Clinton tips his hand on Medicare cuts - Pres. Bill Clinton; proposals for reduced medicare payments - Washington Report - Column

Medical Laboratory Observer, April, 1993 by David Albertson

IN HIS Feb. 17 State of the Union address, President Bill Clinton said that all Americans must do their part to revitalize the economy. A closer look at the Administration's preliminary budget proposals suggests the fair share to be shouldered by clinical laboratories would be about $4 billion in reduced Medicare payments over five years.

Although the President's formal budget request wasn't due on Capitol Hill until late March, the proposals released in February present a fairly detailed breakdown of more than $62 billion in Medicare and Medicaid cuts through 1997. About $52 billion would come from Medicare, the rest from Medicaid.

Many of the Medicare proposals--particularly those affecting clinical labs--were recycled from previous administrations. The key lab proposals also are based on Government research findings the industry has been challenging for years.

* Reduced fee caps. The biggest hit would reduce Medicare fee caps from 88% to 76% of the median of all carrier fee schedules. The same cut was proposed last year by the Bush Administration as a means of financing full health insurance deductibility for the self-employed.

In this incarnation, the measure is couched as "setting laboratory rates at market levels." A document released by the White House said the fee caps would initially be set at 76%; later, at some unspecified date "the Secretary of HHS would adjust Medicare payment rates to account for technological changes or other market factors." It's unclear if those adjustments would increase or further decrease fees.

What is clear is that officials still believe Medicare is paying excessive amounts for lab tests. The preliminary budget cites a rather dusty HHS Inspector General's finding that Medicare pays 90% more than physicians for the same tests. It also mentions a General Accounting Office (GAO) study indicating labs use higher profits from Medicare to subsidize discounts to private payers.

The Administration estimates its proposal would save Medicare $3.1 billion through 1997. When the same measure was under consideration last year, industry reps said it would have a devastating effect on most independent community-based labs. There's no indication it would be any more acceptable now, considering that many facilities are incurring extra expenses in complying with the Clinical Laboratory Improvement Amendments of 1988.

* Freezing the fee update. A second major proposal affecting labs would permanently extend the 2% annual fee update. The Omnibus Budget Act of 1990 established a 2% update through the end of this year, after which lab fees would be increased by the urban component of the Consumer Price Index. Currently, that rate is about 3.5% a year.

According to the Administration's outline paper, however, "There is no evidence to indicate that laboratory costs are increasing by the rate of inflation." Medicare payments to labs, says the document, "should more closely reflect decreasing costs due to technological advances, such as increased automation, and changes in the market, such as lower-cost equipment." Estimated five-year savings: $740 million.

* RAP services targeted. Another proposal resurrected from years past would include reimbursement for hospital inpatient radiology, anesthesia, and pathology (RAP) services as an add-on to DRG payments. Separate billing by physicians for these services would not be allowed. "Quality of care would be improved and unnecessary utilization would be minimized," the Administration says about the plan, which is projected to save $390 million through 1997.

HHS Secretary Donna Shalala described the overall Medicare package as a "nick" rather than a "cut" in Federal health spending, adding that "we used a scalpel--not a sledgehammer." Officials report that total Medicare spending reached $132 billion in fiscal year 1992, up 12% from the 1991 level. Program costs this year are projected to reach $145 billion.

Of the five-year Medicare cuts proposed, about $24 billion would come from hospitals' pockets, especially teaching hospitals. Another $8 billion would come from limiting physician payments, primarily to surgeons and other specialists.

Although providers are the main targets of the reductions, an estimated $10 billion would come from requiring Medicare beneficiaries to continue paying Part B premiums equal to 27% of the Government's outlay. That percentage was expected to drop significantly in 1996 under a formula established by law three years ago.

Among other specific Medicare cuts outlined, the Administration would:

* Reduce the hospital market basket update by 1% in both 1994 and 1995. This alters a formula established in 1990 by extending the current practice of updating DRGs by amounts less than the hospital market basket index. Estimated savings through 1997: $5.2 billion.

* Put hospitals on a calendar year update schedule. Hospital inpatient payments are now updated each Oct. 1. Switching to Jan. 1 would effectively eliminate one fiscal quarter of updates. Savings: $4.6 billion.