iProtean—Hospitals and the Fiscal Cliff—Is There Positive News?

The flurry of news reports since last week’s election about the fiscal cliff—the budget-cutting initiatives known as “sequestration” combined with automatic tax increases—and the implications for Medicare was led by a report from the Congressional Budget Office that emphasized the need to cut Medicare spending.  The National Coalition on Health Care also released a plan with a series of “tough policy recommendations to cut spending, raise revenues and continue to shift Medicare away from its fee-for-service roots.” (CQ, Norman, November 9. 2012).


Other key health policy makers have been addressing healthcare providers, essentially noting that “cost containment” for Medicare and Medicaid will be part of any deficit-reduction agreement between Congress and the White House.


Moody’s Investors Service released a Special Comment following the election that, in addition to noting the credit impacts that will now materialize under the Affordable Care Act, also emphasized the pressure to reduce Medicare.  So is there any good news for hospitals?


Moody’s notes that sequestration—a 2% reduction in payments to physicians, hospitals and other healthcare providers on January 1, 2013, unless Congress and the Administration agree on a deficit-reduction plan—would hit hospitals hard, but “even if the administration brokers a deal in the next two months that negates the sequester, there remains significant pressure to further reduce Medicare and other federal healthcare programs because of the magnitude of the federal deficit and the growth rate of healthcare spending nationally.”  The need for reductions will continue to place considerable pressure on reimbursement for not-for-profit hospitals.  (Moody’s Investor Services, Special Comment:  Re-Election of President Barack Obama is Credit Neutral for Not-for-Profit Hospitals, November 7, 2012)


But the good news is that the implementation of the individual mandate and health insurance exchanges actually may bode well for hospitals.  Moody’s views the impact of health insurance exchanges, combined with implementation of the individual mandate as a material credit positive for hospitals.  It noted that while state-run insurance exchanges would likely reduce the current number of enrollees in private healthcare plans, and exchange reimbursement rates will likely be lower than current private insurance rates, larger pools of insured patients (through both the exchanges and the the individual mandate) will boost payments overall, which would be a plus for hospitals.


Last week, Health and Human Services announced that it would extend deadlines for states to file their plans for health insurance exchanges.  States still must let the government know whether they plan to create their own exchanges by November 16, but they will have until December 14 to provide details.  States that elect not to have their own exchanges have until February to file their applications for “partnership exchanges” with the Federal government.  For states that have been sitting on the sidelines pending the outcome of the election, the extended dates should be welcome.


For more information on the impact of Medicare cuts and provisions of the Affordable Care Act, look for upcoming advanced courses featuring Lisa Goldstein (Moody’s Investors Service), Marian Jennings (M. Jennings Consulting), Nate Kaufman (Kaufman Strategic Advisors) and Dan Grauman (DGA Partners).  New courses include Financing for Integrated Delivery Systems, Value-Based Purchasing and Accountable Care Organizations, Affiliation and Consolidation Strategies and more.



For a complete list of iProtean courses, click here.


For more information about iProtean, click here.