Once the Medicare reform bill became law last year, for better or worse, the controversy surrounding it was expected to die down, or at least dissipate.
So much for that. Debate over the program's future has rarely been more intense than during the 16 weeks since Medicare received its biggest benefits overhaul ever. After new predictions last week that Medicare's hospital insurance trust fund will go broke earlier than previously expected, hospital officials viewed a fresh round of provider payment cuts as an unfortunate but inevitable part of the solution lawmakers will adopt. Some even raised the specter of another Balanced Budget Act, the 1997 law that providers have cursed ever since because of the reimbursement cuts it contained.
"Cutting providers is always the easiest politically," said John Lucas, chief executive officer of 164-bed St. Vincent Hospital in Santa Fe, New Mexico, where 40% of revenue comes from Medicare. "Cutting benefits or making beneficiaries pay more are always less popular with voters."
Industry lobbyists put themselves on guard but stopped short of committing to a massive new effort to protect what hospitals gained in last year's prescription drug law. Growing federal deficits, some hospital advocates said, will force Congress to trim spending before the trust fund does.
Last week's annual report by the Medicare program's trustees forecast that the trust fund, which finances Part A hospital payments, will run out of money in 2019, seven years earlier than predicted in the 2003 report and representing the largest one-year swing ever.
Last week's report did not brighten the outlook for hospitals that won big in the Medicare prescription drug bill but might soon consider those gains short-lived.
The American Hospital Association will continue to defend the payment perks its members will enjoy as a result of the reform law but plans to focus more attention on the need to modernize the financing system, said Rick Pollack, the AHA's executive vice president.
"The critical challenge is how do we make changes that achieve efficiencies that really reform the program as opposed to mindless ratcheting of provider payments," Pollack said. "It's incumbent on our field to develop some recommendations in that regard."
An AHA commission charged with that task began its work early this year and will present a formal plan to its board and membership sometime this fall.
In the meantime, the trustees' report gave new fuel to critics of the reform law, including conservative groups that used its projections as a reason to call for repeal. Along with the ongoing flap over high Medicare drug bill estimates allegedly concealed by the Bush administration, the report set off an alarm for some hospital executives worried about an impending repeat of the 1997 Balanced Budget Act.
"If there are major cuts similar to BBA, that's where you start seeing major impacts on the system-hospital closures and closure of services," said Trent Lind, associate administrator of 200-bed Fawcett Memorial Hospital in Port Charlotte, Fla.
As hospital executives contemplated the fallout of growing Medicare shortfalls, both sides of the political spectrum weighed in-sometimes forcefully.
"The federal government recently deployed a bomb that could be more crippling to our economy than any one designed by al-Qaida-the bomb of the Medicare prescription drug benefit," Kent Snyder, executive director of the Liberty Committee, said last week at a press conference calling on Congress to take its 4-month-old law off the books.
The Liberty Committee is part of a conservative coalition lobbying to prevent Medicare from dramatically expanding its scope and price tag.
Congressional aides dismissed the possibility of repeal, saying Democrats and Republicans alike worked for years to add drug coverage to a program that should have had it long ago. In an election year, they said, lawmakers remain hesitant to toy with benefits only recently-and painstakingly-added.
Some hospital officials said they were less worried about repeal of the law than what Congress might do over the next couple of years to prevent the new drug benefits from becoming a financial drain on the overall program.
"Anyone in healthcare who hears the Medicare trust fund is going to go broke sees a red flag," said Charles Gill, vice president of public affairs at 172-bed Central Maine Medical Center in Lewiston. "There's always a concern that the recourse will be to penalize providers for treating more patients. That's not the rational approach."
Rural provisions could go
Rural hospitals won major concessions in the Medicare law, including one that permanently increases their base payment rate to match the rate used for urban facilities.
The rural hospital provisions, which amount to some $25 billion over 10 years, account for one year of lost solvency for the trust fund, HHS Secretary Tommy Thompson and other government officials said last week.
