HHS officials at news conferences and in congressional hearings last week insisted the Bush administration was proposing “savings,” and not cuts to the program. The ultimate purpose is to the slow the rate of growth and reduce premiums to Medicare beneficiaries by $6.2 billion over the next five years, Leavitt testified before the Senate Finance Committee.
The budget proposes that payments be frozen at current levels for a time, then be increased at a lesser rate than expected after that. Hospitals typically get a yearly increase through the “marketbasket update” or the expected annual increase in various hospital costs. The budget plan would freeze these payments for hospitals; skilled-nursing, inpatient rehabilitation and hospice facilities; ambulatory surgical centers; and long-term, acute-care hospitals from 2009 through 2011, with further cuts in future years.
Hospitals under Medicare’s inpatient rule for fiscal 2008 got an inflation increase of $4 billion, and the American Hospital Association estimates that Medicare spends roughly $100 billion annually on hospital inpatient care. In theory, the president’s suggested freeze and other changes would reduce Medicare hospital spending by almost $4 billion in 2009.
Edwin Park, senior fellow in the health policy department at the Center on Budget and Policy Priorities, asserts this is an actual cut to provider payments. “As for ‘not a cut,’ this is typical administration budget-speak,” he said. “Healthcare costs are rising, and Medicare payments would otherwise reflect that. But a freeze in payments thus would mean a real cut in payments, if they don’t take into account healthcare inflation, which is what the marketbasket updates are intended to do.”
According to Richard Pollack, the AHA’s executive vice president, advocacy and public policy, hospitals bear the brunt of the cuts:
$137 billion over five years. “That’s roughly 75% of the total cuts to Medicare. This is at a time when Medicare margins for hospitals reached a 10-year low, making it more difficult for hospitals to continue their mission of caring for communities. The AHA will fight to ensure these proposals do not become reality,” Pollack said.
“What this is going to mean to us is still not entirely clear, but just our quick estimate is that the five-year impact would be about $123 million,” Pate said. “That is huge because we’re operating on razor-thin margins, so almost every dollar I take in goes to pay costs. This would certainly put us over the edge.”
And the proposal would be especially hard on hospitals in rural areas. “How will our critical-access hospitals—how will our hospitals that are out there serving populations where that is the only hospital available to them—how will they weather those cuts?” Pate asked.
The proposal would also cut payments to indirect medical education by $890 million in fiscal 2009 and by nearly $13 billion from 2009 to 2013. Disproportionate-share payments to safety net hospitals would experience nearly $21 billion in cuts over this time period.
“It is especially troublesome that public hospitals and academic medical centers, which traditionally already have the highest burden of indigent care, are being asked to absorb the greatest burden of the budget plan,” said Scott Glasrud, executive vice president and chief financial officer of 465-bed University of Kansas Hospital, an academic medical center in Kansas City, in an e-mailed statement.
Some provider groups already have early estimates on what the budget proposal will cost them over time. The Greater New York Hospital Association reports that in fiscal 2009 alone hospitals in New York will lose $1 billion, and
$10 billion over five years. The proposal would also affect Pennsylvania’s hospitals that are already paid less than a dollar (77 cents) by Medicare for every dollar of care provided. The Hospital & Healthsystem Association of Pennsylvania estimates the proposal will mean $5.5 billion in cuts to its hospitals over five years.
The Ambulatory Surgery Center Association in the meantime says its members will lose $450 million over the five-year stretch because of the freeze to ASC facilities through 2011, and then a reduction in their update in future years by 0.65 percentage points.
In the physicians’ view, they’re the ones getting the shortest end of the stick in this proposal, since it doesn’t include a fix to the sustainable growth rate formula, which Medicare uses to help calculate physician payments each year. Physicians in July face a 10% cut to their payments unless Congress steps in, as it has many times in the past, and issues a temporary measure to stop the reduction. “Current Medicare law provides for annual payment updates for hospitals and other healthcare providers based on increases in the cost of providing care, and only physicians face real cuts that require yearly congressional intervention to stave off a breakdown in the Medicare program for patients,” said American Medical Association Board Chairman Edward Langston in a written statement.
At a hearing last week, Senate Finance Committee Chairman Max Baucus (D-Mont.) grilled Leavitt on the Bush administration’s choice to put provider payments on the chopping block, but spare the private Medicare Advantage plans, which have been assailed time and again for being overpaid by the program. The Medicare Payment Advisory Commission estimates that the payment differential between traditional fee-for-service and private Medicare Advantage is 13%, and that this difference should be eliminated, Baucus said.
As it turns out, Medicare Advantage wouldn’t emerge unscathed from the president’s savings plan. The plans will actually experience some reductions by default. Specifically, CMS officials said payments to Medicare Advantage plans would be reduced by an estimated $44 billion over five years—and account for one-quarter of total savings to the program.
This is because Medicare Advantage is getting hit by a “flow through” effect, said AHIP’s Ghose. “The bidding process of Medicare Advantage plans is based on a benchmark, which is based on the growth of Medicare per capita spending. If the overall growth rate is cut, that reduces the benchmarks for the bidding process.”
Ghose added that Medicare Advantage is getting a disproportionate share of the cut, since it represents only 20% of Medicare beneficiaries, “but will see 24% of the overall Medicare cut.” Medicare Advantage plans have been routinely criticized for being overpaid, but Ghose says the cut is unfair to low-income seniors who benefit from the plans.
Leavitt acknowledged that the price-setting system by which HHS pays its Medicare providers was imperfect, and that changes needed to be made to improve the system. While touting the success of Medicare Advantage, Leavitt suggested that expanding the bidding process from a county-by-county to a regional system would drive up competition among the plans, and improve the program’s efficiency.
The flood of criticism from Congress, providers and policy groups makes it seem unlikely the administration’s budget plan will ever become law. With such a strong backlash among providers, lawmakers and policymakers alike, it’s fair to say that the president’s budget request “was dead before arrival to Congress. It’s the same old stuff that’s been rejected time and time again,” said Ron Pollack, executive director of Families USA, a not-for-profit policy group. No real deal on Medicare or any other healthcare proposal will be made until after the presidential elections, Pollack said. <<
—with Melanie Evans, Vince Galloro and Jessica Zigmond