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Will the "Super-Committee" Give Us "Super-Cuts"?

November 14, 2011
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It will be important to continue monitoring the unfolding situation in Congress



With only nine days left before a deadline facing the so-called “super-committee” in the U.S. Congress, the group of 12 members of Congress—six senators and six representatives—who have been charged with the task of identifying and agreeing on $1.2 trillion in deficit cuts by Thanksgiving, don’t seem to be making much progress.

Indeed, as of Nov. 14, most reports appear to suggest that the committee remains largely deadlocked, despite some potential concessions on the part of both Republicans and Democrats on the committee. But if the super-committee can’t hammer out a deal by Thanksgiving, then presumably (unless some emergency, stop-gap maneuver is attempted), “sequestration” will occur, and that would mean across-the-board cuts to the various elements in the 2013 federal budget.

Now, as some Capitol Hill observers have pointed out, the meaning of the term “across-the-board” may not be as straightforward as the phrase might imply, and some portions of the federal budget are likely to be at least partially protected. In fact, some are still optimistic that a last-minute deal might still be struck. One of these is Blair Childs of the Premier Health Alliance, who told me today that he thinks it's possible a "partial" resolution might emerge that might narrow the amount of spending that would ultimately have to be sequestered.

Still, unless such a deal emerges at the last moment, the way that the Budget Control Act legislation signed this summer—which averted a potential default on the federal deficit—was written, defense programs would have to be cut by a total of $54.7 billion each year from 2013 through 2021, with non-defense programs cut by the same amount. At the moment, the total cuts envisioned would reach $984 billion through 2021, with savings in interest payments that the sequestration would produce (about $216 billion) accounting for the gap between that $984 billion figure and the $1.2 trillion target.

And what does all this mean for healthcare providers? Mandatory federal cuts, as triggered by sequestration, would include $10.8 billion in cuts in 2013, with rising amounts in subsequent years through 2021, to providers and to health insurers (through Medicare Advantage plans).

To put this into perspective, we’re talking about a figure somewhat less than $10.8 billion in provider reimbursement cuts under Medicare in 2013. It’s not a huge number, but it’s also not a tiny number. More importantly, one must keep two things in mind that really magnify the significance of this number and situation.

First, the chances that the sustainable growth rate (SGR) rules under Medicare can be “fixed” are diminishing rapidly, which means that physicians will be seeing very significant Medicare pay cuts in the next few years; some Capitol Hill observers still believe there’s a chance that some miracle can occur. But in this writer’s humble opinion, it’s very difficult to imagine a scenario in which physicians won’t get hit with reimbursement cuts, in the current policy/political situation.

Second, whatever across-the-board provider cuts take place will be added to the challenges that providers face under the three mandatory and two voluntary programs under the Affordable Care Act (ACA), or healthcare reform. As we’ve reported in this publication, the cumulative cuts to hospital organizations coming out of the healthcare conditions reduction program, the readmissions reduction program, and the value-based purchasing program under healthcare reform (the three mandatory programs under the ACA) could potentially run up to 9 percent altogether to hospitals that find themselves in the lowest quartile of performance nationally, in several years; and that’s not even to mention potential losses they might experience should they attempt to develop accountable care organizations or bundled payment arrangements, and fail to achieve shared savings under those programs.

So if you take a hospital that finds itself in the lowest quartile in performance in all three of the mandatory programs in five years from now, and project that they’re losing 9 percent of their reimbursement that way, and then add in potentially a couple more percentage points in annual cuts from this sequestration process, suddenly, you’re looking at more than 10-percent annual Medicare pay cut altogether down the road.

And for financially poorly performing hospitals, that could mean an effective death sentence. Or, put another way, as some wag put it years ago, “A billion here, a billion there, and pretty soon it all starts to add up.”

So what happens in Congress in the next week and a half could have a significant impact on healthcare providers. Of course, we at HCI will continue to monitor policy and reimbursement developments for our readers as all these processes move forward. But for CIOs and other healthcare IT leaders, one message in all this is already fairly clear: the need to strategically apply top-flight data warehouses, data analytics, business and clinical intelligence tools, and all the other relevant tools, to the challenges facing the industry, will become more important than ever.