Winners And Losers On Fiscal Cliff
During the recent “fiscal cliff” negotiations, federal healthcare funding seemed to take one step forward – and perhaps two steps back.
Double-digit payment cuts to physicians as part of the sustainable growth rate formula were averted by making about $25 billion in piecemeal reductions elsewhere, with safety net hospitals among those likely to feel the fiscal fallout the greatest.
Provider associations have already relayed their dissatisfaction with the cuts included in the American Taxpayer Relief Act – they will hit Medicare payments to hospitals to the tune of about $15 billion. And those reductions appear to be a harbinger of future reductions.
“Providers that are getting cut will feel like they’ve been hurt by the lower payments but I think overall, the money will have to come from somewhere,” said Stephen Zuckerman, of the Health Policy Center at the Urban Institute. “What I see in this bill is a small number of, relatively speaking, modest cuts.”
The sustainable growth rate formula was created in 1997 as part of the Balanced Budget Act to control growth in Medicare spending. Annual spending cuts to providers would have exceeded 26% this year, but have been staved off every year by Congress for the past decade.
The fiscal cliff legisltion has helped hold them off through 2013. Zuckerman observed that this will likely just one of many yearly budgetary dances to avoid the compounding cuts.
“They will probably come up with annual fixes to eliminate these cuts,” he said. “It is unlikely they are ever going to cut physician fees by 20% to 30% in a given year. They will force themselves to come up with offsets to spending.”
There are some notable cuts to other providers, including the re-pricing end-stage renal disease payments that is expected to save almost $5 billion. Diabetes test strips will be competitively bid, which is expected to save Medicare $600 million.
One cut that will impact public hospitals is an extension of the disproportionate share hospital funding cuts that were laid out in the Affordable Care Act.
These dollars, meant to provide extra funding to hospitals providing uncompensated care, were set to end in 2020. They were extended once and again through ACA through the end of 2022. This is expected to cost around $4 billion.
Beth Feldpush, vice president for policy and advocacy at the National Association of Public Hospitals, said with the uncertainty of Medicaid expansion in many states, these cuts have only served to lengthen the imbalance in funding seen by major providers of uncompensated care.
“These hospitals operate on slimmer margins than others,” Feldpush said. “Uncompensated care makes up about 6% costs for U.S. hospitals, but for our members, it is about 16% of total costs.”
Felpush added that DHS hospitals have about a 2% profit margin and without DSH funding, many would plunge into negative margins of 5% or more.
Feldpush worries that this $4 billion pot of money that will be available to Congress will be too tempting to turn down in years to come – and that it will be allocated for balancing the budget instead of hospitals.
Another cut to hospitals is a coding adjustment expected to save about $10.5 billion. This is supposed to recoup what CMS says it overpaid to hospitals through previous coding errors.
Danny Chun, spokesperson for the Illinois Hospital Association, said his organization is fighting for the cuts to end.
“People often forget that as part of the Affordable Care Act, hospitals will be seeing $155 billion in reductions in Medicare payments over 10 years,” he said. “And in Illinois, hospitals took a 3.5% cut in Medicaid from last year’s spring session. We’ve been telling members of Congress we can’t take any more cuts.”
Chun said it is only going to be more difficult for hospitals to provide care when the system is in a state of transformation. Providers are being asked to do more and perform better when payments are consistently being cut.
Chun is also concerned that as Congress deals with the sequester over the next couple of months will only bring more cuts – likely to the Medicare program.
“We are extremely concerned that Medicare and Medicaid will be cut more,” he said. “We are telling our delegation no more cuts to healthcare and to hospitals.”
Chun said “good, alternative” approaches need to be created instead of using a “hatchet” to balance the budget in the future.
Meanwhile, rural hospitals made out fairly well during the fiscal cliff negotiations. So-called critical access hospitals, which are under 100 beds, geographically isolated and treat a large proportion of Medicaid patients, received a one-year extension of supplementary payments.
