TABLE OF CONTENTS
Paqe
What is the Gramm-Rudman-Hollings
1.
Question:
2.
Question: What are the deficit targets under
the Gramm-Rudman-Hollings Act?.......................2
3.
Question: How will the deficit reduction
process operate?.....................................2
4.
Question: What are the special provisions for
operation of budget cuts for the current
fiscal year?.........................................6
5.
Question: From what parts of the budget will the
mandatory reductions be made?........................8
6.
Question: Are any programs or other budget items
exempt from mandatory cuts under the GrammRudman-Hollings Act?.................................9
7.
Question: Do any other programs receive protection
in the determination of mandatory cuts under the
Gramm-Rudman-Hollings Act?..........................10
8.
Question: What specific effect will the GrammRudman-Hollings Act have on the Medicare program?...11
9.
Act?............................................... ..1
a.
How will the reductions in the Medicare
program be achieved?...........................11
b.
How will the timetable for the mandatory
cuts in Medicare under the Act be synchronized with a provider's cost reporting year?....13
c.
How will the cuts in the Medicare program
affect HMOs?...................................14
Question: Can any program, project, or activity of
the Federal Government be eliminated under a
Presidential Sequestration Order?...................14
10.
11.
12.
13.
defense
Question: Does the treatment affordeddomthe
estic
budget differ from that afforded
....15
programs?.......................................
«
ch address
Question: Are there any provisions whi
....17
the contingency of changed economic conditions?.
ary to meet
Question: Will tax increases be necess
llings
the deficit targets of the Gramm-Rudman-Ho
....18
Act?............................................
the GrammQuestion: Did Congress, in enacting jud
icial challenge
Rudman-Hollings Act, anticipate
...18
of the Act's provisions?.........................
for
Does the Act provide any mechanism ...
a.
.........18
judicial review of its provisions?.
b.
c.
d.
e.
In the event that a portion of the Actof isthe
declared invalid, will the remainder ..........23
Act still be valid?..................
in addition
Question: Has Congress taken any action
would affect
to the Gramm-Rudman-Hollings Act that...
.............23
Medicare payments to hospitals?.....
on reacted to
Question: How has the administrati
portion
the conferees 1 agreement on the Medicare
.....26
of the Budget Reconciliation Bill?.............
onciliation Bill,
Question: How would the Budget Recre
payments; or
if passed; the freeze on Medica
be
any other enactment concerning PPS rates
.....27
affected by the Gramm-Rudman-Hollings Act?.....
f.
14.
15.
16.
nging
Have any lawsuits been filed challe...
.........19
the constitutionality of the Act?..
ues an
What will happen if the President iss
1
order that fails to comply with the Act?.......2
0MBWhat will happen if an aspect of the ine
d
CBO-GAO reporting procedure is determ......
.....22
to be unconstitutional?.............
and
Are the economic data, assumptions, put
ing
methodologies used by the GAO in com def
icit
the base levels or "snapshot" of the......
......22
subject to judicial review?........
QUESTIONS AND ANSWERS CONCERNING THE
BALANCED BUDGET AND EMERGENCY DEFICIT
CONTROL ACT OF 1985 (GRAHAM-RUDMANHOLLINGS)
1.
QUESTION;
What is the Gramm-Rudraan-Hollings Act?
Gramm-Rudman-Hollings, more commonly referred to as
npffgit-.
Gramm-Rudman, is The Balanced Budget and Emergency
This
Control Act of 1985 (the "Act" or the "Gramm-Rudman Act").
ANSWER;
raising
balanced budget measure is an amendment to legislation
signed
the national debt ceiling to more than $2 trillion. As
Act
into law by President Reagan on December 12, 1985, the
federal
establishes mandatory, declining targets for the
nced
budget deficit over the next five years and requires a bala
The
.
budget for the fiscal year that begins October 1, 1990
ation
most important feature of this legislation is the cre
ntial
of a mechanism, called sequestration, by which a Preside
essary
Order will automatically institute the budget cuts nec
that it
to achieve the prescribed deficit targets in the event
wing
is determined that the likely budget deficit for the follo
e than
fiscal year will exceed the mandatory target by mor
target
$10 billion and Congress fails to reach the deficit
, tax
by enacting its own, alternative program of budget cuts
increases or a combination of both.
- 2 -
2.
QUESTION;
What are the deficit targets under the Gramm-
Rudraan-Hoilings Act?
ANSWER;
In fiscal year 1986, which began on October 1, 1985
and will end on September 30, 1986, the deficit should be
reduced to $171.9 billion (the same deficit level contained
in the First Congressional Budget Resolution for fiscal year
1986).
For the subsequent fiscal years the reductions should
be as follows:
in fiscal year 1987, to $144 billion; in fiscal
year 1988, to $108 billion; in fiscal year 1989, to $72 billion;
in fiscal year 1990, to $36 billion; and, by fiscal year 1991,
the budget should be balanced.
