Medicare Targeted for Cuts Under HHS Budget

Margaret Dick Tocknell, for HealthLeaders Media , February 14, 2012

In an e-mail, Keckley noted that the cuts aren't "the only pressures docs and hospitals will feel. Remember, the sequester cuts from Medicare are 2% per year for 2013 through 2022. And, the physician pay formula (SGR) is likely to get only a temporary patch. So, the FY13 budget is one of several dark clouds hanging over hospitals."

He said this state of affairs helps explain why "Moody's downgraded the acute sector and why the majority of doctors are now transitioning from private practice to more security from jobs with health plans or hospitals."

The Medicare proposals are bad news for drug companies, rural providers, teaching hospitals and nursing homes, according to John Cousins, senior vice president of healthcare intelligence for CIT Healthcare. Here's why:

  • The budget calls for Medicare payment policies for pharmacy companies to align with the rebates Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Medicare low-income subsidy. That option is expected to slash payments to drug companies by $156 billion over 10 years.
  • Aligning Medicare's bad debt policy more closely with private sector policies will reduce bad debt payments to hospital and nursing homes from 70% to 25% of eligible charges. That will reduce payments by $35.9 billion over 10 years.
  • Reducing the indirect medical education adjustment by 10% beginning in fiscal year 2014 will post $9.7 billion in savings over 10 years. That's dollars teaching hospitals won't have to cover the cost of increased medical tests and other expenses associated with training physicians.
  • Aligning payments to rural providers with the cost of care will reduce critical access hospital (CAH) payments by $2 billion over 10 years. CAH payments are proposed to be reduced from 101% of reasonable costs to 100%.
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