Sequestration Will Hit Pay But Spare Incentives

Abstract

Medicare physician pay would be cut by at least 2% in 2013 while some Affordable Care Act programs would be spared the automatic cuts called for under the Budget Control Act of 2011, according to a report from the federal Office of Management and Budget. The report provides details on how to cut $1.2 trillion from the federal budget by 2021 and was mandated after the Joint Select Committee on Deficit Reduction failed to do the same. The process – known as sequestration – would cut funding for most federal agencies across the board. The Office of Management and Budget (OMB) report noted that the estimates are preliminary; the true magnitude of the cuts won't be known until sequestration actually occurs. The Alliance for Quality Nursing Home Care immediately released an analysis by Avalere Health with more specifics on the effect of sequestration on skilled nursing facilities around the country. SNFs will face cuts totaling $782.5 million in 2013 and $9 billion over 10 years, according to the analysis. The five hardest hit states would be California, Florida, Texas, New York, and Illinois. The sequestration cuts would be on top of the $65 billion reduction in Medicare funding that SNFs face over a decade from other recent federal-budget reductions, according to the alliance. In September, AMDA joined more than 100 other medical organizations in a letter urging Congress to “work diligently during the fall to reach a bipartisan agreement to pass legislation nullifying the Medicare physician payment cuts called for under the Budget Control Act's (BCA) sequestration provision and the Sustainable Growth Rate (SGR) formula.” Separately, an AMDA statement said that the association advocates a permanent repeal of the SGR and the implementation of a 5-year period of stable Medicare physician payments that keep pace with the growth in medical-practice costs while the program transitions to new payment models (see story, page 18). “Sequestration is a blunt and indiscriminate instrument. It is not the responsible way for our nation to achieve deficit reduction,” according to the OMB report. The agency called on Congress to avoid sequestration either by passing the President's budget proposals or otherwise approving “a comprehensive and balanced deficit reduction package.” Under sequestration, there would be a 9.4% cut to defense discretionary funding, 10% to mandatory defense programs, 8.2% reduction to nondefense discretionary funding, and 7.6% to nondefense mandatory programs. Medicare – including physician and hospital payment – is slated for an $11 billion cut in 2013 alone. The 2% reduction would continue yearly through 2021. The American Hospital Association, American Medical Association, and American Nurses Association in a joint statement said that as many as 766,000 health care and related jobs could be lost by 2021 if the Medicare cuts are allowed to stand, in part because of the reduction in payments to physicians and hospitals. They also predicted a ripple effect, including reduced spending on goods and services by health care providers and organizations, as well as reduced household purchases by health care workers who lose their jobs. Dr. Jeremy A. Lazarus, president of the AMA, said, “Coupled with the looming 27% Medicare physician payment cut, this 2% sequester will hurt patient access to care and will inject more uncertainty into our Medicare system.” Other programs at the Centers for Medicare & Medicaid Services that would take a hit under sequestration: health insurance exchange grants ($66 million); state demonstration grants ($40 million); fraud and abuse ($78 million); the prevention and public health fund ($76 million); the Office of the National Coordinator for Health Information Technology ($1 million); the Office of Inspector General ($5 million); the Hospital Insurance Trust Fund ($5.6 billion). Many programs would be exempt from sequestration, however, including the Children's Health Insurance Program, Medicare and Medicaid incentive payments for participating in health IT programs, and the consumer operated and oriented plan and the pre-existing condition insurance plan, both of which were part of health care reform. Food and Drug Administration funding would be cut $319 million, and the Centers for Disease Control and Prevention would see at least a $490 million budget reduction, with $14 million of that coming out of the World Trade Center Health Program Fund. Funding for the National Institutes of Health would be cut $2.6 billion.