Agreement Reached on Physician Payment Fix

President Obama signed into law on February 22, 2012 the Middle Class Tax Relief and Job Creation Act of 2012 which prevented a 27.4 percent cut to Medicare physician payments that was scheduled to take effect March 1, 2012, which also freezes Medicare payment rates for physicians for the remainder of 2012. The estimated cost of the physician payment fix is $20 billion.

Many of the severe cuts which were under consideration but not implemented, included changes to Critical Access Hospital (CAH) reimbursement, Evaluation & Management (E&M) code cuts (preserving hospital-based physician reimbursement) and coding offset savings.

According to the American Hospital Association, the total reduction in spending over the next ten years amounts to $8.7 million. These cuts include reductions in bad debt reimbursement, extend the caps on therapy services, reduce Medical Disproportionate Share Hospital payments and reductions to clinical lab tests. By comparison, $352 million could have been put into place if all of the aforementioned proposed hospital cuts were included.

Several of the cuts required to pay for the physician payment fix include:

  • Reductions in payments to acute care inpatient hospitals and Skilled Nursing Facilities for assistance to low-income Medicare beneficiaries (bad debt) from the current 70 percent level to 65 percent in fiscal year (FY) 2013, and for CAH, FQHC and RHC a reduction from 100 percent to 65 percent over three years (88 percent in FY 2013, 76 percent in FY 2014, and 65 percent in FY 2015);  $6.9 billion
  • An extension of the current cap on therapy services to those services provided in hospital outpatient departments through Dec. 31, 2012 (this currently applies only to services provided in nursing homes and other freestanding settings);
  • Reductions to Medicaid disproportionate share hospital payments in 2021. $4.1 billion
  • A 2% reduction to the Medical Clinical Lab Fee Schedule (CLFS). $2.4 billion
  • Eliminates the extension of the 5% Physician Fee Schedule Mental Health Add-on for certain Medicare mental health services. $50 million.

In addition, the agreement extends several expiring provisions of importance to hospitals, including:

  • Section 508 hospital wage index reclassifications (through March 31);
  • The outpatient hold-harmless provision for rural hospitals and sole community hospitals (through Jan. 1, 2013);
  • Payments for the technical component of certain physician pathology services (through June 30);
  • Ambulance add-on payments (through Dec. 31).


The Act also calls for the Department of Health and Human Services (DHHS) to complete a study of the outpatient hold-harmless provision by July 1, 2012, directs the Government Accountability Office to undertake a study of the ambulance add-on payments by Oct. 1, 2012, and directs the Medicare Payment Advisory Commission to undertake studies of the ambulance add-on payments and the outpatient therapy benefits by June 15, 2013.

“While we support ensuring that physicians will not see their Medicare payments reduced, we are extremely disappointed that once again Congress is putting seniors’ access to hospital services in jeopardy through arbitrary reductions to hospitals,” said AHA President Rich Umbdenstock.  “Today’s proposal would add an unnecessary strain to hospitals that care for vulnerable populations.  We need thoughtful approaches to improving health care not discriminate cuts that harm patients’ access to care.”

If you would like to discuss these matters further, please contact Brett Seekins at 1.800.244.7444.

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