Boston Herald, December, 1999 Prognosis For Medical Savings Accounts: Gaining Health, But Still Bear Watching By Brian O'Connell Back in the spring of 1993, when Hillary Clinton and White House aide Ira Magaziner pushed in vain for a nationalized health care system, a seed was planted amidst the furious debate. Even hard core opponents to the Clinton White House's health care proposal agreed that certain Americans, particularly self-employed ones or those who worked at small, cash-strapped companies, needed some less expensive health care options that didn't reduce the quality of health care they received. Enter the medical savings account (MSA). Signed into law by Congress for enactment on January 1, 1997 under a four-year "pilot" provision, the Health Insurance Portability and Accountability Act offer the best of both the insurance and investment worlds. MSA's combine a high-deductible insurance policy with a savings and investment account that grows much like a 401(k) or Individual Retirement Account (IRA) plan. With MSA's, participants can set aside money tax-free for out-of-pocket medical expenses. Only the nation's 11 million self-employed individuals and roughly 4.3 million companies with 50 or fewer employees can participate in the plan. Initially, Congress gave the green light for 525,000 accounts in 1997 and up to 750,000 MSA's by 1999. "An MSA provides a clear financial incentive for a family or individual to stay healthy," offers B. Ray Helton, chief executive officer at Peachtree City, Ga.-based Partnership in Excellence, Inc., a medical savings administration firm that caters to the health care needs of the self-employed and small businesses across the US. "It's a new recipe for better managing both health care and costs. The high-deductible insurance covers medical catastrophes and you cover the rest. In return, you get a tax cut, additional retirement savings, and your choice of medical providers." That said, actual usage is poor to medium, depending on whom you ask. According to Greg Scandlen, publisher of the Patient Power Report, a publication that tracks the MSA industry, up to 150,000 accounts are active through August, 1998. "That's lower than I thought, but Congress did limit who could participate in an MSA," says Scandlen. Other industry sources say the actual figure is closer to 85,000 active MSA accounts. The plans themselves are a mixed bag. Unlike most managed care health plans, MSA participants choose their own doctors. Individuals can set aside up to 65% of their deductible to fund an MSA tax-deferred savings and investment account. Families can set aside 75% of their deductibles. On the down side, MSA policies can exclude existing medical conditions and deductibles can be high -- up to $2,250 (pre-tax) annually for individuals and up to $4,500 (pre-tax) for families. But the math may still make sense. According to Lawrenceville, Ill.-based Golden Rule Insurance Co., a family of four would pay $344 per month for an MSA that included a $3,000 deductible funded at the full 75%, including $187.50 for the MSA fund and $157.32 for the insurance. Under a traditional health care plan, Golden Rule estimates that the same family could easily pay up to $405 per month. Plus, any MSA moneys not used by plan participants can be rolled over at year end, creating a de facto retirement savings account in the process. Banking Industry Tales Wait-And-See Approach To MSA's Where do banks fit into the MSA framework? Primarily as places to stash the money accrued through the MSA. In fact, over 50 banks have climbed aboard the MSA bandwagon, many of them partnering with the insurance companies that sell the actual insurance policies to plan participants. Golden Rule forged an alliance with Chicago-based Northern Trust in 1993 (when the plans were allowed without the tax-free advantage) and has sold over 25,000 MSA's without the tax advantage during that time. Since Congress approved the tax-free pilot program, Golden Rule has seen its MSA account volume rise by 400 percent since January 1, 1997. Other banks are also going after the MSA customer in an aggressive fashion. Wells Fargo & Co., Mellon Bank Corp., Fifth Third Bancorp, and Home Federal Savings Bank have all unveiled MSA programs in the past few years. Broker-dealers are also getting into the act, led by stalwarts such as Merrill Lynch. "We started our program eight months before Congress gave us the go ahead," says Ken Marchetti, vice president and director of operations at Boise, Id.