A projected slowdown in Medicare and Medicaid spending growth, combined with a revision in the Consumer Price Index, could take some of the pressure off providers as Congress moves to consider a balanced-budget plan next year.
But providers shouldn't get their hopes up just yet. Reducing the CPI is a political minefield, and action is far from certain.
Next month, the Congressional Budget Office is expected to release its updated growth projections for Medicare and Medicaid. CBO Director June O'Neill admits that both programs, which had been expected to grow at nearly 10% a year through 2002, are now expected to grow at a slower rate. In fact, a recent report by the liberal Urban Institute predicted that annual Medicaid growth would drop to 7.4% from previous estimates of 9.7%.
O'Neill said the new estimates are still being calculated. However, even a modest reduction in the rates of increase would make it considerably easier to reach a balanced budget by 2002.
But the real gold mine is the CPI.
Earlier this month, a panel of economists chaired by Stanford University economics professor Michael Boskin concluded that the CPI's growth rate is currently more than one percentage point too high and has been for years, largely because it has failed to reflect changing purchasing habits of consumers.
By overstating the CPI, the government pays out more for cost-of-living increases for the Social Security system, veterans benefits and other government programs.
According to the report, leaving the CPI unchanged would add more than $200 billion to the annual national debt by 2008.
Richard Pollack, AHA executive vice president of federal relations, said a change in the CPI would have little effect on hospital payments, which are based on producer prices. However, as a piece of a deficit reduction package, lowering the CPI would mean fewer cuts would have to be made in other areas, which Pollack said would "take some of the pressure off what Medicare and Medicaid cuts need to be made."
Thomas Scully, president of the Federation of American Health Systems, cautioned that the mix of spending cuts-meaning the portion that affects hospitals vs. physicians and beneficiaries-would be a key factor.
"There are ways to do $124 billion in cuts that are acceptable, and there are ways to do $80 billion that are not," Scully said.
The commission recommended that Congress and the White House pass legislation that would change the way the CPI is calculated to better reflect the true rate of inflation. Congressional leaders embraced the idea, and the Senate Finance Committee is expected to hold hearings on the CPI's accuracy in January.
The White House would say only that it was studying the plan. However, even if both sides agree, opposition will be formidable. The American Association of Retired Persons, labor unions and veterans groups already have attacked the idea.
Sensing the political volatility of the issue, Senate Finance Committee Chairman William Roth (R-Del.) said Congress would only act if support for the idea was "broadly and deeply bipartisan."