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Physicians brace for 2% sequester pay cut

April 1 marks the day Medicare will start paying doctors less for treating beneficiaries under an automatic budget-cutting provision that took effect March 1.

By Charles Fiegl — Posted March 11, 2013

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Physicians caring for Medicare patients said their practices will find keeping up with government mandates and the increasing demand for services more difficult once a 2% rate cut hits starting April 1.

The consequences of Congress and the White House failing to strike a deal to prevent spending reductions throughout the federal government under the process known as sequestration have yet to be felt by physicians directly. But the American Medical Association and other organized medicine groups said the cuts will become evident soon, squeezing practices' margins and interfering with needed reforms to improve the health care system.

For physicians, the struggle for adequate pay for Medicare services has been an ongoing battle. The flawed Medicare pay system has increased doctors' rates by only 4% since 2001, even though the cost of operating a practice has risen by more than 20%, said AMA President Jeremy A. Lazarus, MD. The 2% cut only will widen that gap and cause problems that go beyond the pocketbook.

“At the same time that Medicare physician payment rates have been frozen, physicians need to make investments in their practices to help design, lead and adopt new models of care delivery that can increase quality and reduce costs now and in the future,” Dr. Lazarus said. “Further cuts are counterproductive and stifle important progress while placing an unsustainable burden on physician practices.”

Physician organizations are urging Congress to act to stop the 2% reduction before it sets in on April 1. The sequestration of the budget, created during federal debt and deficit negotiations in the summer of 2011, was delayed temporarily on Jan. 1. The law requires the Medicare pay cuts to begin one month after President Obama officially gave the order to slash federal spending when the newest deadline expired on March 1.

The end of March also marks another deadline, this one for Congress to adopt a new continuing resolution that keeps the federal government operating. At this article's deadline, the House had passed legislation to fund federal agencies through the end of the fiscal year on Sept. 30. However, the bill to avoid a government shutdown lacked any provision that addresses the April 1 Medicare cut.

Democrats and Republicans have stated that automatic cuts were a terrible idea, so there is at least a distant hope the two sides could come together and find a way to reduce federal spending without cutting physician pay, said American College of Physicians President David L. Bronson, MD. But he added that there appears to be little enthusiasm among leading lawmakers to reach such a solution in time.

“One of the more important impacts is [that sequestration] creates discouragement,” Dr. Bronson said. “The inability for Congress to fix this does not speak well for fixing other problems” like the sustainable growth rate that helps determine physician pay.

Sequestration gradual but painful

The federal government, and such key health agencies as the Centers for Medicare & Medicaid Services and the Centers for Disease Control and Prevention, showed few signs of immediate impact in the days after the budget law took effect and made official the $85 billion decrease in government spending for 2013. The cuts are being split between defense and nondefense spending, and agencies are taking initial steps to compensate, such as furloughing workers and delaying special projects.

But over time, the cuts will be impossible to miss, said Joseph Fortuna, MD, the health care division chair of the American Society for Quality, a Milwaukee-based organization that represents quality improvement professionals. Agencies will not be able to maintain their levels of service with budget cuts between 5% and 10%. This could mean that physicians and patients seeking information about new Medicare requirements, for example, will not receive the help they need as quickly as they had before, he said.

The health care system is going through a transformation, and quality improvement efforts such as accountable care organizations probably will be affected negatively, Dr. Fortuna said. “As we see the impact of the sequester and the cuts coming, we are going to see little movement around the system.”

DID YOU KNOW:
Medicare has increased doctors' rates by only 4% since 2001, while the cost of operating a practice has risen by more than 20%.

The austerity approach also will affect the overall U.S. economy, according to official budget projections. The gross domestic product would be expected to grow at a 0.6% faster rate if sequestration were eliminated.

The AMA, the American Hospital Assn. and the American Nurses Assn. released a September 2012 report concluding that up to 766,000 jobs in the health care industry and industries that rely on it would disappear or fail to materialize as a result of the 2% Medicare cut. There will be nearly 500,000 fewer direct and indirect jobs in 2013 alone, according to the report compiled by the Pittsburgh research firm Tripp Umbach.

“Our lawmakers have failed to act, and Medicare patients and physicians will now feel real pain in the form of new cuts that come at an already difficult time for the nation's economy,” Dr. Lazarus said.

Research, training funds will take a hit

Grants and awards for clinical research will be more difficult to obtain now that the National Institutes of Health is set to lose millions through sequestration.

The Obama administration is planning to delay projects focused on preventing chronic conditions and developing treatments for both common and rare diseases, Health and Human Services Secretary Kathleen Sebelius stated in a Feb. 1 letter to Sen. Barbara Mikulski (D, Md.).

“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 wrote. “Actual funding reductions will depend on the final mix of projects chosen to be supported by each institute and center within available resources. With each research award supporting up to seven research positions, several thousand research positions across the nation could be eliminated.”

The cuts are coming on top of a decade of lost research dollars that also have had a negative impact on funding for teaching hospitals, said Darrell G. Kirch, MD, president and CEO of the Assn. of American Medical Colleges. He said the loss will delay medical progress and affect the ability to invest in training the next generation of health professionals.

“Cutting federal funding that supports doctor training at teaching hospitals will exacerbate looming shortages of physicians and other health care providers, and jeopardize the lifesaving care and critical services that teaching hospitals provide in their communities,” Dr. Kirch said.

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ADDITIONAL INFORMATION

Where HHS will make sequester cuts

The 2011 Budget Control Act ordered the president to cut federal spending by about $1.2 trillion beginning in 2013. Medicaid is exempt from the reductions, but Medicare payments to doctors and others for inpatient and outpatient services will be reduced by 2%, or roughly $11 billion for the year. The Dept. of Health and Human Services will spread out the remainder of the cuts among its various other agencies.

Account 2013 cut (in millions)
Medicare inpatient program $5,752
Medicare outpatient program $5,330
National Institutes of Health $1,553
Medicare prescription drug program $588
Children and families services programs $503
Health Resources and Services Administration $365
Centers for Disease Control and Prevention $289
Food and Drug Administration $209
Indian Health Service $198
Substance Abuse and Mental Health Services Administration $168
Administration for Community Living $75
Health care fraud and abuse control account $57
Prevention and public health fund $51

Source: “OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013,” White House Office of Management and Budget, March 1 (link)

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