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The Fiscal Cliff for Physicians

Posted on Jan 03, 2013 by Ailee Slater ()

Welcome to 2013! This is a year already fraught with grand predictions: Syria will reach a peace agreement; the economic union of the Euro will finally settle;  the U.S. will encourage a smooth shift of presidential power in Afghanistan. This is also the year in which the U.S. government will fail to agree on spending and tax cuts, and send the nation as well as the entire global economy into a financial freefall. Luckily, that last one isn't going to happen - on New Year's Day the U.S. Senate passed fiscal legislation addressing budget problems, and the House of Republicans joined with their approval on the 2nd of January.

Still, for quite some time the idea of falling down a fiscal cliff was pretty scary, and the need to balance the budget turned out to be especially dire for two groups of people: politicians, and physicians. Without fiscal policy negotiations, Medicare physicians around the nation would have faced a 30 percent pay cut. That's a huge amount to lose in salary, and this cut would no doubt have been to some extent offset by hospitals, who then would have been forced to make drastic cuts in other areas or stop accepting new Medicare patients all together. Not a pleasant situation.

Fortunately for doctors (and most everyone else involved), that pay cut was avoided, or at least delayed. Thanks to this week's passage of the American Taxpayer Relief Act, Medicare doctors will retain their salaries at the cost of around $25 billion to the Federal Government. And where will this gigantic chunk of money come from? The $25 billion will be procured through additional healthcare legislation mandated by the Taxpayer Relief Act - changes and cuts to other healthcare programs will offset the cost of saving Medicare salaries. Here are just a few examples of how the fiscal cliff budget legislation will affect Medicare services in the United States: 1. Documentation and Coding Adjustment This provision is set to save around $10.5 billion dollars.

The Documentation and Coding Adjustment helps Medicare to recover overpayments made to hospitals in 2008, when a program known as Medicare Severity Diagnosis Related Groups (MS-DRGs) began. MS-DRGs made it easier for doctors to document severe patient conditions and complications, especially when a patient was experiencing more than one health issue at a time. Along with better documentation came easier coding procedures for doctors to submit to Medicare in order to receive payment. According to the Centers for Medicare & Medicaid Services (CMS), however, the MS-DRG system was being misused and Medicare was again and again being asked to pay too much. CMS found that while more medical cases were being labeled (and billed to Medicare) as high severity, there had been "no real overall change in patient severity or in the resources hospitals must use to furnish inpatient." The Center therefore recommended to Congress that Medicare be allowed to recoup with interest these overpayments from hospitals, and with passage of the Documentation and Coding Adjustment in the Taxpayer Relief Act, it appears that the government has agreed. 2. Competitive Payment for Diabetic Supplies Diabetic test strips are small and inexpensive, and allow a patient with diabetes to check his or her blood sugar multiple times per day. Testing strips are a useful and at times life-saving tool, and both CMS and the Federal Government have hit upon diabetic test strips as one way to save the U.S. healthcare system money.

The American Taxpayer Relief Act will apply a competitive pricing measure to testing strips and other diabetic supplies, encouraging test strip manufacturers to lower costs in order to be granted a larger share of the market. (A similar program has been in effect since 2008, but applies only to mail-order supplies). The Competitive Payment for Diabetic Supplies is expected to lower Medicare payments, and save around $6 million. 3. Reducing Risk-Adjusted Payments At the moment, health plans that participate in the Medicare Advantage program receive per-patient payment from Medicare based on that patient's risk score. That score is calculated by taking into account demographics, health history and other factors. However, CMS has found systematic prediction errors within the use of risk scores. The system does not reflect the severity of a condition, so Medicare may for example be paying out the same amount of money to a patient just diagnosed with cancer, and one in the later stages of the disease. The risk-adjusted payment mechanism also does not account for predictable variation in medical needs, and so once again over and under-predicting the cost of healthcare becomes common and a burden to Medicare.

With a provision to tackle faulty risk-adjusted payments in the American Taxpayer Relief Act, an expected $2 billion will be saved.­­­­ 4. Eliminate Funding for the Medicare Improvement Fund This fund is largely seen as redundant, and has been already recommended for future elimination by Obama's Affordable Care Act. The Medicare Improvement Fund is meant to collect and store money in order to give the Secretary of Health a fund with which to make improvements to Medicare and cover any shortfalls in the coming years. Of course, the most pressing budget shortfall is happening right now, and so the Medicare Improvement Fund will have all of its funding removed, at a savings of $1.7 billion.

There are other provisions as well included in the Taxpayer Relief Act to help offset the cost of maintaining Medicare physicians' salaries - changing payout methods for end-stage renal disease treatment; reducing payment rates for some radiology services; and extending the statute of limitations within which Medicare can ask hospitals for overpayment recoups. If it all sounds like a lot of financial burden on hospitals, well, it is. Hospital groups and lobbyists have been active and vocal in petitioning Washington against forcing the financial crisis onto hospitals in the quest to save the wages of Medicare doctors. It is however a rule of not only physics but also budgeting, that every action has an equal and opposite reaction - in this case, let us hope that maintaining physicians' salaries will infuse the healthcare system with positive velocity, rather than a stubborn and destructive inertia.

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