As Congress hurries to finish this legislative session so that the real work of political campaigning can begin, two bills are being considered that would provide at least some relief from the ravages of 1997’s Balanced Budget Amendment. According to the Hospital Association of Rhode Island, passage of the Senate American Hospital Preservation Act and the House Hospital Preservation and Equity Act, which would repeal inflation inequities established under the BBA, would provide hospitals here with about another $3 million for fiscal year 2001, which begins Oct. 1.
Because it set a below-inflation update the BBA has reduced hospital payments by $46.3 billion over 10 years, said HARI Senior Vice President Howard Dulude. And while the proposed amendments don’t “make up for what happened in ’98 and ’99,” Dulude said, they would help “to make up for what’s going on now.”
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Under the BBA, which was designed to save Medicare from imminent bankruptcy by restricting reimbursements, Medicare payments for hospital in-patient services were reduced by setting payment updates at below the market basket index, which is Medicare’s measure of inflation.
For fiscal years 2001 and 2002, the BBA mandated a market basket reduction of 1.1 percent – or a cost of living adjustment of about 2.4 percent instead of the full inflation index of about 3.5 percent.
But the bipartisan BBA Relief 2000 bills, which are supported by Sen. Lincoln D. Chafee, Rep. Patrick J. Kennedy and Rep. Robert A. Weygand, would provide the entire 3.5 percent adjustment, which for hospitals in Rhode Island would mean another $3 million in funding for the next fiscal year, Dulude said.
Even though it’s not really providing “additional” money, like beggars at a banquet, they’ll take what scraps they can, said HARI President Edward J. Quinlan, just to begin the process of trying to recover from the financial devastation the BBA helped inflict upon hospitals over the last three lean years.
Quinlan, who can cite bleak statistics – such as Rhode Island hospitals having lost 2,000 jobs since the BBA – with the greatest of ease, calls the road post-BBA a “constant path of adjusting” to less funding while expenses and expectations for quality care have continued to mount.
Quinlan said Rhode Island’s Congressional Delegation has been “extremely supportive” of their efforts, especially with regard to evening out the geographic disparities in how the BBA impacted all the states. “People to a degree were locked into their cost structure,” Quinlan said, and Rhode Island was “harmed more because we were more efficient.”
But trying to move Congress on a major issue isn’t easy, Quinlan said, adding that the current national pastime of tossing about of ideas on what to do with a massive projected budget surplus is especially maddening for hospitals, since it’s money “we feel we helped create.”
Hospital inflation
According to a new study by the Lewin Group compiled for the American Hospital Association, over fiscal years 1998, 1999 and 2000, hospital inflation rates rose a total of 8.2 percent while payment updates have totaled 1.6 percent.
The Lewin report also shows that last year’s BBRA only restores a small fraction of the BBA’s Medicare cuts and won’t help hospitals recover their costs in treating Medicare patients, since total Medicare hospital payments from 2000 to 2004 are only 1 percent higher with the BBRA relief and Medicare payments to hospitals are still reduced by more than $110 billion from 1998 to 2004.
“It’s hard to figure out how an organization [can] survive when payments don’t keep up with inflation,” Dulude said, noting that for fiscal year 1998, when inflation was also projected at about 3.5 percent, hospitals received nothing.
According to Congressional Budget Office estimates in 1997, the BBA’s job was to cut an estimated $116 billion from projected Medicare spending between 1998 to 2002, with more than $50 billion of these reductions to be borne by the nation’s hospitals. The BBA also cut an additional $10 billion from Medicaid hospital payments.
Dire as these figures are, more recent projections have estimated total cuts from the BBA at between $170 billion and $200 billion thanks to accelerating costs and demands in patient care.
And in Rhode Island, Quinlan said, the BBA “has significantly accelerated a process” of financial instability at hospitals that had already begun because of increased pressure from private insurers.
The effect of the BBA in Rhode Island has also been significantly higher than originally thought, a $220 million loss over five years, Dulude said, with the latest estimates putting the state’s hospitals more like $375 million in the red.
This figure even includes the approximately $25 million of restored funding they got last year from the Balanced Budget Refinement Act, which put back nationally an estimated $17 billion, or about 10 percent of the total cuts.
Rhode Island hospitals went from making $20 million in operating margins in 1997 to having a combined negative operating margin of $40 million in 1998 – a $60 million total loss in just one year, Quinlan said, adding that they lost about $69 million in 1999 this year it will be about the same.
Kennedy hopeful
Congressman Kennedy, in a written statement provided to Providence Business News last week, said that “although it is getting very late in the session to pass a full piece of legislation, I am hopeful that the concepts and funding goals established by this bill are incorporated in a final budget worked out between Congress and President Clinton in the coming weeks.”
Kennedy said the Hospital Preservation and Equity Act “provides reasonable payment updates that reflect the true cost of inpatient health care services by striking the payment reductions of 1.1 percent for fiscal year 2001 and 2002,” after which BBA-mandated reductions are scheduled to end.
The American Hospital Association estimates that the cost to restore the last two years of a full update is approximately $6.7 billion.
Sen. Jack Reed, while not a co-sponsor of the American Hospital Preservation Act, is expected to co-sponsor an update of last year’s BBRA that would include increasing hospital payments to cover inflation, according to Reed spokesperson Dawn Bergantino.
