The Doc Fix Is Real

Congress just had an uncharacteristically big week – with significant implications for healthcare policy. It flew by fast and furious, so here we pause to unpack the most significant developments and what they teach us about the future.

1. The Permanent Doc Fix Effort is Real. You have to hand it to the committees of jurisdiction, they have kept their heads down and plugged away all year at permanently repealing the broken Sustainable Growth Rate (SGR) formula that dictates Medicare payments to doctors. They’ve floated new payment methodologies, added policy addressing the package of “extenders” that perennially travels with the “doc fix,” and now all three have successfully completed bipartisan mark-ups of their respective approaches. Furthermore, the three month SGR patch that was included in the budget deal is an implicit endorsement by congressional leadership that there’s actually a chance this could happen in the first quarter of next year.

The next step is to identify savings to pay the roughly $150 billion price tag, which has always of course been the biggest rub. That process is going to take center stage early next year in a “Super Committee-lite” process of negotiating various potential cuts to healthcare programs. The cynics are still betting against it, but we’re closer than we’ve ever been before to replacing the 15+ year-old SGR.

2. The Long-Term Care Hospital Sector Will Never be the Same. In a lesser-noticed component of the three month doc fix patch alluded to above, Congress eliminated the payment differential for LTCHs (pronounced el taks) and regular inpatient hospitals for patients who do not meet clinical complexity criteria. What began as an esoteric exemption for a small handful of hospitals in the early 1980’s and grew to a $6 billion Medicare benefit annually is now going to start to plateau.

The market liked the change, paradoxically, because it was gentler than some bean counters had recommended and gave plenty of time (four years) for sophisticated companies to adjust. But the hot LTCH business just got some pretty cold water poured on it.

3. The Budget Deal Helps Healthcare Programs. The Murray-Ryan agreement to set spending levels for the next two years alleviated some of the impact of the sequester on discretionary spending programs like those at the FDA, NIH and HRSA. This means that funding for new product approvals, clinical research, workforce development programs and some primary care services will be modestly improved in 2014 and 2015.

4.    The Medicare Sequester may be Here to Stay. Another things the budget deal did was extend the Medicare sequester for another two years to 2023. This means that, after the sequester ceases for all other programs, it will continue to have an impact on Medicare provider payments. This further de-linking of the Medicare sequester from the rest of the cuts and somewhat casual (in the sense it was not advertised or debated in advance) extension does not bode well for the future. A precedent has been set and Congress may try to dip back into this source of savings the next time it’s in a pinch.

5.    CBO Still Matters. For those willing to take an even longer walk into the obscure, note that the original short-term doc fix bill included a one-year delay of the so-called “Two Midnights” rule. This new policy sets two overnight stays as the cut-off point for distinguishing between outpatient and inpatient hospital discharges, in part to address some confusion around the use of “observation status” for hospital billing.

But when the Congressional Budget Office said the policy could cost as much as $2 billion, the provision was dropped from the bill. Expect hospitals to keep pushing for this – it was included in part as consolation for hospital-related cuts being included in the bill – but they’ll have to persuade CBO to change their “score” of the policy to get new traction.

It was a wild and wonderful week in DC as Congress races for the tarmac and home for the holidays. The Senate will wrap up it’s business in the next few days and then the body will mercifully adjourn. If this week is any indicator, though, we’re in for more fun in the new year.

Billy Wynne is the Founder and CEO of Healthcare Lighthouse, a one-stop shop for health policy information, and where this post originally appeared. He is also a Partner at the Washington policy and lobbying firm Thorn Run Partners. Previously, he served as Health Policy Counsel to the Senate Finance Committee.