Public Works magazine...November 2012
Considerable uncertainty surrounds the ground rules for Transportation Infrastructure Finance and Innovation Act (TIFIA) funding for highway, rail, and intermodal projects over the next two years. Launched in 1998, the program leverages federal infrastructure investment with private investment via loans, loan guarantees, and credit. In addition to state and local DOTs, eligible applicants include transit operators, special authorities, and private entities.
Moving Ahead for Progress in the 21st Century (MAP–21), the federal surface-transportation funding program that was reauthorized in July 2012, increases TIFIA funding to unprecedented levels both in terms of total and per-project dollars. It also allows the U.S. DOT to finance up to 49% of reasonably anticipated eligible project costs — much, much more than the previous 33% maximum.
But state and local highway officials are questioning the agency’s interpretation of some MAP-21 changes, starting with such preliminary matters of what they ought to include in their letters of interest. Texas DOT Executive Director Phil Wilson says the notice of funding availability the U.S. DOT issued in July “subverts the central function of an application in the credit assistance process by improperly moving these functions into the letter of interest, expanding the letter of interest well beyond the content required under the new law.”
All projects must be funded
In the past, the U.S. DOT ranked projects based on selection criteria, weighted the relative merits of eligible projects, and funded those with the highest merit. Not all proposals made the cut.
Now, however, all projects that meet certain criteria must be funded if funds are available.
“Public benefit” up for grabs
The federal money can be used for all sorts of projects: highways, passenger rail, transit and intermodal, private rail facilities, modifications that facilitate intermodal transfer and access to port terminals, intelligent transportation systems, international bridges and tunnels, and intercity passenger bus or rail facilities and vehicles. Wilson believes MAP-21 eliminates the requirement to show a public benefit.
Some groups want more types of projects to be allowed, such as bicycle and pedestrian facilities. The National Housing Conference wants to expand eligibility to parking, roads, walkways, sewers, and parks that support transit development for affordable and mixed-used housing.
“What isn’t clear is what the threshold will be for ‘public benefit,’” says Transportation for America’s David Goldberg. “There’s no firm standard on how many spaces would need to be dedicated for transit users — nor is there a formal maximum parking deck size — nor is there a clear rule that the transit set-aside would have to be for the full 24 hours or if it could float depending on peak period demand. Our sense is that U.S. DOT is not going to provide hard guidance. In all likelihood it will be a case-by-case basis.”
Rate break for rural areas
While most proposals must have at least $50 million in total eligible project costs, MAP-21 lowers the requirement to $15 million for intelligent transportation systems and $25 million for rural infrastructure projects.
The typical TIFIA interest rate is equal to the U.S. Treasury Rate on the date of execution of the TIFIA credit instrument. MAP-21, however, allows 10% of funding to go to rural projects — those located in any area other than a city with a population of more than 250,000 inhabitants within the city limits — at half the Treasury rate.
Proposals must have a dedicated revenue source for repaying a loan. Projects have been supported by tolls, user fees, public-private partnerships or availability payments, real estate tax increments, interjurisdictional funding agreements, and room and sales taxes.
— Stephen Barlas is a Washington, D.C.-based freelance writer who covers regulatory issues, with a special emphasis on EPA.
Sen. Wyden’s Ascendency Causing Concern
Pipeline & Gas Journal...December 2012
The results of the presidential and congressional elections portend "more of the same" with regard to issues of interest to the gas transmission industry. Regulatory dockets already under way will continue along their current track.
Those dockets concern greenhouse gas emissions, the integrity management program and fracking. But the most significant result of the election may be legislative, meaning the retirement of Energy and Natural Resources Chairman Sen. Jeff Bingaman (D-NM). Sen. Ron Wyden's (D-OR) ascension to the chairmanship brings a legislator who has been sometimes critical of pipeline operations to a position where he can, to put it politely, cause trouble for the industry. But the biggest concern may be a person, not an issue.
Wyden has been an outspoken critic of some proposed Oregon pipeline projects, complaining about routes that would travel through sensitive areas, such as the Palomar project slated to run through Mt. Hood National Forest. That pipeline is on hold in part because an LNG terminal linked to the project filed for bankruptcy. A few days before the election, Wyden voiced opposition to the export of LNG from the U.S. to countries with which America has a free trade agreement (FTA). That has been legal for years. The Department of Energy rubber stamps such applications. So any restrictions would be a step backward. In fact, in the last Congress, many legislators pushed for more liberal DOE exports of LNG - for which there have been many applications - to non-FTA countries. The DOE closely examines those, and almost all of them are under review. Wyden also proposed amendments last summer that would have impeded construction of the Keystone XL pipeline.
Asked whether Wyden might pursue legislation giving the states more say in pipeline siting, Keith Chu, Wyden's press secretary, says, "Sen. Wyden has long said state and local governments should have a role in siting facilities that may impact local communities, but it’s too early to talk about what bills Sen. Wyden may pursue next year."
Wyden ascends to the chairmanship of the Energy Committee in a Senate that has a slightly larger Democratic majority than in the past Congress. The House remains in GOP hands and President Obama still occupies the Oval Office. Neither energy issues broadly nor pipeline issues specifically will be the first order of business in the capital where legislators and the president try to fashion some sort of compromise on the "fiscal cliff" the country faces on Jan. 1. That is the $500 billion combination of tax increases and spending cuts that go into effect if the two parties don't agree on some sort of deficit-reduction plan.
The need to come up with additional revenue certainly raises the possibility of higher taxes for the energy industry, primarily the producers. Jack Gerard, president of the American Petroleum Institute, says oil and gas producers pay an effective 41% corporate income tax rate. He says that is higher than the effective rate of 26% paid on average by all S&P industrials. He argues the major tax benefit oil companies enjoy is a cost-recovery deduction, which is available to all industries. "Our view is we should all be treated equal, so if there is a decision made that the U.S. should have cost-recovery provisions, it ought to apply to all industries."
Any elimination of deductions would not affect pipelines. The threat to gas transmission companies comes more from the possibility of an increase in the individual tax rate on dividends, says Martin Edwards, vice president at the Interstate Natural Gas Association of America (INGAA). Higher taxes on dividends would discourage some people from investing in pipeline companies which are attractive investments because of their relatively high dividends. Similarly, any change in the tax status of master limited partnerships (MLPs), a category into which many pipeline companies fall, could also hurt the ability of MLPs to attract capital.
The next Congress is unlikely to revisit the issue of pipeline safety, having passed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. That bill, signed by President Obama on Jan. 3, 2012, made no significant changes to the integrity management program although it did provide the Pipeline and Hazardous Materials Safety Administration (PHMSA) with a list of studies to do, and pipelines with some new information to collect and report.
Pharmacists Hope to Bill Under New Medicare ‘G’ Code
Pharmacy & Therapeutics...November 2012
Payment Would Be for Transitional Care After Hospital Discharge
Stephen Barlas
Will Medicare lock out pharmacists from its new post-hospital transitions payment program? That is not clear yet, and may not be for some time, although the Centers for Medicare and Medicaid Services (CMS) says it will establish a new "G" code for such payments in calendar 2013.
