The impact of mandatory Medicare pay cuts triggered by the congressional debt panel’s recent failure to reach a deal is the subject of sharp disagreement.
Doctors and hospital officials are warning that the cuts could have serious repercussions for American health care, prompting many doctors to drop Medicare patients and forcing hospitals to lay off staff and consolidate facilities.
But prominent health-care analysts — including those serving an independent agency charged with advising Congress on Medicare — suggest the problem is not that doctors will be short-changed, but that most will continue to be paid too much. And when it comes to hospitals, other experts contend the impending cuts are marginal enough to be easily absorbed and could even encourage more efficient care.
The “sequester” mandated by the law that created the debt panel in August will reduce federal spending by $1.2 trillion through automatic, across-the-board cuts to a vast swath of programs from 2013 to 2021. In contrast to the cuts to Defense and discretionary programs, those to Medicare will be capped at 2 percent per year. Seniors’ premiums and cost-sharing cannot be raised. Instead, the reductions will come out of Medicare’s payments to providers and managed care plans, for an estimated total cut of $123 billion through 2021.
Advocates for providers say that’s enough to disrupt medical practices and hospitals operating under tight margins. Physicians’ representatives say the impact will also be magnified by other looming reductions to their Medicare compensation.
These include a penalty stemming from a 2008 law that will reduce payments by as much as 2 percent by 2014 for doctors who fail to use electronic prescription systems.
Physicians are also dogged by the fearsome, if highly remote, threat of a nearly 30 percent Medicare pay cut beginning Jan. 1 that is called for under Medicare’s long-standing rate-setting formula. Intended to keep Medicare spending on doctors in line with overall economic growth, the formula has called for a series of increasingly steep cuts since 2002. Congress has repeatedly put these off through stop-gap bills — with the latest set to expire Dec. 31. And lawmakers are widely expected to pass another temporary fix for 2012.
Still, the constant uncertainty over the issue is “like a psychological sword of Damocles hanging over our heads,” said the American Medical Association’s president-elect, Jeremy Lazarus.
Furthermore, he said, the payment increases that Congress has enacted in place of the formula have failed to keep pace with the rise in expenses doctors face.
Pile on the sequester, concluded Lazarus, and “you’re 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.”
However, analysts at the Medicare Payment Advisory Commission, or MedPAC, an independent congressional oversight panel, found that doctors have more than compensated for the slow growth in Medicare fees by providing ever more pricey types of medical services in ever greater quantities. As a result, Medicare’s spending per patient increased by 64 percent from 2000 to 2010 — nearly three times as fast as the rise in physician expenses.
But the picture is less rosy for primary care doctors, who have fewer opportunities to make up for stagnant fees by increasing their patient load or offering more costly treatments. About 17 percent of primary care doctors do not accept new Medicare patients, and 12 percent of Medicare patients reported a “big problem” finding a new one, according to MedPAC and government sources.
However, in an advisory report to Congress, MedPAC concluded it was not necessary to increase Medicare’s fees for primary care doctors. Instead it recommended freezing their rates for 10 years, while expanding financial incentives for services that are often under-compensated, such as care coordination.
For all other doctors, the commission proposed three successive years of pay cuts of nearly 6 percent — three times the cut mandated by the sequester — followed by a seven-year freeze.
While doctors generally say it is too soon to determine the extent of the sequester’s impact, hospital representatives are already predicting widespread pain. A study commissioned by the American Hospital Association and released in September estimated the sequester would result in the loss of nearly 200,000 jobs that are directly or indirectly related to hospitals — about 4 percent of the 5.4 million people employed by the industry.
Chip Kahn, president of the Federation of American Hospitals, another industry group, said the budgetary pressure could also spur hospitals to merge facilities, reducing the availability of care in underserved communities.
Such predictions are off base, argues Paul Van de Water, an economist specializing in Medicare with the Center on Budget and Policy Priorities, a left-leaning research group. Any reduction in federal spending is likely to cause some job loss, he said. But as the economy grows in 2013, that loss will be offset by the creation of new jobs in a wide range of sectors, including health care.
Moreover, said Van de Water, “a lot of what comes out of the health-care system is not as productive as it should be. So having more people doing more stuff than we need is not necessarily a useful way of spending resources.”
Kahn added that the unease hospital officials feel over the sequester is heightened by their anxiety over another $200 billion in Medicare payment reductions that they and other institutions will face as a result of the 2010 health-care law.
Hospitals supported those cuts on the grounds that the law would bring in tens of millions of newly-insured customers.
But with the law now under review by the Supreme Court, and every Republican presidential contender vowing to repeal it, hospital administrators worry the provisions expanding access to health insurance could be eliminated even as the cuts in Medicare payments to hospitals are left in place. Indeed, the 2012 budget adopted by the majority Republican House in April would do just that.
“We don’t know what the future will hold,” said Kahn. “Yet we’re talking about very complex institutions that have to begin budgeting and planning way in advance.”