Hospital reimbursement under Medicare's prospective payment system would increase by 1.4% in fiscal 1997 under a congressional advisory panel recommendation made last week.
The Prospective Payment Assessment Commission, which advises Congress on Medicare Part A matters, rejected a plan by congressional Republicans that would have trimmed the PPS update by an additional 0.5 of a percentage point for every year through 2002. Commissioners were concerned that hospitals would not be as successful in holding down costs in the future as they have been in the recent past. In 1993, the most recent year for which ProPAC has collected data, hospital costs increased 1.2%.
"I don't think you can play this out over seven years," said commission Chairman Stuart Altman. "That would be potentially dangerous."
Congress is under no obligation to accept the ProPAC recommendation. In fact, lawmakers typically have approved lower increases than ProPAC suggested (See chart).
If Congress does not act to change current law, hospitals will receive a 2.4% increase in fiscal 1997, which begins Oct. 1. That is based on the 1993 budget accord that linked payment increases to the changes in the hospital "marketbasket," or prices that hospitals pay for goods and services.
The 1993 budget sets the fiscal 1997 update at 0.5 of a percentage point less than the marketbasket rate. Current ProPAC projections for 1997 show hospital costs increasing at 2.9%.
According to Congressional Budget Office projections, Medicare will pay hospitals $83.5 billion in 1996, up from $79 billion last year.
The Republican budget passed by Congress last year would have increased PPS payments in 1996 by the marketbasket rate less 2.5 percentage points. In 1997 through 2002, the increases would have been set at the marketbasket rate less two percentage points. The Clinton administration plan called for a one percentage point decrease in the marketbasket rate through 2001 and a 1.5 percentage point decrease in 2002.
Unlike in previous years, ProPAC did not make specific recommendations for increases in capital and graduate medical education payments.
Instead, the commission called for an overhaul of the capital payment system that would change the baseline on which future increases would be based. In graduate medical education, the commission gave its support to a Clinton administration plan to reduce the number of specialists in medical schools. Under the White House proposal, just half the number of specialists enrolled would be counted when calculating GME funds. Teaching hospital payments are in part based on the number of students.
"(The proposal) makes some sense if you want to change the incentives to get more primary-care physicians," Altman said. "My only concern is this may really whack the specialists. We need to find out what the effect would be."