2013 Medicare, Fiscal Cliff, Policy Outlook and More

Happy New Year!  Now that I’m back in the saddle, so to speak, and semi-organized after a holiday break and vacation the time has come to take a look at where health care is  and what is setting the stage for 2013 (at least near term).

Getting started, Washington remains unbelievably mired in dysfunction.  So much for any hope of improved governance post elections.  In some ways, lines that were already  drawn ideologically have turned toward sharper divisions.  As this Congress is apt to do, and nothing will fundamentally change with the new Congress, it once again kicked the US economic and substantive health care policy issues down the road, leaving much yet “in the wind”.  The Fiscal Cliff resolution is nothing more than a temporary band-aid for health care as significant issues remain regarding sequestration cuts and Medicare funding, not to mention the outlook for the continued phase-in of the PPACA. Suffice to say, from a health policy perspective, the Fiscal Cliff tax implications were the least important.

Taking a look at where we sit today, five observations from my end are;

  • The “big” fight with regard to health policy is upcoming.  The Fiscal Cliff “patch” only resolved the tiny issues and once again, temporarily.  True, the doc fix/Part B payment issues are once again off the table for another year but if we look closer, there are some caveats worth noting.  First, to partially fund the “fix”, the MPPR (Multiple Procedure Payment Reduction) jumped from 20% and 25% to 50%.  This reduction applies to multiple procedures or therapy services provided to the same patient, in the same day even if the procedures were provided via two different disciplines or at two different visit times (applicable to 44 CPT codes identified as “always therapy”).  By reasonable estimates, this change results in a 6% reduction in aggregate payments, depending on a provider’s case-mix (could be slightly higher or lower).  One tiny ray of good news is that the practice expense inflation provided tor 2013 is 4%, cushioning the total reduction modestly.  For therapy providers, the MMR process remains in effect and the caps remain at $3,800 ($1.900 Speech and PT combined, and $1,900 for OT). Sadly, the big issue related to the SGR (Sustainable Growth Rate) formula that drives this mess annually remains.  The Fiscal Cliff patch did nothing to change the underlying dynamic, merely shifting it to December 2013.  Anyone believe we won’t revisit all this same drama and nonsense next Christmas?
  • The debt ceiling debate will get us hip-deep in Medicare and entitlement spending.  For providers, this issue looms “huge” as the Fiscal Cliff patch did not repair any cuts related to sequestration.  In other words, while the patch pushed sequestration cuts aside for two months, the cuts are still part of current law, unchanged.  Without resolution, a 2% Medicare cut will occur on March 1.  Looking a bit below the surface, sequestration cuts may be the lesser of all evils when the debate gets going.  Recall, providers remain subject to series after series of Medicare outlay reductions, rate rebasing, and productivity offsets driven by the passage of the PPACA.  Another 2% is like icing on the cake to certain politicos supportive of the PPACA as the Medicare savior.  Here’s the crux of this whole mess: Sequestration is a give-away in the debate or if you will, a bargaining chip that either side will use to tout deficit reduction or trade in a Washington bait-and-switch play against say, defense spending or education spending. Many believe, including those that make-up Medpac, that providers are adequately paid if not over-paid (SNFs). Congress, especially this group, is prone to ignoring the “law of unintended consequences” and I am concerned that funny math will dominate the discussions and any resolution thus, burdening providers with less straight forward cuts and more baked-in language such as increased fees, taxes, on provider related supplies and infrastructure, coupled with direction to the Secretary to revamp payment formulas and re-base rates using some convoluted formula such as the SGR (by reference only).  Additionally, I am concerned that Medicaid support may be targeted as well, driven by a compromise between warring parties, incorporating a phased-in “global” grant system.  Again, I am not theoretically opposed to a block or global grant methodology but only if the entirety of Medicaid is reformed to give states flexibility enough to work within a system such as this.  Right now, states are shouldering huge burdens under Medicaid due to expanded eligibility ranks, dour regional and local economies, and new regulations under the PPACA and Medicaid expansion.  Stay tuned here as this is about to get really, really funky.
