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                                                      Calendar No. 181
114th Congress   }                                      {       Report
                                 SENATE
 1st Session     }                                      {      114-102

======================================================================



 
    THE RURAL COMMUNITY HOSPITAL DEMONSTRATION EXTENSION ACT OF 2015

                                _______
                                

                 July 30, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 607]

    The Committee on Finance, to which was referred the bill 
(S. 607) to amend title XVIII of the Social Security Act to 
provide for a five-year extension of the rural community 
hospital demonstration program, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and an amendment to the title and recommends that the 
bill, as amended, do pass.

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, to which was referred the bill 
(S. 607) to amend title XVIII of the Social Security Act to 
provide for a five-year extension of the rural community 
hospital demonstration program, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and an amendment to the title and recommends that the 
bill, as amended do pass.

Background and need for legislative action

    The Centers for Medicare and Medicaid Services (CMS) is 
conducting the Rural Community Hospital Demonstration Program 
which started as a five year program authorized in section 410A 
of the Medicare Prescription Drug, Improvement, and 
Modernization Act (MMA) of 2003. The demonstration was expanded 
and extended for an additional five year period in sections 
3123 and 10313 of the Patient Protection and Affordable Care 
Act (PPACA) of 2010.
    Congress established this demonstration in response to the 
financial concerns of certain small, rural hospitals. The 
demonstration is intended to test the feasibility and 
advisability of cost-based reimbursement for rural hospitals 
that are too small to remain financially viable under 
Medicare's inpatient hospital prospective payment system, but 
are too large to convert to Critical Access Hospital (CAH) 
status.
    In order for CMS to consider a hospital eligible to 
participate in the demonstration program, the following 
requirements, as specified by the authorizing legislation, had 
to be met:
           Facility is located in a rural area [as 
        defined in section 1886(d)(2)(D) of the Social Security 
        Act (42 U.S.C. 1395ww(d)(2)(D)) or treated as being so 
        located pursuant to section 1886(d)(8)(E) of the Act 
        (42 U.S.C. 1395ww(d)(8)(E))];
           Facility has fewer than 51 acute care 
        inpatient beds, as reported in its most recent cost 
        report (excluding beds in a distinct psychiatric or 
        rehabilitation unit of the hospital);
           Facility provides 24-hour emergency care 
        services; and
           Facility is not designated, or deemed 
        eligible for designation, as a CAH under section 1820 
        of the Social Security Act.
    Additionally, section 410A of the MMA required the 
demonstration be conducted in 10 states with low population 
densities. Using data from the U.S. Census Bureau, CMS 
identified the following states to participate in the initial 
demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New 
Mexico, North Dakota, South Dakota, Utah, and Wyoming. Sections 
3123 and 10313 of the PPACA expanded the demonstration's 
eligibility to 20 states, but retained the same criteria and 
data as the initial facility solicitation. Using data from the 
U.S. Census Bureau, CMS revised the participating states to be: 
Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas,Maine, 
Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North 
Dakota, Oklahoma, Oregon, South Dakota, Utah, and Wyoming.
    There are currently 22 hospitals participating in the rural 
community hospital demonstration. As publicly reported by CMS 
in July of 2013, the participating hospitals' names and 
locations are as follows:

Central Peninsula Hospital              Soldotna, Alaska
Bartlett Regional Hospital              Juneau, Alaska
Columbus Community Hospital             Columbus, Nebraska
Banner Churchill Community Hospital     Fallon, Nevada
Garfield Memorial Hospital              Panguitch, Utah
Mt. Edgecumbe Hospital                  Sitka, Alaska
Brookings Health Center                 Brookings, South Dakota
Delta County Memorial Hospital          Delta, Colorado
Yampa Valley Medical Center             Steamboat Springs, Colorado
Sterling Regional Medical Center        Sterling, Colorado
St. Anthony Regional Hospital           Carroll, Iowa
Grinnell Regional Medical Center        Grinnell, Iowa
Skiff Medical Center                    Newton, Iowa
Lakes Regional Healthcare               Spirit Lake, Iowa
Mercy Hospital                          Fort Scott, Kansas
Mercy Hospital                          Independence, Kansas
Geary Community Hospital                Junction City, Kansas
Bob Wilson Memorial Hospital            Ulysses, Kansas
Maine Coast Memorial Hospital           Ellsworth, Maine
Inland Hospital                         Waterville, Maine
Marion General Hospital                 Columbia, Mississippi
San Miguel Hospital Corporation         Las Vegas, New Mexico
 

    S. 607, as reported by the Committee on Finance, would 
extend the Rural Community Hospital Demonstration Program for 
an additional five years with three modifications. First, only 
those hospitals that were participating in the demonstration as 
of December 30, 2014 would be eligible to remain in the 
program. Second, the Secretary of Health and Human Services 
would not have the authority to select any additional hospitals 
to participate in the demonstration. Finally, the Secretary of 
Health and Human Services would be required to submit a report 
to Congress, no later than August 1, 2018, evaluating the 
demonstration's financial and operational impact on 
participating hospitals. It is expected that this report to 
Congress will contain both case study and financial impact 
analyses.

