Nurseweek/Healthweek | Hospitals and providers prepare for Medicare cuts

Hospitals and providers prepare for Medicare cuts

posted 8-2-97

Although the soon-to-be-signed budget bill seeks to resolve the federal deficit by 2002, it does little to help shore up the Medicare program for the coming wave of retiring baby boomers.

Most of the $140 billion savings in the bill, which was passed by Congress last week, comes from Medicare. Over the next five years, Medicare spending will be reduced by $115 billion—with most of the savings coming from payment reductions to health providers, HMOs, and hospitals.

Special interest groups were still analyzing the final legislation at press time. Some of the bill’s provisions, as outlined by the American Hospital Association, include:

a reduction in direct fee-for-service payments for inpatient and outpatient hospital services by $44 billion over five years;
the elimination of "formula driven overpayment" for hospital outpatient services in fiscal year 1998—lowering payments to hospitals by $1.3 billion in budget year 1998—and establishment of a prospective payment system beginning Jan. 1, 1999; and
a reduction in disproportionate share adjustment payments by 1 percent in budget year 1998, 2 percent in 1999, 3 percent in 2000, 4 percent in 2001, and 5 percent in 2002.

Medicare is the fastest-growing federal program, and if it continues on its present course, it will match the combined spending of the Defense Department and the Social Security Administration. The program is expected to face increasing demographic pressure as the baby boomers begin reaching the age of eligibility in 2011. The number of beneficiaries is expected to double to 76 million by 2030.

Who will have the unenviable job of reforming Medicare? The job, in classic political fashion, will be turned over to a commission. The budget bill creates a 17-member commission whose job will be to review the program and make recommendations by late next year.

The budget bill also:

allows 390,000 seniors to establish medical savings accounts in 1999;
creates Supplemental Security Income and Medicaid eligibility for elderly and disabled legal immigrants if they were in the United States by Aug. 22, 1996, and receiving SSI benefits. Also, all legal immigrants in the United States by that date will be eligible for Medicaid if they become disabled in the future;
provides $24 billion to expand healthcare coverage—in part, financed by a tobacco tax—to nearly half of the 10 million children without health insurance; and
makes it easier for hospitals and physicians to create provider networks to compete with insurance companies.

Three controversial Medicare provisions were stripped from the final bill. One raised monthly Medicare premiums for affluent beneficiaries, the second imposed a $5 fee for home healthcare visits, and the third increased the eligibility age from 65 to 67.

The president is expected to sign the bill this week.