CHA News Article

Obama Signs Bill to Partially Avert ‘Fiscal Cliff’
Includes substantial cuts to hospital payments

President Obama has signed compromise legislation — H.R. 8 — to partially avert the “fiscal cliff.” The measure was passed by the House and Senate Jan. 1. The health care related provisions in H.R. 8 include a twelve-month fix to avoid a 27 percent cut in payments to physicians for Medicare services. 

CHA is disappointed the “physician fix” price tag of $25 billion is offset by substantial cuts to hospital payments, including a coding adjustment (estimated to cut $10.5 billion nationwide), extension of Medicaid disproportionate share hospital (DSH) reductions for an additional year (estimated to cut $4.2 billion nationwide) and extension of hospital outpatient therapy caps for one more year. The measure would also spend $5 billion to extend several provisions, including the Medicare-dependent hospital program, ambulance add-on payments and low-volume add-on payments. In California, CHA estimates the coding adjustment would cut hospital payments by $1 billion, and the extension of DSH reductions would cut as much as $400 million in 2022.

In addition, H.R. 8 would delay for two months the sequester of both domestic and defense spending that was set to begin Jan. 2 and would have reduced all Medicare payments by 2 percent. The revenue provisions in H.R. 8 include freezing individual income tax rates for couples making less than $450,000 ($400,000 for individuals); setting a 40 percent tax rate on every dollar of estate transfer over $5 million and indexing the exemption level; indexing the alternative minimum tax; raising taxes on capital gains and dividends from 15 percent to 20 percent for couples making more than $450,000 ($400,000 for individuals); and extending for one year a variety of expiring corporate tax breaks. The measure would also extend unemployment benefits.

While the compromise resolves the most imminent tax issues, it does not address the fact that the federal government has reached its statutory borrowing limit — known as the debt ceiling — which will need to be addressed within the next six weeks. It also creates another “fiscal cliff”: the short-term delay in sequestration and the expiration of the federal budget on March 30 set the stage for a government shutdown if a new budget agreement is not reached. 

Additional cuts to Medicare spending will certainly be among those options on the table to address the next set of fiscal challenges, and a concerted effort by all hospitals will be necessary to articulate the impact those cuts could have on patient care.

CHA will provide a more detailed analysis on the impact of H.R. 8 on California hospitals later this week. For a list of members of the California congressional delegation and their votes on the bill, see attachment.