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Navigating the Impact of Medicare Cuts on Hospital Providers

Hospital hallway with data on side door.

Federal legislative and regulatory measures enacted since 2010 have fundamentally altered Medicare provider payments — and consequently, the operational landscape for hospitals across the United States. As part of an ongoing dialogue on health policy reform and fiscal strategy, it's crucial for hospital administrators and healthcare professionals to understand the breadth and depth of these payment adjustments. 

That's why DataGen released the Enacted Medicare Cuts Analysis as part of our legislative analyses suite, which is intended for advocacy purposes only.  We looked at the extent to which hospitals have been impacted by existing Medicare provider payment cuts that Congress has enacted to achieve Medicare payment policy and/or long-term deficit reduction goals. The impacts shown in this analysis include the major cuts enacted since 2010. 

In this blog, we'll cover the enacted legislative cuts, enacted regulatory cuts and quality programs analyzed in the Enacted Medicare Cuts Analysis.   

The legislative landscape: A bird's-eye view 

DataGen analyzed the following legislative actions that have had a marked impact on Medicare reimbursement: 

  • The Affordable Care Act of 2010 included adjustments to the Medicare market basket, Medicare Disproportionate Share Hospital funding and quality adjustments. Note: quality adjustments are broken out into their own category in this analysis. 

  • The Budget Control Act of 2011 triggered a 2.0% across-the-board sequestration reduction to payment rates. 

  • The American Taxpayer Relief Act of 2012 and subsequent legislation (Middle Class Tax Relief and Job Creation Act of 2012) authorized reductions related to inpatient coding adjustments and bad debt reimbursement, among other changes. 

  • The Protecting Access to Medicare Act of 2014 authorized payment adjustments for services paid for under the clinical laboratory fee schedule. 

  • The Bipartisan Budget Act of 2015 mandated reductions to Outpatient Prospective Payment System payments. These “site-neutral” reductions were for nonexcepted off-campus sites to a level equivalent to that paid under the Medicare Physician Fee Schedule.  

  • The Patient-Driven Grouping Model changed Home Health Agency PPS payments. 

  • The Medicare Access and CHIP Reauthorization Act of 2015 executed market basket adjustments, and recent reforms like the Bipartisan Budget Act of 2018 have continued to adjust payment policies further, including adding hospice to the Inpatient PPS short-stay post-acute care transfer policy. 

Regulatory cuts: Analyzing their impact 

Beyond the congressional chamber floor, regulatory coding adjustments implemented by CMS have also left an imprint on hospital finances. Adjustments to coding practices, market basket updates and payment methodologies for various care settings — from clinical labs to long-term care hospitals — have shifted the fiscal status quo. Specific changes include:  

  • a 2.0% reduction to the calendar year 2016 outpatient market basket update for rate inflation due to the packaging of laboratory payments; 

  • payments for Wholesale Acquisition Cost-based drugs were reduced from WAC+6% to WAC+3%; and 

  • OPPS payments for clinic services provided at excepted off-campus sites were reduced to a level equivalent to that paid under the MPFS. 

Newly introduced payment models, such as for skilled nursing facilities transitioning from Resource Utilization Groups to the Patient-Driven Payment Model, reflect a CMS-driven push toward precision in patient care economics. Some of the changes reflected in this analysis include:  

  • Long-Term Care Hospital site-neutral payment adjustment implemented in the federal fiscal year 2016 final rule; 

  • payment impacts resulting from CMS’ policies tied to OPPS payments for 340B purchased drugs; and 

  • change in SNF PPS payment methodology from the RUG-IV system to the Patient-Driven Payment Model. 

Quality programs: Quantifying performance 

Medicare’s value-based initiatives are predicated on the principle that high-quality, patient-focused care should be recognized and rewarded. The estimations of impacts from these programs — Value-Based Purchasing, Readmissions Reduction Program and the Hospital Acquired Conditions Program — reveal a healthcare system increasingly attuned to performance excellence. In this analysis, you’ll find estimated impacts from the VBP, RRP and HAC programs.  

The road ahead: Advocacy and adaptation 

For hospital providers, understanding these intricate payment adjustments is more than a matter of fiscal prudence — it's a call for advocacy. DataGen's Enacted Medicare Cuts Analysis articulates these changes, providing hospital stewards with the data necessary to engage in informed policy discussions. It represents a multi-dimensional challenge encompassing Medicare payment policy and the broader goals of sustainable deficit reduction. 

Through insights offered in this analysis, hospitals are better equipped to adapt and advocate. As the landscape continues to shift with each policy tweak, the role of this analysis remains steadfast: to offer a clarion call for healthcare provider engagement in the policymaking process that shapes patient care for years to come. 

If you'd like to learn more about DataGen's Enacted Medicare Cuts Analysis, as part of our legislative analyses suite, don't hesitate to contact us today! We're more than willing to talk you through this analysis and explain how our product can help you with Medicare cut analyses. 


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