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Illinois Sen. Dick Durbin
Illinois Sen. Dick Durbin, left, with other Democratic Senate leaders, said last week that Democrats had taken raising the Medicare eligibility age off the table, but an Obama spokesman declined to confirm that.
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Waiting for the inevitable

Experts can agree: Fiscal cliff drama will bring cuts

By Jessica Zigmond
Posted: December 15, 2012 - 12:01 am ET

With pressure mounting on federal lawmakers to craft a deficit-reduction deal on taxes and spending, healthcare experts are in two camps on the outcome: those who think Congress and the White House will not reach any agreement by year's end, and those who say federal leaders will walk to the very edge of the fiscal cliff before they cut a short-term deal and address larger healthcare reforms next year.

Either way, there will be cuts.

Medicare's troublesome sustainable growth-rate formula to reimburse physicians—a perennial issue for policymakers—has risen to the top of the debt-talk noise as the most urgent concern for doctors, who face a 27% Medicare payment cut Jan. 1 if Congress does not propose a temporary fix, and also for hospitals, who fear they will be the source of funding for the patch. Meanwhile, the 2% across-the-board Medicare payment cuts scheduled for early February under the sequestration process of last year's Budget Control Act loom over healthcare providers. Cuts to other federal programs start in early January.

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All eyes remain fixed on President Barack Obama and House Speaker John Boehner (R-Ohio) to reach a decision and resolve their differences on revenue and spending. Negotiations in Washington remained at a standstill as of late last week. And that indecision leaves short-term issues and long-term reforms for healthcare hanging in the balance.

“I believe the two sides are very far apart on anything significant in the healthcare space,” said Dan Mendelson, CEO and founder of consulting firm Avalere Health. “We see the Republican leadership still talking about concepts that are really big picture and fundamental to entitlement programs, and we see the administration focused on the Obama budget, which didn't go anywhere,” he added. “They're still pretty much in their corners.”

Tom Scully, senior counsel at Alston and Bird and CMS administrator from 2001-04, says he expects leaders won't reach some type of agreement until mid-January.

“They will cut a big-picture target deal for defense and Medicare and put some things off until July, but (they'll be) locked in on what those will be,” Scully said. “The details for Medicare reform will probably be done in committees,” he said, adding that he expects lawmakers to limit the defense cut under the sequester process and to maintain the 2% Medicare cut.

Scully also said he expects lawmakers to address the sustainable growth rate retroactively in January, after the current patch has expired Dec 31. Anders Gilberg, senior vice president at the MGMA, said it's hard to envision a situation in which any SGR legislation would be split from the main fiscal-cliff debate.

Conversations last week with congressional staff left Dr. Charles Cutler, a general internist and chairman-elect of the Board of Regents of the American College of Physicians, optimistic that Congress will propose and pass a short-term SGR fix by year-end. Physician representatives from the American Medical Association, American Academy of Family Physicians, American College of Physicians, American College of Surgeons and American Osteopathic Association descended on Capitol Hill last week to lobby against the steep physician payment cut.

Rep. Michael Burgess (R-Texas), a physician who serves as vice chairman of the House Energy and Commerce Health Subcommittee, echoed that sentiment in an interview.

“From what I'm hearing, there will likely be some type of patch at the end of the year on SGR,” Burgess said. “We do need to fix it long term, and I don't think anybody disagrees with that notion,” he added. “I don't think anybody in their right mind would suggest that we could fix it between now and the end of the year, so there is going to have to be a patch of some sort.”

Then the issue shifts to how Congress will pay for the fix, which currently totals about $25 billion for one year. Earlier this month, the American Hospital Association sent a letter to members of Congress highlighting four approaches that hospitals fear Congress will use to pay for the temporary patch, including payment reductions to evaluation and management services, bad debt and Medicaid assessments. They're also concerned Congress could give the CMS new authority to apply across-the-board cuts to Medicare inpatient hospital rates by using retrospective coding adjustments for fiscal 2010.

Avalere Health's Mendelson said he thinks that congressional leaders will address the SGR by Dec. 31 and that leaders will most likely look to the outpatient prospective payment system as a funding source because of a general perception this segment is overpaid.

With much of the discussion centered on the SGR in the debt negotiations, the fervor surrounding the 2% Medicare sequester—the subject of a major lobbying effort from the AMA, the AHA and the American Nurses Association in September—has quieted down a bit in Washington. One potential reason could be that providers realize cuts to Medicare are capped at 2%, unlike other federal programs that face bigger reductions.

“If you open up the BCA (Budget Control Act), you would be risking more than you could be preventing,” said Dan Boston, former chief lobbyist at the Federation of American Hospitals and currently the executive vice president and partner at the consulting firm Health Policy Source. Boston said Medicaid is exempt from the healthcare-related sequester, which is “highly unlikely to be the case in any prospective deficit-reduction package.” That is a major concern for community hospitals and safety net providers.

Mendelson posed another theory: Some healthcare providers might prefer a 2% across-the-board payment cut rather than face potentially larger reductions to other programs—such as bad debt or disproportionate-share payments—that could result from the negotiations.

“I think it's important for providers to understand: They are living in an environment of rate reductions,” Mendelson said. “And the size of the fiscal pressures is so great there is going to be more than one round of cuts in the next few years.”

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