Medicare cuts hospitalist reimbursement by 21%

John Nelson writes…

Actually, effective March 1 Medicare cut reimbursement to ALL doctors by 21%.  As I write, CMS is reporting that starting March 1 they have instructed their fiscal intermediaries to hold payment on claims for two weeks to allow Congress to undo this reimbursement cut.

If you haven’t followed this issue this year, you should take a few minutes to learn about the Sustainable Growth Rate (SGR) formula that is the reason significant cuts have been threatened annually for many years.  Here is one reasonably concise explanation to bring you up to speed.  And if you really have lots of time to study the SGR, here is a detailed explanation from the Congressional Budget Office.

This is a big deal to nearly all doctors, not just hospitalists.  I suppose pediatricians and plastic surgeons, who rarely bill Medicare for their services, aren’t too distressed about it.  But doctors in nearly all other specialties would be affected by the cuts.

I suspect the cuts will be repealed soon.  After all, they’ve been threatened every year since about 2001, and always repealed (though I think this is the first year things have gone so far that the date to implement the cuts has passed without Congressional action).  And it is hard to imagine that our healthcare system could sustain a sudden and significant (21%!) cut in reimbursement by the largest payer.  SHM is lobbying in Congress to repeal the SGR that is behind the threatened cuts that come up every year, and has invited hospitalists to contact their congressional representatives about this.

I think all hospitalist leaders should be at least somewhat familiar with issues like this one.  Think about what might happen to your practice if the 21% cuts become a reality.  What will be the effect on your practice revenue, and the ability of your practice to recruit and retain doctors to provide care to patients?

A large portion of hospitalist practices are arranged so that the sponsoring hospital assumes all financial risk for the practice.  In other words, if Medicare reimbursement falls then the hospital will simply increase its funding for the hospitalist practice.  So in theory, the practice would be insulated from a drop in revenue.  But this raises two issues that all hospitalists, and especially group leaders, should think about:

1)    Do you really know how the contractual and financial arrangement with your hospital works?  Does the hospital assume all financial risk?

2)    Even if the hospital assumes the financial risk for your practice, and would in theory provide additional money to offset the Medicare cuts, could it afford to do so?  Remember, nearly all doctors at the hospital would see a big drop in revenue, and all would probably turn to the hospital to provide money to bail them out.  Very few, if any, hospitals could afford to make up that 21% reduction to all its doctors.  Regardless of a hospitalist practice’s current financial arrangement with “its” hospital, it can’t assume the hospital will be willing and able to offset such dramatic cuts in reimbursement.

Even if Congress ultimately acts to prevent the 21% cuts, all hospitalists should be thinking about their financial relationship with their hospital.  Change is coming, and hospitalists should think about how they plan to survive and thrive in a changed healthcare system.

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