Proposals to allow Medicare reimbursement to government healthcare systems for caring for Medicare-eligible veterans and military retirees has sparked fear that private providers will face new competition for patients.
Congress earlier this year did not approve separate proposals from the U.S. Department of Veterans Affairs and the U.S. Defense Department that sought to demonstrate so-called Medicare "subvention." But Congress did come close to approving a Medicare-reimbursement pilot for Defense Department healthcare plans in an omnibus budget bill for the 1997 federal fiscal year.
The Clinton administration, meanwhile, endorsed Medicare subvention for both military and veterans hospitals.
Congressional officials and beneficiary groups next year expect Congress to seriously consider measures that would allow Medicare reimbursement for the Defense Department and VA healthcare systems (See related story, p. 68).
A potentially comprehensive bill to restructure the Medicare program could allow advocates to insert a measure that would require a test of Medicare reimbursement.
And that has some private-sector hospitals worried about the future of the Medicare Hospital Insurance Trust Fund, which ran a deficit in fiscal 1996 of $4.2 billion. Private providers also raised concerns about government providers competing with them for patients when most markets have more inpatient beds than they need.
"What this question is about is who gets to tap into the Medicare trust fund," said Carmela Coyle, vice president for policy with the American Hospital Association. "The problem of overcapacity is not going to be solved by shifting patients from one sector to another."
Kenneth Kizer, M.D., VA undersecretary for health, countered that the bill is not an attempt to fill beds.
"Undoubtedly, in some areas there will be a view that this is competition," Kizer said. "If (veterans) can get better value from the private sector, that's where they should go. If they can get better value from VA, at least for those who are eligible, then that's where they should go."
Furthermore, military and VA hospitals believe they can save the trust fund money because they can provide care to Medicare-eligible beneficiaries at lower costs. However, they offered no specific evidence to support their contention.
In addition, they say the revenues will benefit their facilities.
In its subvention project proposal, the VA sought to allow Medicare reimbursement for at least three years for treating Medicare-eligible veterans, not otherwise entitled to treatment, at up to eight of the VA's 173 medical centers or four medical centers and one of the VA's 22 health networks. At least 9.3 million veterans will be eligible for Medicare by 2000.
Veteran eligibility for VA care is largely based on income or disabilities related to active-duty injuries, although those who are not entitled can still receive care at VA facilities when space and resources are available. Medicare does not reimburse the VA for treating Medicare-eligible beneficiaries.
Under the VA's legislative proposal, it would have received no more than 95% of Medicare reimbursement rates for treating eligible veterans.
The VA also would have been required to continue paying at current levels for healthcare for nonentitled Medicare-eligible veterans out of its own federal appropriations. The department also could have established managed-care plans to enroll nonentitled Medicare-eligible veterans and marketed VA hospitals to those veterans.
The Pentagon subvention proposal would have allowed Medicare-eligible military retirees to join the military's Tricare managed-care plans in four regions. More than 1.1 million military retirees are eligible for Medicare, which makes them ineligible to join Tricare plans.
In the first year of the three-year demonstration, Tricare plans would be reimbursed 93% of the annual per-person cost of treating Medicare beneficiaries on a fee-for-service basis. That is two percentage points less than Medicare risk HMOs receive. The reimbursement would be no more than 90.3% in the second and third year of the demonstration.
Graduate medical education, disproportionate-share and capital reimbursements also would be reduced or eliminated from the Tricare payments. The Defense Department would have been required to continue its existing spending levels to care for Medicare-eligible retirees, who can seek treatment at military hospitals when space is available.
A similar proposal came close to being included in budget legislation for federal fiscal 1997, which began Oct. 1.
Because the Congressional Budget Office estimated that a more generous military subvention bill would end up costing the trust fund $200 million a year, Defense Department officials proposed a compromise under which Medicare would pay 50% of the per-person fee-for-service cost to enroll military retirees in Tricare plans, and the Defense Department would pay 43% out of its appropriated budget.
In the end, however, the measure was stripped from the budget legislation. Senior Republicans, such as Rep. William Thomas (R-Calif.), chairman of the House Ways and Means health subcommittee, were worried about the implications of putting Medicare-related legislation in the budget bill and about the impact subvention might have on the trust fund.
In addition, resistance from Reps. Fortney "Pete" Stark (D-Calif.), senior Democrat on the Ways and Means health subcommittee, and Charles Rangel (D-N.Y.), second-ranking Democrat on the Ways and Means Committee, threatened the measure.
A Ways and Means Committee staff member, who asked not to be identified, questioned the impact such legislation could have on the trust fund because of costs associated with higher utilization in Defense Department health facilities, as well as quality, coverage and access issues that such an arrangement would raise.
But one beneficiary group disputed those claims, saying Ways and Means was more concerned that the National Security Committee had supported such a measure without first getting its OK.
"We're talking about bureaucratic turf protection," said Charles Partridge, legislative counsel for the National Association for Uniformed Services. "There's no other explanation."
Another beneficiary group raised concern about how much Pentagon officials offered to pay out of their own budget in order to get CBO officials to agree that the demonstration posed no threat to the trust fund.
"CBO was so insistent that it was going to cost an enormous amount of money that (the Defense Department) ended up giving away the farm," said Virginia Torsch, assistant director of government relations for healthcare at the Retired Officers Association.
That CBO estimate augurs poorly for making subvention a part of Medicare reform next year, Torsch said.
"The problem we're having with the House Ways and Means Committee may mean we wouldn't have a lot of luck getting it in a Medicare reform bill," Torsch said. "If we could just get CBO to score it as a savings item, it's just going to fly by."
But because it had the support of top congressional Republicans-including Senate Majority Leader Trent Lott (R-Miss.)-its political chances still look bright in 1997.
"We're going to face this as a demand for moving any larger Medicare bill," said the Ways and Means staff member.