Important Medicare Provisions Contained in Fiscal Cliff Compromise

by King & Spalding

On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA), to avert the so-called fiscal cliff.  While most popular coverage has focused on ATRA’s changes to the tax code, the new law contains several important healthcare policy changes that will affect providers and suppliers.  First, ATRA delays until March 2013 across-the-board cuts to Federal spending known as sequestration, which would have cut Medicare payments to providers, physicians and Medicare Advantage plans by up to two percent.  Sequestration also would have exacted even higher cuts to discretionary programs administered by HHS and CMS.  In addition, the law imposes a one-year delay in cuts to Medicare physician payments under the Sustainable Growth Rate (SGR), paid for with a number of cuts to other provider payments and an extension in the time period that CMS may recover some overpayments.  Finally, ATRA includes extensions of several payment provisions favorable to providers.

ATRA delays sequestration for two months, as Congress was able to find enough new revenue and other spending cuts to “buy back” the across-the-board cuts that would have gone into effect on January 1.  While Medicare payments will not be affected for the first two months of 2013, the sequester is expected to take effect as of March, with payments actually affected on March 27, unless Congress and the White House can reach another compromise.  Indeed, the new effective date for sequestration roughly coincides with the deadline for Congress to raise the limit on Federal borrowing (the “debt ceiling”).  With many Congressional leaders demanding steep cuts to Federal spending in general and entitlement programs in particular, it is possible that a larger compromise on the debt ceiling may cut Medicare payments even more steeply than the two-percent sequester.

ATRA also delayed imposition of the SGR on Medicare payments to physicians through December 31, 2013.  The SGR would have cut Medicare payments to physicians by 26.5 percent.  (These cuts would have been in addition to the two-percent sequestration cuts.)  The Congressional Budget Office (CBO) estimates that the delay will cost more than $25 billion.

To pay for the SGR delay, ATRA imposes several reimbursement cuts to providers.  Among those cuts, the law requires CMS to continue to make a downward adjustment to inpatient PPS payments to account for changes in documentation and coding practices that Congress does not believe reflect real changes in case mix during the transition to MS-DRGs. The adjustment must be made during FYs 2014-17, and will result in a $10.5 billion reduction in Medicare provider payments.  (ATRA contains a similar coding adjustment to Medicare Advantage plan payments, expected to yield $2.5 billion.) ATRA also requires CMS to adjust the ESRD bundled payment amount to account for, among other things, certain ESRD drugs that a Government Accountability Office report cited in the law claims are no longer in common use.  Rebasing the ESRD bundled payment will result in a nearly $5 billion reduction in ESRD payments over ten years.  ATRA increases the reduction in Part B payment for additional therapy services furnished to the same patient on the same day to 50 percent in both institutional and physician office settings, up from 25 percent in institutional settings and 20 percent in physician office and other non-institutional settings.  This cut is effective April 1, 2013, and is expected to generate $1.8 billion in savings over ten years.  Finally, ATRA rebases Medicaid disproportionate share hospital (DSH) payments for FYs 2021 and 2022.  Medicaid DSH payments for those years will be based on Medicaid DSH payments made in 2020, which were reduced by provisions of the Affordable Care Act.  This provision is expected to save more than $4 billion over ten years.

ATRA also extends the period during which CMS may collect overpayments from providers and suppliers who are “without fault” from three years to five years.  This provision does not affect the cost report reopening period.  How, if at all, this provision affects the four-year claims reopening limitation period in CMS’s regulations is not clear.

Despite these cuts, ATRA also extends several other payment provisions.  First, the law extends the Medicare-dependent hospital program and the low-patient volume adjustment through October 1, 2013, and December 31, 2013, respectively.  Moreover, the law extends the therapy cap exception process through December 31, 2013 for medically necessary cases. The cap applies to both occupational therapy services and physical/speech-language therapy services, whether furnished in hospital outpatient departments or non-institutional settings.

The text of the law is available here, and the CBO's summary of the healthcare provisions is available here.

King & Spalding’s Government Affairs and Public Policy practice group has provided a summary of ATRA, which is available here.

Reporter, Christopher Kenny, Washington, D.C., +1 202 626 9253,

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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