The new G code is the latest step by Medicare to tamp down on hospital readmissions, many of which are preventable, and all of which cost the federal government billions of dollars. In its 2007 Report to Congress: Promoting Greater Efficiency in Medicare, MedPAC, the quasi-government advisory group, found that, in 2005, 17.6 percent of admissions resulted in readmissions within 30 days of discharge, accounting for $15 billion in spending. MedPAC estimated that 76 percent of the 30 day readmissions were potentially preventable, resulting in $12 billion in spending. In the same report, MedPAC also found that the rate of potentially avoidable rehospitalizations after discharges from skilled nursing facilities was 17.5 percent in 2004.
The Medicare program has been increasingly concerned about preventable readmissions ever since the MedPAC report, as has Congress, which is why the Affordable Care Act (ACA) included a number of programs aimed at reducing readmissions, generally through smoothing the transition of a patient from hospital to home. We have written about a number of these programs, including the Partnership for Patients and Community-based Care Transitions Programs.
Now Medicare is upgrading further its incentives for post-hospital transitions care by establishing this new Healthcare Common Procedure Coding System (HCPCS) G-code. Typically, hospital physicians and docs in skilled nursing homes bill Medicare using Current Procedural Terminology (CPT) codes when they discharge a patient. So for example, there are hospital discharge management codes (CPT codes 99238 and 99239) and nursing facility discharge services (CPT codes 99315 and 99316) which capture the care coordination services required to discharge a beneficiary from hospital or skilled nursing facility care. The work relative values for those discharge management services include a number of pre-, post-, and intra-care coordination activities. But the full gamut of "post-care" services such as lifestyle adjustments and medication reconciliation and adherence lie outside what those discharge codes describe.
Theoretically, the patient's community primary care physician should be responsible for medication reconciliation, etc. But the CPT office visit codes the physician bills for a recently discharged patient only cover what are called "evaluation and management" services. They typically do not include the kind of services centered around easing a patient's transition into her home, and assuring everything is done to maintain her ostensibly stabilized post-discharge condition so that she does not have to go right back to the hospital or nursing home.
The transition services encapsulated in this new G code include reviewing a patient's medical record and his diagnostic test results, evaluating psychosocial status and adjusting a plan of care. The CMS envisions that these services would be provided with the physician or nonphysician not necessarily having to see the patient, as is the case with a physician billing an E&M code. So it follows, one would think, that the G code will be billed by someone other than a physician.
Moreover, the transition services laid out in the G code--one could argue they are the key services in the G code, with regard to preventing readmission--include things that a pharmacist is best able to do, such as an assessment of a patient's understanding of the medication regimen and undertaking medication reconciliation and providing medication therapy management.
Moreover, the kinds of nonphysician providers hospitals would like to see eligible to billing G codes, people employed by the hospital, clearly do not have the expertise to perform the medication tasks. These are job descriptions such as medical assistants, care navigators, social workers and “health coaches” who, the American Hospital Association, "are often the team members telephoning patients to assist with follow-up appointments, prescription refills, insurance inquires and numerous other social issues."
"NCPA contends that community pharmacies are already performing many of these transitions of care related activities and should be compensated for them, specifically medication reconciliation," says John M. Coster, Ph.D., R.Ph., Senior Vice President of Government Affairs, National Community Pharmacists Association (NCPA). "CMS currently recognizes community pharmacies as a provider under certain circumstances as pharmacies currently have the ability to bill G codes for a limited number of services. CMS should allow pharmacies who participate in the Part B program to bill for transitional care management services that involve medication therapy."
So it would seem that Medicare might explicitly designate pharmacists as among the "physicians or qualified nonphysician practitioners" eligible to bill the new G code. The proposed rule issued this past summer does not do that.
With that wiggle room in mind, the American Pharmacists Association wants the CMS to consider if it is necessary to create a different new G-code to accommodate post-discharge transitions of care services provided by a pharmacist, especially when a pharmacist is working in or contracting with evolving integrated patient care models (including patient centered medical homes and accountable care organizations) and community pharmacy settings.
Election Choices 2012: Competing Visions
Financial Executive...October 2012
Democrats and Republicans are presenting vastly different approaches for fixing the economy and driving long-term growth. Which strategy is optimum to manage the nation’s massive debt, deadlock and malaise and lead the U.S. economy back to growth? Which is best for business? The choices couldn’t be more diverse.
By Stephen Barlas
It’s being touted across the airwaves as the most important election in our lifetimes as United States citizens prepare to elect a new president. How important it is may depend on which side of the fence you are sitting. For businesses, the focus here, optimism in the U.S. economy has taken a deep dive.
More than two-thirds of chief financial officers responding to the Financial Executives International CFO Quarterly Global Outlook Survey for the 2nd quarter 2012 don’t expect a U.S. economic recovery until sometime in 2013 (29 percent) or even 2014 or beyond (38 percent).
In comparison, one year ago the majority felt the recovery had already begun or would begin by the second half of 2012; this quarter, just 23 percent of the respondents now believe the U.S. is in the midst of a recovery.
At this juncture — with the election of a U.S. president and congressional candidates just one month away — which candidates and policies will bring certainty, lift the nation out of its doldrums, help create jobs and inspire an overall economic revival? Is it a second term for President Barack Obama/Vice President Joe Biden? Or will Mitt Romney — former governor of Massachusetts, founder of private equity firm Bain Capital and rescuer of the 2002 Olympics — and his running mate, the Representative from Wisconsin since 1999 Paul Ryan, win the election?
The nasty rhetoric drowning out serious discussion during the 2012 presidential campaign has frustrated many in the business community, not to mention the electorate. “Both sides need to focus on real issues, instead of using scare tactics,” says Steve Wojcik, vice president, National Business Group on Health, whose members are mostly large corporations concerned about burgeoning health care costs.
Important issues beg for serious discussion this election season, not only in the presidential race, but congressional races, too. The outcome of the 33 Senate elections may dictate, more than anything else, what happens in Washington in 2013. That is because the Democrats, now with a 51-47 edge (plus two senators who are registered as Independents but caucus with the Democrats), could lose that majority, with 23 up for re-election, as opposed to 10 Republicans.
Handicappers like Stuart Rothenberg, political analyst and author of the self-proclaimed nonpartisan The Rothenberg Report, argue that only five of the 33 seats are really in play, with four of those held by Democrats. A sixth seat, held by Missouri Democrat Sen. Claire McCaskill, was thought to be endangered until comments on abortion made by her opponent, Rep. Todd Akin, in August, improved McCaskill’s odds considerably. Should the GOP gain control of the Senate and keep control of the House — which is expected — President Obama, if re-elected, would have a much harder time pursuing his agenda.
The Candidates’ Tax Agendas
The agendas of Obama and Romney are very different. Obama wants to spend more to stimulate the economy and increase taxes on individual and family incomes over $200,000 and $250,000, respectively. Romney wants to slash federal spending and cut taxes. By press time, both camps have provided somewhat skeletal specifics, and though the president’s objectives are clearer — having been in office and talking about them since 2009 — as the challenger, Romney still has the opportunity to make his plans known to the electorate in more detail.
