July 2, 1999
President's Medicare Reform Plan Includes Significant Provider Cuts, Little BBA Relief
Proposing to modernize and stabilize the Medicare program, President Clinton June 29 unveiled as centerpieces of his reform plan a $118 billion new prescription drug benefit and a $794 billion federal budget surplus injection. With more specific details pertaining to providers payments to be released shortly, Medicare spending would be reduced by $72 billion over 10 years through extensions beyond 2002 of the Balanced Budget Act's (BBA) payment reductions and other program reforms. A total of $7.5 billion of this reduced spending would be set aside to provide relief from the BBA as a "Quality Assurance Fund" for providers. The proposal does not remove any portion of graduate medical education (GME) out of Medicare.
Fifty percent of the prescription drug benefit would be financed with savings achieved from making the Medicare fee-for-service and managed care more efficient and competitive and continued payment reductions to hospitals and some other providers. The remainder of the drug benefit would be financed through increases in beneficiary cost sharing charges and a contribution from the surplus.
Of the $72 billion in reduced Medicare spending over 10 years, $39 billion would result from extending beyond 2002 provider payment reductions put forth by the BBA. In a briefing of the plan to the media, Chris Jennings, deputy assistant to the president for health policy, indicated that additional reductions in home health, skilled nursing facilities and disproportionate share hospital payments would not be extended beyond 2002. No additional Medicare cuts before 2002 are proposed.
$33 billion of Medicare savings over 10 years would be achieved through proposals to make Medicare fee-for-service and managed care more competitive and efficient. The Health Care Financing Administration would be allowed to use market-oriented purchasing and quality improvement tools such as competitive pricing and best practice private sector purchasing mechanisms. In addition, Medicare managed care plans would be allowed to compete against one another on Medicare's current defined benefit package along with prescription drugs.
The plan does include a $7.5 billion (over 10 years) "Quality Assurance Fund" for providers "designed to smooth out provisions in the BBA that may be affecting Medicare beneficiaries' access to quality services." While the fund is not designated for any specific provider group, the administration would work with Congress to "identify real access problems and the appropriate policy solutions." In addition, President Clinton would seek additional administrative actions to provide BBA relief. According to Mr. Jennings, one example of administrative relief is a two-year delay of the implementation of the hospital transfer policy. Mr. Jennings also indicated that the administration will seek legislative relief in order to pay eligible hospitals disproportionate share payments associated with Medicare Plus Choice plans.
AAMC President Jordan Cohen, M.D., applauded President Clinton for his efforts to improve the program, but expressed concern with the BBA relief and post-BBA spending provisions. In a press statement, Dr. Cohen stated, "While the Medicare proposal's long-term objectives are laudable, they fall short in their ability to repair the damage already inflicted by the Balanced Budget Act of 1997 (BBA). The Administration's proposal fails to recognize that Medicare beneficiaries need more than just prescription drug benefits, they also need a financially stable system of health care providers, including teaching hospitals, that offer a breadth of quality services." Dr. Cohen also stated, "The AAMC is also concerned that the Medicare proposal would extend some of the BBA provisions beyond 2002, the final year of implementation. The potential for additional Medicare cuts to teaching hospitals could be disastrous."
Information: Richard Knapp or Lynne L. Davis, AAMC Office of Governmental Relations, 202-828-0410 or 202-828-0426.
