Congress averts debt doomsday, but Medicare pay cuts still loom

Washington -- In the final hours before a deadline, Congress approved legislation that raises the federal debt ceiling and avoids the consequences of a potentially disastrous default on its spending obligations, including Medicare and Medicaid programs.

The deal allays concerns that timely Medicare payments to physicians, hospitals and other health professionals would be threatened if the U.S. Treasury Dept. could not borrow enough money to fund all government programs after an Aug. 2 deadline. But Washington's temporary solution to a debt crisis that has lasted for months failed to address the long-term fiscal health of the Medicare payment system. Physician pay rates still are set to decrease by 29.5% on Jan. 1, 2012.

The House voted 269-161 on Aug. 1 to raise the debt ceiling by between $2.1 trillion and $2.4 trillion and to reduce federal budget deficits by at least $2.1 trillion over 10 years. The Senate approved the same measure by a 74-26 vote on Aug. 2, mere hours before the midnight default deadline established by the Treasury Dept. The actions cleared the way for President Obama's signature that day. The increase in the debt ceiling is expected to keep the government from defaulting again at least through 2012.

The legislation initially will reduce federal budget deficits by $917 billion between 2012 and 2021, according to the Congressional Budget Office. Those cuts would not affect the Medicare or Medicaid programs.

In addition, a special committee of 12 members of Congress will meet to find an additional $1.5 trillion in federal savings over the next decade. The bill requires the committee to report its deficit reduction plan by Nov. 23 for up-or-down votes in both chambers of Congress.

If the special committee fails to obtain an agreement that can pass both houses by Dec. 23, automatic cuts to most government programs -- totaling $1.2 trillion -- would occur. The level at which total Medicare spending could be reduced to satisfy this requirement would be capped at 2%, but benefits to enrollees would not be eligible for cuts. That means decreases would need to come in part from lowered payments to physicians, hospitals and other health professionals.

However, the American Medical Association is urging the congressional committee to address the fact that physicians already are in line for deep pay reductions starting Jan. 1, 2012. The AMA has called for any long-term deficit reduction deal to include a repeal of the sustainable growth rate system that helps determine physician pay.