  • Cost creep is becoming very, very visible for providers.  While reimbursement outlooks are down, costs are rising.  Food cost outlooks for 2013 suggest increases of 3% to 4%.  For SNFs and to a lesser extent but still palpable, hospitals, this amount is important and impactful.  Reimbursements aren’t rising at any rate close to this.  Courtesy of the PPACA, health insurance costs are going up.  Providers have no ability to off load this cost and for health care providers, labor and benefits are typically their largest expenditure.  The Medical Device tax flows through to all providers, not just DME providers.  Basically, as the economy remains stagnant but the costs of doing business rise, regardless of the business, the flow-through effect cuts at providers.  In running a series of economic models using current reimbursement levels, 2014 (October 1) reimbursement outlooks, current tax law and PPACA implications plus producer and consumer price data forecasts, institutional providers such as hospitals and nursing homes can expect a margin erosion of on average, .5% due to increasing costs, current law, current economic activity, and current payment levels plus trend.  Some providers may see greater erosion depending on location and payer mix/case mix.  When I isolate SNFs specifically, the outlook is more dire given the higher levels of Medicaid payer mix combined with Medicare rate cuts already in-place and known forthcoming.  For a typical SNF, margin erosion can easily fall between .5% and 1%, maybe modestly higher.
  • An age-old paradigm in business and in health care particularly is that reimbursement should be somewhat tied to regulation such that the relationship is as follows: Pay less, reduce regulation and of course, regulate more pay more to compensate for increased costs.  Last year and this year and for the foreseeable future, health care is in the Perfect Storm.  Courtesy of the PPACA and a stalled Congress, regulation is fast furious.  When Congress can’t act, agencies tend to govern via order and administrative fiat, lacking legislative leadership.  In short, a do-nothing legislative branch doesn’t mean inactive government and as of late, it means just the opposite.  Broad legislation such as the PPACA is made-up in detail, as we go by regulation.  Law makers inactive don’t provide any check or balance and thus, regulation comes forth and the courts become the arbiter of fair/unfair, etc.  2013 will visit us with oodles of new regulations some known and many yet still entombed in DHS, FDA, CMS, etc. offices. On my watch list is Federal rules for exchanges and the Federal Exchange details, prescription drug benefits under the exchange plans, new rules requiring pharmaceutical companies and medical device companies to disclose payments made to physicians, new payment levels for disproportionate share and safety net hospitals, and the overpayment and false claims act rules requiring self-disclosure and repayment made within 60 days of discovery (whatever this might mean).
  • My biggest, global focal area for 2013 is the economy – so many implications for providers and the industry in total.  Recovery is slower than slow and sporadic at best.  GDP growth is mired at 2% or less meaning stagnant.  Unemployment is stuck at around 8% or higher if one views total unemployment and underemployment.  Taxes are going up and in some cases, appropriately so but no doubt, the bite to paychecks will be visible and in some cases, painful as wage inflation is virtually non-existent.  Health care costs in terms of insurance are rising, further taking a bite from employers and employees.  States are facing unusually high levels of Medicaid, the loss last year of enhanced FMAP and Medicaid expansion; all within a slow economy.  State coffers are empty yet their populus needs expanding.  Capital is cheap but few can afford it or access it.  Yes, housing is rebounding slowly but it had nowhere else to go.  We are years away for cleaning out the surplus properties and distressed properties, especially on the commercial end.  And, last but not least, we have a government that today is wholly gridlocked and a burgeoning deficit (current and aggregated) fueled principally by entitlement spending and programs.  No rational plans are on the table and nowhere in-sight is fortitude or wisdom, let alone leadership, to address the fact that true entitlement reform, not the PPACA type, is warranted and necessary to adjust the economic outlook.  I hate to think that we will continue to teeter on the economic precipice of recession for another series of years but as of today, I don’t see any other outlook.

More upcoming on a series of industry specific outlooks and trends….

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