Teaching Hospitals' Balanced Budget Act
Relief Agenda

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• Medicare Indirect Medical Education (IME) Payments
• Medicare Disproportionate Share Hospital (DSH) Payments
• Direct and Indirect Medical Education Payments Associated with Medicare Managed Care Enrollees
• DSH Payments Associated with Medicare Managed Care Enrollees
• Medicare Outpatient Prospective Payment System (PPS)
• Contacts

Current Status as of August 16, 1999

A number of complex factors have led to the financial crisis currently confronting many of America's teaching hospitals. One of the most immediate sources of fiscal pain is the Balanced Budget Act of 1997 and the Medicare-related payment cuts it mandates. The Association of American Medical Colleges calls on members of Congress to undertake the following legislative actions.

Medicare Indirect Medical Education (IME) Payments

Halt implementation of further IME cuts. Members of Congress are urged to cosponsor "The Graduate Medical Education Payment Restoration Act of 1999" (S. 1023/H.R. 1785), introduced by Sen. Daniel Patrick Moynihan (D-N.Y.) and Rep. Charles Rangel (D-N.Y.). The bill freezes the BBA's reductions in Medicare IME payments at the current level of 6.5 percent.

Indirect Medical Education (IME) payments compensate teaching hospitals for the added cost of medical education programs, for the higher costs they incur in treating the most severely ill patients, and for sustaining an environment that fosters research. The BBA reduces Medicare's IME payments by 28.57 percent over a four-year period, from 7.7 percent in FY 1997 to 5.5 percent in FY 2001.

Medicare Disproportionate Share Hospital (DSH) Payments

Halt implementation of further Medicare DSH cuts. Retain DSH funding at FY 1999 levels.

Disproportionate share hospital (DSH) payments compensate hospitals for the higher operating costs they incur in treating a large share of low-income patients and, more broadly, in preserving access to care for Medicare and uninsured populations by financially assisting the hospitals they use. The BBA reduces Medicare's DSH payments by five percent over five years. Thus far, a two percent reduction has been implemented.

Direct and Indirect Medical Education Payments Associated with Medicare Managed Care Enrollees

Pay teaching hospitals one hundred percent of Graduate Medical Education (GME) payments associated with Medicare managed care enrollees beginning in FY 2000.

The BBA gradually phases in payment of both direct graduate medical education (DGME) and IME payments to teaching hospitals when they care for Medicare+ Choice (Medicare managed care) enrollees. The phase-in schedule for these payments over five years pays teaching hospitals amounts equal to 20 percent in 1998, 40 percent in 1999, 60 percent in 2000, 80 percent in 2001, and 100 percent in 2002. Only after five years will teaching hospitals be fully compensated for care they currently provide to Medicare+ Choice enrollees.

DSH Payments Associated with Medicare Managed Care Enrollees

Pay one hundred percent of DSH payments associated with Medicare managed care enrollees directly to eligible hospitals beginning in FY 2000.

While the BBA gradually pays DGME and IME payments to eligible teaching hospitals when they care for Medicare+ Choice enrollees, DSH payments remain embedded in Medicare managed care rates and will not be paid directly to hospitals which incur the additional burdens of providing this care.

Members of Congress are urged to cosponsor H.R. 1103/S. 1024, introduced by Rep. Charles Rangel (D-N.Y.) and Senator Daniel Patrick Moynihan (D-N.Y.), which would pay DSH payments associated with Medicare managed care enrollees directly to eligible hospitals beginning in 2000 (House bill) and 2001 (Senate bill).

Medicare Outpatient Prospective Payment System (PPS)

Reform the proposed Medicare outpatient PPS by:

• eliminating the 5.7 percent overall reduction due to the beneficiary co-insurance calculation;

• establishing a payment floor to limit losses for hospitals that incur large payment reductions under the new PPS, as proposed in H.R. 2241/S.1263, "The Hospital Outpatient Preservation Act," sponsored by Rep. Mark Foley (R-Fla.) and Sen. James Jeffords (R-Vt.); and

• addressing other associated regulatory and policy changes, such as establishing outpatient IME and DSH adjustments.

The BBA creates a prospective payment system for hospital-based outpatient operating and capital costs related to health care services. Under the new system, to be implemented sometime in 2000, payments to major teaching hospitals are expected to decrease by 10.6 percent (according to HCFA estimates).

Contacts

Lynne Davis, Office of Governmental Relations, 202-828-0526.