Fiscal Cliff Deal and Healthcare: 3-Point Bulletin

by Cozen O'Connor
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On January 1, President Obama signed the American Taxpayer Relief Act of 2012 into law to prevent the country from going over the proverbial “fiscal cliff.” 

What are the main effects on healthcare of the fiscal cliff deal?

The fiscal cliff deal prevents the scheduled 26.5% cut in reimbursement rates due to the Sustainable Growth Rate formula to doctors who see Medicare patients, repeals the Community Living Assistance Services and Support (CLASS) Act, and cuts about $2.3 billion by rescinding all unobligated Consumer Operated and Oriented (CO-OP) funds under section 1332(g) of the Affordable Care Act. 

How significant are these changes?

Doc-Fix: To primary care physicians and Medicare patients, the doc fix is very significant.  Without it, doctors would be paid 26.5% less on services provided to Medicare beneficiaries.  This decrease could have led to a reluctance or ultimately a refusal of doctors to see Medicare patients.  That being said, almost no one really thought the cut would go into effect.  Every year since 2003, Congress has passed a short-term doc-fix to stabilize provider payments.  The fix is significant but unsurprising.

CLASS Act: Under the Affordable Care Act, the CLASS Act was to be a voluntary, government-run, long-term care insurance program.  It was intended to be self-sustaining; however, it quickly became clear to everyone, including HHS Sec. Sebelius, that the voluntary nature of the Act would cause adverse selection, which would ultimately prevent the program from being self-sustaining.  In October 2011, the Obama administration had already decided to stop implementing the program but did not formally repeal it.  It is significant that the CLASS Act is not being implemented, but this is not news either.

CO-OP Program: CO-OPs were included in the Affordable Care Act to provide an alternative to the health coverage provided by for-profit insurers in the form of loans.  HHS has already distributed $1.9 billion in loans to 24 nonprofits in 24 states.  The Taxpayer Relief Act does not cut this already distributed loan money or administrative funds for the Department to work with the 24 launched plans.  It does, however, cut the $1.9 billion remaining for this program.

How is the Doc-Fix financed?

The American Taxpayer Relief Act reduces hospital payments in two ways: over the next ten years, it cuts $10.5 billion from projected Medicare hospital payments for inpatient care and reduces Medicaid disproportionate share (DSH) payments to hospitals by $4.2 billion.  Additional sources of funding come from rebasing bundled payments for end-stage renal disease, implementing competitive bidding for diabetic test strips purchased in retail pharmacies, and reducing risk-adjusted payments to Medicare Advantage plans. 

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Cozen O'Connor
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