Dramatically growing estimates of what it will cost to enact the Medicare prescription drug benefit gave pause last week to healthcare providers, who are quick to remember but anxious to avoid the payment cuts that can stem from budget trimming.
Two sets of figures on the cost of providing prescription drugs to seniors hit the street in Washington last week. One came from the White House Office of Management and Budget, which said over its 10-year life the Medicare reform law will cost $534 billion to enact. That's almost 34% more than the $395 billion price tag Congress planned for when it passed the bill. The second, from the Congressional Budget Office, said the law will indeed cost $395 billion from 2004 to 2013.
Whichever figures may govern Congress' policymaking, industry officials and observers said growing estimates of Medicare spending are cause for concern, especially when they're combined with a rapidly rising federal deficit.
The CBO said federal spending on Medicare and Medicaid will top $1 trillion annually by 2014. It also said the federal deficit will hit $477 billion in fiscal 2004 and grow to $1.9 trillion from 2005 to 2014. The OMB, meanwhile, estimated that the deficit this year could be as high as $520 billion.
President Bush is expected to submit his 2005 budget proposal to Congress this week, and sources said it will reflect the White House's latest assessment of the drug bill's cost. Hospital and physician lobbyists said they do not expect any provider cuts to be included in the budget during an election year but that such cuts are a strong possibility in the not-too-distant future.
"Any hospital not looking at this is like a person crossing the street without looking both ways," said Alec Vachon, president of HamiltonPPB, a lobbying firm. "This is not just a story about the impact on pharmaceutical companies and Medicare beneficiaries. It's also a story about the impact on other purchasers of drugs, like hospitals. We don't know what that impact is going to be, and that's scary."
With the Medicare program always eating a substantial piece of the federal pie, it becomes an obvious candidate for the chopping block-and in the past, hospitals have seen their payments reduced in the face of competing budget and deficit reduction priorities.
After the release of new deficit projections, "There is cause for concern but also hope that people will have learned from the past," said Rick Pollack, executive vice president of the American Hospital Association, referring to lessons of the Balanced Budget Act of 1997, which imposed major payment restrictions on hospitals and other providers.
Policy analysts and Capitol Hill aides said the Bush administration's latest estimate of how much implementing the Medicare reform law will cost is not a surprise given the competing figures that surfaced throughout reform negotiations and the different methods the CBO and OMB used to calculate spending.
Specifically, policy experts said, the CMS actuaries who conducted the White House analysis assumed a much higher percentage of Medicare beneficiaries would join managed- care plans, whose payments were boosted under the reform law to boost participation.
"Congress' and the administration's estimates are apples and oranges," said Edwin Park, senior health policy analyst at the Center on Budget and Policy Priorities. "Our concern is that (OMB) releasing this now is an attempt to say that deficits are all the result of spending and have nothing to do with revenues lost by various tax cuts."
As the spending battle continues, healthcare providers are preparing for any possibility. The physician community is anxious to avert new cuts and create more sound policy for determining their Medicare payments. To prevent doctors from having their Medicare rates reduced and possibly threatening patients' access to physicians, for the past two years Congress has turned scheduled decreases to increases by adjusting the formula used to calculate payments. Most recently, lawmakers included in the Medicare reform law a provision to increase physician payments 1.5% annually in fiscal 2004 and 2005. Previously doctors were scheduled for a 4.5% reduction in both years.
According to the CBO, however, lawmakers' temporary fix is just that. "Unless it is modified again, the (sustainable growth rate) formula will reduce payment rates for several years beginning in 2006, and it will keep updates below inflation through at least 2014," the CBO report said.
Some lobbyists are already working to prevent that from happening, and they don't want to wait until 2005. One option is to reopen the Medicare reform legislation that became law last year, a plan many Democrats favor because they are eager to change other controversial provisions.
"Democrats want to tear down Medicare advances," Senate Majority Leader Bill Frist (R-Tenn.) said last week, adding, "The train to a better Medicare has already left the station." Major changes to the legislation, he said, will be slow to take place.
That's not necessarily what providers-especially physicians-want to hear. For Marshfield Clinic, a system of clinics based in Marshfield, Wis., the 1.5% increase in Medicare payments this year translates to only a 0.8% increase in revenue as medical inflation runs at 3% to 4%, said Dean Kellner, reimbursement revenue analyst for the system, citing an internal study in its preliminary stages.
Instead of losing 35 cents on the dollar as it did before the 1.5% increase kicked in, Marshfield is losing 34.3 cents, officials said. And things will get worse in 2006, they added, when payment rates are sure to drop without another temporary fix or long-term solution.
"We recognize the political reality of trying to get anything done in this particular year (but) we're going to continue to make the case and press the issue," said Brent Miller, Marshfield's director of federal relations.
Marshfield's situation might be rosier, according to Kellner, were it not for another Medicare bill provision that reduced reimbursement for drugs administered on an outpatient basis to 85% from 95% of the average wholesale price. "There needs to be a permanent fix to the way physician payments are calculated," Kellner said.