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Health Policy Details in the Fiscal Cliff Deal

Posted by John McDonough  January 2, 2013 10:43 PM

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In news accounts of yesterday's new tax law approved by Congress to avoid the "fiscal cliff," health care barely got a mention. One might think that the law had nothing to do with health care. Nothing could be further from the truth.

The big issue was Medicare physician payment, and preventing a nearly 30% drop in physician fees because of the 1997 law called the Balanced Budget Act which included a flawed provision called the Sustainable Growth Rate (SGR) that has been causing havoc with Medicare physician payments since 2002. Congress and the President prefer to repeal the whole thing, but can't figure out how to find the $300 billion to do so, so they keep approving short term, one-year "patches."

So the SGR's impact is again delayed for another year, at a cost of $25.2 billion. [Click here to go to the CBO report on the cost of health provisions included in the new law.] There are other provisions that increase spending by small amounts, though most of the other provisions are "pay-fors" to finance the cost of the one-year physician payment fix. There are 29 Medicare and other health related sections in all. Here are some of the big ones:

  • The big "pay-for" cuts $10.5B from Medicare hospital payments to recoup over-payments to hospitals.
  • Payment adjustments for End Stage Renal Disease (ESRD) will save $4.9B.
  • Rebasing payments for Disproportionate Share Hospitals (DSH) will save $4.2B.                   
  • Rejiggering the coding intensity between Medicare Advantage and Medicare fee-for-service will save $2.5B.
  • $1.8B will be saved from reduced payments for certain therapies provided on the same day.
  • Eliminating the Medicare Improvement Fund will save $1.7B.
  • Throw in a bunch of smaller items less than $1B in savings, and we end up with only a net $1.7B increase in spending over 10 years.

Overall, not a big deal. Hospitals are unhappy to finance physician payments, especially when hospitals are face sizable payment reductions from the Affordable Care Act while physicians face no such reductions. They have a legitimate beef.

Two noteworthy items, though, had more of a political than a cost impact:

First, the law suspends any more ACA loans to establish health insurance co-operatives (co-ops). Second, the law repeals the Community Living Assistance Services and Supports (CLASS) title of the ACA. Both are noteworthy.

Co-ops were the brainchild of North Dakota Democratic Senator Kent Conrad, Chair of the Budget Committee, as a way to lessen progressives' anger at the Senate's failure to include a "public plan option" in the ACA. Few expected the co-ops to amount to much, but the program, once launched, drew applications from 24 new consumer plans in 24 states. Now, as Senator Conrad walks out of the Senate today for the last time, his program is suspended to new applicants. For $200M in savings, a promising innovation is snuffed out. Too bad.

For CLASS, it wasn't even about money, because implementation had been suspended by the Obama Administration in the fall of 2011. CLASS was the personal priority of my late boss, Senator Edward Kennedy; after his death, Senator Chris Dodd carried the torch, and got it into the ACA. Senate Finance Chair Max Baucus (D-MT) and Conrad always disliked CLASS. It had been designed to be a new public insurance program for Americans with permanent or temporary disabilities to help them to stay in their communities to avoid institutionalization.

Every CLASS supporter recognized that the language in the ACA had flaws. If Congress had wanted to, those flaws were fixable in the interests of America's millions of disabled citizens. In repealing CLASS, Congress also established a new Commission on Long Term Care to develop a replacement plan -- good luck with that. CLASS was always peripheral to the larger purpose and role of the ACA. With its final demise, the losers are not Democrats -- the losers are millions of future disabled Americans who might have been able to enjoy a better future because of this program.

It's worth keeping in mind that this new "fiscal cliff" law was the product of the U.S. Senate. The House, because of its dysfunction, had nothing to do with it, and swallowed the Senate version whole. For whatever reservations we have with the final product, had it been conferenced with the House, it would have been much, much worse.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »


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