A brave new world of health care: the ghosts of the Balanced Budget Act of 1997 continue to haunt the healthcare provider community

Healthcare Financial Management, Dec, 2003 by Jeanne Schulte Scott

The BBA was supposed to provide a modest schedule for cutting Medicare payments to providers of all kinds. Back in 1997, the Congressional Budget Office (CBO) predicted the act would reduce by $115 billion the payment providers would otherwise have received over the first five years and even more after that. The act was the cornerstone of the then-Republican Congress's and Democratic president's efforts to stem the nation's flow of red ink. In a significantly changed economic climate, the BBA continues to affect providers--with some of the effects intended and some unintended.

How Cuts Have Affected Physicians

In perfect hindsight, we now know that the CBO made a "little" error in its calculations. Instead of cutting $115 billion, the BBA has cut more than $400 billion from the Medicare payments that providers would otherwise have received during the BBA's first five years, with even larger cuts ahead. These cuts have been draconian. For a time, you couldn't give away a home health agency; seemingly, all the nation's largest for-profit nursing home chains were in Chapter 11 bankruptcy. Hospitals across the country faced new financial pressures, and several of them fell victim to the budgetary axe.

But for the most part, physicians were spared the initial cuts. It wasn't until 2002 that the first BBA impact fell on the docs. BBA formulas established in 1997 cut 2002 physician Medicare payments by 5.4 percent. Signs popped up in physicians' offices all across the country urging patients to write their Congressional representatives and call for a restoration of payments. The American Medical Association (AMA), its state affiliates. and several medical specialty groups pulled out their big lobbying guns. By the end of 2002, members of Congress promised to change the formula, but no action occurred.

The Cuts Go On

Then in 2003, the BBA struck again. The formula called for yet another 4.40 percent reduction in physician Medicare payments. Now the gloves were off. We began to hear about physicians refusing to take Medicare patients. The media was rife with anecdotes about senior citizens losing their physicians or going without care in certain market areas. Congress blinked. It tabled the 4.4 percent cut and actually gave the docs back a piece of the 5.4 percent they had lost the year earlier. (The 2003 Omnibus Appropriations bill--H.J. Resolution a--rolled back the 4.4, percent scheduled cut and gave physicians a 1.6 percent increase in 2003.)

But these paybacks carne with a price paid through further cuts in other provider Medicare payments. We live in a zero-sum Medicare world. There is just so much money to go around, and Congress has essentially "frozen" the Medicare budget. If one group (physicians) gets more, other groups (hospitals, nursing homes) get less. And the BBA was not through raising its havoc in the medical community: the 1997 formula demands a 4.5 percent decrease in physician payments in 2004. That's it, the AMA said in essence, physicians have had enough.

Will Physicians "Strike"?

We are about to enter a highly divisive presidential election year. The nation faces a renewed budget crisis with numbers that dwarf the projections that led to the original BBA. Senior citizens are demanding a prescription drug benefit, the baby boom generation is poised to join the ranks of Medicare beneficiaries, and the nation faces a budget deficit conservatively estimated al more than $5 billion. America's physicians are threatening to go on strike, and there is little room to offer them relief.

Physicians' "threat" to leave Medicare is, in my opinion, a shallow one. With 760,000 practicing physicians in this country, perhaps 200,000 might be able to make the same level of income if they stop taking Medicare patients. The other 500,000 or so need Medicare to maintain the viability of their practices. They would be forced to take patients, but probably in the process would lower their income expectations and change the way they practice to accommodate the lower reimbursement.

I believe the present administration in Washington wants the current Medicare program to fail. The administration has been depriving Medicare of the funding it needs to meet the needs of the growing senior population. By 2011, when the first baby-boomers start turning 65, the program will be but a shell of its former self. The solution is to funnel the vast majority of our seniors (those with middle to low incomes, who won't be able to afford the premiums demanded by the high- end "improved" Medicare program currently being debated in Congress) into low-end Medicare "medical factories," where their health care will be delivered by medical staffs working under the new conditions of Medicare--more physician extenders, fewer patent drugs. more generics, more hurdles to care. It'll be assembly-line health care delivered within the limited financing available.

It's a brave new world of health care, with few viable alternatives.

Jeanne Schulte Scott, JD, is a healthcare lobbyist in Washington, D.C. She may be reached at jeanne.scott@health-politics.com.