Federal funding cuts hurt hospitals, physicians

Budget sequester latest in reductions

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Medicare beneficiaries may not have felt the sting of the budget sequester yet, but those working on the provider side -- from hospitals to physician groups to medical billing vendors -- say the 2 percent cuts are having a real impact.

Last week, the Washington Health System told employees it was eliminating 68 additional positions this month, in part due to an expected $2 million reduction in Medicare payments brought on by Congress' failure to address the budget impasse that put in place across-the-board federal funding cuts.

"And it's not just sequestration," said Denis Lukes, vice president of payor relations and reimbursement for the Hospital Council of Western Pennsylvania. "It's an accumulation of reductions over the past three years. Sequestration just happens to be coming at the end of that."

The damage, he noted, can be measured in diminishing operating margins for Western Pennsylvania hospitals, which fell from an average of 3.9 percent at the end of 2011 to 1.85 percent at the end of 2012.

"That's a $100 million reduction in operating revenue, and sequestration is not even in those numbers," Mr. Lukes said.

The sequestration cuts, Mr. Lukes and others say, illustrate the ongoing unreliability and unpredictability of payments from government programs such as Medicare and Medicaid:

There's the unresolved, ever-growing gap -- 26.5 percent as of Jan. 1 and growing -- between what physicians are paid by Medicare and the much lower rate called for under a 1997 law that ties physician payments to the national economy's "sustainable growth rate." Each time the cut has come due, Congress has passed another extension and further widened the gap.

Also, more hospital stays are now labeled observations, rather than admissions, which reduces reimbursements. And hospitals may be penalized if their readmission rates are too high. With Medicaid, hospitals have seen retroactive reductions after the case severity index, used as part of the formula to determine payment rates, went up faster than the allotted funding, Mr. Lukes said.

Each of these reductions has come to the fore in the last few years, so the sequestration cut was met with resignation more than shock by providers.

"They are very unhappy about it, but they're in a kind of survival mode anyway. This is just one more thing," said Anders Gilberg, senior vice president with the Washington, D.C.-based Medical Group Management Association, which advocates for 13,000 medical practices nationwide.

With the sequestration cut, "it's not really the dollar amount," said plastic surgeon Amelia Pare, president of the Allegheny County Medical Society. "It's that it creates uncertainty so people aren't willing to take risks."

Rather than buy a new autoclave or hire another nurse, independent physician practices wait until they have a clearer picture of what their revenues will be, she said. "It really slows the economy down on so many levels."

When the sequester cuts kicked in, Kell Group on the South Side, which handles medical billing for about a dozen independent physician groups, had to help those practices modify their software to make sure they were being paid correctly.

That initial speed bump has been largely smoothed out. But the popular Medicare Advantage plans, which are administered by private insurers, continue to complicate the process, Kell Group CEO Donna Kell said.

One insurer is waiting until July to implement the cuts, another intends to do it retroactively to April 1 and others fall in-between.

"We're working with the 10 big Medicare Advantage plans and we have to be cognizant of every plan and what they're doing, otherwise our system won't work appropriately for keeping track of all of this," Ms. Kell said.

"Are they going to take money back? How do we make sure they're not making any mistakes? It adds another whole layer of work and we're already working with less money."

It adds up to a lot of frustration and worry -- and, at Washington Hospital and possibly other medical facilities, lost jobs.

While Medicare beneficiaries are not directly affected by the sequester cuts, Mr. Gillberg said, they may not be insulated forever, especially if physicians decide they can no longer afford to see every Medicare patient who calls for an appointment.

"Depending on the specialty, they wouldn't necessarily drop it completely, but they might limit it," he said. "They're participating, but that doesn't mean the doors are wide open to Medicare beneficiaries."

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Steve Twedt: stwedt@post-gazette.com or 412-263-1963.


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