Health Care Providers Scurry to Prepare for Medicare Budget Cuts to Come with Debt Deal
Social Security and Medicaid exempted from budget cuts - see video below
Aug. 2, 2011 - The Senate passed and President Obama quickly signed this afternoon the battered bill to
raise the U.S. debt ceiling and begin efforts to reduce the deficit. At least one of the programs that primarily impacts senior citizens –
Medicare – is certain to feel the budget axe in at least the second round of the $2 trillion in deficit reductions.
In remarks this afternoon the President said, “Yes, that means making some adjustments to protect health
care programs like Medicare so they’re there for future generations.”
But, he added, we can’t “ask seniors to pay more for health care.”
He also said, “It also means reforming our tax code so that the wealthiest Americans and biggest
corporations pay their fair share. And it means getting rid of taxpayer subsidies to oil and gas companies, and tax loopholes that help
billionaires pay a lower tax rate than teachers and nurses."
Medicare is clearly in the sights of Republicans, who earlier this year passed a bill in the House to convert the current
program into a private system paid for by vouchers.
The good news for seniors, however, is that Medicaid and Social Security are exempt from budget cuts, for now.
In the second round of budget cutting, the bill calls for a bipartisan committee from Congress to cut another $1.5
trillion and that is where most expect Republicans, especially the Tea Party group in the House, to swing the axe at Medicare. There is,
however, a small bit of protection in the bill – it limits the Medicare cuts to no more than two percent of its budget.
Health On The Hill: Kaiser Health News' Mary Agnes Carey talks with Jackie Judd about the lack of Medicare and Medicaid cuts in the
initial round of cuts tied to the debt ceiling increase, and about what sort of cuts the programs could be open to later in the year.
Transcript below news story.
A media round-up by Kaiser Health News finds physicians, hospitals, nursing homes and home health care providers are all
bracing for pain as the debt-ceiling agreement kicks in.
When it comes to Medicare and Medicaid, the debt deal raises more questions than it
answers. The giant health care programs serving some 100 million elderly, low-income and disabled Americans were spared from the first round
of cuts in the agreement between President Barack Obama and congressional leaders. But everything's on the chopping block for a powerful new
congressional committee that will be created under the deal to scour the budget for savings (8/2).
Physicians, home health practitioners and other providers could see an additional 2
percent pay cut on top of double-digit Medicare reductions already slated for 2012 under the debt ceiling deal reached by the White House and
congressional leaders late Sunday. There's also more general concern about a new congressional panel to be created by the deal that would have
broad authority to cut federal spending on Medicare, Medicaid and even some parts of President Barack Obama's health care law, according to
health care lobbyists and budget officials (Dobias, 8/1).
A wide swath of nursing-home companies and other health-care providers are getting
rattled by the political drama in Washington. On Monday, Medicare's plan to cut nearly $4 billion dollars in spending to nursing-home
operators — an attempt to correct flaws in the agency's reimbursement rates — spooked a health care industry already on edge from the
increased scrutiny of government spending.
The growing push to rein in health care costs, as indicated by the debt debate, weighed
on the entire health care sector, especially those companies that would feel the bite of Medicare cutbacks most directly, such as hospitals.
Affected groups warned of poorer medical care for the nation's seniors as a result of any cuts. But the biggest losers Monday were the
operators of nursing homes (Korn and Kamp, 8/2).
The Centers for Medicare and Medicaid Services said Friday that it planned to reduce
payments to skilled-nursing facilities by 11.1 percent for fiscal 2012, cutting $3.87 billion out of the spending plan. CMS said in a note
Friday that the rates "correct for an unintended spike in payment levels and better align Medicare payments with costs."
The move took the market by surprise. "While the 11 percent reduction was an option as
part of the initial proposal, we are still surprised CMS is implementing this magnitude of cut, and without a phase-in," Credit Suisse analyst
Ralph Giacobbe said in a note to clients (Britt, 8/1).
