Understand how we got here — and how to move forward.

Blog Post

Not just physician pay: Three big changes included in the 'doc fix' deal

March 27, 2014

    Juliette Mullin, Editor

    Congressional leaders on Wednesday announced a bipartisan deal to avert a 24% reduction in Medicare doctor payments, which were slated to begin on April 1. The House passed the deal on Thursday, and the Senate is expected to vote on it Friday.

    As of Daily Briefing press time on Thursday, it remained unclear whether the deal would be voted into law, with some lawmakers and industry groups mounting campaigns against it.

    The bipartisan deal was brokered between House Speaker John Boehner (R) and Senate Majority Leader Harry Reid (D), and does not achieve the permanent reform that appeared within reach just a month ago. But in addition to averting a massive pay cut for doctors, the deal would bring three policy changes for providers: A delay to ICD-10, a postponement to Medicaid cuts for safety-net hospitals, and another change in the enforcement timeline of the controversial "two-midnight" rule.

    As the Federation of American Hospitals CEO Chip Kahn puts it: "This is likely to be the last train out of town on Medicare changes for a while. That's why this was a train that has a lot of cars between the engine and the caboose."

    Cuts averted (but no permanent reform)

    First and foremost, the deal averts a 24% reduction in Medicare physician reimbursements that was slated to go into effect on March 31. Specifically, it postpones the cuts for 12 months.

    However, the deal comes in place of permanent reform to the widely panned payment formula, known as the Sustainable Growth Rate (SGR). Lawmakers seemed so close to achieving SGR reform in February, when they announced a bipartisan deal to replace the payment formula. But they have not yet agreed on how to pay for the plan.

    The lack of permanent reform is one of the reasons why the American Medical Association (AMA) has opposed the deal. "By extending the Medicare provider sequester and 'cherry picking' a number of cost savings provisions included in the bipartisan, bicameral framework, the (bill) actually undermines future passage of the permanent repeal framework," says AMA President Ardis Dee Hoven, adding that the deal "would perpetuate the program instability that now impedes the development and adoption of healthcare delivery and payment innovation that can improve healthcare and strengthen the Medicare program."

    Boehner says the latest "doc fix" will not halt work on permanent SGR reform.

    ICD-10 pushed back

    As Christopher Kerns notes, the "doc fix" legislation also proposes pushing back the start of ICD-10 adoption by another year.

    Currently, CMS is set to begin using the new diagnostic and procedural codes starting Oct. 1, 2014, and CMS Administrator Marilyn Tavenner has said the agency has no plans to delay that start date.

    Congress' move might cause many physician practices to breathe a sigh of relief: Research suggests that as few as 10% of practices were ready for the shift as of January. The Medical Group Management Association's Robert Tennant says the bill is "recognition that the industry is simply not ready for the transition."

    But the issue isn't so simple for providers. Many organizations have spent millions of dollars getting ready for this year's deadline—and are already allocating resources toward dual coding in the interim—which is why some groups are lobbying Congress to change course on the ICD-10 delay.

    DSH cuts delayed

    The "doc fix" would further delay the start of funding cuts to the Medicaid Disproportionate Share Hospital (DSH) program, which offers additional funding to hospitals with high levels of uncompensated care.

    The cuts were developed as an offset for the cost of the Affordable Care Act's (ACA) Medicaid expansion and are based on the assumption that the ACA's coverage expansions would reduce a larger portion of hospitals' uncompensated-care costs. Altogether, the ACA requires $18.1 billion in total reductions from fiscal year (FY) 2014 through FY 2020, effectively halving the size of the safety-net program.

    However, the Supreme Court's ruling on the ACA allowed states to opt out of the expansion. In theory, this meant that hospitals in states that do not expand Medicaid would lose DSH funding without benefiting from an influx of new Medicaid patients.

    For states not expanding Medicaid, DSH cuts will deal a tough blow

    The DSH cuts have already been delayed once. The 2014 budget deal pushed the cuts back to the start of FY 2016. If this "doc fix" deal becomes law, the cuts will be pushed back to the start of FY 2017.

    Two-midnight timeline altered (again)

    The deal would again alter the timeline of Medicare's controversial two-midnight rule, which assumes a hospital admission to be admissible for payment if a physician expects a beneficiary's treatment to require a two-night hospital stay and admits the patient under that assumption. Shorter inpatient stays are deemed legitimate if they are coded as outpatient observation stays.

    The rule aims to limit the growth in extended observation stays at hospitals, which have skyrocketed in recent years. Although the rule was set to take effect Oct. 1, 2013, pushback from health care providers prompted CMS to alter its enforcement timeline.

    Two-Midnight Rule: Understand your risks under the new admissions standard

    According to Modern Healthcare, the "doc fix" deal would extend a moratorium on recovery auditors intended to prevent them from aggressively overturning claims under the new standard. Currently, the moratorium goes until Sept. 30, 2014, but the bill would extend it until March 31, 2015.

    The "doc fix" deal also gives Medicare the leeway to extend the probe and education period for administrative contractors until March 31, 2015, according to Modern Healthcare.

    So far, hospital groups have supported the effort to alter the rule's timeline.

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.