President Obama’s deficit reduction plan is designed to reduce spending over the next 12 years by $4 trillion dollars. If every penny of that $4 trillion in deficits is eliminated, the government’s own budget projections show that trillions of dollars more in deficits would remain in place.
The Obama plan would seek $248 billion in cuts from Medicare, primarily by reducing payments to hospitals, nursing homes, drug companies and other health care providers. Upon hearing the news shares of publicly-traded hospital companies immediately went south, with the biggest declines among operators of long-term and rehabilitation hospitals.
Under the Obama plan, rehabilitation hospitals would have to demonstrate a higher threshold of patient services to benefit from some Medicare payments. Specifically, “Encourage appropriate use of inpatient rehabilitation hospitals. Medicare pays IRFs at a rate that reflects specialized rehabilitation care to patients with the most intensive needs. IRFs must demonstrate this by meeting a compliance threshold which specifies a minimum percentage of patients with designated medical conditions that require intensive rehabilitation services. Starting in 1984, this compliance threshold was set at 75 percent, but it was reduced to 60 percent in 2007. This proposal would return the compliance threshold to its previous 75 percent level beginning in 2013 to better ensure that the higher IRF payments apply to cases requiring this level of care. This proposal will save approximately $3 billion over 10 years.”
According to MedPAC (http://www.medpac.gov/chapters/Mar11_Ch09.pdf) enforcement of compliance rule mandates has resulted in compliance rates ranging from 60.1% to 62.7% over the past five years. During this same period, IRF occupancy rates remained stable at 61% to 63% while the industry saw a 2.5% reduction in the number of IRFs and bed occupancy reduction of 2.6%.
Raising the compliance ratio to 75% will most certainly reduce occupancy and force many smaller bed units and IRFs to close. The impact on access to inpatient rehabilitation will once again become the belt tightening dilemma we need prepare to endure.
Today, Wall Street is taking a beating in response to the President’s proposal, but if enacted, tomorrow Main Street will shoulder the burden of our deficit spending habits.