Congressional inaction sets up automatic cuts

Although the ongoing implementation of and challenges to the 2010 healthcare overhaul law dominate the 2011 federal health policy discussion, a number of deficit-reduction activities also affect healthcare.

Struggles by Washington's elected leaders to address the federal government's burgeoning debt—driven in large part by health coverage programs—ultimately fail to reach bipartisan consensus. Instead, a default round of $123 billion in automatic Medicare cuts will occur over the coming decade. Other changes likely to have long-term impacts on federal health policy include the failure to find a permanent fix to the Medicare payment formula and the White House dropping Dr. Donald Berwick as its CMS administrator nominee in the face of GOP opposition and instead offering his lower profile deputy, Marilyn Tavenner.

Other highlights:

• In mid-April, President Barack Obama offers a deficit-reduction “framework” that included a $480 billion drop in projected healthcare spending as part of an effort to achieve $4 trillion in deficit reductions over the next 12 years. Its controversial provisions include the creation of first-time Medicare spending caps and expanded cost-cutting powers for the controversial Independent Payment Advisory Board.
• Later in April, the House passes a budget authored by Rep. Paul Ryan (R-Wis.) that calls for reducing 10-year federal deficits by $4.4 trillion, in part, through converting future Medicare beneficiaries to a premium support model.
• Throughout the summer, congressional and administration officials negotiate boosting the $14.3 trillion federal debt limit, as Republicans demand austerity measures to reduce the government's historic debt level and Democrats insist on increasing the debt level to avoid investor fallout. A bipartisan deficit-reduction group led by Vice President Joe Biden meets throughout the summer and tacitly agrees on hundreds of billions of dollars in long-term healthcare spending cuts, but the two parties differ on the details of those cuts.
• In August, Obama signs the debt-ceiling increase bill into law, boosting the $14.3 trillion debt ceiling in exchange for a combination of about $2.5 trillion in spending cuts over the coming decade. The law creates a 12-member congressional committee, equally divided between the two parties, to identify ways to cut at least $1.2 trillion in federal spending. Automatic cuts are to take place—mainly in defense and Medicare—if no agreement is reached.
• In September, Obama proposes a package that would reduce future budget deficits by about $3 trillion over 10 years, including $320 billion from federal healthcare programs.
• In November, the supercommittee fails to reach a deal and automatic cuts—known as sequestration—are set to begin in 2013. The Congressional Budget Office estimates that Medicare will cut up to 2% of providers' annual payments under sequestration, totaling approximately $123 billion from 2013 to 2021. Members of Congress introduce bills to prevent such automatic cuts from affecting various aspects of federal spending, including provider payments under Medicare.
• At the end of 2011, the CMS is scheduled to cut Medicare physician payments by 27.4% under a congressional payment formula. Physicians and hospitals warn about the dire impact of such cuts, as well as the negative effect of the perennial threat of such cuts on physicians who treat a large number of Medicare patients.