The Medicare giveback era may be over after just two years.
Bush administration officials last week announced that the usable federal budget surplus had shrunk to almost zero this year, and immediately cast blame on a federal spending "explosion" that resulted from legislation passed last December and signed by President Clinton. That legislation raised federal spending by $50 billion in 2001, including $1.6 billion in new Medicare payments to hospitals and $2.3 billion to all other Medicare providers.
That legislation, worth a total of $32.3 billion between 2001 and 2005, came on top of legislation that increased Medicare provider payments by a projected $16.1 billion between 2000 and 2004.
The loss of the federal surplus and the administration's attack on rampant federal spending are ominous signs for hospitals, which are heading back to Congress with a request for another $16.2 billion, five-year package of Medicare spending relief when Congress reconvenes in September.
"I think that the administration is going to be looking down every budget alley to find a place to trim," said Charles "Chip" Kahn, president and chief executive officer of the Federation of American Hospitals. "That concerns me because that trimming may not always be good policy."
The vanishing surplus was one of several signs that indicate a more aggressive government stance toward federal healthcare spending. The Centers for Medicare and Medicaid Services is figuring out how to avoid another $1 billion in overpayments to hospitals for outpatient care and how to close a loophole in Medicaid law that results in overpayments to public hospitals.
In fact, the White House Office of Management and Budget, which released the midyear budget estimates, said any spending increases in fiscal 2002 will have to be offset by cuts elsewhere in the federal budget.
"I think the bottom line here is that they're looking for some offsets," said Scott Malan, vice president of legislative services for the Hospital and Healthsystem Association of Pennsylvania, which opposes closing the loophole.
Another blow to the hospital lobby's efforts likely will come this week: The Congressional Budget Office is expected to release its midyear budget estimates. The CBO's estimates, which historically have been more pessimistic than OMB data, are important because Congress uses CBO numbers as the basis for drafting budget laws.
The OMB report said the total projected budget surplus for fiscal 2001 has shrunk to $158 billion. An April projection put that number at $281 billion. Of the remaining surplus, however, just $1 billion doesn't result from Social Security tax revenue. Lawmakers view the remaining $157 billion in trust fund revenue as untouchable.
Last fiscal year, the total federal surplus was $236.4 billion, of which $149.8 billion was Social Security revenue, leaving $86.6 billion for new spending.
That surplus was the reason hospitals and other healthcare providers were successful in persuading Congress to pass $50 billion in new Medicare spending between 2000 and 2005. But that legislation came under attack from OMB Director Mitchell Daniels, who blamed it for the shrinking surplus.
"I suspect that they now wish that that explosion in spending last December had been a little more temperate," Daniels said of the spending binge in a briefing to release the OMB's midyear report.
Hospital lobbyists acknowledged that the report will make their job much harder.
"We're going to have to spend every waking moment to figure out the new budget realities and how we're going to focus on our priorities," said Herb Kuhn, vice president of the Premier hospital alliance. "We're going to be pulling up the seat cushions to get every nickel, dime and quarter we can find."
The Medicare Hospital Insurance Trust Fund will run a surplus of $32 billion in fiscal 2001. Meanwhile, the income-tax rebate authorized under Bush's tax-cut law reduced income tax collections by $40 billion.
That gave Democrats an opening to charge that Bush and congressional Republicans had raided the Medicare trust fund to help pay for the tax rebate.
"His bloated tax cut has wiped out the available surplus, tapped Medicare and is within a hair's breadth of doing the same to Social Security," House Minority Leader Richard Gephardt (D-Mo.) said in a statement.
Bush rejected that charge.
"Every dime that comes into Medicare will be spent on Medicare," Bush said in a speech at a high school in Independence, Mo., the day before the OMB numbers came out.
Furthermore, administration officials, as they have done in the past, tried to dispel the idea of a Medicare surplus. They said Medicare actually runs a deficit. Although the Hospital Insurance Trust Fund received more tax revenue than it spent on Part A services, only 25% of Part B expenses are covered by enrollee premiums, they said.
The rest of Part B expenditures are paid from general government tax revenues, constituting what administration officials called a $45 billion shortfall this year.
The OMB also said Bush wants to add some $37 billion to the $153 billion he originally planned to spend over 10 years on Medicare reform and a prescription-drug benefit for seniors.