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Are Medicare Provider Cuts Inevitable?

September 20, 2011
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“Yes but,” says one federal policy expert

Things are actually moving very quickly these days when it comes to new developments on various Medicare reimbursement fronts. To begin with, yesterday (Sep. 19), President Obama announced the details of his new jobs and recovery plan, which encompasses both plans to stimulate job growth, and plans to cut the federal deficit over time. The President’s plan announced yesterday calls for $284 billion to be cut from the growth of the Medicare program over the next 10 years, and $72 billion in the growth of federal Medicaid expenditures and expenditures on other health programs during that same time. Such cuts aren’t minor, but they are also considerably smaller than might have been proposed. What’s more, the Obama administration has not proposed any fundamental restructuring of Medicare at this time.

Meanwhile, the Medicare Payment Advisory Commission (MedPAC) proposed last week that Congress should repeal the Sustainable Growth Rate (SGR) formula, which is poised to cut Medicare physician pay by 30 percent beginning January 1 of next year. Instead, MedPAC proposed, the $300 billion in cost for repealing the SGR should instead be offset by a 10-year freeze in Medicare physician reimbursement, with certain specialties (including cardiology, rheumatology, and endocrinology) experiencing cuts of 5.9 percent for three years in a row, and then seeing those specialists’ pay frozen for the remaining seven years in the coming decade. That set of reimbursement changes would save $100 billion, and the remaining $200 billion MedPAC proposes would come from a variety of sources, including reductions in clinical lab reimbursement and in payment to durable equipment suppliers.

And, looming over all these different menus of options is the specter of a deadlock in the negotiations of the so-called “Super-Committee,” established under the agreement this summer that led to the end of the federal debt-ceiling crisis and a last-minute concord (officially known as the “Budget Control Act of 2011”) that averted a federal government default on the national debt. A breakdown of the super-committee process this fall would trigger “sequestration,” or the enactment of a whole menu of across-the-board cuts under Medicare and Medicaid that were embedded into the federal debt-ceiling legislation passed by Congress this summer. Also, Lee emphasizes, the super-committee has the authority to make broad-ranging changes to Medicare and Medicaid, should its members agree to do so.

Trying to get a big-picture sense of all of this, I spoke last week with Jason Lee, Ph.D., partner and director of the Waltham, Mass.-based Global Institute for Emerging Health Care Practices at the Falls Church, Va.-based CSC. Lee has been following federal healthcare policy and reimbursement issues for decades. So does he believe that significant provider cuts are coming under Medicare and Medicaid? “Yes,” he told me, “and I think they’d be coming even if the super-committee didn’t have its charge, because the Affordable Care Act has a lot of cuts in it; and of course, the SGR would require big cuts if it were allowed to go through.”

Even so, Lee doesn’t believe that the SGR physician payment cuts set to trigger on Jan. 1 are inevitable. “Anything’s possible, because one reality that the Congress has to face is that Medicare is a very popular program,” he told me. “And it is indeed conceivable, putting it roughly, that hacking away at the program will lead physicians to bail from it; there are some predictions that Medicare rates could be lower than Medicaid rates by the end of the decade, and we’ve seen how many doctors accept Medicaid. And with a 2-percent cut, some hospitals could go out of business.”

One very key point that has not been made clear yet by the mainstream media is this, Lee added: “The super-committee owes its proposal to Congress by November 23; Congress has to act on it within one month by up-or-down vote, and then it has to be signed into law,” in order to avert sequestration. “And it’s supposed to come up with $1.5 trillion in savings, but to the extent that it comes up with less than $1.2 trillion, the automatic cuts would go into effect. About half of them come from defense, and half from non-defense programs. And they’re limited to about 2 percent under Medicare; and Medicaid is exempt.” The timing thing is crucial, as Lee believes the short timeframe involved will make it harder for the super-committee to act within time to avert sequestration.

Now, keep in mind, not every part of Medicare would be affected by sequestration; among the areas that would be exempt would be “premiums under parts B and D,” Lee noted. But the potential for huge impacts on providers is significant. “Remember that many hospitals operate on less than 2-percent margins under Medicare,” he told me. “Major cuts could put some organizations out of business.”

Still, as Lee noted in a recent blog for CSC, “Future funding obligations for Medicare and Medicaid constitute about 23 percent of federal spending. This amount is five times greater than that for Social Security,” he pointed out in that blog. “So how can the powerful debt reduction panel—the gang of twelve—not consider mechanisms to reduce the cost of the Medicare and Medicaid programs? They will. We now experience a calm before the storm, as politicians, powerful interest groups, vaulted thought-leaders, and perhaps the mass public (the elderly) prepare for a period of vigorous debate.”

It’s difficult to imagine a more complex, challenging, and just-plain-difficult situation facing all the stakeholders around healthcare reimbursement right now. The one thing that healthcare leaders simply cannot afford to do at this moment would be to fall asleep and ignore the budgetary developments taking place on Capitol Hill. The policy and political battles raging in Washington, D.C. may seem remote to the day-to-day challenges of providing high-quality patient care and providing clinicians with the best tools possible for providing that care; but the reality is that the coming battles will directly affect how healthcare and healthcare IT leaders do their jobs. And, as Bette Davis would have said in that inimitable voice of hers, “Fasten your seatbelts—it’s going to be a bumpy night!”

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