Tallying the fiscal cliff's winners and losers in health care

Congress avoided big tax increases and across-the-board spending cuts##mdash;barely. ACP examines who won and who lost in health care.

Congress rang in the new year by passing a bill to avert the so-called fiscal cliff just hours before big tax increases and across-the-board spending cuts would have gone into effect. The process for reaching agreement was divisive and ugly, the antithesis of good government. The law passed by Congress mostly postponed for another couple of months the decisions that must be made about how the federal government should live within its means. The alternative, though—Congress and the president channeling Thelma and Louise by taking the country over the cliff—would have been far worse, ushering in economic chaos and likely triggering another recession.

As with any legislation that involves taxes and spending, some people benefited more from the final bill, others less. So who won and who lost the most?

Winners: Primary care physicians and medical subspecialists treating Medicaid patients. Starting on Jan. 1, Medicaid began paying primary care physicians and medical subspecialists no less than the comparable Medicare rates—raising Medicaid payments by more than 70% in some states.

Some in Congress had suggested canceling this Medicaid primary care increase (which was mandated by the Affordable Care Act) to help offset the cost of stopping a scheduled 27% cut in Medicare payments to physicians resulting from the flawed sustainable growth rate (SGR) formula. Working with other medical organizations, ACP helped organize a broad-based coalition of national and state medical associations that successfully persuaded Congress to preserve the Medicaid primary care increase.

Losers: Deficit reduction. The agreement lowers the deficit because it brings in more revenue than if the agreement hadn't raised taxes for higher income persons. But it does nothing to reduce spending or reform Medicare and other entitlement programs, and it only postpones until March 1 decisions on replacing the automatic budget sequestration cuts with more responsible savings.

Partial winners: Physicians who take care of Medicare patients. The law extends the 2012 Medicare physician payment update through 2013, blocking the scheduled 27% cut. But because Congress didn't act until Jan. 1, physicians were uncertain whether the cut would be in effect for Medicare patients they would begin seeing the very next day.

Plus, the law does nothing to advance the goal of permanently repealing the SGR and replacing it with a better payment system. Another year of brinkmanship and uncertainty, followed by a last-minute deal that did nothing more than produce another one-year patch to the SGR cut, will hardly restore physicians' confidence in Medicare.

It could have been worse, though. Congress could have allowed the cut to go into effect, or canceled the Medicaid primary care increase to pay for it. And, because of other regulatory and payment policy changes advocated by ACP, including getting Medicare to pay for new codes for the physician work involved in transitioning patients out of the hospital, most internists will see their Medicare payments increase in 2013 by as much as 4% to 5%.

Losers: Hospitals and other nonphysician providers. The law offsets the cost of blocking the 27% Medicare physician payment cut by further reducing disproportionate share payments to hospitals, payments to Medicare Advantage plans, payments for multiple therapy services provided on the same day, and add-on payments to ambulance companies, among others.

Losers: Physicians providing advanced imaging services. The law reduces the practice expense payments under the Medicare Physician Fee Schedule for MRIs and other advanced imaging procedures.

Losers: Higher-income taxpayers. Federal income tax rates will rise for couples earning more than $450,000 and individuals earning more than $400,000. Itemized deductions and exemptions will be limited for individuals making more than $250,000 and couples earning more than $300,000. Also, higher-income taxpayers already were slated to pay more, starting in 2013, to help finance the Affordable Care Act.

Losers: The U.S. Congress. Congress has known since the summer of 2011 that it had to act to prevent across-the-board “sequestration” cuts in both defense and nondefense discretionary programs.

The scheduled cuts were the result of a previous legislative debacle, the poisonous debate over raising the debt ceiling and the failure of the bipartisan congressional “super-committee” that was supposed to come up with an alternative to sequestration. Congress has known for a decade that the tax cuts enacted in George W. Bush's presidency would expire after 10 years. Congress has known for more than 12 months that physicians were facing a scheduled Medicare cut of almost 30% because of Medicare's SGR formula, and they've known for at least 10 years that the SGR is fundamentally unworkable and needs to be repealed.

Even so, Congress took the country to the brink of the cliff, waiting until 11 p.m. on Jan. 1 before the bill cleared the House. (The Senate had acted just a few hours earlier.) While most congressional Democrats rallied behind the final package, Republicans were split. The vast majority of Republican senators voted for the bill, while a large majority of Republican House members voted against it, requiring Democratic votes to get it over the top.

We will soon see a replay of the polarizing fiscal cliff debate, but with even greater stakes for the country. On March 1, the across-the-board spending cuts go into effect unless the House and Senate, Republicans and Democrats, and President Obama can agree on an alternative. Also, by the end of February, Congress needs to authorize the Treasury Department to borrow more money to meet its current obligations—raising the debt ceiling—and Republicans are threatening to hold it up unless President Obama and Senate Democrats agree to more spending cuts. And, by the end of March, a temporary measure to fund the federal government runs out, potentially leading to a government shutdown.

Congress and the President must find a way to resolve these issues without the brinkmanship, unyielding ideological confrontations, partisanship, unpredictability and unwillingness to compromise that were on display with the fiscal cliff legislation, or we will all be losers in the end.