Press Release

Open Letter on HR 3962, November 20, 2009

Speaker of the House
Nancy Pelosi
Office of the Speaker
H-232, U.S. Capitol
Washington, DC 20515

Minority Leader John Boehner

Office of the House
Republican Leader
H-204, U.S. Capitol
Washington, DC 20515

November 20, 2009

Dear Speaker Pelosi and Leader Boehner,

In its review of health reform legislation passed by the U.S. House of Representatives (HR 3962), the Office of the Actuary (OACT) confirms others’ estimates that the legislation newly covers tens of millions of Americans and strengthens Medicare by extending the life of the trust fund.

However, we take issue with OACT’s opinion on the bill’s implications for Medicare beneficiaries’ access. In OACT’s view, the House-passed productivity adjustment to payments for hospitals and other Part A providers would generate insufficient payments, leading providers to stop serving Medicare beneficiaries. Hospitals, in OACT’s opinion, simply cannot be expected to achieve productivity goals achieved by every other sector of the economy.

We disagree. To slow the growth in the costs of health care, it is essential to push for such improvements, which organizations representing the hospital industry have themselves recognized as achievable.

The productivity adjustment included in the House bill has been used successfully for physician services since 1975. And, for many years, the Medicare Payment Advisory Commission (MedPAC) has taken this productivity improvement into account in making its annual update factor recommendations to the Congress with respect to Medicare payments to hospitals and other services. The purpose of the annual update, as MedPAC has noted, is to recognize changes in the cost of delivering services including changes in both input prices and productivity. Clearly, this expert panel recognizes that adjusting Medicare payments for productivity serves the best interest of the program, taking into account any potential impact on beneficiaries.

Further, OACT bases its access concerns on historical rates of productivity achieved by hospitals. But historical performance reflects the absence of financial pressure on much of the market. Indeed, MedPAC has found that where such pressure exists, hospitals have lower costs and perform better with respect to quality measures, including mortality and readmissions rates as compared to institutions not facing such pressures. The evidence indicates that when financial pressure pushes hospitals to perform better, they are able to find efficiencies without jeopardizing beneficiary access to quality services.

Over time, as with all aspects of the Medicare program, improvements to the new productivity measure may be found. This has occurred over the years with respect to the hospital market basket inflation adjustment which determines the level of increase in hospital payments under current law. These types of changes are all part of the ongoing challenge of monitoring the effects of Medicare policies, including effects on providers and beneficiary access to services, and using that information to manage the program in the best interest of beneficiaries and taxpayers. Even if, as suggested by the actuary’s memorandum, future policy changes are made that would have the effect of reducing the productivity adjustment, other opportunities for targeting program savings will likely be identified by then. Indeed, other payment reform provisions in the health reform bill may prove to reduce program expenditures more than is estimated at this time.

The expectation in H.R. 3962 that hospitals and other Part A providers become more efficient is not only reasonable, it is essential to achieving affordable health care for the future.


Judith Feder, Ph.D.
Professor of Public Policy, Georgetown University
Senior Fellow, Center for American Progress

Marilyn Moon, Ph.D.
Vice President, American Institutes for Research
Former Medicare Trustee