The net result of the most recent crises in Washington is more deadlines. What should providers expect in the next three months from Congress?


Although Congress’s mid-October deal ended the government shutdown and temporarily raised the debt ceiling, it merely delayed addressing pressing fiscal issues. Expectations for the budget conference that resulted from the deal are rightfully low; however, a deal of any size will impact provider payments. 

For providers, the uncertainties in this mix include the now-annual deliberations about cuts to the Medicare physician payment formula (SGR). Providers should not sit idly by waiting to see what happens; they should take steps now to position themselves for continued success regardless of the outcome.

Dates to Watch 

The fiscal deal included three key dates. The debt ceiling was temporarily suspended (and therefore raised) until Feb. 7, 2014. The deal also included a continuing resolution ending a 16-day government shutdown by funding operations of the federal government at 2013 post-sequestration levels ($986 billion on an annual basis) until Jan. 15, 2014. Finally—in an attempt to break what has become a familiar cycle of unnecessary crises related to the appropriations process and debt ceiling—the deal sets a Dec. 13 deadline for a long-awaited Budget Conference Committee to attempt to reconcile the differing budgets passed by the House and Senate this spring. If the committee can produce a budget acceptable in the Oval Office and both chambers, the odds of avoiding a repeat of October are greatly improved.

Expectations for the bicameral, bipartisan group are far lower than those for the “Super Committee” created by the Budget Control Act in 2011. The same deeply entrenched philosophical issues that have so far obstructed compromise remain stubbornly in place, while the recent deal lacks any type of enforcement mechanism, such as additional automatic cuts. 

This time around, talks of a grand bargain are nonexistent. Instead, hopes are for a compromise that increases the debt limit for two years and relaxes sequestration. Even this outcome is unlikely given the reluctance of conservatives to consider revenue increases and of liberals to accept significant cuts to entitlement programs. Given the electoral calendar, the most likely outcome (whether it is brokered by the budget conferees, an 11th-hour deal to forestall a repeat of October, or something in between) will be to fund the federal government through September and extend the debt ceiling for another 12 months. 

With mid-term elections, Congress will not want to punt the debt ceiling again, lest the issue be used against Republican incumbents in primary challenges and against incumbent Democrats during the general election. Therefore, increasing the debt ceiling for a year will require $1 trillion in spending cuts or revenue increases on top of any adjustments to the sequester. Moreover, whether or not it’s part of a fiscal deal, any cost related to a SGR fix will need to be offset. 

The current patch enacted to stave off deep cuts to physician payment expires on Dec. 31. Without congressional intervention, physician payments would be reduced by about 24.4 percent across the board. Although draconian by any measure, these cuts are lower relative to prior years due to recent historically low growth in Medicare per beneficiary spending. 

Given that a long-term SGR fix is on sale, Congress is taking steps toward a permanent solution. In July, the House Ways and Means Committee reported a bill out for floor consideration. At the end of October, the House Energy and Commerce and Senate Finance Committees released a bipartisan framework outlining a possible SGR fix. The efforts shared commonalities in that they incorporated a mechanism similar to the physician value modifier to adjust payment based on cost efficiency and quality, encouraged physicians to migrate to alternative payment mechanisms that include a risk-bearing component, and lacked specific cuts to offset the cost associated with eliminating the SGR. 

What Can Providers Expect?

Once again, Congress has much on its plate that affects providers and little time to resolve these issues. 

Unless Congress punts again, providers can expect more cuts as a result of a fiscal deal. The extent of the cuts will depend on whether the sequester is addressed and how those changes are offset. To varying degrees, both parties have expressed an interest in restoring funds to the defense and discretionary (e.g., transportation project, education) sectors. If the sequester is significantly relaxed, it is likely that Medicare and Medicaid cuts will be used as offsets given the role mandatory entitlement programs play in the nation’s long-term structural deficit. 

To understand which provider types might be disproportionately impacted by a fiscal deal, it’s useful to compare the President’s budget with other bipartisan proposals to reduce the deficit. Here is a list of items that have been frequently suggested as potential offsets, along with recommended amounts taken from the President’s budget (although actual amounts will vary based on the individual deficit reduction proposal):

  • Medicare bad debt payments—$25 billion
  • Medicare indirect medical education payments—$11 billion
  • Medicaid disproportionate share hospital payments—$3.9 billion
  • Critical access hospital reimbursement (Reduced to 100 percent of cost)—$ 1 billion
  • Post-acute payments for skilled nursing facilities (SNFs) and home health agencies—$79 billion
  • SNF readmission penalties—$ 2.2 billion

Although not included in the President’s budget, it’s reasonable to expect that additional reductions to inpatient prospective payment system (PPS) rates to recoup alleged coding creep associated with the implementation of MS-DRGs could be included in any package. Also, depending on whether the final rule for the outpatient PPS affirms the proposal to collapse multiple clinic visits into one CPT code, site-neutral payment for provider-based evaluation and management services could be implemented.

In addition to offsetting any fiscal deal, some of the cuts above will likely be used to pay for an SGR fix. Depending on how a long-term fix is ultimately structured, the Congressional Budget Office (CBO) estimates it will cost between $139 billion to $175 billion. By contrast, although a CBO score is not available, another year-long patch will likely cost around $20 billion. Given the difficulty in finding sufficient savings to extend the debt ceiling through the 2014 midterm election and the limited time on the clock, it is likely Congress will opt for yet another short-term fix.

Preparing for the Inevitable 

On the surface, for hospital leaders, it may seem that navigating the anticipated reductions to Medicare and Medicaid payments has no relation to the changes in the Medicare physician payment system. Yet managing the anticipated cuts in Medicare and Medicaid requires moving beyond traditional, piecemeal approaches to cost reduction. And understanding the impact of payment changes on physicians could facilitate a more comprehensive approach. 

Clinicians and finance staff will need to collaborate to reengineer care delivery to both improve quality and reduce cost. Organizations that can align with physicians will achieve sustainable changes in cost structure, better preparing them for reduced federal payment. 

Familiarity with the physician value modifier may offer such an opportunity. Therefore, regardless of what happens with the SGR this year, hospital and health system leaders should acquaint themselves with how it works. The value modifier bases a portion of physician payment on cost efficiency and quality. It applies to all physicians in 2017 and is conceptually similar to central elements in both long-term SGR replacement proposals. By understanding it, hospital leaders can identify opportunities to collaborate with physicians to reduce cost of care delivery not only for the hospital, but also for the patient and the Medicare program. 

Chad Mulvany is a technical director in HFMA’s Washington, D.C., office and a member of HFMA’s Virginia-Washington, D.C., Chapter.

Publication Date: Monday, December 02, 2013

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