A small provision tucked into the House and Senate balanced-budget bills passed last month could shift as much as $1 billion in Medicare capital payments to large urban hospitals at the expense of other facilities.
But more than a week after MODERN HEALTHCARE*revealed the existence of the provision in the bills, no one appears to want to take the credit-or the heat-for getting the measure added to the bills (June 30, p. 4).
The likely ringleaders, according to multiple sources, are a group of 25 large urban hospitals that have benefited from a change in the Medicare capital payment rules issued by HCFA in 1994 (See chart).
House Ways and Means Committee hearing documents identified the hospitals as the beneficiaries of the 1994 change.
The new provisions backed by the politically connected group essentially would extend the same special treatment to all urban hospitals with more than 100 beds. According to the American Hospital Association, there are 2,132 such facilities.
With those hospitals making up a large block of the 4,400-member AHA, the association is squarely in the middle of the issue. But according to Richard Pollack, the AHA's executive vice president for federal relations, the hospital group hasn't taken a position on the capital payment changes.
Pollack said the issue raised by the provisions isn't large enough to warrant the association's intervention, compared with an issue like a possible one-year freeze on Medicare payment rates to all hospitals.
"Our plate is already full with a number of items that far transcend this one in terms of impact on the field," Pollack said.
But the AHA did take a position in the fight between the Catholic Health Association and the Federation of American Health Systems over just $80 million in capital payments.
The AHA sided with the federation, which said Medicare should reimburse investor-owned hospitals for the taxes they pay. The money would come from tax-exempt hospitals. But the CHA outdueled the federation and got the extra payments to for-profits stripped from budget bills passed by the House and Senate.
The AHA's neutrality on the bigger Medicare capital issue benefits some of the 25 hospitals and systems that already enjoy the 1994 capital payment change. Top executives of some of those hospitals sit on the association's board of trustees.
One of them is Legacy Health System of Portland, Ore. Legacy's president and chief executive officer, John King, is chairman-elect of the AHA board. Another is Allina Health System of Minneapolis, whose executive officer, Gordon Sprenger, was chairman of the AHA board last year. Another is Northwestern Memorial Hospital in Chicago, whose president and CEO, Gary Mecklenburg, is an AHA board member.
Seven of the hospitals are in New York, but the Greater New York Hospital Association denied any involvement in extending the hospitals' special treatment under the capital rules.
Officials at two of the New York hospitals, New York Hospital and Columbia-Presbyterian Medical Center, weren't available for comment. The two facilities are consolidating under a new parent company.
Under a 1992 law that changed the way hospitals are reimbursed for capital costs, Medicare pays hospitals no less than 70% of its share of those costs. The payments are added onto a hospital's DRG payments.
However, the law required that capital payments eventually be set prospectively rather than be based on hospital costs, and be blended into a hospital's DRG payment. That transition is supposed to occur over a 10-year period ending in 2002.
Total Medicare capital payments to hospitals in fiscal 1997, which ends Sept. 30, are expected to be about $8.9 billion, according to the Congressional Budget Office.
In 1994, HCFA revised the 1992 rules to include an exemption for a handful of hospitals that had large capital projects in place during the 10-year transition period. The exemption allows those hospitals to continue their minimum 70% payment guarantee for 10 years starting with the opening of their new facilities. They're eligible for the exemption as long as they treat large numbers of Medicare and Medicaid patients.
The new provisions contained in the pending federal budget bills would expand the eligibility for the extra payments to all urban hospitals with more than 100 beds and drop the requirement that the benefiting hospitals also treat large number of Medicare and Medicaid patients. The provisions also would eliminate the previous requirement that extra capital payments be offset by excess Medicare profits. And the provisions would raise the minimum payment guarantee to 85% from 70%.
According to some estimates, the changes could shift as much as $1 billion in annual Medicare capital payments to qualifying hospitals at the expense of nonqualifying hospitals. Federal law requires any such change to be budget neutral.
The Senate version of the provisions would limit the shift to $50 million a year. The House version has no annual limit.
Several sources who sought anonymity said Northwestern Memorial is a major force behind the push for the changes. The sources said the prominent Chicago hospital is using high-powered Washington Republican lobbyist Deborah Steelman to push the provisions.
Steelman did not return calls requesting comment. A spokeswoman for Northwestern would neither confirm nor deny that Steelman was working for the hospital.
The 1994 exemptions were championed by then House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) at the behest of Northwestern Memorial, which is building a $580 million replacement hospital.
"We're seeking the same treatment as others that had capital commitments," Mecklenburg said. "The group of institutions that got caught in (HCFA's) lack of clarity were large projects that took a long time to plan and construct," he said.
Mecklenburg declined to comment on the AHA's decision to stay neutral on the proposed capital changes.
According to several sources, Northwestern Memorial is seeking to expand the eligibility criteria for the program because it's in danger of losing its eligibility. Because of changes in Illinois' Medicaid program, more beneficiaries are being enrolled in managed-care plans that are subsequently steering them away from Northwestern Memorial and toward other nonteaching facilities. The hospital is concerned it will slip below the minimum number of Medicaid and Medicare patients required to qualify for extra capital pay.
Not surprisingly, state hospital associations and competitors of those hospitals benefiting from the bill are raising questions about the changes.
"I bet 99% of the hospitals in the U.S. don't have an appreciation for the changes in the capital program," said Avery Miller, senior vice president of Rush-Presbyterian-St. Luke's Medical Center in Chicago. "It's still unclear to us whether this is fair or unfair because we haven't seen any scoring or precise definition of what it would cost our institution or our state."
Executives of the National Rural Health Association's Washington office weren't available at deadline for comment.
-With Bruce Japsen and Karen Pallarito