In all years except 1986 and
1991, when no leeway is allowed, the deficit may exceed the
target by up to $10 billion without triggering mandatory budget
cuts.
However, once triggered, these cuts must be sufficient to
bring the deficit within the target for that year.
3.
QUESTION;
ANSWER;
How will the deficit reduction process operate?
The deficit reduction process will operate differently
in fiscal year 1986 than in the following years.
This answer
describes the process as it relates to fiscal years 1987
through 1991.
For an explanation of the process in 1986,
see question and answer number 4 below.
On August 15 of 1986, and each year thereafter, a
"snapshot" of the deficit will be taken, constituting the
budget "base level" of federal revenues and outlays which
will determine the size of the deficit excess and, thereby
the amount by which spending must be reduced under the Act.
- 3 -
of
The budget base is intended to reflect the true status
the budget as of a date that is close to the date a presidential
ed
spending reduction order will be issued, and is calculat
ce
pursuant to a specified formula. On August 20, the Offi
et
of Management and Budget ("0MB") and the Congressional Budg
ce
Office ("CBO") will submit to the General Accounting Offi
("GAO") separate estimates of the likely budget for the next
fiscal year that begins on October 1. If, based on the findings
of 0MB and CBO, the Comptroller General of the GAO certifies for
ed
fiscal years 1987 through 1990 that the deficit will exce
the mandatory target by more than $10 billion that year, the GAO
will draft a plan, to be issued by the President on August 25,
al
for across-the-board budget cuts to meet the target. In fisc
year 1991 the existence of any deficit excess will require that
the GAO draft such a plan for cuts to meet the target. The Act
provides detailed specifications concerning how 0MB and CBO are
to
to make these determinations. 0MB and CBO are also required
estimate the real growth rate for the fiscal year, for each
quarter in it, and for the two preceding quarters.
To the extent that 0MB and CBO are unable to agree
on any items in their reports, they are directed to average
of
their findings so as to report a single, consistent set
findings, along with each office's own findings, to the Comp
The Comptroller General will then
iin turn issue a report to the President, upon which the Pres
.
dent will base the sequester order in the event one is required
troller General of the GAO.
- 4 -
If the GAO report concludes that the budget deficit
exceeds the fiscal year's target by $10 billion (or in 1990,
if the budget exceeds the target at all), on September 1, the
President will issue an initial order imposing mandatory cuts,
effective October 1. The Presidential Order is required to
adhere strictly to the reduction stated in the GAO report.
Although the Order will not become final and effective until
October 15, amounts sequestered pursuant to the initial order
will be withheld from obligation pending the issuance of the
final order, and such amounts will be permanently cancelled
upon the issuance of the final order.
At the time the President transmits the initial
order to both Houses of Congress, the President will also
transmit a message explaining his actions, and may include a
proposal setting forth in full detail alternative ways to
reduce the deficit to an amount no greater than the maximum
deficit amount for that fiscal year.
During the month of
September, Congress may respond to the sequestration order
to reach the deficit target by enacting its own alternative
program of budget cuts, tax increases or a combination of
Accordingly, in the Senate, a procedure is established
both.
to allow the Senate Budget Committee to affirm, in whole or
in part, the sequestration order and to provide for a congressional response using a reconciliation-type process involving
both instructions to committees and the actual legislative
language fulfilling the instruction.
- 5 -
Specifically, on October 5, 0MB and CBO will issue
a revised report, updating the budget base to reflect final
congressional action by taking
and
into account laws enacted
regulations promulgated after the
submitted.
initial
report was
In the revised report, 0MB and CBO may alter
their assumptions in only one regard:
whereas their first
report is to assume that federal pay cannot be reduced below
the levels in effect at the time of the determination, the
revised report is not to make this assumption.
Thus, CBO
and 0MB will take the final "snapshot" of the deficit as
close to October 5 as possible, and on October 10, the Comptroller General of the GAO will issue a revised report to the
Within two days of this final report, senate comPresident.
mittees may submit views and estimates on an alternative congressional plan to the Senate Budget Committee.
On October 15, the President's final order setting
forth the scheme of mandatory cuts based on the revised GAO
report will be issued. Within ten days of a final order by
the President, the Senate Budget Committee may report a resolution to the Senate where it is to be considered under a ten-hour
time limit.
The resolution may affirm the Presidential Order
in whole or in part.
To the extent that the order is not
affirmed, the resolution shall contain reconciliation instructions to Senate committees to achieve at least the amount of
deficit reduction attributable to the respective committees by
- 6 -
Within ten days after reconciliation instructions
jurisdiction.
are issued,
committees must submit their responses to the
Senate Budget Committee.
Such responses must conform to the
reconciliation instructions and meet the deficit amount that the
committee was instructed to achieve.
