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$11B in Looming Medicare Cuts Detailed by OMB

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   September 17, 2012


The healthcare industry's opposition to federally required sequestration cuts will likely grow stronger this week following Friday's report from the Office of Management and Budget that shows $11 billion in annual cuts to Medicare over the next decade.


The OMB released its report under pressure from Congress to detail how sequestration would affect federal programs. The 394-page report shows an overall federal budget reduction of $109 billion annually through 2021.

More than half of the cuts come from a $5.8 billion reduction to the Hospital Insurance Trust Fund. Prescription drug funding is slated to be cut by $591 million. The National Institutes of Health's 8% budget reduction results in a $2.5 billion drop in funding which, according to the OMB, means less "scientific research, including needed research into cancer and childhood diseases."

Some federal programs are exempt by law. For example, defense spending on war and military readiness would not be subject to sequestration. Medicare also has some protection with $1.7 billion in Health Information Technology Incentive Payments and $84 million for the program's Hearings and Appeals process will remaining funded at 2012 levels. 


At issue is whether or not Congress will truly let the sequester stand. The cuts will go into effect Jan. 3, 2013, unless members agree to either a budget that trims $ 1.2 trillion from the federal deficit or a short-term solution that delays sequestration. The general consensus is that nothing will be decided before November's elections.

"First, we only have three more days of Congress scheduled. How are you going to get a compromise in three days? Second, barring an act of war or terrorism I don't think you're going to see either the House or the Senate meeting between now and the election." says Congressman Jim Cooper (D-TN.).

Cooper has served in the U.S. House for over two decades and teaches health policy at Vanderbilt's Owen School of Management. He says hospitals might want to rethink their lobbying strategy.

"Medicare gets off light in sequestration. Cuts against other programs are four to five times larger. You know, healthcare is probably getting off light with sequestration given the gravity of nation's economic problems. This is the lightest cut they're likely to get," Cooper says.


While the overall cut to Medicare is a relatively small percentage cut, just 2%, the double-digit dollar figure will put hospitals in a tough spot.

"Hospitals will have to make tough choices about which services to maintain because of potential cuts since hospitals will maintain the highest quality for whatever services they provide," says Marie Watteau of the American Hospital Association.

The AHA already knew a 2% cut to Medicare would heavily impact hospitals. It, along with the AMA and ANA issued its own report, also last week, stating 766,000 healthcare and related jobs would disappear by 2021 if the sequester went into effect.

In a state-by-state comparison, California is shown to be hit the hardest with more than 50,000 job losses forecast for next year alone. The California Hospital Association says the Medicare sequester adds pressure to an already tense budget environment.


"We already are underpaid, and then you're looking at the cuts that are built into the Affordable Care Act, which are going to be $17 billion here in California between now and 2020, and then you add these additional cuts, hospitals can't sustain that. Sequestration makes an already very difficult situation worse," says CHA spokeswoman Jan Emerson-Shea.

Hospitals are also facing a cap on payments for outpatient services in hospitals. Those limits, proposed by the Medicare Payment Advisory Commission could save the federal government about $1 billion. The AHA and three other hospital associations are urging Congress to oppose the move.

The sequester has been on the table since last year when first, Congress, then, a joint committee of Congress, could not agree to a budget that included massive federal deficit reductions. With just three months remaining before the sequester goes into effect, both sides are under pressure to resolve their partisan stalemate.

Jacqueline Fellows is a contributing writer at HealthLeaders Media.

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