Beyond the 'fiscal cliff'

Healthcare providers may think they got a bad deal in federal legislation to avert the “fiscal cliff,” but they should be much more concerned about the potential for larger reimbursement cuts in the next round of deficit-reduction negotiations.

On New Year's Day, Congress passed the American Taxpayer Relief Act of 2012, a tax package that also postpones for two months the automatic federal spending cuts known as the sequester.

Vice President Joe Biden and Senate Minority Leader Mitch McConnell (R-Ky.) developed the deal in the final hours of 2012.

Lawmakers followed a now-familiar pattern of using a broader bill as the vehicle to temporarily fix Medicare's sustainable growth-rate formula to pay physicians. The new law—which President Barack Obama signed the next day—staved off a 26.5% payment cut to doctors on Jan. 1 and extended payment rates through Dec. 31, 2013.

But in giving doctors a reprieve, Congress will again cut from other Medicare providers to cover the cost of paying for the SGR fix and to extend certain Medicare programs set to expire (See chart).

And even though the fiscal cliff drama has ended, healthcare providers continue to face two significant hurdles: a permanent solution to the SGR that will cost nearly $300 billion to fix and an eventual agreement on deficit reduction that is sure to include entitlement reform and more cuts to providers. Congress is now poised for another fiscal showdown that encompasses addressing the sequester it just delayed, raising the federal debt ceiling around March and funding the government for the remainder of 2013 after a current funding resolution expires March 27.

The White House noted in a summary that the “president stood firm” against GOP proposals to pay for the SGR patch with cuts to the Patient Protection and Affordable Care Act or beneficiaries. But the Obama administration's healthcare overhaul was not spared entirely.

For instance, the package rescinds all unobligated funds to the law's Consumer Operated and Oriented Plan Program, which is estimated to generate about $2.3 billion in savings. It also repealed the Community Living Assistance Services and Supports Act, which has no budget score tied to it, but ensures that the long-term-care insurance program won't resurface. Instead, the law calls for a new commission to develop a plan that implements and funds a system of long-term care services.

Hospitals were hit hardest in the fiscal deal, covering much of the tab through a documentation and coding adjustment that will phase in recoupment of past overpayments to hospitals that were made because of the transition from DRGs to Medicare-severity DRGs. That measure is expected to save about $10.5 billion. Another provision calls for re-basing disproportionate-share hospital allotments to keep the level of changes established in the Affordable Care Act, which is supposed to yield savings of about $4.2 billion.

“We think it's totally irresponsible and totally unfair to arbitrarily cut from other providers to pay for the problem Congress created,” said Richard Pollack, executive vice president for advocacy and public policy at the American Hospital Association. “And it's got to stop,” he said, noting that about $14 billion of the nearly $30 billion in cuts are to hospital payments.

But Julius Hobson, a former lobbyist for the American Medical Association who now serves as a senior policy adviser at Polsinelli Shughart, said the deal's healthcare cuts were “low-hanging fruit,” which consequently pose more serious threats in the coming weeks and months.

“The problem I see in those offsets is connected to the long-term problem: If we don't get a permanent fix in the grand deal, or if there will be many grand deals and you don't do a doc fix, where do you get the offsets for another patch?” Hobson said.

Congress needed to find only about $25 billion to temporarily fix the SGR, so they didn't have “to go big” this time around, said Eric Zimmerman, a partner with McDermott Will & Emery in Washington. Hospitals, he said, were spared cuts to bad debt, graduate medical education, and evaluation and management services. They might not be so lucky in the next go-around.

“For the president to get more room on the debt limit, chances are Republicans are going to want to see commensurate spending reductions, and that is going to require substantial changes to Medicare and Medicaid—and Congress will have to look for big dollars on those programs.”

A broader debate over entitlement reform would provide a forum to address a full repeal of the SGR. Republican physician-lawmakers are hopeful that substantive discussions on this issue will happen in 2013. Rep. Charles Boustany (R-La.), who told Modern Healthcare he voted against the fiscal cliff bill because of tax issues, said the House Ways and Means Health Subcommittee is making progress on draft legislation to address the SGR. “We're going to push very hard to get a bill,” he said, although he did not suggest how to pay for it. “Pay-fors are all up for discussion,” he added.

Rep. Michael Burgess (R-Texas) said he voted against the bill because postponing the sequester broke a promise lawmakers made to the American people when Congress created the mechanism, which was included in the 2011 Budget Control Act to compel lawmakers to reduce spending.

Burgess, a physician, also said he thinks there will be serious talks about repealing the SGR this year. He doesn't want the solution to force physicians into particular delivery models.

“There has to be a way to allow all of the different practice parameters to allow them to continue and flourish, in my opinion, in whatever is the follow-on from the SGR,” Burgess said. “That is to say, it wouldn't be right to make everyone practice in an ACO because there are some places in the country where an ACO wouldn't work.”