                      II. EXPLANATION OF THE BILL

    A. Amend section 410A of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (P.L. #108-173; 42 
U.S.C. 1395ww note), as amended by sections 3123 and 10313 of 
the Patient Protection and Affordable Care Act (P.L. 111-148), 
providing for a five-year extension of the Medicare Rural 
Community Hospital Demonstration Program.

                              PRESENT LAW

    Section 410A of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (P.L. 108-173) 
established the Rural Community Hospital (RCH) Demonstration 
Program beginning no later than January 1, 2005 for no more 
than 15 rural community hospitals. Section 410A defines a rural 
community hospital as a hospital that is located or treated as 
being located in a rural area, has fewer than 51 acute care 
inpatient beds, makes 24-hour emergency care services 
available, and is not eligible or not designated as a critical 
access hospital. This demonstration tests the feasibility and 
advisability of establishing ``rural community hospitals'' to 
furnish covered inpatient hospital services to Medicare 
beneficiaries in states with low population densities over a 
five-year period. Under the demonstration, participating 
hospitals are paid under a reasonable cost-based methodology 
for furnishing inpatient hospital services (excluding 
psychiatric or rehabilitation care) and extended care services 
to Medicare beneficiaries, rather than receive payment under 
Medicare's prospective payment systems. Payments to the 
participating hospitals in their first cost reporting periods 
of the demonstration equal their reasonable costs of furnishing 
such services. Payments to the participating hospitals in each 
of their subsequent cost reporting periods will be the lesser 
amount of the reasonable costs of furnishing such services in 
that cost reporting period or a target amount applicable to 
that cost reporting period. The target amount for each 
participating hospital's second cost reporting period is equal 
to the reasonable costs of a participating hospital's first 
cost reporting period under the demonstration, increased by the 
applicable percentage increase in the inpatient hospital market 
basket update for that particular cost reporting period. 
Subsequent target amounts would be equal to the prior cost 
reporting period's target amount increased by the applicable 
percentage increase in the inpatient hospital market basket 
update. Medicare payments under this demonstration are required 
to be budget neutral compared to what Medicare would have spent 
in the absence of this demonstration. Additionally, the 
Secretary is required to submit a report to Congress on the 
demonstration, including recommendations for legislative and 
administration action, no later than six months after the 
completion of the demonstration. The RCH demonstration is 
ongoing and no report has been submitted.
    Section 3123 of the ACA extended the duration of the RCH 
demonstration for an additional five years. This provision also 
required the Secretary to expand participation from hospitals 
in states with the lowest population densities (as determined 
by the Secretary) from 10 states to 20 states. The ACA 
additionally increased the number of hospitals able to 
participate in the demonstration during the extension period to 
no more than 30 rural community hospitals. Hospitals 
participating in the demonstration as of the last day of their 
initial five-year periods were grandfathered into the extension 
period. Finally, the ACA rebased the reasonable costs used to 
determine payments and target amounts for participating 
hospitals under the five-year extension period to be the 
reasonable costs of a hospital's first cost reporting period 
under the five-year extension period. This five-year extension 
period would end by September 30, 2015 for the hospitals that 
were initial participants in the demonstration.

                        EXPLANATION OF PROVISION

    S. 607, as modified, would extend the RCH demonstration for 
an additional five years only for those hospitals that were 
participating in the demonstration as of December 30, 2014. The 
reasonable costs used to determine payments and target amounts 
for hospitals participating under the RCH demonstration for the 
second five-year extension period would be rebased to be the 
reasonable costs of a hospital's first cost reporting period 
under the second five-year extension period. The demonstration 
would end December 31, 2021. Further, the Secretary's report to 
Congress would be required to be submitted no later than August 
1, 2018.

                             EFFECTIVE DATE

    The provision becomes effective upon the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                          B. Budget Authority

    In compliance with section 308(a)(1) of the Congressional 
Budget and Impoundment Control Act of 1974 (P.L. 93-344), the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Congressional Budget 
and Impoundment Control Act of 1974 (P.L. 93-344), the 
Committee advises that the Congressional Budget Office has 
submitted a statement on the bill. The following is the cost 
estimate provided by the Congressional Budget Office pursuant 
to section 402 of the Congressional Budget Act of 1974.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 17, 2015.
Hon. Orrin G. Hatch,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 607, the Rural 
Community Hospital Demonstration Extension Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Jamease 
Kowalcyzk and Kevin McNellis, who can be reached at 226-9010.
            Sincerely,
                                         Robert A. Sunshine
                                                  (For Keith Hall).
    Enclosure.

