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Medicare Providers Take Unexpected Hit in Budget Deal, Face 2014 Fight

By Kerry Young, CQ HealthBeat Associate Editor

December 11, 2013 -- Medicare's providers face an added two years of automatic spending cuts under the budget agreement recently announced by the leaders of the House and Senate budget committees.

That would help offset the costs of temporarily easing the impact of sequester provisions of the budget control law on operating budgets of federal agencies.

The unexpected development drew a mixed reaction from health lobbyists. A top hospital official said the move will threaten access to critical services. But medical research advocates said they'd back the agreement, which may lead to some lessening of the cuts to the National Institutes of Health.

Doctors also stand to get some benefit from the agreement in that it is being paired with a House proposal that shifts the timing of some sequester cuts to pay for a near term three-month payment patch.

The agreement announced last week by Sen. Patty Murray, D-Wash., and Rep. Paul D. Ryan, R-Wis., would lessen for 21 months the impact of the sequester provisions of the budget control law (PL 112-25).

But the automatic two percent yearly cut providers including hospitals, skilled nursing facilities, and doctors take under that law would be extended to include fiscal years 2022 and 2023. It now runs through fiscal 2021.

The lobbying group for for-profit hospital chains asked lawmakers to reject the deal.

"The budget agreement threatens access to critical health care services for seniors by trading off Medicare cuts for increases in government and defense spending today," said Chip Kahn, president of the Federation of American Hospitals. "It sustains bad budget policy under the guise of solving real mandatory spending issues facing this country."

The House may vote soon on the agreement, which would raise the cap on the federal government's operating expenses by $63 billion for the next two fiscal years. To do this, the bill would change the terms of the sequester now demanded by the budget control law. The cap for fiscal 2014 would rise to $1.012 trillion from the current $967 billion limit on regular discretionary spending.

Democrats and Republicans in both parties and both chambers have long derided the sequester as a dumb way to do budgeting. Cuts are made indiscriminately to both effective and ineffective programs, they note.

Help for Docs, But Risks Too

The Murray–Ryan deal is being paired with a House measure that includes language to prevent for three months a January 1, 24 percent cut in Medicare payments to physicians. To pay for the temporary patch, the House language tweaks the timing of when sequester cuts to providers occur a decade from now.

The way the 2 percent reduction would be applied in fiscal 2023 would be shifted. The reduction would be 2.9 percent in the first six months, and then 1.1 percent reduction in the last six months.

With the Murray–Ryan deal, it may appear a somewhat easy trade for lawmakers to swap future cuts to Medicare payments to gain an immediate boost for the budgets of federal agencies. Congress after all sometimes later softens the blows called for by budget deals when faced with lobbying by constituents and affected groups. But there are risks to the way Murray and Ryan are using Medicare as an offset mechanism.

Ed Lorenzen, a senior adviser for the Committee for a Responsible Federal Budget and former budget aide to Minority Whip Steny H. Hoyer, D-Md., pointed out that extending the sequester on nondefense mandatory spending—a category that under by the 2011 budget law largely boils down to Medicare—would increase the odds of these automatic cuts becoming permanent.

"When we start on the budget next year with the ten year-budget window of FY '15-FY '24, anyone looking for offsets can get roughly $15 billion savings in the budget window by extending the sequester another year," Lorenzen said in an email. "Simply extending an existing policy for one more year ten years out to pay for costs of legislation with benefits now will be a very tempting option, especially compared to the alternative of doing something new and painful now."

Debt Ceiling Fight Too?

Medicare also could be the target for a more deliberative approach to cost savings in the next big budget fight, which will start next month.

"Remember that we have got the debt ceiling coming up in February. It is more likely that you would see a larger kind of deal that gets into mandatory spending reform on the debt ceiling," said John Hoeven, R-N.D., who serves on the Senate Agriculture and Appropriations committees, in a recent interview.

Hoeven said that he would like to see changes made to Social Security, Medicare and Medicaid in such a deal on the scale that's being contemplated for mandatory-spending programs in the farm bill negotiations. Conferees have been working this week to iron out the final details in that legislation.

"We're showing that in the farm bill we are going to get on the order of $30 billion in savings" said Hoeven, a conferee on the measure. ¨I think that is exactly the kind of thing that we can do" with entitlements in a larger deal.

Hoeven said that any major changes to Medicare would likely exempt people who are within 10 years of traditional retirement age, so those who are 55 and older.

"Paul Ryan has talked about that," Hoeven said.

Hoeven said that he would like to see lawmakers do more to shift Medicare away from its current system, in which the agency has been paying more for the volume of care rather than focusing on quality.

"That's an incentive for abuse and so you change some of those things, and you would see more savings," Hoeven said.

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