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In 2013, the Budget Control Act was set into place to ensure that $1.2 trillion in federal spending cuts would take place over a nine-year period. So why did congress pass the Budget Control Act in 2011, and what effect does it have on hospitals, ASC’s, physicians, and health care in general?
The Budget Control Act increased the U.S. debt limit, and in order to do so, Congress needed to pass legislation to reduce spending. If a group or organization, such as Medicare, did not provide methods on how they intended to decrease spending, a penalty would occur.
Sequestration is that penalty for not complying. Medicare did not comply. As a result, Medicare cuts of 2% were planned since Medicare did not provide plans on how it would reduce spending.
The COVID-19 pandemic introduced dramatic financial stresses on the healthcare system. Thankfully, Congress and President Biden suspended the impact of the sequestration cuts on Medicare.
Overwhelmingly, the House of Representatives suspension vote on sequestration passed by a vote of 348-38 in favor of suspending sequestration, and the Senate passed the suspension of sequestration 90-2. President Biden then signed the bill on April 15, 2021, extending the suspension until December 31, 2021.
Had the suspension of sequestration not been held off, cuts by Medicare of 2% would have been put into place for healthcare providers and facilities. The result would have been devastating, with physician practices significantly distressed by COVID. Physicians saw revenue drop by 32% in 2020 according to an AMA survey. In fact, 20% of physicians noted a revenue decrease of more than 50%, and 80% of physicians report that revenue has not come back to pre-pandemic levels.
The suspension of Medicare cuts allows physicians time to deal with the ongoing issues of COVID and prevents adding a financial impact to their practices. As per Dr. Bailey, AMA president, the suspension of cuts in payments by Medicare was the right thing to do:
“As leaders of health care teams, physicians routinely put their lives on the line by placing the needs of patients above their own,” Dr. Bailey added. “Policy makers should consider the physical and emotional strain placed on them before further aggravating their financial burden by cutting Medicare payments.”
The effect on hospitals and ambulatory surgery centers would have been equally punishing financially, had the suspension not been put into place. Hospitals, ASCs, home health services, and durable equipment medical companies would have received the same 2% reduction in payment without the suspension holding off these cuts.
ASC’s, in particular, faced extreme financial burdens at the height of COVID. Many ASC’s were forced to close temporarily, since “urgent” or “emergent” surgical cases were not performed at those ASC’s. As a result of individual state laws requiring cessation of operations at these types of facilities, elective surgery was stopped. Realize that ASC’s have the same obligations to pay rent, utilities, and its core staff as hospitals, however ASC’s do not have the financial reserve that larger hospital systems have to survive long term crises such as COVID. As a result, many ASC’s have closed permanently.
Had the suspension of Medicare cuts not been passed by Congress and the President, many ASC’s that rely on Medicare payments for services provided would have had further financial strain. ASCs provide high quality care at a lower cost for patients and have become part of the high quality “value-based” health care system in the US. ASC’s continue to prove that there is a lower cost, higher quality alternative over hospitals for elective surgery. It is imperative that ASCs are afforded protection from cuts such as these in Medicare reimbursement. Suspension of sequestration for 2021 was the right thing to do, allowing for financial stability for ASC’s, and continued operations for patient access.
The sequestration suspension has been very helpful to all aspects of healthcare. As an example of how much money will be deferred in cuts, the suspension will defer $36 billion in previously scheduled Medicare cuts in 2021 alone. So, although 2% does not sound like much, considering the cost of the healthcare system in the US, the amounts are significant.
Home health providers, dealing with mostly seniors on Medicare, has been one the largest beneficiaries of the suspension. Small providers are having to deal with rising labor costs, compliance issues, and difficulty in finding qualified labor. William A. Dombi, president of The National Associate for Home Care and Hospice, said at the Home Health Care News PDG Summit in early March, “This is the wrong time to give everybody a 2% cut.”
Hospital losses will continue to put pressure on Congress to hold off sequestration cuts. For 2021, hospitals are expected to lose between $53 billion and $122 billion. Additional data shows that by the end of 2021, hospital margins may be 10% to 80% below pre-pandemic levels, and fifty percent of U.S. hospitals could have negative margins by the end of the year.
With the pandemic not over, and now the Delta variant becoming more common in many states in the US, continued suspension of the cuts would almost be required to prevent further financial distress should COVID resurge. The American Rescue Plan, signed into law by President Biden in March of this year, triggered the statutory “pay as you go” provision, which requires Congress to offset deficit spending with automatic cuts to the federal budget. If there is not a suspension of that provision, there will be a 4% cut to Medicare reimbursement starting in the fiscal year October 1.
Rick Pollack, president and CEO of the American Hospital Association, has made it clear that the PAYGO provision has to be dealt with as well before even more significant cuts are enacted. “The Senate bill only targets the sequester cuts, and not the additional 4% linked to PAYGO. But for providers, the Medicare sequester cuts are more of an immediate priority.”