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The Fiscal Cliff, a Lose-Lose Proposition for NJ's Healthcare Facilities

Andrew Kitchenman | December 19, 2012

No compromise by January 1 is going to cost NJ hospitals big, reaching an agreement could cost them even more.

New Jersey healthcare facilities face more than $1.3 billion in cuts to Medicare payments over the next decade, if President Barack Obama and Congress can't pull the country back from the fiscal cliff by January 1.

Paradoxically, the cuts could be even deeper if the president and Congress do hammer out a compromise. That's because both parties have proposed slicing Medicare even closer to the bone as part of their negotiations.

Under a 2011 law, Medicare payments would be cut by 2 percent across the board under automatic reductions known as “sequestration,” which would reduce most discretionary spending. Other health programs targeting low-income residents would see even deeper cuts.

The New Jersey Hospital Association estimates that sequestration would cost the state's hospitals and healthcare facilities $133 million in 2013.

But it's going to cost healthcare facilities even more if a deal is struck. Some estimates say it will go beyond $300 million.

The disturbing part is that no one knows for certain what the final figure will be.

"New Jersey’s healthcare community is staring at an enormous Medicare cut,” said Kerry McKean Kelly, spokeswoman for the New Jersey Hospital Association.

She noted that while hospitals are concerned about the 2 percent cut, they are even more worried “that the cuts we don’t know will run even deeper.”

Healthcare providers are competing with other interests -- including the military -- to reduce the size of cuts, she added. “We really don’t know where all of this will end up. We’re watching it with great concern.”

A major cause for concern is that any reduction "comes on the heels of very significant Medicare cuts that hospitals sustained under the Affordable Care Act,” McKean Kelly said. That added up to $155 million in the current fiscal year.

While estimates on how the 2 percent reduction would affect payments to doctors aren’t available, the overall level of Medicaid spending in the state could be reduced by more than $300 million.

New Jersey Academy of Family Physicians executive vice president Raymond J. Saputelli said some New Jersey doctors already receive reimbursements below what they need to be profitable. They’re also concerned that the 2 percent cut would be on top of a scheduled 26.5 percent reduction in Medicare physician reimbursements that is also scheduled to occur on January 1 if Congress doesn’t act.

“When Medicare rates are reduced, many of the commercial rates are pegged to Medicare, that it won’t just be a Medicare cut, it will be an across-the-board reduction,” Saputelli. said. For example, insurers that set reimbursement rates at a certain percentage below the Medicare level would have to lower their payments.

“The New Jersey Academy hopes Congress looks at in a way that’s thoughtful and is not necessarily a quick fix,” he concluded.

A separate set of pressures is affecting the state’s nursing homes. Paul Langevin, president of the Health Care Association of New Jersey, said these facilities are facing a $25 million to $30 million cut from sequestration at the same time that their other largest source of reimbursements -- Medicaid -- is in flux as a result of the waiver the state recently received from the federal government.

“If you’re a business and you’re facing your two biggest customers not telling you what they’re going to pay you for the next 12 months, it’s very hard to plan for the coming year,” Langevin said.

He also said that nursing home owners would have a difficult time trying to sell their businesses because of the uncertainty over payments.

“It’s just a giant uncertain environment that we’re sitting in now,” he said.

Along with the Medicare cut, sequestration would affect other healthcare programs, ranging from substance abuse and prevention treatment, which would see $3.63 million in cuts in New Jersey in 2013, to the AIDS drug assistance program, which would be reduced by $3.07 million.

Jeff Brown, coordinator of policy advocacy and communications for New Jersey Citizen Action, said he would like to see Congress “focus on raising revenues and protecting the vulnerable, protecting the elderly, protecting the disabled, and making sure everyone is paying their fair share so that we can provide an adequate safety net.”

Brown said it’s important that the federal government keep Medicaid -- which is currently seeing a spending increase as the federal government encourages states to expand Medicaid eligibility -- off the table in fiscal negotiations. Citizen Action advocates for the needs of low-income residents.

“The thing with sequestration is that it’s unfortunate because it’s the product of Congress being unable to reach any sort of compromise or deal,” Brown said.

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