Budget accord seeks 20% reduction in Medicare fees.

ONE WAY OR ANOTHER, Federal budget negotiators aim to cut Medicare Part B laboratory spending by 20% over the next four to five years.

A balanced budget framework hammered out by the Clinton Administration and congressional GOP leaders set an overall Medicare savings target of $115 billion by 2002--a level estimated to extend the program's solvency by 10 years.

Although the means of achieving those savings must still be approved by congressional committees, one starting point will be a White House plan to cut some $1.9 billion in spending through competitive bidding programs for clinical lab services, durable medical equipment, and orthotics and prosthetics.

If those savings don't materialize by the year 2001, Clinton's proposal would authorize the Health Care Financing Administration (HCFA) to take other measures necessary to hit the 20% savings goal in each service category. For laboratories, that would likely involve a freeze on fee updates and/or further reductions in national fee caps.

"Plan B" for Part B seems likely to many analysts, considering that HCFA's competitive bidding demonstration project for lab services is a year away at best.

The big picture

Under the budget framework approved by both houses of Congress, some $100 billion of the five-year, $115 billion Medicare savings would come through cuts in provider reimbursements. Those cuts will most likely be felt by hospitals in the form of a freeze on prospective payment rates, a reduction in indirect medical education adjustments, and an elimination of depreciation adjustments.

Doctors could face changes such as moving to a single conversion factor for the Medicare physician fee schedule (three are currently used) and replacement of the volume performance standard with a single sustainable growth rate that matches gross domestic product increases.

Meanwhile, lawmakers will also be considering proposals to lower Medicare HMO payments from 95% of the average county-by-county cost of fee-for-service care to 90% beginning in 2000.

Another change would shore up the Medicare Part A (hospital) trust fund by shifting roughly $800 billion in projected home healthcare payments to the more fiscally sound Part B program. As an offset, beneficiaries' monthly Medicare premiums would increase $4.50 by 2002 to help cover rising home care costs.

Bigger picture

In perspective, the Medicare cuts are part of $600 billion-$700 billion in savings on entitlement programs dictated by the budget agreement over 10 years. The plan would bring the budget into balance by 2002 and keep it in balance.

Other components of the agreement provide $135 billion in gross tax relief over five years, most of it directed to middle-income Americans. That total would accommodate a child tax credit, death tax relief, expanded individual retirement accounts, and relief for parents who send their children to college. Nondefense discretionary outlays are within 1% of the president's fiscal 1988 budget request for protecting education, the environment, international, and other priorities.

Scrapped from the original balanced budget agreement agreed to by party leaders was a $16 billion-$17 billion spending package to provide health insurance to as many as 5 million children.

One contentious issue still to be resolved is the pilot program that allows testing of tax-deductible medical savings accounts (MSAs). Enabling legislation approved last year restricted such MSAs to individuals and employer groups of 50 or fewer workers and set a cap of 750,000 on the total number established by the year 2000. Congressional Republicans would like to eliminate the cap.

At this writing, groups representing clinical lab interests in Washington were laying their strategies for how best to shape the additional work to be undertaken by congressional panels, mainly the House Ways & Means and Commerce committees and Senate Finance. The big question is whether labs can accept potential reimbursement cuts as the price for defeating the competitive bidding system that most industry members have actively opposed for years.

As for the expected time line, budget reconciliation bills will be passed on both sides of Capitol Hill, probably over the summer, then presented for the president's signature--it is hoped before the start of the next fiscal year, Oct. 1.