Far-reaching Kennedy-Gephardt bill to resurface in 1985 Essay

Far-reaching Kennedy-Gephardt bill to resurface in 1985

It’s not lab legislation per se, but the bill two Democrats
soon will reintroduce in the new Congress could have tremendous
long-term significance for laboratorians.

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The official title: “The Medicare Solvency and Health Care
Reform Act of 1985.’ Wordy as it is, the name nevertheless is
shorthand for battles building in states and on Capitol Hill to
determine the shape of national health policy over the next 10 years.
The struggle centers on the degree to which marketplace competition can
successfully substitute for the public utility-type regulation of health
care costs. Hanging in the balance, most observers agree, are the
survival of hundreds of hospitals, as well as advancements in technology
for every area of medicine, including labs.

“In many quarters, the competition philosophy is gaining
momentum,’ said Walter McClure, president of the Center for Health
Policy Studies in Minneapolis. “But interest in the regulatory
strategy is gaining at least as much. It’s a very tight horse race
and could go either way in the next five years,’ he said.

A major factor in the outcome, he warns, will be hospitals
themselves, “once they figure out that the competitive marketplace
is going to discipline them much more than rate-setting would.’

Regulation advocates say their approach would not only control
costs, but also ensure care for the indigent without creating a
twotiered health system. Competition proponents counter that those
benefits would come at the expense of innovation and quality in health
care, and prop up in efficient hospitals and doctors. They also claim
that true efficiencies and real savings can only come through an open
market that rewards low-cost, quality providers with the patient
business, while offering a separate financing mechanism for the

Sen. Edward Kennedy (D-Mass.) and Rep. Richard Gephardt (D-Mo.)
believe their complex legislative package walks a fine line between
these two schools of health policy thought. Their bill, which attracted
considerable attention during hearings this year, should gain even
greater prominence in the next Congress. Two big reasons: The day of
reckoning for Medicare Trust Fund solvency is drawing closer, and more
states are in turmoil over issues addressed in the bill.

The Kennedy-Gephardt proposal consists of two sections. The first
addresses 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. The
goal: “to decrease the current incentives hospitals have (under
PPS) to increase admissions.’

Attempt to “improve’ PPS further by including inpatient
physician services within DRG payments to hospitals. “It will be
the responsibility of the hospitals and the physicians providing the
care to allocate the payment.’

Include capital costs in the DRG payment and abolish the separate
payment for return on equity.

But, according to the bill’s authors, a Medicare-only approach
is “doomed to fail. As long as hospitals and physicians remain
free to charge other patients whatever the traffic will bear, inflation
will 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 certain
Federally set cost targets for all spending outside Medicare.

The states could hammer out their own health care plans using
either regulatory, competitive, or voluntary mechanisms (or any
combination of these) to stay within the target or “performance
standard.’ The target dictates that per discharge cost increases
for all inpatient services, including physicians’ charges, could
not exceed the increase in the hospital market basket plus 1 per cent.
However, states could also apply for alternative cost targets, such as
one based on total per capita health costs.

To encourage competitive approaches, the bill also creates special
reimbursement limit exemptions for HMOs, requires employers to offer
more than one Federlly qualified prepaid plan, and provides cash
incentives to employees who choose HMOs that are more cost-effective
than a competing conventional plan.

If a state elected not to implement a health care plan, or could
not do so successfully, a “Federal residual program’ would be
imposed. This would extend the Medicare PPS to all other payers in that

Kennedy and Gephardt have already won vigorous support from the
elderly and labor.

Interestingly, corporations might end up as backers, too. Rick Lee
of the Washington Business Coalition recently told a meeting of hospital
financial executives “not to assume that big business is opposed to
the proposal just because it represents Federal regulation. In fact, it
gives states maximum flexibility for five years. . . Conveiveably
corporations could push K-G because it might be the only solution to
ending the (health premium) drain on profits. . .’

But providers are lined up firmly in opposition. The proposed
limits on hospital revenues are nothing less than “incentives for
hospitals and physicias to reduce services,’ asserted Dr. Harrison
Rogers, the American Medical Association’s president-elect, during
Ways and Means Committee hearings this fall.

Hospital groups and the Blue Cross and Blue Shield Association also
reject the revamping envisioned in the bill. They argue that the rate
of health care cost growth has slowed considerably over the last two
years, due both to the naturally evolving competitiveness in the market
and the initial salutary effects of PPS.

The Kennedy-Gephardt opponents acknowledge the bill’s
deference to state choices but see two problems in that provision.
First, the regulatory option will be easiest to control and measure, and
therefore the most likely to be chosen, they contend. Second, no matter
which option is selected, there remains the Federally imposed revenue

“It’s the Carter cost cap revisited,’ said a
Federation of American Hospitals spokesman. “And we are
unalterably opposed to it.’ Among the more pernicious effects, he
said, would be a “negative impact on the transfer of medical
technology from the drawing board to the patient’s bedside.’
Preferable is the “competitive approach,’ including a tax cap
on health insurance premiums, more HMOs and PPOs (preferred provider
organizations), and a better informed public, the FAH believes.

The American Hospital Association says the bill is “simply
unnecessary.’ During the hearings it recited a litany of statistics
underscoring the “effectiveness of existing incentives.’
Inpatient hospital expenses, for instance, dropped from 15.6 per cent in
1982 to 9.6 per cent in 1983. And during the first five months of 1984,
the trends were “even more dramatic,’ with the annualized rate
of increase just 4.1 per cent, AHA said. Moreover, for the first five
months of 1984, total admissions declined at an annualized rate of 3.1
per cent after a 0.5 per cent drop in 1983, and admissions for those
over 65 dipped at an annualized 1.2 per cent following a 4.5 per cent
rise the previous year. Length of stay for the elderly was off
sharply–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 is
not the time to freeze health care institutions in their current
positions–as Government regulation must inevitably do.’

Six months ago, with predictions that the Medicare Trust Fund would
run dry by 1990, this bill carried a special sense of urgency. Recent
Congressional Budget Office estimates, however, have pushed the deadline
back five years, and opponents are breathing easier.

Nevertheless, the Kennedy-Gephardt bill will figure prominently in
the months ahead, both for its own provisions and for the laternative
bills it will inspire.

Further, it will serve as a rallying point for state interest
groups promoting regulatory health care cost solutions such as those in
New York, New Jersey, Massachusetts, and Maryland, the so-called
Medicare “waivered’ states. At this writing, Arizona voters
were about to decide a rate-setting referendum backed by the
state’s major employers. Capitol Hill lobbyists and health
committee staffers agree that if the companies are successful, the
victory will only encourage more of the same, especially if supporters
know there’s substantial sentiment for it in Washington.


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