Hospitals, Physicians at Odds Over Cuts in Budget Deal

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By Nathaniel Weixel

Oct. 27 — Two of the largest hospital lobbying groups are at odds over the proposed bipartisan budget deal between the White House and congressional leaders, which extends Medicare cuts and seeks savings from equalizing payments across different care settings.

As a way to offset some of the cost of the $80 billion bipartisan budget deal, lawmakers have proposed equalizing payment rates for hospital outpatient departments and hospital-owned physician offices. The provision is meant to address the practice of hospitals acquiring physician offices, and then billing patients under the outpatient prospective payment system, which has higher reimbursement rates than the Medicare physician fee schedule. But some hospitals say the provision comes at too high a cost to patients, who may be left without access to care.

Under the provision, all new hospital acquisition of providers that do not serve patients on the main campus of a hospital would be eligible for reimbursement from either the ambulatory surgical center prospective payment system (ASC PPS) or the Medicare physician fee schedule (PFS), not the higher reimbursed outpatient prospective payment system (OPPS).

The bill would also extend the 2 percent cuts to Medicare reimbursements under sequestration.

The American Hospital Association decried the “site neutral” payment proposal.

In an Oct. 27 statement, Thomas Nickels, AHA's executive vice president of government relations, said the “untested idea may endanger patient access to care, especially among patients who are sicker, the poor, minorities and seniors who often receive care in hospital outpatient departments. Moreover, rural communities will be most adversely impacted, as hospitals will no longer be able to help physicians in these communities continue to provide access to their patients.”

Nickels also decried the extension of sequestration, saying the cuts continue to “erode” the Medicare program.

Yet the Federation of American Hospitals, which represents investor-owned hospitals, didn't see the proposal the same way. Charles Kahn III, FAH president and chief executive officer, told Bloomberg BNA the provision is narrowly tailored, and focused only on specific physician-hospital arrangements.

Kahn said he's not thrilled with any proposal that could cut hospital payments, but the budget agreement as proposed was the best deal the industry was going to get. And by extending without increasing the overall effect of the Medicare sequester, Kahn said Congress stopped any further damage.

“Overall, we're always concerned about arbitrary cuts, but we clearly recognized that something was going to happen” to raise the debt limit and fund the government, Kahn said. “One has to be realistic. There was going to be a spending agreement. [Congressional] leadership did their best” to minimize the effects of the cuts, and “now we can move beyond the issue of payment on the outpatient side. It is important, however, that this action not be viewed as a precedent.”

Physician, Insurer Praise

A coalition of insurers and physicians was quick to praise the provision.

“Payment policies that support higher reimbursement in the HOPD [hospital outpatient department] setting encourage the acquisition of office-based physician practices, which results in higher costs and the closure of community-based care settings, further restricting patient access to care in the lower cost setting,” the Alliance for Site-Neutral Payments said in an Oct. 27 statement.

The ASNP comprises groups including the American College of Physicians, America's Health Insurance Plans and the Blue Cross Blue Shield Association.

The provision is a “positive step forward in addressing unfair payment disparities for identical clinical services provided in different health-care settings, which are shown to increase costs and encourage market consolidations that limit patient access,” the ASNP said.

Rep. Phil Roe (R-Tenn.) told Bloomberg BNA Oct. 27 that while he wasn't sure if he could support the entire budget proposal, he does support site-neutral payments.

“I'm sure hospitals won't like it, but in reality, it grandfathers them in,” Roe said. Instead of buying existing facilities, Roe said there are incentives for hospitals to build their own facilities. “If they build one in the future” hospitals can still get an increased payment under the OPPS, Roe said. Roe is the co-chair of the Republican Doctors Caucus.

Generic Drug Rebates

Hospitals weren't the only businesses upset over the proposed agreement. Generic drugmakers blasted an offset that increases Medicaid rebates on generic drugs.

“Policymakers who are serious about keeping prescription drugs affordable for Americans should reject the provisions in today's budget proposal dealing with Medicaid rebates that could eviscerate already strained state budgets and limit patient access to lower-cost generics,” Chip Davis, president and chief executive officer of the Generic Pharmaceutical Association (GPhA), said.

GPhA represents companies including Teva Pharmaceuticals USA, Mylan Inc. and Sandoz Inc. (a unit of Novartis). The deal, which isn't final, would make manufacturers of generic drugs pay the same inflation-based rebate currently paid by makers of branded drugs.

Davis told Bloomberg BNA the increased rebates would make it harder for generics to get on the market. Patients would have to pay for the more costly brand-name drugs, he said.

Yet the rebates may actually help beneficiaries, David Lipschutz, managing attorney for the Center for Medicare Advocacy, told Bloomberg BNA. While he would have liked to see Medicaid rebates extended to Medicare Part D drugs, Lipschutz said the provision is “one more step towards more affordable drug pricing.”

Part B Fix

Lipschutz also praised a provision intended to provide some relief for beneficiaries from a looming spike in Medicare Part B premiums and deductibles. However, he said he was concerned lawmakers might be setting a precedent by borrowing money and making beneficiaries pay it back.

The projected premium increase wouldn't affect 70 percent of beneficiaries who fall under the “hold harmless” provision in the Social Security Act. The 30 percent of beneficiaries not covered by the provision would bear the brunt of the increase.

In 2015, the monthly Part B premium rate is $104.90. Without congressional action, the estimated monthly Part B premium in 2016 for beneficiaries not held harmless would be $159.30. The provision would maintain the hold harmless provision in current law and prevent a dramatic premium increase on beneficiaries not held harmless.

The bill would set a new 2016 basic Part B premium for the beneficiaries who would face the increase at $120. The money would come from a loan of general revenue from the federal Treasury to the Supplemental Medical Insurance (SMI) Trust Fund. To repay the loan, starting in 2016, beneficiaries not subject to the hold harmless provision would pay an additional $3 in their monthly Part B premium until the loan is repaid.

Medicare beneficiaries who currently pay higher income-related premiums would pay more than $3, the amount of which would increase for beneficiaries in each higher-income bracket in proportion to income-related premiums under current law.

The Centers for Medicare & Medicaid Services is expected to announce the 2016 Part B premium and deductible levels in the coming weeks.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Janey Cohen at