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Lawmakers Still on the Hook to Make Medicare Cuts This Year

By John Reichard, CQ HealthBeat Editor

November 22, 2011 -- The announcement by the deficit reduction panel that it couldn't reach agreement on a legislative package to reduce deficit spending doesn't get lawmakers off the hook to make cuts this year to the popular Medicare program.

While members of Congress may not have to worry about making Medicare cuts in 2012, they likely will have to decide by next month how to trim $25 billion, or considerably more, over 10 years, to offset the cost of must-pass legislation to avoid a 27.5 percent cut in payments to doctors scheduled for Jan. 1. And it's all but certain that most, if not all, of that $25 billion will come out of Medicare.

Under the debt control law (PL 112-25), Medicare provider payments will be automatically cut up to 2 percent per year starting in 2013 now that the deficit panel has not developed a different approach.

"After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline," the panel's co-chairmen Sen. Patty Murray, D-Wash., and Jeb Hensarling, R-Tex., said in a statement shortly before 5 p.m.

The American Medical Association (AMA) had hoped the panel would back legislation that, along with slashing deficit spending, would completely scrap and replace the problematic "SGR" (sustainable growth rate) payment formula that requires ever-deeper cuts in doctor reimbursement.

But talk of that happening this year is fading away, leaving lawmakers in a position of having to pass temporary payment matches to head off cuts. Typically each patch adds to the size of subsequent payment cuts under the SGR, which in turn requires even more in the way of spending offsets to enact still more payment patches. Doctor groups hoped that hundreds of billions of dollars in savings from winding down the wars in Afghanistan and Iraq would be tapped by the so-called supercommittee to meet the $300 billion or so 10-year cost of replacing the SGR entirely.

But doing that now as stand-alone legislation is much harder. "My instincts are that that kind of approach works when you are in a bigger deficit reduction environment like the supercommittee," a health lobbyist noted. In other words, the huge cost of scrapping the SGR would be less apparent if it were part of a grand bargain that had the overall effect of reducing deficit spending.

Ironically, waiting to completely eliminate the formula will make the cost of doing so even more gigantic. The lobbyist said that according to one set of projections, passing temporary patches over the next five years and then trying to completely scrap the SGR after that point would double the cost of subsequently eliminating the formula, to $600 billion over 10 years. That figure would not include the many tens of billions of dollars required to enact five years' worth of patches.

"The fiscally responsible action for Congress is to repeal the broken Medicare physician payment formula and stop the frequent short-term fixes and budget tricks that have increased both the size of the scheduled Medicare cuts and the cost of fixing the problem," AMA President Peter Carmel said in a statement. "As recently as 2005 the cost of permanent reform would have been $48 billion, in five years the cost will be $600 billion. Fixing this problem to preserve seniors' health care now and in the future must be a top priority."

Even so, lawmakers appear to be heading towards more temporary fixes. "I would anticipate a doc fix of one or two years," said Julius Hobson, senior policy adviser with the law firm Polsinelli Shughart. The pressure of coming up with pay-fors pushes lawmakers toward shorter-term payment fixes, notes Bill Dombi, a lobbyist with the National Association for Home Care.

Even one year would mean cuts of $25 billion or more over 10 years. So blocking payment cuts to doctors would line up other sectors of health care for possible cuts. Skilled nursing facilities, home health care agencies, rehab hospitals all have been eyed by deficit cutters as potential targets, and lawmakers will look to the list of possible reductions the debt panel has compiled. Another possibility is reducing the payments Medicare makes to acute care hospitals to compensate them for the failure of beneficiaries to pay out of pocket costs.

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