Medicare Pay to Shrink 2% as Sequester Looms on Friday

February 27, 2013

Unless a Congressional miracle occurs, Medicare reimbursement for physicians will decrease by 2% as $85 billion worth of automatic, across-the-board budget cuts called sequestration take effect on March 1 for the current fiscal year.

Organized medicine is complaining not only about reduced pay, which could push struggling medical practices further into a hole, but also about the deleterious effect of even larger budget cuts in store for federal agencies such as the Centers for Disease Control and Prevention, the US Food and Drug Administration, and the National Institutes of Health.

"Many physicians are worried about what will happen to the fundamental infrastructure of healthcare," American College of Physicians (ACP) President David Bronson, MD, told Medscape Medical News. "And they're concerned about a dysfunctional Congressional system that's not getting people's problems solved."

President Barack Obama has invited Congressional leaders to meet with him on Friday to negotiate a deal to retroactively replace sequestration with a more discriminating deficit reduction deal that does not halt cancer research, furlough air traffic controllers, reduce fighter jet maintenance, and force children out of Head Start. The medical profession witnessed such postdeadline remedies in 2010 in the form of legislation that erased massive Medicare pay cuts required by the program's notorious sustainable growth rate (SGR) formula.

The scheduled 2% reduction in Medicare reimbursement to physicians and other providers presumably would apply to all services rendered, beginning Friday. A spokesperson for the Centers for Medicare and Medicaid Services (CMS) told Medscape Medical News yesterday that the agency had no comment at this time on how the pay cut would be implemented.

When SGR-triggered pay cuts have loomed on the horizon in the past, CMS has informed physicians that Medicare administrative contractors (MACs) cannot pay electronic, error-free claims any sooner than 14 working days. This time lag allows MACs to sit on claims temporarily instead of processing them at a new, reduced rate. Likewise, lawmakers have 14 working days to nullify a Medicare pay cut so that MACs can process suspended claims at the old rate.

In the sequester crisis set to erupt on March 1, MACs would be forced to pay post–March 1 claims at the new reduced rate if Congress does not undo sequestration within the first 14 working days of March. If lawmakers forge an agreement afterward, MACs would reprocess the claims at the old rate.

A retroactive solution to sequestration could, in fact, come late this month, when a so-called continuing appropriations resolution expires March 27 and forces lawmakers to pass a new resolution to continue funding government operations. That legislation conceivably could apply a cure to the sequester.

2% Cut Comes on Top of Rising Medical Practice Costs

The sequester is all but certain to happen because Congressional Democrats and Republicans are just as stalemated on how to shrink the budget deficit in 2013 as they were in 2011, when the current sequester was born.

That year, Congress passed the Budget Control Act, which charged a bipartisan committee to propose at least $1.2 trillion in deficit reduction over the course of 10 years for lawmakers to approve. Under the act, failure to achieve this goal would trigger an equal level of sequestration beginning January 1, 2013, that would apply to defense as well as domestic spending. Medicare benefits, Social Security, and Medicaid are off-limits.

The idea behind sequestration was that the prospect of blind cuts to the armed services and social service programs such as Head Start would pressure conservative and liberal lawmakers alike to reduce the budget deficit in a more thoughtful, less painful way.

The pressure did not work. The bipartisan committee could not reach a deal, in part because Democrats and Republicans deadlocked on the issue of tax increases. Congress partly came around last December in its fiscal-cliff legislation, when it agreed to preserve the Bush-era tax cuts for everyone except the ultra-affluent. That legislation, the American Taxpayer Relief Act, also delayed a 26.5% Medicare pay cut until January 1, 2014, and sequestration was delayed until March 1 of this year.

Glenn Stream, MD, who chairs the board of directors of the American Academy of Family Physicians (AAFP), told Medscape Medical News that the 2% reduction in Medicare reimbursement required by sequestration poses more of a threat to medical practices than one might imagine.

"This is not about reducing a physician's income, but revenue to the practice," said Dr. Stream. "For practices with a high percentage of Medicare patients that are already struggling financially, even a 2% cut could make the difference between being a viable business or not."

Similar to others, the ACP's Dr. Bronson notes that the cut will occur even as medical practice expenses are expected to increase 3%. "So it's a functional 5% cut," said Dr. Bronson.

Sequestration will take an even bigger toll elsewhere in the federal government, reducing outlays during the remaining 7 months in fiscal 2013 by roughly 9% for domestic programs and roughly 13% for the military, according to the Obama administration.

The administration has ticked off a number of blows that sequestration would deliver to the nation's health:

  • The National Institutes of Health would be forced to postpone or stop scientific projects and decrease the number of new research grants by the hundreds.

  • New drug approvals would slow down in a budget-whacked US Food and Drug Administration.

  • Cuts at the Centers for Disease Control and Prevention could result in 400,000 fewer HIV tests.

The AAFP's Dr. Stream also worries about the effect of sequestration on federal programs that fund family medicine education.

"Everyone recognizes that the status quo can't go forward, that we must carefully balance revenue and spending," said Dr. Stream. "But sequestration is such a blunt instrument to implement that. We need to be strategic and prioritize our spending."