Deficit Panel Fails to Reach Deal, Triggering Health Cuts in 2013

BNA’s Health Care Daily Report™ sets the standard for reliable, high-intensity coverage of breaking health care news, covering all major legal, policy, industry, and consumer developments in a...

By Steve Teske

Leaders of the special congressional panel charged with reducing the federal budget deficit by at least $1.2 trillion over 10 years said Nov. 21 that the committee will fail to produce legislation, thus triggering across-the-board cuts in many federal programs in 2013, including a 2 percent reduction in Medicare.

Members of the Joint Select Committee on Deficit Reduction, created in August with passage of the Budget Control Act of 2011, said they had reached a stalemate in their quest to produce a legislative package, triggering the budget cuts, also known as sequestration.

Although Medicare spending will be cut 2 percent because of the committee's failure to act, Medicaid funding will be spared because it was not included in the sequestration language governing the committee.

The so-called super committee was mandated to provide recommendations to Congress by Nov. 23 on ways to reduce the federal deficit by at least $1.2 trillion over the next 10 years. Although the panel's formal deadline for a vote is Nov. 23, its rules require that committee members reach an agreement 48 hours in advance.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline,” the co-chairs of the panel, Rep. Jeb Hensarling (R-Texas) and Sen. Patty Murray (D-Wash.), said in a joint statement released late Nov. 21.

“Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” the statement said. “We remain hopeful that Congress can build on this committee's work and can find a way to tackle this issue in a way that works for the American people and our economy.”

Deficit panel members had discussed making numerous changes to health care programs, including such sweeping reforms as raising Medicare's eligibility age from 65 to 67, and smaller changes such as finding ways to curb Medicare fraud and abuse. Medicaid proposals the committee could have acted on included limiting Medicaid provider taxes and changing the federal government's matching rate to the states.

The failure of the committee was viewed unfavorably by Wall Street and by others hoping Congress could find a way to begin reducing the federal budget deficit. But some providers might be breathing a sigh of relief: Although they are not thrilled to have their Medicare spending reduced, the cuts might have been deeper had the committee reached an agreement, according to those interviewed by BNA.

Obama Not Backing Sequestration Change

In addition, Congress could intervene and cancel the cuts before they are implemented, according to those interviewed by BNA. Despite the cuts in spending that would result from a sequester, President Obama does not support either changing or eliminating the provision, his spokesman said Nov. 21.

Some providers said they hope the failure of the committee to act will lead to more substantial health care reforms going forward.

“Like most Americans, I am disappointed that the committee couldn't find a bipartisan way to reduce the deficit,” a state hospital association executive told BNA Nov. 21.

Destructive Policy

“At the same time, some of the Medicare and Medicaid reforms they were considering were nothing more than traditional provider rate cuts options,” the executive, who spoke on the condition of anonymity, said. “This ‘old wine in a new bottle’ mentality to entitlement reform is not going to get us anywhere if we are serious about managing the growth in health care cost growth.

“Further, [the cuts] are destructive in terms of sending all the wrong signals to beneficiaries and providers. Hopefully, as they regroup and begin thinking about the next effort to manage entitlement reform, Congress will be able to focus on reforms that will lead to long-term sustainability of these two programs.”

Eric Zimmerman, a partner at McDermott Will & Emery LLP, Washington, told BNA Nov. 21 that most providers are happier with sequestration, rather than facing possibly larger cuts as the result of an agreement by the deficit panel.

“That's the case by and large for almost everybody,” he said.

Nevertheless, Zimmerman said, providers should not rest easy because the deficit panel failed to reach an agreement. He added that big changes are soon coming to federal health care policy.

“Just because we have dodged the bullet for now does not mean we have dodged it for good,” he said.

Health care spending is a main driver of the federal spending and will continue to be targeted by Congress—if not in 2012 because of the election, then soon thereafter, Zimmerman said.

“You ignore it at your own peril,” he said.

In addition, some of the same health care provider cuts discussed by the deficit panel could be resurrected this year to help pay for a Medicare physician payment fix, Zimmerman said.

Physician Pay Cut Looming

The committee's failure to act also removes a possible legislative vehicle for canceling a 27 percent Medicare pay cut for physicians, scheduled to be implemented Jan. 1.

Although physician groups would like to see Congress pass a permanent physician payment fix, the most likely scenario would be for lawmakers to approve a short-term fix for anywhere from 31 days to two years, industry sources and stakeholders told BNA.

House Majority Leader Eric Cantor (R-Va.) Nov. 14 said he expects the House to act on legislation to change the Medicare payment system for physicians, regardless of the deficit panel outcome.

A physician payment fix could be included in a bill extending Medicare payment policy expected to move through Congress this year, or it could be added to a continuing resolution funding the federal government, also expected to be approved by the end of the year, Julius Hobson, a senior policy adviser at Polsinelli Shughart, Washington, told BNA. A third option would be to include a physician pay fix in legislation making tax changes that also would include the Medicare extenders bill, Hobson said.