Hospitals Play Waiting Game on Automatic Medicare Cuts

Medicare.






Publication: Healthcare Financial Management
Date published: January 1, 2012

With the congressional deficit-reduction committee's failure to agree on at least $1.3 trillion in spending cuts over the next decade, providers are using the extra time to begin preparing for across-the-board cuts to Medicare by considering ways to reduce cost structures before 2,013.

The 12-member bipartisan committee, established in August as part of the agreement to raise the federal debt ceiling, could not come to an agreement on budget cuts, paving the way for automatic Medicare cuts. The reductions in payments to physicians, hospitals, and other healthcare providers will hit hospitals harder than any other health industiy.

The automatic, or sequestration, cuts are split between defense and domestic programs, with cuts in Medicare provider payments capped at 1 percent annually. The sequestration cuts are concentrated largely on providers and plan payments, including a 3? percent reduction to inpatient hospital care, 15 percent cut to Medicare Advantage plans, and a 13 percent reduction to physician payments, according to a study by Avalere Health LLC.

Although Congress will likely revisit ways to reduce the federal deficit before 2oi3, various proposals submitted by the committee could be approved, leading to an additional $400 billion to $600 billion in Medicare and Medicaid reductions during the next 10 years, according to an HFMA analysis. In addition to cuts that directly impact hospitals, several proposals target beneficiaries, such as increased cost sharing and Medigap reforms that place additional margin pressure on providers.

With more time to prepare for funding cuts, providers will spend the next year reexamining services offered and how services are delivered, with an eye to reducing administrative costs. Delivering cost-effective care will minimize waste, such as avoidable admissions and duplicative testing, and provide financial sustainability as hospitals prepare for the possibility of additional payment cuts, according to the HFMA analysis.

Hospitals are likely to see an estimated $63 billion in Medicare cuts through 2031, while physician payments will be reduced by $25 billion, according to forecasts by the Centers for Medicare & Medicaid Services. Although targeted reductions to payments to teaching hospitals and rural healthcare providers, as well as payments to cover bad debt, have been forestalled, these items are likely to be at the top of the list of considered cuts when Congress is forced to revisit Medicare spending.

With no deficit-reduction plan in place, Medicare physician payments are scheduled to be cut by 37.4 percent in 2013. The American Medical Association (AMA) had hoped that the committee would eliminate the sustainable growth rate formula, but the committee could not agree on the change and the formula remains intact, triggering across-the-board spending cuts that the AMA's president, Peter W. Carmel, MD, says "do not address critical structural problems in the federal budget." Says Carmel, "Once again, Congress failed to stop the annual charade of scheduled Medicare physician payment cuts and short-term patches, which spends more taxpayer money to perpetuate a policy everyone agrees is fatally flawed."

MAGIC NUMBER: One in every three employers with more than 500 workers offers incentives and penalties to boost employee participation in health management and wellness programs, according to Mercer's National Survey of Employer-Sponsored Health Plans.

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