Cut in Medicare Payments to Hospitals Is Advised
The New York Times

January 18, 2005

By ROBERT PEAR

WASHINGTON, Jan. 17 - An influential federal advisory panel

has voted to recommend a cut in Medicare payments promised

to hospitals and a freeze in payments to nursing homes and

home care agencies in 2006.

The recommendations to Congress, approved by the panel last

week, give powerful support to Republican lawmakers and

Bush administration officials who want to curb soaring

Medicare costs, as part of their overall effort to reduce

the federal budget deficit.

The panel, the Medicare Payment Advisory Commission, voted

to recommend a 2.7 percent increase in Medicare payments to

doctors. That is less than the expected increase in

doctors' costs, but substantially more than doctors would

get under current law. Because of a quirk in the Medicare

formula, payments to doctors will be cut 5 percent next

year if Congress takes no action.

Congress usually pays close attention to the advice it

receives from the independent 17-member commission,

composed of health policy experts, economists and providers

of care. The panel will include the recommendations in its

annual report to Congress in March.

Medicare covers 41 million elderly and disabled people. The

cost climbed 8.4 percent last year, to $300 billion, and is

expected to increase 30 percent from 2005 to 2007, with the

introduction of a drug benefit.

Because of a new mandate from Congress, the panel drafted

its recommendations to reward the most efficient hospitals,

doctors and clinics. In effect, panel members said,

Medicare payments have to be adequate to cover the costs of

an efficiently run hospital, but not necessarily all the

costs of an average or typical hospital.

Under the new Medicare law, hospitals would receive higher

Medicare payments in 2006 to keep pace with the rising

costs of the goods and services they use. Hospitals were

entitled to a 3.2 percent increase, based on an official

estimate of those costs, measured by the "hospital market

basket index."

But the commission said Congress should reduce the update

by four-tenths of a percentage point, so Medicare would

increase payments for inpatient and outpatient hospital

services by 2.8 percent. The panel said that could save

Medicare as much as $800 million in 2006 and $6 billion

over five years.

The proposed freeze in Medicare payments to nursing homes

would save $1 billion to $5 billion over five years,

without hurting patients, the panel said. Freezing payments

for home care services would save a similar amount, it

said.

The chairman of the commission, Glenn M. Hackbarth, said

hospitals that consistently lost money on Medicare were, in

many cases, "poor performers," compared with other

hospitals in the same markets.

"Hospitals that have high costs and high rates of increase

in costs may not meet the Congressional standard of

efficient providers," Mr. Hackbarth said.

Carmela S. Coyle, senior vice president of the American

Hospital Association, said: "We are very disappointed. The

commission's own data show that the financial condition of

hospitals is worsening and that hospitals lose money

treating Medicare patients."

Ms. Coyle said, "Congress may use this recommendation as a

rationale for budget cuts that address the deficit, not

Medicare policy."

Daniel Sisto, president of the Healthcare Association of

New York State, which represents 220 nonprofit hospitals,

said, "We are outraged." He said he would be visiting every

member of New York's Congressional delegation to argue that

the cut would harm the quality of care.

At a meeting on Dec. 9, the commission considered a draft

recommendation saying Medicare should give hospitals a full

allowance for inflation in 2006. But last week the panel

changed course and recommended the smaller update. Hospital

lobbyists said the commission had not explained or

justified the change.

One member of the commission, Ralph W. Muller, chief

executive of the University of Pennsylvania Health System,

advocated a full inflation update for hospitals, but was

unable to get a vote on his proposal.

"Malpractice insurance premiums have been going up 30

percent to 40 percent a year for three years," Mr. Muller

said. "Nursing costs have been increasing because there's

clear evidence that mortality is lower when hospitals have

more nurses and better-educated nurses. Prescription drug

costs have been going up 10 percent to 15 percent a year.

Diagnostic imaging services have been going up at

double-digit rates."

The commission expressed concern about the proliferation of

imaging equipment and services in doctors' offices.

Congress, it said, should direct the secretary of health

and human services to set national standards for doctors

who perform or interpret diagnostic imaging studies billed

to Medicare.

The standards would cover the training and education of

doctors who bill Medicare for X-rays, CAT scans, PET scans,

magnetic resonance imaging, ultrasound, echocardiography

and other imaging.

Diagnostic imaging saves lives, the panel said, but poor

quality studies can lead to repeat tests, misdiagnoses and

improper treatment.

Sheila P. Burke, a commission member, said this

recommendation would take Medicare into a "new world."

Historically, she said, doctors have been licensed by

states and certified by medical specialty boards.

Mr. Hackbarth agreed. "We are breaking new ground by

suggesting that the secretary ought to set standards" for

some doctors, as he has long set standards for hospitals

and nursing homes, he said.

The panel also recommended an 18-month extension of a law

that generally prohibits doctors from referring Medicare

patients to new specialty hospitals in which the doctors

have financial interests. The ban, scheduled to expire in

June, would continue to Jan. 1, 2007.

Many doctor-owned hospitals specialize in surgery,

orthopedics or heart care. Proponents say they provide

superior services.

But the commission said that doctors who invested in such

hospitals had a potential conflict of interest that could

affect their clinical decisions. Moreover, it said, the

hospitals tend to specialize in profitable services and

cater to people whose condition is less severe than that of

a typical patient treated for the same illness in a

community hospital.