Romney’s website (www.mittromney.com) is more detailed than Obama’s (www.barackobama.com) on specifics, such as taxes. On the other hand, the president has submitted four years of federal budget plans that provide considerable detail on how he would approach various national challenges.
There are those, however, who say neither of the candidates plans add up. Clyde Prestowitz Jr., president of the Economic Strategy Institute, says an exclusive focus on macro-economic elements and policies — taxes and spending — as the major drivers of growth and employment is a fallacy. “The truth is high-tax, big government countries like Sweden, Germany and China are doing well economically and so are small government, low-tax economies like Singapore, Hong Kong and Switzerland,” he says.
Prestowitz further says the candidates should be emphasizing competitiveness policies, where the U.S. outbids countries such as China, which uses incentives to induce companies like Intel Corp. and General Electric Co. to build wafer fabrication and avionics plants there. “We have not made it clear to Jeff Immelt, CEO of GE and chairman of Obama’s Jobs Council, that if GE wants to sell to the Defense Department, GE better make its avionics in the U.S.,” says Prestowitz.
“Immelt may say he is creating U.S. jobs by building avionics in China. But he is not creating as many jobs here as GE should be.”
One could argue that the Obama administration has instituted competitiveness policies — particularly with regard to green energy — via tax incentives for wind and solar power companies that manufacture in the U.S. But implementation of that effort has been, to say the least, something less than successful (think Solyndra and others).
The White House also propped up failing U.S. automakers General Motors Co. and Chrysler Corp., although the jury is still out on whether the U.S. Treasury (i.e., taxpayers) will recoup its investment in either of the above cases.
Romney, who initially opposed the auto bailout, has insisted that the auto companies needed to go through bankruptcy before receiving government help — which they subsequently did. But he is clearly not an advocate of the kind of competitiveness policy pushed by Prestowitz. Romney’s economic recovery program centers around a reduction in individual tax rates of 20 percent below the rates left by the George W. Bush tax cuts of 2001 and 2003 and a reduction of the corporate rate to 25 percent.
He has also endorsed a territorial tax system (versus the current international system) for businesses, meaning no tax on overseas profits, which has been a cause célèbre for the Obama’s Advanced Manufacturing Partnership group and his Council on Jobs and Competitiveness.
Romney says his tax cuts will be “revenue neutral,” paid for by simplifying the tax code and eliminating special interest deductions and credits. Details, here, too, have not yet been forthcoming. He also purports to eliminate taxes on interest, dividends and capital gains, as well as on estates and to repeal the Alternative Minimum Tax (AMT) in all cases for taxpayers with adjusted gross incomes below $200,000.
Obama would let the top two tax rates rise (from 33 percent to 36 percent and 35 percent to 39.6 percent) as well as raise the rates on dividends and capital gains. He would cut the corporate tax rate to 28 percent and an additional three percentage points for manufacturers to 25 percent, but opposes a territorial tax system.
Obama’s Framework for Business Tax Reform includes removal of tax incentives for locating manufacturing facilities overseas by imposing an international minimum tax, providing a tax credit to companies that move jobs back to the U.S., doubling the tax deduction for high-tech manufacturers and establishing a new tax credit for companies seeking to finance new factories, equipment or production in communities that have been hardest hit by a company choosing to relocate or a military base shutting down.
Which Plan is More Business-Friendly?
Even business groups differ on the specifics of what needs to be done. Dorothy Coleman, vice president of Tax and Domestic Economic Policy for the National Association of Manufacturers (NAM), whose bulk of members are privately held S Corporations, which are distinct from corporations (C Corporations), says the group supports a 25 percent corporate rate for all companies, not just manufacturers, a territorial tax system and a reduction in individual rates.
Would NAM support any tax increases to “pay for” those tax reductions, to make any tax reform revenue neutral? “We would not support tax increases on business as part of tax reform,” replies Coleman.
She says NAM doesn’t believe that tax cuts and the resultant loss of federal revenue will exacerbate the federal deficit. “When the economy is growing and strong, tax reform can go a long way to stimulate the economy and address the deficit,” says Coleman.
But a lobbyist for another major corporate group — with members who mostly pay at the corporate rate — disagrees with Coleman. “Certainly broadening the tax base means getting rid of some of the corporate tax expenditures,” he says.
Skeptical views on the results of lowering the corporate tax rate complicate the issue further. Bruce Bartlett, an economist and official in the Ronald Reagan and George W. Bush administrations and author of the book, The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take, says, “While it may be a good idea to reduce the corporate tax rate as part of a tax reform package, the idea that this will jump-start growth is nonsense.”
On the other hand, Obama’s plan to increase the top two tax rates on individual earners has not drawn favor from all fronts. A report by global accounting firm Ernst & Young finds that “these higher marginal rates result in a smaller economy, fewer jobs, less investment and lower wages.” Specifically, the E&Y report finds that the “higher tax rates will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending.”
Obama’s intention to increase individual tax rates on those he terms “wealthy” is meant to raise revenue and help close the federal deficit, not spark the economy. But, depending on which report/s one utilizes (and/or which economic philosophy is adhered to), raising the rates at the top two individual levels will tap a dribble of new tax revenue, not a flood, maybe not even a stream.
Further, the Democratic plan to “pump prime” the economy with new stimulus spending could further deepen the federal deficit without markedly improving the jobs picture, if the Obama stimulus package of 2009 is any guide.
Deficits and Entitlements
Concerns about the federal deficit are not exactly front-seat issues for either Obama or Romney, with neither of their plans making significant inroads. For example, Ryan’s Path to Prosperity plan, which formed the basis of the House Republican 2012 and 2013 budget resolutions and which Romney has spoken of approvingly (though not endorsed in every particular), wouldn’t balance the federal budget until 2030.
For his part, Obama refused to endorse the recommendations of the National Commission on Fiscal Responsibility and Reform, which he appointed. In December 2010, the bipartisan group recommended a balanced program of tax increases and spending cuts, which would have cut the federal deficit by $4 trillion over the next decade.
In July 2011, Obama nearly negotiated a deficit reduction plan with House Speaker John Boehner (R-Ohio) to cut $3 trillion-plus from the deficit over the next 10 years. There was a little something for everyone in that near agreement; increased tax revenue and reductions in Medicare and Social Security spending.
But that agreement fell apart. Eventually, Obama and Republicans in Congress agreed to a $1 trillion reduction in federal spending over 10 years as part of the 2011 Budget Control Act, a law that requires much larger federal spending cuts over the next 10 years unless Republicans and Democrats agree on an alternative budget-cutting plan before then.
Medicare spending inflates the federal deficit beyond any other federal spending program. “Simply put, there can be no lasting solution to the U.S. debt crisis without structural changes in the Medicare program to slow its cost growth,” former Republican New Mexican Sen. Pete Domenici told the Senate Finance Committee in June 2012. He co-chairs the Bipartisan Policy Center Debt Reduction Task Force along with Alice Rivlin, a Democrat and former director of the Congressional Budget Office (CBO). The task force supports a “transition of Medicare to a ‘defined support’ plan in 2016.”
