Hospitals Would Take Hit As Part Of Health Budget Proposals

A budget framework proposed by the White House would clamp down on Medicare payments to hospitals as part of efforts to fund new health reform initiatives.

Budget documents released by the White House on Thursday said that readmission rates for Medicare patients were too high. The budget proposal states that the federal government should seek to lower readmission rates, and payments to hospitals that readmit too many Medicare patients.

A Commonwealth Fund study found that 18% of Medicare patients admitted to a hospital in 2005 were rehospitalized within 30 days. The budget proposal seeks to stem readmissions by bundling payments for hospitalizations and post-acute care, which would purportedly have the effect of deterring a cycle of releasing Medicare patients only to quickly readmit them.

"Sometimes the readmission could not have been prevented, but many of these readmissions are avoidable," the document said.

Efforts to keep hospitals from readmitting patients and the new bundling policy would save $26.3 billion from 2010 to 2019, according to the White House. Savings from the readmission proposal, one of several attempts in the proposed budget to use Medicare as a vehicle for broad changes in the health sector, would funnel to a $633.8 billion "reserve fund" for health reform.

The budget proposal also seeks savings through greater use of "pay for performance" for Medicare payment for acute inpatient hospital services. The proposal states that Medicare would impose new measures that would allocate payments based on quality of care given to patients, rather than quantity of services provided by hospitals. That measure is slated to save $12.1 billion over the 10-year period.

The main publicly traded hospital companies include Tenet Healthcare Corp. (THC), Health Management Associates Inc. (HMA), LifePoint Hospitals Inc. (LPNT), Universal Health Services Inc. (UHS) and Community Health Systems Inc. (CYH).

Hospitals are not the only part of the health sector that would feel pain in the budget proposal. Another provision would put in place vast reductions in payments to private insurers through the Medicare Advantage program, creating a competitive bidding system to make Medicare Advantage payments more comparable to payments through the government's traditional Medicare fee-for-service program. That provision is slated to save $175 billion over 10 years.

Another provision would increase the rebate on sales to Medicaid patients paid by drug makers to the federal government from 15.1% to 22.1%. That measure, combined with another proposal that would apply the rebate policy to new formulations of existing drugs, would save $19.6 billion over 10 years.

-By Patrick Yoest, Dow Jones Newswires; 202-862-3554; [e-mail]

(Dinah Wisenberg Brin contributed to this report.)