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Proposed Medicare reforms relatively easy on doctors

Planned changes contain reforms the College proposed in a recent position paper on Medicare

From the February 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Kathleen Haddad

Because annual spending increases for physician payments have been moderated, Medicare reforms proposed by President Clinton go relatively easy on doctors and are instead targeting HMOs, hospitals and home care facilities for the largest cuts.

The Medicare plan, included in the president's Feb. 6 budget, also contains many reforms for market-oriented purchasing and contracting proposed in the recent ACP position paper on reforming Medicare.

Congress appears receptive to the package, which should help enact changes to shore up Medicare and help balance the federal budget.

The administration's proposal would slice more than $100 billion from Medicare over six years and balance the budget in five years, by 2002. The Medicare Trust Fund, which covers Part A (hospital costs), would be solvent through 2006 under the plan.

These are Clinton's proposed cuts:

Medicare HMOs, $46 billion: Eliminate medical education and disproportionate share hospital payments (for uncompensated care) from premium calculations. Reduce capitated fees from 95% to 90% of average fee-for-service payments.

Hospitals, $45 billion: Reduce updates in hospital DRG payments and capital reimbursement.

Home care, $20 billion: Establish a prospective payment system and anti-fraud measures.

Beneficiaries, $18 billion: Keep the Part B premium at 25% of program costs instead of allowing it to decline in 1998 as allowed under current law.

Physicians, $10 billion: Tighten payment updates by modifying the calculation of the conversion factor in the fee schedule.

Nursing homes, $9 billion: Establish a prospective payment system.

The administration's proposal redirects teaching funds from HMOs that do not actually teach to academic health centers. It also adjusts HMO payments to put them more in line with those for the relatively healthy population enrolled in HMOs. Studies show that Medicare HMOs are overpaid because their enrollees are relatively healthy.

In addition, the proposal begins a badly needed modernization of Medicare's purchasing and payment systems. These are among the proposals contained in the College's position paper, "Reforming Medicare: Adapting a Successful Program to Meet New Challenges." (Call ACP's Washington office at 800-633-9400 for a copy of the paper.)

The total Medicare cuts in the president's new budget fall between those offered by the president and Congress when budget negotiations broke off in early 1996. Then, the president proposed $116 billion in cuts, while Congress had offered $158 billion. The 1996 budget reconciliation bill approved by Congress but vetoed by the president contained $270 billion in Medicare cuts.

The president's new proposal includes the following structural reforms:

  • A new funding pool for academic health centers ($14 billion over six years) that consists of the medical education and disproportionate share funds now included in HMO payments.
  • Funding for additional preventive care, including colorectal screening, diabetes management and annual mammograms.
  • Restrictions on underwriting Medigap policies, making it easier for beneficiaries to switch out of managed care and resume a Medigap policy.
  • Private health plan options, such as preferred provider organizations and provider service networks.
  • Annual open enrollment periods for managed care plans.
  • Market-oriented purchasing (i.e., competitive bidding, centers of excellence) to improve quality and decrease costs.

Kathleen Haddad is Senior Associate for Policy and Communications in ACP's Washington, D.C., office.

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