May 7, 1999

Finance Committee Continues Review of Medicare

The Senate Finance Committee May 5 held the second of five Medicare reform hearings to examine the financing of the Medicare program. While much of the testimony focused on the interaction between Medicare and Medicaid and the need for greater efficiencies within Medicare, witnesses and committee members discussed the consequences of diminished graduate medical education (GME) funding for teaching hospitals and medical schools.

Massachusetts Governor Paul Cellucci (D), testifying on behalf of the National Governors Association, said that cuts in provider payments mandated by the Balanced Budget Act of 1997 have already increased state Medicaid spending by forcing providers to look to the states to make up for lower Medicare payments. Furthermore, in some areas, the lower payments have decreased the number of services available, causing Medicaid to act as a safety-net provider for a growing number of beneficiaries.

Specifically, the governor said that by squeezing GME payments to teaching hospitals and medical schools, the federal government was simply shifting the burden to the states. Any further reductions in GME payments, he said, would cripple state Medicaid budgets and threaten the vital social mission of teaching hospitals and medical schools. "Teaching hospitals have been the vanguard of important medical advances and continue to provide an array of specialized services to Medicare beneficiaries. Any reduction of federal support for medical education would compromise this important social mission at the very time when teaching hospitals must respond to the pressures of an increasingly competitive marketplace," said Gov. Cellucci.

The governor also pointed to the rigid rules within the Medicare program that restrict the state's ability to coordinate and integrate care for beneficiaries eligible for both Medicare and Medicaid. Known as dual eligibles, these beneficiaries account for 30 percent of all health care spending in Massachusetts. The governor called for a Medicare reform plan that emphasizes flexibility by creating federal and state partnerships to coordinate and integrate Medicare and Medicaid. Any Medicare reform plan, he said, must take into consideration changes in Medicaid.

Congressional Budget Office (CBO) Director Dan Crippen, Ph.D., provided testimony on the need for greater efficiency within Medicare to control costs. For example, he pointed to excess hospital beds in some parts of the country, physician practice patterns of overtreatment in others, and the largely untapped potential for disease management of high-cost chronic illnesses such as diabetes and asthma.

Dr. Crippen further suggested that the recent slow down in Medicare spending should not be taken as a sign of things to come. On the contrary, he said, in ten years Medicare's growth rate is expected to be back up to 8 percent annually. Asked to comment on the recent slow down in spending identified by CBO, Dr. Crippen pointed to increased fraud and abuse controls that he feels have led to greater compliance by providers. Moreover, Dr. Crippen said, delays in payments to providers as a result of Y2K compliance issues have slowed the number of Medicare dollars currently leaving the program. He cautioned that once the backlog in payments is processed the savings realized today will be used to pay the claims currently on hold.

The Senate Finance Committee also heard from health care experts who called for a more flexible and efficient Medicare program. H.E. Frech III, Ph.D., professor of Economics, University of California, Santa Barbara, stated that the program was designed based on the Blue Cross and Blue Shield model of 1965, which no longer exists. While private insurers have modernized their plans, Medicare continues to operate an old and outdated program.

Information: Paul Bonta, AAMC Office of Governmental Relations, 202-828-0526.