MHA Hospital Impact Analysis – 2007 Presidential Budget Proposal

February 23, 2006

Page 3

TO: Chief Executive Officers and Chief Financial Officers

FROM: Spencer Johnson

DATE: February 23, 2006

SUBJECT: Hospital-Specific Impact of President Bush’s FY 2007 Budget Proposal

SUGGESTED

ROUTING: Directors of Reimbursement, Directors of Finance, Directors of Accounting, Directors of Patient Financial Services

In the fiscal year (FY) 2007 executive budget, President Bush has recommended reductions to Medicare marketbasket updates for hospitals and health systems for fiscal years 2007, 2008 and 2009 and a five-year phase-out of Medicare bad debt reimbursement for all providers. Over the next five years (2007 through 2011) cumulatively, these reductions would reduce payments to Michigan hospitals and hospital-based skilled nursing facilities, home health agencies, hospices and inpatient rehabilitation providers by $639 million. This is in addition to the $200 million cut to hospital payments resulting from expansion of the post-acute transfer provision effective Oct. 1, 2005. During the same five-year period, Medicare payments to hospitals and health systems nationwide would be cut by more than $14 billion, on top of the $4.4 billion negative impact of the post-acute transfer provision.

Your hospital-specific impact of the proposed reductions is reflected on the attached analysis. Also attached is a statewide-impact analysis of the budget proposal. Overall, the presidential budget proposal includes the following:

·  Reduce the hospital inpatient marketbasket update by 0.45 percent in FY 2007 (the FY 2007 marketbasket update is currently projected at 3.6 percent) and by 0.4 percent in FYs 2008 and 2009. This would reduce inpatient hospital payments by $219 million statewide over the five-year period, FYs 2007 through 2011.

·  Reduce hospital outpatient marketbasket update by 0.45 percent in FY 2007 (currently projected at 3.6 percent) and by 0.4 percent in FYs 2008 and 2009. This would reduce hospital outpatient payments to Michigan hospitals by $68 million during FYs 2007 through 2011.

·  Eliminate the inpatient rehabilitation facility (IRF) marketbasket update in FY 2007 (currently projected at 3.6 percent) and reduce the update by 0.4 percent in FYs 2008 and 2009. This would reduce payments to Michigan IRFs by $59 million over five years.

·  Eliminate the skilled nursing facility (SNF) marketbasket update in FY 2007 (currently projected at 3.4 percent) and reduce the update by 0.4 percent in FYs 2008 and 2009. This would reduce payments to Michigan hospital-based SNFs by $4 million over the five-year period 2007 through 2011.

·  Eliminate the home health agency marketbasket update in FY 2007 (currently projected at 3.5 percent) and reduce the update by 0.4 percent in FYs 2008 and 2009. This would reduce payment to Michigan’s hospital-based home health agencies by $26 million over five years.

·  Reduce the payment for hip and knee replacements in post-acute settings. Although no details are currently available for this proposal, it is projected that this proposal would cut payments nationally by $2.4 billion over five years. It has been suggested that the Centers for Medicare & Medicaid Services could substitute the lower SNF reimbursement levels for IRF services furnished for single hip and knee replacements.

·  Reduce the hospice marketbasket update for FYs 2007, 2008 and 2009 by 0.4 percent.

·  Phase out Medicare bad debt reimbursement for all providers by FY 2011. This provision would reduce Medicare payments to Michigan hospitals by approximately $262 million during the five-year period 2007 through 2011.

·  Establish an overall Medicare spending cap that, if exceeded, would trigger additional significant, automatic, across-the-board cuts to all provider payments.

The president’s budget proposal does not request any reimbursement change for physicians, who are scheduled to receive an update of minus 4 percent in calendar year 2007. The president’s budget would increase cost-sharing for certain high-income Medicare beneficiaries, beyond those increases already scheduled to take effect next year for beneficiaries with incomes over $80,000. In addition, the proposal would halt the application of an inflationary increase to the income thresholds that trigger higher cost-sharing, resulting in an increase in the number of beneficiaries subject to increased cost-sharing.

Medicaid Cuts

The executive budget includes proposals to cut Medicaid by $13 billion over five years. Of that amount, $5.9 billion would come from limiting payments to public providers through Intergovernmental Transfer (IGT) and Upper Payment Limit (UPL) restrictions and reducing the allowable provider tax from 6 percent to 3 percent of total revenue.

Other Health Care Proposals in the Bush Budget

The president’s budget calls on Congress to accelerate the enrollment of individuals into Health Savings Accounts (HSAs), tax-advantaged savings accounts that are coupled with high-deductible health insurance plans. The president’s goal is to move individuals away from traditional, comprehensive, employer-based coverage into individual, consumer-driven HSA plans. The Bush budget would allow for new tax deductions for HSA premiums, an increase in allowable HSA contributions, a new tax credit for HSA contributions, and a refundable tax credit to help subsidize insurance for lower-income individuals.

The Bush budget would establish a new $500 million competitive grant program to assist chronically ill patients in accessing health insurance in the individual market. In addition, employers would be permitted to donate greater funds into HSAs for chronically ill employees.

Health Information Technology

President Bush reiterates his 2004 call for the universal availability of electronic medical records by 2014, but provides very limited funding in his FY 2007 budget to achieve that goal, favoring the private financing of health information technology. The president’s request to Congress is for only $169 million nationwide for FY 2007. The budget proposal states, “The Administration supports the adoption of health information technology as a normal cost of doing business to ensure patients receive high-quality care.”

Emergency Preparedness

The president’s budget contains a number of proposals geared toward increasing the nation’s preparedness against a variety of threats, from terrorist attacks to natural disasters to an influenza pandemic. The budget would allocate $1.3 billion over five years to bolster state, local and hospital preparedness, including $474 million for hospital preparedness and $25 million for a targeted, competitive demonstration program to establish a state-of-the-art emergency care capability in one or more metropolitan areas. The budget includes $12 million for bioterrorism event training and curriculum development for health care providers. Finally, $13 million would be included for the Poison Control Program, a reduction of $10 million from FY 2006 levels.

National Institutes of Health (NIH)

The president’s budget would freeze the NIH budget for FY 2007. If enacted, this freeze would mark the fourth consecutive year that NIH funding increases have fallen behind the rate of inflation. Such declines jeopardize our nation’s role as a leader in medical discovery, eroding medical schools’ and teaching hospitals’ capacity to fulfill their research mission.

Members with questions on the president’s budget proposal or the attached statewide and hospital-specific impact analyses should contact Vickie Seal () or Marilyn Litka-Klein () at the MHA.

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