Deficit could force Medicare reductions

Lawmakers haven't developed a plan to slash the budget but say Medicare will be a target. The impact on doctors is unclear.

By David Glendinning — Posted Dec. 13, 2004

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Washington -- Just as physicians are preparing a fight to prevent several consecutive years of Medicare payment cuts, fiscal conservatives in Congress are thinking about putting the program's budget under the knife once again.

With the federal budget deficit exceeding the $400 billion mark in fiscal year 2004, some lawmakers are eyeing entitlement program reductions in their quest to restore fiscal restraint to the government. President Bush has vowed to cut the total deficit in half over five years.

Leading the White House's charge on Capitol Hill will be Sen. Judd Gregg (R, N.H.), who will leave his current post as chair of the Senate Health, Education, Labor and Pensions Committee in January to head the Senate Budget Committee.

"Anybody who looks at the numbers recognizes that we do have to adjust the deficit," Gregg said after announcing his job change. "That means we need to make difficult decisions on the spending side of the ledger."

The senator has not specified where he will attempt to find savings over the next several years, but he acknowledged that Medicare will play an important role.

"The Budget Committee is one of the most significant pressure points in the Congress where you can get a handle on spending both on the discretionary side and on the entitlement side and where you can have an impact," Gregg said. "This has always been an issue for me, and I intend to aggressively pursue it."

Bill Hoagland, who counsels Senate Majority Leader Bill Frist, MD (R, Tenn.), on budgetary issues, also has stopped short of predicting a specific course of action for the upper chamber. But Medicare is going to be a key issue "because you go where the money is," he said.

On the other side of Capitol Hill, House Energy and Commerce Committee Chair Joe Barton (R, Texas) recently sent a letter to panel members stating that any new spending proposals on entitlement programs would require appropriate offsets elsewhere to maintain budget neutrality. Barton's committee has jurisdiction over Medicare reimbursements among its responsibilities.

Shades of 1997

When it comes to Medicare rates, Congress could inflict damage on physicians by simply doing nothing. Under the payment formula, doctors already are in line to receive the first of several annual 5% reductions in their reimbursements starting in 2006 unless lawmakers act next year to stave off the cuts.

Involving physician pay in the upcoming debate over the budget deficit would ignore the fact that rates must track medical inflation to ensure patients' access, said John C. Nelson, MD, MPH, president of the American Medical Association, which is lobbying to prevent the cuts.

"There is this game in Washington, and that is called being budget-neutral," he said. "That game is not fair to the seniors who have received a promise from the government that Medicare will take care of them."

Dr. Nelson said he is not aware of any budding threat to physicians beyond the scheduled reduction, but he noted that in the past Congress has targeted doctors and other groups in the name of eliminating budget deficits.

The most recent Medicare showdown came in the Balanced Budget Act of 1997, which called for more than $100 billion in payment reductions over five years.

Lawmakers soon acknowledged that they cut much more deeply than expected and approved bills that rolled back some of the original budget act provisions. Some in the medical community fear that the balance is once more shifting the other way.

If such a move is imminent, doctors should not count on the support of fiscal conservatives just because many of those same members back the physician community on the issue of medical liability reform, Dr. Nelson said.

"There has to be a decoupling of these two issues," he said. "We need to think about why each one of those issues is important when we are talking about patient access."

Possibility of a reprieve

Not everybody anticipates that doctor pay will be high on the priority list for those tasked with reining in entitlement spending.

While no specific budget-slashing plans for the 109th Congress have emerged, congressional aides attending strategy sessions report that hospital rates appear to be dominating the initial discussions. The bills that rolled back budget act provisions restored to hospitals tens of billions of dollars that otherwise would have been cut under the 1997 legislation. Some reports suggest that the facilities' margins are now relatively healthy.

Publicly, the decision-makers are remaining noncommittal.

"We will continue to look at the adequacy of Medicare payments for all providers," said Joel White, staff director of the House Ways and Means Committee's health subcommittee.

In addition, rising deficit figures do not ensure that fiscal conservatives will gain enough momentum to cut program rates in 2005, the last year before the launch of a prescription drug benefit for seniors. Congress is well aware that it is calling on physicians and other Medicare participants to take on many new responsibilities under the reformed system, said Health and Human Services Secretary Tommy Thompson.

"I don't think they're even going to touch Medicare providers this year," he said.

Any concerted effort to temper entitlement spending likely will emerge early in the congressional session. Debate over the formulation of a budget will begin in February, and the annual Medicare trustees' report is expected in March.

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Past cut too deep

In 1997, Congress tried to reduce the federal budget deficit and create surpluses by slashing Medicare rates to doctors, hospitals, home health agencies and others. The cuts went too deep, and lawmakers restored some of the money that would have been lost. Here is a snapshot of congressional action.

The Balanced Budget Act of 1997 Proposed $112 billion in cuts over five years, a figure that later turned out to be $196 billion.

The Balanced Budget Refinement Act of 1999 Restored $17 billion of those cuts over five years.

The Beneficiary Improvement and Protection Act of 2000 Restored $35 billion of the cuts over five years.

Source: Congressional Budget Office

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