Short Takes On News & Events

‘Doc Fix’ In ‘Fiscal Cliff’ Plan Cuts Medicare Hospital Payments

By Mary Agnes Carey

January 1st, 2013, 5:53 PM

Updated at 9:30 a.m. on January 2.

Legislation passed by Congress New Year’s Day to avert the dreaded “fiscal cliff” would stop a scheduled payment cut in Medicare physician payments. But hospitals, which have to bear a major part of financing for that “doc fix,” are not happy.

Photo by Karl Eisenhower/KHN

The bill would require that, over the next decade, hospitals pick up nearly half  of the approximately $30 billion cost of stopping a 26.5 percent payment cut for Medicare physicians, scheduled to begin today.

The 26.5 percent reduction for doctors comes from a payment formula created in a 1997 deficit reduction law. For the first few years, doctors received modest pay increases. But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut under that plan. Every year since, Congress has staved off the scheduled cuts.

The package would reduce hospital payments in two ways. First, it would cut $10.5 billion from projected Medicare hospital payments over 10 years for inpatient or overnight care through a downward adjustment in annual base payment increases. The Senate measure also would reduce Medicaid disproportionate share payments to hospitals by an additional $4.2 billion over the next decade.   These cuts are on top of those made to hospitals as part of the 2010 health care law.

Groups representing hospitals said the new plans for reductions will hurt their ability to care for patients.

“While fixing the physician payment formula is essential, it should not be done by jeopardizing hospitals’ ability to care for seniors and their communities,” Rich Umbdenstock, president and chief executive officer of the American Hospital Association, said in a written statement.

Chip Kahn, president and CEO of the Federation of American Hospitals, also expressed dismay that hospitals funded much of the doc fix. “It is not in the best interest of patients or those who care for them to rob hospital Peter to pay for fiscal cliff Paul,” he said.

The American Medical Association said that the “last-minute action” is “a clear example of how the Medicare program is increasingly unreliable for physicians and patients.”

Dr. Jeremy Lazarus, president of the AMA, said “Congress’ work is not complete; it has simply delayed this massive, unsustainable cut for one year. Over the next months, it must act to eliminate this ongoing problem once and for all.”

The bill also would continue a number of Medicare policies known as “extenders.” Those extenders include a wide variety of policies, including  special provisions for some low-volume hospitals and charges for ambulance and physical therapy costs.

Other items in the package that would finance the “doc fix” and Medicare extenders include rebasing bundled payments for end stage renal disease (saves $4.9 billion), implementing competitive bidding for diabetic test strips purchased in retail pharmacies (saves $600 million) and reducing risk-adjusted payments to Medicare Advantage plans ($2 billion).

In addition to the physician payment fix, the bill alters tax rates and delays a series of automatic cuts in federal spending, called “sequestration,” scheduled to go into effect Jan. 2. That includes a 2 percent reduction to physicians and other Medicare providers – including hospitals.

While seniors would see no changes in their benefits under sequestration,  Medicare providers will face $11 billion in cuts through the end of the government’s fiscal year on Sept. 30.

This article was produced by Kaiser Health News with support from The SCAN Foundation.

8 Responses to “‘Doc Fix’ In ‘Fiscal Cliff’ Plan Cuts Medicare Hospital Payments”

  1. Dan Ross says:

    $billions more to be cost-shifted on to the backs of employer sponsored health plans.
    Welcome to a “double-dose” of the law of unintended consequences!

  2. K Lowery says:

    Oh no! This is really going to cut into the profit margins of the big hospital corporations. What will they do now, since they’ve already greatly reduced the workforces in their hospitals?

    I guess their profits will have to come at the expense of “caring for seniors and their communities,” because they are NOT….I repeat, NOT going to lose their profits!

    Don’t believe this rhetoric. Instead, ask someone who works in the trenches of this industry if you want the reality of this situation.

  3. Ha. When it comes to healthcarein the U.S., the dreaded “death panels” have always been private insurance companies and GSE’s such as Medicare. It’s so nice to see the consistency of the Congre$$ional puppetry when it comes to throwing elderly/disabled/working class under the bus.

  4. Jrosenmd says:

    profit margins of big hospital corporations??
    what about all the non profit hospitals.
    NY has lost 11 hospitals in 5 years.
    That number is only going to increase.
    And people will lose their jobs.

  5. limapie says:

    What about the Affordable HealthCare Act made things affordable?

    Everyone knows it did nothing to answer the former (?) complaint
    “How come the insured have to pay for those who are not insured?”

    Now this! The end result is that the central/controlling government is deciding
    how much the hospitals are going to raise their prices to all the
    employer-insureds cause the Medicare-insureds aren’t pulling
    their weight. Nothing about this whole scheme makes
    anything AFFORDABLE! It just shifts prices. The hospitals will
    never take a reduction in revenue.

    Throw it all completely out the window and start over….this time
    let market forces actually work to make prices affordable.
    Medical Care in this country is not in line with the rest of the
    economy! Poor people—-a growing population—-just can’t
    pay expensive prices. The medical industry, in order to stay
    afloat in a truly effective marketplace, would then have to
    become for the first time in their lives—-affordable.

    The whole problem of affordability is never ever going to go away until
    people stop playing trading games and start acting honestly with the
    real problem at hand.

  6. CML says:

    one of the big problems with this will be that anyone who is employed will receive yet another pay cut – only this time it will be more than just 1-2% of your net pay. insureance premiums will skyrocket (even relative to what they have been), as well as out of pocket expenses. this so called “affordable healthcare” really just penalized those who work for a living

  7. Chubby Surgeon says:

    If you think healthcare is expensive now, just wait until its free. Oops, were here!

  8. Congress must stop Obama’s proposed budget item of a total of $307 Billion in grants for the Silicon Valley computer industry. Carry those huge grants to our health systems and public programs. The huge, huge grants will obviously flow to unknown persons and companies without control– as we have unfortunately learned with other government programs. Block the $307 Billion Silicon Valley bonanza and claim those precious monies for the nation’s health systems and help for the impoverished sector. .