Turning a deaf ear to rural and teaching hospitals that claim Medicare payment changes are killing them, HCFA last week recommended freezing Medicare inpatient payment rates next year because of decreasing hospital costs and record profits.
In its proposed hospital payment rule for federal fiscal 2000, HCFA followed through with President Clinton's proposal to keep hospital payments at their fiscal 1999 levels, which could save an estimated $3.9 billion over five years.
In 1999, hospitals' PPS profit margin will be 15.7%, according to the Medicare Payment Advisory Commission, which advises Congress on Medicare payment policies.
In passing its budget blueprint for fiscal 2000, Congress rejected the hospital freeze and other provider payment growth restraints worth about $9 billion over five years. Unless Congress affirms HCFA's recommendations, the Balanced Budget Act of 1997 will apply.
Under that law, inpatient fees would rise by about 0.9% in fiscal 2000, or 1.8 percentage points less than the hospital inflation rate of 2.7%.
Hospital officials have strongly opposed a freeze.
"I will quit my job if there's a freeze this year," said Thomas Scully, president and chief executive officer of the Federation of American Health Systems. "It's not even the remotest of a remote possibility."
But in the proposed rule, HCFA said a freeze "would ensure that Medicare acts as a prudent purchaser and (would) provide incentives to hospitals for increased efficiency, thereby contributing to the solvency of the Medicare Part A Trust Fund."
MedPAC has recommended an update of between zero and 2.6%. It said current law is adequate.
The proposed rule also includes several adjustments to HCFA's rate calculations. Together, those adjustments would reduce per-case payments by 0.6%.
Among the adjustments is a five-year phaseout of costs related to teaching physicians, residents and nurse anesthetists from the wage index that HCFA uses to calculate reimbursement for hospitals' labor costs.
The wage index is a regional adjustment of inpatient fees that provides higher reimbursement to hospitals in areas where labor costs are higher.
The government has contended that the costs related to teaching physicians and residents should be excluded from the wage index because teaching hospitals already are reimbursed for those costs. Including them in the wage index caused payments to be unfairly high in states with many teaching hospitals, such as New York and Pennsylvania.