If the full Congress and President Clinton sign off on a deal agreed upon by key Repubican legislators, Medicare reimbursement to teaching hospitals will rise, which could increase chances for improving margins.
Although spokespeople for the Senate Finance and House Ways and Means committees didn't return phone calls, teaching hospitals say that key members of those committees reached an agreement in early October to raise three reimbursement rates.
First, Committee Chairmen Sen. William Roth (R-Del.) and Rep. Bill Archer (R-Texas) agreed to increase indirect medical education adjustments by 6.5% in fiscal 2001, which began Oct. 1, 2000, and by 6.375% in 2002. Without any action, teaching hospitals were to receive an increase of 6.25% in fiscal 2001 and 5.5% in fiscal 2002.
Indirect medical education adjustments are additional reimbursements Medicare pays to teaching hospitals to offset higher costs in achieving their mission of training and research in addition to helping patients.
Legislators also have agreed on a boost in direct medical education. In fiscal 2002, a hospital's approved per-resident amount will not be less than 85% of the locally adjusted national average. Direct medical education payments go directly to pay resident salaries and other costs directly associated with training. Without the agreement, this amount would have been 70%.
Committee members agreed to increase the disproportionate share adjustment used in HCFA's prospective payment system. The disproportionate share adjustment is used to help hospitals offset treating those without insurance. Members agreed to increase the prospective payment update inflation factor for the disproportionate share adjustment by whatever inflation is in 2001 and 2002. In 2003, the adjustment would be inflation minus 0.5%.
Without such agreement, teaching hospitals were slated to receive inflation minus 1.1% in 2001 and 2002 and the full inflation rate in 2003.
The increases, if passed, will "create a more stable fiscal environment," says Lynn Davis, director of healthcare legislative affairs at the Association of American Medical Colleges in Washington.
Ralph Muller, president and CEO of the University of Chicago Hospitals and Health System and chairman of the AAMC this year, agrees.
"The Balanced Budget Amendment (which has and would have continued to reduce reimbursement rate increases for indirect medical education and disproportionate share adjustments) took such a whack to teaching hospitals in disproportion to other hospitals," Muller says. For example, the amendment cut the indirect medical education adjustment by about 30% from 1997 levels, or about 3% to 8% of teaching hospitals' overall revenues.
While that amount may seem small, consider that teaching hospitals' margin was about 1% in 1999, Muller says. Muller also argues that the disproportionate share adjustment increase will help, given that Medicare patients account for about 40% of teaching hospitals' revenue.
Muller explains that a slowing in the reimbursement teaching hospitals have received under the Balanced Budget Amendment since 1997 has led to cost cutting measures throughout academic medical centers. At the University of Chicago, for example, the hospital laid off 300 of 4,800 workers last month, Mueller says.
"Those steps are being taken around the country at a time that inpatient activity is up 4% and outpatient activity is up about 10%," Muller says.
The Balanced Budget Amendment has been devastating, agrees Gerald Levey, M.D., provost of medical sciences and dean of the UCLA School of Medicine. Since it was passed, UCLA has lost about $25 million in Medicare payment reimbursement, he says. Last year UCLA cut 300 full-time equivalent positions and $60 million from the budget, partially to offset lower Medicare reimbursement.
Muller says he is optimistic about the chances for final passage of a bill, saying that "the fact that there is (a relief bill) in the House and Senate means something is going to happen." Davis, however, isn't ready to celebrate just yet. The Congressional Budget Office must first put a price tag on the agreement and depending on the outcome of that, certain items could be added or taken out, she says.
Another issue is that Democrats "haven't been at all involved in negotiations," Davis says.
Finally, there is the question of whether the provisions will be part of another bill or taken up independently. Even in the best case scenario, teaching hospitals will still have to come back for further relief after fiscal 2003, Levey says. The planned increases are not enough because hospitals are unable to cost-shift from private patients due to managed care and because uncompensated care continues to rise.