Hospitals fear that President Clinton has proposed paying for a Medicare prescription drug benefit by taking business away from them.
That's because Clinton's Medicare reform plan proposes establishing Medicare PPOs in areas where traditional preferred-provider networks are entrenched.
The plan is one of several initiatives aimed at changing the government's financial relationship with providers.
But the PPO proposal is the one raising the most industry hackles. Under the initiative, Medicare would contract with health insurers that already have PPOs. Those networks would be required to meet quality and utilization management standards. Medicare would encourage beneficiaries to use preferred providers by reducing copayments and deductibles.
The administration estimates that Clinton's overall plan to modernize Medicare fee-for-service would save $25 billion over 10 years. The proposals also would expand the "centers of excellence" demonstration, which pays bundled physician and inpatient fees to hospitals that perform a high volume of complex surgical procedures.
The prescription drug benefit, meanwhile, will cost $118 billion over 10 years, to be paid by the modernization proposal, provider payment reductions and a transfer of federal surplus revenues.
The White House argues that Medicare is seeking to use its purchasing power to save money in much the same way private-sector insurers do when they form PPOs. But until now, Medicare has been barred from such an effort.
Administration officials point to the findings of a panel convened by the National Academy of Social Insurance, a nonpartisan research and education organization, and the National Bipartisan Commission on the Future of Medicare. Both have called for modernization of Medicare's fee-for-service payment policies, including selective contracting.
But some healthcare groups are warning that giving Medicare the power to contract with selected providers has the potential to pick winners and losers in many markets.
Since Medicare represents one-third of the $371 billion spent on hospital care (as of 1997) and more than one-fifth of the total U.S. healthcare dollar, many providers stand to lose a significant share of their income should Medicare contract with PPOs.
Such contracting also could disrupt many local healthcare markets, said Thomas Scully, president and chief executive officer at the Federation of American Health Systems.
"This is nuts, and anybody who thinks this is a good idea . . . should go straight to a graduate economics course," he said.
Scully sat on the National Academy of Social Insurance Panel that recommended giving Medicare more-powerful purchasing authority. He said he unsuccessfully argued against those recommendations.
While warning of the dangers of the PPO proposal, other provider groups were less critical of the idea.
Richard Pollack, the American Hospital Association's executive vice president and director of government and public affairs, said the PPO proposal isn't detailed enough for anyone to draw conclusions from it.
But he warned that it would hurt hospitals if saving money is its only concern.
"If selective contracting and PPOs are nothing more than an effort to drive deeper discounts, that's a losing situation," Pollack said. "The key question is always going to be beneficiary access and choice."
Robert Doherty, vice president of governmental affairs and public policy at the American College of Physicians-American Society of Internal Medicine, took a similar posture.
"If it's based simply on who the lowest-cost provider is, that's going to cause a lot of concern," he said.
That will be the case particularly if the government looks only at physicians' utilization data and doesn't account for how healthy or sick patients are.
Clinton did not explicitly mention the proposal for a PPO option when he announced the Medicare reform plan June 29. It was contained in a 39-page document released July 2, which explained the proposal in more detail.
That document also includes two other recommendations made by the National Academy on Social Insurance, including competitive bidding for some Medicare goods and services, and primary-care case management and disease management.