Secretary of Health and Human Services Richard S. Schweiker has made the first basic decisions on the shape of a new "prospective" hospital reimbursement plan designed to save Medicare billions of dollars.
In last month's tax bill, Congress ordered Schweiker to work out a prospective payment plan for Medicare by Dec. 31 to replace the cost-plus system, seeing prospective payment as the best hope of bringing hospital costs under control.
Congressional leaders said such a plan, which Schweiker's department already was drafting, could save billions annually in hospital payments for the nation's 29 million elderly and disabled Medicare patients. They indicated that they hope to enact the plan during the 1983 session.
Under a prospective payment system, the government would fix in advance the amount it would pay hospitals for care of Medicare patients.
Hospitals whose costs exceeded the fixed amount would be out of luck.
Advocates say a prospective payment, by setting cost targets a hospital must meet, encourages hospitals to plan and operate more efficiently and therefore keep costs down. They argue that the existing system, in which the government pays afterward for whatever costs the hospital incurred within certain broad limits, provides no such constraints.
The cost-based system is blamed by many for the fact that hospital costs in recent years have increased much faster than inflation. Increasing hospital costs are the major reason Medicare has grown faster than almost any other federal program in recent years and is now over $50 billion a year. If trends continue, the trust fund is headed for bankruptcy.
Schweiker, according to sources, has ordered Carolyne Davis, who heads the department's Health Care Financing Administration, to draft a plan based on these decisions:
* Payment for hospitals would be computed first by figuring out the actual average costs nationwide in 1981 for different categories of Medicare cases and updating them for inflation. This national average for each type of illness would then be adjusted to take into account regional variations. The actual rate to be paid the hospitals would be a slight percentage below the adjusted regional average for each type of illness, thereby producing savings for the government as compared to a straight cost-plus system.
Schweiker's key decision in this calculation, according to sources, was to compute different averages and repayment rates for each major category of illness, instead of using a single blended rate for all illnesses. If the same rate were used for all illnesses, some hospitals might seek to exclude patients with higher-cost conditions, such as heart and neurological conditions, in favor of those with lower-cost illnesses such as pneumonia, in order to make more money.
* The hospital would be forbidden to bill the patient for any excess costs if it believed the government payment was too low, except for the regular Medicare deductibles and co-insurance amounts already set by law. Some in the department, sources said, had argued that if the government payment and the patients' payments for deductibles and co-insurance failed to cover what the hospital claimed were its costs, it should be allowed to bill the patient for the difference.
* If the hospital's costs were lower than the payment, the hospital could keep the savings, but if its costs were higher, it would swallow the loss.