Sequester Impact Trickles Down to Cancer Patients, Nursing Homes, and Hospitals

A two percent cut to Medicare payments due to the budgetary sequester went into effect on April 1. The impact of the cuts is now becoming more apparent to cancer patients, nursing homes, and some hospitals.

Cancer Drugs

On April 3, the Washington Post ran a story about how some cancer clinics were turning away patients who needed specific cancer-fighting drugs.  While many prescription medicines are covered under a beneficiary’s Part D prescription drug plan, drugs that are provided incident to a physician’s services, i.e., the drug is commonly furnished in a physician’s office and is commonly either rendered without charge or included in the physician’s bill, are covered under Medicare Part B. 

Payments through Part D plans were specifically exempt from the two percent cut in Medicare payments that went into effect April 1, while Part B payments were not exempt. 

The payment limit for Part B drugs is based on the average sales price (ASP) of the drug for the date of service plus six percent, which covers administration and storage costs for the drugs. The two percent sequester cut, according to the Post article, is leading some clinics to turn away patients. Cancer patients can still get their medicine – they just have to go to a hospital to get it, which turns out being more expensive for both the patient (who faces higher co-payments for receiving services at the hospital) and the Medicare program itself (cancer treatment in a physician’s office is cheaper than that provided in a hospital). 

On April 9, Rep. Renee Ellmers (R-N.C.) introduced the “Cancer Patient Protection Act of 2013’’ (H.R. 1416) which would restore the payment levels for Part B drugs and biological to the levels that existed before the April 1 sequester cuts. 

Nursing Home Inspections

In a letter to state survey agencies, CMS noted that because of the sequester, the fiscal year (FY) 2013 budget for S&C activities was reduced by 5 percent from its FY 2012 level, about $19 million. The letter noted that CMS is protecting the ability of state survey agencies “to continue onsite complaint investigations and surveys of existing providers, while reducing expenses, suspending additions to the workload, reducing time spent on lower risk areas, and reducing the Centers for Medicare & Medicaid Services (CMS) Central Office (CO) services.” 

Related to this, CMS announced changes in Life Safety Code requirements regarding fire sprinklers and nursing homes, set to go into effect August 13, 2013. CMS is allowing states to offer a short form fire safety survey to nursing homes that have demonstrated compliance with fire sprinkler regulations in the past, allowing states to concentrate on-site inspections on facilities that do not have a high level of fire safety and those with a history of fire safety deficiencies.   

Not-For-Profit Hospitals

A report from Moody’s Investors Services highlights the potential impact if the sequester on not-for-profit hospitals continues throughout 2013. While Medicare reimbursements account for about 44 percent of gross patient revenues in not-for-profit hospitals, many hospitals receive well over 50 percent of their revenues from Medicare. According to Moody’s “the two percent reduction in Medicare reimbursement rates will squeeze finances of hospitals with outsized reliance on Medicare reimbursements, especially those that have not budgeted accordingly or made commensurate adjustments to expenditures or other revenues.” 

Hospitals dependent on Medicare money will feel increasing pressure to economize or look to merge with other hospitals, as the share of Medicare that makes up total U.S. health care spending increases as the population ages. 

In addition to the Medicare cuts levied on hospitals through the sequester, hospitals face an additional $309 billion in cuts through 2019. The Patient Protection and Affordable Care Act (P.L. 111-148) (PPACA) included $244 billion in cuts related to changes in the annual market basket updates for hospitals reimbursed under the prospective payment system. Other reductions include $54 billion less in disproportionate share hospital payments; $3 billion less to hospitals that have a higher level of hospital-acquired infections; and $8 billion less to hospitals with high readmission rates. 

Hospitals also may be impacted by job losses associated with the sequester, according to Moody’s. Job losses would contribute to a likely higher number of people without health insurance, which would lead to a drop in hospital visits. Moody’s noted, however, that a possible increase in the uninsured may be mitigated by increased opportunities to purchase insurance under PPACA insurance market reforms.