At the request of Congress, the Health and Human Services Department soon will offer revolutionary proposals to cut Medicare costs, including curbing reimbursements to hospitals for capital outlays and restructuring the way that Medicare pays doctors.
Under the proposals, HHS would increase the basic amount it pays hospitals to treat Medicare patients by 5.5 percent to 7.5 percent. But it would eliminate all other Medicare reimbursements to hospitals for their capital costs and returns on shareholders' equity.
Instead, a hospital would receive a single payment that it would apply to all its costs, whether operating or capital expenses. If the additional payment is set at less than 7.5 percent or is reduced in future years, the hospitals, on average, would receive less than they do under current law.
Sen. David F. Durenberger (R-Minn.), chairman of the Senate Finance subcommittee on health, and other critics of the present system say that its virtually unlimited reimbursement of capital costs has encouraged hospitals to build unneeded facilities and invest excessively.
Michael Bromberg, director of the 1,200-member Federation of American Hospitals, which represents for-profit hospitals, said:
"We are vitally interested in the outcome. We fear that if the add-on is set too low or the new system is installed all at once, hospitals that have recently made large capital investments will be unable to cover them with the limited add-on."
Bromberg said the federation does not oppose phasing out the current system under which Medicare reimburses hospitals for the program's share of their capital costs, no matter how large.
A hospital's share is determined by the percentage of the hospital's patients who are covered by Medicare; nationally, the percentage is 40 percent. Medicare also guarantees for-profit hospitals a return -- now more than 11 percent -- on shareholders' capital investment in the hospital.
But Bromberg listed some features that his group feels should be included in any new system.
"The add-on should be at least 7.5 percent, and the transition to the new system should be at least 10 years," he said.
The American Hospital Association, which represents both public and for-profit hospitals, wants an even longer transition.
Department sources said that, although a final decision has not been made, one top HHS official favors a 7 percent figure and some think that a figure as low as 4 percent can be justified. The recommended transition period is likely to be between five and seven years.
Revising the way that Medicare pays doctors could take several forms, and at least three major options are being studied.
At present each doctor receives a payment every time he treats a Medicare patient, based on his billed charges, his customary charges or the prevailing fee for doctors in that area. As a result, some doctors get substantially more than others in the same locality or in other regions of the country.
Moreover, it is argued, many doctors see their Medicare patients more often than they need to, in order to increase their payments.
To reform the system, HHS is considering:
*Setting up a uniform fee schedule that would pay physicians who treat Medicare patients the same fees for the same treatments. Medicare would set fees for each of the 6,000 types of treatments now included in the standard doctor billing codes; the more difficult or costly categories would receive higher payments.
Fees might be uniform for the entire country or only within certain regions and, initially, they might only apply to physicians' services for hospitalized patients.
*No longer paying doctors a fee for each hospital visit. Instead, Medicare would pay a single fee for the doctor's care of the patient as long as the patient remains in a hospital. Fees would vary according to the severity of the illness and the time required to treat it.
Doctors thus would thus have little incentive to increase the number of visits needlessly. The same system eventually could be applied to physicians' care of Medicare patients outside of hospitals.
*Paying insurance companies fixed annual fees to provide physicians' services to all Medicare patients in a particular region for a year. The companies could make whatever arrangements they wanted with the doctors.
Under all these options, the government could lower payments to doctors by raising fee schedules only slightly each year, perhaps less than enough to keep up with inflation. There is a good chance that the final recommendation will be to impose the first option temporarily, allowing the two more radical options to be tested on a limited basis.
The American Medical Association, one of the nation's most powerful lobbying groups, opposes most of the proposals. Its House of Delegates recently adopted a statement opposing "any type of national mandatory fee schedule."