government

2% Medicare pay cut set under sequestration

The automatic budget-cutting process will affect Medicare payments for services starting April 1. GOP lawmakers and the Obama administration blamed each other for the outcome.

By Charles Fiegl — Posted March 1, 2013

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Deep, across-the-board federal budget cuts officially went live for Medicare and other public health programs after Congress and President Obama failed to reach an agreement on avoiding sequestration before the March 1 deadline.

More than $85.4 billion will be cut from the federal budget in 2013. Reductions to Medicare will represent about 12% of the total reductions, or $9.9 billion, in part through lower payments to physicians and other health professionals for providing services. The automatic reductions were written into law in 2011 as part of a deal to raise the nation's debt ceiling. It was designed to act as a fail-safe mechanism in case lawmakers and the White House were unable to agree on more targeted deficit reduction provisions.

Those cuts won't be evident right away. The reductions in Medicare doctor rates will begin with services provided on or after April 1 even though the sequestration order is issued on March 1, according to the Congressional Budget Office. The cut is capped at 2% for payments made for services provided by physicians and hospitals, as well as monthly payments to Medicare private insurers and Part D prescription drug plans.

Cuts to nondefense discretionary and other mandatory government programs will be 5.3% and 5.8%, respectively, according to CBO.

The American Medical Association had called on Congress to adopt legislation preventing the Medicare reduction from taking effect, and it blasted lawmakers for failing to do so.

“The across-the-board cut will hit physicians particularly hard because of the fundamentally flawed Medicare physician payment system. Since 2001, Medicare payments for physician services have only increased by 4%, while the cost of caring for patients has gone up by more than 20%,” said AMA President Jeremy A. Lazarus, MD, in a statement. “A 2% cut widens the already enormous gap between what Medicare pays and the actual cost of caring for seniors.”

Congressional leaders and President Obama met the morning of March 1 to discuss options to address sequestration but announced that there would be no last-minute deal.

Other health-related cuts

Health and Human Services Secretary Kathleen Sebelius described the effect the sequester would have on her department in a Feb. 1 letter to Sen. Barbara Mikulski (D, Md.). “Sequestration could compromise the health and well-being of more than 373,000 seriously mentally ill adults and seriously emotionally disturbed children who potentially would not receive needed mental health services, which could result in increased hospitalizations and homelessness,” Sebelius wrote.

HHS estimates that admissions for drug addiction services would be cut by 109,000 inpatients, with 91,000 fewer people receiving critical treatment services. At the National Institutes of Health, the administration is planning to delay projects focused on preventing chronic conditions and developing treatments for both common and rare diseases.

“We expect that some existing research projects could be difficult to pursue at reduced levels, and some new research could be postponed as NIH would make hundreds fewer awards,” Sebelius said. “Actual funding reductions will depend on the final mix of projects chosen to be supported by each institute and center within available resources.”

The toll that sequestering federal programs will take on the economy also has been of great concern to the health care industry. In a September 2012 report commissioned by the AMA and other health professional organizations, the research firm Tripp Umbach estimated that 496,000 jobs, both in the health care industry and industries that rely on it, will be eliminated or not filled in 2013 because of health care-related cuts.

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