While the $25 billion figure may seem high, others said, it is too small a piece of the Medicare pie to stave off insolvency.
The Medicare law's rural provisions "aren't the driving force behind the solvency date being decreased," said Alan Morgan, a spokesman for the National Rural Healthcare Association. Morgan said he is not concerned that lawmakers will cut rural hospital payments in the near future.
The hospital insurance trust fund will take in less than it spends this year, Bush administration officials said, reminding many analysts of the last time that happened-in 1997, the year that produced the Balanced Budget Act.
"Rural hospitals will not be singled out because of the increase they were just given," said Larry Goldberg, a director in the Washington office of Deloitte & Touche. "It's the entire provider segment that will be subject to potential reviews and reductions in rates of increase as Congress wrestles with slowing down Medicare outlays."
Rural provisions were broadly supported by members of Congress and are unlikely to come unhinged, added Christin Tinsworth, a spokeswoman for the House Ways and Means Committee, which held a hearing on the trustees' report last week featuring the testimony of CMS Chief Actuary Richard Foster.
Foster grabbed headlines earlier this month when he said former CMS Administrator Tom Scully threatened to fire him last summer if he told Congress his estimate of the drug bill's cost, which was some $150 billion higher than the working estimate lawmakers received from the Congressional Budget Office.
HHS Secretary Tommy Thompson, as well as some Republicans in Congress, said last week that estimates Foster made last summer were based on earlier versions of the legislation and that the final CMS estimate of $534 billion over 10 years was not complete until Dec. 24, three weeks after President Bush signed the bill into law.
Sen. Chuck Grassley (R-Iowa), who served as vice chairman of the House-Senate committee that wrote the law, said last week that the political dispute over cost figures is "simply election-year hyperbole."
"With all due respect to the dedicated staff who work at the CMS Office of the Actuary, their cost estimates were irrelevant to the process" because the CBO is Congress' only scorekeeper, Grassley said.
In the Ways and Means hearing last week, CBO Director Douglas Holtz-Eakin told lawmakers that "in my professional judgment, $395 billion was and is the single best estimate of the cost of this legislation."
Differing assumptions about how many Medicare beneficiaries would join managed-care plans and how many would take advantage of low-income subsidies contributed heavily to the divergence between the CMS' and the CBO's estimates, the actuaries and others have said repeatedly in recent weeks.
Bush administration officials said the CMS estimate does not take into account provisions in the law designed to produce savings, such as disease management programs that will keep seniors healthier and minimize expensive hospitalizations.
The savings such efforts will create represent "an opportunity to significantly improve the outlook for the Medicare system," Treasury Secretary John Snow told reporters last week at a briefing where he and Thompson discussed the trustees' report.
When asked at the Ways and Means hearing how much savings disease management and preventive benefits would produce for the Medicare program, however, Holtz-Eakin said he "could not find comprehensive evidence that there's large-scale savings." Foster told the congressional panel that he did not have such information readily available.
Ways and Means Committee member Nancy Johnson (R-Conn.) shot back at Foster and Holtz-Eakin and said she was "astounded" they could not estimate savings and include them in cost projections.
Critics were highly skeptical of the impact disease management and similar cost-reduction strategies might have. "If they saved a trillion dollars, we'd still have an enormous problem, and they're not going to save a trillion dollars," said Donald Devine, chairman of the conservative Coalition Against Higher Medicare Costs.
Rapidly accelerating healthcare costs are the main culprit jeopardizing the trust fund sooner than anticipated, Thompson and others said. According to the report itself, lower tax revenue and growing numbers of beneficiaries also contributed to the fund's darkening outlook.
Addressing the industry's cost problems is a larger undertaking that entails finding a solution for the uninsured, said St. Vincent's Lucas. In the meantime, "our fear is that Medicare will be stripped down and pay us less," which is likely to happen in the next two years, he said.
The AHA's Pollack argued that the 2019 date for insolvency of the hospital insurance trust fund is seven election cycles away, and "if you look at this problem in the long term, no amount of provider payment reductions is going to solve it."