The Budget Committee is to
compile committee responses into a bill to be voted on by the
Senate.
hours.
Floor debate on the bill would be limited to twenty
Finally, on November 15, a GAO Compliance Report will be
issued.
4.
QUESTION;
What are the special provisions for operation
of budget cuts for the current fiscal year?
ANSWER;
Because fiscal year 1986 is already underway, it is
treated separately under the Act.
The estimated deficit for
fiscal year 1986 is about $200 billion, but the deficit target
set by Congress is $171.9 billion, with no $10 billion leeway
However, for fiscal year 1986, the maximum amount
allowed.
that can be sequestered is seven-twelfths of $20 billion,
or $11.7 billion.
In other words, should the GAO project an
actual fiscal year 1986 deficit which is higher than $171.9
billion, the fiscal year 1986 sequester will be limited to a
maximum of $20 billion at an annual rate.
Because the 1986
fiscal year is already underway and reductions will not occur
until March 1,
five months into the fiscal year, the $20
billion maximum deficit reduction for fiscal year 1986 must
be prorated proportionaly, so that seven-twelfths of the annual
- 7 -
$20 billion is the maximum amount of cuts possible.
will take final effect as of March 1, 1986.
These cuts
Consequently, only
a maximum $11.7 billion cut will be imposed this year, regardless of whether such cut is sufficient to meet the 1986 fiscal
year deficit target.
The
accelerated
timetable
specifically
established
for the remainder of fiscal year 1986 requires that the "snapshot" of the deficit (or budget base) for fiscal year 1986 be
taken on January 10, 1986, and that on January 15, 0MB and CBO
will report to the GAO on their separate estimates of the likely
budget for the entire 1986 fiscal year that began on October 1,
1985.
On January 20, the GAO will issue its report, based on
the findings of CBO and 0MB, to the President, in which it will
certify the amount by which the expected deficit has been
calculated to exceed the mandatory target of $171.9 billion.
Only one GAO report, based on one set of CBO and 0MB findings
will be issued in fiscal year 1986, unlike later fiscal years
in which the CBO and 0MB will have the opportunity to make
revised findings and in which the GAO will have the opportunity
to issue a revised report, based on these revised findings,
from which the President will make his final order.
On January
21, Congress will convene and on February 1, the President
will issue an order based on the GAO report.
On February 5,
the President will submit his fiscal year 1987 budget.
On
March 1, the Presidential Order will take effect, and on April 1
a GAO Compliance Report will be issued.
The same procedures
- 8 -
concerning Senate action on a Senate Budget Committee bill apply
If the Senate takes
to the 1986 year as in future years.
action, it must be initiated by a Senate Budget Committee
resolution that must be issued within ten days of the Presidential Order.
Finally, with regard to the 1986 fiscal year timetable, any cost of living allowance ("COLA") scheduled to
take effect on January 1 will be deferred beginning January
If it is later determined that a sequestration
order will not take effect, the COLAs will be restored retroThe Presidential Order imposing the
active to January 1.
cuts will be issued on February 1, and will become effective on
1,
1986.
The President has some discretion in determining
where defense cuts are made in 1986, and Medicare reductions
through sequestration are limited to one percent (1%), as
March 1.
opposed to a two percent (2%) ceiling imposed in later years.
Most other major procedural provisions of the Act are the same
for fiscal year 1986 and later years.
5.
QUESTION;
From what parts of the budget will the mandatory
reductions be made?
Mandatory cuts in the budget will be made if target
amounts for deficit reduction are not met through congressional
action. The total mandatory cuts imposed in any year pursuant
ANSWER;
to the deficit reduction specified in the GAO report must
derive fifty percent (50%) from the defense budget and fifty
percent (50%) from domestic programs.
The non-defense category
- 9 -
from which reductions would be made consists of the automatic
spending increase programs, all non-defense controllable expenditures and half of the Federal retirement cost of living
adjustments ("COLAs").
The defense category would consist of
all amounts allocated to a particular defense budget function,
and the remaining half of the Federal retirement COLAs.
The Presidential
Order must strictly adhere to the
determinations set forth in the GAO report and must be consistent with that report.
For discretionary programs, new
budget authority would be reduced on a proportional basis to
achieve the required outlay reductions.
Further, with regard
to domestic program cuts, programs with provisions for COLAs,
such as pensions,
could be cut by no more than the total
COLA in any one year.
All other domestic programs, unless
otherwise exempt or otherwise protected, would be subject to
an equal,
across-the-board cut sufficient to produce savings
equal to fifty percent (50%) of the total budget reduction
needed to reach that fiscal year's deficit target.
It has been
estimated that a little over one-half of the budget is exempt
from cuts.
6.
QUESTION;
Are any programs or other budget items exempt
from mandatory cuts under the Gramm-Rudman-Hollings Act?
