Tag Archives: Federal Budget Sequestration

Federal cuts to hospitals to reach $218B in next decade, AHA report says

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https://www.fiercehealthcare.com/hospitals-health-systems/report-federal-cuts-to-hospitals-to-reach-218b-next-decade

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A report commissioned by the American Hospital Association and the Federation of American Hospitals warns that a conglomeration of health measures could result in funding losses of up to $218.2 billion for hospitals by 2028.

The report looked at multiple measures—from sequestration to cuts in Medicare payments for bad debt, hospital coding and documentation adjustment and clarifications to the three-day payment window—to project the cumulative losses between 2010 and 2028.

The single most costly changes they found? Adjustments to Medicare Severity Diagnosis Related Groups documentation and coding, which is expected to add up to $79.3 billion in cuts over that time period.

Here’s a look at what else they took into account:Sequestration

Among the reductions taken into account under sequestration, the Budget Control Act of 2011 imposed across-the-board cuts in federal spending, including a 2% reduction in Medicare payments after April 1, 2013. Sequestration cuts have since been extended several times to stretch through fiscal 2027.
Estimated cost: $73.1 billion by 2028.

Changes to Medicaid Disproportionate Share Hospital payments

The group took multiple pieces of legislation into account, namely the Affordable Care Act, which required cuts to federal DSH payments beginning in 2014 to account for the decrease in uncompensated care anticipated under health insurance coverage expansion. It was delayed but will take effect in 2020 and extend through 2025.
Estimated cost: $25.9 billion between 2020 and 2025

Off-campus provider-based departments

The Bipartisan Budget Act of 2015 modified the CMS definition of provider-based off-campus hospital outpatient departments so only those off-campus PBDs that were billing under CMS’ outpatient prospective payment system prior to November 2015 could continue to bill under the OPPS starting in 2017. Off-campus PBDs would otherwise be eligible under reimbursements from other payment schedules.
Estimated cost:  $13.2 billion between 2017 and 2028

Post-acute care reductions

The Medicare Access and CHIP Reauthorization Act of 2015 capped Medicare reimbursements to post-acute care facilities by no more than 1% in fiscal 2018. Further, the Bipartisan Budget Act of 2018 continued restricting inflation-based payment increases for home health services starting in fiscal 2020.
Estimated cost: $6.1 billion between 2018 and 2028.

Hospice transfer policy

The Bipartisan Budget Act of 2018 extended the definition of post-acute care providers to include hospitals, which meant patients who are discharged from an IPPS hospital to a hospital will result in a reduced payment to the hospital starting in fiscal 2019.
Estimated cost: $5.5 billion

Bad debt

Under the Middle-Class Tax Relief and Job Creation Act of 2012, bad debt reimbursement was phased down to 65%.
Estimated cost: $5 billion between 2013 and 2028.

3-day window

This refers to the American Jobs and Closing Tax Loopholes Act of 2010, which was meant to prevent unbundling of related services within three days of an inpatient admission.
Estimated cost: $4.2 billion in 2010 and 2011.

 

 

Healthcare lobbyists not optimistic on changing GOP tax bill

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http://www.modernhealthcare.com/article/20171206/NEWS/171209899

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Healthcare lobbyists are scrambling to win changes in congressional Republican tax legislation, as Senate and House GOP leaders race to merge their separate bills into something both chambers can pass on a party-line vote this month.

But provider, insurer and patient advocacy groups doubt they can convince Republicans to remove or soften the provisions they find most objectionable. They say GOP leaders are moving too fast and providing too little opportunity for healthcare stakeholders to provide input.

“It’s a madhouse,” said Julius Hobson, a veteran healthcare lobbyist with the Polsinelli law firm. “What you worry about is this will get done behind closed doors, even before they start the conference committee process.”

One factor that could slow the rush to pass the Tax Cuts and Jobs Act is the need to pass a continuing resolution this week to fund the federal government and prevent a shutdown. Unlike with the tax bill, Republicans need Democratic support for that, and it’s not clear they’ll make the concessions Democrats are demanding.

Industry lobbyists are particularly targeting provisions in the House and Senate tax bills limiting tax-exempt financing for not-for-profit hospitals and other organizations; repealing the Affordable Care Act’s tax penalty for not buying health insurance; ending corporate tax credits for the cost of clinical trials of orphan drugs; and taxing not-for-profit executive compensation exceeding $1 million.

If the ACA’s insurance mandate is repealed, “our plans will have to evaluate whether they can stay in the individual market or not based on what it does to enrollment and the risk profile of people who choose to stay,” said Margaret Murray, CEO of the Association for Community Affiliated Plans, which represents safety net insurers.

AARP and other consumer lobbying groups are fighting to save the household deduction for high healthcare costs, which the House version of the Tax Cuts and Jobs Act would abolish.

