CQ WEEKLY – COVER STORY
Aug. 4, 2012 – 11:57 a.m.
Sequester Cut Will Add Pressure to Medicare in Time of Change
By Emily Ethridge, CQ Staff
Medicare spending will be subject to the sequester, but the reductions will be limited to 2 percent each year until 2021. Moreover, Medicare beneficiaries will be shielded, so all the cuts will come from payments to insurance plans and to the providers who treat Medicare patients.
But the picture — for beneficiaries as well as providers — may end up being grimmer than the concessions won by Democrats in August 2011 would suggest. If the sequester takes effect, the 2 percent cuts — estimated by the Congressional Budget Office to save $123 billion over nine years — would be in addition to a series of recent reductions in provider payments, including some dictated by the 2010 health care law. Even if the sequester doesn’t occur, whatever budget deal is negotiated to avoid the automatic cuts probably would include reductions in provider payments that might easily exceed 2 percent a year.
Provider cuts — including reduced payments for some specialists and hospitals — are frequently used for savings and were incorporated in several of the bipartisan deficit-reduction proposals floating around Congress last year.
Either way, Medicare providers know they will have to figure out how to deal with a reduction in payments in the years ahead.
“Whether it comes from sequester or not, there’s going to be cuts to Medicare. And people are bracing for that,” says Thomas A. Scully, who served as administrator of the Medicare and Medicaid programs under President George W. Bush.
Gail Wilensky, a health analyst who oversaw Medicare from 1990 through 1992, says a budget deal might require bigger cuts for some types of Medicare providers — regardless of who controls Congress and the White House next year.
“If they avoid the sequestration by coming up with a package of reductions in the first quarter of calendar year 2013, it’s possible that Medicare providers will get hit harder than 2 percent — or at least some of them will,” Wilensky says.
Scully agrees, saying fear of something worse is the reason more provider groups didn’t protest the sequester cuts with greater intensity.
“Would you rather have somebody hit you in the head with a baseball bat or get a punch in the stomach? I’ll take a punch in the stomach,” he says.
Wherever the source of Medicare savings, beneficiaries are likely to be affected alongside physicians and hospitals. As reduced payments pile up on providers — regardless of the source — many physicians and specialists may choose to limit the number of Medicare patients they accept, or to stop treating them altogether.
“Everything that affects providers can affect beneficiaries ultimately,” Wilensky says.
The impact will be amplified since the health care overhaul will lead to a number of cuts in future Medicare spending by changing how payments are calculated for hospitals, home health agencies and other types of providers.
“There’s a lot of concern that the accumulated reductions associated with the Affordable Care Act are going to lead to access problems,” Wilensky says. “If you add 2 percent reductions on top of that, that obviously exacerbates a problem that already exists.”
Sequester Cut Will Add Pressure to Medicare in Time of Change
And the health care law might produce even deeper payment reductions down the road as a result of a special board tasked with making recommendations to restrict spending growth in Medicare. Republicans are working to obstruct its implementation, but if the Independent Payment Advisory Board (IPAB) is set up as the law requires, it can make recommendations to Congress for reining in Medicare spending beginning in 2014.
The IPAB is restricted from making recommendations that would raise revenue or premiums paid by beneficiaries, limit benefits, change eligibility or “ration” health care. So, once again, providers and services — such as dialysis and ambulance transport — are likely to be the main targets for finding savings when the board starts making recommendations.
Special Issue for Physicians
Doctors who treat Medicare patients also are vulnerable to the cuts under the sequester. And although the health care law did not specifically address reimbursements to doctors, there remains a separate issue to deal with: the formula that dictates how much Medicare pays physicians, known as the sustainable growth rate.
For years, Congress has used a series of short-term payment patches to avoid cuts called for by the formula. When the current patch expires at the end of 2012, Medicare physicians face a 27 percent reduction in their reimbursement rates.
Some House Democrats are trying to protect providers with legislation that would exempt Medicare from the sequester.
But Towns’ measure has little chance of enactment, and Medicare doctors and other providers are likely to be on the hook regardless of whether Congress comes up with a solution to avoid the sequester.
“People are just generally concerned that 2013 is going to be a bad year,” Scully says. “The sequester could be terrible, but something else could be worse down the road.”
FOR FURTHER READING:
Fiscal 2013 Defense spending (