A planned 2 percent cut in Medicare spending, scheduled to take effect in January 2013 unless Congress intervenes, would limit patients’ access to essential health care, say industry leaders and policy analysts.

Provider organizations, beneficiary advocates and others are voicing strong words of caution that the cuts to Medicare represent a real danger to patient care. The medical lobby says Medicare patients will be the ultimate victims because of reduced access to care at hospitals and at doctors’ offices.

The cut is dictated by the Budget Control Act of 2011, which put into effect a process called sequestration. It was designed to be a painful stick to prod the Congressional supercommittee to adopt deficit reduction measures by November 2011. 

The threat of sequestration “was large enough to be painful but not large enough to be devastating,” said Paul B. Ginsburg, president of the Center for Studying Health System Change.

The cuts would be spread over nine years and total about $1.2 trillion. First-year cuts would amount to $109 billion, of which $11 billion would come from Medicare. Half of the total cuts would impact the Department of Defense, while the Social Security Administration and Medicaid are exempt.

“It’s quite a threat,” counters Dr. Jeremy A. Lazarus, president of the American Medical Association (AMA). If the cuts are imposed, doctors’ Medicare payments will be reduced so significantly that “it would make it much more difficult to keep a practice open.”

Physicians “have been losing ground in real dollar terms” for several years because of Medicare funding reductions, said Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute. “A lot of doctors are dropping Medicare altogether,” he added.

Doctors’ advocacy groups could provide no recent statistics of doctors refusing to take Medicare patients. There is anecdotal evidence in news reports of individual doctors saying they had dropped Medicare patients or refusing to accept new ones because of federal payment changes. And in October 2011, the Texas Medical Association said a survey showed that half of doctors in the state would consider withdrawing from Medicare if federal funding was cut significantly.

A June 2012 report from the Medicare Payment Advisory Commission said that the number of Medicare patients reporting they had a “big problem” finding a primary care doctor when looking for a new physician increased from 12 percent in 2009 and 2010 to 23 percent in 2011. “The Commission is concerned about the continuing trend of greater access problems for primary care,” the report stated. However, the report did not cite specific reasons for this increased difficulty.

In a videotaped message, Richard Umbdenstock, president and CEO of the American Hospital Association, urged members to tell politicians that “additional cuts to Medicare and Medicaid funding would mean longer waits for care; fewer doctors, nurses and other caregivers; and less patient access to the latest treatments and technology.” Instead of “arbitrary cuts that undermine your ability to make sure that in the future the care will be there,” said Umbdenstock, “we need solutions that strengthen our health care system.”

“We’ve been hearing from our membership and from physicians” about the potential to reduce patient access to care, said David Certner, AARP’s legislative policy director.

The Medicare sequestration cuts are compounded by a separate reduction in physician payments for Medicare services. In 2013, a planned 27 percent cut in Medicare physician reimbursement resulting from the Sustainable Growth Rate would be in addition to the 2 percent sequestration cuts.

As a result, “Some physicians might opt out of health insurance completely,” said Glen R. Stream, president of the American Academy of Family Physicians. “A lot of practitioners—especially solo ones—operate on a very low margin.” The planned cuts to their Medicare payments would be “a significant challenge for them.”

Where Will Medicare Feel the Pinch?

How the Medicare sequestration cuts might be implemented is far from clear. The U.S. Office of Management and Budget has said that in fiscal year 2013, Medicare Hospital Insurance (Part A) would be cut by $5.6 billion, Medicare Medical Insurance (Part B) would lose $4.9 billion, and Medicare Prescription Drug Plans (Part D) would see cuts of $560 million. But “exactly how the cuts are worked out remains to be seen,” said Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities.

“How do you implement it in practice?” Park asked. “There are a lot of questions.”

The executive branch can delay the impact of some funding changes, analysts note, but contracts still have to be honored and bills still must be paid.

Medical research funding and other programs would also be reduced. And unlike those for Medicare, reductions in discretionary programs at the Department of Health and Human Services are not capped at 2 percent. More than 2,000 National Institutes of Health grants are reportedly at risk.

The Medicare cuts could do more than impact the program directly; they could affect the overall U.S. economy. The AMA and several other medical associations released a study saying that the sequester cuts could cost the United States more than 750,000 health care and related jobs by 2021.

In a lame duck session after the November 2012 elections, Congress will try to prevent the cuts from taking effect. But there is no guarantee that it will succeed.

The planned Medicare reductions are tied up with several other changes slated to take effect at or near the start of 2013, including the expiration of several major federal tax cuts. Together, these pending changes have been called the “fiscal cliff.” Though key figures in both political parties say they want to avoid plunging off of it, it’s far from certain whether the trip can be avoided.

There are many possible scenarios, depending in large part on the election outcome. If Republican Mitt Romney wins the presidency, he will presumably want to put key members of his team in place before addressing the fundamental issues involved with the fiscal cliff, say analysts. If President Obama is re-elected, he may potentially still experience a partisan relationship with the new Congress.

Complicating matters even further is the fact that the federal debt limit is set to be reached again in early 2013. That could set the stage for a new round of brinksmanship.

Currently, Democrats hold the White House and maintain a thin margin in the Senate, but Republicans have control of the House of Representatives. While some polls suggest that the Senate and House will not change hands, the presidential contest has tightened in October. Even if President Obama is re-elected and there is no change of control in the Senate and House, elected officials will be looking at the election results for signals that the electorate is shifting its attitudes toward budget cuts and/or tax increases. Republicans’ hesitance to support tax increases, and Democrats’ concerns about cutting entitlement programs such as Medicare, have stalled progress toward what some term a “grand bargain” that would pave the way for long-term deficit reduction.

A bipartisan group of senators is seeking such a compromise, trying to lay the groundwork for action in the lame duck session that would prevent, or at least delay, these cuts. They seek a deal similar to the Simpson-Bowles plan, which would have cut tax rates, limited tax deductions and credits, reduced Medicare and Social Security benefits, and curbed federal discretionary spending.

A few bills introduced in the current Congress would prevent the sequestration cuts, but analysts say they believe that none will move forward during 2012.

“The damage is happening now,” said Ginsburg, noting that fiscal year 2013 has already begun. “The damage increases exponentially if we go over the fiscal cliff.”

In the Oct. 22, 2012, presidential debate, Romney mentioned the threat of sequestration cuts in the context of Defense Department spending. Obama said of the sequestration process: “It will not happen.” However, he did not indicate how it would be avoided.

Some analysts suggest that it wouldn’t be the end of the world if the nation finds out how painful that crash will be—despite predictions that a recession could follow. Many Republicans have sworn never to raise taxes, and if the Bush tax cuts expire automatically, they would have a gain in tax revenue without breaking their promise. Meanwhile, members of both parties could pursue entitlement reforms that delay the most substantial changes in funding and/or benefits for up to a decade, thereby minimizing short-term political fallout.

Analysts say the best chance for Congress and the president to delay sequestration cuts during the lame duck session is if legislators agree on a portion of the debt reduction sought by both sides as a demonstration of good faith to start to address the fundamental issues of taxes and spending during 2013.

Without action to prevent the reductions, however, many wheels will be put in motion around the start of the calendar year. Analysts say it is far from clear what direction that vehicle will take and who will get run over.

Steve Bates is a freelance journalist based in the Washington, D.C., area. He was
a reporter and editor for The Washington Post for 14 years and has written for
magazines and the web. 

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