That is essentially what Ryan, the House economic leader (and GOP vice presidential candidate), has proposed. Some Democrats, most notably Sen. Ron Wyden (Ore.), have come around to the idea, too. Romney would likely be sympathetic to a premium support solution for those still 10 years out from qualifying for Medicare, though he has not spoken on that.
In fact Romney has said little about reducing Medicare costs. Neither has Obama. And, even having served on the Fiscal Commission, Ryan voted against Bowles-Simpson because it didn’t include provisions for managing Medicare.
Obama’s signature health-care law, The Patient Protection and Affordable Care Act (PPACA), contains a number of provisions with the intent of squeezing federal spending on Medicare by shifting payment from a volume-based formula where doctors and hospitals get paid based on the number of procedures to a quality-based formula that emphasizes control of chronic conditions and reducing hospital readmission rates. But, the jury is still out on the actual results of those initiatives and won’t be known for some time.
That said, business groups are anxious to try the payment reform initiatives, which Wojcik of the National Business Group on Health, labels “seeds” of improvement. That is why NBGH does not support repeal of PPACA, which Romney has promised if elected. Known as Obamacare, the law has been one of the two main Republican regulatory piñatas during the campaign; the other, the Dodd-Frank Wall Street Reform and Consumer Protection Act, has also been targeted for repeal by Romney.
And though not a single Democrat, much less President Obama, has argued for eliminating provisions of Dodd-Frank, implementation deadlines of many of its provisions have been delayed and the SEC has eliminated its published timeline for completion of much of the rule-writing under its supervision.
Moreover, congressional Democrats and Republicans are remarkably aligned on a few Dodd-Frank “reform” initiatives related to protecting corporate finance activities. In early August, three Republican and three Democratic senators introduced a bill that would allow businesses to hedge and mitigate their commercial risk without being burdened by requirements imposed by Dodd-Frank. The Senate bill is identical to the Business Risk Mitigation and Price Stabilization Act (H.R. 2682) legislation that already passed in the House in March 2012 by a vote of 370-24.
To some extent, that bipartisanship extends beyond the end-user issues emanating from Dodd-Frank to other business issues, in part because of a fairly calm, cooperative working relationship between the chairmen of key committees in the House and Senate, all of whom will be back in 2013, Sens. Tim Johnson (D-N.D.) and Max Baucus (D-Mont.), chairs of the Banking and Finance Committees, and Reps. Spencer Bachus (R-Ala.) and Dave Camp (R-Mich.) of Financial Services and Ways & Means.
None of them would qualify by either temperament or thought for either Tea Party or Occupy Wall Street membership. They certainly have some differences on social issues. But generally, all four, if not on the same page, are at least in the same chapter, with regard to business regulation.
On digging beneath the partisan rhetoric on federal regulation, it is clear that the divisions between the two parties, beyond repeal of Dodd-Frank and PPACA, are less than advertised. For example, Republicans have supported regulatory initiatives. Bachus is sponsoring the Investment Adviser Oversight Act, which would empower a self-regulatory organization to oversee retail investment advisers.
The Republican-Democratic divide on financial regulation is probably narrower than it is with respect to environmental regulation where there exists more distance between the two parties, both in terms of the presidential and congressional candidates, but this is not a big issue in the upcoming election.
One might argue, however, that the biggest threat to the air this fall, from East Coast to West, is not necessarily from chemical pollution but rather from the tone of the campaign rhetoric. Certainly it has been easy for each side to mischaracterize the positions of the other. “There is a consensus that everybody wants action,” says a staffer for one of the main corporate lobbies in Washington. “The more candidates talk about solutions, the better.”
Democrats and Republicans are presenting vastly different approaches for fixing the economy and driving long-term growth. Which strategy is optimum to manage the nation’s massive debt, deadlock and malaise and lead the U.S. economy back to growth? Which is best for business? The choices couldn’t be more diverse.
By Stephen Barlas
It’s being touted across the airwaves as the most important election in our lifetimes as United States citizens prepare to elect a new president. How important it is may depend on which side of the fence you are sitting. For businesses, the focus here, optimism in the U.S. economy has taken a deep dive.
More than two-thirds of chief financial officers responding to the Financial Executives International CFO Quarterly Global Outlook Survey for the 2nd quarter 2012 don’t expect a U.S. economic recovery until sometime in 2013 (29 percent) or even 2014 or beyond (38 percent).
In comparison, one year ago the majority felt the recovery had already begun or would begin by the second half of 2012; this quarter, just 23 percent of the respondents now believe the U.S. is in the midst of a recovery.
At this juncture — with the election of a U.S. president and congressional candidates just one month away — which candidates and policies will bring certainty, lift the nation out of its doldrums, help create jobs and inspire an overall economic revival? Is it a second term for President Barack Obama/Vice President Joe Biden? Or will Mitt Romney — former governor of Massachusetts, founder of private equity firm Bain Capital and rescuer of the 2002 Olympics — and his running mate, the Representative from Wisconsin since 1999 Paul Ryan, win the election?
The nasty rhetoric drowning out serious discussion during the 2012 presidential campaign has frustrated many in the business community, not to mention the electorate. “Both sides need to focus on real issues, instead of using scare tactics,” says Steve Wojcik, vice president, National Business Group on Health, whose members are mostly large corporations concerned about burgeoning health care costs.
Important issues beg for serious discussion this election season, not only in the presidential race, but congressional races, too. The outcome of the 33 Senate elections may dictate, more than anything else, what happens in Washington in 2013. That is because the Democrats, now with a 51-47 edge (plus two senators who are registered as Independents but caucus with the Democrats), could lose that majority, with 23 up for re-election, as opposed to 10 Republicans.
Handicappers like Stuart Rothenberg, political analyst and author of the self-proclaimed nonpartisan The Rothenberg Report, argue that only five of the 33 seats are really in play, with four of those held by Democrats. A sixth seat, held by Missouri Democrat Sen. Claire McCaskill, was thought to be endangered until comments on abortion made by her opponent, Rep. Todd Akin, in August, improved McCaskill’s odds considerably. Should the GOP gain control of the Senate and keep control of the House — which is expected — President Obama, if re-elected, would have a much harder time pursuing his agenda.
The Candidates’ Tax Agendas
The agendas of Obama and Romney are very different. Obama wants to spend more to stimulate the economy and increase taxes on individual and family incomes over $200,000 and $250,000, respectively. Romney wants to slash federal spending and cut taxes. By press time, both camps have provided somewhat skeletal specifics, and though the president’s objectives are clearer — having been in office and talking about them since 2009 — as the challenger, Romney still has the opportunity to make his plans known to the electorate in more detail.
Romney’s website (www.mittromney.com) is more detailed than Obama’s (www.barackobama.com) on specifics, such as taxes. On the other hand, the president has submitted four years of federal budget plans that provide considerable detail on how he would approach various national challenges.
There are those, however, who say neither of the candidates plans add up. Clyde Prestowitz Jr., president of the Economic Strategy Institute, says an exclusive focus on macro-economic elements and policies — taxes and spending — as the major drivers of growth and employment is a fallacy. “The truth is high-tax, big government countries like Sweden, Germany and China are doing well economically and so are small government, low-tax economies like Singapore, Hong Kong and Switzerland,” he says.
