Testimony of David Winslow,

Vice-President, Maine Hospital Association

Regarding

Proposed Value of the Capital Investment Fund, 2007

December 8, 2006

 

 

 

Good morning, my name is David Winslow, and I am the Vice-President of Financial Policy at the Maine Hospital Association. The Maine Hospital Association represents all of Maine’s 39 acute care and specialty hospitals and their affiliates. Maine is one of only a handful of states in which all of its acute care hospitals are non-profit.

 

We appreciate being given an opportunity to review the proposal and the data that was used to calculate the value of the Capital Investment Fund for 2007. This is the third year that I have given testimony on the value of the Capital Investment Fund and as I reviewed my testimony from previous years it became clear that many of the problems that we have had with the calculation in the past persist today. I will not review all of my testimony from those previous years, but the fact remains that the effective size if the fund for 2007 is approximately $7.1 million - which is approximately .266% of the total net revenue of Maine hospitals and that is simply too small a percentage of total revenue to be an adequate Capital Investment fund.       

 

In addition to the general concern that the formula produces too small a CIF, there are three other areas of specific concern that the Maine Hospital Association has with the way the value of the 2007 Capital Investment Fund has been calculated:

 

·         Some of the factors in the formula used to establish the value of the Capital Investment Fund are inaccurate and artificially and inappropriately reduce the final amount of the CIF.

 

·         The Department of Health and Human Services has not issued decisions on the 2006 small projects in time for the Governor’s Office of Health Policy to finalize the actual CIF amount.

 

·         The decision to not carry over any credits from the previous year unfortunately reduces the size of the Fund even further.

 

       Improper Data Used in the Formula

 

The Maine Hospital Association continues to have a much different view than the Governor’s Office on the most appropriate method of adjusting the formula for the differences between hospital costs in Maine and those in the


rest of New England. The adjustments that were used in Subsection A (2) lower the value of the CIF by approximately $1.1 million because Maine has a low Medicare wage index. This wage index is also unfortunately the primary reason that the State has one of the lowest Medicare reimbursement rates in the country. To use the same unfair payment method to judge hospital costs in relation to the other New England states is inappropriate. For example, the wage index in Manchester New Hampshire and Boston Massachusetts is approximately 19% higher than it is in Portland Maine. These wage index inequities are the primary reason for the huge Medicare payment variations among the 3 States. The CMS web-site shows the actual Medicare payment rates for various DRGs in the 3 states. Examples include:

 

DRG 105 Heart Valve Operations: Boston $44,747, Manchester $43,417, Portland $35,657

 

DRG 197 Gall Bladder Removal: Boston $19,405, Manchester $18,869, Portland $13,624 

 

The use of the Medicare wage index to measure hospitals costs, as is done in this formula, is inappropriate because it penalizes the hospitals in Portland by 19% when compared with the other two areas and the penalty becomes even worse in the rest of Maine which has lower wage index rates.

 

Another clear example of why the wage index should not be used in any of the calculations is Table 3 of the CIF memo which shows Capital Costs per Discharge (Adjusted for Wage Index & Case Mix).

 

Capital Costs Per Discharge (Adjusted for Wage Index & Case Mix)

 

2000

2001

2002

2003

2004

ME

$414.14

$506.33

$468.29

$469.90

$484.02

NH

$445.07

$545.62

$431.54

N/A

$418.38

VT

N/A

N/A

N/A

N/A

N/A

MA

$161.32

$153.31

$177.54

$144.25

$299.78

CT

N/A

N/A

$369.20

N/A

$320.73

N

$423.16

$392.20

$463.75

N/A

$384.81

NY

$358.17

$384.17

$310.13

$356.44

$356.15

PA

$321.77

$344.64

$361.99

$393.02

$432.34

RI

$280.30

$255.88

$274.01

$288.43

N/A

NE

$281.22

$295.66

$309.46

$280.51

$391.85

Rural

$404.39

$396.25

$407.54

$424.58

$431.33

 

 

 

 

 

 

Source:  2006 Almanac of Hospital Financial and Operating Indicators, pages 281 and 282.   Ingenix, 2005.

 

Now compare the exact same information from the exact same source – the 2006 Almanac of Hospital Financial and Operating Indicators – WITHOUT the adjustments.

 

Capital Costs Per Discharge

 

2000

2001

2002

2003

2004

ME

$404.43

$438.95

$506.76

$450.42

$418.62

NH

$521.03

$495.57

$497.27

N/A

$492.92

VT

N/A

N/A

$395.25

N/A

N/A

MA

$234.19

$222.50

$218.02

$201.84

$274.85

CT

N/A

N/A

$496.78

N/A

$467.93

NJ

$543.83

$495.72

$580.73

N/A

$536.15

NY

$467.81

$454.79

$399.11

$476.44

$501.63

PA

$309.10

$345.65

$398.63

$381.11

$321.35

RI

$435.89

$469.79

$379.97

$422.41

N/A

NE

$317.90

$329.70

$377.11

$352.18

$458.81

Rural

$337.56

$338.69

$356.73

$358.25

$385.97

All

$407.84

$394.49

$433.45

$400.31

$456.21

 

 

 

 

 

 

 

 

 

 

 

 

Source:  2006 Almanac of Hospital Financial and Operating Indicators, pages 278 and 279.   Ingenix, 2005.

 

 

 

As you can see, Maine miraculously goes from having a Capital Cost per Discharge which is 24% higher than the Northeast average to one which is 9% lower than the Northeast average when you remove the wage index adjustments. The question is – why exactly is it necessary to apply a wage index to a CCPD or CPAD?   

 

I hope these examples lead you to reconsider what measure you use to compare hospital costs in Maine with those in the other New England states and move to one that does not use the flawed measure of Medicare Wage Index. Examples of better measures would be

 

Hospital Expense Per Capita: Maine - $2090, New England - $2207

Source: AHA Hospital Statistics, 2006

 

Expense Per Adjusted Admission (no wage index): Maine - $8535, New England $9044                       

Source: AHA Hospital Statistics, 2006

 

 

Failure of the Department to Act on CON decisions in 2006   

 

One of the notes in the November 21, 2006 CIF Proposal is that the numbers are preliminary pending the DHHS review of the small projects from 2006. What the memo does not say, however, is that by regulation the decisions on small projects should have been made approximately 5 months ago. I am not suggesting that this failure of the Department to act will have a dramatic impact on the size of the 2007 CIF, but rather to show some of the frustrations that hospitals have with the CON/CIF process. There is no legitimate reason that the Governor’s Office should be forced to only provisionally adopt the CIF regulation at this late date. As importantly hospitals should not still be waiting for decisions a full five months after the deadline has passed.          

 

Carry over of Credits from Previous Year

 

The last page of your notice indicates that you considered rolling the unspent balance from last year’s CIF into this year but chose not to. The amount of $178,549 is small, but we believe rolling the balance forward is important nonetheless and ask you to reverse this decision.

 

Finally I would note that the Maine Hospital Association continues to believe that the actual value of the Capital Investment Fund should be subject to the Major Substantive Rulemaking process and should properly be reviewed by the Legislature on a yearly basis as opposed to the approach that has been taken in the last three years.

 

Thank you, and I would be happy to answer any questions.