Spe­cial Report: Providers brac­ing for new fis­cal fights

Providers brace for ad­di­tional bud­getary and reg­u­la­tory chal­lenges em­a­nat­ing from Washington

Modern Healthcare - - FRONT PAGE - Rich Daly and Jes­sica Zig­mond

“I agree with Democrats and Repub­li­cans that the ag­ing pop­u­la­tion and the ris­ing cost of health­care makes Medi­care the big­gest con­trib­u­tor to our deficit. I be­lieve we’ve got to find ways to re­form that pro­gram with­out hurt­ing se­niors who count on it to sur­vive. And I be­lieve that there is fur­ther un­nec­es­sary spend­ing in government that we can elim­i­nate. But we can’t sim­ply cut our way to pros­per­ity.” —Pres­i­dent Barack Obama, at a Jan. 1 news con­fer­ence “The trustees of Medi­care and So­cial Se­cu­rity say that Medi­care is go­ing to tank in 10 years. The ques­tion is, are we go­ing to pre­serve th­ese pro­grams for fu­ture ben­e­fi­cia­ries? The pres­i­dent should be lead­ing, not be­ing dragged to the ta­ble by Repub­li­cans who want to solve the big­gest prob­lem con­fronting the fu­ture of our na­tion.” —Se­nate Mi­nor­ity Leader Mitch McCon­nell (R-Ky.), Jan. 6, on NBC’s “Meet the Press”

This year was an­tic­i­pated as the fi­nal dash to­ward the 2014 roll­out of the health­care re­form law’s ma­jor pro­vi­sions. But the health­care in­dus­try is also coming to the re­al­iza­tion that 2013 will prob­a­bly be re­mem­bered for more fis­cal fights and deep fed­eral cuts.

Many of the prom­i­nent health­care de­vel­op­ments in the months ahead are ex­pected to cen­ter around coming fed­eral and state reg­u­la­tions that will pro­vide fi­nal de­tails for the ma­jor pro­vi­sions of the Pa­tient Pro­tec­tion and Af­ford­able Care Act that fi­nally take ef­fect next year.

Sev­eral of those reg­u­la­tions are ex­pected to clar­ify de­tails of the coming state health in­surance ex­changes, a cen­tral pil­lar of the 2010 re­form law that will pro­vide in­surance cov­er­age for an es­ti­mated 25 mil­lion Amer­i­cans by 2022, ac­cord­ing to the lat­est pro­jec­tion from the Con­gres­sional Bud­get Of­fice.

A key com­po­nent of the ex­changes is “es­sen­tial health ben­e­fits,” or the package of re­quired cov­er­age and cost-shar­ing lim­i­ta­tions for health in­surance plans sold through those mar­ket­places. Pro­posed rules de­tail­ing the es­sen­tial health ben­e­fits is­sued in Novem­ber are draw­ing con­cerns from in­sur­ers that some pro­vi­sions could sharply re­duce the num­ber of peo­ple seek­ing ex­change-plan cov­er­age be­cause plans are re­quired to in­clude costly ben­e­fits and limit cost dif­fer­ences be­cause of age.

“Un­less cov­er­age is af­ford­able, younger and health­ier peo­ple may choose to forgo pur­chas­ing in­surance un­til they are sick or in­jured,” re­gard­less of the penal­ties for not hav­ing in­surance un­der the in­di­vid­ual man­date pro­vi­sion, Daniel Durham, ex­ec­u­tive vice pres­i­dent for pol­icy and reg­u­la­tory af­fairs at Amer­ica’s Health In­surance Plans, wrote to HHS. “If that hap­pens, costs will in­crease for ev­ery­one.”

Dan Men­del­son, CEO of Washington- based Avalere Health, says he ex­pects that a lot of en­ergy in the health sec­tor this year will fo­cus on ex­change health plans con­tract­ing with providers and drug­mak­ers. The num­ber of such con­tracts that have been com­pleted is un­known, but so far those ne­go­ti­a­tions have sur­prised hos­pi­tals, he says, be­cause the nar­rower profit mar­gins ex­pected for ex­change plans have driven tough ne­go­ti­a­tions.

“The health plans are try­ing to make them as com­pet­i­tive as pos­si­ble so that they can keep their rates lower and so that they can at­tract cus­tomers with a low pre­mium in a com­pet­i­tive mar­ket­place,” Men­del­son says.

