There Will Be Blood

The debt deal is finally done. But it really isn’t an agreement on what cuts will be made, just the process that will be used to make them.

The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.

That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.

When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.

Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.

It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.

The real potential for cuts will be to provider reimbursement.

So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.

Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.

While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law–largely because of the impact the SGR formula has on the baseline the committee will have to use.

Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.

I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.

The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.

Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?

And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system–just as health care cost trend has finally been slowing down.

If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

21 replies »

  1. I asure you that without balance billing we will not see Medicare patients with a 30% fee cut.

  2. I assure you Medicare patients will have no access to my group with a 30% fee cut UNLESS we can BALANCE BILL.

  3. The new super committee won’t be able to permanently repeal the SGR. That would mean that the committee needs to find an additional half a trillion cuts elsewhere, on top of the $1.2 trillion minimum. I can’t see why the committee would want to make its job 50% harder. It’s easier to just ignore the SGR, increase the debt limit in Nov/Dec, and then pass another temporary reprieve in Dec/Jan.

  4. “The new congressional debt committee will face difficult choices regarding our national debt, but to address this problem in a fiscally responsible way they must repeal the Medicare sustainable growth rate (SGR). The failed formula will trigger a nearly 30 percent cut on January 1, severely threatening access to care for seniors”

    I guess entitlements are OK if you’re on the receiving end. Gee AMA where would Republican vouchers put access to care for seniors? Here’s a suggestion, seeing as you see this as a crisis we’re ALL involved in, why don’t you cut your costs to reflect the new payment system instead of fanning the flames of senior fear.

  5. Frequent congressional short term fixes to the broken Medicare physician payment system have increased both the size of the Medicare cut and the cost of real reform. The new congressional debt committee will face difficult choices regarding our national debt, but to address this problem in a fiscally responsible way they must repeal the Medicare sustainable growth rate (SGR). The failed formula will trigger a nearly 30 percent cut on January 1, severely threatening access to care for seniors. Without action now, the cost of permanent reform – which bi-partisan elected officials agree is critical – will continue to escalate, increasing the cost for taxpayers. Any plan this year to reduce the deficit must repeal the SGR to keep from increasing the long-term cost of reform and to stabilize Medicare for patients and physicians.

  6. The original deal to not touch pharma was in Medicare Part D, brought to you by the GOP. Obama promised pharma not to renege on the deal cut by the GOP in order to get them to go along with the ACA. The 1997 act was GOP driven. But, if you wish to believe it is all Obama, feel free.


  7. Putting aside the grandstanding in some of the comments, Billl has it right. Only a couple of quibbles. For example, this just isn’t true:

    “ all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.”

    Not only could they have imagined it, but many did and it didn’t take that much sense to know bigger cuts were coming. The only real surprise is how soon. But note that these are cuts over ten years that won’t start to take effect for probably at least two, so it really isn’t far from the 2014 timing I have been expecting for cuts since before the ACA was passed.

  8. Pharma is already sending much of their workforce overseas especially their R&D departments because of the incredibly lucrative benefits the Chinese gov’t is offering to firms that relocate R&D facilities with 25+ employees & the simple fact that a Chinese Ph.D. costs abouts 1/5-1/8 of what their counterpart in the U.S. wold earn.

  9. “Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.”

    This means that the super-committee will ignore the SGR and physician fees and will have to look for cuts elsewhere. Then after the committee is done finding 1.2T in savings and the debt ceiling is raised by 1.2T, Congress will pass yet another temporary exemption to the SGR rule. That might bring the savings below 1.2T, but by then the debt ceiling will have already been raised.

    The same will happen with the AMT tax, the full Bush tax cuts expiration, and all the other budget gimmicks that are in the official budget baseline but nobody believes that they will take place.

  10. It’s easy to cuts $1 to $3 trillion over 10 years out of Medicare when one talks about cuts in the abstract. It’s not so easy when you talk about specifics. Do you have 1 specific proposal that would cut anything over the next 10 years? (The Ryan plan doesn’t make any changes to Medicare until 2021)

  11. Pick your poison it doesn’t matter that the debt bill has passed, the economy will probably take a hit. The question is how big.

    Failing to raise the federal borrowing limit would force the government to slash spending immediately and possibly cause a default, frightening financial markets and sending interest rates up.

    When Washington paeesed this bill and raised the limit, They slapped the American tax payers in the face with long-term spending cuts. The cuts would withdraw government stimulus at a time of weak economic growth and damage the already feeble recovery, at least in the short term.

  12. If I didn’t own so many drug stocks, I’d say they deserve to have their throats cut by the Joint Committee’s wealth envying Democrats and ObamaCare hating Republicans.

