This is an archive page. The links are no longer being updated.

Date:  Thursday, August 29, 1996
For Release:  Immediately
Contact:  HCFA Press Office, (202) 690-6145

The Department of Health and Human Services today announced that payments to hospitals for Medicare inpatients will be increased 2 percent. The new rate is derived from a formula provided in law.

The increase for the coming fiscal year, 0.2 percentage points lower than the rate proposed in May, would be 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 increase for fiscal year 1997 will be between 1.5 and 2.5 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 severity of a patient's condition. Hospitals in large urban areas (cities with more than 1 million people) receive slightly higher base payment rates.

Current law requires that the rate increases for PPS hospitals be based on a projection 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 increase for FY 1997 is currently estimated to be 2.5 percent, compared with a 2.7 percent estimate in May.

President Clinton's budget for FY 1997 includes a proposed change in the update for all PPS hospitals in which the increase would be equal to the market basket rate of increase minus 1.5 percentage points. The proposal was 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 1.0 percent in the coming fiscal year. However, this lower rate would require congressional action.

Under current law, 2,000 Medicare hospitals excluded from PPS -- psychiatric, rehabilitation, long-term and children's facilities -- would get an increase in rates between 1.5 and 2.5 percent. This increase is based on an estimated 2.5 percent increase in the market basket calculated exclusively for these hospitals, minus 1 percentage point, with some hospitals eligible for a full market basket increase if they historically have had very high costs.

Also included in the final regulation, which will be published in tomorrow's Federal Register, is the final FY 1997 federal capital PPS rate, which represents a 4.99 percent decrease compared with the FY 1996 rate. The decrease in the rate is offset in part by an increase in additional payments to certain classes of hospitals. Consequently, aggregate capital payments will increase by 6.77 percent.

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.

Medicare paid $83.7 billion to inpatient hospitals providing acute, short-term care in FY 1996. Hospital payments are expected to grow by 7.5 percent to $90 billion in FY 1997.

"Several factors are adding to the increase in overall hospital payments under Medicare, other than the higher payment rates, including more Medicare beneficiaries and hospital admissions, and an increase in the severity of illness of patients treated in hospitals," said HCFA Administrator Bruce C. Vladeck, who oversees the Medicare program.

The final regulation also announces a ban on abortion-related discrimination for physician training. A provision in the 1996 budget rescissions and appropriations act requires that HCFA continue funding any postgraduate physician training program that would otherwise be accredited, except for the accrediting agency's requirement that the program provide for training physicians in performing abortions. To comply with this new provision, the final rule changes the regulations to permit graduate medical training programs to continue receiving Medicare funding even if they are non-accredited because they do not provide abortion training, a situation which currently applies to no programs.

Hospital payment updates are published each year on or around Sept. 1 and usually take effect Oct. 1. This year, however, as a result of the new congressional review procedures, this rule may become effective Oct. 25, 1996. Under the new procedures, however, there is the possibility that the rule could be effective on an earlier date. In that case, the rule will be effective as soon as permissible on or after Oct. 1, 1996.