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Three more fiscal cliffs are on the horizon

January 11, 2013
   Hospital leaders get ready.

More “fiscal cliffs” are coming.

Congress and the White House last week may have managed to avert a fiscal cliff – for now – but Washington soon will confront three more serious fiscal challenges. How the president and legislators deal with them could have serious consequences for America’s hospitals and funding for patient care.

Just a week after the “American Taxpayer Relief Act” cut hospital payments by more than $14 billion, the AHA and hospital leaders are bracing for the possibility that fiscal showdowns over the debt ceiling, sequester and an expiring continuing federal budget resolution could trigger new rounds of cuts in funding for hospitals’ Medicare and Medicaid services.

The debt ceiling. The president had barely signed the fiscal cliff legislation into law on Jan. 2, when lawmakers began sparring over the limit on federal borrowing. Republicans say they will press their demand for deep spending cuts, with House Speaker John Boehner, R-OH, insisting on a dollar reduction in federal spending for every dollar increase in the nation’s borrowing limit. But the White House and congressional Democratic leaders insist they won’t negotiate on the goal of raising the $16.4 trillion debt ceiling, which officially reached its limit on Dec. 31.

By late February or early March, the Treasury Department will run out of options to cover the nation’s debts and could begin defaulting on government loans unless Congress raises the legal borrowing limit, or debt ceiling.

Economists warn that a default could trigger a global recession.

At stake: a possible governmental shutdown.

The sequester.
In approving the taxpayer relief legislation, Congress decided to push off any decisions for two months about the $110 billion in spending cuts included in the fiscal cliff – a legacy of the last battle over the debt ceiling in 2011. Half needed to from defense and half from other portions of the government’s budget, including an automatic 2% cut in Medicare funding.

Those deep automatic Medicare spending cuts are expected to take effect for hospitals at the beginning of April, about a month after the sequester patch expires, unless Congress decides to replace some or all of those planned reductions with cuts in funding for other programs.

The continuing budget resolution.

The federal government works on a fiscal year that starts every Oct. 1. Both chambers of Congress are supposed to adopt by April 15 their own budget resolutions, which are to broadly outline how much the government will collect and spend for the year. This is when the appropriations committees are supposed to get to work in each chamber, drawing up 12 separate bills that outline how much money will go to different agencies for various programs. Each chamber is supposed to pass its own versions of the 12 bills, then negotiate the differences between them and pass identical measures by the time the fiscal year ends Sept. 30.

But it seldom works that way. Instead, lawmakers usually buy time with short-term spending bills – or continuing resolutions – that keep the government open. On March 27, the temporary measure that funds government activities expires, and congressional approval will be needed for another continuing resolution to avoid a temporary shutdown of some government functions, worker furloughs and a pullback in programs. That’s one more chance to fight over spending.

In a recent message to AHA members, AHA President and CEO Rich Umbdenstock warned that Congress will be eyeing “many of the same proposals that would further reduce Medicare and Medicaid funding for hospital services” as it deals with these fiscal issues. He urged hospital leaders to “make it perfectly clear to our federal legislators that any further cuts will have serious consequences for patients – longer waits for care, less access to the latest treatments and fewer caregivers to provide services.” Fiscal cliff legislation and physician payments. The “American Taxpayer Relief Act” cut hospital funding to help pay for a 12-month extension of the Medicare physician payment fix, the latest in a series of short-term patches for the payment formula.

To help offset the cost of that estimated $25.1 billion fix, the legislation included a $10.5 billion cut in hospital payments through a “coding adjustment” that will be in effect from fiscal years 2013 through 2017. The legislation also would extend lower Medicaid payments to disproportionate share hospitals – those that treat a high number of uninsured or low-income beneficiaries – saving $4.2 billion.

“While fixing the physician payment formula is essential, it should not be done by jeopardizing hospitals’ ability to care for seniors and their communities,” said Umbdenstock, following passage of the bill.

The legislation also extends a number of health care provisions, including ambulance add-on payments; the low-volume adjustment add-on; and the Medicare-dependent hospital (MDH) program, which had been sought by the AHA and rural hospital advocates.

Extending the MDH program will give Nanticoke Memorial Hospital in Seaford, DE, an “opportunity to further implement strategic initiatives,” like clinical integration, a patient-centered medical home and electronic health records, said hospital president and CEO Steven Rose. “It certainly gives us breathing room and avoids eliminating jobs,” he said. Rose met with lawmakers on Capitol Hill, following a Nov. 29 AHA-hosted Advocacy Day briefing to urge support for the program.

So did Michael Myers, CEO of Veterans Memorial Hospital in Waukon, IA. “Given the percentage of small hospitals already experiencing financial distress, further reductions in reimbursement could be catastrophic to people in rural areas across the country,” he said earlier this week.

Medicare provisions that expired in 2012 and did not make it into the legislation included programs that: provided reasonable cost-reimbursement for laboratory services in small, rural hospitals; direct payment to independent labs for the technical component of physician pathology services provided to hospital patients; and transitional “hold harmless” outpatient payments that are intended to prevent certain rural hospitals from receiving steep reductions in reimbursement; as well as the Section 508 program that allowed hospitals to apply to the Medicare Geographic Classification Review Board for reclassifications to a neighboring urban or rural area for purposes of receiving a higher wage index.

Among other Medicare provisions, the legislation continues for one year a process allowing exceptions to a per-beneficiary cap on payments for outpatient therapy services provided outside of hospitals; the cap for therapy services received in hospital outpatient departments; and the “physician work index” which accounts for regional differences in the cost of resources needed to provide Medicare physician services would be continued for one year. The legislation also extends the statute of limitations on Medicare overpayment recoveries from three years to five years.

By Pete Davis