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Clinton tips his hand on Medicare cuts.

IN HIS Feb. 17 State of the Union address, President Bill Clinton said that all Americans must do their part to revitalize the economy. A closer look at the Administration's preliminary budget proposals suggests the fair share to be shouldered by clinical laboratories would be about $4 billion in reduced Medicare payments over five years.

Although the President's formal budget request wasn't due on Capitol Hill until late March, the proposals released in February present a fairly detailed breakdown of more than $62 billion in Medicare and Medicaid cuts through 1997. About $52 billion would come from Medicare, the rest from Medicaid.

Many of the Medicare proposals--particularly those affecting clinical labs--were recycled from previous administrations. The key lab proposals also are based on Government research findings the industry has been challenging for years.

* Reduced fee caps. The biggest hit would reduce Medicare fee caps from 88% to 76% of the median of all carrier fee schedules. The same cut was proposed last year by the Bush Administration as a means of financing full health insurance deductibility for the self-employed.

In this incarnation, the measure is couched as "setting laboratory rates at market levels." A document released by the White House said the fee caps would initially be set at 76%; later, at some unspecified date "the Secretary of HHS would adjust Medicare payment rates to account for technological changes or other market factors." It's unclear if those adjustments would increase or further decrease fees.

What is clear is that officials still believe Medicare is paying excessive amounts for lab tests. The preliminary budget cites a rather dusty HHS Inspector General's finding that Medicare pays 90% more than physicians for the same tests. It also mentions a General Accounting Office (GAO) study indicating labs use higher profits from Medicare to subsidize discounts to private payers.

The Administration estimates its proposal would save Medicare $3.1 billion through 1997. When the same measure was under consideration last year, industry reps said it would have a devastating effect on most independent community-based labs. There's no indication it would be any more acceptable now, considering that many facilities are incurring extra expenses in complying with the Clinical Laboratory Improvement Amendments of 1988.

* Freezing the fee update. A second major proposal affecting labs would permanently extend the 2% annual fee update. The Omnibus Budget Act of 1990 established a 2% update through the end of this year, after which lab fees would be increased by the urban component of the Consumer Price Index. Currently, that rate is about 3.5% a year.

According to the Administration's outline paper, however, "There is no evidence to indicate that laboratory costs are increasing by the rate of inflation." Medicare payments to labs, says the document, "should more closely reflect decreasing costs due to technological advances, such as increased automation, and changes in the market, such as lower-cost equipment." Estimated five-year savings: $740 million.

* RAP services targeted. Another proposal resurrected from years past would include reimbursement for hospital inpatient radiology, anesthesia, and pathology (RAP) services as an add-on to DRG payments. Separate billing by physicians for these services would not be allowed. "Quality of care would be improved and unnecessary utilization would be minimized," the Administration says about the plan, which is projected to save $390 million through 1997.

HHS Secretary Donna Shalala described the overall Medicare package as a "nick" rather than a "cut" in Federal health spending, adding that "we used a scalpel--not a sledgehammer." Officials report that total Medicare spending reached $132 billion in fiscal year 1992, up 12% from the 1991 level. Program costs this year are projected to reach $145 billion.

Of the five-year Medicare cuts proposed, about $24 billion would come from hospitals' pockets, especially teaching hospitals. Another $8 billion would come from limiting physician payments, primarily to surgeons and other specialists.

Although providers are the main targets of the reductions, an estimated $10 billion would come from requiring Medicare beneficiaries to continue paying Part B premiums equal to 27% of the Government's outlay. That percentage was expected to drop significantly in 1996 under a formula established by law three years ago.

Among other specific Medicare cuts outlined, the Administration would:

* Reduce the hospital market basket update by 1% in both 1994 and 1995. This alters a formula established in 1990 by extending the current practice of updating DRGs by amounts less than the hospital market basket index. Estimated savings through 1997: $5.2 billion.

* Put hospitals on a calendar year update schedule. Hospital inpatient payments are now updated each Oct. 1. Switching to Jan. 1 would effectively eliminate one fiscal quarter of updates. Savings: $4.6 billion.