Health reform advocates are worried that the debt deal struck by the White House and
congressional leaders Sunday night opens up a path to weaken the Democrats' health law. The deal to raise the debt ceiling would task a
12-member bipartisan committee to come up with $1.5 trillion in deficit reduction and would require across-the-board cuts starting in 2013 if
those efforts fail. Although Medicare providers could face as much as a 2 percent reduction in payments, Social Security and Medicaid
are specifically exempted from the cuts (Millman, 8/1).
Bloomberg: WellPoint, HCA Drop On Concern Debt Agreement May Lead To Cuts In Medicare
WellPoint Inc., the largest insurer by enrollment, HCA Holdings Inc., the biggest
hospital chain, and Kindred Healthcare Inc., the top nursing home operator, dropped in trading after President Barack Obama announced a
debt-reduction deal that may lead to Medicare cuts. Under the plan, Medicare may face across-the-board reductions when a bipartisan
congressional committee meets to trim $1.5 trillion from the deficit by Thanksgiving. If deadlocked, the committee must divide the cuts evenly
among defense and domestic programs. The reduction in Medicare, the U.S. health plan for the elderly and disabled, would be aimed at provider
payments, not benefits (Wechsler and Armstrong, 8/1).
Reuters: Skilled Nursing Stocks In Sick Bay On Big Medicare Cuts
Shares of skilled nursing facilities plunged on Monday, after the U.S. government
announced final reimbursement rate cuts that confirmed the market's worst fears, with little reprieve in sight. On Friday, the Centers for
Medicare & Medicaid Services (CMS) cut 2012 payments for skilled nursing facilities by 11.1 percent, or $3.87 billion. … The U.S. government
has been under pressure to cut Medicare costs — expected to nearly double in 10 years to $1.02 trillion — as it grapples with mounting federal
debt. Analysts expect the industry to lobby the Congress to mitigate the loss but expect little to come out of that (Jain, 8/1).
Hospital advocates are concerned that the deficit-reduction proposal contained within the
$2.1 trillion debt-ceiling deal that Congress will vote on imminently will target such providers for a large amount of the required savings,
but they stopped short of calling for its defeat. ...
The second stage of the debt deal, which directs a 12-member congressional committee to
specify $1.5 trillion in cuts by Nov. 23, has caused the greatest provider concerns. Their worry stems from the plan for a "trigger" of $1.2
trillion in 10-year cuts if the committee and Congress fail to meet the initial $1.5 trillion savings goal. Those trigger cuts, according to
the White House, would include up to a 2 percent cut in Medicare provider payments (Daly and Evans, 8/1).
NPR: Still To Come: The Fight Over Medicare Cuts And Tax Hikes
The rapidly rising cost of health care is expected to be a key driver of rising
government spending over the next decade. (This isn't simply due to the aging of the population; health spending is growing much faster than
the economy, even after adjusting for age.) CBO Medicare accounts for both the biggest share of federal health spending. It's also a very
popular program, and one that's politically very difficult to cut (Goldstein, 8/1).
CQ HealthBeat: Debt Deal's Shield Against Medicare, Medicaid Cuts
The impact of the debt ceiling legislation on Medicare, Medicaid, and the health care
overhaul law may not be as great as some analysts initially feared — but all three could still take significant hits in the coming years. Even
House Democrats suspicious of the agreement expressed relief Monday that the White House negotiated provisions that would exempt Medicaid and
limit Medicare cuts in the event a new trigger mechanism requires across-the-board spending cuts (Reichard, 8/1).
KHN's Mary Agnes Carey talks with Jackie Judd about the lack of Medicare and Medicaid cuts in the initial
round of cuts tied to the debt ceiling increase, and about what sort of cuts the programs could be open to later in the year.
JACKIE JUDD: Mary Agnes, Medicare is not touched in this first part of the
deal, the $900 billion in savings, but there is a possibility under certain circumstances that Medicare could be affected later this year.
What are those potential circumstances?
