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Those damaging sequestration cuts
Continuing resolution's short-term savings will result in long-term costs

By Merrill Goozner
Posted: September 28, 2013 - 12:01 am ET

Rolling the dice, I predict Congress will pass a continuing resolution early this week to keep its lights on and paychecks flowing. What our elected leaders won't do is end the daily damage being inflicted on the nation's healthcare infrastructure by the sequestration cuts contained in the CR.

Here's the story up until now: To end the debt-ceiling crisis of the summer of 2011 (yes, we're coming up on another one of those), the Republican-controlled House and the Obama administration created a “supercommittee” to come up with $1.2 trillion in budget cuts over 10 years. The law imposed an automatic 2% across-the-board cut in discretionary and some mandatory spending, dubbed sequestration, which would go into effect Jan. 1, 2013, if that committee failed.

No surprise—we are talking about Washington here—the supercommittee proved to be not so super. Its collapse created a “fiscal cliff” last December of expiring tax breaks and massive budget cuts. Again, a short-term compromise was reached that extended some tax cuts and temporarily postponed the sequestration cuts.

That reprieve expired March 1 for discretionary spending and April 1 for Medicare. This week's CR to keep the government running would extend those cuts.

It's no secret that Medicare is one of the major drivers of the nation's long-term budget deficit, and taking steps to rein in unnecessary and wasteful spending by the program is high on everyone's agenda—including providers. That's why they agreed to $155 billion in Medicare cuts in 2010 as their contribution to passage of the Patient Protection and Affordable Care Act.

It wasn't pure altruism on their part. The reform law recycled that money into subsidies for the uninsured, most of which will wind up being spent on hospital and physician care (with 15% to 20% usually taken for insurance industry overhead). From the vantage point of providers, hospitals in particular, the compromise made sense because compensated care beats uncompensated care every time.

But Congress wasn't done whacking away at provider payments. There were temporary fixes needed for physician salaries, so Medicare and Medicaid became a logical place to look for budget offsets. Special payments for uncollectible debts were lowered. Payments to hospitals that serve a disproportionate share of the poor were cut.

In addition, the CMS continued to look for ways to whittle down what officials considered wasteful spending in the system. Rules updating the fee schedules for various diagnosis-related groups will cut those payments by more than $35 billion over 10 years. The agency adopted a three-day window for including ancillary services related to the DRG bundles, which eliminated another $4.2 billion in payments to hospitals.

While providers grumbled, they ultimately accepted those cuts, which the CMS claimed were data-driven. They vowed to “manage to Medicare”—that is, learn how to deliver the services at the price that the CMS paid.

Yet Congress' sequestration—without data and without hearings—eliminated another $45 billion from reimbursements over the next decade—more than those two rules combined. Adding insult to injury, the 2% cut will also be applied to the 1.3% inflation-adjustment in hospital payments that goes into effect Oct. 1, making that small increase even smaller.

This whacks away at the money that providers need to change their delivery models to achieve higher-quality care at lower cost. This across-the-board meat ax approach may deliver short-term savings, but at the expense of the long-term investment needed to generate even greater savings down the road.

Frontline providers aren't the only segment of healthcare being mindlessly damaged by sequestration. The National Institutes of Health, the globally admired backbone of the nation's health research infrastructure, will be cut to $29.1 billion, more than $1 billion below its peak in 2010 and, in inflation-adjusted dollars, about $9 billion less than 2004. Frontline agencies such as the CDC are also being cut 2% across the board without a thought to what impact that will have on prevention programs—another tool for long-term savings.

The nation will pay a terrible price if it fails to invest more money in research and development and prevention, just as across-the-board cuts undermine delivery system reform efforts. As is always the case, the most shameful wounds are those that are self-inflicted.

Follow Merrill Goozner on Twitter: @MHgoozner


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