Over the past several weeks, provider groups have been cautiously hopeful that congressional Republicans were moving to soften the Medicare and Medicaid spending reductions in their budget proposals.
After all, Speaker of the House Newt Gingrich (R-Ga.) said that any money saved by reducing the growth in Medicare would be used to keep the program solvent, while other Republicans talked about making program changes that would save the Medicare Federal Hospital Insurance Trust Fund from its projected bankruptcy in 2002.
But all that optimism died last week when House and Senate Republicans released their budgets, which included $467 billion and $431 billion in combined Medicare and Medicaid spending reductions, respectively, over seven years.
"We are disappointed with the way things developed," said Richard Davidson, president of the American Hospital Association. "We heard signals that Medicare might be treated separately. We heard signals that decisions might be made on policy. But all the good ideas seem to have evaporated.
"The Medicare cuts will still be used for deficit reduction instead of keeping Medicare cuts in the trust fund," he said.
The AHA released a study last week conducted for it by the consulting firm Lewin-VHI. The study found that if the Medicare cuts included in the GOP budgets were enacted, the average Medicare margin for hospitals would drop from a current across-the-board average of 0.3% to -12.2% in 2002. Government hospitals would see the greatest erosion of margins (down 14.3 percentage points to -13%), while for-profit hospitals would see the smallest (down 8.9 percentage points to -8%).
Because Congress has yet to spell out how the Medicare cuts would be distributed, Lewin used ratios from past budgets to estimate the hospital share of the reductions. The firm projected that hospitals would be hit by $94 billion of the $256 billion in Medicare spending reductions included in the Senate plan.
Other provider groups also decried the cuts.
Charles Huntington, Washington office director of the American Academy of Family Physicians, said Medicare beneficiaries' access to doctors might be hurt under some of the House's savings proposals.
"I don't know where beneficiaries are going to get their primary care, but it's not (from) physicians," he said.
Thomas Scully, president of the Federation of American Health Systems, said the cuts were "too much, too fast."
"We want to support a major Medicare reform package this year that could include significant Medicare savings," Scully added. "But the savings have to be driven by good health policy, not by a randomly picked budget `plug' number that balances the budget by a randomly chosen year."
The House's Budget Committee last week voted 24-17 to approve a plan that would cap the growth in the Medicare program at 5% a year and Medi-caid at 4% a year (See chart).
Part of the House Republican plan includes three Medicare-reform recommendations that would generate the savings the Budget Committee has set.
For example, one option centers on capitated payments to Medicare managed-care plans, beginning at a proposed $5,105 per enrollee for fiscal 1996 and increasing to $6,390 in 2002, with annual growth rates from 2.4% to 4.8%.
The Senate Budget Committee's plan, which was approved late last week on a 12-10 vote, included much less detail than its House counterpart.
Though Medicare took only a few lines in the lengthy budget, it remained the No. 1 issue all week.
Democrats argued that the Medicare cuts were being used to pay for a $170 billion tax cut that Domenici said would come if a balanced federal budget were enacted. Several Democratic attempts to use some of the funds set aside for the tax cut to reduce the level of Medicare cuts were defeated.
However, Republicans countered that even with the spending reductions, Medicare would still grow at nearly twice the rate of general inflation and that the spending reductions were needed to keep the Medicare hospital trust fund solvent. According to a report released last month by the trustees of the fund, it will become insolvent in the year 2002. The Medicare trust fund pays for Medicare Part A outlays, which go primarily to hospitals.
In the Senate, Republicans proposed the formation of a commission to recommend changes to the Medicare system that would achieve the budget plan's $256 billion in savings. The commission would report to Congress by July 10.
Meanwhile, the House Ways and Means Committee passed a bill introduced by Chairman Bill Archer (R-Texas) that would require the trustees of the Medicare hospital trust fund to report to Congress by June 30 with recommendations to extend the fund's solvency.
Democrats derided the plans as political maneuvers designed to give Congress cover from politically powerful senior citizens groups that oppose the Medicare and Medicaid spending reductions.