Washington engaged in an annual ritual on February 13. The president sent his proposed budget for fiscal year 2013 to Capitol Hill, where it promptly was declared dead on arrival. While this declaration is true, it also is entirely beside the point.

The president’s budget document starts the process of creating a menu of options[1] for budget savers; Congress can pick and choose “pay fors” for other spending from this list. For example, as this is being written, Congress apparently has picked several of these proposals to pay for the latest “doc fix.”

If the specific cuts in this document sound familiar, it is because they were first unveiled last autumn by the White House during the deliberations of the so-called “super committee.” That effort was a total failure, but one should not assume they will just go away. They will be back—again and again.

The following is not an exhaustive list of the proposals; rather, it is a short description of the items most likely to be of interest.

Critical access hospitals (CAHs) are the target of two different proposals. The first would reduce reimbursement from 101 percent of reasonable costs to 100 percent. As best I can tell, this would be effective for cost reporting periods on or after October 1, 2012. The other—and potentially far more serious—provision would prohibit CAH designation for facilities less than 10 miles from the nearest hospital, starting in 2014. This is not just for new designations; it would mean loss of the designation for many existing CAHs.

Several groups would be subject to a 1.1 percent reduction in the otherwise applicable update to their standardized amounts for an eight-year period beginning in 2014, i.e., through the end of 2021. Affected groups include long-term acute care hospitals, inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs) and home health agencies.

All provider types currently eligible for bad debt reimbursement, e.g., hospitals and SNFs, would have such reimbursement cut to 25 percent from the current 70 percent over a three-year period, starting in 2013. This has reportedly already been picked by Congress as one of the “pay fors” for the latest sustainable growth rate fix, albeit with some modification.

Teaching hospitals would not be spared. The White House suggests cutting indirect medical education by 10 percent starting in 2014.

Rehab hospitals come in for special—and unwanted—treatment in addition to the cut in basic payment described above. The budget would reinstate the 75 percent rule beginning in 2013. Thus, the current 60 percent rule, which only has been around since 2007, would be scrapped, and the previous higher threshold would be reinstated. IRFs also are looking at further reduction in payment for certain patients. The budget document indicates that for “hip and knee replacements, hip fractures and certain pulmonary diseases,” IRF payment would be reduced to an amount more closely resembling what a SNF would get for treating a patient with one of those conditions.

SNFs also are a special target. Starting in 2016, payment may be reduced by up to 3 percent for those SNFs “with high rates of care-sensitive, preventable hospital readmissions.”

Finally, the administration would take an axe to graduate medical education funding for children’s hospitals. This funding is subject to an annual appropriation to the Health Resources and Services Administration, the arm of the U.S. Department of Health and Human Services that administers the fund. The current appropriation is $265 million, but the request for 2013 is only for $88 million. The good news, relatively, is that last year the request was for zero.

What Congress chooses to do with any of the foregoing is entirely speculative. Some of these proposals soon will be the law of the land. Providers need to pay attention in coming months as the annual process plays out.

For more information, contact your BKD advisor or Eddie Marmouget.