ANSWER;
Social
Security;
Medicaid;
Aid to Families with
Dependent Children; Women's, Infants' and Children's Nutrition
- 10 Program;
Supplemental Security Income;
Food Stamps; Child
Nutrition; Veterans 1 Compensation; Veterans 1 Pensions; and
interest on the national debt are exempt from all mandatory
cuts.
7.
QUESTION;
Do any other programs receive protection in the
determination of mandatory cuts under the Gramm-Rudman-Hollings Act?
ANSWER;
Medicare, Veterans 1 Health, Community and Migrant
Worker Health, and Indian Health programs are provided some
protection from otherwise potentially deeper mandatory cuts.
These health-care programs can be reduced by no more than
one percent (1%) in fiscal year 1986 and by no more than two
percent (2%) in later years, regardless of the size of the total
cut needed to reach the deficit target.
These health-care
program reductions are to be calculated after including any
scheduled increases, and if no increases are scheduled, reductions will result in funding below the then current level.
In addition, special rules will apply for Foster
Care
and
Adoption
Assistance,
Unemployment
Compensation,
Child Support Enforcement, Guaranteed Student Loans, and the
Commodity Credit Corporation.
number of technical exemptions.
The Act also provides for a
- 11 8.
QUESTION;
What specific effect will the Gramm-Rudman-Hol-
lings Act have on the Medicare program?
(a)
How will the reductions in the Medicare program
be achieved?
ANSWER;
The reductions in the Medicare program will be imposed
equally on Part A and on Part B payments.
Sources at the
Department of Health and Human Services ("DHHS") maintain that
the Part A reductions will be accomplished through cuts in the
hospital payment rate portion of the prospective payment system
formula, without affecting the diagnostic related group ("DRG")
weights which are calculated as part of the formula.
These
reductions will likely be imposed on the total federal, regional, or hospital-specific amount calculated as part of the
prospective payment formula which will then be multiplied by the
unchanged DRG weights.
Such calculation will result in an
across-the-board one or two percent (1 or 2%) cut in the amount
^jji paid to each hospital for each DRG discharge.
Part B reductions
will occur through changes to allowable reasonable cost amounts.
^
The precise method for accomplishing the Medicare budget reductions will either be set forth in the Presidential Order, or, if
the Order is not sufficiently detailed, by the Department of
Health and Human Services in a Federal Register notice.
The reductions in the Medicare program will be
achieved through reductions in payment amounts for covered
services.
No changes in co-insurance or deductible obligations
payable by Medicare beneficiaries will be made, and covered
services will be unaffected under a sequestration order.
Thus,
OO
.20 ft '?*, f O
with respect to physicians 1
services furnished by a partici-
pating physician, or for which an assignment is agreed to y the
beneficiary will continue to be liable only for twenty percent
(20%)^ of the Medicare "reasonable charge" (plus any applicable
deductible) , even though the amount paid to the physician is
reduced by one or two percent (1 or 2%).
There will be no
change in the fixed deductible and co-insurance amounts that
hospitals and skilled nursing facilities are permitted to charge
beneficiaries, even though the Medicare payments to these
providers will be reduced.
Under a sequestration order, each payment amount
made under the Medicare program will be reduced by up to a
specified percentage, which would be one percent (1%) for fiscal
year 1986 and two percent (2%) for each subsequent year in which
there is sequestration.
(The reduction percentages will be
proportionally reduced in any year in which the excess deficit
is small enough to permit a smaller reduction.)
In any year for which there is sequestration, the
cuts will be made from whatever level of payment would otherwise
be provided under Medicare law and regulations.
For example, if
hospital prospective payments were scheduled to increase by four
percent (4%), then a two percent (2%) reduction (that is,
payment of ninety-eight percent (98%) of the normal payment
amount) would permit some increase to remain.
On the other
hand, if no hospital prospective payment increases were scheduled pursuant to Medicare law, then the sequestration would
reduce payments below the previous year's rates.
- 13 -
Where Medicare payment
is based
on discrete events
or services, such as hospital discharges or physician services
rendered, the reduction factor will apply to those events or
Where payment to providers is based on costs incurred
over a period of time for an aggregation of services, the
reduction will technically be calculated for the provider's
units.
cost reporting period.
However, interim payments made through-
out the cost reporting period will be appropriately adjusted.
(b)
Medicare
How will the timetable for the mandatory cuts in
under the Act be synchronized with a provider's
cost reporting year?
ANSWER;
date:
The mandatory cuts will take effect as of a specific
March 1, 1986 for fiscal year 1986 and October 1 for each
fiscal year thereafter.
Where this date is not the beginning of
a provider's cost reporting year, the requisite reduction will
be prorated evenly over the months of the two cost reporting
years to which it is applicable.