-based Home Federal Savings bank. "Customers can access their MSA accounts by check or credit card, with no transaction fee for the latter." HFSB does charge a $1.50 per transaction fee every time a check is used, adds Marchetti. Most banks, like Fifth Third, also tack on a $10 to $35 account setup fee. As of August 31, 1998, HFSB had about 6,500 MSA customers, says Marchetti, which was lower than what the bank expected. "Although we didn't have a solid projection number in mind, we were looking for more MSA accounts than we received," he says. "So I'd say the success of our MSA program has been moderate at best. It's certainly not the explosive growth that some people in the banking industry thought it would be." Much like Northern Trust, which relies on Golden Rule to go out and recruit customers, HFSB has tapped a third-party provider to help drum up business. The bank uses American Health Value, a Boise marketing firm, to go out and corral MSA clients for the bank. "American Health goes out and signs up the clients," explains Marchetti. "Once a client is signed, they transmit all the paperwork to us and we set up the account on our books. A MSA debit card is ordered immediately for the client, with the debit card processing handled by Deluxe Electronics Processing Systems and the account maintained here at the bank." Currently, HFSB maintains MSA accounts in 47 states and is hopeful that they will be included in the proposed program to make eligible 300,000 Medicaid patients for MSA's in early 1999. "We're hopeful we'll be included in the Medicaid program and are optimistic about MSA's in the long run," says Marchetti. "I think once the public is educated about what MSA's can do for them we'll see significantly more growth." His bank competitors agree. "Our numbers are growing, but they will grow faster once people have been educated about MSA's," offers Marie Flanagan, product manager at Mellon Bank "I think the MSA needs a lot of public relations work before people catch on to them in a big way." The Pittsburgh-based bank giant has an almost two year-old MSA program of its own. Company officials would not comment on the number of active accounts and fees charged for the accounts, although they, like Fifth Third, allow MSA account holders to invest in their proprietary mutual funds. As of summer, 1998, Mellon had agreements with 32 insurers in 42 states to market MSA's. Like most banks, Mellon gives it MSA clients a debit card -- in Mellon's case a MasterCard MasterMoney trademark debit card -- and a checking account that draws from the plan. Minimum account requirements, standard in the industry, are at least $3,500 for Mellon customers. With that amount of money or more in their accounts, Mellon customers can open an investment account with subsidiary Dreyfus Investment Services, where they can select from several mutual funds to park their MSA proceeds. With Potential New Profit Center, Can High-Tech Efforts Be Far Behind? Both banks and insurance companies are relying heavily on tried-and-true tested technologies like smart cards to enhance MSA usage. One software developer, Eclipse Consulting Group of Indianapolis, In., has had a smart card payment program that allows instant transfers from MSA's directly into doctor's payment accounts for almost two years now. The card software also monitors insurance deductibles and even medical procedures. With Eclipse's smart card, patients can simply debit their MSA accounts at the doctor's office or pharmacy. "We're basically putting ATM machines in the health care providers office all around the US," says Mark Morris, Eclipse's executive vice president. Smart card technology is an area banks have longed to enter, particularly as the industry continues to lose market share to the mutual fund and specialty lenders industry. MSA's may be a key to that doorway. "With outstanding market share having declined from 29% in 1954 to 19% in 1997, electronic commerce provides an area where banks can makeup a lot of ground," comments Gary Craft, vice president and senior research analyst in the electronic commerce/payment area at BancAmerica/Robertson Stephens. "There's a potential wild card in the financial services sector with banks muscling their way into electronic commerce, particularly with many customers indicating that they trust banks the most in this area of digitized uncertainty." MSA participating banks are taking full advantage of that trust. When Home Federal Savings Bank MSA clients use their MasterMoney debit cards, the company makes 1.35% of the total transaction (VISA offers 1.04% of the transaction plus six cents for its VISA check cards). In the case of most medical bills, that is not an insignificant amount of money. Medical bills average about $600 to $700 per month, according to Northern Trust, and MSA plan participants use their cards an average of 1.5 times per month. Plus, virtually every health care organization accepts MSA debit cards. Over 220,000 health care facilities currently accept VISA and MasterCard debit cards, including a whopping 95% of US hospitals and 90% of large physician practices. "It's a big revenue generator for us," says Marchetti. "Every time one of our MSA users swipes his or her card, we get 1.35% of the transaction. We're gaining valuable dollars here."  Banner Days Ahead? The prognosis for MSA's is getting rosier all the time, if you ask the leading banks. But they have reason to crow. In the past year, Mellon, Wells Fargo, and Fifth Third have all won major MSA-based business. In October, 1997, Mellon cut a deal to sell MSA's to the American Dental Association's 140,000 members. Wells Fargo fashioned a similar deal, offering the accounts to the 600,000 member-strong National Federation of Independent Businesses. Fifth Third got into the act with a contact to sell MSA's to the Ohio State Medical Association's 15,000 members.  