Prevent Further Cuts to
Medicare Teaching Hospital Payments
Maintain Medicare IME Payments at 6.5 Percent - Support
“The American Hospital Preservation Act” S. 839/H.R.
1556
Issue
Unless Congress acts this year, Medicare special payments
to teaching hospitals will be reduced by 15 percent in FY
2003.
Such reimbursements, known as Medicare Indirect Medical Education
(IME) payments, are critical to teaching hospitals. They help
pay for the myriad of patient care missions of teaching hospitals,
including the higher costs of providing care to Medicare beneficiaries
who are sicker and have especially complicated illnesses or
diseases. If Congress does not act, teaching hospitals will
lose a total of $794 million in IME payments in FY 2003 or
$4.2 billion over five years. The typical teaching hospital
could lose on average $789,000 in IME payments in FY 2003
while major teaching hospitals could lose on average $2 million
in FY 2003.
Medicare IME payments have already been cut by 15 percent
since 1997. Because teaching hospitals are more likely to
provide highly specialized, regional and key community services,
Medicare beneficiary access to such services could be in jeopardy
if Medicare IME payments are reduced, particularly in light
of teaching hospitals’ current precarious financial condition.
Moreover, teaching hospitals offer the kinds of services such
as burn units and trauma centers that would be relied upon
in the unfortunate event of another terrorist or biological
attack.
Bipartisan legislation,
S. 839/ H.R.
1556, the “American Hospital Preservation Act,”
includes provisions to maintain Medicare IME payments at current
levels. Such legislation is critical to ensuring that Medicare
beneficiaries get the care they need when they are really
sick.
Congressional Action
On June 28, 2002 the House passed 221-208 the "Medicare
Modernization and Prescription Drug Act of 2002" (H.R.
4954) which includes increases in Medicare payments for
hospitals and physicians. In relation to S. 839/ H.R. 1556's
provisions, the bill:
- Increases the IME adjustment to 6.0 (from 5.5 percent)
in FY 2003, 5.9 (from 5.5) in FY 2004; and 5.5 in FY 2005
& thereafter ($700 million over five years);
- Provides a FY 2003 update of Market Basket (MB) minus
0.25 percent, with full MB updates in the "out-years"
($1.5 billion over five years)
The AAMC believes that the hospital provisions are a "workable
beginning" and wrote a letter to leaders of the House
Ways and Means and Energy and Commerce Committees to that
effect. The AAMC continues to push the Senate to incorporate
the full provisions of "The American Hospital Preservation
Act" in its Medicare package. The AAMC expects the Senate
Finance Committee to consider Medicare legislation this Fall.
Background
Reduction in IME Payments
Under current law, IME payments are scheduled to be reduced
by 15 percent in FY 2003. Unless the reduction slated to occur
is prevented, IME payments will have been slashed by nearly
30 percent since the enactment of the Balanced Budget Act
of 1997. Currently, teaching hospitals receive an IME add-on
payment to their Medicare Diagnostic Related Group (DRG) payment
of 6.5 percent for every 10 percent increase in the resident
to bed ratio. This add-on will be reduced to 5.5 percent beginning
Oct. 1, 2002.
Purpose of the IME Payment in Relation to Teaching Hospital
Services
Medicare provides the IME payment to teaching hospitals as
a proxy, in part, for the inability “of the DRG case
classification system to account fully for factors such as
severity of illness of patients requiring the specialized
services and treatment programs provided by teaching institutions
and the additional costs associated with the teaching of residents.”
Compared to other hospitals, teaching hospitals are more
likely to provide sophisticated and essential standby services
and clinical care, such as burn and trauma care, and bone
marrow and organ transplant services. In addition, teaching
hospitals provide services vital to their communities, such
as geriatric services, nutrition programs, AIDS services,
and crisis prevention programs. Teaching hospitals also provide
nearly half of all hospital charity care.
Teaching Hospitals Rely on the IME to Stay Financially
Solvent
Teaching hospitals have the lowest total margins of all hospitals.
According to the Medicare Payment Advisory Commission, in
1999 (the most recent available data), major teaching hospitals
had an average total margin of 2.4 percent versus 4 percent
for “non-teaching” and “other teaching”
hospitals. This figure includes income received investments.
The American Hospital Preservation Act
The AAMC advocates the passage of “The American Hospital
Preservation Act” (S. 839/ H.R. 1556), sponsored by Sens.
Hutchison (R-TX) and Bayh (D-IN) and Reps. Foley (R-FL) and
Neal (D-MA). S. 839/H.R.1556 would:
-
Maintain IME payments at 6.5 to ensure that teaching
hospitals have the resources they need to educate future
generations of physician, nurses and other caregivers,
provide an environment for clinical research, develop
new technologies, and take care of the severely ill; and
- Provide full inflation updates for Medicare inpatient
services-- updates that are critical to helping hospitals
*Major Teaching hospitals are defined
as short-term, general, non-federal hospitals having an intern
and resident-to-bed-ratio of 0.25 or greater.
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