* Lower hospital payments for indirect medical education (IME). Teaching hospitals currently receive a DRG add-on to compensate them for the higher costs of delivering care using inexperienced residents. The GAO and a federal advisory panel have both found the current level of add-on overcompensates these hospitals. Savings: $1.9 billion.

* Give primary care physicians the full update scheduled by law for 1994, but reduce that update for all other physician services by 2% in the same year. Savings: $1.3 billion.

In his State of the Union, President Clinton made it clear that the Medicare cuts were short-term measures that are only part of the changes he has in mind. In his words: "As we move toward the fourth year with the explosion in health costs, projected to account for 50% of the growth in the deficit between now and the year 2000, there must be plan cuts in payments to providers--to doctors, to hospitals, to labs--as a way of controlling health care costs. But I see these only as a stopgap until we can reform the entire health care system."

* The reform package. The other shoe is expected to drop next month when President Clinton has pledged to deliver a comprehensive health reform package to Congress. To move things along, First Lady Hillary Rodham Clinton is heading up a health care task force with about 100 members divided into 20 work groups. Though much of their work has gone on behind closed doors, officials insist they are interested in receiving input from all industry segments and constituencies.

The American Association for Clinical Chemistry (AACC) is among the groups that have taken them up on that offer. A recent letter from AACC President Lemuel J. Bowie, Ph.D., to Mrs. Clinton outlined five key principles the group feels must be addressed in any reform package. Summarized, they are:

* Development of new technologies should be facilitated. Technological advances can improve the ability of the medical and laboratory community to identify and treat disease while providing cost savings to the provider and patient. To insure that savings reach the consumer, AACC recommends instituting direct billing for all lab services and extending the ban on physician self-referral to all testing.

* Sacrifices must be shared. Disproportionate reductions in lab payments could hurt the financial viability of many facilities and their ability to offer certain services and access to care. Price controls would also hurt labs by limiting their ability to buy cost-effective equipment and eliminating incentives for manufacturers to develop new technologies.

* Costly and unnecessary services should be eliminated. In addition to the extended ban on physician self-referrals, AACC encourages a blanket prohibition preventing doctors from marking up and billing for lab tests they don't perform themselves.

* Access to health care should be universal, particularly preventive services, which are needed to prevent disease transmission and allow for early diagnosis and treatment.

* Administrative waste and inefficiency should be reduced. AACC supports efforts to streamline Federal paperwork by introducing electronic billing and standardizing simpler reimbursement forms.

The idea of shared sacrifice may be crucial to the debate in months ahead since the stakes described by Clinton are high. As he said in February, "All of our efforts to strengthen the economy will fail unless we also take this year bold steps to reform our health care system."

Are tougher regs needed for laboratories?

Tougher regs may be needed to make sure patients get the most risk-free testing available, says a study just published in the Journal of the American Medical Association.|1~

The research study looked at Medicare patients from six states who died or were hospitalized for strokes or heart attacks within six days after receiving a test for prothrombin time, which doctors use to decide whether to adjust blood clotting medication. A high number of testing errors would result in more patients suffering heart attacks or strokes, researchers theorized.

The study found, among other things, that patients tested in a physician office lab performing fewer than 40 tests per month had nearly twice the likelihood of stroke and three times the chance of heart attack. Patients who lived in New York and Pennsylvania (states known for tough inspection and licensing regs) were found to be at less risk of bad medical outcomes, leading analysts to suggest that more stringent rules may be in order nationwide.


1. Mennemeyer ST, Winkelman JW. Searching for inaccuracy in clinical laboratory testing using Medicare data: Evidence for prothrombin time. JAMA. 1993; 269(8): 1030-1033.
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Title Annotation:Washington Report; Pres. Bill Clinton; proposals for reduced medicare payments
Author:Albertson, David
Publication:Medical Laboratory Observer
Article Type:Column
Date:Apr 1, 1993
Previous Article:Stress for success.
Next Article:Firing with the least trauma.

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