Sequester Impacts Physician Payments

Published Monday, March 4, 2013

Without action by Congress, the across-the-board spending cuts known as the sequester took effect on March 1, and the implications for the health care sector are vast. Doctors and hospitals will see their Medicare payments cut, drug companies will likely have to deal with approval delays from the Food and Drug Administration, and cuts to the National Institutes of Health could pose a major setback to medical research. While Medicaid and the Children’s Health Insurance Program are exempt from the reductions, most other health programs will be impacted.


Unless there is action by Congress, Medicare payments to doctors, hospitals, and other health care providers, as well as health plans and drug plans, are to be reduced by two percent for services provided to Medicare beneficiaries on or after April 1. This means that Medicare doctors, hospitals and other providers will only be reimbursed 98 cents on the dollar for their services to Medicare beneficiaries. In order to implement the sequester for Medicare Parts A and B by April, the Centers for Medicare and Medicaid Services (CMS) need to provide one to two weeks advance notice to the claims administration contractors to give them enough time to adjust their payment systems. Furthermore, CMS is prepared to take sequestration into account when they calculate the April monthly payment amount for Part C and D plans on March 21st and communicate the amount to plans on March 22nd.


Since 2001, Medicare payments for physician services have only increased by four percent, while the cost of caring for Medicare patients has increased by more than 20 percent. A two percent cut would only widen this already enormous gap between Medicare reimbursement and the cost of providing care to older adults.


Since the sequester has now gone into effect, the question is how long will it last. While the answer to that question is still unknown, reports are from anywhere between one month and the start of Fiscal Year 2014 (October 1). If Congress restores funding relatively soon, the impact won’t be terribly severe; however, the sequester is scheduled to get steeper in later years, posing a much bigger risk to stakeholders.


AAGP is monitoring this situation very closely and will continue to keep its members updated.