Like any good sequel, 1996 will try to top the 1995 original. There'll be even bigger budget battles, more provider uncertainty, and a presidential election thrown in for good measure.
Dragging on early this year will be the federal government's great unfinished business-the seven-year balanced-budget plan that is still being negotiated by congressional Republicans and the White House. Like last year, that will mean more uncertainty as providers scramble to deal with slower payment growth and position themselves to compete in a Medicare marketplace already roiled by managed care.
Budget impasse. One incipient 1995 story line that will be completely played out in the 1996 sequel is the presidential election. With two of the three primary budget negotiators, Senate Majority Leader Bob Dole (R-Kan.) and President Clinton, in the race, the budget and the election are intertwined as never before.
Opinions vary on whether the election makes it more or less likely that a budget agreement will be reached in 1996.
"I think both sides are going to stick to their positions until somebody's poll numbers go through the floor," said James Scott, president of the American Healthcare Systems/Premier Institute. "If that doesn't happen, they will both be happy to take it to the American people and see if someone can articulate their position well enough to make a real difference."
But others say both parties' nominees will want to go into the election with the budget issue behind them.
"Neither side can afford to be seen as not able to pass a budget," said Jack Bresch, director of government relations for the Catholic Health Association.
Medicare reform debate.All 1995's other blockbuster issues are guaranteed to be reprised in 1996. For providers, that means the issue of provider-sponsored networks will be back.
Under all three of the major budget plans that have been introduced, provider networks would be allowed to contract directly with Medicare to enroll beneficiaries in managed-care plans. Networks would be made up of a combination of physicians, hospitals, nursing homes and other providers. How those provider groups would be formed and regulated became one of the most contentious issues in the Medicare reform debate last year.
"We are moving on the assumption that there will be provisions for (provider-sponsored networks) of some form included in the final budget," said Richard Pollack, executive vice president of the American Hospital Association. "Hospitals have to be preparing themselves for that eventuality and to move quickly when it happens."
If a budget bill is passed early in the year, it will likely take effect in early 1997. That means Medicare beneficiaries will be making decisions on whether to join a managed-care plan during an open-enrollment period that will start late in 1996.
"If a budget is passed, say in late January, that means providers may have only six or eight months to get ready to accept Medicare beneficiaries," said Brent Miller, director of government relations for the American Group Practice Association. "That just isn't a lot of time, and I don't know how realistic it is."
Medicare/Medicaid spending. Another hot 1995 topic that may be even hotter in 1996 is how much the growth in Medicare and Medicaid spending should be slowed. Absent any changes by lawmakers, the Congressional Budget Office estimates that Medicare spending will grow at an average rate of more than 9% a year, from $196 billion in 1996 to $332 billion in 2002. The Clinton administration plan would reduce those projected payments by about $98 billion over seven years while the GOP plan would trim them by $202 billion. The plan introduced by the conservative Democrats in the House, known as the "Blue Dogs," would save $153 billion over the same period.
"No matter what happens in 1996, providers will continue to be the bank on which Democrats and Republicans alike look to balance the budget," said Frederick Graefe, a lobbyist with the Washington law firm of Baker & Hostetler.
The conversion factor.Like hospitals, physicians are going to have to prepare for change regardless of whether Congress and the White House reach a budget agreement.
Under both the congressional GOP balanced-budget proposal and the Clinton administration plan, the base Medicare fee-for-service payment rate would be $35.42, with a two-year transition from a separate surgical rate under the administration plan. The Blue Dog plan includes a slightly higher rate of $36.40.
That single payment rate, called the "conversion factor," would represent a real cut for some physicians. For example, the updated 1996 surgical payment rate is $40.95 while the primary-care payment rate is $35.55. However, the new rate would be an increase for other nonsurgical services, which are paid at a rate of $34.75.
The conversion factor is used to establish Medicare fees by multiplying it by a numerical, work-based value assigned to each service provided to a Medicare beneficiary.
Both the White House and GOP proposals also tie the method of controlling Medicare physician expenditures and calculating future fee increases to medical inflation, growth in real gross domestic product and the ability of physicians to keep spending growth below certain limits.
But following the ticks of the conversion factor may become less crucial to physicians as more beneficiaries enroll in managed-care organizations and private plans.
Managed-care revolution. Such a trend mirrors that among private-sector employers, who have tried to restrain their health insurance costs by enrolling employees in HMOs and other types of managed-care organizations.
In the past, doctors often have viewed managed care as the enemy. But by the time Congress and the Clinton administration finish their work, that may all change.
"(Doctors are) going to have to get involved in these plans, but that's happening in the private sector anyway," said Charles Huntington, Washington office director for the American Academy of Family Physicians. "It just means more of their patients are involved."
Like hospitals, physicians will need to use 1996 to prepare to enter the Medicare beneficiary sweepstakes, said Marie Michnich, associate executive vice president of the American College
of Cardiology. "If (doctors are) not at the table, they're not going to be involved in making those decisions," Michnich said.
Congressional Republicans, and many outside observers, argue that the GOP and White House budget plans are more similar than they are different, making compromise on Medicare reform possible.
"The bottom line is that agreeing on the Medicare numbers shouldn't be that difficult," said Lawrence Goldberg, a partner with Deloitte & Touche in Washington. "But for hospitals, that is in some ways irrelevant. The cuts are going to be there no matter what. The real question is how can hospitals best control costs and manage the revenue stream. They have to understand how to accept more capitation and risk."
The future of Medicaid. Accord on Medicaid reform may be another matter.
GOP lawmakers and governors are seeking a no-strings-attached block grant that would end the federal entitlement and turn control of the Medicaid program over to the states. In exchange, the states would agree to limit how much the block grants would increase each year.
The Clinton administration, however, is seeking to retain the federal entitlement and to pay states on a per-capita basis. Those capitated payments also would grow at a capped rate. Supporters argue that such a plan would better shield states from changes in the Medicaid beneficiary population.
"It is really hard to see where the agreement can come from on Medicaid," said Mary Grealy, executive vice president of the Federation of American Health Systems. "(Medicaid) could be the issue that keeps them from reaching an agreement."
For nursing home owners, who rely on Medicaid for roughly half their income, the outcome of the Medicaid reform debate is crucial.
Even if the Clinton administration prevails, it's likely that the governors' clamor for greater flexibility will lead to 50 different Medicaid programs, making it harder to prepare for changes, said Michael Rodgers, senior vice president of the American Association of Homes and Services for the Aging.
"We're at a little bit of a loss what to tell (our members) to do," Rodgers lamented.