Anesthesia Business Consultants Comments on What the Sequester Means to Anesthesiologists and CRNAs

Mach 12, 2013

Anesthesia Business Consultants (ABC) cautions anesthesiologists and CRNAs to fully understand the impact of the sequestration on their practices. Failure of the Joint Select Committee on Deficit Reduction to reach agreement on $1.2 trillion in cuts to federal spending, has triggered automatic Federal budget cuts known as sequestration. The 2% cut is evenly split between domestic and defense programs, with half affecting defense discretionary spending (weapons purchases, base operations, construction work, etc.) and the rest affecting both mandatory and discretionary domestic spending. Only a few mandatory programs, like the unemployment trust fund and, most notably, Medicare (more specifically—provider and hospital payments) are affected.

Last Friday, the White House Budget Office provided an 83-page list identifying for each of 1,200 accounts what amount needed to be chopped. Medicare beneficiaries will not be subject to any reductions in their benefits. Rather, the expected $123 billion cut in Medicare over the life of the sequester (2013-2021), impacts hospitals and physicians who receive Medicare payments. They will face a 2% cut in what they're paid.

Teaching hospitals with a strong link to federally-funded research will likely take a major hit this year (and every year) with a combined projected loss in 2013 Medicare payments of $14 million and an additional loss estimated around $25 million from research programs funded by the National Institutes of Health (NIH).

Medicare Advantage plans already face a reimbursement drop of 6% to 8% resulting from recently announced rate cuts and other factors such as the Affordable Care Act-mandated health industry tax. The additional 2% Medicare sequester cuts will likely add additional pressure on plans, which are prohibited from passing on this cost to beneficiaries. To compensate, plans may make additional administrative cuts, reduce medical expenses through clinical programs such as medication therapy management, and renegotiate provider rates. The good news is that Medicaid and the Children’s Health Insurance Program (CHIP) are both exempt from the automatic cuts.

The EHR incentive program will also share in the automatic payment cuts. On the hospital side, many participate in both the Medicare and Medicaid portions of the EHR incentive payment program, but those that are listed as “Medicare only” providers will be subject to the cut. According to CMS, these Medicare-only hospitals have been paid $1.87 million each, which means a 2% cut would amount to about $37,500 for similarly compensated hospitals once the cuts are applied. The top EHR incentive payment for physicians and other “eligible professional” under Medicare is now $18,000, so the 2% reduction would cost them $360, this year. If the sequester continues over the duration of the EHR incentive program the total hit to physicians and other eligible professional will be $880.

The full impact of sequestration will likely not be felt for weeks as the cuts roll out. Even if Congress finds a way to stop the sequester cuts, there is no guarantee that Congress won't cut healthcare funding, even more in the yearly appropriations process. There are rising voices in Congress that believe gaining control of healthcare spending is the key to long term budgetary stability. For now, you may want to contact your Congressional officials and professional societies to have your own voice heard on this issue.