For example, if a two percent
reduction were applicable to nine months of one cost
reporting period and three months of another period, a two
(2%)
percent (2%) reduction will be applied to nine-twelfths of the
provider's otherwise payable costs for the first cost reporting
period and three-twelfths for the second cost reporting period.
Final determinations regarding sequestration may
be made after the date sequestration is to begin.
the
final determination is not required
until
regarding a sequestration that begins October 1.
For example,
October 15
If payments
- 14 -
made before the final determination differ from those allowed
under the final order, the Department of Health and Human
Services should recover the overpayment or restore the underpayments.
(c)
How will the cuts in the Medicare program affect
ANSWER;
Medicare law regulates payment amounts for health
.
HNOs?
maintenance organizations
("HMDs")
through an estimate of
what Medicare payments for all Medicare-covered services will be
in the HMO^s_sje~r~v-^ae- ar-ea i^^tixe^HjlO^s forthcoming contract
period.
In making that estimate, Medicare payments previously
made in that service area are taken into account.
Because HMO
payments will be directly reduced under a sequestration order,
it would be inappropriate to build into the estimating process
that regulates determinations of HMO payments the Medicare
payment reductions in the HMO's service area that are the result
o f^_ se q ue s tr a, t ion reductions that have been or will be made.
To
do so would lead to reductions in HMO payments in excess of the
reductions intended under sequestration.
Accordingly, the
effects of past or future sequestration reductions should be
ignored in calculating normal HMO payment amounts; these normal
payment amounts should then be reduced by the appropriate
sequestration percentages.
9-
QUESTION;
Can any program, project or activity of the
Federal Government be eliminated under a Presidential Sequestration Order?
- 15 -
en by the
No action under sequestration can be tak
minating any program,
President which will have the effect of eli
Morel Government.
project or activity ("PPA") of the Federa
no new authority to
over, the Act provides the President with
eral budget that are
alter the relative priorities in the Fed
becomes eligible for
established by law, and no person who is or
denied eligibility
benefits under any provision of law may be
ANSWER;
because of any order issued under the Act.
cuts will
In formulating the sequestration order,
the most recently
be made at the PPA level as set forth in
ompanying committee
enacted applicable appropriation acts and acc
joint resolutions
reports for the PPA involved, including
committee reports
providing continuing appropriations and
tions. For programs
accompanying acts referred to in such resolu
sequestration will be
the
el,
lev
PPA
the
at
d
ine
def
not
are
t
tha
applied at the account level.
is included
For fiscal year 1986, a special provision
Appropriations to
on
s
tee
mit
Com
the
ows
all
ch
whi
Act
the
in
ir respective Houses.
define "PPA" and to issue a report to the
have to be in accordl
wil
er
Ord
n
tio
tra
ues
Seq
ial
ent
sid
Pre
The
ance with such a definition.
get
Does the treatment afforded the defense bud
differ from that afforded domestic programs?
d in any
While the total of mandatory cuts impose
ANSWER;
with those imposed
year on the defense budget must be on parity
10.
QUESTION;
- 16 -
on domestic programs, the President is granted limited flexibility in 1986 only in imposing the fifty percent (50%) across-theIn fiscal year 1986, any
board cut on the defense budget.
adjustments can occur only within a particular account, except
that, at the President's option, budget accounts, or categories,
that set the size and pay of the uniformed militaryservices can
be partially or fully exempted from mandatory cuts.
However, if
the President invokes this exemption, additional cuts will have
to be made elsewhere from non-exempt personnel and non-personnel
budgetary resources in the defense budget to produce the same
The President must make his decision
amount of total savings.
on exemption of military personnel accounts on or before January
10, 1986.
Further, in fiscal year 1986, the President is provided with greater flexibility than in future years with regard
to reducing the defense budget, as compared to domestic programs.
In 1986, the President may cut non-perar>nngi_
items by as much as/twice It he mandated amount in order to reduce
the cut imposed on other items in the same budget category.
W
__
_______
•-----•-...._
.1
mi
"'
•
-
-
—
———•-——•— — --n in..,
———————
Those other items in the same account may be reduced to a lesser
degree or remain at their pre-sequestration appropriated level,
but may not be increased beyond that level.
Moreover,
items
identified as "Congressional
inter-
est items,* may not be reduced by an amount larger than the
total
sequester
percentage.
Such
Congressional
interest
- 17 -
items are defined as those programs, projects or act
ivitie
that have been appropriated in the final defense app
ropr
conference report for fiscal year 1986 at a level tha
•^ _ -—
t is at
—~— -^«.——..———^—————...
.
least
110 percent jof fchg Presidgnt 1 ^
mmi __
rgmiggfc
,
,, ,„., ,
fnr that PPA.
Finally, no military bases may be closed in fiscal
year 1986.
11.
QUESTION;
Are there any provisions which address the
contingency of changed economic conditions?