This year also will see a range of op­er­a­tional rules from states that launch their own health in­surance ex­changes. Fed­eral rules al­low states to se­lect a bench­mark plan that cov­ers all con­di­tions and treat­ments re­quired by state law. That is draw­ing con­cern from the Amer­i­can Med­i­cal As­so­ci­a­tion, which says it could drive up plans’ costs and thereby cut cov­er­age ex­pan­sions.

“The success of ex­changes to a large ex­tent will de­pend on en­sur­ing the right bal­ance be­tween an ap­pro­pri­ate package of ben­e­fits and the af­ford­abil­ity of pre­mi­ums and cost-shar­ing,” Dr. James Madara, ex­ec­u­tive vice pres­i­dent and CEO of the AMA, wrote in a Dec. 21 let­ter to the CMS on those pro­posed rules.

Mean­while, many health­care ad­vo­cacy or­ga­ni­za­tions are fo­cused on lower-pro­file rules ex­pected this year that could have an out­sized im­pact on their mem­bers.

Phar­ma­ceu­ti­cal com­pa­nies are an­tic­i­pat­ing the re­lease of the fi­nal rule for the Physi­cian Pay­ment Sun­shine Act, which will re­quire dis­clo­sure of de­vice and drug com­pany funds flow­ing to clin­i­cians. Ceci Con­nolly, man­ag­ing di­rec­tor of Price­wa­ter­house­Coop­ers’ Health Re­search In­sti­tute, says many of the com­pa­nies her firm rep­re­sents have al­ready im­ple­mented sev­eral of the changes in­cluded in pro­posed reg­u­la­tions for the law, such as track­ing and pub­licly re­port­ing de­tails on their physi­cian pay­ments.

“We know they’ve al­ready been mov­ing in that di­rec­tion and chang­ing their prac­tice for some time, so the fi­nal rule is prob­a­bly a bit more of a de­tail,” she says.

Hos­pi­tals are fo­cus­ing on rules that will de­tail the way the CMS will de­rive sav­ings un­der the health­care over­haul, which are in­de­pen­dent of fis­cal fights ex­pected this year. Rules also will de­tail the im­ple­men­ta­tion of hospi­tal cuts re­quired un­der a re­cent deal to de­lay for one year a cut in Medi­care’s physi­cian pay­ment for­mula. The an­nual in­pa­tient prospec­tive pay­ment sys­tem up­date is ex­pected to de­tail the health law’s $11 bil­lion shift in dis­pro­por­tion­ate-share hospi­tal pay­ments, based in part on changes in the def­i­ni­tion of un­com­pen­sated care.

“It’s very tech­ni­cal, but it’s go­ing to shift a lot of money around for our mem­bers,” says Ash­ley Thompson, vice pres­i­dent and deputy di­rec­tor of pol­icy at the Amer­i­can Hospi­tal As­so­ci­a­tion.

Hos­pi­tals and other providers also are hope­ful that 2013 will in­clude the long-awaited re­lease of Food and Drug Ad­min­is­tra­tion fi­nal reg­u­la­tions im­ple­ment­ing the unique de­vice iden­ti­fier pro­vi­sion for med­i­cal im­plants. The AHA and Pre­mier health­care al­liance wrote the FDA in Novem­ber urg­ing ac­cel­er­ated adop­tion of a pro­posed rule im­ple­ment­ing the pro­gram, which was re­quired un­der a 2007 law to iden­tify most med­i­cal de­vices with a des­ig­nated code.

Ear­lier im­ple­men­ta­tion dead­lines con­tained in the statute have been missed, but the pro­posed rule sug­gested a seven-year roll­out. Hos­pi­tals hope that can be re­duced in a fi­nal rule to three years.

It also re­mains pos­si­ble that HHS could is­sue more reg­u­la­tions that the health­care in­dus­try has not yet an­tic­i­pated.

“We don’t know how many rules are out­stand­ing be­cause of the way that the Af­ford­able Care Act is writ­ten,” Con­nolly says about wide dis­cre­tion the law gives to the HHS sec­re­tary.

On the chop­ping block

Si­mul­ta­ne­ously, this year also will likely be known as a time of deep provider cuts.

Newly im­ple­mented Medi­care hospi­tal cuts could spawn lay­offs as providers look to re­duce costs in case un­com­pen­sated-care sav­ings do not ma­te­ri­al­ize next year, says Ken Perez, MedeA­n­a­lyt­ics’ di­rec­tor of health­care pol­icy. An es­ti­mated $36 bil­lion in hospi­tal cuts re­quired by a com­bi­na­tion of pro­vi­sions of the re­form law, one-year physi­cian pay patch off­sets and the specter of loom­ing pro­gram changes—whether the fed­eral se­quester goes for­ward or is re­placed—have al­ready led about 20 large hos­pi­tals and health sys­tems to cut at least 3,000 em­ploy­ees, mostly nurses, he says.