While only 50 or so banks offer MSA accounts to customers, more are expected to follow suit when and if Congress loosens the limits on MSA participation, as many industry observers expect them to do in 1999. "The US House of Representatives has already passed a "patient protection" bill that removes the limits so any employer can participate," says Scandlen. "The House has also voted to eliminate the restrictions on the 65% (individual) and 75% (family-deductibles) MSA participants get on their premiums each year. If the Senate passes the bill, MSA uses will be able to deduct the full 100%." As of early September, the Senate has yet to act on the bills. But proponents insist that if the Senate doesn't okay the new MSA provisions this year, the pressure will only get heavier to do so in 1999. "MSA's are only going to grow larger," says Mellon's Flanagan. "Once you have more Americans understanding what MSA's are all about, the demand will be there to grow (MSA's) even higher." That's good news for banks, who are beginning to capitalize on a new revenue stream that promises to expand if Congress gets its act together and Americans realize how MSA's can enhance their own bottom line without a reduction in quality medical services. "Medical savings accounts may have not met expectations so far in terms of enrollment so far, but those expectations were unrealistic anyway," says Scandlen. "But now MSA's seem to be growing and accelerating. Bank marketers I talk to say they are closing sales they began a year ago. It can be a difficult sell, but like any new idea, pretty soon it will start gaining converts in larger numbers." Valuing Physician Practices? Here's How To Avoid The Minefields Healthcare CFO February, 1999 By Brian O'Connell If your organization is considering buying a physician's medical practice, you're not alone. In fact, competition between hospitals and physician practice management companies for such practices is so fierce, more doctors than ever are taking the cash and running -- either to a new corporate-based practice or to the golf course and retirement. According to a May, 1998 survey conducted by Irving Levin Associates, a New Caanan, Conn.-based medical research and publishing firm, more than 27,862 physicians were involved in practice purchase transactions in 1997, up 37% from the 20,287 reported by a similar Levin study in 1996. Overall, the number of 306 publicly announced transactions in 1997 (involving 507 medical group practices) was up almost 17% from 1996.  PPM's were doing the bulk of the shopping, closing 87% of the deals. Hospitals snapped up the remaining practices, with their favorite targets primarily medical group practices and independent practice associations (IPA's). If Levin is right, 1998 should continue to be a bull market in physician practice acquisitions. "Preliminary figures from 1998 indicate the continuation of the acquisition market at the levels established in 1996 and 1997," said Stephen Monroe, a partner at Irving Levin Associates. "A high degree of fragmentation in the industry, the campaign to contain health care costs and the ubiquity of managed care all contribute to the development of this robust market." "What's In It For My Hospital?" So it's a given that the market for private physician practices is white hot. Where does that leave hospital CFO's who haven't dipped their toes into the turbulent waters of practice acquisitions, but who want to do so? According to the experts, if your hospital or health care group wants to corral some of the best private doctors in the country, buying their practices lock, stock and barrel is a great way to do it. But, they add, you've got to do it right. "Buying a private practice can be a good business move," offered Jim Bolinger, a principle at Northbrook, Ill.-based Arista Associates, a high-profile health care valuations consultancy. "Doctors look at managed care trends and see themselves losing money, and may be even their practices. Other physicians see the market for practice purchases so good they can't afford not to sell. So a lot doctors are selling." Bolinger says that many hospitals go into the due diligence process with blinders on, ignoring red flags like regulatory questions, practices with aging physicians (and aging patients) and offices with low-tech or, in the case of some rural practices, no-tech equipment. "By and large hospitals misread the value of physician practices and overpay for them as a result," adds Bolinger. "One hospital chief executive officer who hired us to help purchase a practice in the midwest had us convinced that the practice was both well run and well established. A real no-brainer. When we came in to value the operation, we found that the opposite was true -- patient volumes were low and financial management