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The Post-Election Forecast

Confused over what Obama's re-election will mean to healthcare? We break it down for you.

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Sustainable Growth Rate

Per the sustainable growth rate (SGR) provision, Medicare's physician fees are slated to decrease 26.5% on Jan. 1, 2013.

According to the Congressional Budget Office (CBO), a 1-year doc fix for 2013 -- freezing physician fees for another year -- would cost $10 billion, and a "permanent" doc fix -- freezing physician fees for 10 years -- would cost $245 billion for 2013-2022.8

Given the current fiscal and economic climate, it is unlikely that Washington will be able to agree upon a permanent doc fix. The most likely outcome of the lame duck session -- which starts on Nov. 13 -- is a 2-month doc fix, which would freeze rates at current (2012) levels for January and February 2013. A 2-month doc fix would buy time for the new Congress and the Obama administration to come up with a doc fix for the remainder of 2013 or longer.

There is legislative precedent for this, from last year. H.R. 3765, the Temporary Payroll Tax Continuation Act of 2011, included a 2-month doc fix, freezing rates at 2011 levels for January and February 2012.

However, any comfort derived from a 2-month doc fix or even a full year doc fix would be somewhat illusory and amount to kicking the can down the road. Such temporary fixes are by definition not permanent solutions, and payments under the physician fee schedule would most likely be cut by 25-30% starting on Jan. 1, 2014 to comply with the SGR.

In addition, the uncertainty regarding how a doc fix would be funded poses a significant risk to hospitals, since in the past, increased spending in one area of Medicare's budget has often been offset by decreased Medicare outlays in other areas. In the case of the SGR, one would posit that increased physician expenses could be covered by decreased reimbursements to hospitals and other providers of medical care. If covered solely by hospitals, the $10 billion needed to pay for a 1-year doc fix would translate into an average of almost $3 million in cuts per hospital.

Conclusions

In the wake of the election, it is clear that the majority of the health reform law will be implemented. Regarding the sequester, although White House senior adviser David Plouffe noted that "no one thinks it should happen,"9 the defense and nondefense portions of it might be treated differently, with the nondefense cuts -- including over $11 billion to Medicare in 2013 -- most likely to be implemented. As for the SGR, look for a short-term doc fix that buys time for Congress and the Obama administration.

As Otto von Bismarck said, "Politics is the art of the possible." Given the past few years of discord and gridlock in our nation's capital, this forecast -- while obviously lacking a Hollywood ending -- presents a realistic view of what could be possible. In the coming weeks, our leaders in Washington have the opportunity to take the first steps on what hopefully will be the road to constructive collaboration.

References

1. Jessica Zigmond and Rich Daly, "Obama win seen as victory for healthcare reform," http://www.modernhealthcare.com/article/20121107/NEWS/311069949, Nov. 7, 2012.
2. Ibid.
3. Office of Management and Budget, "OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L. 112-155), September 2012, p. 5.
4. Office of Management and Budget, op. cit., p. 7.
5. Tripp Umbach, "The Negative Employment Impacts of the Medicare Cuts in the Budget Control Act of 2011," September 2012, p. 8.
6. Philip Ewing, "D.C. caught off guard by Obama sequester vow," http://www.politico.com/news/stories/1012/82736.html, Oct. 23, 2012.
7. Associated Press, "House speaker says he'll consider tax increase," http://www.boston.com/business/personal-finance/taxes/2012/11/08/house-speaker-says-consider-tax-increase/Y39TihympLlaKWsvvqeiNN/story.html, Nov. 7, 2012.
8. Congressional Budget Office, "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Aug. 2012, p. 20.
9. Suzy Khimm, "Obama said the sequester 'will not happen.' That doesn't change anything," http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/23/obama-said-the-sequester-will-not-happen-that-doesnt-change-anything/, Oct. 23, 2012.

Ken Perez is senior vice president of marketing and director of healthcare policy, MedeAnalytics Inc.


The Post-Election Forecast

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