Healthcare Impact of the "Fiscal Cliff" Deal

Members of the U.S. House of Representatives have voted by 257-167, with 172 Democratic votes and only 85 Republicans voting in favor, to approve the previously Senate-passed bill that will avert the so-called "fiscal cliff" of automatic tax increases and mandated spending cuts. Under the plan, taxes will increase for individuals making more than $400,000 a year and couples earning more than $450,000, as well as on investment profits and dividends, the first U.S. income tax increase in 20 years. The package will extend unemployment benefits for a year and boost taxes on large inheritances. It also allows payroll taxes to go back up to 6.2% this year from 4.2 percent in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year. The "fiscal cliff" bill is the result of two days of marathon negotiations between the White House and Senate Republicans. It was passed in an unusual vote early on New Year's Day, 89-8. Senate Minority Leader Mitch McConnell said the compromise was an "imperfect agreement" that will keep tax hikes from affecting most Americans. There are significant effects on healthcare as part of this package.

The nonpartisan Congressional Budget Office released a report estimating that the Senate bill would add $329 billion to deficits in 2013 and $3.9 trillion to deficits over the next 10 years, relative to current law. The CBO analysis of the bill shows fiscal 2013 revenues would be $280 billion lower and spending $50 billion higher, resulting in a $330 billion deficit increase, for a total deficit of around $971 billion in 2013. The bill would apply another temporary SGR fix and block the scheduled 27% payment cuts to Medicare providers, and keep rates frozen at current levels for one year. A companion CBO report (PDF) entitled Detail on Estimated Budgetary Effects of Title VI (Medicare and Other Health Extensions) of H.R. 8, the American Taxpayer Relief Act of 2012, As passed by the Senate on January 1, 2013 gives the details of the impact to Medicare. Among the provisions affecting healthcare (hat tip to Matthew Taber) are:

• elimination of funding for Medicare Improvement Fund
• rebasing of State DSH allotments
• repeal of the CLASS program (part of the ACA)
• creates commission on Long Term Care
• ambulance add-on services
• extension of payments for low-volumne hospitals
• extension of MDH program
• extension Medicare Advantage special needs programs
• extension of medicare reasonable cost contracts
• extension of qualifying individual program
• extension of transitional medical assistance program
• extension of S-CHIP Express Lane
• extension of family-to family health information center
• extension of indian diabetes program
• coding adjustment for MS-DRGs
• revisions to Medicare ESRD bundled payments
• treatment of multiple service payment policies for therapy services
• payment for certain radiology services
• adjustment of equipment utilization rate for radiology 
• elimination of overpayment for diabetic supplies
• removes obstacles to collection of overpayments
• improves medicare advantage coding intensity adjustment

The bill rescinds all unobligated funds for a program in the health care law to help set up consumer-oriented nonprofit health plans. The bill will create a contingency fund of 10 percent of current unobligated funds to help co-op plans that have already been approved. Savings from this provision amount to $2.3 billion. Also under the bill, the Medicare Improvement Fund would be eliminated, saving $1.7 billion.

The legislation cuts $4.9 billion by changing the bundled payment given for end-stage renal disease services. An additional $300 million will come from cutting payment rates by 10 percent for non-emergency ambulance services used by patients with end-stage renal disease. There is also $1.8 billion projected to be saved by reducing reimbursement for multiple therapy procedures when performed on the same day.

The bill is a mixed bag in that it would require that hospitals pick up nearly half of the approximately $30 billion cost of stopping the 27% payment cut. The legislation will reduce hospital payments in two ways: number one, it will cut $10.5 billion from projected Medicare hospital payments over 10 years for inpatient or overnight care; number two, it will reduce Medicaid disproportionate share payments to hospitals by an additional $4.2 billion over the next decade.

Statements from stakeholders:

American Hospital Association

Federation of American Hospitals

National Association of Public Hospitals and Health Systems