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Date: Thursay, May 30, 1996 FOR IMMEDIATE RELEASE Contact: HCFA Press Office (202)690-6145
The Department of Health and Human Services today proposed an increase of 2.2 percent in Medicare payments to hospitals in the coming fiscal year. The new rate is derived from a formula provided in law.
Following a comment period and publication of a final rate, the increase would take effect Oct. 1 for the nation's 5,200 short-stay, acute care hospitals participating in the Medicare program. For another 2,000 non-acute care hospitals, the statutory proposed increase for FY 1997 is between 1.7 and 2.7 percent.
Medicare pays short-stay, acute-care hospitals a predetermined rate for inpatient hospital services furnished to Medicare beneficiaries, using a prospective payment system (PPS). Under PPS, a base payment rate for each admission is multiplied by a measure, called a diagnosis related group, which reflects the nature of a patient's condition. Hospitals in large urban areas (cities with more than 1 million people) receive slightly higher base payment rates than those in other urban and rural areas.
Current law requires that the rate increases for PPS hospitals be based on projections of growth in the prices of goods and services purchased by hospitals, known as the hospital market basket, minus 0.5 percentage points. The market basket is currently estimated to be 2.7 percent for FY 1997.
President Clinton's budget for FY 1997 includes a proposed change in the update for PPS hospitals in both urban and other areas, in which the increase would be equal to the market basket rate of increase minus 1.5 percentage points. The proposal is part of the Administration's broader plan for reducing spending growth in the Medicare program by $124 billion over seven years.
Consistent with the Administration proposal, HHS Secretary Donna E. Shalala recommended today that the increase in Medicare hospital payments should be only 1.2 percent in the coming fiscal year. However, this lower proposed rate increase would require Congressional action.
Under current law, 2,000 Medicare hospitals excluded from PPS
-- psychiatric, rehabilitation, long-term and children's facilities -- would get a 1.7 percent increase in their rates, although the update can be higher for certain hospitals and units with costs that are greater than their target amounts. The increase is based on an estimated 2.7 percent increase in the market basket calculated exclusively for these hospitals, minus 1 percentage point.
Also included in the proposed regulation, which will be published in tomorrow's Federal Register, is a 4.36 percent increase to the federal capital PPS rate. Medicare makes payments to hospitals for capital related costs on a prospective basis. The covered costs include depreciation, interest, taxes, insurance and similar expenses for plant and equipment.
"The regulation also explains the reasoning behind three options for reducing the federal capital rate," said HCFA Administrator Bruce C. Vladeck. "But we will wait to see whether this summer Congress approves any adjustment to the capital PPS rate, before deciding whether to include a capital rate reduction in the final regulation."
Medicare paid $78.9 billion to inpatient hospitals providing acute, short-term care in fiscal year 1995. Hospital payments are expected to grow by 8.2 percent from $84.5 billion in FY 1996 to $90.8 billion in FY 1997.
"The growth in both hospital admissions and new Medicare beneficiaries, and an increase in the severity of cases hospitals treat are fueling the overall increase in Medicare's hospital payments," said Vladeck, who oversees the Medicare program. "The higher payments are not just a result of the increase in Medicare's payment rates."