was poor. The Doctors' running the practice had allowed receivables to be dated and records to be inadequately kept." Bolinger's advice? "We told him to offer significantly less for the practice than he was thinking. Sure enough, his bid was accepted." Some hospital CFO's advocate stopping just short of buying a physician's practice. Instead, the thinking goes, help physicians grow their practices instead. "When you acquire a physician's practice, you're basically buying air," says David Sparks, senior vice president of finance at Washington, DC-based Providence Hospital. "There are just too many uncertainties -- location is important, as is number of employees, the number of patients, what kind of billing system is used, and what do the receivables look like. Unless you have an obligation for that doctor to remain in your employ for a long period of time, it's doubtful that you'll ever get your investment back." Sparks adds that Provident prefers lending physicians a helping hand without dipping too deeply into company coffers. "We provide physicians with loans, we help them evaluate how they are managing their practices, and we will treat them as an employee until they're practice gets on its feet or back on its feet, as the case may be," explains Sparks. "You do have to be careful how you structure this kind of help so that you meet IRS standards and operate within the parameters of the Stark laws." But whether or not you're buying a practice or lending a helping hand, Sparks says, the valuation goal remains the same -- to gain a return on your investment. "What I am looking for in a physician's practice is for it to generate sufficient cash on a day-to-day basis to get our money back. Remember, we also have to provide the doctor's salary and possibly help out with equipment. It's not always easy getting a return on your investment." Sparks discourages loan money to go anywhere but to the operating costs of the practice. "I don't want anybody buying a Mercedes with our money," he says. Don't Go It Alone Sparks has a point. With profit margins so slim in the health care industry, a thorough due diligence process is critical to making the right investment in a physician's practice. In fact, well-meaning but inexperienced hospital managers can get easily burned. Not so much by the lack of due diligence, industry experts say, but by aiming the due diligence spotlight in the wrong places. "There's a lot of questions to ask in the due diligence process," warns Lisa LaCourse, spokesperson for the Washington, DC-based HealthCare Financial Management Association, an industry trade group. "What is the current financial status of the practice? Where is the practice located -- in a rural, suburban or urban area? Who are the primary patients? And who are the participating physicians?" The last question, LaCourse maintains, may be one of the most important ones. "Financial considerations aside, the human element may be the key ingredient in the decision-making practice. It's also one of the difficult issues to quantify. Will the doctors in the practice be supportive of the potential changes in store for them? How will they adapt to a new employment arrangement? You've got to remember that doctors are used to making all the decisions. Take the decision-making process away can be a difficult ordeal for employer and doctor. Bringing aboard an experienced hand can make things go much smoother." Worthy candidates for such duty are certified public accountants and health care savvy attorneys. The hired guns can help you steer clear of regulatory headaches and aid in valuing the practice. "I can't imagine a hospital going forward with an acquisition without capable counsel," said Richard R. Gosselin, a CPA at Bangor, Maine-based Berry, Dunn, McNeil and Parker. "There are a lot of financial and legal issues raised throughout the valuing process, such as limits on payments to physicians and calculating new intermediate sanction laws. If you get run of the mill help, or worse, do it yourself, I'd be concerned." Dollars and Sense Assuming you've gathered the best team available to research a potential practice, spoke to the principles and have examined the financial records, your next move is to begin what some analysts call the "technical" valuation process. "The first thing you want to do after obtaining good help and getting a peek at the financial statements is to gather the financial numbers for the past five years, including tax returns" says Raymond Cunliffe, a CPA at Berry, Dunn, McNeil and Parker. "That will give you a good understanding of how the practice runs and how financial performance has impacted the growth of the practice." Cunliffe says the that understanding the financial picture will lay the groundwork for understanding the real meat-and-potatoes' issues -- the value of the practice in the years ahead. "You must ensure that you are aware of health care and practice valuations," he adds. "If you don't and the doctor or doctors haven't performed financially, all you may wind up buying is their equipment." Others