ANSWER;
Special procedures are established to allow Congress
'
to suspend certain provisions of the Act in the eve
nt of a
recession.
This recession escape clause would be triggered
upon notification by CBO to Congress that either:
(1) CBO
or 0MB had fcurecast or estimated that real econom
ic growth
would be less than zero in any two consecutive quarte
rs during
the six-quart'er period
the
pfior to ..Jfche
CBO notice; or (2) the Department of Commerce had
reported
that actual real economic growth for the most recent
reported
quarter and the immediately preceding quarter was less
than one
:ent_(JJ).
Specifically, if either of those circumstances arises, the Majority Leader of each House of Congress
will be
required to introduce a joint resolution suspending the
relevant
provisions of the Act for the remainder of the fis
cal year,
for———
the
fol
low———
ing __—
fis———
cal ——
year, or for both years. The Act
———
———
^ —_.————__
further specifies the content of the joint resolu
tion and
- 18 provides that the resolution be referred to the respective
Budget Committees of each House.
Within five days, the Budget
amendment to the
Committees must report the resolution »—without
____________-j
The resolution would be
respective Houses or be discharged.
considered under an expedited procedure in both Houses and would
not be subject to amendment.
12.
QUESTION;
Will tax increases be necessary to meet the
deficit targets of the Gramm-Rudmann-Hollings Act?
ANSWER;
President Reagan has stated his position that in­
creasing taxes is not an option in achieving deficit reduction
under the Act, so that the deficit targets will have to be
However, many members
met through spending reductions alone.
of Congress and outside specialists believe that a tax increase
is likely, if not inevitable, if the deficit reduction targets
are to be met.
13.
QUESTION;
Did Congress, in enacting the Gramm-Rudman-
Hollings Act, anticipate judicial challenge of the Act's pro­
visions?
(a)
Does the Act provide any mechanism for judicial
review of its provisions?
ANSWER;
The Act provides for expedited, anticipatory judicial
review before the United States District Court for the District
of Columbia for members of Congress seeking a declaratory
judgment and injunctive relief concerning the constitution­
ality of any Presidential Order that might be issued.
The
- 19 -
Act also provides for expedited review before the District
Court for members of Congress and adversely affected citizens
seeking declaratory judgment and injunctive relief concerning
the constitutionality of the Act.
Further, any member of
Congress may bring an action before the District Court for
declaratory and injunctive relief on the ground that the
^
*»•
of
terms
i . - the require. . . with
'•••"• •••-comply
• • •not
i • ••••••-••• do
•-. Order
i
.... . . a._. . Presidential
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ments of the Act.
In any of these actions, each House of
Congress has the right to intervene, and any action is to be
heard before a three-judge panel of the District Cour4^,——Anyorder of the District Court will be reviewable by appeal direct­
ly to the United States Supreme Court.
Both the District Court
and the Supreme Court are directed to expedite, to the greatest
extent possible, any action brought by a member of Congress
pursuant to the provision for anticipatory review of the constltutionality of any Presidential Order that might be issued.
(b)
Have any lawsuits been filed challenging the
constitutionality of the Act?
ANSWER;
Three lawsuits have been filed challenging the consti­
tutionality of the Gramm-Rudman Act.
The first such suit is an
action seeking anticipatory review of the Act's constitution­
ality, filed by Representative Mike Synar (D-Okla.) on December
12, 1985.
Mr. Synar is represented by the Public Citizen
Litigation Group, an organization located in Washington, D.C.
Mr. Synar's lawsuit bases its challenge on the Act's "trigger
mechanism" which gives three federal agencies, 0MB, CBO and GAO,
- 20 -
the authority to determine whether government spending must be
reduced and what cuts must be made.
According to Mr. Synar's
lawsuit, this situation results in an unconstitutional delega­
tion of authority. A ruling in this lawsuit may come as early
as mid-January 1986.
v
The Justice Department has filed a motion to intervene
in the action brought by Representative Synar.
In its accom­
panying brief the Department asserted that Representative
Synar's suit should be dismissed because he has suffered no
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personal injury and therefore has no standing to sue.
The
Justice Department's position is that no injury will occur until
the first sequestration order is issued.
As to the constitu­
tionality of the Act, the Justice Department's position is that
the sequestration provisions of the Act are constitutional, but
the provisions that grant legislative officers (e.g. the comptroller general) executive power are not.
Motions to intervene and briefs in support of the
constitutionality of the Act were also filed by the comptroller
general of the GAO and the Senate.
The comptroller general's
brief argues that he has both legislative and executive powers
and that he
is to perform his duties under the Act as an
independent officer, not under the supervision and control
of Congress.
The Senate also argues in its brief that the
comptroller general is an officer of the United States, rather
than of the legislative or executive branches.
