The $190 billion conundrum - FYI - farm aid versus Medicare financing - Brief Article

Healthcare Financial Management, July, 2002 by Jeanne Schulte Scott

"It's an unfortunate ploy to pit one group of healthcare providers against another. Doctors deserve higher Medicare payments. But to try to satisfy that legitimate need by reducing payments to hospitals is extremely unfair."

--Kenneth Robbins, Illinois Hospital Association president, responding to President Bush's demand that an increase in payments for one group of providers be offset by cuts in payments to others.

"Many hospitals are already providing service at or below cost. Gut payments any further; and we'll have a mass exodus of providers from Medicare."

--Charlie Norwood (R-Ga.), suggesting that hospitals cannot afford any more Medicare payment cuts.

With great fanfare, President Bush recently signed the Farm Security and Rural Investment Act of 2002, which will provide $190 billion in farm aid over 10 years. Joining the president at the signing were leading Democrats, eager to display support for a popular bill. Interestingly, the bill provides $20 billion more in aid than the president had requested in his FY03 budget proposal to Congress. One might suspect the bill's success, even with the additional expense, is because farmers represent a significant voting bloc in virtually every state, and this is an election year.

Significantly, $190 billion also is the amount Bush has proposed to spend in his FY03 budget on all of Medicare's additional needs over the same 10-year period. Also significant is the administration's virtual silence on the budget-busting impact of the farm-aid appropriation on Bush's plans for the nation's economy. This silence stands in stark contrast to the administration's uproar over suggestions that the $190 billion the president proposes for Medicare falls far short of the healthcare industry's need. This difference in attitude might imply that the administration does not see a political return on investment in the Medicare program.

Budget-Balancing Purism

The president remains a budget purist regarding the nation's hospitals, demanding that any Medicare funding above his recommended $190 billion amount over 10 years must be offset by cuts elsewhere in the Medicare and Medicaid programs. For example, if physicians succeed in convincing Congress to restore a 5.4 percent cut in their Medicare payment that took effect this year, that amount has to be balanced by new cuts in payment to other providers. If nursing homes get a delay in a scheduled 14 percent decrease in their payment, other providers will take a hit. Likewise, if home health agencies succeed in canceling an 11 percent cut in their payment, that amount will be cut from other providers' payment. To do anything else, says the White House, would be budget-busting.

So why isn't the farm-aid bill, with its $20 billion more than the president originally sought, not a budget-buster, but Medicare funding is? The House of Representatives has introduced a bill that would subsidize the price of prescription drugs to senior citizens at an estimated cost of $350 billion over 10 years. To avoid busting the budget, the bill calls for financing the new benefit by cutting payments to hospitals by 0.55 percent a year for four years. Was the farm bill financed by cutting subsidies to dairy farmers? Of course not.

Who's to Blame?

Clearly, Congress bears much of the blame for the healthcare financial imbroglio. Members of Congress seem perfectly willing to add all sorts of costly special-interest provisions to every bill that comes along, yet they still pay lip service to balancing the budget. The White House is at fault as well. By failing to articulate a consistent position on budget issues, the administration is allowing members of Congress to fund politically popular parochial interests.

The healthcare industry also must share in the blame, however, especially the hospital sector, because hospitals have failed to clearly justify their needs to the nation's lawmakers. The medical community has organized a strong lobby to restore its 5.4 percent cut in Medicare payments. The home health and nursing home sectors also apparently have put together a coherent package to justify their needs. Hospitals should play a more active role as well. The need to save the nation's small hospitals is every bit as critical as the need to save its small farmers.

Jeanne Schulte Scott, JD, is director of government relations, NDCHealth, Washington, D.C. Her e-mail address is jeanne.scott@ndchealth.com.