to hospitals that provide care to a significantcaseload of uninsured patients. The Medicaid payment system for hospitals allows states to payhospitals up to an Upper Payment Limit (UPL) which is greater than their costs under the stateMedicaid program. In addition to not paying income taxes, non-profit hospitals receivetax-deductible contributions, issue tax-exempt bonds and receive exemptions from state andlocal property and sales taxes.

“Hospitals were granted special status back at the turn of the last century when hospitalswere the only places where the poor could go when they were sick. The enactment of Medicarein 1965 and the explosion of the insurance market since then has resulted in incentives forhospitals to treat only paying patients. The current environment is no different than where wewere over a hundred years ago. Back then, people with money had private physicians who madehome visits. The poor received treatment at alms houses supported by philanthropy. The onlydifference now is that many of those former alms houses have become rich institutions thatbelieve they no longer need to serve the poor to reap all the benefits of their tax-exempt status.

“In my investigation of non-profit hospitals, I have found disturbing evidence that somehospitals are not delivering the services that they should in exchange for the benefits theyreceive. Some hospitals lack charity care policies, or don't make them known to the public. Theybill the uninsured or underinsured chargemaster rates, which are significantly higher than whatinsurance companies and Medicare actually pay. They engage in questionable collectionspractices. They pursue payments from the poor and near-poor uninsured without considerationof the DSH funds that they receive from states or the funds they hold in endowments. On June10, 2008, the Finance Committee heard testimony from Lisa Kelly, who was required to come upwith a cashiers check for tens of thousands of dollars before receiving treatment for cancer at theMD Anderson Center. An institution with an endowment of more than a half billion dollarsrequired an underinsured woman with cancer to come up with tens of thousands of dollars beforethey would treat her. http://finance.senate.gov/

“We need to know that the public appropriately benefits from these numerous federalsubsidies. We need to know that federal funds are being properly spent. In 2003, Congresspassed a provision in the Medicare Modernization Act (MMA) to require states to submit annualaudits of their DSH payments to CMS. Almost five years have passed, and CMS has still notimplemented the final rule for the MMA provision. The GAO report I am releasing today showshow critical it is CMS issue the final rule. CMS doesn't know where DSH funds are being used.That simply cannot continue.”