Prestowitz further says the candidates should be emphasizing competitiveness policies, where the U.S. outbids countries such as China, which uses incentives to induce companies like Intel Corp. and General Electric Co. to build wafer fabrication and avionics plants there. “We have not made it clear to Jeff Immelt, CEO of GE and chairman of Obama’s Jobs Council, that if GE wants to sell to the Defense Department, GE better make its avionics in the U.S.,” says Prestowitz.
“Immelt may say he is creating U.S. jobs by building avionics in China. But he is not creating as many jobs here as GE should be.”
One could argue that the Obama administration has instituted competitiveness policies — particularly with regard to green energy — via tax incentives for wind and solar power companies that manufacture in the U.S. But implementation of that effort has been, to say the least, something less than successful (think Solyndra and others).
The White House also propped up failing U.S. automakers General Motors Co. and Chrysler Corp., although the jury is still out on whether the U.S. Treasury (i.e., taxpayers) will recoup its investment in either of the above cases.
Romney, who initially opposed the auto bailout, has insisted that the auto companies needed to go through bankruptcy before receiving government help — which they subsequently did. But he is clearly not an advocate of the kind of competitiveness policy pushed by Prestowitz. Romney’s economic recovery program centers around a reduction in individual tax rates of 20 percent below the rates left by the George W. Bush tax cuts of 2001 and 2003 and a reduction of the corporate rate to 25 percent.
He has also endorsed a territorial tax system (versus the current international system) for businesses, meaning no tax on overseas profits, which has been a cause célèbre for the Obama’s Advanced Manufacturing Partnership group and his Council on Jobs and Competitiveness.
Romney says his tax cuts will be “revenue neutral,” paid for by simplifying the tax code and eliminating special interest deductions and credits. Details, here, too, have not yet been forthcoming. He also purports to eliminate taxes on interest, dividends and capital gains, as well as on estates and to repeal the Alternative Minimum Tax (AMT) in all cases for taxpayers with adjusted gross incomes below $200,000.
Obama would let the top two tax rates rise (from 33 percent to 36 percent and 35 percent to 39.6 percent) as well as raise the rates on dividends and capital gains. He would cut the corporate tax rate to 28 percent and an additional three percentage points for manufacturers to 25 percent, but opposes a territorial tax system.
Obama’s Framework for Business Tax Reform includes removal of tax incentives for locating manufacturing facilities overseas by imposing an international minimum tax, providing a tax credit to companies that move jobs back to the U.S., doubling the tax deduction for high-tech manufacturers and establishing a new tax credit for companies seeking to finance new factories, equipment or production in communities that have been hardest hit by a company choosing to relocate or a military base shutting down.
Which Plan is More Business-Friendly?
Even business groups differ on the specifics of what needs to be done. Dorothy Coleman, vice president of Tax and Domestic Economic Policy for the National Association of Manufacturers (NAM), whose bulk of members are privately held S Corporations, which are distinct from corporations (C Corporations), says the group supports a 25 percent corporate rate for all companies, not just manufacturers, a territorial tax system and a reduction in individual rates.
Would NAM support any tax increases to “pay for” those tax reductions, to make any tax reform revenue neutral? “We would not support tax increases on business as part of tax reform,” replies Coleman.
She says NAM doesn’t believe that tax cuts and the resultant loss of federal revenue will exacerbate the federal deficit. “When the economy is growing and strong, tax reform can go a long way to stimulate the economy and address the deficit,” says Coleman.
But a lobbyist for another major corporate group — with members who mostly pay at the corporate rate — disagrees with Coleman. “Certainly broadening the tax base means getting rid of some of the corporate tax expenditures,” he says.
Skeptical views on the results of lowering the corporate tax rate complicate the issue further. Bruce Bartlett, an economist and official in the Ronald Reagan and George W. Bush administrations and author of the book, The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take, says, “While it may be a good idea to reduce the corporate tax rate as part of a tax reform package, the idea that this will jump-start growth is nonsense.”
On the other hand, Obama’s plan to increase the top two tax rates on individual earners has not drawn favor from all fronts. A report by global accounting firm Ernst & Young finds that “these higher marginal rates result in a smaller economy, fewer jobs, less investment and lower wages.” Specifically, the E&Y report finds that the “higher tax rates will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending.”
Obama’s intention to increase individual tax rates on those he terms “wealthy” is meant to raise revenue and help close the federal deficit, not spark the economy. But, depending on which report/s one utilizes (and/or which economic philosophy is adhered to), raising the rates at the top two individual levels will tap a dribble of new tax revenue, not a flood, maybe not even a stream.
Further, the Democratic plan to “pump prime” the economy with new stimulus spending could further deepen the federal deficit without markedly improving the jobs picture, if the Obama stimulus package of 2009 is any guide.
Deficits and Entitlements
Concerns about the federal deficit are not exactly front-seat issues for either Obama or Romney, with neither of their plans making significant inroads. For example, Ryan’s Path to Prosperity plan, which formed the basis of the House Republican 2012 and 2013 budget resolutions and which Romney has spoken of approvingly (though not endorsed in every particular), wouldn’t balance the federal budget until 2030.
For his part, Obama refused to endorse the recommendations of the National Commission on Fiscal Responsibility and Reform, which he appointed. In December 2010, the bipartisan group recommended a balanced program of tax increases and spending cuts, which would have cut the federal deficit by $4 trillion over the next decade.
In July 2011, Obama nearly negotiated a deficit reduction plan with House Speaker John Boehner (R-Ohio) to cut $3 trillion-plus from the deficit over the next 10 years. There was a little something for everyone in that near agreement; increased tax revenue and reductions in Medicare and Social Security spending.
But that agreement fell apart. Eventually, Obama and Republicans in Congress agreed to a $1 trillion reduction in federal spending over 10 years as part of the 2011 Budget Control Act, a law that requires much larger federal spending cuts over the next 10 years unless Republicans and Democrats agree on an alternative budget-cutting plan before then.
Medicare spending inflates the federal deficit beyond any other federal spending program. “Simply put, there can be no lasting solution to the U.S. debt crisis without structural changes in the Medicare program to slow its cost growth,” former Republican New Mexican Sen. Pete Domenici told the Senate Finance Committee in June 2012. He co-chairs the Bipartisan Policy Center Debt Reduction Task Force along with Alice Rivlin, a Democrat and former director of the Congressional Budget Office (CBO). The task force supports a “transition of Medicare to a ‘defined support’ plan in 2016.”
That is essentially what Ryan, the House economic leader (and GOP vice presidential candidate), has proposed. Some Democrats, most notably Sen. Ron Wyden (Ore.), have come around to the idea, too. Romney would likely be sympathetic to a premium support solution for those still 10 years out from qualifying for Medicare, though he has not spoken on that.
In fact Romney has said little about reducing Medicare costs. Neither has Obama. And, even having served on the Fiscal Commission, Ryan voted against Bowles-Simpson because it didn’t include provisions for managing Medicare.
