ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, January 19, 1997 TAG: 9701200138
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ROBERT PEAR THE NEW YORK TIMES
A federal advisory panel recommends that Congress freeze Medicare payments to hospitals next year. It would be the first time under the program that hospitals have not received an increase.
In approving the recommendation, the panel said that hospitals had effectively controlled their costs, so existing Medicare payment rates were generally adequate.
The chairman of the panel, Professor Joseph Newhouse of Harvard, said that payment rates could be kept level next year without harming the quality of health care or access to care for beneficiaries.
Medicare finances care for 38 million elderly or disabled people. Payments to hospitals totaled $84 billion last year, or 44 percent of all Medicare spending.
The federal advisory panel, the Prospective Payment Assessment Commission, voted last week to recommend a ``zero update'' - no change - in Medicare payment rates for hospitals. Congress pays close attention to the panel's advice, often providing less money but rarely more than it suggests.
The unexpected recommendation offers President Clinton and Congress a relatively easy way to reduce the federal budget deficit and shore up the Medicare trust fund that pays hospital bills.
Carmela Coyle, a vice president of the American Hospital Association, said: ``We are surprised that the commission recommended no increase at all in Medicare payment amounts. It's unprecedented. Hospitals have become more efficient. We've kept down costs for two or three years in a row. There have been real cuts in the cost of treating Medicare patients. But how long can these cost reductions be sustained?''
Coyle said that hospitals were, in effect, being punished for having improved their productivity. Federal officials contend that Medicare should share the benefits of such improvements, and that hospitals can continue increasing productivity.
The recommendation from the federal advisory panel coincides with new evidence showing how inflation has been squeezed from the health-care industry.
The cost of medical care, as measured by the Consumer Price Index, rose last year by 3 percent - the smallest amount in three decades. By contrast, the price index for all items increased 3.3 percent.
It was the first time since 1980 that medical prices rose less than the overall index, which measures changes in the prices paid by consumers for a fixed market basket of goods and services.
While the government data show that medical prices are leveling off, some economists say they are declining.
``For example,'' said Dahlia Remler, a health economist at Tulane University in New Orleans, ``the price you have to pay for extending your life after a heart attack is not rising as fast as the price of other goods in the economy like food, clothing and housing. In the last 15 years, the price of what we care about - the price of having our health improved when we are sick - has gone down in real terms.''
Since 1984 hospitals have received a fixed amount of money for each Medicare patient they treat, regardless of how long the person stays in the hospital. Each Medicare patient is assigned to one of 495 categories, depending on the patient's illness. Payments are set in advance for each category and can be updated annually.
The Congressional Budget Office had assumed that payment rates would be increased 3 percent next year. Based on that figure, the panel's recommendation would save more than $2billion in 1998. It would permanently lower the base for future increases, saving more than $11billion over five years.
The sum, while substantial, is a relatively small part of the savings that will be needed to guarantee the long-term solvency of Medicare.
In the last decade, the commission has recommended increases averaging 3 percent a year, and Congress has approved increases averaging 2.6 percent a year.
Stuart Guterman, deputy executive director of the commission, said: ``Hospital costs have been declining while Medicare payments have increased at a moderate rate. As a result, hospitals have found their Medicare business more profitable.''
The hospital association boasted last year that ``increases in hospitals' costs of delivering care hit their lowest point in 40 years.'' One reason, according to the commission, is that wages and benefits of hospital employees are growing more slowly than compensation in many other industries.
Data collected by the government show that hospital profit margins have, on the average, been rising for several years. But Coyle said the data also showed that some hospitals were experiencing financial difficulties. Nineteen percent of hospitals lost money over all, she said, while 39 percent lost money on their Medicare business.
Kay Ford, an economist at the federal Bureau of Labor Statistics, said that the growing use of managed care had helped hold down health costs. Nearly three-fourths of workers with health insurance are in health-maintenance organizations or some other type of managed care.
LENGTH: Medium: 94 linesby CNB