Hopelessly divided Congress agrees on one thing: Cutting payments to providers

January 20, 2014
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Since the Tea Party gave Republicans control of the U.S. House three years ago, Congress has hardly been able to agree on anything—even keeping the government funded.

But Democrats and Republicans have often been able to strike compromises by agreeing on this: Payments to health care providers can be cut.

Or, at the very least, payments can grow slower than inflation.

That’s not a comfortable place to be for Indiana’s hospitals, nursing homes and doctors—at least not with their high-cost business models.

Yet, since I think the current health care business models are in desperate need of change, what’s most interesting to me is how Congress’ recent willingness to play hardball with providers is driving providers to cautiously embrace concepts—like pay-for-performance and keeping patients out of the hospital—they have long resisted.

Congress’ most recent budget deal, hammered out in mid-December and passed by the House last week, extended the hated sequester cuts to Medicare’s hospital payments for an extra year—meaning they are now set to run through 2024.

Those cuts—which were real cuts, not just a slower rise in payments—were estimated to chop 20 percent on average from hospitals’ operating profits. For rural hospitals in Indiana, the cuts were expected to trim profits by 31 percent.

The Indiana Rural Health Association will host an all-day event on Tuesday in downtown Indianapolis, aimed primarily at state legislators, to highlight the impact federal budget cuts are having on rural hospitals.

The extension of the Medicare sequester for hospitals—which was used to fund an extension of long-term unemployment benefits—prompted howls from hospitals groups.

“Hospitals already face $113 billion in cuts that have been imposed over the last three years at a time of enormous change and challenges,” eight health care organizations wrote to members of the U.S. Senate. “Medicare is meant to assure seniors access to needed medical care, not serve as a piggybank for other programs. It is bad policy to further extend Medicare sequester cuts that could undermine care for seniors.”

But Congress has used cuts to hospitals, nursing homes and home health care providers, to a significant degree, to prop up Medicare’s payments to doctors. Those payments are perpetually scheduled to be cut due to a 1997 law called the sustainable growth rate, which calls for cuts to Medicare’s payments to physicians whenever spending in that category grows faster than inflation.

Congress has been endlessly passing short-term suspensions of that law since 2001, which have staved off the worst pain. Even so, Medicare’s payments to physicians have grown slower than inflation over that time, noted a recent analysis by the Brookings Institution.

Many physician groups, therefore, are supporting, at least in concept, Congress’ push for a permanent “doc fix”—making more than 10 percent of their pay hinge on the quality of efficiency of their services—not just the number patients and number of procedures they perform.

"Many primary care and specialty groups have been developing, and in some cases implementing, the kinds of payment reforms described above, in some cases in Medicare pilot projects and frequently in private insurance plans and state Medicaid programs,” wrote Brookings researchers Mark McClellan, Kavita Patel and Darshak Sanghavi. “As a result, these alternatives are gaining traction as a potential way out of the endless payment rate cuts and physician frustrations with the lack of support in fee-for-service payments for steps they would like to take to improve care and lower costs.”

What appears to be getting less attention—not only in the press but from hospitals and doctors themselves—is the change in Obamacare that will slow growth in Medicare payments to both hospitals and doctors in perpetuity.

If that law isn’t altered, it will make Medicare pay less than Medicaid by the end of the decade, according to the Congressional Budget Office.

Even so, the Medicare cuts that have already happened have pushed hospitals to keep patients healthier and out of the hospital—rather than pursuing higher and higher use of health care services.

This shift has been slower among rural hospitals. That’s partly because taking on responsibility to manage the health of a group of patients is not easy work.

But it’s also because most rural hospitals—along with nursing homes in the state—have been able to tap a new source of federal revenue by acquiring the licenses of nursing homes, for which county-owned hospitals are eligible to obtain higher reimbursement payments from the federal government. It’s called the Wishard model.

Also, nursing homes are calling for another moratorium on new construction as a way to shore up their finances.

But finding ways to tap federal coffers or staving off new competition are only short-term measures. Eventually, rural hospitals and nursing homes will have to embrace the performance-based pay paradigm.

Congress appears ready to make sure of that.

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  • Gov't gives and takes away
    What gov't gives stimulates poor business decisions and fat. None of this would have happened had there been a consumer focused competitive market where efficiency counts and waste is not paid for. The same happened to college tuition. Gov't support made waste a gift that kept on giving. Now we have 'the blade' at work on the problem.
    • Cuts to providers justified
      Payment cuts for providers are justified. Please read yesterday's New York Times article on how physicians are making huge amounts of money by overcharging patients and insurers. One woman had a small growth removed from her face that required two stitches. She was sent to three different doctors -- a dermatologist, a plastic surgeon and an anesthesiologist -- racking up $25,000 in bills for this small procedure that would cost less than $100 in Germany. She ended up disputing the bills, but was still several thousand dollars poorer at the end, thanks to her high-deductible coverage that seems to be the norm today. The Times also documented that the best-paid providers in the country are those with the strongest lobbyists in Washington. It's time to stop this gravy train.
    • Provider vs inflation
      In my practice, Medicaid paid $13.88 per "unit" of work in 1992....in 2014 Medicaid pays $13.88. If my calculations are correct, that would translate to a 42% reduction in reinmursement in inflation adjusted dollars over the past 22 years.
      • Peter
        There is a market out there. It's called private insurance, and it's less efficient than the government run programs. It is easy to believe in your overgeneralization because it's simple, and it "feels right", but it's far from the truth.
      • Very Scary
        I knew that Medicaid (and Medicare?) were stuck in the 80's. Will there be any doctors to take care of the Boomers in the future? I sure would have to think twice.
      • Government Efficiency
        Joe, you can't believe the government is more efficient than the private sector. Here is a site on medicaid fraud http://cagw.org/media/wastewatcher/fast-solution-medicare-and-medicaid-fraud
      • NH Boondoggle
        Here is a boondoggle for you to wrap your head around. Do you know if you are a government run nursing home facility you get a higher reimbursement for providing the exact same service. Hospitals are partnering with private nursing home owners to lease their facilities so they are "government owned" then sourcing the service right back to the operator creating a higher reimbursement than that company could get privately. The government entity and the healthcare owner then split the profits for the increased reimbursement. Health and Hospital of Marion County is one fo these providers. Think about it, a group whose mission is to provide health services to the disadvantaged is actually taking an advantage of a system loophole to bilk the U.S. government for millions to provide the same service the private industry pays. Where is the outrage...it would make for a nice feature article in IBJ.
        • To Concerned Citizen
          In fact, I have written quite a bit about how county-owned hospitals, beginning with Wishard/Health and Hospital Corp. of Marion County, have tapped extra federal revenue by acquiring nursing home licenses. Here are the links to the three main stories I written: 1. http://www.ibj.com/article/shared?userId=52&key1=NqSS%2Ba2pttAHeob8MdegEWA%2BTaKB7yx6&key2=v9aJQCzqTvk%3D. 2. http://www.ibj.com/article/shared?userId=52&key1=NqSS%2Ba2pttBihQQpszKXol3khlHYzok3&key2=k1d%2BYAzGksc%3D. 3. http://www.ibj.com/article/shared?userId=52&key1=NqSS%2Ba2pttBihQQpszKXolSPgP%2BAv8fk&key2=THjnxMW6VzM%3D.
        • Medicaid
          J.K.Wall, Can you write at least one article that shows you understand why "providers" don't want Medicaid patients in their practices?
        • "The Blade"
          Yes, "The Blade" will get to work...as soon as he recovers from his "fact finding" mission to South America.

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