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Bush '92 budget targets more Medicare cuts.

Bush '92 budget targets more Medicare cuts Barely two months into the new year, major elements of agreed-upon Medicare payment reform began unraveling before the very eyes of Washington health industry representatives.

Confronted by the Persian Gulf war, President Bush submitted a fiscal 1992 budget that analysts found lacking in creative domestic initiatives and heavy on leftovers. Most important for clinical laboratories, the Administration would cut Medicare expenses some $450 million in fiscal 1992 by restoring the 20% coinsurance on lab services--a measure the industry successfully lobbied against last fall. The President's budget seeks additional savings by limiting annual Consumer Price Index (CPI) updates for labs in certain geographic areas.

Elsewhere, objections to a potential payment offset under next year's resource-based relative value scale (RBRVS) has threatened to undermine doctors' support for that sweeping reform initiative.

Even before Bush submitted his budget, Medicare overseers at the Health Care Financing Administration (HCFA) were scrambling to cover the program's administrative costs.

Last year, Congress passed a fiscal 1991 appropriation of $1.4 billion for Medicare contractors, those intermediaries or carriers who process claims for the program. Lawmakers also approved a contingency fund of $133 million that could be used only if released by the White House Office of Management and Budget (OMB).

HCFA's request for $101 million from that fund drew a cold shoulder from OMB. On Jan. 8 the agency began notifying major contractors such as Blue Cross and Blue Shield that a slowdown in claims payment was imminent.

"Simply put, funding levels are not sufficient to process all the claims we expect to receive this year," Medicare Director of Program Operations Barbara Gagel said in a letter. "We are therefore reducing our expectation of the number of bills you will process this fiscal year. We recognize that this will result in a substantial claims backlog and in significantly [longer] processing times."

HCFA estimated that, without more money, the average length of claim payments would jump from about 17 to 36 days for hospitals and nursing homes, and from 17 to 66 days for laboratories, physicians, and beneficiaries. Gagel blamed the increased contractor costs on a claims volume that is running 8% higher than 1991 budget assumptions and the expense of implementing more than 40 Medicare program changes passed in last year's budget reconciliation bill.

News of the potential slowdown tripped alarms on Capitol Hill as 51 House members pressed for a release of money from the contingency fund. "We believe that requiring people who are elderly and ill to wait for more than two months to receive their rightful reimbursement is unfair," said a letter to OMB Director Richard Darman. "In addition, delays of more than a month will clearly impose financial burdens on hospitals and nursing homes."

Perhaps even more significant was the realization that failure to release at least some funds would actually cost the Government money. Medicare is obligated by law to pay interest on reimbursements delayed beyond 24 days. The Blue Cross and Blue Shield Association estimated the total of those interest payments at a potential $81 million.

By early February, OMB had agreed to release $75 million from the contingency fund. While that's considerably less than the initial request, sources estimate it should be enough to prevent any change in contractor operations--at least in the short term.

HCFA Administrator Gail Wilensky, Ph.D., said it was probably unrealistic to expect OMB to release more.

An air of uncertainty also suddenly exists around plans to implement the RBRVS by Jan. 1, 1992. At a hearing of the Physician Payment Review Commission (PPRC) in December, representatives of organized medicine gathered to express concern over a "behavioral offset" that lowers reimbursement under the fee schedule.

In essence, the offset assumes that doctors who stand to lose money under RBRVS will protect their incomes by boosting the volume of services they deliver.

Unveiling a model fee schedule last September, HCFA wrote: "Previous program experience with reductions in Medicare payments to physicians indicates that physicians change billing practices to partially offset losses resulting from fee reductions. HCFA and CBO [the Congressional Budget Office] have previously assumed that physicians make sufficient changes in their billing practices to offset about half the savings that would otherwise be achieved by reductions in fees."

Physicians took that to mean HCFA is looking at a 50% pay cut on top of the fee schedule amounts, although Wilensky stressed nothing was a "done deal" and pointed to a 1989 agency report suggesting a behavioral offset of only 15% would suffice.

At least some damage had already been done. At the PPRC meeting, Alan Nelson, M.D., past president of the American Medical Association (AMA), said the assumption that doctors would increase service volume "underestimates physician integrity as well as the intelligence and assertiveness of our patients." The PPRC fielded a warning from AMA and 15 specialty groups stating that a 50% behavioral offset would "threaten the very existence of the reform system."

That threat could be serious enough to delay implementation of the RBRVS. Said one key Congressional staffer: "This is the kind of issue that often ends up being thrown back in Congress's lap or even decided in court."

All physicians are closely following the discussions, although the College of American Pathologists (CAP) has been focusing primarily on refining the original RBRVS pathology study conducted at Harvard University.

When CAP identified a number of data flaws in the first report, the group voted in 1988 to fund a restudy. That second report, filed in early January 1991, is now being analyzed by CAP leaders. Concurrently, CAP is supporting a separate resource review using a different methodology developed by Abt Associates, Cambridge, Mass. College officials don't expect to have a final analysis of pathology relative values until this fall.

As those issues play out, Congress will begin debating proposals advanced in the Bush budget. The 7-pound, 2,000-page document is considered unambitious by many assessments. Concedes OMB's Darman in his introduction: "Though less grand than a New World Order, steps toward a new domestic order can continue to be advanced--at least at the margin of practicable change."

One of the most significant things about the '92 package is that after an exhaustive effort to hammer out a five-year deficit reduction plan last fall, all bets concerning Medicare are apparently off.

Overall, the blueprint calls for more than $25 billion in new Medicare savings through fiscal 1996. And that's on top of last fall's package stipulating $42 billion in cuts between 1991 and 1995.

The American Hospital Association (AHA) calculates that 64% of the new saving would come from reduced hospital reimbursements. But clinical labs also face substantial changes. Chief among them, the Administration again seeks to restore the 20% coinsurance on lab services, identical to all other Part B services. That move is projected to save Medicare $450 million in fiscal 1992, rising to an annual saving of $1.6 billion in 1996.

Lesser savings are projected from limiting scheduled 1992 and 1993 CPI updates of 2% to those labs whose fee schedule rates are below national payment limitations. Doing so is expected to trim Medicare costs by $20 million in 1992 and $50 million in 1993. By holding the line in those years, the program would reduce expected annual payments by $90 million in 1996. Grand total from the two cost-cutting mechanisms: more than $4.6 billion over five years.

The Administration plan will, of course, be subject to intense scrutiny in Congress, especially among Democrats who want to take advantage of the momentum on domestic issues. Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.), for example, has already warned: "We can't help to solve our national health problems by whacking Medicare year after year."

Still, the Bush budget seemed to confirm the worst fears of laboratory and other health industry representatives that certain proposals would come back to haunt them. Knowing that the possibility existed apparently didn't ease the pain of watching last year's compromises unravel.

AHA Executive Vice President Paul Rettig commented: "The President's budget request calling for more Medicare reductions is another in a series of broken promises to support quality health care that further widens the credibility gap between the Administration and hospitals and patients. It also highlights the lack of confidence, faith, and trust that hospitals have in Government as a partner."

Or, as another veteran Washington lobbyist put it more succinctly: "We thought we had a deal."
COPYRIGHT 1991 Nelson Publishing
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Publication:Medical Laboratory Observer
Date:Mar 1, 1991
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