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House Speaker John Boehner
House Speaker John Boehner proposed $600 million in healthcare savings but provided few details about how the number would be achieved.
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No one's safe

Providers left wondering where cuts will hit

By Jessica Zigmond
Posted: December 8, 2012 - 12:01 am ET

As lawmakers search for ways to avert the fiscal cliff, providers find themselves in a labyrinth. Broad deficit-reduction proposals for more cuts to federal healthcare payments are coming from both sides of the aisle.

Both the House leadership and the White House have now set forth general proposals that offer long-term goals but no specific details on how they would achieve a broader agreement to reduce the nation's budget deficit. The House GOP plan recommends about $600 billion in healthcare cuts over 10 years, but it does not specify how it would achieve that goal. Meanwhile, the Obama administration's proposal does not offer a specific savings target for healthcare, but the president's fiscal 2013 budget proposal laid out more than $300 billion in healthcare savings.

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Because these early round offers lack details, healthcare providers are at risk for all payment cut targets that have been suggested in earlier deficit-reduction proposals, including the president's fiscal 2013 budget (said to be the basis for his proposal), the House-passed budget resolution for 2013, the National Commission on Fiscal Responsibility and Reform (“Simpson-Bowles”) proposal in 2010, and options laid out by House Majority Leader Eric Cantor (R-Va.) and the “Gang of Six” U.S. senators.

Healthcare experts said last week that Medicare payments for evaluation and management services, patients' bad debts and graduate medical education have emerged as the likely targets of healthcare savings in the negotiations. Providers have good reason to be anxious about those areas, given that those options have appeared in earlier deficit-reduction proposals—and recently. Last February, the president's budget called for reductions in bad-debt payments and graduate medical education, but did not call for reductions to evaluation and management services. House leaders, meanwhile, indicated their interest in cutting payments for bad debt and evaluation and management services, which were included in their version of a payroll tax bill a year ago.

“From our perspective, while we don't want to see any of this happen—and we're working our hardest to prevent any of it from happening—the reality is that if you're on these lists, it's in the mix,” said Richard Pollack, executive vice president of advocacy and public policy at the American Hospital Association.

And providers aren't just wondering which cuts will come, but when. The general consensus in Washington is that lawmakers will tackle the nation's deficit problem in a two-step process, said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities. Under this scenario, the first phase in December and January would include a framework that would commit Congress to further deficit reduction later in 2013. That initial phase might also have a “down payment” in which lawmakers show they are committed to making the reductions.

“The notion is that most of the specific Medicare savings are likely to be not part of the initial legislation in December or January but to be part of the second-phase legislation, which would happen much later in 2013,” Van de Water said.

Pollack said hospitals are most concerned that provider payments would be used to pay for a short-term fix to the Medicare physician payment formula, whether in any down payment and in the larger framework.

“You cannot do it on the backs of providers without seriously jeopardizing access to care,” Pollack said. “The math doesn't add up without real structural reforms to the program,” he said. The AHA has a long wish list of alternatives that includes increasing the eligibility age for Medicare, modernizing Medicaid's long-term-care benefit, implementing medical liability reform and taxing junk foods and sugary drinks.

To be sure, lawmakers will have to consider structural reforms if they want to achieve the magnitude of savings they're proposing. Hospitals, though, are worried about payment cuts in the short term, especially as policymakers work to avert the series of looming tax increases and spending cuts set to take effect in the New Year.

Of those mentioned, the top concern for hospitals appears to be a reduction in payment for evaluation and management services, an idea the Medicare Payment Advisory Commission recommended in its March 2012 report. The panel suggested Congress direct HHS to reduce payment rates for evaluation and management office visits provided in hospital outpatient departments so that payment rates are equal whether they occur in those settings or in a doctor's office. It also called for a three-year phase-in process.

By MedPAC's estimates, the change would lower Medicare spending by between $1 billion and $5 billion over five years. That figure could change if an automatic 2% Medicare cut takes place in early February under the Budget Control Act of 2011, MedPAC noted in its recommendation.

Tonya Wells, vice president of federal public policy and advocacy at Trinity Health, said she has not heard definitely that evaluation and management services will be used as a cost-cutting measure in the debt talks, but it's a considerable concern for the Catholic system, which is based in Livonia, Mich., and operates nearly 50 hospitals, mostly in the Midwest.

“All of the folks on the Hill have acknowledged that it is an option,” Wells said, adding that Trinity has worked to educate lawmakers about the differences in services at hospital outpatient settings and doctor's offices and what implications the cuts would have on hospitals and their outlying communities. For example, Dr. F. Remington Sprague, vice president and chief medical officer at Trinity Health's Mercy Health Partners, told Modern Healthcare that the reduction in evaluation and management services would have a severe impact on the staffing of hospital outpatient departments.

According to Trinity Health's analysis, payment cuts for evaluation and management services would reduce Trinity's Medicare revenue by between $20 million and $25 million annually, or about 0.5% of the system's net hospital revenue. Trinity reported operating income of $270 million in fiscal 2012, a 3% margin on $8.9 billion in unrestricted revenue, according to audited financial statements.

And evaluation and management services garnered more attention last week. The American Hospital Association sent a six-page letter to MedPAC outlining the AHA's concerns about MedPAC's proposal to expand its site-neutral payment policy for hospital outpatient department services to an additional 71 payment categories beyond its March recommendation to cut payment for 10 evaluation and management services.

“When combined with the E/M cuts already recommended by the commission,” wrote Linda Fishman, senior vice president of public policy analysis and development at the AHA, “the site-neutral payment policies would impose deep cuts of $2 billion per year on routine services that are integral to the service mission of hospitals.”

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