Obama signs budget deal that cuts hospital payments. Here's what you need to know.

Congress passed the legislation last week

See the Advisory Board's take on this story.

President Obama on Monday signed into law a two-year budget deal that will curb payments to new hospital-owned physician practices and extend other reimbursement cuts.

The House and the Senate last week both passed the measure, which will also suspend the country's $18.1 trillion debt limit through March 2017 and increase spending caps for domestic agencies by $50 billion in fiscal year (FY) 2016 and $30 billion during FY 2017.

Changes to payments for hospital-owned physician practices

Under the deal, beginning in 2017 Medicare will no longer pay certain hospital-owned physician practices higher rates than independently owned practices. The reimbursement changes will apply to hospital-owned physician practices acquired or opened since Monday—the date the law was signed—that are located farther than 250 yards from a hospital's main campus.

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Such facilities instead will "be eligible for reimbursements from either the Ambulatory Surgical Center ... or the Medicare Physician Fee Schedule," according to a summary of the legislation. Facilities that received hospital outpatient department (HOPD) reimbursement as of the date the law was signed will be grandfathered in under the policy.

The American Hospital Association (AHA) and the Federation of American Hospitals have both spoken out against severely limiting hospitals' ability to receive HOPD reimbursement for services furnished at off-campus facilities.

AHA EVP Thomas Nickels said in a statement, "This untested idea may endanger patient access to care, especially among patients who are sicker, the poor, minorities, and seniors who often receive care in hospital outpatient departments."

Other health care provisions

The budget agreement will lessen, but not eliminate, a premium increase for about 15 million Medicare beneficiaries. Under the measure, monthly Medicare Part B premiums will increase to about $120, rather than to $159, for roughly 30% of beneficiaries. Meanwhile, annual deductibles for all Medicare beneficiaries will increase to about $167, rather than to $223.

Further, the measure will extend a two-percentage-point reduction in Medicare payments to physicians and hospitals through the end of a 10-year budget, which will fund an estimated $25.8 billion of the deal.

The budget agreement also will:

  • Eliminate an Affordable Care Act mandate that requires large companies to automatically enroll employees in health plans unless the workers opt out of the coverage; and
  • Require generic drugmakers to give greater discounts to Medicaid if prices of the drugs rise more quickly than inflation (Fabian, The Hill, 11/2; Krawzak, Roll Call, 11/2).

The Advisory Board's take

Piper Su, VP of Health Policy, The Advisory Board

The budget agreement is notable both from a political and policy perspective. It is a rare occasion these days to have Congress move a bipartisan fiscal package with relatively little delay, and the timeline of the law will ensure that the next time Congress will need to revisit these budget issues will be in the spring of 2017 after the presidential election.

The agreement also includes notable health care policies, including a provision that will severely limit hospitals' ability to receive HOPD reimbursement for services furnished at off-campus facilities. Also, the 2% Medicare payment reduction that was originally required as part of the sequestration law in 2011 will be extended for an additional year to provide much-needed revenue in the agreement.

These policy changes continue a trend of using health care program savings for more broad government funding needs—a trend that some lawmakers note as setting a dangerous precedent.

It will be important to watch how the new policies are implemented by HHS to fully understand their effect, so keep an eye out for additional program guidance on the changes in the coming months.

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