Proposals this week by the Clinton administration to trim federal Medicare reimbursement rates have area HMOs and hospitals worried, but teaching hospitals were encouraged by another element in the plan.
If approved by Congress, the cuts could deflate profits in Medicare HMOs, which have been competing aggressively to sign up seniors. Medicare HMO enrollment in the state has quadrupled from about 10,000 in December 1995 to about 42,000 as of Jan. 1.
Although Maryland hospitals are not directly affected by proposals to tighten Medicare hospital rates -- under Maryland's unique regulatory system, Medicare pays the rates set by a state commission rather than those set nationally -- hospitals still fear an effect.
Still, academic medical centers are pleased by a part of the proposals that would set up a new fund to compensate them for teaching costs.
The administration plan is designed to save $100 billion over the next five years. A memo released yesterday from the chief actuary of the Health Care Financing Administration said the changes would delay the draining of the Medicare trust fund from 2001 to 2007.
Of that, $34 billion in savings are projected from cutting reimbursements paid to HMOs that enroll Medicare recipients. Currently, they are paid 95 percent of the average fee-for-service cost in each local region; the administration would trim that to 90 percent.
HMO officials said they could not be sure whether a rate reduction would mean reducing benefits, adding premiums, cutting rates to providers or some combination -- or at what rate they would get out of the market. "We would have to go to the balance sheet, take a look, and see what the result would be," said Michael H. Savage, a spokesman for Mid Atlantic Medical Services Inc., a Rockville-based HMO.
"I think in general, that would result in some reduction in the benefit package," said Sandy Beard, director of marketing for Blue Cross Blue Shield of Maryland, which sells a Medicare HMO called MediCareFirst. Currently, Medicare HMOs offer some benefits not required by Medicare -- typically, some coverage of prescription drugs, vision, dental and preventive care -- as a way of attracting members.
The federal government should want to encourage HMOs to participate in Medicare and to encourage seniors to enroll, argued Jeff D. Emerson, chief executive officer of NYLCare of the Mid-Atlantic. Emerson said HMOs control costs by managing care, thereby saving money for the system.
"If the U.S. has made a decision to turn the health care system over to private enterprise, this is what you get," Emerson said. "You've got to have the profit element."
But others said HMOs could still profit under the Clinton plan.
HMOs have been interested in signing up seniors because "the transition from indemnity to managed care is pretty much saturated except for Medicare and Medicaid," said John R. Runningen, an analyst with the Robinson-Humphrey Co. in Atlanta. Even with some rate reduction, he said, "the incremental volume could be additive to earnings."
"Because this has been by and large an unmanaged population, the benefits of managing them well are still there," said Dr. Michael C. Tooke, president and CEO of HelixCare, a physician group. HelixCare currently has one Medicare HMO contract and expects to sign more, he said, and, given the problems with the Medicare trust fund, "this comes as no surprise. We've tried to be conservative in projecting what premium levels will be."
In Maryland, HMOs cannot negotiate rates with hospitals; they, like Medicare, must pay those approved by the state commission. But Nancy Fiedler, senior vice president of the Maryland Hospital Association, said Maryland will maintain its unique system only if its cost increases are below the national average. So, she said, a cut in Medicare payments elsewhere would mean cost pressure on Maryland hospitals as well.
"I certainly wouldn't paint Maryland as held harmless in all this," she said. "There will be an impact in terms of keeping our numbers at or below the national average."
Teaching hospitals, however, found a part of the proposal to cheer: a plan to set aside $11 billion from hospital rates over five years as a fund for academic medical centers. These hospitals have subsidized their training from patient rates, but have seen HMOs shift patients to lower-cost non-teaching hospitals.
"We played a very significant role in trying to have the federal government accept" a fund to cover graduate medical education, said Richard Grossi, chief financial officer of Johns Hopkins Medicine. "We believe this is the right way to do it."
"It's just sound public policy," agreed Nelson Sabatini, vice president for integrated delivery systems operations, University of Maryland Medical System. "The playing field has to be leveled for those social costs."
Pub Date: 1/24/97