say that hospital CFO's must look at the purchase of a physician's private practice much like their contemporaries in the auto industry looks at a widget manufacturer. "In the past hospitals, because they didn't get too involved in these types of transactions, would operate on a "wink and a nod" basis, knowing full well they did not get full value for such purchases," explains Gosselin. "But now hospitals face the same risks as the rest of the business world. Will the physicians leave the practice? Can you maintain the patient base? These are genuine business issues that have to be dealt with." Regulatory-wise, hospital CFO's will find themselves facing an imposing troika of governing bodies, including the Internal Revenue Service, the Health Care Finance Administration, and the Justice Department. "And that's just at the federal level," says Mark Dietrich, a Framingham, Mass.-based CPA and principle at Dietrich & Wilson PC, a health care financial advisory firm. "You'll also face similar state-level agencies that mirror their federal counterparts." Dietrich cites new laws like the 1996 Tax Act (and its intermediate tax sanction provision that imposes restraints on tax-exempt buyers and sellers) and the 1998 Stark law, which prohibits doctors paying too much for referrals, as possible roadblocks for hospital CFO's. "Health care has always been heavily regulated," adds Dietrich "and the government will make sure you are buying at a fair market value for the practice, just like you would buy 100 shares of IBM stock on the stock market." Uncle Sam also has a lot to say about the accounting formulas you'll use. Bolinger says that the IRS is pushing hospitals to use the Discounted Cash Flow (DCF) method when valuing practices. DCF involves the forecasting of annual revenues, earnings and cash flows of the practice, usually for five years or so, and then discounting the annual cash flows back to a present value today at a discount rate representing a return for risk. The IRS is adamant that valuation models must be "reasonable and fair" compared to other valuation methods and that the valuation must provide a full explanation for any forecasts generated. "Say you're examining several family practices and the gross revenues and operating expenses are roughly the same," he explains. "But one practice might be in a thriving market that is growing five percent annually. The other one is in a depressed market that is declining at one percent annually. That's how DCF works -- looking at similar practices but coming up with different results." For hospital CFO's looking to acquire private physician practices, the key is to proceed carefully. Whether or not you hire a consultant, you'll need to navigate a regulatory minefield while figuring out whether the practice in question constitutes a good business deal. But a judicious valuation process done thoroughly can add up to a profitable acquisition with ample benefits for both buyer and seller. SIDEBAR A Valuation Checklist In grade school students are reminded of the three "R"'s -- reading, writing, and 'rithmatic. In the private physician practice valuation world, three "R's also apply: research, review, and regulatory compliance.  Before you begin your valuation process, though, it's a good idea to create a checklist that comprises the elements of all three areas. Arista Associates, a Northbrook, Ill.-based health care consultancy has developed a good list for their clients to follow. It's well worth a look: 1. Determine nature of practice: Describe the nature and history of the practice, including specialty, the number of office and hospital encounters and overall stability. 2. Create a valuation target: What is being valued -- stocks, assets and/or liabilities? Is it a majority interest being acquired? Will a non-compete agreement be obtained? 3. Create a financial profile: Review financial performance and position for the last five years. Are any trends discernible? Have industry norms been met or exceeded? 4. Strategic position: What is the catchment area? What is the market share? Are any trends discernible? What is the image of the practice? What are the demographics for the market? Is the practice well located? 5. Economic outlook: Consider the local/national economy and the potential impact on the use of physician services, rate increases, collection percentages and other factors affecting practice management and cashflows. 6. Industry trends: Analyze industry trends with respect to regulation, medical practice and technology. 7. Project assumptions: Identify and quantify project assumptions. These will normally include physician encounters, rate increases, collection percentages, expense trends, required capital expenditures, compensation requirements and changes in working capital. 8. Projection of cashflows: Cashflows must be projected over an entire period. The projection period is subjectively determined and based in part on an evaluation of how long cashflows may fluctuate. 