Hospitals, Others Prepare for Impact Of Physician Bill's Payment Cuts

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By Michael D. Williamson

April 15 — The legislation (H.R. 2) to repeal and replace Medicare's sustainable growth rate approved by Congress April 14 contains provisions that will reduce payments to health-care providers by billions of dollars, representatives from different trade associations said.

“We're taking a bit of pain in this package,” Jeff Cohen, vice president for political and public affairs at the Federation of American Hospitals, said April 15. However, in the FAH's view, the SGR bill is “the right path to go down or we'd face unsustainable cuts in the future,” Cohen said. In addition, representatives from the American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC) separately told Bloomberg BNA April 15 they support the bill.

The biggest level of payment reductions affecting hospitals is found in Section 414 of the bill, according to Cohen. The reductions outlined in that section equal a $15 billion payment reduction for inpatient hospital services, Cohen said. In addition, the bill contains cuts for rehabilitation hospitals and long-term acute care hospitals worth $1.5 billion, he said.

Cohen said the payment reductions would occur over several years.

President Barack Obama has said he will sign the SGR bill, which was approved by the House March 27 and the Senate April 14. Without a repeal of the SGR, physicians were facing a 21 percent Medicare pay cut. The legislation replaces the SGR with new value-based systems for establishing the annual updates to payment rates for physician services in Medicare.

Home Health and Hospice 

Language in the bill specifies that in 2018, there will be a 1 percent marketbasket update for home health, William Dombi, vice president for law at the National Association for Home Care and Hospice (NAHC), told Bloomberg BNA in an April 15 e-mail. However, in recent years, the marketbasket update for home care providers has been between 2.3 percent and 2.9 percent, he said.

The 2018 rate “will represent a $3.4 billion cut over 10 years on top of the large rate cuts that began in 2011 and continue through 2017,” Dombi said. The pay cut will also affect hospice providers, he said.

The bill also includes a two-year extension of the 3 percent rural add-on to payments for patients residing in a rural area, Dombi said. The add-on payment “is very important to continued access to care in those geographic areas that have few health care resources and require extended travel time to reach patients’ homes,” he said. Overall, Dombi said his group is very pleased to see the passage of a permanent fix to the physician payment system.

Two-Midnight Policy 

Furthermore, the bill contains provisions that will delay enforcement of the “two-midnight” policy from the Centers for Medicare & Medicaid Services on paying for short stays in hospitals. The delay is until the end of the current fiscal year.

Under this CMS policy, adopted in 2013, a Medicare beneficiary isn't an “inpatient” unless the admitting physician expects that beneficiary to need care in the hospital spanning two midnights. Hospital and other health-related groups say the two-midnight rule shortchanges hospitals because it leads to incorrect reimbursements by the CMS.

The Medicare Payment Advisory Commission, a congressional advisory panel, April 2 recommended that the Department of Health and Human Services withdraw the two-midnight policy.

“We very much support the extension” that delays enforcement, Len Marquez, a director of government relations at the AAMC, said April 15. However, the group had hoped for something longer than the six-month delay, he said.

Nonetheless, he said the delay “will allow us to continue working with CMS and Congress to figure out how we should be paying for short hospital stays.”

Cohen said the FAH is “delighted” to see Congress include the two-midnight enforcement delay in the SGR bill.

Likewise, the AHA welcomed the two-midnight enforcement delay. The AHA worked to extend the enforcement delay, which is a “good thing,” Tom Nickels, the group's senior vice president of federal relations, said April 15.

Recovery Audit Contractors 

In February, the AHA said the CMS should revise reimbursement levels related to the two-midnight policy in its proposed rule for the fiscal 2016 inpatient prospective payment system. The hospital group also said the two-midnight rule and other hospital short-stay policies will continue to cause problems for hospitals unless the CMS addresses structural problems with the Recovery Audit Contractor (RAC) program “that have resulted in tremendous burden on hospitals and the appeals process”.

According to the CMS, the recovery audit program’s mission is to “identify and correct Medicare improper payments through the efficient detection and collection of overpayments made on claims of health care services provided to Medicare beneficiaries,” as well as to identify underpayments to providers.

“Given that no alternative to the two-midnight rule has yet been put in place, we are not surprised that Congress extended the ‘two-midnight' moratorium,” Kristin Walter, a spokeswoman for the Center for Medicare Integrity, a pro-RAC group, said in an April 15 e-mail to Bloomberg BNA.

However, Walter said, the CMI is encouraged by Congress including language in the bill that sends a clear message in support of CMS's work to prevent Medicare fraud, waste and abuse, even with a two-midnight policy moratorium in place.

New Priorities 

Now that Congress has passed the SGR bill, it should work on a bill to allow the CMS to account for patients' socioeconomic status when considering penalties for hospitals with excessive readmissions, Nickels and Marquez said in separate interviews.

In March, bills were introduced in the House and the Senate that would allow the CMS to account for patients' sociodemographic status when considering penalties for hospitals with excessive readmissions. At the time, the AHA, AAMC and America's Essential Hospitals said they supported the bills.

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Brian Broderick at


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