Despite the inclusion of a one-year freeze on Medicare payment rates for hospitals, providers and insurers grudgingly gave a passing grade to the balanced-budget plan that passed the House and Senate last week by overwhelming bipartisan votes.
The bill-a mixed bag of spending growth reductions, pet projects and reforms-now goes to President Clinton to be signed into law, a formality that was assured last week when he held a ceremony at the White House celebrating the agreement. It passed the House 346-85 and the Senate 85-15.
Provider groups complained that the spending growth reductions in the bill were too severe. But they said many of the Medicare reforms were sorely needed.
"We're concerned that they relied on the old system of ratcheting down on providers' payments rather than structural reforms," said Richard Pollack, executive vice president of the American Hospital Association. "But there are a lot of good things in the bill that we can support."
In total, the bill would reduce the growth of Medicare spending by slightly more than $115 billion from fiscal 1998 through 2002.
Nearly $39 billion of that growth reduction would come from hospitals. Even with the savings, however, total Medicare spending on hospitals would climb from about $87 billion in 1997 to about $94 billion in 2002.
One of the last issues settled by lawmakers was how to treat Medicare hospital inpatient payments when a patient is transferred to a post-acute-care facility before the average length of stay for the diagnosis. GOP lawmakers had included in their budget a provision that would reduce the inpatient payment when a patient is transferred early to almost any post-acute facility.
That plan became a lightning rod for criticism by hospital groups, which argued that it would give hospitals an incentive to hold onto patients longer. Early last week it appeared the measure would be eliminated, but ultimately a compromise plan was included in the bill (See chart).
On the positive side for hospitals, the bill will allow provider-sponsored organizations to contract directly with Medicare patients beginning in 1999.
But a PSO first will have to apply to state officials for a license. If the state doesn't act on the application within 90 days, the PSO will be able to apply to the federal government. Providers had wanted to bypass the state licensing process entirely.
During the five years covered in the deal, growth in payments to managed-care plans would be reduced by about $22 billion compared with current law; budgeted payments to home health and skilled-nursing facilities would be reduced by about $28 billion; and growth in reimbursements for durable medical equipment would be cut by $5 billion.
Although they were singled out for a disproportionately large share of the Medicare growth reductions, managed-care groups nonetheless gave the plan a measured endorsement.
"Overall this agreement appears to be fair and balanced," said Karen Ignagni, president of the American Association of Health Plans.
Physicians will see about $5.3 billion in payment reductions over five years when compared with current law. The savings would result initially from moving to a single payment base for all physicians, rather than the current system of separate payment bases for surgery, primary care and nonsurgical procedures.
That change to a single payment base will reduce fees for surgical services by an average of 9.4%, although it will increase fees for primary-care and nonsurgical procedures.
The budget also shifts about $390 million in Medicare compensation for physicians' practice expenses next year to primary-care services from specialty and surgical services.
But a more sweeping reform of physician payments, originally scheduled for 1998, will be delayed until 2002. That change is expected to shift about $4 billion a year to primary-care doctors from specialists.
One of the most sweeping and controversial initiatives in the legislation provides $24 billion in new state grant money for expanding children's health insurance coverage. Increased cigarette taxes will fund $8 billion of the total, with the rest coming from general revenues.
The Congressional Budget Office projects that 2 million of the 10 million uninsured children would receive coverage under the proposal.
"It's recognizing the issue and providing funding," said Ben Aune, president and chief executive officer of InterHealth, a mostly Protestant hospital alliance. "It's a good victory."
The states can use their children's grant money to purchase health insurance, expand Medicaid, buy healthcare services directly from providers or any combination of the three.
The Defense Department's health system also will benefit under the budget plan. A demonstration project in six sites will funnel Medicare money to military hospitals when they treat Medicare-eligible military retirees and their dependents. The cost to Medicare is limited to
$175 million over three years.
The legislation killed a similar demonstration for Department of Veterans Affairs hospitals, but it does call on the VA and HCFA to develop a plan for such a demonstration.