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The DataGen Download: Dissecting Medicare Cuts

DATE: April 4, 2017

Another round of major healthcare financial cuts is possible—and their impact could be devastating.

As healthcare policymakers and analysts try to mitigate the high cost of healthcare in the United States, payment reform is already making an impact on the way provider organizations do business. DataGen recently released projections revealing the impact of cuts made in Medicare payments to hospitals and hospital systems across the nation over the last 16 years.

These cuts were partially offset by the coverage increases under the Affordable Care Act (ACA). As the new administration turns its attention to healthcare, however, there are more potential cuts on the table. If these cuts are enacted—and if done so while the coverage expansion provided by the ACA is repealed or changed—healthcare organizations face a major risk of a massive decrease in funding.

ENACTED CUTS

Nationally, of the funds allocated from Medicare to reimburse providers for the care of the elderly and disabled, 14% has already been cut—amounting to more than $500 billion in reductions between 2010 and 2026. These cuts can broadly be broken down into three categories: legislative, regulatory, and quality-based payment reform.

More than 40% of these cuts—$207 billion in all—include reductions in the cost of living adjustments that providers need to keep up with the increasing cost of providing care.

These particular reductions—generally called “ACA marketbasket cuts”—were initially intended to help pay for coverage expansion under ACA.

Medicare Disproportionate Share Hospital (DSH) payments, which represent 12% of the cuts ($62.1 billion), were cut with the expectation that expanded coverage would ease some of the burden of caring for these vulnerable populations, representing payments to providers serving a higher mix of poor, uninsured, and underinsured patients.

PROPOSED CUTS

DataGen also released information on the potential impact of multiple additional cuts under consideration but not yet enacted. The ever-increasing national debt, combined with the fact that healthcare makes up over 25% of federal spending, leaves little room for doubt that at least some of these proposals for spending cuts will be adopted.

Hospitals that train medical residents face the possibility of $18.2 billion in reductions for that critical function over the next ten years—an issue that’s especially daunting with looming doctor shortages creating additional anxiety. While outpatient services have represented an increasing proportion of revenue as hospitals are pushed to provide more care without admitting patients, payments for those services could be cut by up to $18.7 billion.

Rural hospitals that provide care for patients who don’t have access to another hospital face potential reductions of up to $35.8 billion. In total, these and other proposals could add another $150 billion over the next ten years to the reductions already in place.

The healthcare community has already absorbed $500 billion in cuts—and the proposed cuts are making many providers wonder where it will ever stop. If coverage expansion goes away, as the initial replacement for ACA proposed, providers do have a real reason to worry about their financial sustainability. That doesn’t mean there’s nothing to be done about it, though.

Providers have already been lobbying their congressional representatives heavily to express the impact these cuts will have on day-to-day operations. While this effort seems to have gotten some traction, it’s important to keep the pressure on. We at DataGen believe that the new administration is beginning to understand the interconnected nature of healthcare policy and financial regulation—and is seeing that these cuts will cause reductions in the labor force, negatively impacting communities, employees, and patients.

Click here for your copy of the DataGen Download: Dissecting Medicare Cuts. Contact DataGen and follow us on LinkedIn to learn more about the impact these proposed cuts will have.