The House of
Representatives has chosen not to intervene in the lawsuit.
- 21 -
On December 31, 1985, the National Treasury Employees
Union also filed a lawsuit challenging the constitutionality of
the Act.
On January 2, 1986, that action was consolidated with
the one filed by Representative Synar.
The standing of the
Union may be stronger than that of Representative Synar because
the Union alleges actual harm, claiming that as a result of the
"automatic" spending cut provisions, a cost-of-living adjust­
ment due to federal retirees on January 1,
withheld.
1986, has been
(Under the Act, this adjustment will be restored if a
sequestration order is not issued.)
Another lawsuit challenging the constitutionality of
the Act was filed on December 20, 1985, by the National Associa­
tion of Retired Federal Employees and several retired persons,
against the Director of the Office of Personnel Management.
That action, which claims that the Act is unconstitutional
because it constitutes an unlawful taking of property without
just compensation in violation of the Fifth Amendment, was not
consolidated with Representative Synar's lawsuit.
(c)
What will happen if the President issues an
order that fails to comply with the Act?
ANSWER;
The Act further provides that if a court determines
that an order issued by the President does not reduce or
sequester funds as required by the Act, the President will
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have twenty days to revise the order in accordance with such a
determination.
If such a failure by the President to reduce
- 22 or sequester funds is based on the claim or defense that the
constitutional powers of the President allowed for such avoid­
ance of the Act's requirements, and such a claim or defense is
finally determined by the Supreme Court to be valio^, then the
entire order for that fiscal year will be null and void.
Finally, no declaratory or injunctive relief from a Presidential
Order may become effective until any appeals taken are exhausted
and the court to which the appeal was taken has issued its final
order.
(d)
What will happen if an aspect of the OMB-CBO-
GAO reporting procedure is determined to be unconstitutional?
The Act also provides for a fallback procedure in
ANSWER;
the event that any part of the OMB-CBO-GAO reporting procedure
Under such circumstances, the
is found unconstitutional.
OMB-CBO
^______.
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.
report would be transmitted to a temporary joint
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committee on deficit reduction, composed of the members of
the House and Senate Budget Committees.
This joint committee
would report a resolution which could then trigger sequestration
Expedited consideration
if enacted by both Houses of Congress.
*-—————————————-»
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in both Houses would be provided.
This fall-back system will ..
likely be one focus of the lawsuit by Representative Synar.
Itr %^
has been reported that Mr. Synar is satisfied that the fallback
system is constitutional.
- 23 -
(e)
Are the economic data, assumptions and method­
ologies used by the GAO in computing the base levels or "snap­
shot" of the deficit subject to judicial review?
ANSWER;
The economic data, assumptions and methodologies
used by the GAO are not subject to review in any judicial or
administrative proceeding.
(f)
In the event that a portion of the Act is de­
clared invalid, will the remainder of the Act still be valid?
ANSWER;
In reaching a compromise, Congress deleted both
House and the Senate versions of a provision pertaining to
severability.
Consequently, it is unclear whether the Act's
parts are wholly interdependent and nonseverable.
Thus, if a
portion of the Act is declared invalid, it is unclear whether
the entire Act would be declared null and void, or whether the
remaining portions of the Act would continue to be valid and
enforceable.
14.
QUESTION;
Has Congress taken any action in addition to
the Gramm-Rudman Act that would affect Medicare payments to
hospitals?
ANSWER;
Before Congress recessed on December 20,
1985,
Congress enacted legislation that extends Medicare payments at
the fiscal year 1985 rate level up to and including March 14,
1986.
This legislation was signed by President Reagan on
December 23, 1985.
At that same time, Congress passed a con­
tinuing resolution that permits the government to maintain
jr
- 24 -
operations that are funded through appropriations, unlike
Medicare for which the majority of expenditures are funded from
Medicare Trust Fund monies.
This emergency action was necessary because Congress
was unable to agree on a Budget Reconciliation Bill that had
been anticipated to reduce deficits over the next three years by
cutting back on an array of spending programs.
Negotiations on
that bill between House and Senate conferees broke down over an
inability to agree on a Senate-drafted plan for financing the
Superfund toxic-waste cleanup program.
Reportedly, action on
this bill will be among the first business taken up by Congress
when it reconvenes on January 21, 1986.
By the time that the negotiations on the Budget
Reconciliation Bill broke down, the Senate and House conferees
had already reached agreement on the portion of the bill that
would affect Medicare funding.
According to the conference
report, sixty (60) provisions of the bill would directly affect
the Medicare program.
Amendments to the Medicaid program, as
well as to numerous other programs, were also included in the
conference argeement.
