Congress's 2010 attempt to impose fiscal discipline on itself through a blunt instrument of sequestration might be crude, but should it happen next January, healthcare reimbursement might suffer much less than other parts of the federal budget.
A panel of experts at the American Hospital Association's Leadership Summit in San Francisco, while calling such an outcome a "super failure," say that a provision in the sequestration law that limits Medicare funding cuts to 2% will be much less painful than the cuts to defense and other domestic programs, which would be higher than 10%.
This makes sequestration possibly the least bad option for a healthcare industry already reeling from demands that it cut the rate of cost growth in a sector where spending has grown at more than double the rate of general inflation for most of the past two decades.
While Congress may yet revisit the automatic spending cuts set to kick in on January 2, 2013, they must find enough votes to do so, something that has been elusive in recent years. Republicans seem intent on preventing the automatic $54.5 billion cuts to defense spending, instead seeking to shift those cuts to domestic programs, while Democrats seem determined to push for the opposite.
If Congress were to override the cuts, the expert panel agreed that Medicare, and thus, healthcare providers who depend on its reimbursement, might not get off so easy a second time around. Medicare and Medicaid make up 42% of the national budget, but cuts to them are excluded or severely limited under the sequestration plan.
Congress probably never intended for the sequestration to actually happen as scheduled. Instead, many members who voted for it suggested that the pressure from the looming draconian cuts would force the recalcitrant lawmaking body to find compromise that would more equally allocate the burden of balancing the budget, which faces pressure not only from the sequester, but from the debt ceiling, also set by Congress, which might reach its limit by February 2013.
"An alternative budget strategy might well dig deeper into the Medicare program," said Sheila Burke, a senior public policy adviser at the law firm of Baker Donelson, Bearman Caldwell & Berkowitz. "It might also put Medicaid on the table."
Burke, who served for 19 years on Capitol Hill, ultimately as Deputy Staff Director of the Senate Finance Committee, speaks from experience.
"We're building to this," she says. "People are taking a hard line and there's not much middle ground."
The group of experts also discussed Medicaid expansion. Thanks to the recent Supreme Court decision on the Patient Protection and Affordable Care Act, while the individual mandate to obtain health insurance or pay a tax was upheld, the Court also decided that states have the option of refusing to participate in the law's signature Medicaid expansion, designed to assist in providing coverage to the nation's millions of uninsured.
Significantly, the law's provision to penalize states for not participating was struck down. Much of the resistance to expansion seems overtly political, with key large states with Republican governors, such as Florida and Texas, insisting they will not participate.
But the panel of experts also said that some of the reluctance stems from the fact that although the law currently funds the entire cost of that Medicaid expansion for three years, and federal funding is cut to 90% of the cost to states thereafter, there are no guarantees beyond 2020.
There is some fear on the part of states that if they do make this commitment, they can't necessarily assume that the 100% and 90% figures will remain in perpetuity. The fundamental fear is that if they sign on expecting those rates, any changes could put them at serious financial risk beyond 2020.
Federal dollars funded pre-PPACA Medicaid at about 57% of costs, with the states picking up the rest of the bill. Such an outcome following an expansion could put an unsustainable burden on the states.
Even outside of stark political differences over the law, it's easy to understand why states may be wary.
Jack Ebeler, one of the panelists and a former vice chairman of the Medicare Payment Advisory Commission as well as one of the architects of the new law as a member of the staff of the House Committee on Energy and Commerce, believes states are likely to sign on to the expansion slowly, as they did when Medicaid was first created in 1966.
"In January of 1966, when Medicaid was introduced, only six states signed on," he said. "There were 27 states next year, then nine more, and eventually every state signed on to the Medicaid and S-CHIP (State Children's Health Insurance Program)."
Of course, he admitted in response to a question that it's theoretically possible that states would be able to take advantage of the first three years of "free money," and then decide to get out of the expansion.
Given the difficulty governments have with removing an entitlement program once it's established, however, that would seem to be a dubious strategy.
Philip Betbeze is the senior leadership editor at HealthLeaders.