Dec. 19—Congress passed a two-year budget deal this week that contains some good news and some bad news for hospitals.

The leading hospital benefit in the bill that the U.S. Senate cleared Wednesday was a delayed start of the Medicaid disproportionate share hospital (DSH) payment cuts required by the Affordable Care Act—from 2014 to FY16. However, those cuts will increase by $3.9 billion over 10 years, according to health policy experts, as part of the annual cut doubling in the first year of implementation and the extension of cuts by another year.

Hospitals had pushed for the DSH delay because the reduced rate of uninsured used to justify cutting the DSH assistance is not expected to occur due to both enrollment problems in the ACA websites and the refusal of half the states to expand their Medicaid eligibility. 

The leading concern for hospitals was that the budget deal extended for two more years—until 2023—the sequester cuts created by the Budget Control Act of 2011. That law required a 2 percent reduction in all Medicare provider and insurer payments for 10 years, which accounted for $120 billion of the sequester’s $1.2 trillion in deficit reductions.

“Delaying the DSH cuts is an acknowledgement that enrollment under the ACA has not gone as smoothly as planned,” said Chad Mulvany, director of healthcare finance policy, strategy, and development for HFMA. “The short-term benefit of delaying the DSH cuts is clear. The impact of the two additional years of sequester cuts is less certain. It’s a long time between now and 2023.”

The two-year budget agreement also gives federal agencies more flexibility in implementing the sequester for FY14 and FY15. The law required cuts around 5 percent for many agencies, including the National Institutes of Health and the Centers for Disease Control and Prevention.

Some Hospital Types Benefit

Several specific Medicare payments set to expire also received extensions under the bill, including an extension to the end of March of the Medicare inpatient hospital payment adjustment for low-volume hospitals and the Medicare dependent hospital program.

The measure also extended through March the Medicare work geographic practice cost index floors for physician payments, the Medicare Part B therapy caps exceptions process, and the Medicare ambulance payment add-ons.

The law established new patient criteria for long-term care hospitals (LTCHs), which will go into effect in 2016. The new policy—long sought by LTCH advocates—may offset the $3 billion, 10-year reduction in their Medicare payments.

The measure’s payment reforms preempted changes planned by the Centers for Medicare and Medicaid Services, according to health policy experts. Those payment reforms include the creation of a site-neutral payment for LTCHs set at the lesser of acute care hospital rates or 100 percent of estimated costs.

Physician Savings Identified

The bill delayed for three months a 20.1 percent cut in Medicare payments to physicians, which was scheduled to begin Jan. 1. The delay, which aimed to give Congress more time to pass a permanent repeal of the Medicare funding control mechanism, also included a 0.5 percent increase over the three months.

So far, three congressional committees have approved similar bills to repeal Medicare’s sustainable growth rate formula (SGR). Although there are some differences between the bills—a 10-year freeze in the Senate bill compared with a small increase in the House bill for physicians who do not move to quality-based payments—the biggest obstacle to passage is the lack of a bipartisan way to pay for eliminating the SGR.

Publication Date: Thursday, December 19, 2013