iProtean—Hospitals Bear Brunt of Impact of “Doc Fix”

When Congress passed the American Taxpayers Relief Act to avoid the “fiscal cliff” on New Year’s Day, it included a remedy for the anticipated 26.5% cut in payments to physicians who treat Medicare patients—shifting the financial impact of that “doc fix” to hospitals and other healthcare programs.


Hospitals will bear nearly half of the $30 billion cost of stopping the payment cut to physicians.   The reductions will come in two ways:  first, a $10.5 billion cut from projected Medicare hospital payments over 10 years for inpatient or overnight care through a downward adjustment in annual base payment increases.  Second, Medicaid disproportionate care payments to hospitals will be reduced by an additional $4.2 billion over the next 10 years.  The cuts are in addition to the cuts under the Affordable Care Act. (Kaiser Health News Blog, January 1)


Some media project that “the biggest chunk of trims falls in the five-year period from 2014 to 2018 . . .”  (Philadelphia Inquirer, January 3)


The remainder of the $30 billion “doc fix” includes repricing bundled payments for end stage renal disease ($4.9 billion), competitive bidding for diabetic test strips purchased in retail pharmacies ($600 million), increased cuts (from 25% to 50%) to provider payments for multiple therapy services provided on the same day ($1.8 billion), and reducing risk-adjusted payments to Medicare Advantage plans ($2 billion).  (Kaiser Health News Blog, January 1; AHLA Practice Group, January 4)


The rationale behind the hospital cuts focuses on what CMS considers to be overpayments to hospitals caused by a new system of diagnosing patients.  The system, implemented by CMS in late 2007, resulted in billing trends that suggested hospital patients “suddenly were deemed sicker and warranted higher payments.”  The Medicare Payment Advisory Commission (MedPAC) noted that “the improved coding increased payments by $6.9 billion in 2008-2009,” and estimated that during the time period 2010 and 2012, hospitals had received $11 billion in overpayments.


The new fiscal cliff legislation gives Medicare the power to recoup $10.5 billion of those overpayments over the next few years. (Jordan Rau, “Behind the Fiscal Cliff Deal,” a Prolonged Hospital Finance Fight, Kaiser Health News, January 3)

The payment reduction is substantial, and hospitals disagree with MedPAC’s assessment of overpayment.  However, policy analysts note that this legislation is better than other options that were on the table.


iProtean subscribers, please note the new advanced course in your course library. Value-Based Purchasing & Accountable Care Organizations features Daniel Grauman, Nathan Kaufman and Monte Dube for in-depth look at what trustees need to know about how value-based purchasing works. Topics include the positive and negative effects; implementation; and engaging physicians.  They also examine governance issues that may arise as organizations consider establishing an Accountable Care Organization under the ACA.


This is the first in a series of new healthcare issues and topics that iProtean will explore in 2013.  Throughout the year we will be releasing advanced courses in the four domains:  Finance, Quality, Mission & Strategy and Governance.  Subject matter includes transforming your organization into an Integrated Delivery System; affiliation and consolidation strategies; employing physicians; making difficult decisions about services and programs; physicians and governance and many others.



For a complete list of iProtean courses, click here.


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