Unintended Results Of Medicare's National Prospective Payment Rates

Prologue: The federal movement to nationalize hospital payment rates under Medicare's new reimbursement mechanism is moving forward as dictated by law. This final destination appears inexorable, despite a lack of data, differences among hospitals in the severity of patient illnesses and mounting government concern over whether the quality of care is deteriorating under this economic incentive. Nevertheless, a major policy question remains: How much of the redistribution of Medicare payments to hospitals under its new reimbursement mode will be unintended? That is to say, which hospitals will be winners and losers not as a consequence of the level of their efficiency but rather because of patient case-mix differences, problems in defining labor markets, and other cost factors? In this paper, Steven Sheingold, who holds a doctorate in economics from Pennsylvania State University and is a highly respected analyst in the Congressional Budget Office (CBO), addresses this question. The CBO is the success story of the controversial budget process Congress set in place in the mid-1970s. Its cadre of well-qualified analysts has become indispensable to Congress in the public policy process. The CBO has become particularly influential in the health sphere because as relations between Congress and the Health Care Financing Administration (HCFA) have worsened during the Reagan years, professional health staff members on Capitol Hill have turned to the CBO as an alternative source of information. A change of administration is not likely to transform relations between Capitol Hill and HCFA either because of policy differences stemming from Congress's defense of the Medicare beneficiary and the executive agency's stronger interest in protecting its trust funds. The CBO prides itself on being impartial and free of ideological taint. Sheingold has been an analyst with the CBO since 1979; he worked on labor issues initially but in recent years has concentrated on questions revolving around hospital reimbursement.