S. 607--Rural Community Hospital Demonstration Act

    Summary: S. 607 would extend the Rural Community Hospital 
(RCH) demonstration program for an additional five years, 
through the end of calendar year 2021. Under the demonstration 
program, Medicare pays certain hospitals in rural areas on the 
basis of the reasonable costs they incur instead of using the 
payment rates determined by Medicare's Acute Inpatient 
Prospective Payment System (IPPS). CBO estimates that enacting 
S. 607 would increase direct spending by $27 million in fiscal 
year 2016 but that this additional spending would be offset in 
future years. Therefore, the bill, on net, would have no 
significant effect on direct spending over the 2016-2025 
period. Pay-as-you-go procedures apply because enacting the 
legislation would affect direct spending. Enacting the 
legislation would not affect revenues.
    S. 607 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of S. 607 is shown in the following table. The 
costs of this legislation fall within budget function 570 
(Medicare).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in millions of dollars--
                                         ---------------------------------------------------------------------------------------------------------------
                                            2016     2017     2018     2019     2020     2021     2022     2023     2024     2025   2016-2020  2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING
 
Estimated Budget Authority..............      27      -23       -4        0        0        0        0        0        0        0         0          0
Estimated Outlays.......................      27      -23       -4        0        0        0        0        0        0        0         0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: S. 607 would allow the 22 hospitals 
participating in the Rural Community Hospital (RCH) 
demonstration program as of December 30, 2014, to continue in 
the program for an additional five years. The term of 
participation in the current round of the demonstration program 
is limited to five years. Under current law, seven of the 22 
hospitals will complete their term of participation by the end 
of fiscal year 2015, 11 will complete their participation 
during fiscal year 2016, and the remaining four will do so 
early in fiscal year 2017.
    Medicare pays each hospital in the demonstration program 
its reasonable costs for inpatient services. Reasonable costs 
are defined as the hospital's actual cost per discharge during 
a year, subject to the limitation that reasonable costs cannot 
increase more quickly than the percentage adjustment that was 
used to update Medicare's IPPS payment rates for the current 
year.
    Hospitals participating in the demonstration program 
generally receive payments that are higher than payments 
calculated using Medicare's IPPS rates. However, the 
demonstration is designed to be budget neutral. The Centers for 
Medicare & Medicaid Services (CMS) accomplishes this by 
reducing IPPS payments to non-participating hospitals by an 
amount the Secretary estimates will offset the cost of the 
demonstration for the upcoming year--that is, the expected 
difference between payments to RCH participants for the 
upcoming year and what they would be paid using IPPS payment 
rates.
    By August 2, 2015, CMS will issue a final rule for the IPPS 
in fiscal year 2016 that will include an adjustment to payment 
rates that reflects the expected cost of the demonstration for 
the 15 hospitals that will continue to participate under 
current law for part or all of fiscal year 2016. That 
adjustment will not reflect the cost of including the seven 
hospitals that will complete their terms of participation by 
the end of fiscal year 2015 under current law, nor will it 
include the cost of extending the participation of hospitals 
that will complete their participation during fiscal year 2016.
    Based on the adjustments made in recent years ($47 million 
and $54 million for 2014 and 2015, respectively), as well as 
the preliminary estimate of the adjustment included in the 
proposed rule for the IPPS for fiscal year 2016 ($26 million), 
CBO estimates that net direct spending would increase in fiscal 
year 2016 by $27 million because all 22 hospitals would 
participate for the full year, whereas the budget-neutrality 
adjustment would account for only part of that participation.
    Based on information provided by CMS, CBO expects that CMS 
would make an adjustment to IPPS payment rates for services 
furnished during fiscal year 2017 that would offset both the 
expected cost of the demonstration in that year and the 
estimated costs from 2016 that were not offset by that year's 
adjustment. As a result, CBO estimates that spending for 
services furnished during fiscal year 2017 would decline by an 
additional $27 million. (Because Medicare payments are made 
after services are furnished, CBO estimates that $4 million of 
that reduction would be realized in fiscal year 2018.) In 
total, CBO estimates that enacting S. 607 would not have a 
significant effect on direct spending over the 2016-2025 
period.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays that are subject to those 
pay-as-you-go procedures are shown in the following table.

 CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR S. 607, THE RURAL COMMUNITY DEMONSTRATION ACT OF 2015, AS ORDERED REPORTED BY THE SENATE COMMITTEE ON FINANCE
                                                                    ON JUNE 24, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                ------------------------------------------------------------------------------------------------------------------------
                                   2015     2016     2017     2018     2019     2020     2021     2022     2023     2024     2025   2015-2020  2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT
 
Statutory Pay-As-You-Go Impact.       0       27      -23       -4        0        0        0        0        0        0        0         0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: S. 607 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal costs: Jamease Kowalczyk and 
Kevin McNellis; Impact on state, local, and tribal governments: 
J'nell Blanco Suchy; Impact on the private sector: Amy Petz.
    Estimate approved by: Holly Harvey, Deputy Assistant 
Director for Budget Analysis.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the ``Rural Community Hospital Demonstration 
Extension Act of 2015'' as modified was ordered favorably 
reported by voice vote on June 24, 2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    In carrying out the provisions of the bill, there is no 
expected imposition of additional administrative requirements 
or regulatory burdens on individuals or businesses. The 
provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    The Committee adopts as its own the estimate of federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act of 1995 (P.L. 104-4). The Congressional Budget Office 
estimates the bill would not impose intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act and would impose no costs on state, local, or tribal 
governments.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]