Healthcare lobbyists also are warning lawmakers that capping or ending the federal tax deduction for state and local taxes will force many states to cut Medicaid. Beyond that, they say slashing taxes and increasing the federal deficit will trigger immediate Medicare budget sequestration cuts that would hurt providers and patients, particularly in rural and low-income areas.

“One in three rural hospitals are at financial risk of closure, and sequestration would be devastating for them,” said Maggie Elehwany, vice president of government affairs for the National Rural Health Association. “I’d love to say our message is getting through. But Congress is completely tone-deaf on how troubling the situation in rural America is.”

Hospital groups, led by the American Hospital Association, are battling to preserve tax-exempt bond financing for not-for-profit organizations, which the House bill would zero out. While the Senate bill would keep the tax exemption for interest income on new municipal private activity bonds, both the Senate and House bills would prohibit advance re-funding of prior tax-exempt bond issues.

Hospitals say ending or limiting tax-exempt bond financing would jack up their borrowing costs and hurt their ability to make capital improvements, particularly for smaller and midsize hospital systems. The Wisconsin Hospital Association projected that ending tax-exempt bond financing would increase financing costs by about 25% every year.

According to Merritt Research Services, outstanding end-of-year hospital debt totaled nearly $301 billion in long-term bonds and nearly $21 billion in short-term debt. Nearly all of that debt was issued as tax-exempt bonds.

Suggesting a possible compromise, Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee, said Tuesday that he saw “a good path going forward” to preserve tax-exempt private activity bonds “that help build and enhance the national infrastructure.”

But Hobson raised questions about Brady’s comments. “What is his definition of infrastructure?” he asked. “It suggests they may move away from a blanket repeal, but it doesn’t tell me where they’re going.”

If Republicans decided not to repeal the tax exemption for municipal bond interest income, however, they would have to scale back some of their pet tax cuts for corporations and wealthy families, even as they feel pressure to ease unpopular provisions such as ending the deductibility of state and local taxes. That could make it hard for hospital lobbyists to gain traction on this issue.

“There are a lot of giveaways in the bills that don’t leave a lot of room to recoup the money you lose,” Hobson said.

Some lobbyists hold out a faint hope that the Republicans’ tax cut effort could collapse as a result of intra-party differences, as did their drive to repeal and replace the Affordable Care Act.

One possibility is that Maine Sen. Susan Collins flips and votes no on the tax cut bill emerging from the conference committee if congressional Republicans fail to pass two bipartisan bills she favors to stabilize the individual insurance market.

Collins said she’s received strong assurances from Senate Majority Leader Mitch McConnell and President Donald Trump that they will support the bills to restore the ACA’s cost-sharing reduction payments to insurers and establish a new federal reinsurance program that would lower premiums.

But the fate of those bills is in doubt, given that House Speaker Paul Ryan (R-Wis.) was noncommittal this week, while House ultraconservatives have come out strongly against them.

Collins conceivably could be joined by Alaska Sen. Lisa Murkowski, who also said she wants to see the market stabilization bills passed. If Tennessee Sen. Bob Corker, who voted no on the tax cut bill over deficit concerns, remains opposed, those three GOP senators could sink the tax bill.

“We’d all like to see Collins pull her vote,” Hobson said. “It was always clear that the deal she cut with McConnell won’t fly on the House side.”

One healthcare lobbyist who didn’t want to be named said there may be a deal in the works for House conservatives to support market-stabilization legislation in exchange for lifting budget sequestration caps on military spending.

But healthcare lobbyists are not holding their breath on winning major changes or seeing the tax bill collapse.

“There are chances they won’t reach a deal,” said Robert Atlas, president of EBG Advisors, which is affiliated with the healthcare law firm Epstein Becker Green. “By the same token, Republicans are so determined to pass something that they might just come together.”

How U.S. Hospitals and Health Systems Can Reverse Their Sliding Financial Performance

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https://hbr.org/2017/10/how-u-s-hospitals-and-health-systems-can-reverse-their-sliding-financial-performance

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Since the beginning of 2016, the financial performance of hospitals and health systems in the United States has significantly worsened. This deterioration is striking because it is occurring at the top of an economic cycle with, as yet, no funding cuts from the Republican Congress.

The root cause is twofold: a mismatch between organizations’ strategies and actual market demand, and a lack of operational discipline. To be financially sustainable, hospitals and health systems must revamp their strategies and insist that their investments in new payment models and physician employees generate solid returns.

For the past decade, the consensus strategy among hospital and health-system leaders has been to achieve scale in regional markets via mergers and acquisitions, to make medical staffs employees, and to assume more financial risk in insurance contracts and sponsored health plans. In the past 18 months, the bill for this strategy has come due, posing serious financial challenges for many leading U.S. health systems.

MD Anderson Cancer Center lost $266 million on operations in FY 2016 and another $170 million in the first months of FY 2017. Prestigious Partners HealthCare in Boston lost $108 million on operations in FY 2016, its second operating loss in four years. The Cleveland Clinic suffered a 71% decline in its operating income in FY 2016.