9. The risk factor: Future cashflow can never be predicted with certainty. Based upon the foregoing steps, a risk factor or discount rate should be estimated. The discount rate includes a risk free rate, inflation and a risk factor based upon an evaluation of all the information obtained during the valuation process. 10. Value of the practice: The value of the process is an estimate of future benefits discounted to a present value using the risk factor (discount rate) and an adjustment for non-operating assets and liabilities that may be acquired. The conceptual and practical impact of any long long-term debt must be carefully considered. CBS News Marketwatch September, 1997 Balanced Budget Act of 1997: Implementation Changing the Face of Health Care Landscape By Brian O'Connell The Balanced Budget Act (BBA) of 1997 could just have easily been called the Health Care Omnibus Reform Bill, for all the included changes Congress is demanding of the health care industry. Passed August 5, 1997, the BBA slashed the country's deficit by $127 billion through 2002, with more than $115 billion of that number derived from reductions in Medicare spending. The bill aimed to achieve that goal by slowing the growth of Medicare spending from eight and one-half percent annually to six percent annually. Political leaders claimed that the bill provided the near-bankrupt hospital insurance trust fund another six years of solvency. Congressional estimates had indicated that Medicare would go bankrupt by the year 2002. But the law changed a lot more than how Medicare will function. The BBA also changed the way physician's fees are calculated, changed the formula for HMO payments, allowed seniors more health care options, and increased the number of low-income families eligible for health care. The new legislation also permanently excludes from Medicare those physicians and other health care providers convicted of three health-care-related crimes and enables Medicare to refuse to contract with felons and to exclude businesses controlled by a person related to an individual guilty of fraud. And what would a bill from Congress be without a provision aimed at curbing fraud and abuse? The BBA creates a civil monetary policy that triples the $50,000 penalty for violation of the Medicaid and Medicare anti-kickback law. One-year later, health care industry officials support the bill's intended efforts, particularly the provisions aimed at cutting Medicare costs and attacking fraud and waste. "I think some of the changes in the bill will be beneficial, especially the ones that cut costs," said Mary Plattner, director of Zapata, Tex.-based Mercy Home Medical Equipment. "I think there is too much abuse of the system, especially here in Texas. Given all the fraud and abuse in the managed care sector, the bill was needed." Others wonder about the bill's potentially heavy cost to health care organizations' pocketbooks and the timeframe for implementing those changes. "Reductions in payment increases will have an impact on revenue growth and perhaps profitability for health care providers and payer organizations," explained Richard Clarke, president and chief executive officer at the Washington, DC--based Healthcare Financial Management Association. "Further, these reductions are back-loaded; that is, of the more than $115 billion in savings targeted by the BBA, more than $41 billion are scheduled for implementation in 2002." Clarke estimates that a medium-sized, long-term health care facility can expect to lose more than $500,000 annually as a result of the new bill. "Clearly, health care financial managers must be prepared (to deal with the bill)," said Clarke. "They have to estimate the projected revenue reduction their organizations will experience, and then help their organizations devise strategies to reduce expenses or otherwise change operations to compensate for the revenue reductions." Breaking Down the BBA Enactment is one thing and implementation another.  Congress left some loose ends with the BBA, particularly in the deadlines given to the health care industry to adhere to some more of the more stringent provisions in the bill. One year after the bill's enactment, let's check in and see what progress has been made with some of the more prominent provisions of the bill.  Please note: According to Congressional testimony given on July 16, 1998 by HCFA administrator Nancy-Ann Min DeParle, massive Y2K compliance efforts undertaken by government health care agencies will delay the implementation of many BBA provisions until 1999 or later. The accompanying chart identifies those provisions and includes their original implementation dates: BBA Mandates Likely to be Delayed Until After 2000 Due to Y2K Problem Balanced Budget Act Item Original Implementation Date Outpatient prospective pay system (PPS) 1/1/99 Home health agency (HHA) PPS 10/1/99 Skilled nursing facility (SNF) Consolidating billing for Part B residents 7/1/98 Incentive payments for voluntary Residency reductions 11/1/99 Calendar year and fiscal year 2000 payment updates for physicians and hospitals 10/1/99 and 1/1/2000 Surety bonds for other