Obama’s signature health-care law, The Patient Protection and Affordable Care Act (PPACA), contains a number of provisions with the intent of squeezing federal spending on Medicare by shifting payment from a volume-based formula where doctors and hospitals get paid based on the number of procedures to a quality-based formula that emphasizes control of chronic conditions and reducing hospital readmission rates. But, the jury is still out on the actual results of those initiatives and won’t be known for some time.
That said, business groups are anxious to try the payment reform initiatives, which Wojcik of the National Business Group on Health, labels “seeds” of improvement. That is why NBGH does not support repeal of PPACA, which Romney has promised if elected. Known as Obamacare, the law has been one of the two main Republican regulatory piñatas during the campaign; the other, the Dodd-Frank Wall Street Reform and Consumer Protection Act, has also been targeted for repeal by Romney.
And though not a single Democrat, much less President Obama, has argued for eliminating provisions of Dodd-Frank, implementation deadlines of many of its provisions have been delayed and the SEC has eliminated its published timeline for completion of much of the rule-writing under its supervision.
Moreover, congressional Democrats and Republicans are remarkably aligned on a few Dodd-Frank “reform” initiatives related to protecting corporate finance activities. In early August, three Republican and three Democratic senators introduced a bill that would allow businesses to hedge and mitigate their commercial risk without being burdened by requirements imposed by Dodd-Frank. The Senate bill is identical to the Business Risk Mitigation and Price Stabilization Act (H.R. 2682) legislation that already passed in the House in March 2012 by a vote of 370-24.
To some extent, that bipartisanship extends beyond the end-user issues emanating from Dodd-Frank to other business issues, in part because of a fairly calm, cooperative working relationship between the chairmen of key committees in the House and Senate, all of whom will be back in 2013, Sens. Tim Johnson (D-N.D.) and Max Baucus (D-Mont.), chairs of the Banking and Finance Committees, and Reps. Spencer Bachus (R-Ala.) and Dave Camp (R-Mich.) of Financial Services and Ways & Means.
None of them would qualify by either temperament or thought for either Tea Party or Occupy Wall Street membership. They certainly have some differences on social issues. But generally, all four, if not on the same page, are at least in the same chapter, with regard to business regulation.
On digging beneath the partisan rhetoric on federal regulation, it is clear that the divisions between the two parties, beyond repeal of Dodd-Frank and PPACA, are less than advertised. For example, Republicans have supported regulatory initiatives. Bachus is sponsoring the Investment Adviser Oversight Act, which would empower a self-regulatory organization to oversee retail investment advisers.
The Republican-Democratic divide on financial regulation is probably narrower than it is with respect to environmental regulation where there exists more distance between the two parties, both in terms of the presidential and congressional candidates, but this is not a big issue in the upcoming election.
One might argue, however, that the biggest threat to the air this fall, from East Coast to West, is not necessarily from chemical pollution but rather from the tone of the campaign rhetoric. Certainly it has been easy for each side to mischaracterize the positions of the other. “There is a consensus that everybody wants action,” says a staffer for one of the main corporate lobbies in Washington. “The more candidates talk about solutions, the better.”
Stephen Barlas, an award-winning freelance writer
who has been covering issues in Washington, D.C., for more than 30
years, is a frequent contributor to Financial Executive.
GHG Utility Regulation Worries Manufacturers
Green Manufactuer...Sept./Oct. 2012
Manufacturers are up in arms about a proposed rule from the EPA which would set an emissions
standard on carbon dioxide for new electric plants. If finalized, the standard--another of the EPA's dribbled
out greenhouse gas regulatory rulemakings--would affect only electric utilities, and then only those who did not meet an emission rate of 1,000 lb CO2/MWh of electricity generated on a gross basis.
So why are manufacturers gnawing on their finger nails? Their angst has to do with concern that the EPA, in the future, may apply this 1000 lb. CO2/MWh standard to boiler units in their facilities. Additionally, they think that if the EPA finalizes the rule electric costs for manufacturers will go up as coal-burning facilities purchase and deploy expensive control equipment.
In combined comments to the agency, the National Association of Manufacturers, U.S. Chamber of Commerce and other trade groups pressed the EPA to withdraw the proposal because of "...the impact these regulations will have on energy prices and reliability, as well as the potential precedent-setting nature of the approach on manufacturing sectors in the future." The EPA argues that the utility industry will be able to build new plants which use coal or petroleum, though the costs may be a bit higher than they will be for natural gas fueled generating plants. That is because the proposed rule will require (as a de facto matter) new coal-fired boilers to employ carbon capture and storage (CCS) technology. The manufacturing groups argue the EPA has acted " arbitrarily, capriciously, and unlawfully" by favoring ( again, in a de facto way) natural gas over coal and petroleum.
But EPA Delays Application of Another GHG Rule
To be fair to the EPA, it is important to note that it is also showing restraint with regard to some GHG regulatory proceedings. The agency announced that it would not reduce the size of companies forced to obtain one of two kinds of permits when they either build a new plant or modify an existing one so that the total emissions of air pollutants (that is GHGs and other toxics such as ) exceed a certain level. The EPA had previously set applicability thresholds at total emissions above 100,000/75,000 tons per year. Those levels were established in the "tailoring rule" the agency published in December 2010. At that time, it said it would reduce those triggers in July 2012. But when July 2012 came around, the EPA reversed itself, saying it would not lower the triggers because the states would not have the resources to handle the flood of permits they would receive. The two EPA permitting programs involved here are the "Prevention of Significant Deterioration" and "Title V" programs.
State Cutbacks to Medicaid Hit Hospitals Hard
P&T Journal...October 2012
So hospital pharmacies which get active in areas like medication reconciliation and medication follow up will have a chance to buffer the effect on their hospitals of the stormy winds blowing up around Medicaid. They will also have an opportunity to reduce the program's costs, $17.4 billion of which are attributed to prescribed drugs. No one expects pharmacists to start pulling rabbits out of their hats. But if they can start making Medicaid drug dollars disappear, that would help.
Illinois hospitals swallowed a bitter pill on June 14 when
Governor Pat Quinn (D) signed the Save Medicaid Access and Resources Together
(SMART) Act. That bill and four other associated pieces of legislation aimed to
cure what ails the state Medicaid program, which has been on the financial
critical list with a $2 billion a year structural deficit. In order to do so,
the bill lasered $1.6 billion a year off state Medicaid costs, some of that in
the form of 62 benefit reductions, some in the form of reduced payments to
for-profit hospitals (3.5 percent) and safety-net hospitals and critical access
rural hospitals (2.7 percent).
The SMART Act
left pharmacies smarting. The pharmacy industry agreed to some reductions back
in April 2012, when Governor Quinn first announced his package. Negotiations
with medical providers continued on through the spring. Danny Chun, Vice
President of Communications for the Illinois Hospital Association, says
pharmacies had to then agreed to a second round of reductions, much to the
industry's dismay. The final bill restricts Medicaid recipients to four
prescriptions a month, it terminates Illinois Cares Rx, and increases co-pays
to the federal maximum for pharmaceuticals, among other new restrictions.
