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Double whammy or worse: Medicare providers targeted for more budget cuts

The size and growth potential of Medicare expenditures—$520 billion in 2010 and expected to grow to $970 billion by 2021—make the federal health program a popular target for budget cuts, according to a recent issue brief from the Kaiser Family Foundation. That means a potential double whammy, or worse, for the Medicare budget, which already saw significant reductions because of health reform.

And, for political reasons, you can expect that most of the reductions will target providers, not beneficiaries. Even without the next round of cuts, government analysts have warned that payments could drop so low that many physicians would simply choose not to participate in the Medicare program.

The brief says that the new Joint Select Committee on Deficit Reduction would likely look to Medicare for substantial savings, and, if Congress cannot pass the so-called “supercommittee’s” budget recommendations, then across-the-board budget cuts would reduce spending for the program, which accounted for 15% of the federal budget in 2010.

“The Joint Committee’s ability to recommend drastic changes may be constrained by politics and the desire to submit a proposal that could be passed by Congress; however, the Committee’s scope of changes to programs is not legally constrained in any way,” the brief states. “This lack of constraints provides an opening for substantial changes to be made to the Medicare program, but it also allows for the committee to take a more nuanced approach towards reductions in spending.”

If automatic cuts occurred because of an inability to reach agreement on the budget proposed by the supercommittee, those would be implemented “without regard to plans’ and providers’ operating margins,” according to the report. That sounds bad but actually could be better for physicians, according to some observers, because the process—called sequestration—limits Medicare cuts to only 2% to providers and Medicaid would be totally protected. Also, the $1.2 trillion in cuts would not begin until 2013, and half of the amount would come from defense.

“The theory was that the $1.2 trillion in automatic cuts to popular programs such as the military and Medicare outlined in the law’s fallback “sequester” provision would be so damaging that all sides would produce a budget compromise to avoid the need for such cuts,” consultant Chris Jennings, a former adviser to President Clinton, writes in the New England Journal of Medicine. “Now, reflecting on the implications of likely alternatives, many healthcare stakeholders are concluding that the automatic cuts would be the lesser of the possible evils.”

The issue, according to the Kaiser document, is that whatever reductions occur will be on top of the hit Medicare took with passage of the Patient Protection and Affordable Care Act in 2010. The health reform law included more than $424 billion in net Medicare savings ($528 billion in gross Medicare savings) over a 10-year period with reductions in payment updates to providers of nearly $2 billion. That law also created the Independent Payment Advisory Board to find ways to reduce Medicare spending if growth rates exceed targets. 

Those earlier reductions caused the chief actuary of the Centers for Medicare and Medicaid Services to express concern that healthcare providers will struggle to remain profitable and may opt out of Medicare. His office projected that Medicare rates in 2019 would be lower than those currently paid for Medicaid and probably were not sustainable.

The Kaiser report noted that Medicare per capita spending is now projected to grow about 3.5% a year from 2010 to 2019, considerably less than the 5.4% growth projected for private health insurance.

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