Medicare inpatient payment rates will be frozen in fiscal 1998 for all but a few hospitals, according to final prospective payment system rules HCFA*issued last week.
The rules, which take effect Oct. 1, implement key hospital Medicare payment provisions of the recently passed federal balanced-budget law. The law mandated a one-year freeze on Medicare inpatient payment rates to help balance the budget.
As a result of the freeze and reductions in budgeted Medicare spending on hospitals' capital and disproportionate-share costs, HCFA projected that total Medicare payments to acute-care hospitals will dip slightly to $85.7 billion in fiscal 1998 from $85.8 billion in fiscal 1997.
According to HCFA's analysis, the average hospital payment per case will decrease about 1% in fiscal 1998.
Teaching hospitals with more than 100 beds will see the greatest drop, 1.2%, while rural hospitals will see a 0.4% decrease.
Before enactment of the Balanced Budget Act of 1997 in August, Medicare hospital inpatient payments had been slated to increase 2.7% next fiscal year. But over the objections of the American Hospital Association and other hospital lobbyists, Congress chose to accept the Prospective Payment Assessment Commission's recommendation for a one-year payment freeze.
Were it not for the changes made by the budget bill, the average payment per case would have increased 3%.
The budget also limits increases in Medicare inpatient payment rates in the final four years of the five-year budget agreement. For example, in fiscal 1999, the rate increase will be limited to the rate of hospital inflation less 1.9 percentage points.
A few hospitals, however, will escape the rate freeze next fiscal year.
Those are a group of about 360 hospitals that have lost money on Medicare patients and don't receive extra Medicare funds for treating a disproportionate share of beneficiaries or for running graduate medical education programs. They will get a 0.5% rate increase in fiscal 1998.
Medicare payments to hospitals for their capital costs also will be reduced under the budget law as implemented in the final regulations. The fiscal 1998 capital rate will be $372 per discharge, an 18% drop from the fiscal 1997 rate of $439. In fiscal 1996 the capital rate was $462 per discharge.
Other items of note in the regulations:
Medicare disproportionate-share payments will decline 1% in fiscal 1998. The cuts will get 1% deeper each year, reaching a 5% reduction in fiscal 2002.
Medicare payments to PPS-exempt hospitals, like psychiatric facilities, also will be frozen for fiscal 1998.
Medicare payments to teaching hospitals for "indirect" graduate medical education costs will be limited to a 7% hike per every 10% rise in resident-to-bed ratio.