Far-reaching Kennedy-Gephardt bill to resurface in 1985 It’s not lab legislation per se, but the bill two Democratssoon will reintroduce in the new Congress could have tremendouslong-term significance for laboratorians. The official title: “The Medicare Solvency and Health CareReform Act of 1985.’ Wordy as it is, the name nevertheless isshorthand for battles building in states and on Capitol Hill todetermine the shape of national health policy over the next 10 years.The struggle centers on the degree to which marketplace competition cansuccessfully substitute for the public utility-type regulation of healthcare costs. Hanging in the balance, most observers agree, are thesurvival of hundreds of hospitals, as well as advancements in technologyfor every area of medicine, including labs. “In many quarters, the competition philosophy is gainingmomentum,’ said Walter McClure, president of the Center for HealthPolicy Studies in Minneapolis. “But interest in the regulatorystrategy is gaining at least as much.
It’s a very tight horse raceand could go either way in the next five years,’ he said. A major factor in the outcome, he warns, will be hospitalsthemselves, “once they figure out that the competitive marketplaceis going to discipline them much more than rate-setting would.’ Regulation advocates say their approach would not only controlcosts, but also ensure care for the indigent without creating atwotiered health system. Competition proponents counter that thosebenefits would come at the expense of innovation and quality in healthcare, and prop up in efficient hospitals and doctors. They also claimthat true efficiencies and real savings can only come through an openmarket that rewards low-cost, quality providers with the patientbusiness, while offering a separate financing mechanism for theindigent. Sen.
Edward Kennedy (D-Mass.) and Rep. Richard Gephardt (D-Mo.)believe their complex legislative package walks a fine line betweenthese two schools of health policy thought. Their bill, which attractedconsiderable attention during hearings this year, should gain evengreater prominence in the next Congress. Two big reasons: The day ofreckoning for Medicare Trust Fund solvency is drawing closer, and morestates are in turmoil over issues addressed in the bill. The Kennedy-Gephardt proposal consists of two sections.
The firstaddresses specific Medicare matters. It would: Mandate assignment for all services to Medicare beneficiaries. Adjust the prospective payment system to reduce Medicare payments for all admissions in excess of a hospital’s historical norm.
Thegoal: “to decrease the current incentives hospitals have (underPPS) to increase admissions.’ Attempt to “improve’ PPS further by including inpatientphysician services within DRG payments to hospitals. “It will bethe responsibility of the hospitals and the physicians providing thecare to allocate the payment.’ Include capital costs in the DRG payment and abolish the separatepayment for return on equity. But, according to the bill’s authors, a Medicare-only approachis “doomed to fail. As long as hospitals and physicians remainfree to charge other patients whatever the traffic will bear, inflationwill continue out of control and the cost of Medicare will go up.
‘ Consequently, they also propose a “systemwide approach’that gives states the first crack at developing means of meeting certainFederally set cost targets for all spending outside Medicare. The states could hammer out their own health care plans usingeither regulatory, competitive, or voluntary mechanisms (or anycombination of these) to stay within the target or “performancestandard.’ The target dictates that per discharge cost increasesfor all inpatient services, including physicians’ charges, couldnot exceed the increase in the hospital market basket plus 1 per cent.
However, states could also apply for alternative cost targets, such asone based on total per capita health costs. To encourage competitive approaches, the bill also creates specialreimbursement limit exemptions for HMOs, requires employers to offermore than one Federlly qualified prepaid plan, and provides cashincentives to employees who choose HMOs that are more cost-effectivethan a competing conventional plan. If a state elected not to implement a health care plan, or couldnot do so successfully, a “Federal residual program’ would beimposed. This would extend the Medicare PPS to all other payers in thatstate. Kennedy and Gephardt have already won vigorous support from theelderly and labor. Interestingly, corporations might end up as backers, too. Rick Leeof the Washington Business Coalition recently told a meeting of hospitalfinancial executives “not to assume that big business is opposed tothe proposal just because it represents Federal regulation. In fact, itgives states maximum flexibility for five years.
. . Conveiveablycorporations could push K-G because it might be the only solution toending the (health premium) drain on profits.
. .’ But providers are lined up firmly in opposition. The proposedlimits on hospital revenues are nothing less than “incentives forhospitals and physicias to reduce services,’ asserted Dr. HarrisonRogers, the American Medical Association’s president-elect, duringWays and Means Committee hearings this fall. Hospital groups and the Blue Cross and Blue Shield Association alsoreject the revamping envisioned in the bill. They argue that the rateof health care cost growth has slowed considerably over the last twoyears, due both to the naturally evolving competitiveness in the marketand the initial salutary effects of PPS. The Kennedy-Gephardt opponents acknowledge the bill’sdeference to state choices but see two problems in that provision.
First, the regulatory option will be easiest to control and measure, andtherefore the most likely to be chosen, they contend. Second, no matterwhich option is selected, there remains the Federally imposed revenuetarget. “It’s the Carter cost cap revisited,’ said aFederation of American Hospitals spokesman. “And we areunalterably opposed to it.’ Among the more pernicious effects, hesaid, would be a “negative impact on the transfer of medicaltechnology from the drawing board to the patient’s bedside.’Preferable is the “competitive approach,’ including a tax capon health insurance premiums, more HMOs and PPOs (preferred providerorganizations), and a better informed public, the FAH believes. The American Hospital Association says the bill is “simplyunnecessary.’ During the hearings it recited a litany of statisticsunderscoring the “effectiveness of existing incentives.
‘Inpatient hospital expenses, for instance, dropped from 15.6 per cent in1982 to 9.6 per cent in 1983. And during the first five months of 1984,the trends were “even more dramatic,’ with the annualized rateof increase just 4.1 per cent, AHA said. Moreover, for the first fivemonths of 1984, total admissions declined at an annualized rate of 3.
1per cent after a 0.5 per cent drop in 1983, and admissions for thoseover 65 dipped at an annualized 1.2 per cent following a 4.
5 per centrise the previous year. Length of stay for the elderly was offsharply–by 7.5 per cent–after a 4.5 per cent decline in 1983.
Mary Nell Lehnhard, vice president of Blue Cross/Blue Shield,testified that with a competitive environment taking shape, “now isnot the time to freeze health care institutions in their currentpositions–as Government regulation must inevitably do.’ Six months ago, with predictions that the Medicare Trust Fund wouldrun dry by 1990, this bill carried a special sense of urgency. RecentCongressional Budget Office estimates, however, have pushed the deadlineback five years, and opponents are breathing easier. Nevertheless, the Kennedy-Gephardt bill will figure prominently inthe months ahead, both for its own provisions and for the laternativebills it will inspire. Further, it will serve as a rallying point for state interestgroups promoting regulatory health care cost solutions such as those inNew York, New Jersey, Massachusetts, and Maryland, the so-calledMedicare “waivered’ states.
At this writing, Arizona voterswere about to decide a rate-setting referendum backed by thestate’s major employers. Capitol Hill lobbyists and healthcommittee staffers agree that if the companies are successful, thevictory will only encourage more of the same, especially if supportersknow there’s substantial sentiment for it in Washington.