Featured Health Business Daily Story, Jan. 8, 2013

Cliff Deal Buoys Medicare Docs, but Hurts Hospitals; Fear of Big Further Cuts Looms

Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.

By Jonathan Block, Editor
January 7, 2013Volume 4Issue 1

While most provisions in the Affordable Care Act (ACA) were spared from any significant cuts as part of the “fiscal cliff” deal that President Obama signed into law on Jan. 3, several health care stakeholders, most notably hospitals, were impacted heavily. And although the deal was heralded as a major accomplishment, health industry observers tell HRW that stakeholders likely could suffer in the future, since the deficit reduction achieved in the deal is relatively modest and more cuts could come later this year.

Former health insurance executive Robert Laszewski, president of Health Policy and Strategy Associates, LLC, says that although a cliff deal was reached, there are three more “cliffs” to go over during the next few months. They involve raising the debt ceiling by late February, sequestration cuts impacting domestic and defense spending (since they were put off only for two months), and funding the federal government after March 27. And any of those could have negative consequences for stakeholders.

“There’s no indication that once we get through the next three cliffs, that we are even going to get through this,” he tells HRW, referring to significant deficit reduction. Laszewski adds that while health care stakeholders want certainty in how they may be affected by potential budget cuts in the future, they are unlikely to get it any time soon.

Stakeholders Could Face More Cliffs

“Everything got kicked down the road,” he says. “In order for there to be certainty in the health care market, there needs to be a grand bargain…and that’s in the $4 trillion to $5 trillion range”

The deal reached Jan. 3 includes $30 billion in health care cuts, with hospitals shouldering about half that amount. Hospitals under the deal get $10.5 billion less in projected payments from Medicare for inpatient or overnight care over 10 years. And the law would reduce Medicaid “disproportionate share” payments to hospitals by another $4.2 billion over 10 years.

Other stakeholders losing out include insurers, since they face cuts to Medicare Advantage (MA) reimbursements via a higher coding-intensity adjustment, as well as dialysis providers and vendors of diabetic test strips.

And Consumer Operated and Oriented Plans that offer health insurance under the health reform law are another big loser in the deal as funding for future CO-OPs was eliminated. Over the past two years, HHS has awarded nearly $2 billion in loans to 24 proposed CO-OPs.

Physicians who treat Medicare patients are arguably the biggest health care winners as they got their so-called “doc fix” avoiding a 26.5% Medicare pay cut that was slated to start Jan. 1. However, the fix lasts just a year.

Specific provisions of the law affecting health care stakeholders include:

  • The coding-intensity adjustment that affects pay for MA plans will be raised by 0.2 percentage points, resulting in reduced payments that the Congressional Budget Office figures will total $2.5 billion over 10 years.

  • MA Special Needs Plans and “cost” plans (i.e., relatively few MA organizations that do not bear risk) each won a one-year reauthorization — through 2014 for SNPs and 2013 for cost plans.

  • Organizations that already have won federal loans to set up CO-OPs will be eligible to get more assistance funding if needed, but the remaining 90% of about $2 billion in unspent federal CO-OP funds that are not going into this new “contingency fund” will not be spent.

  • The “CLASS Act” included in the reform law but not implemented to provide assistance on paying for long-term care because of financial concerns is repealed, and in its place Congress created a long-term care commission to submit a comprehensive report with recommendations.

  • Medicare bundled payments for end-stage renal disease will be “rebased” to save $4.9 billion.

  • Medicare will have competitive bidding for diabetic test strips purchased in retail pharmacies to save $2 billion.

The deal hammered out did not make any strategic changes for health care, says Bonnie Washington, senior vice president and leader of the health reform practice at consulting firm Avalere Health LLC. She adds that threats of Congress making additional health care cuts will loom throughout 2013.

“When I look at this package, it’s a random assortment of things that were doable to get the $30 billion to offset the [Sustainable Growth Rate methodology]” that would have led to Medicare physician payment cuts, says Washington, a former head of CMS’s Office of Legislation. “These are not structural, long-term reforms…and not particularly forward-leaning.”

Laszewski says that entitlement reform will be a huge issue for lawmakers to grapple with through the next few years, predicting that Medicare reform in particular will be a major issue in the 2016 presidential election. And although Congress created a commission to study long-term care options following the repeal of the CLASS Act, he doesn’t expect any real movement on that end.

“Are they going to create a voluntary long-term care insurance program?” Laszewski asked. “I don’t think the Democrats even have the stomach to expand entitlements in the future.”

Consultant Joseph Paduda, a former health insurance executive who is a principal at Connecticut-based Health Strategy Associates, LLC., tells HRW that since entitlement spending, such as Medicare and Medicaid, is what is driving the deficit, without significant changes to those programs the deficit never will be meaningfully reduced.

“There’s no question [Congress] isn’t going to do anything about [entitlement reform] for the foreseeable future,” Paduda says, noting the pushback Congress got from the American Medical Association over the Medicare physician reimbursement cuts.

He suggests that real deficit savings could be achieved by eliminating the Medicare Part D drug program as it had unfunded liabilities in the trillions of dollars, although he admits such a move would be politically impossible. “The fact that no one even mentioned Part D makes me believe [Congress is] not serious about Medicare and Medicaid reform….They are just trimming around the bush.”

Paduda adds that billions of dollars could be saved if Medicare was able to get the reduced federal-government pricing for drugs that the Department of Veterans Affairs benefits from.

ACA Likely Will Be Spared From Future Cuts

During cliff negotiations last month, reports surfaced that Republicans were considering cuts in funding to the ACA that could have included delaying implementation of health insurance exchanges or reducing money allotted to subsidies (HRW 12/3/12, p. 1). However, Laszewski says that in further deficit-reduction discussions, cuts to the reform law are largely off the table.

“Democrats are not going to open up the ACA [to cuts] as long as Obama is in power,” he says.

While some smaller provisions of the ACA could be tinkered with to achieve some deficit savings, Washington agrees that delaying the implementation of exchanges or reducing subsidies likely is not negotiable.

However, Washington adds that another proposal floated by Republicans during negotiations, raising the Medicare eligibility age from 65 to 67, could be part of a future deficit-reduction plan.

“I think that it could be on the table, as long as you do it over time,” she says, adding that other fixes could include increasing cost sharing on Medicare beneficiaries.

Washington also notes that she expects continued pressure from the medical device and insurance industries on Congress to scale back taxes and fees that go in effect this year and next. Medical devices now are subject to a 2.3% excise tax, while a new fee on health insurance would raise $8 billion in 2014, increasing to $14.3 billion in 2018, and will continue to rise each year, according to trade group America’s Health Insurance Plans.

“All of the [health care] industries didn’t get their taxes and fees fixed,” Washington says, adding that if Congress were to eliminate those taxes and fees, it would need to find offsets elsewhere.

View the fiscal-cliff law at www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf.

© 2013 by Atlantic Information Services, Inc. All Rights Reserved.

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