Medicare pay cuts and healthcare impact

Robin Wulffson MD's picture
Medicare, super committe, budget deficit, physician reimbursement
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The recent failure of the super committee to come to terms regarding the debt crisis has sparked considerable debate because mandatory Medicare pay cuts will now go forward. Physicians and hospital administrators are warning that the cuts are likely to have a considerable impact on U.S. healthcare; many doctors may drop Medicare patients and hospitals might be forced to trim their staff and consolidate facilities. Some healthcare analysts, however, counter that the problem is not that physicians will be short-changed, rather that most will continue to be overpaid. In regard to hospitals, some analysts contend that the imminent cuts are not that significant and can be easily covering by streamlining hospital operations.

The “sequester” mandated by the law that created the super committee in August will reduce spending by $1.2 trillion through automatic, across-the-board cuts to a wide variety of federal programs from 2013 to 2021. Medicare pay cuts will be capped at 2% per year. Furthermore, seniors’ premiums and share of costs cannot be raised; instead, the reductions will be derived from Medicare’s payments to providers and managed care plans (an estimated decrease of $123 billion through 2021). In contrast to the 2% Medicare cap, other programs, including defense and discretionary spending, will receive a bigger funding hit.

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Physician advocacy groups caution that the 2% Medicare pay cuts will have significant impact on medical practices and hospitals operating under tight margins. Physicians’ advocates add that other impending compensation cuts will worsen the situation. They note that a proposed penalty, which arose from a 2008 law, will reduce payments by as much as 2% by 2014 for physicians who fail to implement electronic prescription systems.

Adding fuel to the fire is the remote—but possible––threat of a nearly 30% Medicare pay cut beginning January 1 that is mandated by Medicare’s long-standing rate-setting formula. With a goal of keeping Medicare reimbursement to physicians in line with overall economic growth, the formula has requested a series of increasingly steep cuts since 2002. Congress, however, has repeatedly postponed these cuts via stop-gap bills; the latest one is due to expire on December 31. However, Congress currently is expected to pass another temporary fix for 2012. According to the American Medical Association (AMA) President-Elect, Jeremy Lazarus, the threat of the 30% Medicare pay cut is “like a psychological sword of Damocles hanging over our heads.” He added that the payment increases that Congress has enacted in place of the formula have failed to keep pace with the rise in physicians’ expenses. He concluded that the 2% Medicare pay cut is “just adding one more business risk for physicians who are already trying to make a decision about whether they can afford to continue seeing Medicare patients.”

Analysts at the Medicare Payment Advisory Commission (MedPAC), an independent congressional oversight panel, counter the AMA viewpoint; they note that physicians have been more than adequately compensated for the slow growth in Medicare fees by providing increasingly more costly types of medical services in ever-increasing quantities. As a result, MedPAC notes, Medicare’s spending per patient increased by 64% from 2000 to 2010: a rate nearly three times greater than that of physician expenses.

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How is Medicare Part D funded?
The federal government funds the program.