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Washington Perspective

Congress acts to restore BBA cuts: a good start, but more is needed

From the December 1999 ACP-ASIM Observer, copyright © 1999 by the American College of Physicians-American Society of Internal Medicine.

By Robert B. Doherty

As has happened so many times in recent years, Congress was forced to push back its scheduled date of adjournment in late October because of unfinished business. Disagreements between the president and Congress over the federal budget and related issues kept the 106th Congress in session until the third week of November.

Not surprisingly, legislation to change the Medicare program was among the issues that delayed adjournment. But unlike other years, when the debate was over how much to cut expenditures, the 106th Congress was busy arguing how much money should be restored to physicians and other "providers" from cuts mandated by the Balanced Budget Act of 1997 (BBA 97).

Restoring scheduled cuts

The BBA 97 mandated deep cuts in Medicare spending on teaching institutions, hospitals and home health agencies. The law was intended to bring about a balanced budget. But the cuts went well beyond what was needed to keep the budget in balance.

Today, the federal budget is enjoying a surplus, not a deficit. Medicare spending in fiscal year 1999 dropped 1%, from $216.6 billion to $212 billion. It was the first time that overall expenditures have decreased since the program was created 34 years ago. The latest government figures show that the BBA slashed nearly twice as much from Medicare as Congress had originally intended.

These developments created an opportunity for Congress to give some money back to Medicare. The only question was how much to restore.

As might be expected, the results were a compromise. The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999, H.R. 3075, which Congress passed in late November, restored some, but not all, of the payment cuts to teaching institutions, hospitals and other providers. Under the bill, which the President promised to sign into law, approximately $12.1 billion of the cuts mandated by the BBA 97 will be restored over the next five years.

Payments to teaching institutions

The BBA 97 originally reduced the formula for calculating Medicare payments for the indirect cost of graduate medical education (IME) in four annual increments, from 7.7% in 1997 to 5.5% in 2001 and thereafter. (IME payments cover the higher administrative costs incurred by teaching institutions in the training of physicians, but not residents' stipends.)

The BBA 97 also began phased reductions in payments to hospitals that treat a disproportionate share (DSH) of indigent patients, many of which are teaching hospitals. Teaching hospitals argued that the cuts were endangering their mission to train qualified physicians and provide care to underserved populations.

H.R. 3075 essentially postpones further reductions in IME funding for two years. The formula will remain at the current 6.5% level for another year, and then it will be reduced to 6.25% in 2001 and 5.5% in 2002 and thereafter. ACP­ASIM strongly supported restoring IME funds and urged members of Congress to halt further reductions in IME funding instead of just delaying the cuts.

The bill also freezes further reductions in DSH payments for one year, instead of permanently freezing funding at current levels as ACP­ASIM had urged. Finally, the bill will begin to redistribute Medicare direct graduate medical education payments from institutions with above-average payments (more than 140% of the national average) to those with below-average payments (less than 70% of the national average).

Changes in physician payments

H.R. 3075 includes provisions to modify the sustainable growth rate (SGR) for physician services as mandated by the BBA 97. The SGR sets an overall target rate of growth for Medicare fee-for-services spending on physician services. If actual Medicare fee-for-service expenditures on physician services exceed the SGR in any given year, the annual physician fee schedule update is reduced by that amount, subject to a floor. If total fee-for-service expenditures come in under the SGR, the update is increased by that amount, subject to a ceiling on the amount of the update.

ACP­ASIM, the AMA and other physician groups urged Congress to correct flaws in the SGR. HCFA bases the SGR on projections of changes in the economy and enrollment in the Medicare+Choice program. Last year, HCFA underestimated growth in the economy and overestimated enrollment in the Medicare+Choice program.

Even when it found out later that its projections were wrong, HCFA refused to correct the SGR. As a result, the SGR was much lower than it would have been if HCFA had used more current data. The flawed methodology will cost physicians billions of dollars in future Medicare payments.

H.R. 3075 prevents this problem from occurring again by mandating that HCFA use the most up-to-date and accurate data possible. It also makes other technical corrections in the SGR that otherwise could cause updates to fluctuate widely from year to year.

The bill falls short of addressing another fundamental flaw in the SGR, however: The SGR currently provides no add-on for the introduction of new technology that can improve patient care. The bill directs the Agency for Health Care Policy and Research to study the new technology issue and report back to Congress. ACP­ASIM had urged that the SGR be increased by a minimum of 2% annually to incorporate new technology.

ACP­ASIM's assessment

Even though H.R. 3075 falls short of fully restoring cuts in IME and fixing flaws in the SGR, the fact that Congress has finally acknowledged that it went too far in 1997 is a good start. The bill would provide much-needed—albeit temporary—relief to teaching institutions and hospitals that treat a large share of indigent patients. It will make the SGR formula that drives physician fee schedule updates less volatile and more accurate.

ACP­ASIM is not satisfied with the results, however. The College will continue its efforts to influence Congress to go further next year in reversing ill-considered Medicare cuts. Nevertheless, it is a welcome change to be finishing up the year reporting how much money has been restored to physicians and teaching institutions, rather than how much has been cut by Congress.

Robert B. Doherty is ACP­ASIM's Senior Vice President for Governmental Affairs and Public Policy.

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