Massive job losses expected under Medicare sequester

Washington Mandatory, across-the-board spending cuts to Medicare in 2013 will lead to large job losses at physician offices and throughout the rest of the health care system, according to an analysis on the impact of the scheduled federal budget sequester on the entitlement program.

The study by the Pittsburgh-based research firm Tripp Umbach examined the likely economic fallout of the 2% cut to the Medicare program over the next eight years, the result of a failure of Congress and the White House to agree on alternative spending reductions that meet the parameters set by the Budget Control Act of 2011. The automatic budget reductions amount to between $10.7 billion and $16.4 billion in annual cuts to Medicare, and will lead to 496,000 jobs being eliminated in 2013 and a loss of 766,000 jobs by 2021, the analysis said.

Representatives of the American Hospital Assn., which funded the study, joined the American Medical Association, American Nurses Assn. and researchers for a Sept. 12 briefing at the National Press Club in Washington to discuss the report's findings. The sequester reduction would devastate what have been strong sectors for job growth during difficult economic times, said Paul Umbach, senior principal at the research firm.

Sequestration “would pretty much wipe out all the gains that we've seen since 2008,” Umbach said. “You pretty much see a net decrease in as many jobs that have been created.”

Physicians would not escape the effects, as nearly 62,000 jobs would disappear from or fail to materialize at doctors' offices and other health professionals' offices through 2021. The losses would stem from hiring freezes, layoffs, holds on capital projects and delays in other practice investments.

Office-based physicians continue to play a vital role in the economy, and many doctors have concerns about the future of the Medicare program, said AMA President Jeremy A. Lazarus, MD. Practices supported about 4 million jobs in 2009, and the indirect and direct impact of cuts to Medicare would destabilize physician offices across the country.

“Common sense tells you that this is not a good time to take a hatchet to health care, which saves American lives and puts Americans to work,” Dr. Lazarus said.

Spreading the budgetary pain

Rich Umbdenstock, AHA president and CEO

The Budget Control Act created the sequester during intense negotiations in August 2011 by lawmakers to raise the federal debt ceiling and rein in future spending. Sequestration of federal funds would occur only if a bipartisan group of lawmakers, then known as the super committee, failed to agree on legislation later that year, reducing future budget deficits by $1.2 trillion. The committee could not reach an agreement, and unless lawmakers undo the automatic cuts, the sequester stands to squeeze government spending through 2021. However, cuts to Medicare are capped at 2%, and the Medicaid program is exempt from statutory decreases.

Other studies on the sequester similarly show the potential for massive job losses and the country risking another period of economic recession starting in 2013. Overall, the automatic cuts will reduce the nation's gross domestic product by $215 billion and decrease personal earnings by $109.4 billion, according to a July 17 report by Stephen Fuller, PhD, a professor and director of the George Mason University Center for Regional Analysis in Arlington, Va. Fuller said the sequester could cost the U.S. economy more than 2.1 million jobs and raise the unemployment rate from its 8.1% level in August to above 9% in 2013.

The Obama administration released a Sept. 14 report on sequester cuts to federal agencies. In addition to instituting lower pay for the professionals providing Medicare services, sequestration will impose a 10% cut to defense programs and a 7.6% cut to nondefense programs. More than 1,200 federal budget accounts would be reduced, including $78 million for health care fraud and abuse control operations, $66 million for health insurance exchange grants, and $14 million for the World Trade Center Health Program fund.

The American College of Physicians noted that myriad other federal health programs, such as care for uniformed service personnel and research at the National Institutes of Health, would be slashed as well. “ACP recognizes and supports the critical need to reduce our nation's deficit, but arbitrary across-the-board cuts that do not take into account the importance or effectiveness of any particular program are the wrong way to go about it,” wrote ACP President David L. Bronson, MD, in a Sept. 17 letter to Congress.

Hospitals are readying for the sequester, said AHA President and CEO Rich Umbdenstock. Since the most recent economic downturn, facilities have sought to achieve efficiencies in staffing and postpone improvement projects to conserve capital.

“This is coming on top of what they've already been subjected to by way of cuts,” Umbdenstock said. “It's coming on top of other threatened cuts or looming penalties that are already out there.”

Doctors also facing SGR threat

Unfortunately, physicians have become accustomed to uncertain Medicare rates, Dr. Lazarus said. Yearly scheduled cuts under the sustainable growth rate formula have threatened to lower payments for Medicare services for the past decade. On Jan. 1, 2013, the SGR will lower rates by an estimated 27% unless Congress overrides the reduction with a temporary payment freeze or slight increase. Sequestration would implement reductions separate from that process.

“This 2% possible cut adds another level of uncertainty,” Dr. Lazarus said. “We hear from physicians all around the country about their concerns about this. They are trying to make decisions about whether they can continue to treat Medicare patients. It's a concern of ours, particularly in terms of access to care for Medicare patients.”

The AMA and more than 100 medical societies representing states and specialties petitioned Congress to provide greater stability in Medicare pay. The organized medicine groups sent Congress a Sept. 12 letter urging lawmakers to nullify both the Medicare sequester cut and the SGR formula. The letter stated that Congress is responsible for providing sufficient funding for Medicare services, but the status quo is unsustainable given the amount of added federal mandates and flat payment rates in recent years.

“While these cuts alone will be devastating to physician practices and patient access to care, physicians are also facing present and future financial penalties if they do not successfully participate in multiple Medicare programs, including the e-prescribing program, the electronic health record meaningful use program, and the physician quality reporting system, as well as the value-based modifier,” the letter stated.

Payments to physicians have been frozen for nearly a decade, the groups said. However, the cost of providing care to patients has risen more than 20%. “We understand that our nation faces significant fiscal challenges; however, these cuts will undermine efforts to achieve broader, long-term reforms to the Medicare program.”