October 8, 1999

Ways and Means Hearing Focuses on "Refining" BBA

The Ways and Means Health Subcommittee held a hearing Oct. 1 to explore the impact of the 1997 Balanced Budget Act (BBA) on providers and Medicare beneficiaries. In his opening statement, Chairman Bill Thomas (R-Calif.) clarified that pursuing a BBA fix should be a "shared responsibility" between the administration and Congress and that the subcommittee would schedule a mark-up to "refine" and not "repeal" some of the payment changes enacted under the BBA.

While not providing any specific numbers, Chairman Thomas said that the cost of his BBA relief package would fall somewhere between the administration's $7.5 billion "relief fund" proposal and the $20 billion proposal introduced in the Senate by Sen. Thomas Daschle (D-S.D.) (see article below). He further indicated that a mark-up would be scheduled once the Congressional Budget Office (CBO) has completed its scoring on several BBA relief provisions.

The subcommittee's BBA relief package, while dependent on CBO scoring, will also be influenced by what the administration is willing to fix administratively. Michael Hash, acting administrator for the Health Care Financing Administration (HCFA), told the subcommittee that "changes of the magnitude included in the BBA always requires adjustment" and the administration is working to "determine what changes may be needed to ensure continued access to care."

The AAMC submitted a written statement for the record that advocated for the following BBA revisions:

• freeze further reductions in indirect medical education (IME) and disproportionate share (DSH) payments;

• eliminate of the 5.7 percent overall reduction due to the beneficiary outpatient co-insurance calculation;

• establish a payment floor for hospitals that incur large payment reductions under the new outpatient PPS; and

• pay 100 percent of DSH, IME, and Direct Graduate Medical Education payments associated with Medicare + Choice enrollees to teaching hospitals.

The proposal to freeze further reductions in IME payments was quickly challenged by Medicare Payment Advisory Commission (MedPAC) Chair Gail Wilensky, Ph.D., who testified against comprehensive reform of the BBA.

Under questioning from Rep. Nancy Johnson (R-Conn.), Dr. Wilensky suggested that BBA revisions to help teaching hospitals should concentrate on changes that can be made in the outpatient arena. Dr. Wilensky rejected Rep. Johnson's comment that a freeze be placed on further reductions to Medicare IME payments by referring to a Prospective Payment Advisory Commission (ProPac) report that found that current IME payment levels are "substantially higher" than the indirect costs incurred by teaching hospitals for their education activities.

Despite a comment by Chairman Thomas in which he reiterated Wilensky's claim that IME payments may still be too high and should not be protected from efforts to reach economies of scale, Sister Carol Keehan, president and CEO of Providence Hospital, testifying on behalf of the American Hospital Association (AHA), said that the reductions in IME payments are "making it difficult for these hospitals to maintain their cutting edge prominence." The AHA called on Congress to adopt legislation, H.R. 1785, introduced by Congressman Charles Rangel (D-N.Y.) that would freeze further IME payment reductions by maintaining the adjustment at its current level of 6.5 percent.

A second proposal supported by the AAMC intended to speed-up the Medicare+Choice carve-out of direct graduate medical education (GME) payments also came under fire by the American Association of Health Plans (AAHP). Maribeth Capeloto, director of federal relations for Group Health Cooperative of Puget Sound testified on behalf of AAHP that "health plan members do use teaching facilities and that plan payments on behalf of a member receiving treatment in a teaching hospital greatly exceed payments for the same case in a non-teaching hospital." The result, according to AAHP, are GME payments from the Medicare program as well as higher payments from health plans.

In its written statement, the AAMC stated that "As the health care marketplace is becoming more price competitive, all payers-including private payers, Medicare and Medicaid-are reducing their payments to teaching hospitals. Teaching hospitals are no longer able to bill at rates that reflect the extra costs of their special missions and responsibilities. Such reductions have put the long-term viability of teaching hospitals and their special missions in jeopardy."

The administration embraced the spirit of "shared responsibility" noted by Chairman Thomas as Hash identified several areas HCFA has pledged to consider in order to ameliorate the impact of BBA Medicare payment reductions. They include: a delay in the extension of the inpatient transfer policy to additional diagnoses for two years; a three-year transition to the outpatient prospective payment system (PPS) with payment floors for teaching, low-volume rural and urban hospitals; a delay in the implementation of the outpatient volume control mechanism; and rural hospital reclassification of wages to allow for higher Medicare reimbursement. However, Hash did not commit to any specific revision and said each would be addressed in the final rule to be published by the end of this year.

Information: Paul Bonta, or Lynne L. Davis, AAMC Office of Governmental Relations, 202-828-0526.