2% Medi­care cut looms

Se­quester could be hur­dle in re­form’s path

Modern Healthcare - - THE WEEK IN HEALTHCARE - Rich Daly

It ap­pears in­creas­ingly cer­tain that providers and in­sur­ers will see a 2% Medi­care cut go into ef­fect March 1. The au­to­matic bud­get cuts queued up for that date could have an even deeper im­pact on the government’s abil­ity to carry out the health­care re­form law.

Across-the-board cuts to most fed­eral pro­grams, in­clud­ing parts of Medi­care, were sup­posed to be­gin on Jan. 2 as part of the Bud­get Con­trol Act of 2011. A year-end bud­get deal post­poned those re­duc­tions un­til March to give Congress time to find ways to avoid the $1.2 tril­lion in 10year cuts.

But with the bud­get ax less than a month away, many health pol­icy ex­perts now see those cuts as close to in­evitable.

“It is in­ter­est­ing that what started out as ‘We can’t pos­si­bly let that hap­pen’ is be­com­ing more of a con­ven­tional wis­dom that it is likely to hap­pen,” said Gail Wilen­sky, ad­min­is­tra­tor of the pre­de­ces­sor agency of the CMS un­der Pres­i­dent Ge­orge H.W. Bush.

Providers and in­sur­ers have fo­cused on the 2% cut in their Medi­care pay­ments, which to­tal about $120 bil­lion over 10 years. But the se­quester—a slate of au­to­matic re­duc­tions set in mo­tion un­der the Bud­get Con­trol Act of 2011—will take a pro­por­tion­ally big­ger bite out of the CMS’ ad­min­is­tra­tive bud­get. The se­quester will cut about 5% to 8% of that bud­get, de­pend­ing on the es­ti­mate.

“It’s more likely, and there will be some con­se­quences in terms of how CMS is able to move for­ward with pay­ment re­forms and pi­lot pro­grams and other ef­forts,” said Mark McClel­lan, a former CMS ad­min­is­tra­tor un­der Pres­i­dent Ge­orge W. Bush and a scholar at the Brook­ings In­sti­tu­tion.

The ad­min­is­tra­tion is ex­pected to re­veal more de­tails about how the cuts would be ap­plied as the March 1 im­ple­men­ta­tion date nears.

Some health sec­tor ad­vo­cates are look­ing with grow­ing alarm at the prospect as fed­eral of­fi­cials work to carry out crit­i­cal and com­plex com­po­nents of the Pa­tient Pro­tec­tion and Af­ford­able Care Act.

“Ev­ery­body in the health IT in­dus­try and the health trans­for­ma­tion area, which in­cludes pay­ment and de­liv­ery re­forms that come out of the ACA, are really pretty wor­ried,” said Jeff Smith, as­sis­tant di­rec­tor of ad­vo­cacy for the Col­lege of Health­care In­for­ma­tion Man­age­ment Ex­ec­u­tives. Smith said that a cut of up to 8% in CMS ad­min­is­tra­tive func­tions, as es­ti­mated by the Of­fice of Man­age­ment and Bud­get in Septem­ber 2012, would have “mas­sive” ef­fects on the roll­out of ini­tia­tives, in­clud­ing ac­count­able care or­ga­ni­za­tions and pa­tient-cen­tered med­i­cal homes.

“The role that CMS plays is gi­gan­tic be­cause you are deal­ing with all of the claims data in or­der to fig­ure out who ex­actly is part of your ACO,” he said.

Providers in ACOs and other care-co­or­di­na­tion ini­tia­tives have pre­vi­ously re­ported wide­spread prob­lems ob­tain­ing that pa­tientspe­cific data in a timely man­ner. And some ex­perts worry that the loom­ing cuts could worsen strained data ca­pa­bil­i­ties at the agency.

Bruce Vladeck, an ad­min­is­tra­tor for the CMS’ pre­de­ces­sor agency un­der Pres­i­dent Bill Clin­ton, said in ad­di­tion to re­duc­ing needed re­sources for data sys­tem up­grades, the se­quester could elim­i­nate po­si­tions from an agency that has added few per­son­nel dur­ing the past 15 years, even as it has taken on many new roles.

“It doesn’t have enough cops on the beat,” Vladeck told re­porters re­cently.

The agency has been able to take on many new roles, in­clud­ing var­i­ous com­po­nents of the health­care over­haul, through a greatly ex­panded use of con­trac­tors, ac­cord­ing to health pol­icy ex­perts. The se­quester could force the agency to cut those con­tract em­ploy­ees even as it is scram­bling to meet im­ple­men­ta­tion dead­lines al­ready viewed as a ma­jor chal­lenge.

The CMS did not re­spond to ques­tions about how the se­quester cuts would af­fect the agency and its abil­ity to im­ple­ment the Af­ford­able Care Act.

“The ad­min­is­tra­tion has been pretty closed-mouthed about spe­cific de­tails on how th­ese cuts would be im­ple­mented,” said Dave Moore, se­nior di­rec­tor of government re­la­tions for the As­so­ci­a­tion of Amer­i­can Med­i­cal Col­leges. “But to lose even 5% of your bud­get six months into the fis­cal year is not go­ing to be easy to ab­sorb.”

Un­like provider and re­search ad­vo­cacy groups wor­ried about the im­pact of the se­quester on their pri­or­i­ties, con­trac­tors have not raised many con­cerns about the im­pact with the ad­min­is­tra­tion or mem­bers of Congress, pol­icy ex­perts said.

“With ev­ery­thing else they have to worry about, they are prob­a­bly not fo­cused on that be­cause there is such a scram­ble to get all of the things done for a launch,” said Wendy Kras­ner, a part­ner in the health­care prac­tice of Manatt, Phelps and Phillips. Con­trac­tors are de­vel­op­ing el­e­ments of the health in­surance ex­changes that are sup­posed to launch in nine months, she noted.

The im­pact of ad­min­is­tra­tive cuts from the se­quester could be fur­ther mag­ni­fied be­cause HHS didn’t re­ceive the fund­ing in­creases it had re­quested for the cur­rent fis­cal year, in part, to im­ple­ment the health­care law. The end-of-theyear bud­get deal main­tained the same fund­ing lev­els as the pre­vi­ous year, which means the $3.8 bil­lion CMS ad­min­is­tra­tive bud­get did not re­ceive a $998 mil­lion boost the Obama ad­min­is­tra­tion had sought.

Some pol­icy ex­perts ex­pect the CMS to com­pen­sate for the lower-than-ex­pected ad­min­is­tra­tive fund­ing by shift­ing money and re­sources from lower-pri­or­ity ar­eas. But staff re­as­sign­ments are eas­ier said than done, some pol­icy ex­perts said, and many other non­health­care re­form ini­tia­tives have their own tight statu­tory and reg­u­la­tory dead­lines.

“While it is pos­si­ble, it would be a pretty big task,” Smith said.

GETTY IM­AGES

The im­pact of ad­min­is­tra­tive cuts from the se­quester could be fur­ther mag­ni­fied be­cause HHS didn’t get fund­ing in­creases it re­quested for the cur­rent fis­cal year to im­ple­ment the health­care law.

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