    After all, the former CEOs of Pfizer and Aetna were and are major supporters of ObamaCare, which they naively thought would make them richer despite everyone’s efforts to set them straight.

    The problem is that the drug companies’ products keep people out of hospitals and help shorten lengths of stay and many other costs. Wounding them will send their headquarters and workforces abroad to friendlier climes.

    When governments impose price controls and other restrictions, those affected drop unprofitable and troublesome products, thereby restricting access to needed orphan drugs, medical devices, tests and the stuff that the politicians who write the laws have never needed personally.

    I’m guessing that the Joint Committee will over react, and like the Balanced Budget Act of 1997, which set docs on the course to lower incomes, much of what they try to do will be repealed down the road—after millions have been hurt.

    But, then Obama doesn’t care who he’s hurt so long as it’s not him.

  13. I just posted this on Politico:

    1. How would you like to have Obama cut your income by, say, raising your income taxes, forcing you to buy expensive health insurance mandated by ObamaCare, forcing you to buy expensive food and gasoline as a result of ethanol mandates and forcing you to pay for others’ preventive care even though they can afford to pay for it themselves?

    Oh, you are having your disposable income cut. So you know how it feels.

    But say you’re a hospital employee—a nurse, a receptionist, a technician, etc. And you’ve been taught guest relations skills so that you’ll help patients and be friendly. Your pay is cut. What happens to your attitude, your attention to details and how much you care about quality?

    Cutting the pay of highly-trained, skilled health care workers will destroy much of the quality that we see in today’s health care institutions.

    I’ve had to be in and out of hospitals a few times over my pretty long life, and I think that while care always was as good as the workers could make it, today’s care is exceptional. The people who have cared for me and mine have been friendly and attentive with minor exceptions.

    2. I’ve covered the hospital industry since 1976 for Modern Healthcare, Health Care Strategic Managment and my blog. I’ve learned that hospital executives care about themselves first. They’re human.

    Therefore, they care about their bottom lines second. Profits are important to both tax exempt and taxable companies. They care about physicians third, because the docs control them. Then they worry about their employees and patients in that order.

    So hospital associations, which also care about themselves before they worry about their members, are most concerned about protecting their members’ bottom lines. They never suggest changes that cut government’s or private payers’ costs. This is why the AMA, AHA, CHA, etc. are looked at with such scorn and cynicism in Washington where everyone is looking out for number one—himself.

    3. Medicare expenditures must be cut by reforming the system, not by cutting payments to doctors and health workers. While it’s impossible to motivate people, it’s very easy to demotivate them by threatening their incomes and their status.

    4. Reform Medicare by adopting significant parts of Paul Ryan’s plan and modifying Medicare and Medicaid as much as politically feasible.

    Give patients strong financial incentives to be smarter about using Medicare. And give physicians and institutions strong financial incentives to cut costs.

    Let everyone make as much money as possible by increasing access and quality of care while cutting Medicare expenditures per enrollee and per patient.

    Providers have no control over disease outbreaks nor demographics, which is why controlling the rate of growth in health care expenditures is so difficult.

    If the Joint Committee focuses on problem solving instead of politics, it can take $1 trillion to $3T out of Medicare over 10 years.

    I assume politics will cut the real savings to about zero.

  14. WOW if Robert is correct and he is so often, in SC hospitals have just financed or opened $1B in new facilities and have acquired physicians (which aren’t yet generating sustainable revenues) — reforming Medicaid will definitely lower their credit ratings to be in line with their uninsured patients FICO scores. This ought to be very interesting.
    Fasten your seat belt, it’s going to be a bumpy ride…..

  15. “Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades.”

    That’s exactly the problem. Mr Laszewski has been a FIXTURE.

    Dr.Rick Lippin

  16. More than ever it is imperative that hospitals undertake efforts to improve their efficiency. Studies have shown that providers have waste in the range of 30%. Utilizing process improvement methodologies and new technologies have been shown to lower the cost of providing care significantly. Moreover, the byproducts in every other industry have been greater quality and more capacity–two areas where hospitals need to show traction as well.

    Why are hospitals jumping in with both feet?

  17. Robert, do you really think Teapublicans will trim spending from providers, pharma, insurers – no way, let the vouchers begin, and let the states work their magic rabbit-out-of-the-hat Medicaid solutions that have been on the shelf collecting dust.

  18. Nothing more to see here, folks, everyone move along now. Gotta make room for those Job Creators so they can Work their Magic.

    And, cue Nate in 3, 2, 1, …