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June 12, 2000
"Continued Impact on Hospitals of the BBA Cuts"
AIM sponsored a June 12 briefing for Congressional staff
on the continued impact on hospitals of the Balanced Budget Act of 1997 (BBA) and the Balanced Budget Refinement Act of 1999 (BBRA).
Speakers included Mr. Joseph Becht, Director of Health Care Advisory Services, Ernst & Young; Mr. Terry Carson, Administrator, Harrison Community Hospital, Cadiz, Ohio; and Mr. Howard Capek, Executive Director, UBS Warburg LLC. Each speaker outlined various impacts of the BBA cuts on the hospital industry and advocated comprehensive Medicare reform as well as additional BBRA-type relief to stabilize the hospital industry and other providers.
The briefing was the fifth in a series hosted by AIM to
help Congressional members and staff understand the need for comprehensive Medicare reform in lieu of quick "fixes" and payment cuts to providers.
Mr. Becht provided an overview of a recent Ernst &
Young financial report on the post-BBA and post-BBRA state of hospitals.
The BBA phased in over five years provider payment reductions to hospitals and other industries, including skilled nursing facilities and home health agencies. Mr. Becht noted that the Congressional Budget Office (CBO) now estimates that BBA's impact will now be approximately $227 billion - more than double the original estimate of $103 billion. The Ernst & Young report found, as a result of this unexpected increase, reduced hospital solvency, reduced hospital investment in capital, reduced hospital staffing levels, and reduced services levels. Overall, Ernst & Young found that total hospital margins were down 53% in 1999 over 1998 while total hospital Medicare margins were down 120% over the same time period.
Mr. Carson described the experiences of a small, rural,
not-for-profit hospital as a result of the BBA's provider payment cuts.
Mr. Carson reported that BBA cuts and reduced DRG reimbursement levels have caused staff and services reductions in rural communities. Mr. Carson stated that Congress must ensure that hospitals and other providers are able to deliver necessary care if the Medicare program is to survive. Further, Mr. Carson stated that commercial lenders are less likely to extend credit to healthcare providers as a result of financial pressures caused by BBA. Finally, Mr. Carson reported that BBRA offered little assistance to rural facilities and that additional relief is necessary to ensure continued access to care for rural communities.
Mr. Capek provided an overview of the financial markets'
reaction to declining hospital margins as a result of BBA payment cuts. Mr. Capek's comments focused on publicly traded hospital margins which amount to approximately 12% of all hospital beds. He
illustrated the under performance of hospital stocks and attributed the under performance to "arbitrary, irrational spending cuts" contained in the BBA, risk of OIG investigation, hospitals missed earnings
forecasts, and long-term care industry bankruptcies.
Finally, Mr. Capek stated that the financial markets would respond positively to restructuring of the Medicare system and HCFA management policies as well as rational market basket adjustments, delay in the Outpatient Prospective Payment System implementation, and revisions to skilled nursing facilities prospective payment system.
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