It’s no April Fool’s joke: Brace for a 2% Medicare pay cut starting April 1 now that Congress and the president have failed to reach a deficit-reduction agreement to avoid $85 billion in federal spending cuts known as the sequester.
The deadline for an agreement was March 1, but the pay cut won’t kick in for another month, according to the Centers for Medicare and Medicaid Services.
The Medicare cut will impact physicians, hospitals, other health care providers, health plans, and prescription drug plans but will not directly impact beneficiaries.
Although the 2% cut is lower than the reductions in other federal agencies, physicians said it will still have a significant impact. Dr. Jeremy Lazarus, president of the American Medical Association, said that the cut comes at an especially bad time because physician payment rates have risen only about 4% over the last decade or so while the cost of caring for patients has climbed by more than 20%.
"A 2% cut erases half of what’s been gained over the past 12 years and continues to widen that gap between what Medicare pays and what it actually costs to care for patients," Dr. Lazarus said. "This is on top of the yearly concerns about even larger cuts that we’ve been going through over the last decade."
The cuts, and the back-and-forth in Washington over sequestration, add to physicians’ general concerns about the instability of Medicare payments, Dr. Lazarus said. That could lead some physicians to stop accepting Medicare patients.
"It’s a very difficult time to plan your practice and plan hiring new employees because you don’t understand what you’re going to be getting paid and what you can afford," said Dr. David L. Bronson, president of the American College of Physicians.
Other federal health agencies also will be affected by the cuts. The sequester calls for across-the-board cuts of about 5% annually from nondefense discretionary programs, but since the cuts will spread over 7 months instead of 12, the real percentage reductions will be closer to 9% for nondefense programs, according to a spokesperson from the Health Resources and Services Administration, which handles physician training and loan repayment programs.
At the National Institutes of Health, for example, officials estimate that they will have to cut about $1.6 billion from their biomedical research portfolio. That means the agency will be unable to award hundreds of new grants that otherwise would have been funded. It also will slow the pace of research in areas like cancer, development of a universal influenza vaccine covering all flu strains, and Alzheimer’s research, according to NIH Director Francis Collins.
"We will slow down research as a result of this," Dr. Collins said on a press call on Feb. 25.