Astronauts compare landing the space shuttle to piloting a gliding brick. The deficit reduction supercommittee process resembled the space shuttle - without wings. Monday's official pronouncement of the supercommittee's demise leaves us with the question: Now what for health spending? It's not an easy question to address, but here is some preliminary information.
Medicare SGR: The supercommittee failure leaves the physician community with few vehicles to pull through a postponement of the imminent 27+% cut in Medicare's update effective January 1, 2012, let alone a permanent fix that costs $300 billion. There are two appropriations "mini-buses" yet to pass, plus payroll tax cuts and unemployment compensation benefits extenders. The latter two issues are by no means a slam dunk; they add $160+ billion to the deficit, digging an even deeper hole for the $1.2 trillion savings target called for by the 2011 Budget Control Act. Despite long odds, we think it's likely that Congress will find a way of postponing the 27% cut for a year, perhaps two, but a partial cut is certainly possible. Moreover, as noted throughout the year, even if the Medicare cut is postponed, APA members may still feel the impact of the likely 12-31-2011 end of the current temporary 5% "bump" for psychotherapy services.
Health Spending Cuts: Medicaid and Social Security are protected from sequestration on January 2, 2013, but even though capped at 2%, automatic Medicare cuts will total at least $123 billion (2013-2021). Barring congressional action to the contrary all of that will come from physicians, other health professionals, and institutional providers. And bear in mind, that unless Congress does something about the cuts triggered by the SGR, sequestration will come on top of as much as a 30% (2012 and 2013) reduction in Medicare's payment update formula. No matter what happens with the SGR, don't expect Congress to shield Medicare spending. Just last week, supercommittee Democrats were reportedly offering to accept $125 billion in Medicare provider cuts, along with $25 billion in beneficiary cuts and $25 billion in Medicaid cuts.
One recent analysis projects that a Medicare sequestration will be allocated as follows:
* 32 percent to inpatient hospital care
* 15 percent to Medicare Advantage plans
* 12 percent to physicians
* 8 percent to outpatient hospital care
* 7 percent to nursing homes
* 4 percent to home health agencies
* 3 percent to a small portion of the Medicare prescription drug benefit not exempt from the trigger
That 12% physician burden translates to a cut of roughly $14 billion.
Other Issues: Looming sequestration could have other effects on health spending. Hawks are already talking about legislation to protect defense spending from the projected $550 billion hit under sequestration, a level they believe will cripple the nation's military forces. But every defense dollar they protect means another dollar that must be found either in non-defense discretionary spending, or in revenues. Right now, added revenues seem unlikely before the 2012 election.
The Bottom Line: Congress could redo the whole budget sequestration process between now and the November elections next year, but with control of the Senate and the White House up for grabs that does not seem likely. APA will of course continue working with AMA and the rest of medicine to find a permanent solution to the SGR mess, and we are already working on a fallback postponement of the 2012 cut. In the meantime APA members and other physicians should brace for cuts impacting physicians and the health care sector.
As always, DGR will provide additional information on breaking developments as they occur. Please feel free to respond to advocacy@psych.org.