“It’s an un­in­tended con­se­quence of the re­im­burse­ment cuts and then the de­lay in the

“We fixed one of the fis­cal cliffs, but there seems to be a se­ries of more coming our way. This causes a lot of un­cer­tainty for our mem­bers. Are there go­ing to be more cuts? What’s go­ing to hap­pen?”

—Ash­ley Thompson vice pres­i­dent and deputy di­rec­tor of pol­icy Amer­i­can Hospi­tal As­so­ci­a­tion

(cov­er­age) ex­pan­sion not start­ing un­til a year later,” Perez says.

It’s a trend he sees ac­cel­er­at­ing over the year as hospi­tal fi­nance of­fi­cers an­a­lyze the new Medi­care mar­gins once pro­gram re­duc­tions go into ef­fect.

“I would sug­gest that at the end of the first quar­ter there will be a wake-up call for a lot of health sys­tems,” he says.

As the health­care in­dus­try awaits—and even­tu­ally im­ple­ments—the reg­u­la­tions, they face a fed­eral leg­isla­tive back­drop that prom­ises more po­lit­i­cal di­vi­sive­ness and a slew of in­tense bud­get bat­tles ex­pected to bring ad­di­tional hits to fed­eral health­care pro­grams.

“We fixed one of the fis­cal cliffs, but there seems to be a se­ries of more coming our way,” says the AHA’s Thompson. “This causes a lot of un­cer­tainty for our mem­bers. Are there go­ing to be more cuts? What’s go­ing to hap­pen?”

With the lat­est fis­cal hur­dle cleared on New Year’s Day (Jan. 7, p. 8), the next round of bud­getary skir­mishes in Washington will sur- face al­most im­me­di­ately and more could ex­tend through­out the year. Ilisa Halpern Paul, man­ag­ing di­rec­tor of government re­la­tions at Drinker, Bid­dle & Reath, says she thinks of Washington’s fis­cal out­look this year as a mo­saic, with each in­di­vid­ual bud­get fight a sep­a­rate tile in the full pic­ture.

First up will be fed­eral ne­go­ti­a­tions to raise the na­tion’s fed­eral debt ceil­ing so the U.S. can con­tinue to meet its fi­nan­cial obli­ga­tions. The na­tion reached its debt limit Dec. 31 and the Trea­sury De­part­ment has since re­lied on emer­gency bor­row­ing author­ity. Just last week, the Bi­par­ti­san Pol­icy Cen­ter, a Washington-based think tank, es­ti­mated the coun­try will be un­able to pay all of its bills as early as Feb. 15.

The debt-ceil­ing de­bate will run con­cur­rently with dis­cus­sions to ad­dress the se­quester, the au­to­matic fed­eral spend­ing cuts orig­i­nally set to take ef­fect Jan. 1 that Congress post­poned for two months in its re­cent “fis­cal cliff” com­pro­mise. Dur­ing that time, Congress has the ad­di­tional task of fund­ing the government through­out the re­main­der of 2013, as a cur­rent res­o­lu­tion cov­er­ing 12 spend­ing bills is set to ex­pire March 27.

“It’s like walking, chew­ing gum, quot­ing Shake­speare and singing an aria,” Halpern Paul says of the fi­nan­cial puzzles Congress and the Obama ad­min­is­tra­tion will try to solve. She also em­pha­sized that the the ex­pir­ing con­tin­u­ing res­o­lu­tion of­ten gets over­looked be­cause of the larger debt-ceil­ing and se­quester is­sues. But it shouldn’t, given that government agen­cies won’t re­ceive fund­ing un­less Congress keeps the government run­ning through Sept. 30.

“Un­for­tu­nately, in this en­vi­ron­ment, noth­ing is safe—even NIH, which has en­joyed broad, bi­par­ti­san sup­port,” Halpern Paul says, re­fer­ring to the Na­tional In­sti­tutes of Health. “Given the over­ar­ch­ing deficitre­duc­tion men­tal­ity, I think there is a phi­los­o­phy of some that ev­ery­body has to give a lit­tle. I think no­body is go­ing to be ex­empt from an­te­ing into the pot,” she says. “Those of us who have long ad­vo­cated for re­search and pub­lic health are par­tic­u­larly wor­ried.”

