As it plots a course to a balanced budget by 2002, the House Budget Committee has outlined 35 proposals that would reduce the growth of Medicare spending by more than $288 billion over seven years.
The proposals face inherent difficulties, however. Many have been debated and discarded in the past. Others already have been implemented or ignore spending reductions that are expected to take place under existing law.
For example, the committee proposes saving $5.9 billion during the seven-year period from projected physician payments of $342.1 billion. Savings would come from freezing the fee schedule at 1995 rates, reducing future fee updates by 3% and adjusting future Medicare physician volume growth targets.
But in reality, Medicare physician fees already are expected to be reduced under the current payment scheme, in part because doctors are controlling the volume of Medicare services.
The decline will begin in 1997 and by 2003 could mean Medicare will pay individual physicians less than it did when the existing payment structure took effect in 1992.
Although doctors have seen fee updates of 7% or more in the past two years, the Physician Payment Review Commission forecasts that the quirks in the formula used to calculate fees will cause updates to decline by at least 1% in 1997 and by 2% to 3% every year from 1998 to 2005. For 1996, the PPRC and HHS have proposed raising physician fees 1.1%.
"There seems to be a perception that there are these huge updates," said Robert Doherty, vice president of government affairs and public policy at the American Society of Internal Medicine. "That may have been the case last year, but that's not going to take place next year and is not going to be taking place in the future."
Other committee-proposed spending reductions the administration or Congress already have proposed include:
Elimination of a quirk in the formula for calculating hospital outpatient department payments that results in beneficiaries paying more than their 20% coinsurance rates.
Adopting a resource-based system to compensate physicians for overhead.
Establishing a Medicare PPO option.
The 35 spending reduction proposals were included in three plans that the House Budget Committee offered as road maps toward reaching a balanced budget by 2002.
Under the Republican Senate plan, reductions in Medicare growth would total $256 billion. House Republicans proposed growth reductions of $283 billion. The Budget Committee's 35 cuts add up to more than the total budget target because some cuts will impact others.
The Budget Committee only sets spending reduction targets; the Ways and Means and Commerce committees must authorize any changes to the Medicare and Medicaid programs. Budget Committee Chairman John Kasich (R-Ohio) said he forwarded the Medicare plans to demonstrate that the budget targets could be met.
But Rep. William Thomas (R-Calif.), chairman of the Ways and Means health subcommittee, downplayed the likelihood that the Budget Committee's proposals would pass as written and said greater restructuring is needed to ensure the Medicare program's solvency.
"I was very appreciative of the suggestions-underline suggestions-made by other committees," Thomas said. But he added: "A lot of them are more of the same. More of the same isn't going to do."
Thomas' stance underscores the conflict Republicans face as they try to reform Medicare at the same time they try to use savings to pay for deficit reduction.
Structural reform-such as the Budget Committee's proposal to pay a capitated rate for beneficiaries' care-may not pay dividends for several years, so the need to show savings in the short term may force Congress to pass some of the 35 spending reductions.
But passing short-term spending reductions may be so difficult that lawmakers could be reluctant to take on long-term structural reforms.
"Can you bring those who want long-term structural reform into compatibility with those who are pressed to the wall to come up with short-term savings and come out with a package in which one isn't going to kill off the other?" asked Gail Wilensky, the Bush administration HCFA chief who now chairs the PPRC.
Excerpts from House Budget Committee's `Options for Preserving Medicare'
Incentive-based Medicare reform
Establish a Medicare PPO (saves $26.3 billion over seven years).
Decouple managed-care premium rates from average county-by-county
Medicare per-capita costs, and cap growth in managed-care premiums at 5% ($9.9 billion in savings).
Eliminate Part B premium for joining managed-care plans (no savings).
Increase premiums for beneficiaries who stay in fee-for-service ($3.8 billion in savings).
Bundle post-acute care into hospital payments ($19.3 billion in savings).
Readjust the Medicare physician volume growth targets ($3.4 billion in savings).
Eliminate formula-driven overpayment to hospital outpatient departments ($16 billion in savings).
Reduce direct and indirect medical education payments ($27.2 billion in savings).
Phase out Medicare disproportionate-share payments ($28.8 billion in savings).
Require coinsurance for laboratory services and home healthcare ($25.8 billion in savings).
Reduce hospital update to market basket minus two percentage points through 1999 and minus one percentage point from 2000 through 2002 ($25.9 billion in savings).
Defined Medicare contribution
Transforms Medicare into a voucher program that permits beneficiaries to choose their own healthcare coverage plan. Vouchers, which would average $5,122 in 1996, would be adjusted for age, gender, geographic location, disability status and other factors. Beneficiaries pay extra if they want better coverage and receive a rebate if they choose less expensive coverage. The average annual growth rate would be 5.4% from 1996 to 2002.
Seeks to limit annual Medicare spending growth to 5.4% by imposing seven spending reduction options affecting primarily providers and enrolling 59% of Medicare beneficiaries in managed-care plans by 2002. If spending or enrollment goals are not reached, more spe