To help lure investors to healthcare, the Bush administration wants to make providing Medicare services a stable and moderately profitable business. The trouble is, it's Congress, not the administration, that turns Medicare's financial spigot on and off.
Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, says the boom-bust cycle in Medicare payments scares Wall Street away from the healthcare sector.
So now he's proposing a different approach to give investors in the stock and bond markets more confidence in investing in healthcare providers and companies.
Past federal payment policies have seen fat profit margins among hospitals and other providers as an excuse to cut the Medicare-payment growth rate, causing the bottom to fall out of hospital finances and driving investors away. Providers respond by pressing Congress to boost payments, increasing profits.
And then the cycle repeats itself.
That was the pattern after passage of the Balanced Budget Act of 1997, which froze hospital payments for a year and imposed caps on spending growth in all other healthcare sectors serving Medicare beneficiaries. The measure targeted some $115 billion in Medicare savings from 1998 to 2002, representing about 8.5% of projected Medicare spending.
The years that followed featured the bankruptcies of several nursing home chains, complaints among hospitals and other providers that they were losing money because of Medicare payment policies, as well as plummeting interest in the healthcare sector in both the stock and bond markets.
"The result is that people don't look at healthcare . . . as a reliable long-term business investment," Scully told a recent conference sponsored by the American Association of Health Plans.
But that's not the way it should be, he told conference attendees. "It should be a slow, steady, boring . . . business," Scully said at the conference.
Scully doesn't have any specific legislation in mind; instead, he says that by highlighting the problem for Congress he can force a review of traditional Medicare budget policy.
That is a point echoed by at least one key member of Congress. "We have to be steadier in our reimbursement," says Rep. Nancy Johnson (R-Conn.), chairwoman of the House Ways and Means health subcommittee, which has jurisdiction over Medicare.
Johnson said Congress could do that by making payment updates automatic and ensuring that cost-inflating factors such as technological and pharmaceutical advancements are taken into account when the CMS publishes annual Medicare-payment updates.
Better predictability has been a CMS watchword this year. Already, the agency has instituted a series of administrative reforms that seek to force the CMS and its contractors to be more responsive to providers and beneficiaries (See chart). Those moves can reduce providers' costs of doing business with the federal government and improve their bottom lines.
What they can't do is make Medicare a steadily profitable, if unglamorous, business because Congress, not the CMS, writes the law that sets Medicare payments almost every year.
Congress often sets those payments as it tries to meet budget targets and spend money on programs with the highest priority. And because Medicare represents about $224 billion in spending in fiscal 2002 alone, it's an attractive pool of funds when Congress needs to find money to expand other programs.
"The CMS itself has very little control over many individual Medicare- payment policies," says Nancy-Ann DeParle, a senior adviser to the private equity group JP Morgan Partners and a former administrator of HCFA (now the CMS). "It's not as though the agency can snap its fingers and make payment boring and stable."
"He (Scully) probably has a good intention and has a good objective, and I'm sure healthcare providers around the country rise up and cheer when he says that," says Bill Reiland, a principal with Morgan Stanley Dean Witter who runs high-yield healthcare research.
"The important question is, in five years will the administration have the same objectives? You don't know. You might not have the same administration."