MARY AGNES CAREY: As part of the deal, there is a committee -- bipartisan,
bicameral committee of lawmakers -- that is charged with reducing the deficit, coming up with cuts for another $1.5 trillion. Medicare could
be on the table then. But there is a little bit of protection there, that Medicare would not be touched by more than 2 percent. Whether the
committee’s recommendations were not accepted, if there had to be automatic cuts -- that’s another part of the deal. So Medicare is open, but
it is protected to some extent.
JACKIE JUDD: And 2 percent of what?
MARY AGNES CAREY: It’s 2 percent of what the spending would be in that
fiscal year. So, while no provider likes a cut at all, ever, if you look at some of the numbers in 2010, the federal government spent $520
billion on Medicare. That’s expected to grow to $970 billion by 2021. So you’re looking at a 2 percent cut in a particular fiscal year of
JACKIE JUDD: And it’s a slowdown in the projected growth. It’s not as if
the program won’t continue to grow.
MARY AGNES CAREY: No, it will continue to grow every year. But then again,
if you allow a 2 percent cut [in growth], that would be a reduction. Providers will certainly complain about it. They’ll say it might impact
beneficiaries’ access to care. Whether or not Congress is in the mood to hear these arguments, we’ll have to wait and see. But it definitely
would be a reduction of the 2 percent.
JACKIE JUDD: And the provision is that it would impact the providers.
MARY AGNES CAREY: That’s the thought, exactly. But that’s where the
providers will step up and say: Now wait a minute -- if you impact us it will impact the beneficiary.
JACKIE JUDD: Mary Agnes, as you know more than most, there is this annual
ritual in Washington called the "doc fix."
MARY AGNES CAREY: That’s exactly right.
JACKIE JUDD: How does the "doc fix" get impacted if there is this 2 percent
MARY AGNES CAREY: Well, let’s look and let’s say, for example, that the
commission produces its particular cuts in Medicare or you have this automatic across-the-board cut to obtain those savings. That would be
happening right near the end of the year. Congress, for example, has to have an up or down vote on these recommendations by December 23. The
current physician payment fix for Medicare expires December 31. So you’re going to have lawmakers looking for money in Medicare in a variety
of areas. They’ll have the pressure of either producing this report and having it passing, or if it’s not, the across-the-board cut. And no
one wants to see a Medicare physician payment cut – they’re facing cuts of something like 29 percent if another "doc fix" isn’t passed. So you
can imagine what December is going to be like on Capitol Hill.
JACKIE JUDD: But it’s possible in that scenario that the doctors would face
a more than 2 percent reduction in reimbursement rates if the "doc fix" becomes too tangled up in the politics of everything else Congress has
MARY AGNES CAREY: Right, they could certainly face a hit. If Congress can’t
find money to offset it, then they will face a payment cut.
JACKIE JUDD: Let’s move onto Medicaid. The conventional wisdom in
Washington is Medicare can’t be touched because it has such a powerful constituency behind it. Medicaid is more vulnerable because it does not
have nearly as powerful a constituency -- and yet Medicaid is not part of either the first stage of the deal or the second. How did that
MARY AGNES CAREY: I think it’s a variety of forces. Obviously, the
governors were very upset about any more Medicaid cuts. They’d had additional money through the stimulus program that stopped on July 1. They
were very concerned about that.
The economy has been really bad. You’ve had people grow on the Medicaid rolls, that’s been a pressure.
The groups of people who represent the Medicaid folks were pushing Congress to not make cuts. But let’s not forget about the health care law.
[States will] be adding 16 million people to the Medicaid program starting in 2014. It didn’t make a lot of good policy sense to cut that
starting in 2013 – just a year before you have the Medicaid expansion of the health law.
JACKIE JUDD: And is it explicitly stated in the deal -- as we now know it
to be -- that Medicaid is off limits?
MARY AGNES CAREY: Yes, absolutely.
JACKIE JUDD: Okay, very good. We will return to this undoubtedly. Thank you
very much, Mary Agnes Carey of Kaiser Health News.
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