Both the House and Senate reform plans unveiled last month have a built-in "fail-safe" mechanism to reduce provider payments if preset spending targets are exceeded in the fee-for-service sector of Medicare.
The so-called "look-back mechanisms" are needed because the Congressional Budget Office, which has the final say on how much legislation saves or costs, isn't buying the Republicans' projected level of savings from the movement of seniors to managed care.
The CBO uses arcane rules called "scoring" to determine whether bills will meet spending goals, but the look-back mechanisms circumvent the CBO.
Specific spending budgets for the Medicare program are established through legislation (See chart). In the House plan, all payments to providers and managed-care plans would total $203 billion in 1997 and increase to $280 billion in 2002. Senate budgets are slightly lower.
If budgets are exceeded in any given year, then provider payments in the fee-for-service sector of the Medicare program will be reduced by the amount of the overage in the following year.
In the Senate plan, provider reductions are essentially an across-the-board cut. In the House proposal, the targets are broken down by sector, such as hospital, home health or labs, and only the specific sectors that break the budget are cut the following year.
Provider groups supported the look-back mechanisms early on as a way to buy time as fundamental changes in the system take hold. But now they fear providers would bear most of the burden of budget overages.
Comparison of provisions in the proposed Senate and House Republican Medicare reform plans. Senate plan savings numbers are Congressional
Budget Office estimates over the seven-year period 1996-2002. House plan savings are American Hospital Association estimates for the same period.
Senate plan House plan
Spending reductions $270 billion. $50 billion from moving â– more beneficiaries into managed-care â– plans. Increased beneficiary costs total â– about $75 billion. Total "upfront" â– provider reductions are $141.5 billion. $270 billion. $75 billion "upfront" from â– hospitals, $35 billion from other â– providers, $80 billion from beneficiaries â– and up to $80 billion more from providers â– through a "fail-safe" mechanism if â– managed-care savings don't materialize.Provider reductions Hospital provisions include: *Annual PPS update reduced 2.5 â– percentage points 1996-2002 ($36.1 â– billion).*Capital payments reduced from 90% of â– cost to 85% of cost ($9 billion).*Disproportionate-share payments â– reduced 25% by 2002 ($4.5 billion).*Indirect medical education payments â– reduced to 6.7% from 7.7% in 1996, to â– 5.6% in 1997 and to 4.5% thereafter.
Hospital provisions include: *Annual PPS update reduced 2.5 â– percentage points in 1996, 2 percentage â– points 1997-2000 ($25.7 billion). *Disproportionate-share, inpatient â– capital the same as
Senate's.*Creates new medical education trust â– fund of as much as $17 billion, from â– which teaching payments will be made. â– Indirect medical education payments â– reduced to 6.5% from 7.7% in 1996, to â– 6% thereafter.
Physician provisions include: *Single conversion factor set at $35.42 â– in 1996 ($22.6 billion).*Single spending growth performance â– standard tied to GDP growth.*Cumulative budget ceiling placed on â– physician payments. Physician provisions include: Same as Senate plan, except â– conversion factor set at $36.75.Home health Establishes prospective payment system â– for home-care ser