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Update: The Balanced Budget Refinement Act of 1999
by Sheldon Weisgrau
Rural Health Consultants
Responding to healthcare providers' negative financial forecasts and persistent lobbying by both providers and other interest groups, Congress ended the year by rolling back or delaying many of the Medicare and Medicaid changes they had legislated only two years earlier in the Balanced Budget Act of 1997 (BBA 97).1 The Balanced Budget Refinement Act of 1999 (BBRA 99) is a clear acknowledgment that federal lawmakers underestimated the BBA's impact on healthcare providers. The legislation restores approximately $17 billion in Medicare payments over the next five years, about half of which will go to hospitals and health systems and half of which will go to other providers and programs. Both rural and urban providers will benefit, but the effects of the bill will be felt more profoundly in rural areas, where financial margins are lower and access to care more tenuous.
When enacted in 1997, the BBA employed two basic approaches to healthcare cost-containment: cuts in payment to fee-for-service providers, and incentives for development of managed care plans with enrollment of Medicare beneficiaries in those plans. The BBA Refinement Act does not fundamentally change this strategy. Instead, it softens the blow to fee-for-service providers by reducing the level of payment cuts and provides additional incentives for managed care development.
Rural hospitals stand to benefit most from the reductions in payment cuts. As noted, hospitals will receive about half of the total value of the relief package. In addition, rural hospitals often provide a range of services other than basic inpatient and outpatient care, so they will also benefit from many of the "non-hospital" provisions of the legislation. Probably most important for rural hospitals, the BBA Refinement Act rolls back or delays much of the outpatient prospective payment system (PPS), which is slated to begin this year. Estimates of losses to small rural hospitals as a result of outpatient PPS ranged from 10% to 20% of Medicare outpatient revenue.
Under the new legislation, reductions in payments are limited and rural hospitals with less than 100 beds can elect to receive the higher of either the PPS payment or the pre-BBA payment amounts. These provisions are time limited and will sunset by 2004.
The legislation makes other modifications that affect rural hospitals, including expansion of the Critical Access Hospital program and changes in the Medicare Dependent Hospital and Sole Community Hospital programs (neither of the latter two programs operate in California). The American Hospital Association estimates that the BBA Refinement Act will restore $800 million in cuts to rural hospitals nationwide over the next five years.
Another key provision of the BBA Refinement Act will delay payment reductions to Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs), both important safety net providers in many rural communities. Under the BBA, cost-based Medicaid reimbursement to RHCs and FQHCs was to be phased out over a six year period. Under the new legislation, payment is frozen at the current level — 95% of costs — until 2003, when the phase out is resumed. Cost—based Medicaid reimbursement will still end in 2005. The legislation also provides home health agencies with short term relief from BBA payment cuts.
For managed care plans, rural payment floors and other BBA incentives were not enough to induce development in rural areas. Few Medicare+Choice plans have been created in rural areas over the last two years and there have been numerous reports in the press about managed care organizations dropping rural counties from their service areas. Therefore, rural medicare beneficiaries are still limited, for the most part, to the existing fee-for-service Medicare system.
To further the pro-managed care development policies of the BBA, the new legislation "sweetens the pot" for Medicare+Choice organizations that develop plans in rural areas. Medicare will pay a five percent (5%) payment bonus in the first year and a three percent (3%) bonus in the second year of operation to Medicare+Choice organizations that start plans in areas that do not currently have them. In addition, instead of offering identical benefit packages throughout their service areas, Medicare+Choice plans will be permitted to provide different benefits in different parts of their service areas. Medicare managed care organizations have long contended that the requirement that they provide uniform benefits throughout their service areas stifles plan development in low payment rural areas, where the expanded benefit packages that are typical in urban areas are not profitable.
The BBA Refinement Act will stem new loss of healthcare dollars to California’s rural providers and communities in the near future, helping to sustain their economic position. However, rural providers should not be lulled into a false sense of security by this temporary reprieve. Most of these provisions will again be up for termination in five years. Rural providers should take this breathing space to invest in building sustainable healthcare systems for the future that integrate services and resources. Cost-based payment systems may allow rural providers to continue to survive for a while but they tend to be a disincentive to developing the integrated systems of care that are currently being pursued in many communities, including those involved with the DRIS Initiative. Until a comprehensive rural health policy is developed that ensures access, quality, and reasonable cost, projects like DRIS will be necessary to provide resources and technical expertise to those communities that want to build sustainable healthcare systems for the future.
1 In California, the Medicaid program is known as "Medi-Cal."
© CIRHM