A one-year freeze on Medicare payment rates to hospitals seemed assured as federal budget negotiators neared a final accord on Medicare and Medicaid provisions of a balanced-budget bill last week.
But a final agreement on the comprehensive budget bill seems weeks away as the Clinton administration and Republican leaders dug in their heels on other issues.
The final Medicare decisions included both good news and bad news for providers.
To satisfy the White House and reach their target of $115 billion in Medicare savings from fiscal 1998 through 2002, lawmakers agreed to several provisions that are opposed by providers. One would reduce Medicare payments to hospitals for inpatient care when a patient is discharged earlier than expected to a post-acute facility (See story, this page).
Another provision would take an even bigger bite out of Medicare payments to hospitals. According to a summary of the budget package that was prepared by congressional staff, hospital inpatient Medicare payment rates would be frozen for fiscal 1998.
Then, in fiscal 1999, the increase in payment rates would be equal to the rate of hospital inflation, as measured by the hospital "marketbasket," less 2.2 percentage points.
In fiscal 2000, the rate would move to 1.3 percentage points below marketbasket, and then to 1 percentage point below for the final two years of the five-year budget plan.
Richard Wade, senior vice president of communications at the American Hospital Association, said the issue involving transfers of patients to post-acute facilities "is one of the most important to us."
Hospital groups had been led to believe that if they accepted a payment freeze the transfer provision would be eliminated from the budget.
If lawmakers reinstitute a version of the transfer provision and also freeze Medicare hospital inpatient payments, it would be "a very negative outcome for hospitals" and would lead hospitals to oppose the budget package, Wade said.
Thomas Scully, president of the Federation of American Health Systems, called the possibility that the budget would include both a freeze and a reimbursement reduction for transfers "outrageous."
On the plus side for hospitals, budget negotiators eased up on reductions in how much Medicare pays hospitals for bad-debt expenses.
In the original budget bills passed separately by the House and Senate, Medicare would cover just 50% of those expenses. But under heavy lobbying by the federation, which represents for-profit hospitals, budget negotiators agreed to have Medicare cover 75% of the expenses (See story, this page).
Another provision on which negotiators agreed is how much Medicare should pay managed-care plans.
According to the budget summary, health plans would receive a minimum payment of $367 a month in fiscal 1998. That would close the wide disparity between counties under the current system in hopes of luring managed care into traditionally underserved areas.
Currently, the lowest-paid counties receive less than $250 a month while the highest-paid counties, primarily in urban areas, receive about three times that much.
To further reduce the disparity, Medicare would pay plans a blended rate based on local and national rates.
The blended rate would start at a ratio of 90% local and 10% national and move to a 50-50 ratio over the five-year plan. The blended rate also would have the effect of boosting payments to plans in rural counties.
Further, Medicare would increase payment rates to contracting health plans by the same increase experienced in the traditional fee-for-service Medicare program less one-half percentage point.
The rates paid to health plans under Medicare also would apply to provider-sponsored organizations contracting directly with Medicare.
Under the PSO provisions agreed to last week by budget negotiators, providers that want to form a PSO first would have to apply to a state for a PSO license. If the state failed to act on the application within 90 days, the PSO could ask for a federal license.
Provider groups had sought a strictly federal process, fearing that states would put unreasonable roadblocks in front of PSOs.
Providers, however, did get concessions on several other PSO-related issues. Most notably, hospitals, doctors and other providers could be considered a PSO with just a loose affiliation. Earlier versions of the bill would have required providers to be under common ownership. That, providers argued, would have required convoluted corporate structures.