The Shutdown and Health Care

Even as the federal government enters its second week of shutdown, health insurance exchanges created as part of 2010’s health care reform continue to enroll new patients. These exchanges are the crux of what the House GOP bitterly opposes, but the shutdown that they precipitated ironically won’t stop their implementation.

Technical glitches have prevented many patients from creating exchange accounts, because thanks to the shutdown there aren’t enough information technology workers available to correct many of the problems. Nonetheless, it’s estimated that about 8 million people have visited the federal exchange site, which covers 36 states. When you include visitors to the sites that separately cover 14 additional states, it’s estimated that the number of unique visitors rises to about 15 million.

While the official enrollment push doesn’t begin until November and many visitors haven’t been able to set up accounts as of yet, each day that enrollment continues will make it that much more difficult to defund health care reform without creating disruptions in many Americans’ insurance coverage down the road.

The shutdown has slowed enrollment in the exchanges, but it is creating serious disruptions in other areas of American health care.

For one thing, more than half of the staff at the US Department of Health & Human Services has been forced to take furloughs. That means that the Centers for Disease Control and Prevention have been forced to reduce the size of epidemiological tracking, leaving the agency unable to track the spread of influenza and other infectious diseases even as we enter flu season.

While benefits will continue to be paid for the time being, the Centers for Medicare & Medicaid (CMS) have had to stop fraud and abuse prevention operations due to the furloughs. Physicians whose program certifications expire during the shutdown may be forced to stop seeing Medicare and Medicaid patients due to lack of staff to complete the recertification process and new doctors won’t be added to the program.

Perhaps worst of all, the National Institutes of Health, which provides some of the most cutting edge treatments available for many of America’s sickest patients, has been forced to stop admitting new patients due to staff shortages. The Institutes are currently running at just 27 percent of typical staffing levels in order to care only for existing patients.

So far, the shutdown hasn’t exerted much of a direct impact on health care profitability but, in terms of patient care, the fiscal cure is obviously worse than the disease. But that calculus could change radically if we reach October 17 without a deal on the debt ceiling.

At that point, once the federal government runs through its cash on hand, it will have to begin prioritizing payments, which has the potential to wreak havoc on reimbursements and force further staffing reductions at federal health agencies.

For instance, CMS runs the national Medicare program and monitors the Medicaid programs offered by each state.

The Medicare program itself is funded through two trust funds held by the US Treasury: the Hospital Insurance Trust Fund (HITF) and the Supplementary Medical Insurance Trust Fund (SMITF). The HITF, which pays for Medicare Part A hospital benefits such as inpatient hospital and skilled nursing facility care, will be largely unaffected by a failure to reach a deal on the debt ceiling because it is funded through payroll taxes.

But the SMITF, which covers Part B benefits such as doctor visits, outpatient hospital treatment and other services, is funded in a very different manner. While premiums collected from patients enrolled in Medicare Part B and Part D play a role in funding the program, it is heavily dependent upon funds authorized by Congress.

Medicaid reimbursements likely wouldn’t be immediately impacted by a failure to reach a deal, since those funds are disbursed on a prospective basis in the form of grants. Part A coverage likely wouldn’t be affected because of its funding mechanism. But Part B reimbursements could potentially run into trouble once the funds already authorized and disbursed run out, though that would be several months out.

Considering that the Medicare Program covers almost 51 million beneficiaries with total expenditures of $574 billion last year, any disruption to Part B reimbursements would pose a serious challenge to pharmaceutical companies, medical groups and physician practices, pharmaceutical distributors and nursing homes, just to name a handful.

Drug companies awaiting FDA approval for new drugs or indications are also at risk, with about a dozen or so decisions that were expected this month likely to be slowed thanks to the government shutdown. If the debt ceiling is breached forcing further cutbacks at federal agencies, that could easily translate to an indefinite delay.

For now, there’s little reason to flee the health sector as the profitability at most health care companies is driven more by private insurance reimbursement, which will continue as usual. But over the long haul, if the shutdown drags on or, in the worst case scenario, the debt ceiling is breached, that could change the outlook a bit. But in that case, few investments would be attractive given the economic upheaval that would cause.

So, for now, health care investors should stand pat even as the government dithers.

There could even be winners in any deal reached, with the most likely beneficiary being medical device companies. They’ve lobbied hard against the 2.3 percent sales tax imposed on their devices under the health care reform law and a repeal of that tax would be a relatively easy face-saving compromise for both sides.