Government Affairs Home > Washington Highlights > March 22, 2002

Bush Administration to Congress: Limit Modifications to Payment Updates and Formulas

March 22, 2002 - In a March 14 letter to Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Health Subcommittee Chairman Nancy Johnson (R-Conn.), Health and Human Services Secretary Tommy Thompson and Office of Management and Budget Director Mitchell Daniels stated that MedPAC's recent recommendations (payment updates and formula revisions) are not "the appropriate starting point for a discussion of Medicare provider payments." Instead, Secretary Thompson and Mr. Daniels encouraged Congress to "consider limited modifications to the provider payment systems."

The March 14 letter was a response to a Feb. 8, letter signed by Chairmen Thomas and Johnson which asked how the Bush Administration would reconcile its commitment to budget neutrality in light of MedPAC's recent recommendations regarding Medicare provider adjustments.

In terms of physician payments, Secretary Thompson and Mr. Daniels argued that the "underlying system" used to update payments is "sound and effective," and they advised against "dismantling the mechanism" (the SGR methodology). Instead, they encouraged Congress to pursue "other approaches" when resolving short-term payment volatility. Such fixes would require "a much lower cost than the MedPAC recommendation implies."

Secretary Thompson and Mr. Daniels also advised that "reasonable and modest limits on hospital market basket updates" could support "more than adequate" physician payment updates. According to Secretary Thompson and Mr. Daniels, restrictions on hospital market basket increases have not negatively affected hospital margins. They added that, while hospitals have "received on average" only about 60 percent of the "market basket forecasted increase," data show growing Medicare inpatient margins and declining numbers of hospitals with negative inpatient margins.

Secretary Thompson and Mr. Daniels reiterated that the Administration "will not support any package of provider payment changes unless it is budget neutral in the short- and long-term." They add that any new Medicare funding should be directed toward prescription drug coverage options and not toward "increasing payments to fee-for-service Medicare providers."

MedPAC has recommended spending about $174 billion over 10 years on provider payment updates and formula revisions. The Thomas/Johnson letter also asked Secretary Thompson and Mr. Daniels to "identify which provider problems merit congressional action and which do not." [see Washington Highlights, February 15].

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