Potential Impacts of New Federal Policies on Provider Reimbursement Rates

By Bob Semro
For MedicalVoyce

Provider reimbursement rates have been or may be affected by a number of federal policies, laws and proposals.

Broadly speaking, the policy areas break down this way:

• Sustainable Growth Rate (SGR) – This is the formula for determining Medicare reimbursement rates. In theory, it requires reimbursement reductions should spending per Medicare beneficiary increase faster than the rate of growth in GDP, but since it was included in the Balanced Budget Act of 1997, Congress has chosen not to execute the SGR recommendations on twelve separate occasions due to the size of cuts that the formula would have required. If SGR cuts were to be put into effect on Jan. 1, 2012, when the latest postponement runs out, Medicare providers would face a rate reduction of 29.4%.

These cuts will almost certainly not be implemented, however, because of the potential damage this would inflict on the Medicare program.  The real question is whether there is any possibility of creating a permanent fix, a replacement for SGR. The new Temporary Joint Select Committee on Deficit Reduction, or "super committee," is one possible mechanism, but a replacement would add an additional $297.5 billion to the current budget deficit. As an alternative, the President's FY2012 budget proposal postpones implementation of the SGR adjustments for another two years and pays for the delay with other offsets to the Medicare program.

• The President's Debt and Deficit Reduction Proposal – This proposal was released in mid-September. It specifically targets provider reimbursement as part of a larger plan to reduce public health care spending by $248 billion for Medicare and $73 billion for Medicaid over 10 years. Specific proposals include: reductions in some Medicare special payments; reductions in payments to SNFs, LTCHs, IRFs and home health; realignment of Medicare drug policies that would save about $135 billion; imposition of a new blended Medicaid payment formula that would reduce funding to states; and a new limit on Medicaid provider taxes that could be levied by states. While it is unlikely that this proposal will become law as currently structured, it does identify potential provider reductions that would be acceptable to the administration.

• The Budget Control Act of 2011 – This law, which arose out of the recent debt ceiling debate, has already imposed roughly $917 billion in broad budget cuts over the next 10 years. It also created the deficit-reduction "super committee." This committee is charged with reducing the nation's deficit by an additional $1.5 trillion or more over the next 10 years. That work is in progress and could include provider-rate adjustments. If the committee cannot reach agreement on at least $1.2 trillion in deficit reduction by November 23, the difference will be subject to across-the-board reductions, including cuts in Medicare payments to providers and insurance plans. Those cuts would be limited to 2 percent of such payments in any year. Adjustments would be limited to Medicare payments to Medicare Advantage plans, Part D (prescription drug) plans and providers including but not limited to hospitals and physicians.

• The Affordable Care Act (ACA) – The new health care reform law affects provider reimbursement in several ways.

Provider Bonuses:
This provision would provide a 10% reimbursement bonus to primary-care practitioners and general surgeons who practice in health professional shortage areas through the end of 2015.  Additionally, Medicaid payments to primary care physicians would not be lower than the Medicare fee schedule from 2013-2014.

Reductions to Medicare Payment Updates:
The most significant reimbursement adjustment in the ACA would reduce annual Medicare payment updates to 15 services, including in-patient hospital, home health, skilled-nursing facility, hospice and other Medicare providers. Some of these adjustments were implemented 2010. The ACA will also apply a new "productivity adjustment" beginning in calendar, fiscal or rate year 2012, as appropriate.  The Congressional Budget Office (CBO) has argued that unlike other segments of the private sector, current annual update payment formulas overstated cost increases to providers because they did not account for productivity increases. Productivity adjustments would not apply to physicians.  The CBO projects a total reduction of $156 billion over the next 10 years, while the CMS actuary projects $233 billion.

Reductions to DSH Payments:
Another provision of the ACA will reduce Disproportionate Share Hospital (DSH) payment spending by $18 billion over the next 10 years.  Beginning in 2014, Medicare DSH payments will be reduced by 75% and adjusted upward over time according to the percent of the population uninsured and the amount of uncompensated care provided.  Medicaid DSH payment reductions will be phased in starting in 2014, with the largest reductions targeted from 2018-2020. The largest DSH reductions will apply to states with the lowest number of uninsured.

IPAB:
Finally, the ACA could impact reimbursement through its creation of an Independent Payment Advisory Board (IPAB).  The IPAB would be required to submit proposals to Congress that would reduce per capita growth in Medicare spending if that spending were to exceed a targeted growth rate.  If Congress rejects the IPAB recommendations without proposing alternatives that achieve the spending targets, then the recommendations of the IPAB would be implemented.

Since the IPAB is prevented from making any recommendations that would ration care, increase premiums or cost-sharing, raise taxes, restrict benefits or modify Medicare eligibility, it is likely that provider reimbursement reductions will be considered.  The first IPAB recommendation report to Congress must be delivered in 2014. The recommendations themselves would be implemented the following year.