The
cancellation of Illinois Cares Rx underlines the ripple effect of the Medicaid
benefit reductions being announced by many states. The Rx program subsidized
prescription costs for some seniors receiving medications through Medicare Part
D.
Illinois'
Medicaid program may be more financially troubled than programs in many other
states. But other states, too, have been whacking away at payments to hospitals
and cutting benefits, pharmacy and otherwise. Florida cut Medicaid payments to Florida hospitals by 12 percent in
July 2011, and instituted an additional 5.6 percent cut in July 2012.
Cuts in state Medicaid payments to
Florida hospitals have forced Sarasota Memorial Hospital to squeeze its nickels
and dimes, if not its pennies. Sarasota treats 90 percent of the Medicaid
recipients in its area, and those individuals constitute about 9.5 percent of the
hospital's payor mix. The nearly 20 percent reduction in Florida Medicaid
payments over the past two years comes out to about $2 million a year in lost revenue
for the hospital, according to Bill Woeltjen, the hospital's Chief Financial
Officer. When all direct and indirect costs are thrown into the equation, SMH
is losing $9 million a year on its Medicaid patients. "That $2 million is
really critical when you think of the fully absorbed costs." says
Woeltjen. "So far it has not cut into muscle. But we are continuing to
look for ways to do more with less."
Maybe the Medicaid
payment cuts have not busted the hospital's biceps. But the reductions have led
to heavier lifting for fewer people at the hospital's in-patient pharmacy. David Jungst, R.Ph., Pharm.D., BCPS,
Director - Pharmaceutical Care Services at SMH, says, "We
have definitely had to give up salary dollars and not fill open positions. We
took those positions off the books. All my positions are critical. That loss
won't affect patient care, but I am worried about anything getting through the
cracks, especially when one dose can cost $10,000 or $20,000. We cannot
take our eyes off the ball."
The financial pressures on the
hospitals have forced Jungst to make some changes, some minor some major, in
the way the pharmacy department handles Medicaid patients. "Particularly
with regard to expensive drugs such as chemotherapy, which today account for
about 50 percent of our drug budget, up from 25 percent a few years ago, we are
trying to provide that drug therapy out-patient if appropriate, where the
Medicaid payment is much better," he notes.
Not only is there a lot at
stake for hospitals, there is a lot at stake, too, for the 60 million
individuals and families who currently qualify for Medicaid. The program provides health coverage for low-income
families who lack access to other affordable coverage options, for individuals
with disabilities for whom private coverage is often not available or adequate
and for seniors who need long-term care services and supports or assistance in
affording their Medicare coverage. Total spending for Medicaid was about $276
billion in 2011.The federal government pays about 57 percent of program costs and
the states paying the remaining 43 percent. While children and their parents
account for 75 percent of all enrollees, the elderly and disabled account for
two-thirds of total spending on the program.
The outcome of
the 2012 presidential and congressional elections could complicate hospital
finances even more if there are significant Republican gains, and if Mitt
Romney wins the White House. So far, there have not been deep cuts in federal
support for Medicaid; only the states have cut back their support. But
Republicans want to convert Medicaid into a block grant program. That would
have the effect, based on, for example, Vice Presidential candidate Rep. Paul
Ryan's (R-Wisc.) plan, of reducing federal outlays to the states for Medicaid
by nearly $800 billion over 10 years, according to ????. Regardless of who wins
the election, Medicaid will be on the chopping block because of the need to
reduce the federal deficit.
Despite
more state and imminent federal funding reductions, the
Medicaid program will grow in 2014 if the Affordable Care Act (ACA) is still in place. A study from the
Kaiser Family Foundation projects that Medicaid enrollment will climb by 15.9
million more people by 2019 than it otherwise would have, and the number of
uninsured will fall by more than 11 million. California and Texas, for
example, two states with considerable numbers of uninsured residents, are each
projected to see 1.4 million fewer uninsured adults in 2019 due to the Medicaid
expansion, with the federal government covering 95 percent of the cost in Texas
and 94 percent in California. The cost of the Medicaid expansion between 2014
and 2019 would be jointly financed with the federal government paying $443.5
billion (or 95.4 % of the total cost) and the states contributing $21.2
billion. (Federal matches start at 100 percent in 2014 and decrease to 93
percent in 2019). That is what the ACA says;
whether those federal funds will actually be there, and be appropriated by
Congress, well, that is a different story.
On its face, the expansion is a boon to
hospitals, who will get reimbursed 100 percent for uninsured patients whose
bills are today being written off as charity care. The ACA allows a state to expand Medicaid coverage to families up to
133 percent of the federal poverty level. The feds now pay about 57 percent
(the percentage varies somewhat state-by-state) for current Medicaid
recipients. However, hospitals with high Medicaid populations today, called
Disproportionate Share Hospitals (DSH), would be hurt badly if their states
authorize expansion. That is because that while they will be paid 100 percent
for new Medicaid recipients who were previously uninsured, they will at the
same time lose federal DSH payments they previously received. DSH payments
generally go to large hospitals in urban areas to compensate them for charity
care of uninsured patients.
In 2011, federal DSH
payments to hospitals totaled $8.1 billion, which were 26 percent of the total
federal Medicaid payments to hospitals. Those DSH payments went to "Safety
Net" hospitals in the U.S. hospitals such as Sarasota Memorial. Woeltjen,
the SMH Chief Financial Officer, says the Medicaid
"enhancement"--that is the infusion of new Medicaid patients whose
costs are being paid 100 percent by the federal government--results in a net financial
gain for the hospital in 2014, but just slightly. However, five years later as
the loss of DSH payments mounts, the Medicaid expansion becomes
"significantly negative" financially for SMH.
The ACA
expansion also threatens all
hospitals--not just DSHes--from a second angle. Chun points out that there is a significant
population of individuals in any state who already
qualify for Medicaid, but who have not signed up. Come 2014, they will have to
join Medicaid or pay a penalty for not having health insurance. If they join
Medicaid, the federal government will only reimburse Illinois Medicaid 57
percent (not 100 percent) for those previously-eligible individuals, which
could complicate the state's Medicaid shortfall even more.
Of course many governors have indicated they
will opt-out of the Medicaid expansion, if the ACA itself survives political
execution at the hands of Republicans, a possibility only if the GOP wins the
White House and the Senate in 2012. Even if the Medicaid expansion does
survive, Republicans in Congress will attempt to restructure the program to
reduce its costs to the federal government. Some Democrats are likely to be
sympathetic to structural changes because of the larger political imperative to
reduce federal spending imposed by the
Budget Control Act of 2011. That law requires Congress to reduce the federal
deficit further starting January 1, 2013. If Congress fails to do that, deep
automatic budget cuts, including to defense, will go into effect. So there will
be strong pressure post-November elections for both Democrats and Republicans
to look for substantial cuts in federal spending, and Medicaid is likely to top
the targets.
While Republican Vice Presidential candidate Rep. Paul Ryan's (R-Wisc.)
plan to restructure Medicare has received extensive coverage, he also wants to
restructure Medicaid. The GOP House budget for fiscal 2013, approved by the
House last May, reduces federal spending on all programs by $5.8 trillion over
10 years (while losing some $4 trillion in federal revenues via new tax cuts).
