With two consecutive years of federal payment relief under their belts, hospitals shouldn't get a higher raise in Medicare payment rates in 2002 than they're already budgeted for, the Medicare Payment Advisory Commission said last week.
The recommendation by MedPAC, which advises Congress on Medicare and Medicaid payment issues, is a blow to the American Hospital Association, which has argued that hospitals need more money from the two government health insurance programs to help them pay for new information systems and medical technology. MedPAC's action, though nonbinding, will make it more difficult for the AHA and the hospital lobby to convince lawmakers that they need a third consecutive year of payment relief from the Balanced Budget Act of 1997.
Instead, MedPAC voted unanimously in support of the 2002 Medicare payment increase contained in a law President Clinton signed in December. Under that law, Medicare inpatient payments will rise by an estimated 2.25%, compared with the hospital inflation rate of 2.8%. At the commission's December meeting, the AHA said the requirements of the Health Insurance Portability and Accountability Act of 1996 justify an update to inpatient payments of anywhere from 4.8% to 8% in 2002.
MedPAC's decision to recommend an update lower than the inflation rate is a departure from last year, when the commission took hospitals' side and endorsed a payment update of between 3.5% and 4%, which is 1.1 percentage points more than the hospital inflation rate (April 17, 2000, p. 6). That sparked criticism from members of Congress, who charged that MedPAC had become "an organized forum for the voice of self-interested lobbying" (April 24, 2000, p. 8).
MedPAC's decision was supported by Producer Price Index figures released Friday by the U.S. Labor Department, which said acute-care hospitals' net revenue grew 3.7% last year--more than twice the rate in 1999 when hospitals' revenue increased 1.6%. Private payers were a huge contributor of hospital revenue last year, further proof that providers are extracting better payments from insurers. Both inpatient and outpatient revenue from private payers increased 4.3% last year. The PPI measures changes in net revenue, or money actually collected by hospitals. Government payers also added to hospitals' revenue. Medicare inpatient revenue grew 1.8% last year, and Medicaid inpatient revenue increased 4.1%. Overall, hospitals' revenue from outpatient treatments increased 4% last year--a whopping increase from 1999 when overall outpatient revenue grew 1.5%. Medicare outpatient revenue rose 3.5% and outpatient Medicaid revenue grew 2.3%.
As MedPAC debated the potential changes last week, its members considered a list of economic factors that will be affecting hospitals, including the rising costs of technology, shortened hospital lengths of stay and past underestimates of hospital inflation.
They could not agree on the costs related to purchasing equipment to comply with HIPAA and other technology, however. MedPAC analysts also cited HCFA projections that although HIPAA compliance will cost hospitals $3 billion, it will save them $7.4 billion in administrative costs. That's in contrast to the AHA's projection, which put the cost between $4 billion and $22.5 billion.
After adding those factors together, MedPAC Chairwoman Gail Wilensky said the range of potential Medicare inpatient updates presented by the commission's staff analysts--1.5% to 3%--was close to what the existing law is calling for, justifying an endorsement of the update contained in the law.
"It wasn't clear to me we were going anywhere that was significantly different," Wilensky told commissioners.
AHA officials said they were disappointed by the decision, but said they believed they still could persuade Congress to give a bigger update.
"The fact that they suggested there's a range (of payment updates) means that there's some room on the top side," said Carmela Coyle, the AHA's senior vice president for policy.
The AHA, meanwhile, has hired the Lewin Group, a McLean, Va.-based consulting firm, to analyze the effect on hospitals of the Medicare-payment law passed in December, called the Benefits Improvement and Protection Act. That law will add an estimated $35 billion in new Medicare, Medicaid and State Children's Health Insurance Program spending between now and 2005, including $12 billion for hospitals.
Coyle said the analysis could yield a new report on the financial effect of Medicare payment policies later this year.