In 2011, when Congress failed to make the so-called “grand bargain” budget agreement with the White House, it agreed to the Budget Control Act (BCA) to obliterate $1.2 trillion in federal spending over 2012 to 2021. In the absence of a traditional, negotiated budget passed by Congress and agreed to by the president, the law will apply blunt, across-the-board percentage cuts without much regard to policymaking. The bill uses “sequestration,” a compelling automatic decreases to most programs at different rates, each portion a separate sequester: 9.4 percent to discretionary military funding, 10 percent to mandatory defense funding, 8.2 percent to non-defense discretionary funding and 7.6 percent to non-defense mandatory funding, according to the Office of Management and Budget (OMB), the executive office that develops and manages budgets and other economic policies for the president. Originally slated to take hold in January, the BCA was postponed to March 1.
Explore This IssueFebruary 2013
Medicare’s sequester inflicts a 2 percent annual cut, mostly to hospital and physician payments. For Medicare parts A and B, that’s $11 billion in year one, according to the OMB. The benefit structure would remain unchanged, and Part D low-income, Part D catastrophic subsidy and Qualified Individual premiums are exempt, according to a November 2011 Congressional Research Service report. For parts C and D, reductions would be made in monthly payments to the private plans that administer them. Reductions would be made at a uniform rate and are not to exceed 2 percent, the report said.
On February 5, President Obama urged Congress to void the indiscriminate cuts of the sequester and instead pass smaller cuts and some tax loophole reforms, moves the President said would be gentler on the economy. The $400 billion in Medicare savings he proposed during December’s fiscal cliff talks were still on the table, a package that includes provider payment reductions, premium hikes and new fees for wealthier beneficiaries.
Impact on Medical Providers and Patients
The Medicare sequester is relatively small, and Medicaid and Social Security are wholly exempt, thanks to lobbying by some members of Congress to protect vulnerable populations, said Rep. Jim McDermott, MD (D-Wash.), ranking member of the House Ways and Means Committee and a member of the House Budget Committee. Dr. McDermott believes Congress will indeed postpone the sequester past its March 1 deadline. “In many ways, providers are dodging the main bullet,” he said. “The real budget fight is going to happen between now and June or July. I have a feeling it’s not going to happen quickly, but it’s going to happen.”
Although talk of military spending is overshadowing Medicare in Washington, health care providers are imploring Congress to take note of the drag the cuts will have on the economy, their practices and their patients’ access to care. The Medicare reductions could lead to more than 750,000 lost jobs in the health care sector by 2021, endangering physician practices and patient access, according to a report released last September by the American Medical Association (AMA), the American Hospital Association and the American Nurses Association. Layoffs added to delays and freezes in hiring, capital projects and other investments would contribute to the losses, the report said.
“The BCA’s Medicare cuts could not occur at a worse time. Medicare physician payments have been nearly frozen for a decade, while the cost of caring for patients has increased by more than 20 percent,” reads a Sept. 12 letter from physician groups, including the American Academy of Otolaryngology—Head and Neck Surgery (AAO-HNS), to House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.), who have retained leadership positions in the new Congress.
Indeed, the providers’ September study, conducted by Pittsburgh-based economic-analysis firm Tripp Umbach, showed that losses in the health care sector and related fields could exceed 200,000 jobs in just the first year. Furthermore, Medicare sequester cuts would destabilize a sector of the economy that actually saw moderate growth in otherwise difficult economic times, noted Paul Umbach, a principal of the research firm, at a September presentation of the report. The losses will eventually hurt sectors beyond health care, according to the report.
A health care program like Medicare, with such wide-ranging implications for the economy and for patients requires policy-making that goes beyond budget considerations, said Paul M. Imber, DO, chair of the AAO-HNS Legislative Representatives Committee. “There needs to be a policy emphasis rather than splitting the pie,” he said. “We agree with the concept of looking at alternative systems like a ‘medical home.’ If we’re going to go into a new system, we’ll need a transitional period. We’ll need a consistent, structured program so we can run our practices.”
The “Doc Fix”
The use of Medicare as a budget-balancing tool ignores the need to make sensible health care policy, said a Hill staffer familiar with Medicare negotiations who requested anonymity, and that is the source of providers’ frustration. Congress’s perennial habit of dealing with the sustainable growth rate (SGR) only temporarily (the “doc fix” was once again extended for a year as part of the January fiscal cliff deal that also raised some tax rates on higher earners). The SGR and the Medicare sequester ignore the need to address payment policy questions, said Dr. Imber .
Provider groups, including the AAO-HNS, in an effort to finally permanently fix the SGR, had tried to tie it with the Medicare sequester in their communications with Washington. The AAO-HNS signed on to a letter to Congress by the AMA and other providers asking for payment reform that moves Medicare from its current fee-for-service-dominated system to one that provides more certainty and rationality for physicians and patients, said Dr. Imber. They have also sent out a “Declaration of Independence” from the SGR formula in an effort to get Congress to deal with the matter once and for all.
“Nobody should be treated that way by the political system,” agreed Dr. McDermott, who would like to see the elimination of the SGR formula, which he compared to a live, if yet undetonated, grenade for physician practices.
“Physicians haven’t seen an increase in payment for the better part of a decade,” added Christian Shalgian, director of the division of advocacy and health policy at the American College of Surgeons. “At a certain point, physicians are going to stop seeing Medicare patients.”
Impact on Specialty Practices
Dr. Imber said that otolaryngologists would likely always be paid on a fee-for-service basis in Medicare, because most patients see them case by case. But, while rational restructure might emphasize primary care and prevention, specialty care such as otolaryngology must be more than an afterthought, because many Medicare patients do need such services, he said.
“The current delay on SGR continues the ongoing pay-it-forward policies of Congress for the past 10 years,” said Dr. Imber. “We need to take the next year and really open discussion and take measures to facilitate an appropriate physician reimbursement policy that accommodates both the primary care physician and the specialist. All affected parties need to participate in the process and have a seat at the table.”
Framework for Change
With cuts designed only to fix the budget, Medicare flirts with tremendous access issues as doctors potentially leave the program, said a Congressional aide. “In this fiscal climate, everything’s going to have to be paid for,” he said, and major reforms, beyond those already in the Affordable Care Act (ACA), are unlikely to be put in place while lawmakers grapple with the budget, he added.
For that reason, physicians should focus on working with the ACA as a framework for change, especially since few now believe repeal is viable, said Dr. McDermott. “You’re going to see a debate about the question of how much doctors are paid and who should determine how much they’re paid,” he added. “Doctors are going to have to come to the table and begin to negotiate. Now they’re unfortunately drawn into the discussion in a way that they have not [been] in the past. Nobody who’s rational can look at what we go through to become physicians and end up paying them minimum wage. But there is a reasonable limit.”