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Fiscal Cliff Stopgap Delays 'Doc Fix,' but Hits Hospitals

 |  By John Commins  
   January 03, 2013

There was more exasperation than applause coming from the major players in the healthcare sector this week after Congress approved a stopgap measure to delay until March 1 a trip off the so-called "fiscal cliff."

Passage in the House late Tuesday of the "American Taxpayer Relief Act of 2012" (HR8) essentially delayed most of the tax hikes and sweeping budget cuts that were to begin on Jan. 1. The Senate version passed early Tuesday morning.

Lawmakers in the 112th Congress congratulated one another on their willingness to work together to solve the problem they created entirely by themselves and then offered public promises to address questions unanswered when the 113th Congress convenes this week.

Impact on Physicians
The Taxpayer Relief Act features major provisions affecting funding of Medicare and Medicaid. The most significant healthcare provision is the continuation until Dec. 31, 2013 of the Medicare Physician Fee Schedule Sustainable Growth Rate, which had been scheduled for a draconian 26.5% cut on Jan. 1.

Word that the SGR cuts would be delayed for another year was met with a shrug from most physicians' associations. David L. Bronson, MD, president of the American College of Physicians, captured the reaction of most physicians' professional associations when he said in a media release that the Act "falls well short of ACP's goals of enacting a permanent replacement to the Medicare SRG formula and enacting a fiscally and socially responsible alternative to across-the-board cuts." 

"In the short term, this legislation helps ensure access to high-quality medical care for Medicare beneficiaries, and ensures that physician payments under Medicare will not be cut through 2013," Bronson said.

"However, a greater bipartisan effort is still needed in the coming year to approve legislation that permanently repeals once and for all the flawed SGR formula, and transitions to payment models that provide predictable annual updates to physicians participating in Medicare, while being aligned with the provision of high quality and efficient care." 

The $25.2 billion cost of extending the SGR over the next 10 years will come primarily at the expense of hospitals and other providers—including some subspecialists—in the form of Medicare "offsets."

Impact on Hospitals
The largest hits for hospitals will include: an "adjustment" in the Inpatient Acute Care Hospital Documentation and Coding, which is expected to save about $10.5 billion over 10 years, starting in 2014; reduced bundled payments for end-stage renal disease, which is expected to save about $4.9 billion, starting in 2014; and a further reduction from 25% to 50% for therapy multiple procedure payments, with savings of $1.8 billion over 10 years, starting April 1.

The general perception of the Relief Act is that hospitals were the big losers. That perception was not diminished with American Hospital Association President/CEO Rich Umbdenstock's complaint that fixing the SGR "should not be done by jeopardizing hospitals' ability to care for seniors in their communities."

"That's why we are very disappointed at the approach taken in this measure," Umbdenstock said in prepared remarks. "Additional payment reductions will make it harder for patients to access the care they need and depend on."

Umbdenstock said the AHA will continue to work with Congress to "find a permanent solution to the Medicare physician payment problem, while remaining vigilant against additional cuts that could be harmful to hospitals' ability to fulfill their mission of caring."

Impact on Patient Population
That sentiment was echoed by Bruce Siegel, MD, president/CEO of the National Association of Public Hospitals and Health Systems. Under the Act, safety net hospitals and other providers with larger Medicaid populations will see cuts to their disproportionate share payments totaling about $4.2 billion over 10 years.

"While this agreement averts severe economic hardships for the nation, it nonetheless puts at risk essential healthcare for millions of vulnerable people," Siegel said in prepared remarks. "Solving one side of the provider equation must not come at the expense of the other—particularly the hospitals and health systems that care for a disproportionate share of Medicaid and other low-income patients."

Beyond the SGR extension and further "adjustments" for other Medicare and Medicaid providers, the legislation only delays until March 1 additional and sweeping cuts mandated by the so-called Sequestration.

Those reductions include across-the-board cuts of 9.4% for defense spending, 8.2% for non-defense spending, and 2% for Medicare payments. Those cuts come due right as Congress and the Obama administration debate another extension of the federal debt ceiling.

"It certainly looks like a stopgap measure. Hurry up and wait until the end of February when we hit the debt ceiling again, and we have to figure what to do again," says Bill Copeland, a healthcare consultant with Deloitte LLP.

He says there is nothing to indicate that anything will change in the next two months that would lend itself to a longer-term solution.

"Everything that I've seen indicates that we will continue to push it out to see if someone else has a better answer," Copeland says. "It is a bitter pill that we are going to have to swallow at some point especially around healthcare. We don't seem to have a really good answer other than continuing to push it further out. Whether they come out with another one-year fix for SGR or they do something more grand and whether they come to grips with some of the things they are trying to do with Medicare I don't know. It doesn't seem like it was going to get into this bill for sure. It is hard to think they are going to get anything accomplished in two months."

Long-Term Effects
Richard "Buz" Cooper, MD, a healthcare economist and senior fellow at the University of Pennsylvania, says it's too early to predict the long-term effects of the Act.

"On the one hand, it accomplishes some income redistribution, with higher income and investment taxes borne by wealthier individuals and with the retention of unemployment insurance and income tax credits for poor families," Cooper said in an email exchange.

"But the untold story has to do with things beyond this legislation, like the added payroll taxes for Medicare and the ACA, taxes on medical equipment, and the steep increases in Medicare B premiums for upper income retirees. It will take a good deal of analysis to figure out exactly what the tax picture will look like for 2013 and beyond."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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