As Part of Fiscal-Cliff Deal, Congress Avoids Cut in Medicare Payments to Doctors

Andrew Kitchenman | January 3, 2013 | Health Care
Instead of 26.5-percent reduction for physicians, hospitals will see federal payments lowered

In enacting the complex web of legislation that averted going over the so-called fiscal cliff, Congress also avoided a 26.5-percent cut in Medicare reimbursement rates to doctors.

But the agreement will instead lead to reduced federal payments to hospitals, leading one hospital advocate to describe the measure as “robbing Peter to pay Paul.”

While the range of tax and spending items affected by the fiscal-cliff negotiations was unusual, the need to address Medicare payments to doctors has become a nearly annual rite in Washington, leaving doctors in New Jersey fearful of steep reductions every winter.

The Medicare payment cut is the result of a 1997 law that was intended to limit the entitlement program’s spending but has failed to keep pace with rising costs to doctors. The latest federal legislation provides another one-year reprieve, leaving doctors to question whether Congress can reach a permanent resolution to the issue.

“They didn’t resolve anything, they put it off for a year,” said Dr. Robert Eidus, head of the Vanguard Medical Group, a family practice in Cranford. “I don’t think any of us are pleased; I think relieved is a more appropriate word because we know that we’re going to face this again next December.”

To offset the more than $25 billion cost in Medicare payments to doctors, Congress is instead cutting payments in other areas of healthcare, with the brunt of the cuts falling on hospitals.

New Jersey Hospital Association President and CEO Elizabeth Ryan said in a statement that hospitals support fixing physician pay, but are “extremely disappointed that it was accomplished with even deeper cuts to hospitals. We in the healthcare community share a common goal of caring for our seniors – so cuts that pit one healthcare provider against another fail to accomplish the overall mission of providing quality and accessible care to our communities.”

The hospital payment cut is divided into several pieces, including more than $10 million in reduced payments to hospitals for Medicare reimbursements. The NJHA estimates that this will lead to $21 million in cuts to New Jersey hospitals in the last three months of 2013, $83.2 million in cuts over the first 12 months that the law is in effect and $436 million in cuts over the next five years.

Ryan noted that hospitals were already targeted for Medicare cuts under the 2010 Affordable Care Act.

“Now, these additional cuts place yet another burden on hospitals as they fight to provide high-quality care to our patients,” said Ryan, adding that the NJHA will work with the state’s congressional delegation to find a more permanent solution to the physician-payment formula, but will oppose further cuts to hospitals.

Another major reduction is a one-year extension — to 2022 — of reduced payments to hospitals that serve uninsured residents. These payments, which help fund charity care in New Jersey, had already been reduced through 2021 under the Affordable Care Act.

Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, noted that the ACA cuts were made with the expectation they would be offset by states expanding Medicaid eligibility.

“Clearly, additional cuts – given the fact that not every state is going to participate in Medicaid expansion – are premature to make,” said Ianni, whose 14-hospital alliance includes many of the state’s urban and safety-net hospitals. Details of how these cuts would affect New Jersey hospitals are not yet available, but Ianni expressed hope that the state’s previous expansion of Medicaid to low-income families would result in lower federal reductions.

Eidus pointed out that allowing a 26.5-percent reduction in Medicare payments would have been untenable for practices that currently spend 70 percent of their revenue on operating costs. “You’d essentially be working all year for free,” Eidus said.

Eidus said there is broad recognition that permanent changes are needed in Medicare reimbursements to doctors.

“We have to figure out better ways to pay physicians, not necessarily more money, but better ways, so that the compensation is based not so much on the technology that is used but on the value that is created for the patient,” Eidus said.

NJHA spokeswoman Kerry McKean Kelly said that fiscal-cliff resolution was a mix of good and bad news for the state, ensuring that Medicare beneficiaries can find a doctor but “we are in essence robbing Peter to pay Paul and that does not serve our healthcare system or its patients.”

The association also calculated the savings to state hospitals in relation to a separate issue given only a short-term solution under the new federal legislation – the 2 percent cut, or “sequestration,” affected Medicare payments. Lawmakers delayed sequestration by two months, which will save New Jersey hospitals $15.7 million. To put that in context, sequestration was expected to cost New Jersey hospitals $94 million in 2013 if no delay occurred.

“It’s not a permanent fix and there’s still cause for concern but we’re at least grateful for the two months of relief,” she said.