Teaching Hospitals Get Medicare Reprieve

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December 02, 1999

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By Alvin Powell
Gazette Staff

Teaching hospitals affiliated with Harvard and other universities across the country have received a partial break from Medicare funding cuts after a concerted lobbying effort that involved hospital officials, University presidents, business leaders and political leaders from the hardest-hit states.

The change modifies funding cuts approved in the 1997 Balanced Budget Act. The new legislation provides a one-year freeze at last year’s reimbursement levels for costs associated with training the nation’s new doctors. The cuts will resume next year at a slower pace.

Approved in mid-November as part of the 1999-2000 federal budget, the Medicare funding revision means $105 million more than anticipated for Boston area teaching hospitals through 2002 and a total of $200 million for hospitals across Massachusetts during the same period, according to Harvard’s Associate Vice President for Government, Community, and Public Affairs Jane Corlette.

Left unchanged, the Balanced Budget Act would have cut Medicare payments to Massachusetts hospitals by about $1.7 billion by 2002. With those cuts in effect, nearly half of Massachusetts hospitals would lose money on treatments to Medicare patients, according to Massachusetts Hospital Association figures.

University and hospital officials said the freeze is merely a first step and that additional action is needed to stem the red ink flowing from teaching hospitals around the country, which are also dealing with rising drug costs and lower payments due to managed care.

"I was firmly convinced that the teaching hospitals were facing a genuine crisis, one that required some intervention by the federal government," said Harvard President Neil L. Rudenstine. "After all, these hospitals – unique, really, to the U.S. – are internationally recognized for educating the best-trained physicians and creating a high percentage of the newest and best treatments. To allow them to fail would be catastrophic."

The lobbying push started last April and targeted key members of the House and Senate in an effort to convince them that the Balanced Budget Act’s Medicare cuts went far deeper than originally planned.

The Act anticipated $103 billion in savings over five years, but in only two years, $193 billion has been trimmed from Medicare spending, according to figures from the Conference of Boston Teaching Hospitals. The Conference also points out that the cuts were part of a plan to balance the federal budget by 2002, a goal that was achieved in 1998. In addition, the cuts were intended to ensure the solvency of the Medicare Trust Fund through 2008. Savings so far ensure the fund will be solvent until 2015.

"These partially restored resources will flow directly into the vital educational and research missions of the teaching hospitals," said Harvard Provost Harvey Fineberg. "This success was a direct result of effective outreach to the public and to legislators, concerted political leadership, and the persuasive merits of this long-term investment in better health care."

Medicare is a critical funding source for teaching hospitals, not only because it reimburses them for care provided to Medicare patients, but also because Medicare includes additional payments to compensate the hospitals for the added cost of training the nation’s doctors.

Expenses at teaching hospitals are higher than at other hospitals for several reasons. The teaching hospitals are often located in urban areas and so treat a higher number of poor and uninsured patients. In addition, they often treat sicker patients, who go to those hospitals for the cutting-edge treatments often developed and practiced there.

In addition to the demographics of patients at teaching hospitals, training new doctors also generates costs for the hospitals. Experienced doctors spend time teaching that could be used treating patients, and the students often order more tests and medications than a more experienced physician would.

"All the teaching hospitals share in a pretty hefty burden," Corlette said. "They are constantly creating new treatments on the basis of new knowledge. They have research departments. They do drug trials. They experiment with new surgical techniques and instruments."

Part of the problem was a lack of awareness of the teaching hospitals’ plight among federal legislators, according to Betsy Stengel, executive director of the Conference of Boston Teaching Hospitals.

"We started this process in a very bad situation. There’s no question the teaching hospitals were bleeding very seriously, but for a long period of time we didn’t see an awareness of the problem on the part of policymakers," Stengel said.

That lack of awareness changed last April, Stengel said, in a meeting organized by U.S. Sen. Edward Kennedy, D-Mass., which included hospital leaders, senators from affected states, and top Clinton administration budget officials.

More meetings followed, and eventually the seriousness of the situation was realized. Stengel credited "an unprecedented coalition" and the leadership of Kennedy and Sen. Daniel Patrick Moynihan, D-N.Y., in getting the changes through.

"Are they the complete answer? No," Stengel said. "But they are a major step in recognizing and understanding the problem. Each institution is going to have to continue to run very tightly and look in every corner for efficiency."

Hospitals have already been forced to look for budget cuts. According to the Boston Teaching Hospitals group, Massachusetts General Hospital withdrew annual funding to support the research activities of young, unfunded investigators. In another example of cost-cutting, Partners Health Care cut its expenses $200 million between 1994 and 1998, reducing the average cost of caring for individual patients by 20 percent over that period.

In addition, UMass Memorial Health Care – created by the 1998 merger of the University of Massachusetts Medical Center and private, nonprofit Memorial Health Care – was forced to close a transitional care unit at one of its hospitals. The inpatient pediatrics unit and a midwife program at another UMass Memorial Health Care hospital also had to be closed to save money.

"It is heartening that Congress finally recognized the damage done by trying to take the bulk of budget balancing cuts from Medicare, particularly from teaching hospitals," said Joseph B. Martin, Dean of the Faculty of Medicine. "But, I fear this is only a first step in a protracted effort required to create an adequate, stable funding mechanism for the academic missions of our teaching hospitals."