Healthcare Business News

White House projects $11.1 billion in Medicare pay cuts under deficit law

By Rich Daly
Posted: September 14, 2012 - 2:00 pm ET

The Obama administration projected (PDF) that Medicare will be cut by $11.1 billion next year due to requirements of a deficit-reduction law unless overridden by statute.

The 2% cut in the $554.3 billion that Medicare projects to spend on providers and insurance plans in 2013 was required by the Budget Control Act of 2011. The Medicare cuts are part of the $1.2 trillion in 10-year cuts the law required after bipartisan negotiations on a comprehensive and bipartisan deficit reduction plan failed last year.

Among the 2% in Medicare provider cuts, $5.8 billion will come from the Federal Hospital Insurance Trust Fund, according to the administration report released Friday.

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The Obama administration opposes implementation of the sequester cuts but remains deadlocked with congressional Republicans over sharp differences in their preferred approaches to replace the coming spending reductions while achieving the same amount of reductions in future deficits, according to senior administration officials who asked not to be quoted by name during a Friday media call.

“Hopefully as more people see this report today and they see the consequences of the sequester going into place that will move the Republicans toward compromise, but without compromise the report stands as a forecast into what our future might look like,” one official said.

Also subject to the 2% cut are “community and migrant health centers,” which will lose $27 million.

Other sequester cuts can exceed the 2% limit, including more than $2.5 billion, or about 8%, coming from the $35 billion National Institutes of Health budget.

The sequester will require “NIH to halt or curtail scientific research in certain areas, you know, cancer and childhood diseases,” an administration official said about the consequences of such cuts.

The sequester's impact on the Patient Protection and Affordable Care Act includes cutting $66 million, or nearly 8%, of $868 million in state insurance exchange grants and $76 million, or 7.6%, of the $1 billion in its Prevention and Public Health Fund next year. However, the administration's legal analysis concluded that the sequester did not affect either the law's funding for pre-existing condition insurance plans or the Consumer Operated and Oriented Plan program.

Other major health cuts included $318 million, or 8.2 %, of the Food and Drug Administration's $3.9 billion in salaries and expenses.

The sequester also will cut $605 million from the Health Resources and Services Administration; eliminate $490 million from the Centers for Disease Control and Prevention; and reduce the Substance Abuse and Mental Health Services Administration by $275 million.

Cuts to the CMS include $63 million from its $783 million in combined mandatory and discretionary “program management” budget. The sequester will cut $40 million, or nearly 8%, of $530 million in “state grants and demonstrations” from the CMS. The CMS healthcare fraud and abuse control account will lose a combined $78 million in mandatory and discretionary funding.

An economic analysis from three healthcare interest groups issued Sept. 12 concluded that the sequester of Medicare spending could result in 766,000 fewer healthcare and related jobs by 2021.

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