Hospitals fight extension to Medicare sequester cuts

Calif. hospitals alone would lose up to $730M, group says

State and national hospital associations are urging elected officials to avert Medicare's sequester cuts, voicing dismay that last week's federal budget compromise extended the reductions for health care providers while restoring funding for other government and defense programs, U-T San Diego reports.

Details of budget deal

The $85 billion deal—which heads to the Senate floor this week—funds the government until fall 2015 and aims to eliminate some of the cuts imposed on federal agencies by the budget sequester. The deal replaces more than $60 billion in sequester cuts in 2014 and 2015; those funds would be evenly split between defense spending and discretionary non-defense spending.

Meanwhile, the deal would extend a 2% cut to Medicare reimbursements through 2022 and 2023, two years longer than required by the Budget Control Act of 2011. Over the next decade, the Medicare cuts from sequestration could cost California hospitals alone up to $730 million, according to the California Hospital Association.

At the same time, amendments attached to the budget deal provide some relief by delaying Medicaid cuts to disproportionate-share hospitals (DSH) to FY 2016. The deal also delays a 24% cut to Medicare physician reimbursement rates—scheduled to take effect Jan. 1—by three months.

Three-month 'doc fix' added to budget deal

Hospitals voice alarm

Despite praising efforts to delay the cuts to physician reimbursement rates and DSH payments, hospitals are putting pressure on elected leaders to protect hospitals from extended sequestration. Scripps Health CEO Chris Van Gorder estimates that his organization will lose about $13 million annually because of the sequester.  

Van Gorder says that it's only a matter of time before patients start to feel the pinch: "I think, over time, patients are going to experience more difficulty getting an appointment and they may have to travel further to be seen."

Hospital officials argue that the cuts, which come alongside other funding reductions under the Affordable Care Act (ACA), will be too much to absorb without shifting the costs to staff and patients.

Sharp Healthcare CEO Mike Murphy says, "Health care has, because of the ACA, already had significant impacts and significant cuts," adding, "Continuation of the sequestration, if it passes, will just add to what we've been dealing with since the law passed."

Fitch goes negative on hospital outlook for first time in years

Analyst: Are hospitals crying wolf?

Chapin White of the Center for Studying Health System Change says that it is unclear whether the combination of funding reductions under sequestration and the ACA will be more severe than cuts that have been imposed on the industry in the past. Hospitals are "definitely going to have to adjust how they do business, but whether it's cutting to the bone or whether it's just a necessary adjustment that's inconvenient is not totally clear," White says.

However, he notes that research has shown that hospitals are typically unable to manage Medicare cuts simply by negotiating higher rates with private payers. "Cost shifting that everybody believes in, the research shows that it's really a myth," White says.

Sequester's cost: At Mayo Clinic, it's $47M per year

Some hospitals believe that certain ACA initiatives, including the requirement that mental health be an "essential" benefit of health plans next year and the individual coverage mandate, will drive growth in the health care sector. In fact, the trends prompted Alvarado Hospital in San Diego to expand its ED and add a geriatric psychology units, says CFO Brian Kleven. "We feel that with our new service lines, we can absorb [the cuts] without laying off personnel," he says (Sisson, U-T San Diego, 12/15).


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