Overruns Forcing Lower Payments to Some Providers in Stopgap Health Program

WASHINGTON — The Obama administration said Monday that it was cutting payments to doctors and hospitals after finding that cost overruns are threatening to use up the money available in a health insurance program for people with cancer, heart disease and other serious illnesses.

The administration had predicted that up to 400,000 people would enroll in the program, created by the 2010 health care law. In fact, about 135,000 have enrolled, but the cost of their claims has far exceeded White House estimates, exhausting most of the $5 billion provided by Congress.

Under a new policy issued by Kathleen Sebelius, the secretary of health and human services, “health care facilities and providers will get paid less” for providing the same services to patients in the federal program, known as the Pre-Existing Condition Insurance Plan.

In most cases, payments to health care providers will be capped at Medicare rates, which are substantially less than the commercial insurance rates they have been receiving. The new policy generally prohibits doctors and hospitals from increasing charges to consumers to make up the difference.

Michael T. Keough, the executive director of the North Carolina Health Insurance Risk Pool, said the new policy was one of several steps taken recently by federal officials to control spending.

“They are trying to stanch the hemorrhaging,” Mr. Keough said.

The federal government notified some states last month that it was setting a ceiling on costs that would be reimbursed from June through December of this year. In effect, state officials said, the new limits shift the financial risk of the program from the federal government to those states.

Congress established the program to provide coverage to people with pre-existing conditions who had been uninsured for at least six months, and Ms. Sebelius has said, “It literally saves lives.”

The program provides a transition to 2014, when most consumers will be able to obtain insurance regardless of their pre-existing conditions.

Federal officials froze enrollment in the program in February, but costs continued to grow rapidly.

Linda E. Fishman, a senior vice president of the American Hospital Association, said: “We support people getting access to health insurance, especially those who are extraordinarily ill. But we have concerns about the secretary of health and human services mandating Medicare rates for most services.”

Administration officials said that doctors and other health care providers did not have to accept the lower payment rates and could decide that they would no longer treat patients in the Pre-Existing Condition Insurance Plan. But the administration said, “We believe and are hopeful that most facilities and providers will accept the new payment rates.”

Federal health officials said the alternatives were worse. If the program runs out of money, they said, some sick people will lose access to health care, and others will be unable to pay for the treatments they receive, forcing doctors and hospitals to write off large amounts of “uncompensated care.”

Kevin Simpson, the federal official who supervises the program, declined to comment on the changes. Richard A. Olague, a spokesman for the Centers for Medicare and Medicaid Services, said, “These actions will help ensure the program’s smooth transition to 2014, when the new market reforms will be implemented and insurance companies will no longer be able to deny coverage because of pre-existing conditions.”

In a regulation to be published Wednesday in the Federal Register, the administration says that doctors and hospitals must accept the amounts set by the government as “payment in full” for services in the high-risk pool administered by the federal government. Providers can still collect co-payments from patients, but cannot bill them for more than the “cost-sharing amounts” allowed by the government.

The administration said the restrictions were necessary to prevent “irreparable financial harm” to patients, who might otherwise be “forced to pay substantially higher out-of-pocket costs.”

The government will not set payment rates for prescription drugs, organ transplants or kidney dialysis. Officials did not say why those items and services had been exempted.

When the federal program for people with pre-existing conditions ends on Jan. 1, 2014, many of them are expected to go into private health plans offered through new insurance markets being established in every state. Federal and state officials worry that an influx of people with serious illnesses could destabilize these markets, leading to higher premiums for other subscribers.

For this reason, federal and state officials say, they will try to recruit large numbers of healthy young people to buy insurance. Their premiums would help pay for the care of less healthy people.

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