It appears increasingly certain that providers and insurers will see a 2% Medicare cut go into effect March 1. The automatic budget cuts queued up for that date could have an even deeper impact on the government's ability to carry out the healthcare reform law.
Across-the-board cuts to most federal programs, including parts of Medicare, were supposed to begin on Jan. 2 as part of the Budget Control Act of 2011. A year-end budget deal postponed those reductions until March to give Congress time to find ways to avoid the $1.2 trillion in 10-year cuts.
But with the budget ax less than a month away, many health policy experts now see those cuts as close to inevitable.
“It is interesting that what started out as ‘We can’t possibly let that happen’ is becoming more of a conventional wisdom that it is likely to happen,” said Gail Wilensky, administrator of the predecessor agency of the CMS under President George H.W. Bush.
Providers and insurers have focused on the 2% cut in their Medicare payments, which total about $120 billion over 10 years. But the sequester—a slate of automatic reductions set in motion under the Budget Control Act of 2011—will take a proportionally bigger bite out of the CMS’ administrative budget. The sequester will cut about 5% to 8% of that budget, depending on the estimate.
“It’s more likely, and there will be some consequences in terms of how CMS is able to move forward with payment reforms and pilot programs and other efforts,” said Mark McClellan, a former CMS administrator under President George W. Bush and a scholar at the Brookings Institution.
The administration is expected to reveal more details about how the cuts would be applied as the March 1 implementation date nears.
Some health sector advocates are looking with growing alarm at the prospect as federal officials work to carry out critical and complex components of the Patient Protection and Affordable Care Act.
“Everybody in the health IT industry and the health transformation area, which includes payment and delivery reforms that come out of the ACA, are really pretty worried,” said Jeff Smith, assistant director of advocacy for the College of Healthcare Information Management Executives. Smith said that a cut of up to 8% in CMS administrative functions, as estimated by the Office of Management and Budget in September 2012, would have “massive” effects on the rollout of initiatives, including accountable care organizations and patient-centered medical homes.
“The role that CMS plays is gigantic because you are dealing with all of the claims data in order to figure out who exactly is part of your ACO,” he said.
Providers in ACOs and other care-coordination initiatives have previously reported widespread problems obtaining that patient-specific data in a timely manner. And some experts worry that the looming cuts could worsen strained data capabilities at the agency.
Bruce Vladeck, an administrator for the CMS’ predecessor agency under President Bill Clinton, said in addition to reducing needed resources for data system upgrades, the sequester could eliminate positions from an agency that has added few personnel during the past 15 years, even as it has taken on many new roles.
“It doesn’t have enough cops on the beat,” Vladeck told reporters recently.
The agency has been able to take on many new roles, including various components of the healthcare overhaul, through a greatly expanded use of contractors, according to health policy experts. The sequester could force the agency to cut those contract employees even as it is scrambling to meet implementation deadlines already viewed as a major challenge.
The CMS did not respond to questions about how the sequester cuts would affect the agency and its ability to implement the Affordable Care Act.
“The administration has been pretty closed-mouthed about specific details on how these cuts would be implemented,” said Dave Moore, senior director of government relations for the Association of American Medical Colleges. “But to lose even 5% of your budget six months into the fiscal year is not going to be easy to absorb.”
Unlike provider and research advocacy groups worried about the impact of the sequester on their priorities, contractors have not raised many concerns about the impact with the administration or members of Congress, policy experts said.
“With everything else they have to worry about, they are probably not focused on that because there is such a scramble to get all of the things done for a launch,” said Wendy Krasner, a partner in the healthcare practice of Manatt, Phelps and Phillips. Contractors are developing elements of the health insurance exchanges that are supposed to launch in nine months, she noted.
The impact of administrative cuts from the sequester could be further magnified because HHS didn’t receive the funding increases it had requested for the current fiscal year, in part, to implement the healthcare law. The end-of-the-year budget deal maintained the same funding levels as the previous year, which means the $3.8 billion CMS administrative budget did not receive a $998 million boost the Obama administration had sought.
Some policy experts expect the CMS to compensate for the lower-than-expected administrative funding by shifting money and resources from lower-priority areas. But staff reassignments are easier said than done, some policy experts said, and many other nonhealthcare reform initiatives have their own tight statutory and regulatory deadlines.
“While it is possible, it would be a pretty big task,” Smith said.