Reporting contributed by Karen Minich-Pourshadi.
The Super Committee's abject failure to compile a plan that reduces spending by $1.2 trillion over 10 years was no surprise. But now, some healthcare leaders are looking with dread at the "sequester," a process by which hospitals and physicians will see automatic Medicare reimbursement cuts of 2% starting in 2013 through 2021.
Other health leaders are instead breathing a sigh of relief, saying that even though the panel's impasse means more delay and uncertainty for planning, the schemes the Super Committee could have come up with could have been a whole lot worse.
"Our sense is that the 2% cut – if it is, in fact, put in place over the coming years – may end up as a slightly better result than what the committee might have come up with as it grappled with $1.2 trillion in cuts over the next decade," says Dean Swindle, Executive Vice President, Business Services and Chief Financial Officer, Englewood, Colo.-based Catholic Health Initiatives.
Of course, any cuts will have a negative impact, he says, making it "more difficult for CHI to provide essential services in the many communities it serves."
Blair Childs, senior vice president for Premier Inc., says that smart hospital system CEOs and CFOs he talks with on a regular basis aren't waiting to see what happens. Instead, they are anticipating as much as a 3.5% cut, including the 2% sequester plus up to another 1.5% market basket/productivity reductions scheduled for 2012, not to mention the disproportionate share funding cuts of $22 billion for Medicare and $14 billion for Medicaid over 10 years, starting in 2014.
Hospitals Need to 'Reposition'
"This is the high watermark," Childs says. "If I were a hospital CEO," he says, I would be using this next year to really get in place excellent cost reduction programs because you know you're going to have your payments cut in 2013 and beyond." Hospitals need to "reposition themselves to cope in an environment of coordinated care." And hospitals are looking everywhere to cut.
"To sit back now, and say 'This won't happen, we'll be fine,' will just get them into trouble," Childs said.
Chris Van Gorder, immediate past chairman of the American College of Healthcare Executives and President and CEO of San Diego's Scripps Health, says he had predicted the panel's failure ever since it was formed. But it doesn't really matter, he says.
"What does this mean to healthcare and for the C-suite? It means more uncertainty for another year and more challenges as we try to plan for future changes and reimbursement reductions—but beyond that, our task is clear," he says. It shouldn't change the tasks ahead for healthcare leaders, who must reduce costs while improving quality.
"In the end, we know we are going to be paid less for the work we do—while expectations are that we will improve quality, safety and patient satisfaction at the same time."
Van Gorder says the way to do this is to reduce "non-value-added variation in quality and costs of care...to continue our movement to become health care systems rather than hospital-based organizations (and)...to continue our work in aligning more closely with our physicians in getting this work done in a way that ultimately benefits our patients."
The only real question remaining is how much of a cut will come, he says, "especially when we combine the reductions we are seeing and anticipating from Medicare, Medicaid, and commercial insurance companies driven by the development of state insurance exchanges...and more bad debt" driven by laws in California and other states that require Medicaid patients to make co-pays and absorb deductibles, even for emergency care.
Despite all of this, Van Gorder says hospital systems cannot afford to behave like Congress and the Super Committee and fail. If they do, he says, "people can die."
In a statement Tuesday, President and CEO of the American Hospital Association, Rich Umbdenstock, predicted that the arbitrariness of the sequester "will have an impact not just on the elderly and disabled beneficiaries of the program, but on their families. It will also have an impact on the ability of hospitals to provide essential public services to the communities they serve, given the impact that Medicare has on the entire health care system."
Congress is likely to reconsider the BCA's trigger, he added, "America's hospitals will work with Congress as these discussions continue."
"Once again, the spending cuts will fall on the backs of providers," says Dennis Dahlen, senior vice president of finance and CFO for Phoenix-based Banner Health, one of the largest nonprofit hospital systems in the country.
"The cuts themselves are painful but even more painful is the fact that these reductions don't represent forward movement on the reforms necessary to put the Medicare program on a sustainable footing," he says. "I'd call it 'the price of failure to move forward."
Dahlen estimates Banner Health will lose $35 million due to payment reductions in 2013.
Adds Michael T. Burke, senior vice president and CFO, at New York University Langone Medical Center: "For us at NYU, it is a good thing . We were hoping it would fail. The reason being they were recommending very large and disproportionate cuts to teaching hospitals that were inequitable and unsustainable for many of our NYC teaching hospitals. 2 percent across the board is much more reasonable."
SGR Cut Looms
One of the casualties of the Super Committee's failure to come up with a plan is the looming Sustainable Growth Rate cut, slated to slash physicians' Medicare and TRICARE fees by 27.4% starting in 38 days, a lot sooner than the sequester.
Both the American Medical Association and the American College of Physicians issued statements predicting doom.
"Left in the wreckage of the Super Committee process are plans to automatically impose unprecedented cuts in health care programs—cuts that will within weeks endanger Medicare beneficiaries' and military families' access to care, and later, cause unsustainable cuts to many other critical programs to reduce disease, protect public health and safety, and ensure that patients have access to doctors," says Virginia Hood, ACP president.
Peter W. Carmel, MD, AMA president, adds that his group "is deeply concerned that continued instability in the Medicare program, including the looming 27% cut scheduled for Jan. 1, will force many physicians to limit the number of Medicare and TRICARE patients they can care for in their practices. Congress has ignored the reality that short-term patches have grown the problem immensely."
Of course, there's still time for anything to happen. Congress set these rules in motion, and during the noise of an election season coming up, smart people are betting that everything will look a lot different this time a year from now.
Reporting contributed by Karen Minich-Pourshadi.