Eric Zim­mer­man, a part­ner with McDermott Will & Emery, warns that the Medi­care pro­grams that were spared cuts in the re­cent fis­cal-cliff deal—namely pay­ments for bad debt, grad­u­ate med­i­cal ed­u­ca­tion, crit­i­calac­cess hos­pi­tals and eval­u­a­tion and man­age­ment ser­vices—will resur­face in the 2013 debt talks. E&M ser­vices gen­er­ated in­ter­est as a cost-cut­ting mea­sure es­pe­cially af­ter the

Medi­care Pay­ment Ad­vi­sory Com­mis­sion sug­gested a re­duc­tion in those pay­ments in the panel’s March 2012 report to Congress. MedPAC rec­om­mended that Congress di­rect HHS to re­duce pay­ment rates for E&M of­fice vis­its pro­vided in hospi­tal out­pa­tient de­part­ments so that pay­ment rates are equal whether the ser­vices take place in a physi­cian’s of­fice or hospi­tal out­pa­tient de­part­ment.

“I think E&M will be talked about a great deal” in up­com­ing ne­go­ti­a­tions, says Dan Bos­ton, ex­ec­u­tive vice pres­i­dent and part­ner at Health Pol­icy Source, a Washington-based con­sult­ing firm. And while he says hos­pi­tals were suc­cess­ful in ma­neu­ver­ing around this is­sue in the just-ended fis­cal-cliff dis­cus­sions, he thinks this pay­ment area has im­pli­ca­tions be­yond hos­pi­tals.

“It’s not a hospi­tal pay­ment is­sue, but an in­te­grated-de­liv­ery is­sue. If we’re mov­ing to­ward more in­te­gra­tion and more co­or­di­na­tion of care and hold­ing folks ac­count­able, you can’t cut them for that,” he says. “What the fed­eral government can do is make sure that the peo­ple re­ceiv­ing the ben­e­fit are meet­ing the cri­te­ria.”

Above the var­i­ous bud­get dis­cus­sions hangs the cloud of en­ti­tle­ment re­form, a top pri­or­ity for Repub­li­cans in Congress. New statis­tics from the fed­eral government last week un­der­score why many law­mak­ers have pushed hard to ad­dress re­form­ing Medi­care: U.S. health­care spend­ing grew at a rate of 3.9% for the third con­sec­u­tive year, and rep­re­sented the low­est growth rate in the 52 years since the data have been re­ported. Mean­while, Medi­care spend­ing grew at a rate of 6.2% in 2011, up from 4.3% in 2010.

“If na­tion­ally health­care ex­pen­di­tures are at 3.9%, but Medi­care is 6.2%, the government should be more ef­fi­cient—or at least not as in­ef­fi­cient as 160% higher than health­care spend­ing,” Bos­ton says.

Se­ri­ous dis­cus­sions about en­ti­tle­ments would con­sider larger, struc­tural re­forms to the decades-long Medi­care pro­gram, such as rais­ing the el­i­gi­bil­ity age to 67 from 65; ex­pand­ing means-test­ing for ben­e­fi­cia­ries; reeval­u­at­ing the pre­mium and cost-shar­ing struc­ture across parts A, B and D; and im­ple­ment­ing a de­fined-con­tri­bu­tion sys­tem like the pre­mium-sup­port, or voucher, model that House Repub­li­cans fa­vor. But with Congress and the Obama ad­min­is­tra­tion so far apart po­lit­i­cally, is it real­is­tic to think 2013 will yield any sub­stan­tive changes on this front?

“My view is that they are not there and it will take a cri­sis far more stark to get them to the ta­ble for th­ese ma­jor re­forms,” says Don Mo­ran, founder of the health­care con­sult­ing firm the Mo­ran Co. and former ex­ec­u­tive as­so­ciate di­rec­tor at the Of­fice of Man­age­ment and Bud­get dur­ing the Rea­gan ad­min­is­tra­tion.

Tom Scully, a former CMS ad­min­is­tra­tor, says he ex­pects law­mak­ers to come up with a deficit-re­duc­tion deal, but it won’t be big. The larger, struc­tural re­forms to Medi­care will take place, he sur­mises, only if Congress agrees on a mas­sive deficit-re­duc­tion deal that in­cludes tax re­form.

“1990 and 1997 were gi­ant bud­get deals— and that’s what you’re talk­ing about,” says Scully, now a se­nior coun­sel at the law firm Al­ston and Bird. “I don’t right now see that coming to­gether, given the pol­i­tics.”

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