part B providers various dates New enrollment forms and verification of Social Security numbers of new providers Ongoing New fee schedule for ambulance services 1/1/2000 BBA Mandates on Schedule for Implementation Balanced Budget Act Item Anticipated Implementation Date Defining of 10 discharges to post-acute Care as transfers 10/1/98 Coverage for teleconsultations 1/1/99 Establishment of the Medicare+ Choice Program 7/27/98 Competitive bidding demonstration for durable medical equipment (DME) Spring, 1999 Coverage for new diabetes, osteoporosis, and other preventative benefits Summer, 1999 Calendar and fiscal year 1999 payment updates for  physicians and hospitals 10/1/98 and 1/1/99 Skilled nursing facility PPS and consolidated billing for Part A 7/1/98 Practice expense relative value units (RVU's) 1/1/99 New fee schedule for outpatient rehabilitation 1/1/99 Reductions in Medicaid and Medicare Aid Payments: At $115 billion (Medicare) and $10 billion (Medicaid), the health care cuts imposed by the BBA are the strongest ever. Who's going to suffer because of these cuts? The largest reductions will be felt by hospitals, who'll lose $40 billion payments, according to the HFMA's Clark, followed by home health care agencies ($16 billion in lost payments); managed care plans ($22 billion); skilled nursing facilities ($9.5 billion); and physicians ($5.3 billion).  According to Clark, Medicaid payment growth reductions stem from reductions in disproportionate share payments and by the repeal of the Boren amendment, which required that Medicaid payments be to providers be based on reasonable and adequate rates. "Providers of care, especially long-term care organizations, in the past have successfully used the Boren amendment to battle states for reasonable payment rates," added Clarke. "Both the payment reductions and the repeal of the amendment will have a detrimental impact on providers that depend on Medicaid payments. While hospitals and managed care plans get hammered, reductions in physicians' fees will be incremental, and not altogether too prohibitive. According to the Congressional Budget Office (CBO), physicians will suffer no payment loss in 1998. They'll lose about $700 million in 1999 and 2002 will reduce fees reduced by $5.3 billion. Under a new conversion rate system (called "sustainable growth" rates by the CBO, physicians will also be rewarded if their total Medicare expenditures increase by a smaller percentage than Gross Domestic Product (GDP) does and penalized if their costs outpace GDP. Under the new conversion rate system, fees for primary care services will rise about 3.8% and rise 9.8% for other non-surgical procedures. Fees for surgical procedures will decline by 9.3%. Under the complicated new conversion formula, some health care professionals will be forced to swallow some bitter medicine, while others will walk hospital hallways with a newfound spring in their step. According to the AMA, cardiac surgeons can anticipate a 10% decline in their payments in 1999 while radiologists can expect to see a 9.6% increase in their paychecks. Lastly, The House of Representatives, under heavy lobbying by health care groups, dropped $10 billion in new Medicaid reductions last June. Another $5 billion In Medicaid reductions still lie on the table as Congress haggles over the 1999 budget. No action had been taken on the remaining amount by mid-October. Medicare+Choice: In an effort to move away from the fee-for-service Medicare structure and toward managed care Medicare in the coming years, Congress has widened the menu of health care options for seniors by eliminating restrictions on some Medicare plan options.  Hence the launch of Medicare+Choice, a big upgrade of Medicare's managed care efforts. Through Medicare+Choice, closed-paneled HMO's, point-of-service HMO's, preferred provider organizations, provider-sponsored organizations , private fee-for-service insurance, and plans that couple medical savings accounts with high-deductible insurance will increase Medicare participants health care options. Medicare+Choice was created last fall as part of the Balanced Budget Act of 1997 and is designed to control the costs of the Medicare program. Under Medicare+Choice, seniors may voluntarily move to a variety of  health-insurance plans in addition to the Medicare HMOs now available. Currently, under Medicare, most physicians and hospitals are reimbursed  directly by the government. The doctors get a pre-set fee for each  medical procedure. With the Medicare HMOs, five of which are offered in Colorado Springs,  the government pays premiums to health-insurance companies to provide  all the care a patient needs. goal is to expand Medicare managed care programs and widen health care choices for senior citizens, which are notorious in their disdain for switching doctors and managed care programs in general. According to the CBO, Medicare beneficiaries in managed care programs would have only grown from 12% in 1998 to 23% in 2002. With a full-scale marketing onslaught geared toward retirees by managed care