President Clinton signs budget bill into law - Balanced Budget Act of 1997

Healthcare Financial Management, Sept, 1997

On July 30 and 31, the House and Senate overwhelmingly approved the omnibus budget reconciliation bill designed to balance the Federal budget in five years. President Clinton signed the Balanced Budget Act of 1997 on August 5. Institutional providers are hardest hit in the final bill, with both prospective payment system (PPS) and PPS-exempt hospitals facing a freeze in FY98 update factors and sharp reductions in capital reimbursement and bad debt payments. Also, Congress finally accepted HCFA's long-standing recommendation to tighten the transfer payment policy. The new bill extends the transfer policy to 10 DRGs, which will be selected by the HHS Secretary. For all other hospital patients placed in skilled nursing facilities (SNFs), in PPS-exempt facilities, or with home health agencies, hospital payments will be either a per diem or a blend of the transfer and DRG payments.

Payments for home health oxygen equipment were also hard hit. The bill reduces home oxygen payments by 25 percent in FY98 and an additional 5 percent in FY99, with no inflation update in those years. It also provides for a demonstration project of competitive bidding for oxygen services. The provision supersedes a July 16 HCFA proposal to reduce home oxygen payments.

Medicare risk plans fared considerably better in the final budget bill than in President Clinton's initial proposal last February. Payments to risk plans will still decline, primarily because the fee-for-service expenditures upon which the payments are based will be reduced. Also, special graduate medical education adjustments to risk plans' rates will be phased out over five years, and HHS is to implement health-status-based risk adjustors by January 1, 2000 - a change that will let the government share the savings from managed care efficiencies, but will put pressure on plans' Medicare profits. Nonetheless, Congress rejected Clinton's proposed flat 5 percent cut in rates, and risk plans will still receive disproportionate share payments.

To reduce some of the disparity in rates across the country, Congress created some new payment options that should prove kinder to low adjusted average per capita cost (AAPCC) areas. Starting in 1998 and continuing through 2002, payments for each county will equal the highest of a phased-in blend of local (AAPCC) and national (United States per capita cost) payment rates, a minimum payment amount of $367 in 1998, or 102 percent of the county's average payment amount for the previous year. The first two options will be updated by Medicare's fee-for-service growth minus 0.8 percentage points in 1998 and minus 0.5 percentage points for following years.

Among other provisions, the bill directs HCFA to move to a PPS for outpatient services, SNFs, home health services, and rehabilitation hospitals. Also, home health funding would be split over six years between a 100-visit, posthospital Part A benefit and a new Part B benefit for all other home health visits. As expected, controversial, Senate-sponsored provisions for means testing, higher eligibility age, and copayments for home health care were rejected.

Updated tables of key Medicare provisions are available on Fax-It at (800)839-HFMA. For provider payment provisions, request document 216126; for managed care provisions, request document 216124; and for fraud and abuse issues, request document 217127.