Medicare Commission Dashes Hopes
Of Pay Hikes to Providers

January 21, 2003
A powerful federal advisory panel is set to throw cold water on hopes of increased Medicare payments for nursing homes and home health care agencies and to recommend reducing the cost-of-living allowance that hospitals are scheduled to receive next year.

In a draft of its report to be sent to Congress in March, the Medicare Payment Advisory Commission says that payments to nursing homes and health agencies appear "more than adequate" to cover the costs of treating Medicare patients, The New York Times reported. The commission reportedly found that Medicare payments to hospitals are "at least adequate."

Agencies "should be expected to improve productivity," the commission said.

The report comes as welcome news to Republicans in Congress and the White House, who have been feeling intense pressure from senior groups and health care providers to increase Medicare payments. It provides lawmakers with ammunition to resist the entreaties from health care providers.

Congressional staffers said the report would also make it easier for Congress to play off AARP and other senior groups demanding Medicare prescription benefits against the providers. AARP has argued that Congress should not increase payments to providers without providing drug coverage to seniors.

The 17-member commission rejected pleas that plummeting state Medicaid budgets put a larger burden on Medicare. "We should not use Medicare dollars to offset Medicaid losses," commission chair Glenn M. Hackbarth told the Times.

Care providers were stunned by the news.

The American Hospital Association's president, Richard J. Davidson, said he was "tremendously disappointed." He said the commission was overlooking the increasing costs of technology, medicines, malpractice insurance and disaster preparedness.

Carol Raphael, president of the Visiting Nurse Service of New York, said she had "grave reservations" about the proposed freeze in rates for home care.

Suzanne M. Weiss, Senior Vice President, American Association of Homes and Services for the Aging (AAHSA) noted that a recent General Accounting Office (GAO) report found that not-for-profit and government-operated skilled nursing facilities had negative profit margins from Medicare in 1999 and only a small profit after Congress provided additional funding in 2000.

The GAO findings mirror those of an AAHSA study released in October 2002, Weiss said.

"AAHSA's analysis showed that operating profit margins in 2000-2001 were a negative 4 percent and overall margins - including endowment income and fund-raising revenues - were less than 2 percent. The AAHSA report was based on the tax forms and financial records of not-for-profit nursing homes and accounted for program revenues from Medicare, Medicaid and private sources," she said in a statement.

"Not-for-profit nursing homes are operating very close to the margin. Aging services facilities need adequate resources to hire adequate staffing to provide quality care. The combined impact of the recent Medicare cuts and reduced Medicaid rates is making this increasingly difficult," Weiss said.

Medicare payments to home health agencies were cut 4.9 percent on Oct. 1, 2002 and nursing home payments were reduced an average of 10 percent. Payments to doctors were cut 5.4 percent last year and an additional reduction of 4.4 percent is scheduled for March 1.

The commission recommends a 2.5 percent increase in payments to doctors, who have had more success lobbying Congress. Sen. Charles E. Grassley (R-Iowa) has introduced a measure to keep doctor payments at 2002 levels for the rest of 2003.