Congress moves quickly on Medicare budget bill process

Healthcare Financial Management, August, 1997

Following the May 1997 approval of a broad, bipartisan FY98 budget resolution to balance the Federal budget in five years, Congressional committees moved quickly in June to approve the specifics of cutting $115 billion from the Medicare program over five years. In a rare show of expediency, all the committees with jurisdiction over Medicare issues approved their Medicare bills by early-June deadlines. Congressional leaders hope to have the final budget bill on President Clinton's desk for signature before the August Congressional recess. Some highlights of the budget bills include:

Managed care payments. Medicare managed care plans fared better in the House Ways and Means Committee and the Senate Finance Committee bills than in President Clinton's bill. Committee bills call for payment reductions of about $18 billion through FY2002, whereas President Clinton proposed almost $34 billion in Medicare HMO payment cuts over five years. Unlike the President's proposal, neither Congressional bill would lower the fee-for-service (FFS) percentage paid to HMOs; instead, yearly rate increases would be capped at lower rates than the FFS increases. The minimum capitation payments range from $350 to $500 a month. The Senate Finance Committee and House Commerce Committee would carve graduate medical education (GME) and disproportionate share hospital (DSH) adjustments out of managed care payments.

Provider reimbursements. Provider spending provisions in the Congressional budget reconciliation bills are similar to those in President Clinton's proposal and other previous Medicare proposals. The biggest difference is that the committee bills derive more savings from providers to compensate for smaller managed care payment reductions than the President proposed.

The biggest single source of Medicare savings is a freeze or delay in the prospective payment system (PPS) update factor for inpatient services. Congress expects the freeze to save nearly $14 billion over five years. Hospital patients who are placed in skilled nursing facilities, PPS-exempt hospitals, or home health agencies would be considered transferred rather than discharged, as they are currently classified. Hospitals therefore would be paid on a per diem basis for those patients instead of receiving the full DRG payment. The bills include long-awaited authorization to implement a PPS for outpatient services, starting in FY99. Most of the outpatient savings would come from eliminating formula-driven overpayments. Skilled nursing facilities and home health agencies also would be paid by PPS.

Fraud and abuse. Committees in both the House and Senate are considering changes to the fraud and abuse statutes. Most changes address the imposition of civil money penalties (CMPs) and the HHS Office of Inspector General's (OIG's) authority to exclude providers from Medicare and Medicaid participation. For example, both the House and Senate would impose new CMPs for contracting with, or providing services ordered by, excluded providers. There would be a new CMP imposed on health plans that fail to report information on an adverse action taken by a health plan against a provider or entity. The Senate proposal also would impose a CMP if any portion of a remuneration is intended to induce a beneficiary to use a particular participating provider - a violation of the antikickback statute - regardless of whether any portion of the remuneration "was offered, paid, solicited, or received for a lawful purpose." Both the House and Senate bills would authorize HHS to refuse to enter into new contracts, or renew existing contracts with providers that have been convicted of a felony or similar activity deemed to be inconsistent with the interest of beneficiaries.

Other changes being considered include a House proposal to require the OIG to render binding opinions about whether physician referrals to designated health services (other than clinical laboratories) are prohibited. The Stark II law banning such referrals became effective January 1, 1995, but HCFA has yet to issue the implementing regulations for the law. In addition, the House proposes to permanently exclude providers from Medicare and Medicaid participation after three criminal convictions. The Senate proposes to change the bankruptcy statute to ensure that fines, overpayments, penalties, etc, are no longer dischargeable if a provider filed for bankruptcy under Chapter 11.

Provisions affecting beneficiaries. The Senate Finance Committee's version of the Medicare portion of the budget reconciliation bill includes a measure that would increase deductibles for more-affluent beneficiaries. Beneficiaries with incomes of $50,000 or more would see their annual deductibles rise from the current $100 to $540. Deductibles for beneficiaries with annual incomes of more than $100,000 would increase to $2,160. The Senate plan also proposes to raise gradually the Medicare eligibility age from 65 to 67. In accordance with the budget resolution, several of the committees' bills would be introduced to expand certain preventive care benefits.