Federal Debt Commission Makes Unrealistic Recommendations

Every few months, my husband and I go through and balance our budget. It’s not a favorite activity for either of us, but now with our new baby we have to find new and creative ways to keep our costs low so we can stay in the black. We tend to cut down on unnecessary items, like magazine subscriptions or entertainment, and I hate to say it, but charitable donations. What we wouldn’t dream of cutting is the money we put aside for healthcare.

Our family’s prudent approach to budget cuts isn’t necessarily a reflection of what the government does when it makes budget cuts, evidenced by the recently released “chairman’s mark” preliminary report. Created by the bipartisan National Commission on Fiscal Responsibility and Reform, this not yet final report (and considered by many to be just a starting point) makes recommendations for how to reduce the nation’s debt.

To reduce the national debt by $4 trillion by 2020, the report recommends trimming 58 programs including defense and space exploration, Social Security and, naturally, Medicare and Medicaid. Certainly a lot of programs are going to take a knock if the recommendations in this report are approved, but these recommendations may just financially weaken healthcare beyond repair, and delay the sought after quality of care improvements.

As it stands, many CFOs have already trimmed the fat from their budgets over the last three years. They’ve renegotiated supplier contracts, payer contracts, joined group purchasing organizations, and cut length of stay. If that weren’t enough, they along with the CEO and hospital board took heat for making personnel cuts to help buoy the bottom line and keep their hospital’s doors open. While they’ve watch their staff numbers dwindle in the name of financial viability, the number of uninsured and underinsured patients has steadily risen, as have their Medicare and Medicaid populations (though healthcare reform may address this in the future).

The economic recession aside, now a 23% Medicare and Medicaid physician payment cut looms (as of Dec. 1 and another 1.9% cut will take affect as of Jan. 1). Now they will need to treat more patients and be paid even less money to do so.

What’s makes this list of recommendations so infuriating to healthcare leaders is that if it takes effect, folks in healthcare will be swimming upstream against a very hard current. You see, the 18-member committee is suggesting that the Medicare and Medicaid situation be remedied by savings made through payment reforms, cost-sharing and malpractice reform and long-term measures to control healthcare cost increases. Translation: expect to be paid even less for Medicare and Medicaid.

While the “chairman’s mark” proposes a repeal of the sustainable growth rate formula (SGR), it also recommends that payments be gradually lowered over the next 10 years, including a pay freeze for the next two to three years. The savings for this change would be substantial for the government—$24 billion by 2020. But for health systems, hospitals and practices already operating on thin margins, this is a potentially devastating decline in reimbursements.

Unfortunately, the bad news doesn’t stop there, however. If the recommendations take affect, they will also accelerate cuts to the disproportionate share payment (DSH) to hospitals, and will cut Medicare Advantage and home health, as well as federal spending on graduate and indirect medical education. Moreover, CMS will need to establish a new payment system (commencing 2015) to reduce healthcare costs and improve quality—and no one knows exactly what that could mean for healthcare providers.

The American Hospital Association and nearly every other major healthcare organization released statements pooh-poohing this committee’s recommendations, which isn’t surprising. I suspect most healthcare financial leaders were distressed too. I reached out to one health system, to gauge their reaction:.

“Coupled with cuts we’re anticipated to incur over the next four years, even if we are fortunate enough to avoid penalties for readmissions, value-based purchasing and hospital acquired conditions, this [report] just boggles the mind,” says John W. Winfrey, vice president and CFO for DCH Health System.

The west Alabama Health System serves seven counties and has a varied payer mix across all four of its facilities, which include the 583-bed DCH Regional Medical Center, the 204-bed Northport Medical Center, the 61-bed Fayette Medical Center and the 56-bed Pickens County Medical Center.

Just based on the current reform act, Winfrey says he’s anticipating being paid $3.4 million less (2.4%) less in fiscal year 2015—and that’s providing that his volumes don’t change; which is an unlikely scenario.

“I’m very concerned that they are suggesting additional cuts to physician reimbursement on top of what may happen in December,” he says. “I was shocked [by these recommendations]; they are taking healthcare reform to a new level.”

While none of the proposed cuts are good for healthcare, some of them actually make very little sense, especially if the goal of the Administration is to actually improve the quality of care. While CMS will have to draw up some quality measures, frankly if the purpose of the DSH payment is to help fund hospitals that serve indigent patients, cutting money supporting this isn’t likely to provide much impetus for quality to improve.

Most facilities still need to at least cover the expense of the care so they can keep on providing it. And, with the number of physicians expected to decline in the coming years, why on earth would this committee recommend decreasing funds to educate more physicians. The cost of educating these providers can’t possibly save the government enough money that it will offset the human losses that will be incurred by having throngs of patients who can’t get in to see a physician when they need to.

“This country is going to see a major loss in older physicians who will hang it up earlier and possibly lose younger physicians as cuts are made on Graduate and Indirect Medical Education,” adds Winfrey.

There are a few recommendations that actually may prove helpful if they were to be approved. They include:

• Required rebates for brand name drugs as a condition of participating in Medicare Part D.
• Comprehensive medical malpractice liability reform to cap non-economic and punitive damages and make other changes in tort law.
• Expansion of cost-sharing in Medicare to promote informed consumer health choices and spending.
• Expansion of accountable care organizations, bundled payments and other payment reforms.
• Reduction of federal spending on Medicaid administrative costs.

Unfortunately, while these other items could be positive steps toward helping healthcare, they will do very little to offset the financial cuts that would come along with the rest of the report’s recommendations if they are approved. The simple fact is, and that seems to be consistently lost on our government, is that while not-for-profit hospitals and health systems are not in business to make a profit, realistically they must make some profit in order to stay open and perform their mission to serve the uninsured and underinsured populations. If these kinds of payment cuts keep taking place, eventually one of two things will happen: those that can’t afford care will not be treated, or the hospitals will just go out of business. Either course won’t produce positive long term results for anyone.