The Reagan administration plans to freeze Medicare payments to hospitals by administrative action rather than submit the issue to Congress for legislative action, sources said yesterday.
The freeze is designed to save Medicare $2 billion in fiscal 1986 by denying hospitals a rate increase to cover inflation.
News that it may be attempted by regulatory action brought expressions of surprise from Capitol Hill and sharp criticism from hospital groups, which want to take their case for a rate increase to Congress.
Rep. Henry A. Waxman (D-Calif.), chairman of the House Energy and Commerce subcommittee on health, said, "I'm appalled that the administration intends to do this," adding that the 1983 law setting up the prospective-payment system clearly looked toward some increases each year.
"I fear that ratcheting down on Medicare rates either by legislation or administrative action may discredit the prospective-reimbursement system before it's really in place," Waxman added.
Most members of the Senate Finance Committee, according to aides, had expected that the freeze proposal would be sent to Congress.
Sen. David F. Durenberger (R-Minn.), chairman of the Finance subcommittee on health, said through an aide that it would be foolish for the administration to go ahead unilaterally when Congress is about to begin a delicate round of negotiations on overall budget cuts designed to spread the pain fairly and equally.
Durenberger said administrative action along the lines being considered could make the hospital industry wary of cooperating on future hospital reforms.
A spokesman for the American Hospital Association said the freeze "is a major policy change that ought to be reviewed by Congress. The law contemplated inflation adjustments of some type" each year.
Mike Bromberg, director of the Federation of American Hospitals, said, "I think it's illegal."
The 1983 law setting up the prospective-payment system, under which Medicare reimbursement rates per hospital case are set in advance, gave the secretary of Health and Human Services the power to adjust the rates annually, without congressional action, beginning in 1986.
Bromberg said the law also contemplated annual rate increases and created a Prospective Payment Assessment Commission to recommend by April 1 of each year what the increases should be, and required the secretary to take these recommendations into account, although not necessarily to abide by them.
Bromberg said a decision to chalk up $2 billion in savings from a freeze long before the commission makes its recommendations violates the secretary's obligation to study the recommendations before acting.
"I don't think Congress will let them get away with that, and I don't think it's legal," said Larry Gage, president of the National Association of Public Hospitals.
"I think they are obliged to provide inflationary increases in payments," he said.
Gage added that his organization and the Catholic Health Association are about to sue HHS to implement a provision of the 1983 law "for special relief of hospitals with large numbers of low-income patients."
An administration official said the prospective-payment rates could legally be frozen administratively, adding that, tentatively, "we plan to do it that way, but not until August."
Theoretically, that would give Congress time to legislate a rate increase or a freeze.
Although the rate commission has not yet reported, most industry and some Capitol Hill observers say they think that it will recommend a Medicare hospital rate increase of 5 or 6 percent, the expected rise in the cost of the hospital market basket, which consists of a list of things hospitals must buy.