Hospital lobby sees some relief from Medicare fee cuts as Congress acts

The hospital industry scored a significant victory over the Bush administration Wednesday as Congress took steps to scale back changes to Medicare’s payment system for the facilities.

After months of lobbying amid a busy congressional schedule and intense squabbling between Democrats, Republicans and the White House over other Medicare issues, the House passed legislation by voice vote that would mitigate the effects of a regulation the hospitals said would have cost them $20 billion in Medicare payments.


Federation of American Hospitals President and Chief Executive Chip Kahn expressed satisfaction that Congress acted before the new Medicare rule took effect on Oct. 1. “We’re getting significant relief,” Kahn said.

American Hospital Association Senior Vice President of Federal Relations Tom Nickels estimated the legislation would soften the blow to hospitals to the tune of $7 billion. That would still amount to about $13 billion less for hospitals over the next two years.

The dispute focused on an administration plan that assumed hospitals would try to take improper advantage of a new billing system and docked their pay in advance, an unprecedented mechanism the Centers for Medicare and Medicaid Services (CMS) dubbed a “behavioral offset.”

In April, CMS issued a proposal for its annual regulation updating Medicare’s fee rates for services performed in hospitals. The regulation included substantial changes to the system designed to increase payments for more complicated procedures and for treatments on sicker patients. The agency published the final version of the 2,100-page rule in August. The agency estimated that hospitals would receive an average 3.5 percent pay increase in fiscal 2008.

The payment changes in the regulation, referred to as “severity adjustment,” represent part of a three-year campaign by CMS to overhaul the hospital reimbursement system. This year, CMS replaced 538 billing codes with 745 new, targeted ones.

The behavioral offset prospectively will trim hospitals’ annual pay increases in anticipation of hospitals gaming the system. Under the rule, those fee hikes would be cut back 1.2 percent in fiscal 2008 and 1.8 percent the following year.

The hospital industry projected this offset would reduce its take from Medicare by $20 billion over five years. CMS promised to evaluate hospitals’ actual billing during the first few years under the new rules and make whole facilities that were underpaid.

The legislation the House approved, which the Senate was expected to pass as soon as Wednesday afternoon, would shrink the behavioral offsets in 2008 and 2009 to 0.6 percent and 0.9 percent, respectively.

At the urging of the hospital industry, lawmakers from both parties reacted strongly to the CMS proposal, criticizing the agency for assuming hospitals would act improperly and for overstepping its administrative authority.

In June, 269 House members wrote CMS objecting to the behavioral offset and other aspects of the payment regulation. Senate Finance Committee Chairman Max BaucusMax Sieben BaucusBaucus backing Biden's 2020 bid Bottom line Overnight Defense: McCain honored in Capitol ceremony | Mattis extends border deployment | Trump to embark on four-country trip after midterms MORE (D-Mont.) and ranking member Chuck GrassleyCharles (Chuck) Ernest GrassleyDemocrats eye additional relief checks for coronavirus Coronavirus pushes GOP's Biden-Burisma probe to back burner Lobbying blitz yields wins for airlines, corporations, banks, unions MORE (R-Iowa) sent a letter of their own the same month. Senate Majority Leader Harry ReidHarry Mason ReidGOP embraces big stimulus after years of decrying it Five Latinas who could be Biden's running mate Winners and losers from Super Tuesday MORE (D-Nev.) and Minority Whip Trent Lott (R-Miss.) were among 64 senators who sent another letter in June. Thirty-eight freshman Democrats in the House wrote Speaker Nancy Pelosi (D-Calif.) asking for legislation to address the hospitals’ concerns.

In addition, the House approved an amendment to the Labor, Health and Human Services, and Education appropriations bill in July that would have postponed implementation of the new billing codes for one year and blocked the behavioral offset. The language, sponsored by Reps. John Lewis (D-Ga.), Peter WelchPeter Francis WelchDems unlikely to subpoena Bolton Democratic candidates gear up for a dramatic Super Tuesday A disaster for diplomacy and the Zionist dream MORE (D-Vt.) and Jerry Weller (R-Ill.), passed 412-12.

Despite the success of its lobbying effort at getting Congress to move on its concerns, even if only partially, the hospital industry does not consider the issue settled.

Kahn noted that the effects of the regulation from 2010 and beyond are impossible to predict. “This [bill] obviously reduces the money that would contribute to that [loss] in the first two years, but the regulation is still in effect,” he said.

Nickels said that while his group appreciates the relief Congress is seeking to provide, hospitals remain in opposition to the concept of a behavioral offset and are concerned that a precedent has been set by CMS. “We still have real concerns about the notion of any kind of prospective adjustment,” Nickels said. “We’re going to need to keep talking about this with both Congress and the administration.”

The real test of whether hospitals will be harmed by the modified payment system and the behavioral offset will come when the regulation is implemented and hospitals and CMS can evaluate its effects, Kahn said. At that point, both camps will be able to use real-life experience to determine whether hospitals tried to inappropriately take advantage of the new billing codes — and whether CMS will have to return the offsets it collected or reclaim improper payments it made.

“We’re willing to debate three years from now whether there should be an adjustment when we have real data,” Kahn said.

Despite getting help from Congress on the behavioral offsets issue, hospitals were unable to convince lawmakers to block other provisions in the CMS regulation reducing what the agency pays hospitals for capital expenses. Kahn expressed disappointment but added, “You can only go so far fighting city hall.”