Stark self-referral ban, cost caps in health bill

July 15, 1992

A federal proposal to cut medical costs and boost health insuranceavailability has passed a critical Congressional juncture. Thebill would regulate national health-care spending through costcaps to doctors, hospitals and medical equipment manufacturers.

A federal proposal to cut medical costs and boost health insuranceavailability has passed a critical Congressional juncture. Thebill would regulate national health-care spending through costcaps to doctors, hospitals and medical equipment manufacturers.

The Health Care Cost Containment and Reform Act (HR-5502) passedthe House Ways and Means health subcommittee July 1. It is onthe docket for full committee consideration later this summer.

HR-5502 is essentially a compromise between two competing billsproposed by Rep. Fortney "Pete" Stark (D-CA) and Rep.Richard Gephardt (D-MO). Stark chairs the Ways and Means healthsubcommittee; Gephardt is the House majority leader.

The act would affix cost caps to payments for hospitals, physicians,prescription drugs and durable medical equipment (DME). Providersof wheelchairs, oxygen equipment, prosthetics, orthotics and supplieswould be affected by the bill, since such products are purchaseddirectly by insurance recipients.

Imaging equipment purchases by service providers would alsobe affected, due to the gradual downsizing of the Medicare budget,including that portion pertaining to Medicare capital reimbursement.

Health-care spending under HR-5502 would be defined by a nationalbudget, regulated by a network of state-run cost-containment programs,health maintenance organizations and spending caps for all providers.

Spending growth would be limited each year until, by 1998,increases are no higher than the rise in gross domestic product,which is estimated to be at 6% by decade's end. Insurers wouldhave to use Medicare payment methods and pay hospitals and doctorsat rates set by the government.

"Under the bill, payments under different categories ofDMEs would be averaged and gradually adjusted over several years,"said William Vaughan, an aide to Stark in Washington, DC. "Thefirst year, payments might be capped at 10% above the average,the second year at 9%, and so on, until payments are adjustedto roughly the rate of growth in gross domestic product."

The measure also stretches the current ban on physician self-referralof Medicare patients to in-vitro testing laboratories to applyto all patient referrals and all facilities in which physicianshave ownership interests.

Federal standards to ensure health insurance availability forsmall businesses and the self-employed are key aspects of thebill. It would also expand eligibility for Medicaid and establisha new program for children from uninsured families.

These benefits would be paid for by the cost-containment components,according to Vaughan. The Congressional Budget Office estimatesa savings of $114 billion in U.S. health-care spending by 2002if the act is implemented.

Other provisions penciled in by Stark include strong federalfraud detection efforts. For example, physicians and hospitalswould be required to submit annual financial reports to the governmentand send their bills to new regional claims clearinghouses.

"The bill doesn't give everybody insurance at once butit avoids additional taxes," Vaughan said. "It alsogives about half of the uninsured some form of insurance overthe next decade, using the savings we obtain from cost-containmentand antifraud provisions."

A federal ban on self-referrals is one of the most secure partsof the proposed bill. Many of the competing health-care proposalsbeing developed in Congress also include expansions of the currentban.

"Republicans are now onto this, and so is the president,"Vaughan said. "That part of the bill isn't going anywhere."

But the other aspects could easily undergo major revisions.Spending caps are not popular with some Republican members ofthe House Ways and Means Committee. And consensus among conservativeDemocrats on the issue may also be difficult to attain.

"It's very controversial and there are a lot of opponents,"Vaughan said. "But if health inflation continues, passageof a bill like this is inevitable, whether it is this year ornext."

HR-5502 faces competition from a Republican proposal that hasbeen endorsed by White House health adviser Gail Wilensky andHealth and Human Services secretary Dr. Louis Sullivan. The billwould reform national medical malpractice laws, expand the currentself-referral ban, and encourage managed care without imposinga global budget for health-care spending.