Of that $5.8 trillion, Medicaid accounts for $771 billion. The Ryan plan does
that by capping federal payments to the states at 2012 levels, plus the rate of
inflation. Romney endorses the
same approach; his website advocates block grants which would grow at the rate
of inflation (not medical inflation) plus one percent a year. Of course
the rate of medical inflation would be much higher, meaning states would have
to either restrict the number of new participants or cut payments to providers.
The Congressional Budget Office estimates that federal payments to the states would
be 35 percent lower in 2022 under the Ryan plan than currently projected and 49
percent lower in 2030.
Democratic opposition has stymied
Ryan's proposed Medicaid block grant proposal so far. But should Mitt Romney
win the White House and Republicans win control of the Senate, federal spending
on Medicaid, one way or another, is certain to fall faster than a zeppelin with
a leak.
Not that Democrats don't have their own
Medicaid cost deflation program. They do. President Obama made a number of cost
reduction proposals as part of his fiscal 2013 budget proposal. According to
Bruce Siegel, MD, MPH, President and Chief Executive Officer of the National
Association of Public Hospitals and Health Systems, Obama's proposal to limit
state imposition of Medicaid provider taxes "would
reduce states’ flexibility in financing their Medicaid programs, leading states
to make harmful cuts or pass the cost burden on to providers and
beneficiaries." The
president's proposal would have combined into a single blended payment what are
currently a number of separate Federal Medical Assistance Percentages (FMAP)
payments, which cover different populations or provide various services. This
proposal would have the effect of cutting the federal match, including the 100
percent for newly-eligible Medicaid recipients in 2014.
"We oppose the
overall idea of combining FMAP payments because it does nothing to reduce the
cost of care or make the program more efficient," states Siegel. "It
simply shifts Medicaid costs onto states by reducing federal spending, leaving
the states to make up the difference."
According to one Washington public
hospital lobbyist, the blended FMAP doesn’t seem to have a lot of traction
right now, although it still comes up in policy discussions. The provider tax
cut has been included in various legislative vehicles, but hasn’t made it to
the president’s desk. "We’re hopeful they will not be included in the next
budget and are keeping an eye out for future action," he says.
But budget realities will assuredly
stymie that hope. Report after report written by substantial, credible,
non-political commissions of one sort or another have buttressed the "Cut
Medicaid" political imperative. Former Federal Reserve Chairman Paul
Volcker and former New York Lt. Gov. Richard Ravitch co-chaired a task force
which wrote the Report of the
State Budget Crisis. The Task Force included such leading lights of
Republican administrations such as Nicholas Brady and George P. Shultz. The report said Medicaid programs are growing
rapidly because of increasing enrollments, escalating health care costs and
difficulty in implementing cost reduction proposals. At recent rates of growth,
state Medicaid costs will outstrip revenue growth by a wide margin, and the gap
will continue to expand. The report points out structural Medicaid deficits are
not peculiar to Illinois. They affect most states, and they "can no longer
be absorbed without significant cuts to other essential state programs like
education or unpopular tax increases or both."
Matt Salo, Executive Director, National
Association of Medicaid Directors, says Medicaid programs have only three
alternatives for reducing costs: 1) reducing the number of recipients, 2)
reducing services, or 3) reducing payments to providers. "But those three
options are not sustainable in long run, especially two of the three, that is
cutting services and people," Salo explains. "Medicaid directors are
starting to think outside the box." There is a recognition that the
system, which depends on fee-for-service, is broke. It rewards volume and is
ignorant around quality and outcomes. There are also dysfunctional payment
incentives, which is particularly true for hospitals." So states are
beginning to experiment with payment reforms such as reducing fees to hospitals
based on hospital-acquired infection rates and unnecessary caesarian sections.
Illinois,
for example, has begun to reduce payments to hospitals when their Medicaid
patients have higher than necessary hospital-acquired infections such as such as a urinary-tract infection, bed sore or
fall-related bone fracture. This change is over-and-above the changes mandated
in the SMART Act which Gov. Quinn just signed, and beyond what federal Medicaid
requires. The Illinois Hospital Association estimates that state hospitals will
lose at least $30 million in Medicaid reimbursements in fiscal 2013, according
to an article in the Springfield
Journal-Register. Illinois hospitals receive about $2 billion a year for
inpatient services to state residents covered by Medicaid. Mike Claffey,
spokesman for the Illinois Department of Healthcare and Family Services, told
the newspaper the department has tried to negotiate a compromise with the
hospital association, but talks broke down. He said the department’s new
payment policies are “within the law.”
"The
key to this is doing it in a way that doesn't penalize the hospital" Salo
says. But it is not easy to change the
health care model, in the context of Medicaid or in any other application.
Health care constitutes 18 percent of gross domestic product (GDP). "There
are a lot of people with money invested in the status quo. Another impediment
is that dollar savings from long term, structural reforms don't show up on the
short term-ledger. That sends a real mix message to hospitals. It is hard for
them to believe state directors when they say 'trust us, we are doing the right
thing' when they are doing a lot of stuff that looks awful."
States
also face federal rules which result in higher spending. Take the issue of
"dual eligibles," for example. They are beneficiaries eligible for both Medicare and
Medicaid benefits. These are particularly sick and "costly"
individuals. In 2010 they accounted for about 15 percent of Medicaid enrollment
and 40 percent of Medicaid spending. About 26 states have begun efforts to move
three million dual eligibles into managed care programs in an effort to cut
costs, according to The Senior Citizens League (TSCL). More
than half of dual eligibles also have annual incomes of less than $10,000, and
are more likely to receive nursing home care. “But the time is coming when the
states and federal government will be under urgent pressure to cut Medicaid and
Medicare costs,” says TSCL Chairman Larry Hyland. “TSCL is concerned that if
states and the federal government don’t design and implement the changes the
right way, beneficiaries’ may lose access to medically necessary care and
quality.”
In other instances, there may be
obvious ways to reduce Medicaid costs. Medication adherence is a good example.
A study released in July by the NYU
Langone Medical Center looked at 2008 and 2009
data from more than 150,000 Medicaid patients in New York City, aged 20 to 64,
and found that only 63 percent of those with the three chronic conditions took
their prescribed medications. "The outcome of this study is concerning, as
it shows a large number of people with chronic conditions that lead to
cardiovascular disease aren't taking prescribed medications, which could
prevent a potential stroke or heart attack," lead author Dr. Kelly Kyanko,
an instructor in the department of population health at the NYU Langone Medical
Center, said in a center news release.
"We believe that patients and their doctors can work to improve
medication adherence through simple measures such as switching to once-a-day or
combination pills, keeping a pill box and obtaining 90-day refills instead of
30-day refills for medications they take on a regular basis," Kyanko said.So hospital pharmacies which get active in areas like medication reconciliation and medication follow up will have a chance to buffer the effect on their hospitals of the stormy winds blowing up around Medicaid. They will also have an opportunity to reduce the program's costs, $17.4 billion of which are attributed to prescribed drugs. No one expects pharmacists to start pulling rabbits out of their hats. But if they can start making Medicaid drug dollars disappear, that would help.
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