For hospitals and doctors, the passage of the Medicare reform law means if not financial salvation, then at least a reprieve. But for other providers, the zero-sum game of Medicare has translated into dashed hopes.
When President Bush signed the $395 billion Medicare bill into law earlier this month, hospitals and doctors received millions of dollars in additional reimbursements, but in order for that to happen, funding had to be taken from somewhere else. The result: Home healthcare providers will see a cut in payment rates while reimbursements to laboratories and manufacturers and suppliers of durable medical equipment will be frozen.
The reason for the cuts to those providers is simple economics. The congressional negotiators who came up with the final legislation were bound by the Medicare bill's funding limits, and in order to pay more to some providers -- and add a prescription drug benefit -- funds had to be taken from others.
Home health agencies will see their inflation update cut by 0.8 percentage points from 2004 to 2006. The Congressional Budget Office estimates Medicare will save $6.5 billion over a 10-year period. The industry had been seeking a full update.
Meanwhile, free-standing laboratories and those within hospitals will see a seven-year freeze on their payment rates, which are based on Consumer Price Index changes, and durable medical equipment providers will have their payment rates, also based on CPI changes, frozen from 2004 to 2006. Rates for the top five services and items, based on volume, also will be adjusted to match rates paid under the Federal Employee Health Benefits Program starting in 2005.
While industry associations did not have exact figures, they said the total financial losses incurred as a result of the Medicare legislation will be significant.
Officials from the industries holding the short end of the stick said things could have been even worse had earlier proposals been adopted. There was talk about requiring beneficiaries to make copayments for laboratory services and home health services, a provision both industries vehemently opposed.
"That would have created a huge administrative nightmare for home health agencies across the country," because of the potential burden of having to get the unpaid copayments from patients, says Seth Johnson, director of public policy at the American Association for Homecare in Alexandria, Va.
For laboratories, the collection costs, in some instances, would have exceeded the actual amount of the copayment owed, says Alan Mertz, president of the American Clinical Laboratory Association in Washington. Labs would have spent $5 to $15 collecting a copayment that could be as little as 60 cents, he says, adding the copayment provision would've added $16 billion in expenses to laboratories during a 10-year period. The figure includes administrative costs and bad debt.
There was also talk of cutting reimbursements to laboratories below what they currently receive, though that was later dropped.
Even as they tried to point to the silver lining behind the Medicare cloud, it was apparent industry officials were riled by the borrowing-from-Paul-to-give-to-Peter method of paying for Medicare reform."We're not happy they came back to home health for savings," Johnson said.
Added Mertz: "I think we were hit disproportionately, very disproportionately."
Kay Cox, president and chief executive officer of the home-care association, is particularly concerned about the provision that pegs reimbursements for durable medical equipment to the federal health program because of the difference in demographics between members of that program and the Medicare program.
Medicare reimburses to suppliers and purchasers of such equipment including hospitals, physicians and skilled-nursing facilities.
Because Medicare patients are typically older, sicker and may require more services and goods, their costs to providers are higher.
"It's an apples-to-oranges comparison," Cox said.
The types of equipment whose reimbursements will be linked to the federal program are oxygen equipment, wheelchairs, nebulizers, diabetic supplies, and air mattresses and hospital beds. According to the association, that change will result in a reduction of 3% to 22% in reimbursements annually, depending on the item.
Starting in 2007 companies will have to bid competitively for contracts with Medicare in 10 of the largest metropolitan statistical areas, expanding to 80 of the largest MSA's in 2009. Companies doing business in those MSA's that won't fall under the competitive bidding provision will continue to see their CPI increases frozen.