Far-reaching Kennedy-Gephardt bill to resurface in 1985 - Washington Report

Medical Laboratory Observer, Dec, 1984

Far-reaching Kennedy-Gephardt bill to resurface in 1985

It's not lab legislation per se, but the bill two Democrats soon will reintroduce in the new Congress could have tremendous long-term significance for laboratorians.

The official title: "The Medicare Solvency and Health Care Reform Act of 1985.' Wordy as it is, the name nevertheless is shorthand for battles building in states and on Capitol Hill to determine the shape of national health policy over the next 10 years. The struggle centers on the degree to which marketplace competition can successfully substitute for the public utility-type regulation of health care costs. Hanging in the balance, most observers agree, are the survival of hundreds of hospitals, as well as advancements in technology for every area of medicine, including labs.

"In many quarters, the competition philosophy is gaining momentum,' said Walter McClure, president of the Center for Health Policy Studies in Minneapolis. "But interest in the regulatory strategy is gaining at least as much. It's a very tight horse race and could go either way in the next five years,' he said.

A major factor in the outcome, he warns, will be hospitals themselves, "once they figure out that the competitive marketplace is going to discipline them much more than rate-setting would.'

Regulation advocates say their approach would not only control costs, but also ensure care for the indigent without creating a twotiered health system. Competition proponents counter that those benefits would come at the expense of innovation and quality in health care, and prop up in efficient hospitals and doctors. They also claim that true efficiencies and real savings can only come through an open market that rewards low-cost, quality providers with the patient business, while offering a separate financing mechanism for the indigent.

Sen. Edward Kennedy (D-Mass.) and Rep. Richard Gephardt (D-Mo.) believe their complex legislative package walks a fine line between these two schools of health policy thought. Their bill, which attracted considerable attention during hearings this year, should gain even greater prominence in the next Congress. Two big reasons: The day of reckoning for Medicare Trust Fund solvency is drawing closer, and more states are in turmoil over issues addressed in the bill.

The Kennedy-Gephardt proposal consists of two sections. The first addresses specific Medicare matters. It would:

Mandate assignment for all services to Medicare beneficiaries.

Adjust the prospective payment system to reduce Medicare payments for all admissions in excess of a hospital's historical norm. The goal: "to decrease the current incentives hospitals have (under PPS) to increase admissions.'

Attempt to "improve' PPS further by including inpatient physician services within DRG payments to hospitals. "It will be the responsibility of the hospitals and the physicians providing the care to allocate the payment.'

Include capital costs in the DRG payment and abolish the separate payment for return on equity.

But, according to the bill's authors, a Medicare-only approach is "doomed to fail. As long as hospitals and physicians remain free to charge other patients whatever the traffic will bear, inflation will continue out of control and the cost of Medicare will go up.'

Consequently, they also propose a "systemwide approach' that gives states the first crack at developing means of meeting certain Federally set cost targets for all spending outside Medicare.

The states could hammer out their own health care plans using either regulatory, competitive, or voluntary mechanisms (or any combination of these) to stay within the target or "performance standard.' The target dictates that per discharge cost increases for all inpatient services, including physicians' charges, could not exceed the increase in the hospital market basket plus 1 per cent. However, states could also apply for alternative cost targets, such as one based on total per capita health costs.

To encourage competitive approaches, the bill also creates special reimbursement limit exemptions for HMOs, requires employers to offer more than one Federlly qualified prepaid plan, and provides cash incentives to employees who choose HMOs that are more cost-effective than a competing conventional plan.

If a state elected not to implement a health care plan, or could not do so successfully, a "Federal residual program' would be imposed. This would extend the Medicare PPS to all other payers in that state.

Kennedy and Gephardt have already won vigorous support from the elderly and labor.

Interestingly, corporations might end up as backers, too. Rick Lee of the Washington Business Coalition recently told a meeting of hospital financial executives "not to assume that big business is opposed to the proposal just because it represents Federal regulation. In fact, it gives states maximum flexibility for five years. . . Conveiveably corporations could push K-G because it might be the only solution to ending the (health premium) drain on profits. . .'