Hospitals Expect Financial Fallout from ‘Fiscal Cliff’ Deal

Date Posted: January 11, 2013

By Jennifer Larson, contributor

January 11, 2013 - Hospitals are bracing for the fallout from a bill signed into law on Jan. 3 by President Barack Obama to ward off the threat of the so-called “fiscal cliff.”

As the end of 2012 approached, Congressional leaders spent weeks scrambling, arguing and making modifications before eventually coming to an agreement on the legislation. Among other things, the Taxpayer Relief Act of 2012 made permanent tax cuts for individuals earning less than $400,000 annually.

The law also included what’s commonly called the “doc fix;” that is, it delayed for at least a year a scheduled 27 percent pay cut to doctors who are Medicare providers, which was part of the Medicare Physician Fee Schedule Sustainable Growth Rate. But it came at the expense of hospitals.

“The future financial trajectory for the hospital industry is challenging,” said Bruce Spurlock, MD, CEO of the medical services consulting firm Cynosure Health Solutions.

HealthLeaders reported that the biggest hit for hospitals is the adjustment in the Inpatient Acute Care Hospital Documentation and Coding. This measure is estimated to save nearly $11 billion over the course of a decade, starting in 2014.

Rich Umbdenstock, president and CEO of the American Hospital Association, objected on behalf of his association, saying that the cuts would make it harder for hospitals to provide care.

“While fixing the physician payment formula is essential, it should not be done by jeopardizing hospitals’ ability to care for seniors and their communities. That’s why we are very disappointed at the approach taken in this measure,” he said in a statement. “Hospitals are working to provide high-quality, innovative and effective care to seniors in their communities. Additional payment reductions will make it harder for patients to access the care they need and depend on.”

The Federation of American Hospitals also expressed its disappointment that “scarce hospital finances would be used to offset the Medicare physician payment fix.”

Although many public hospitals have a larger share of Medicaid patients than Medicare patients, they will still be affected by the cuts. Beth Feldpush, Dr.PH, vice president for advocacy and policy for the National Association of Public Hospitals and Health Systems, noted that safety net hospitals tend to operate with much smaller margins--2 percent as compared to the national average of about 7 percent.

“A large cut to Medicare payments, even if it’s not the largest patient group, could really have a significant impact,” she said. “So we are concerned about those cuts and the impact it could have on our hospitals.”

Another area of concern, Feldpush said, is the fate of those hospitals that are located in states that don’t plan to expand Medicaid, per the Affordable Care Act. (The expansion, which will happen in 2014, would include individuals between the ages of 19 up to 65 with household incomes at or below 133% of the federal poverty level.) Disproportionate Share Hospital (DSH) payments were scheduled to decrease, under the ACA, based on the number of people who were expected to gain Medicaid coverage. But that equation gets thrown out of balance by states that opt out of expanding Medicaid availability. 

“They get a double whammy,” she said, referring to the combination of DSH cuts and Medicare doc fix cuts.

Hospitals may have to start considering how to accommodate the new cuts from the fiscal cliff law. Since labor is often the largest cost for hospitals, hospitals may begin looking at ways to reduce length of stay for patients so they can use less staff, said Spurlock. However, hospitals are also held liable for readmissions, even when other factors may play a role. It’s a complex issue, he noted.

Although the Taxpayer Relief Act of 2012 is now the law of the land, the fight over finances isn’t over yet.

Some are calling the fiscal cliff law a “stopgap measure” because there could be more cuts coming. The Taxpayer Relief Act also temporarily delayed the threat of sequestration for two more months, so lawmakers will have to confront what to do about the automatic series of deep spending cuts in just a few more weeks. The AHA has stated that it opposes further cuts because they could jeopardize patient care. And Spurlock noted that some hospitals may really struggle or even go under, if the sequestration cuts go into effect.

“It’s certainly a challenging time,” Feldpush said. “There’s a lot of uncertainty out there.”

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