Hospital Medicare payment rates would be frozen for one year starting in October under a federal balanced-budget reconciliation bill passed by the House Ways and Means health subcommittee last week.
The bill is the first major effort to fill in the details of the broad five-year balanced-budget deal agreed to last month by the Clinton administration and Republican budget negotiators.
Although provider groups said the bill still needs work, it passed the health subcommittee by a 13-0 vote, making eliminating the proposed freeze a tough task for hospital industry lobbyists.
The next committee to work on budget details is the House Commerce Committee, which has jurisdiction over Medicare Part B and Medicaid. The committee is scheduled to begin work on the measure this week.
The full House Ways and Means Committee also is scheduled to take up the measure this week, and the Senate Finance Committee also may begin negotiations on its own budget reconciliation bill.
For providers, the bill advanced last week is a mixed bag.
To reach the more than $115 billion in Medicare savings called for in the budget outline, hospital Medicare spending would be lessened by about $45 billion from fiscal 1998 through 2002.
Most of those reductions would come from freezing Medicare hospital inpatient payments for fiscal 1998 and reducing statutorily mandated payment rate increases in the subsequent four years by one percentage point each year (See chart).
The bill would affect Medicare spending on physician services far less (See story, p. 6).
The American Hospital Association has made avoiding a payment freeze a top priority.
"We have real concerns about (the freeze)," said Richard Pollack, the AHA's executive vice president for federal relations. "Cuts of this size are ultimately going to have an impact on service delivery" (See related story, p. 6).
Another AHA priority-creation of provider-sponsored organizations that can directly contract with Medicare for services to beneficiaries-was included in the bill passed by the Ways and Means health subcommittee. While the bill allows PSOs to directly contract with Medicare, it offered a regulatory framework for the plans that isn't exactly to hospitals' liking.
Under the legislation, states would regulate PSOs under federal solvency and quality rules. However, if the state hasn't acted 90 days after a PSO completes its application, the PSO could apply to the federal government for certification. The bill calls on the HHS secretary to create new solvency rules for PSOs in consultation with all interested parties. The AHA opposed the GOP's 1995 balanced-budget plan partly because it included a structure similar to the one passed last week.
Both sides say they hope to influence the PSO measure as it continues to move through Congress. Providers want to eliminate the 90-day state jurisdiction and make oversight of PSOs the sole province of the federal government.
Insurers want to strengthen the hands of state insurance commissioners by including the soon-to-be-released solvency rules of the National Association of Insurance Commissioners. Providers oppose the NAIC rules, saying they don't recognize the unique nature of PSOs.
The bill passed last week includes a measure that would change Medicare capital payments to include reimbursements for taxes paid by investor-owned hospitals and payments made in lieu of taxes by other hospitals.
The proposal would add about $70 per discharge to investor-owned hospitals. Because federal rules require that such changes cannot result in an increase in total Medicare spending, it would also reduce payments to other hospitals by about $5 per discharge.