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Hospitals Fear Fee Cuts in Obama's Last Budget

By Melissa Attias, CQ Roll Call

February 1, 2016 -- Hospital operators are bracing for the possibility of more reductions to their Medicare and Medicaid fees in the coming budget cycle after absorbing billions of dollars in cuts since 2010.

The American Hospital Association (AHA) appealed to President Barack Obama in a Jan. 27 letter "to protect access to health care services for seniors and the disabled" by excluding proposed Medicare reductions from his fiscal 2017 budget plan due to be released Feb. 9.

The Federation of American Hospitals (FAH), which represents for-profit institutions, also warns that further cuts would make it harder for hospitals to meet their communities' needs, coming on top of almost $158 billion in approved cuts starting in 2010, including $35 billion enacted last year.

"We think front and center should be preservation of patient access to quality hospital care and we hope the president will draw a line here," FAH spokesman Sean Brown said in an email.

In its letter, the AHA states that additional reductions would threaten hospitals' ability to buy new technologies, upgrade facilities, and move forward with information systems and other steps to make the delivery system more efficient. It also predicts job losses if cuts are implemented, noting that labor costs comprise almost half of a hospital's budget.

But, as the letter itself notes, it would be surprising if Obama doesn't seek to extract more savings from hospitals in his final budget proposal. The AHA tallied $423 billion in proposed reductions to Medicare providers in the administration's fiscal 2016 budget plan and fought seven proposals, including cuts to the Medicare-supported system for training doctors and strengthening a yet-to-be-appointed Medicare cost-cutting board in the health care law.

Beyond the budget process, hospitals could also face an effort by House Ways and Means Chairman Kevin Brady to revamp the system of payments for Medicare providers. The Texas Republican has said he would like to see a package of changes to hospitals, post-acute care and medical education. A broad overhaul is unlikely during a sensitive election year, however.

"Our committee will continue the next step in Medicare reform, which is to improve the way we reimburse through other providers," Brady told CQ Roll Call late last year. "Every day we wake up we ought to be thinking: How do we make Medicare stronger for the long term? And every step, small or large, we ought to move it."

Ways and Means members are holding a retreat Monday with possible Medicare payment changes expected to be on the agenda. Lawmakers also are expected to discuss a replacement for the 2010 health care law and changes to the Medicare program's design.

Squeezed Dry?

In the letter to Obama, AHA President and CEO Richard J. Pollack said "many hospitals are at a breaking point in their ability to ensure patients have access to the care they need, when they need it," due to past cuts, including billions of dollars lost to sequestration. He also noted that Medicare's hospital reimbursement was 14 percent lower than the cost of care last year and that hospitals are treating more uninsured patients than anticipated, because the health law's coverage expansion "has not yet been fully realized."

Beyond protection from cuts, the FAH wants Obama to use the budget plan to pitch "market-oriented solutions" to the rising cost of prescription drugs and work toward eliminating a policy that blocks psychiatric hospitals from billing Medicaid for many patients.

The group also wants the budget to encourage states to expand their Medicaid programs under the health law—an area the administration already announced in a blog post it would address. And while FAH says its hospitals support alternative payment models and new ways to deliver care, it notes there are complex challenges linked to moving away from a fee-for-service system that will require time and investment.

"We would hope the budget addresses this issue while acknowledging that moving too fast, mandating too much, and limiting flexibility and the room to realign is counter-productive, disruptive, and could harm patient access to a fragile health care delivery system," Brown said.

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