Congress is in the midst of trying to pass another Medicare “giveback” bill. Physicians, hospitals, nursing homes, and home health-care providers are spending tens of millions of dollars lobbying Congress to get more money from the system.

Giveback bills have become a regular occurrence since the Balanced Budget Act of 1997 imposed strict new price-control formulas across the Medicare program. Laws were passed in both 1999 and 2000 that restored funds, often temporarily, to certain areas of Medicare hit hard by the 1997 law.

As it now stands, the Medicare fee schedule for physicians will be cut by four percent in 2003. This would follow a 5.4 percent decrease in 2002 that sparked many doctors to stop accepting new Medicare patients. But doctors are not the only ones facing cuts.

On October 1, home health-care providers received a 4.9 percent decrease and payments to nursing homes were cut by 10 percent. Like the physicians, many of these caregivers say they will stop providing necessary services unless the cuts are reversed.

Prices for many outpatient hospital services are scheduled for large cuts on January 1. The New York Times reports that hospitals will receive $12,102 from Medicare next year for insertion of a battery-operated pacemaker and defibrillator, down from $29,360 in 2002. The payment for implanting an infusion pump will be cut to $1,346 from $4,079. And a typical infusion of blood-clotting factor for hemophiliacs will be cut to $1,300 from $2,800.

Then there’s the issue of geographic variations in Medicare payments. The national average for Medicare reimbursement is $5,490 per beneficiary. But the payments vary wildly by state – from an average of $3,053 in Iowa to $7,336 in Louisiana. Iowa politicians are leading a crusade to level the payments so that low-payment states, like Iowa, will receive more money from Medicare.

And in what has become an annual event, nine more HMOs are withdrawing from the Medicare+Choice program and an additional 24 plans are reducing their coverage areas, effective January 1. Each year under current law, these plans get a two percent increase in premiums, but with health-care costs increasing at double-digit rates, the plans have had to either substantially reduce benefits or stop providing coverage. The premiums also vary by geographic region; so many rural areas don’t have any private alternatives to the government-run program.

Nearly 200,000 beneficiaries are being dropped by their plan and must find another Medicare HMO or go back to the government-run fee-for-service program. Medicare officials estimate that 29,000 of these beneficiaries are in areas where no other private plan exists. They have no choice but to enroll in fee-for-service Medicare where they will have no prescription drug coverage.

One might contend that at least Medicare’s price controls are saving taxpayers money, but they don’t – for a number of reasons. First, in some cases Medicare is paying too much.

A June report by the inspector general of the Department of Health and Human Services examined the prices paid for 16 common medical supplies and equipment items. For 15 of the 16 items, the median price paid by fee-for-service plans in the Federal Employees Health Benefits Program (FEHBP) was less than the median price paid by Medicare. Medicare would have saved $118 million in 2000 if it had paid what the FEHBP plans paid for the 16 items. Assuming those items are representative of all medical supplies and equipment, Medicare could have saved $464 million in 2000 by paying the FEHBP prices. Since seniors directly pay 20 percent co-insurance out of their own pockets, they would have saved $93 million.

Second, and more important, Medicare’s price controls promote cost shifting. Because many physicians, hospitals and other providers lose money on Medicare patients, they make up for it by charging higher prices to the non-Medicare population. Taxpayers pay for Medicare through higher health-insurance premiums. And although it is not the major reason that 41 million Americans are uninsured, Medicare cost shifting contributes to the inability of many people to purchase affordable coverage.

Finally, the price controls promote waste by allowing Medicare to continue using a one-size-fits-all, “social insurance” benefit design. Beneficiaries receive front-loaded benefits that generously cover many routine medical expenses. But the benefits run out, leaving beneficiaries without coverage for catastrophic illness. And Medicare provides no coverage for outpatient prescription drugs. Adding these benefits without reforming the current program would consume trillions of additional tax dollars over time.

The public needs to understand the reality of Medicare and why a prescription drug benefit cannot simply be added to the current program. Price controls are leading health-care professionals to abandon elderly patients. These problems result from bureaucrats attempting to micro-manage benefits and payments. For everyone’s sake, not least the elderly, federal legislators need to move beyond playing with price controls and institute fundamental reforms.

Chris Middleton is the Senior Health and Tax Policy Analyst for the Center For Entrepeneurship of the Pacific Research Institute in San Francisco. He can be reached via email at cmiddleton@pacificresearch.org.