Shots - Health Blog
2:58 pm
Fri July 29, 2011

How A Debt Stalemate Could Squeeze Health System

Hospitals, nursing homes, doctors and state health programs could survive a brief pinch if the Washington debt ceiling deadlock leads the government to stop paying Medicare and Medicaid bills. But if an impasse were to drag on for more than a few weeks, health care providers could be unable to pay their staffs or even face insolvency, according to health care experts and former government officials.

Even as the Tuesday deadline for a deal between President Barack Obama and Congress approaches, much of the implications of a worst-case scenario remains speculative. The Treasury Department hasn't signaled how it would prioritize which government bills to pay.

Few health care providers have made any doomsday plans, but the uncertainty is making many edgy. "It's not a matter of planning right now because there's too much unknown," says Cheryl Phillips, senior vice president for advocacy for LeadingAge, an association of 5,600 not-for-profit home health agencies, nursing homes and other organizations that work with seniors. She says that many of their members have very limited operating margins, so a stop in payment could quickly be destructive.

There's no precedent for this kind of fiscal crisis, although Medicare providers have experienced short-term delays in the past when Congress made last-minute changes to Medicare reimbursement rates, says Gail Wilensky, who ran Medicare, the federal health program for the elderly and disabled, under President George H.W. Bush.

"I'm sure it irritated the providers, but it didn't affect the beneficiaries," Wilensky says, noting that despite delays that sometimes stretched for several weeks, business continued as usual. "In the short term, there should be little to no effect."

Others believe financial pain could come rapidly for some. Philadelphia lawyer John Reiss, who advises hospitals, doctors and medical device makers for the firm Saul Ewing, says his clients are "dumbfounded" by the ongoing deadlock but still assume that there'll be a deal before it's too late.

If not, he says some facilities have enough cash to last for several months, but "there are some hospitals surviving on six or seven days cash on hand and those places are going to be in trouble."

The effect on state budgets could also be dramatic. Matt Salo, executive director of the National Association of Medicaid Directors, says that in the "worst-case scenario, Aug. 2 comes around with no deal, Medicaid is not going to shut down." But if the bond markets melt down, states could face higher interest rates on money they've already borrowed from investors, making it even harder for states to pay their share of Medicaid, which is generally about half, he says.

How quickly states feel the pain depends on their schedule for Medicaid payments. Rhode Island gets paid every two weeks, and it was just paid yesterday, says Fred Sneesby, a spokesman for the state's Department of Human Services. The next scheduled payday is Aug. 12. California, though, is paid every week.

Former Medicare administrator Thomas Scully, who worked under President George W. Bush, says if there is a default, the Obama administration's political decisions will determine how quickly health care payments are shut off. "They're either going to shut down Medicare and Social Security first or last," he says. "If they want to provoke a crisis they would quit paying hospitals and doctors and quit sending out Social Security checks."

A halt to Medicare payment would be especially painful, according to Donna Shalala, who was Health and Human Services Secretary under President Bill Clinton. Medicare pays its claims within two weeks, which is faster than many private insurers, she says. "The health care system is very dependent on Medicare payments, because they come very quickly," she says. "If they're not reimbursing, that would create problems for the entire industry – hospitals, doctors, everyone. It is not a happy scene."

Kaiser Health News staff writers Julie Appleby, Mary Agnes Carey, Juan E. Gastelum, Peggy Girshman, Shefali S. Kulkarni and Bara Vaida contributed to this story.

Copyright 2011 Kaiser Health News. To see more, visit http://www.kaiserhealthnews.org/.