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What the Debt Ceiling Crisis Means to Healthcare

 |  By kminich-pourshadi@healthleadersmedia.com  
   August 15, 2011

It's no secret that the debt ceiling crisis is worrisome for healthcare. In blunt terms, Medicare reimbursements stand to be eviscerated.

The U.S. government, to balance the budget would need to cut spending by about 40% and Medicare represents 23% of the Federal budget. Moreover, the whole debt crisis situation is a perfect opportunity for political posturing and negotiating. All of that adds up, unfortunately, to Medicare being a ripe target for scrutiny and cuts.

Standard and Poor’s released a report last week, titled The Deficit Remedy Could Be Toxic for U.S. Health Care Companies. In it the ratings agency notes, the “U.S. debt crisis has put a fire under the government's efforts to slow growth in healthcare spending.”

S&P goes on to calculate that with the Centers for Medicare & Medicaid Services (CMS) estimating Medicare costs are currently $556 billion (or 3.6% of GDP), up from $247 billion (or 2.6% of GDP) under the elder care program just 10 years ago. Unfortunately, the idea of curbing Medicare expenditures further is going to be problematic for all providers’ bottom lines; especially

on the heels of the 2010 Affordable Care Act’s previous decree for a $155 billion reduction in Medicare payments to hospitals over 10 years.

The proposal Congress approved two weeks ago is expected to slash about $2.4 trillion from the national debt from 2012 through 2021. About $917 billion in cuts would be identified in the budget process, and $1.5 trillion in reductions would be found by a special, 12-member, bicameral, bipartisan commission. 

This Joint Committee of Congress created under the Budget Control Act, and dubbed  would meet later this year, and its recommendations for cuts would be subject to a simple majority vote in the House and Senate. 

Medicaid and Medicare are not expected to be impacted in the first round of cuts, but these two are expected to be targeted by the 12-member committee in subsequent rounds. However, if the super committee fails to cut the deficit by its mandated $1.5 trillion, automatic spending cuts could be triggered and Medicare providers would face reimbursement cuts capped at 2% beginning in 2013.

Last week several hospital chiefs forecasted greater reimbursement cuts than that saying they anticipate closer to 6% or $155 billion over the next 10 years, as do the American Hospital Association and National Nurses United—all of whom have criticized the $2.4 trillion debt ceiling and deficit reduction package. Unquestionably, if that percentage of cut comes to fruition it will be very bad for the healthcare bottom lines. But even before any cuts take place, the simple possibility for cuts of this magnitude is troubling for hospitals and health system credit ratings—and S&P makes no bones about that.

"Uncertainty about third-party reimbursement is an ongoing risk that we factor into our ratings on U.S. corporate healthcare providers," says S&P's credit analyst Rivka Gertzulin. "Nine of the for-profit healthcare providers we rate garner the majority of their revenues from Medicare, and these companies will feel the biggest pinch from reductions in reimbursement or onerous changes to Medicare rules."

For many years Medicare has given healthcare financial leaders agita, and from the looks of this debate, that’s not going to change any time soon and it may worsen. Though the immediate debt ceiling situation has been waylaid, keep a watchful eye on this and bolster your contingency fund for the possibility of a large cut—better to be safe than sorry.   

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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