Is the unthinkable happening? Federal budget forecasters once described Medicare spending as "runaway" and "out-of-control." Today, they're talking about the startlingly slow growth of Medicare spending.
That slowdown is nowhere more apparent than in hospital utilization indicators published in HCFA's rule detailing Medicare inpatient payments for federal fiscal 2000.
For urban hospitals, the "case-mix index," which measures the cost of treating Medicare patients, was projected to grow by a cumulative 6.2% between 1993 and 1999. But HCFA predicts the index for urban hospitals in 2000 will actually fall by 1% compared with this year's rate (See chart).
That trend has been accompanied by declining Medicare discharges and diminishing per-case payments, projected to decrease by 0.6% for 2000.
The result is clear. In a report released earlier this month, the Congressional Budget Office said Medicare spending in fiscal 1999 through the end of April matched spending in the same period in 1998-$125.2 billion. In fact, 1999 spending would have been less, but $3 billion in Medicare spending was shifted to April 30 from May 1 because the latter was a Saturday.
That confirms earlier reports from the CBO and the trustees of the Medicare Hospital Insurance Trust Fund showing Medicare expenditures growing at a glacial rate.
In its monthly budget review for May, the CBO said that based on Medicare spending data, it may increase its $111 billion estimate of the federal budget surplus for fiscal 1999.
Hospital groups claim the slow growth resulted from unanticipated savings generated by the Balanced Budget Act of 1997. The groups argue that Congress should change the budget law to increase their payments.
Indeed, despite a 0.9% increase in inpatient fees for fiscal 2000, payments per case are expected to fall 0.6% because of the decline in the hospital case mix.
"It's time to yell 'uncle,' " said Dale Baker, an Indianapolis-based healthcare consultant, regarding the payment reductions hospitals face.
But congressional advisers have a different explanation for the slow payment growth. Jack Ashby, analyst for the Medicare Payment Advisory Commission, said hospitals are billing more conservatively because the government has cracked down on fraud and abuse.
"There's a lot of scrutiny on how cases are classified," Ashby said. "That may have an impact on hospital coding practices."
Likewise, the CBO said the unanticipated savings since the balanced-budget law took effect resulted from greater compliance with Medicare fraud regulations coupled with a claims-processing lag, which has slowed Medicare cash expenditures this year.
But as hospitals and many provider groups continue to push Congress to alter Balanced Budget Act payment policies to increase their fees, some analysts caution that Congress should first identify why hospitals are feeling financial pressure.
"I have no doubt that hospitals are feeling financial pressure," said Stuart Guterman, former deputy director for MedPAC and now a principal research associate at the Urban Institute. "What I'm wondering is where that comes from."
He said hospital executives shouldn't be surprised by Medicare payments, because the updates under the 1997 budget law are similar to other recent updates.
The 0.9% hospital update for fiscal 2000 is calculated using a balanced-budget law formula that calls for an update of 1.8 percentage points below the hospital inflation rate of 2.7%.
Since such updates aren't a departure, Guterman said, he wondered whether hospitals may be experiencing financial pressure because of discounts they have given managed-care plans.
If that's the primary source of the financial pressure and Congress raises inpatient rates, Guterman said, "you're putting Medicare in the position of subsidizing managed-care plans."
Rep. Fortney "Pete" Stark (D-Calif.), senior Democrat on the House Ways and Means health subcommittee, is also wondering about a managed-care connection.
Late last month, he asked the General Accounting Office, Congress' watchdog agency, to prepare a report comparing Medicare fee-for-service payments to Medicare managed-care plan payments to hospitals for the same procedures.
"If hospitals are accepting payments from managed-care plans that do not cover the costs of services, then hospitals are in effect funneling additional Medicare payments to the plans," Stark wrote in a letter to the GAO.