Rebutting the hospital industry's assertion, evidence is building that the worst of the federal Balanced Budget Act's Medicare spending restrictions is over and better times are ahead.
That evidence could hinder hospitals' efforts to get additional relief from the budget law. Hospitals claim relief is needed because the worst is yet to come, as spending reductions are "backloaded."
The balanced-budget law aimed to reduce Medicare projected spending by $112 billion over the five years ending in 2002 by reducing annual updates to provider payments and imposing new payment schedules. Providers lobbied successfully last year to increase payments for Medicare, Medicaid and state children's health insurance programs by $16.1 billion over five years, but hospitals this year are lobbying for an additional $25 billion over five years.
"The adjustments for providers around the country are coming to a close," HCFA Administrator Nancy-Ann Min DeParle told the Senate Finance Committee last week. The committee heard testimony on HCFA's readiness for Medicare reforms.
Even a hospital-sponsored report released last week supports DeParle's position. The report said hospitals in the aggregate started losing money on their Medicare business in federal fiscal 1999, posting a 0.1% loss on all their Medicare business, down from a 2.5% profit in fiscal 1998. Those figures include all forms of Medicare services, including inpatient, outpatient, skilled nursing and home health.
But without further relief, that loss will bottom out at 0.5% in fiscal 2000 before climbing back to zero in fiscal 2001 and reaching a profit of 0.5% in fiscal 2002 (See chart).
Ernst & Young, a New York-based consulting and accounting firm, and HCIA-Sachs, a Baltimore-based healthcare information company, prepared the report. The Federation of American Health Systems, which represents for-profit hospitals, picked up $50,000 of the report's $200,000 tab, according to the federation. The American Hospital Association didn't contribute.
The organizations unveiled the report at a press conference in Washington last week; federation executives made their case for further budget act relief.
"This is the third major hospital margin study this year," said Thomas Scully, the federation's president and chief executive officer, in a written statement. "All three studies come to essentially the same conclusion: Hospital margins are bad and are expected to reach historic lows this year--two years before the Balanced Budget Act of 1997 is even in full force."
Yet recent estimates from the Congressional Budget Office and trustees of the Medicare Hospital Insurance Trust Fund show a pickup in the rate of payment growth for many providers in the last three years of the law.
Last September, the CBO estimated that total Medicare payments to hospitals for inpatient care dropped by 2.5% in fiscal 1998 and 1.5% in fiscal 1999 as a result of the budget law. But in that same estimate, the CBO projected a 5.7% jump in total Medicare payments to hospitals for inpatient care in fiscal 2000.
"You can refer to it as stabilization, because there are no longer any large cuts coming in," said Jack Ashby, a research director with the Medicare Payment Advisory Commission.
Hospital lobbyists object to that argument, saying it ignores the cumulative effects of the budget law.
Freezing Medicare inpatient rates, as happened in 1998 under the budget law, and then updating them more slowly than the growth in a hospital inflation factor called the "marketbasket" index causes the pain to increase gradually, they said.
"These things all add on top of each other," Scully said.