companies, the CBO thinks that seniors using Medicare+Choice managed care programs will boost those numbers to 27% by 2002. Cumulative savings from managed care programs for Medicare if that scenario comes to pass? $22 billion. But the HCFA's DeParle maintains that Medicare+Choice may not be "doable". Citing "disquieting comments" from organization members about the program's viability, DeParle says M+C may never get off the ground at all, especially with less experienced health care organizations. "Offering a Medicare+Choice plan may simply not be doable, especially  for start-up organizations. Program requirements have expanded significantly, especially from an information systems perspective (e.g., encounter-level data reporting and quality improvement initiatives). At the same time, plan payments are undergoing major methodological changes that may not yield rates sufficient to comply with HCFA's requirements and permit plans to offer a benefit package that would attract Medicare  beneficiaries.  DeParle also cites the risk of launching a potentially failed health plan and lack of certainty over how payments will be made and how much those payments will be as additional barriers for M+C to overcome.  Medical Savings Accounts: In a move to possibly pre-empt the Medicare funding crisis, Congress created a health care/retirement plan hybrid called a Medical Savings Account (MSA) in the 1997 Balanced Budget Act. With MSA's people use their own money - supplemented by employers in many cases - to pay medical bills. The thinking was that people would be very selective about pricey health care treatments if they had to the bills by themselves. Unfortunately, MSA's have slunk onto the national stage with a whimper. One of the largest proponents of MSA's, the Golden Rule Insurance Company of Lawrenceville, NY, has only sold about 34,000 of the accounts. About 150,000 of the accounts have been opened nationwide, a trifling figure compared to the estimated 700,000 that Congressional advocates thought would be opened by year-end 1998.  Congress is considering opening the eligibility requirements beyond the current range of self-employed Americans or select, small-company employees to a wider range of Americans. Even then, health care companies aren't sure the idea will work. Some say the added investments in computer systems, marketing efforts, back office functions, and customer service aren't worth the payoff. "With Medical Savings Accounts, Congress required that provider-sponsored organizations would have to become insurance companies," said Mark Skubic, a vice president of Health System Minnesota, a nonprofit health care network. "But that is not in our interest." Home Health Care Budget Reductions: Congress is scrambling to revamp this controversial proposal from BBA '97.  Through the "Interim Payment System" provision, Congress rolled back home health care prices back to 1994 levels and created stopgaps to curtail rampant fraud and abuse in the loosely regulated industry. The payment system, says Carolyn Markey, president of the Boston-based Visiting Nurses Association of America, rewards unscrupulous home care providers and punishes effective, inefficient ones.  "As a result of the interim payment system enacted by Congress, VNA's and the patients we care for are in jeopardy," said Markey. "The payment system used a simplistic "one size fits all" method to cut Medicare reimbursement for home health care and added a provision that, ironically, rewards high-cost, high-utilization companies and penalizes organizations such as VNAs that are already providing services at the lowest possible costs. On average, VNAs will be reimbursed significantly less than their actual costs to provide care." If VNAs and other cost-efficient agencies cut back on services, stop taking on new patients or eventually have to close down, the real victims will be patients and their families, who need and rely on our care," she added. "If they can't get needed care at home, they may be forced into hospitals or long-term care facilities -- a situation that is neither cost-effective nor desired by patients." By September 1998, a dozen bills were filed in Congress to modify or delay the interim payment system. Since 1990, the number of home health agencies catering to Medicare patients has grown from 5,000 to 10,500. The number of Medicare beneficiaries receiving home based health care grew from two million to four million over the same period. Changing the Game Plan Ironically, the health care portion of the Balanced Budget Act of 1997 was crafted to save money and fight fraud and abuse.  But with complex new payment formulas, unintended consequences of changing popular programs like home health care, and delays in the HFCA's ability to implement the 133 directives Congress ordered through BBA '97, the jury is still out on the impact of many of the bill's provisions. One thing is for sure -- with all the hoopla raised over the 1997 BBA provisions, Congress is in no rush to tinker with the nation's health care framework anytime soon.