Medicare cuts ahead for hospitals if fiscal cliff negotiations fail
CHAMPAIGN — Illinois hospitals are bracing for billions of dollars in Medicare cuts as the end of the year nears without a resolution of the nation's budget conundrum dubbed the "fiscal cliff."
The Illinois Hospital Association has projected that the across-the-board 2 percent Medicare cut to health care providers under the sequestration cuts taking effect Jan. 1, 2013 — unless Congress repeals or delays them — would cost all the state's hospitals $1.6 billion over the next nine years.
The sequestration cuts were triggered by the failure of a congressional "supercommittee" to reach a $1.2 trillion deficit reduction deal in November 2011.
Physicians face a 29 percent Medicare cut: The 2 percent sequestration cut will be added to a 27 percent Medicare cut they're already scheduled to take in the new year — though the larger pay cut for doctors has been delayed for a decade and could well be put off again.
The state hospital association has added up even more financial woes connected to Medicare cuts.
From 2013-2022, Illinois hospitals will lose $7.8 billion under Medicare payment reductions already scheduled to take place to help finance the Affordable Care Act, the association said.
Plus, during that same period, the association said the state's hospitals could lose $5.5 billion through other proposed Medicare cuts.
One potential impact of the sequester alone: In a report released in September, the American Hospital Association, the American Medical Association and the American Nurses Association projected the 2 percent Medicare cut would result in the loss of 766,000 health care jobs through 2021, with 496,000 of those jobs gone the first year.
Add to all that a potential for raising the eligibility for Medicare benefits from 65 to 67, and the impact could be "really devastating" for patients, hospitals and communities, said Claudia Lennhoff, executive director of Champaign County Health Care Consumers.
"Raising the age would be a discriminatory action," she said. "Not everybody in the U.S. is the same. Not everybody is living longer. Not everybody is living healthier. People who work certain kinds of jobs have wear and tear on their bodies."
Her organization sees older adults, some downsized from jobs and uninsured, who are struggling and waiting for their Medicare benefits to start, she said.
People have earned those benefits, and to make them wait longer will only shift costs in the health care system, Lennhoff said.
"There are certain things we feel ought not be on the table (for cuts) at all, Medicare, Medicaid and Social Security," she said.
Hospital executives say they've tightened up spending as much as possible to get ready for cuts on the way. But there are so many proposals being discussed, they can't plan for everything.
"It's hard to know what to be concerned about," said Craig Sheagren, vice president of finance at Sarah Bush Lincoln Health Center, Mattoon. "It's kind of like crying, 'The sky is falling. The sky is falling.'"
In addition to the sequester cut, Sheagren said, the Mattoon hospital stands to lose an extra $2.3 million a year it receives from Medicare as a sole community hospital.
Losing 2 percent of Medicare revenue may not sound like much, but on average, Illinois hospitals are paid only 91 percent of their costs from Medicare now, the state hospital association contends.
And Medicare patients can account for a lot of a hospital's business.
Medicare patients are 49 percent of the total admissions at Provena Covenant Medical Center and 56 percent of the total admissions at Provena United Samaritans Medical Center, said Deb Schimerowski, chief financial officer for the two hospitals.
Among the other Medicare cuts being discussed are reductions in Medicare funding for graduate medical education and reimbursements to hospitals for Medicare patient bad debts.
Medicare has reimbursed hospitals for some of the cost-sharing its beneficiaries can't pay, such as the annual in-patient deductible, but the reimbursement could be reduced or eliminated starting next year.
Another potential tangle for hospitals and other health care providers at the edge of the cliff:
Cuts in Medicaid, the states' health care program for the poor and a major part of the plan to expand health care coverage under the Affordable Care Act, were exempt from the sequester. But a cut or elimination of the provider taxes many states, including Illinois, used to finance their share of Medicaid programs is under consideration.
"Hospitals are already trying to streamline and trying to be more efficient. Everyone recognizes that things are very tight," said Danny Chun, spokesman for the state hospital association. "But you can't just outright prepare for the huge cuts of the magnitude that people are talking about."
What they could lose
Here are some projections area hospitals have made about the losses they're facing:
— Carle Foundation Hospital and Physician Group: Over the next 10 years, the hospital and clinic system could lose $15.7 million through sequestration; or $8.8 million in the Medicare bad debt payment cuts that have been proposed and another $2.5 million in direct medical education cuts, including decreased funding for medical residencies.
— Covenant: $1.12 million in 2013 through sequestration. If the other Medicare cuts replace it, said Schimerowski, Provena faces $3.4 million in cuts, including a loss of $800,000 for medical residency funding.
— United Samaritans: $827,000 next year through sequestration; or $2.5 through the other Medicare cuts.
Over 10 years, each of the two Provena hospitals stands to lose $600,000 in Medicare bad debt reimbursement, Schimerowski said.
"It's really these types of things we look at, as an industry, that are causing more and more hospitals to look at alignment," she said. "For us that was a big driver for our merger."
The two local Provena hospitals are now part of Presence Health Care, due to a merger between their former parent system, Provena Health, and Resurrection Health Care, and their names will be changing early next year to Presence Covenant and Presence United Samaritans.
Carle, which finalized a hospital-clinic merger in 2010, has been cutting costs for several years in preparation for less money coming in — not only from Medicare, but Medicaid and commercial insurance payers. And that's required becoming increasingly efficient through such initiatives as standardized purchasing, chronic disease management, adjusting staffing to community needs and reducing hospital readmissions, its executives said.
Achieving that greater efficiency was "why we came together as an organization," said Carle Chief Executive Dr. James Leonard.
The hospital achieved $15 million in savings this year without any negative effects on patient care or access to care, and is targeting $20 million in savings next year, said Beth Edrington, Carle vice president of performance improvement.
Leonard frames the cuts hospitals face with the large expansion of health care coverage on the way through health care reform.
Millions of Americans will be added to the health care system in 2014, partly through a planned expansion of Medicaid, and some of these newly-eligible Medicaid patients in the local community are already being treated through Carle's charity care program, Leonard said. Once they're covered under Medicaid, Carle stands to receive some reimbursement for their care, he said.
The big picture Leonard sees: "We're going to get less per patient to do more at a higher quality," he said.