On the Pacific Coast, Providence Health & Services, the nation’s second largest Catholic health system, suffered a $512 million drop in operating income and a $252 million operating loss in FY 2016. Two large chains — Catholic Health Initiatives  and  Dignity Health — saw comparably steep declines in operating income and announced merger plans. Regional powers such as California’s Sutter Health, New York’s NorthWell Health, and  UnityPoint Health, which operates in Iowa, Illinois, and Wisconsin, reported sharply lower operating earnings in early 2017 despite their dominant positions in their markets.

While some of these financial problems can be traced to troubled IT installations or losses suffered by provider-sponsored health plans, all have a common foundation: Increases in operating expenses outpaced growth in revenues. After a modest surge in inpatient admissions from the Affordable Care Act’s coverage expansion in the fall of 2014, hospitals have settled in to a lengthy period of declining hospital admissions.

At the same time, hospitals have seen their prices growing at a slower rate than inflation. Revenues from private insurance have not fully offset the reductions in Medicare payments stemming from the Affordable Care Act and federal budget sequestration initiated in 2012. Many hospitals and health systems strove to gain market share at the expense of competitors by deeply discounting their rates for new “narrow network” health planstargeted at public and private health exchanges, enrollments from which have far underperformed expectations.

The main cause of the operating losses, however, has been organizations’ lack of discipline in managing the size of their workforces, which account for roughly half of all hospital expenses. Despite declining inpatient demand and modest outpatient growth, hospitals have added 540,000 workers in the past decade.

To achieve sustainable financial performance, health systems must match their strategy to the actual market demand. The following areas deserve special management attention.

The march toward risk. Most health system leaders believe that population-based payment is just around the corner and have invested billions of dollars in infrastructure getting ready for it. But for population-based payment to happen, health plans must be willing to pay hospitals a fixed percentage of their income from premiums rather than pay per admission or per procedure. Yet, according to the American Hospital Association, only 8% of hospitals reported any capitated payment in 2014 (the last year reported by the AHA) down from 12% in 2003.

Contrary to widely held belief, the market demand from health insurers for provider-based risk arrangements has not only been declining nationally but even fell in California where it all began more than two decades ago. This decline parallels the decline in HMO enrollment. Crucially, there is marked regional variation in the interest of insurers in passing premium risk to providers. In a 2016 American Medical Group Association survey, 64% of respondents indicated that either no or very limited commercial risk products were offered in their markets.

The same mismatch has plagued provider-sponsored health-plan offerings. Instead of asking whether there are unmet needs in their markets reachable by provider-sponsored insurance or what unique skills or competencies they can bring to the health benefits market, many health systems have simply assumed that their brands are attractive enough to float new, poorly configured insurance offerings.

Launching complex insurance products in the face of competition from well-entrenched Blue Cross plans with lavish reserves and powerful national firms like UnitedHealth Group, Kaiser, and Aetna is an extremely risky bet. Many hospital-sponsored plans have drowned rapidly in poor risks or failed to achieve their enrollment goals. A recent analysis for the Robert Wood Johnson Foundation shows that only four of the 37 provider-sponsored health plans established since Obamacare was signed into law were profitable in 2015.

The regular Medicare and commercial business. Most hospitals are losing money on conventional fee-for-service Medicare patients because their incurred costs exceed Medicare’s fixed, per-admission, DRG payments. Moreover, there is widespread failure to manage basic revenue-cycle functions for commercial patients related to “revenue integrity” (having an appropriately documented, justifiable medical bill that can be  collected), billing, and collection. All these problems contribute to diminished cash flows.

Physician employees. For many health care system, physician “integration” — making physicians employees of the system — seems to have become an end in itself. Yet many hospitals are losing upwards of $200,000 per physician per year with no obvious return on the investment.

Health systems should have a solid reason for making physicians their employees and then should stick to it. If the goal is control over hospital clinical processes and episode-related expenses, then the physician enterprise should be built around clinical process managers (emergency physicians, intensivists, and hospitalists). If the goal is control over geographies or increasing the loyalty of patients to the health care system, the physician enterprise should be built around primary care physicians and advanced-practice nurses, whose distribution is based on the demand in each geography. If the goal is achieving specialty excellence, it should be built around defensible clusters of subspecialty internal medicine and surgical practitioners in key service lines (e.g., cardiology, orthopedics, oncology).

To create value by employing physicians, health systems must actually manage their physicians’ practices. This means standardizing compensation and support staffing, centralizing revenue-cycle functions and the negotiations of health plan rates, and reducing needless variation in prescribing and diagnostic-testing patterns. Health system all too often neglect these key elements.

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If health systems are to improve their financial performance, they must achieve both strategic and operational discipline. If they don’t, their current travails almost certainly will deepen.