If the Budget Reconciliation Bill were to pass during
Congress 1 next session in the same form as agreed to by the
conferees in December 1985, the following are summaries of some
of the many provisions that would affect Medicare payments to
hospitals:
- 25 -
Hospital payment rates under the pro­
1.
spective payment system ("PPS") for fiscal
year 1986 would be increased by one percent
(The
(1%) beginning on March 1, 1986.
current freeze would continue until that
Specifically, the increase for the
date.)
federal portion of the rate would take
effect for discharges occurring on or after
March 1 f 1986, and the increase in the
hospital specific portion of the rate would
take effect with the beginning of the
sixth month of a hospital's first cost
reporting period on or after October 1 r
1985.
For Hospital payment rates for fiscal
years 1987 and 1988 f the Secretary of the
Department of Health and Human Services (the
"Secretary") would be required to increase
the PPS payment rates by no greater than
the increase in the hospital market basket
index in those years.
The bill would provide for a one-year
2.
extension of the transition to national
diagnostic related group ("DRG") rates.
Beginning with the sixth month of the
hospital's cost reporting period beginning
during fiscal year 1986, the hospital
specific/federal blend would be forty-five
percent (45%) hospital specific and fiftyfive percent (55%) federal. During the 1987
fiscal year, the blend would be twenty-five
percent (25%) hospital specific and seventyfive percent (75%) federal.
In addition, for discharges occurring
between March 1 and October 1, 1986, the
blend of the federal rate components would
be seventy-five percent (75%) regional and
For
twenty-five percent (25%) national.
fiscal year 1987, the blend would be fifty
percent (50%) regional and fifty percent
(50%) national.
3. The bill would require
implement a new gross wage
lating prospective payment
PPS regulations published
1985.
the Secretary to
index in calcu­
rates, based on
on September 3,
- 26 -
4. The bill would require the Secretary to
study, in consulation with the Prospective
Payment Assessment Commission, and to make a
recommendation to Congress by March 1, 1987,
concerning refining the area wage adjustment
portion of the PPS rate to reflect the
higher wage costs incurred by hospitals in
core city areas as compared to suburban
areas of the same metropolitan area.
The bill would change the formula for
5.
computing indirect teaching adjustments.
Under current law, the Secretary is
6.
required to make adjustments to PPS rates,
as deemed appropriate, for hospitals that
serve a disproportionate share of low income
or Medicare Part A patients. The Secretary
has failed to develop any criteria for
defining or identifying such hospitals. As
a result, the bill would provide congres­
sional standards for identifying such
hospitals and for determining increased
payment amounts.
The bill would also impose limits on
7.
direct graduate medical education ("GME")
payments, which are not covered by the
The limits
prospective payment system.
would be based on data from cost reporting
periods for fiscal year 1984, which would
be updated based on specifications contained
in regulations published in the Federal
Register on July 5, 1985, and which then
would be increased by an additional one
Additional provisions would
percent (1%).
affect other aspects of GME payments.
15.
QUESTION;
How has the administration reacted to the
conferees 1 agreement on the Medicare portion of the Budget
Reconciliation Bill?
ANSWER;
Reportedly, the administration is opposed to several
aspects of the conferees' agreement on Medicare. For instance,
the administration favors a freeze on Medicare payment rates, as
- 27 -
is currently in effect,
rather than the proposed one percent
(1%) increase; the administration favors a seventy-five percent
(75%)/twenty-five percent (25%) hospital specific/federal blend
for
rate calculation,
rather than the agreed-upon fifty-five
percent (55%)/forty-five percent (45%) blend; and the adminis­
tration favors a freeze on GME payments, rather than the limited
increase that would be allowed under the conference agreement.
It, of course, is not known'to what extent the admin­
istration will try to influence changes in the Medicare portion
of the conferees 1 agreement, or whether the President would
veto the bill if it were passed in its current form.
It is
likely, however, that if Congress fails to take action by March
15.
1986, the administration will continue to freeze Medicare
payments under PPS at the fiscal year 1985 rates.
16.
QUESTION;
How would the Budget Reconciliation Bill,
if passed; the freeze on Medicare payments; or any other enact­
ments concerning PPS rates be affected by the Gramm-Rudman
Act?
ANSWER;
Any budget cuts imposed under Gramm-Rudman would
occur after the PPS rates for the year were established.
For
instance, if the Budget Reconciliation Bill were enacted in its
current form, a one percent (1%) increase in payment rates would
be in effect during the 1986 fiscal year.
Then, if Gramm-Rudman
reductions were necessary, the payment rates would be reduced
by one percent (1%), in effect imposing a freeze on payment
rates during fiscal year 1986.
- 28 -
If f however, payment rates were to be maintained
at the current freeze level and Gramm-Rudman reductions were
necessary, the current level of payments would be reduced
by one percent (1%) during fiscal year 1986, beginning on
March 1, 1986.
In all subsequent years,
any enactments concerning
PPS would take effect, and would then be reduced by two percent
(2%) if Gramm-Rudman reductions were necessary.