Congress

Congress’s Long-Standing History of Delaying Medicare Cuts

by Matt Gontarchick

Medicare cuts are coming.  Automatic spending cuts like Medicare sequestration and PAYGO were initially put in place with the goal of reigning in federal spending, but time after time, Congress has delayed them to shield the popular health care program from payment cuts.  These cuts are nothing new – in fact, they’re part of a long-standing tradition that began with the Sustainable Growth Rate (SGR).

PAYGO and Sequestration: A Brief History

Two laws currently trigger mandatory cuts to Medicare if lawmakers pass legislation that adds to the deficit.  The first, the Statutory Pay-As-You-Go (PAYGO) Act of 2010, requires the president to implement spending cuts to mandatory programs like Medicare and farm support if the Office of Management and Budget (OMB) determines there is a deficit on six- or 11-year PAYGO scorecards. 

The second law is the Budget Control Act (BCA) of 2011, which sets off across-the-board cuts to both mandatory and discretionary spending if spending exceeds explicitly set limits, or “caps.”  These cuts included a maximum 2% reduction in payments to Medicare providers known as Medicare sequestration.

However, Medicare is an incredibly popular program, with over 61 million beneficiaries.  Lawmakers are certainly sensitive to the political consequences of cutting funding to the popular federal health care program, which is why they’ve taken action to avoid automatic cuts as much as possible.  To date, neither the Medicare sequester nor the PAYGO cuts have ever gone into effect.

The SGR’s Precedent for Delaying Medicare Cuts

Congress’s strong tradition of delaying cuts to Medicare goes back to the SGR, which was implemented as part of the Balanced Budget Act of 1997.  The SGR created a formula that was intended to prevent Medicare spending growth for the Physician Fee Schedule (PFS) from exceeding GDP growth.  However, health care spending was continually outpacing GDP growth, making it clear that cuts to the PFS were inevitable.  To avoid the reimbursement cuts for physician services, Congress passed legislation to prevent the cuts from going into effect 17 times between 2003 and 2015.

The need for Congress to keep kicking the can down the road to prevent PFS cuts came to an end in 2015, when lawmakers enacted the Medicare Access and CHIP Reauthorization Act (MACRA).  It replaced the SGR formula with the Merit-Based Incentive Payments System (MIPS), which measures Medicare providers based on performance.  While MIPS hasn’t been without its faults, the new law means Congress no longer has to take action every year to address the SGR. 

It’s worth noting the SGR is not the same as PAYGO and sequestration – while the former only impacted physician payment, the latter affects reimbursement to Medicare providers more broadly. However, both have negative implications for providers and patients if they’re carried out, which is why Congress has regularly prevented such cuts from going into effect. 

Fortunately, Congress no longer has to deal with the SGR on an annual basis because after 15 years, lawmakers finally stepped up to pass legislation to make structural changes to the way physicians are paid.  Does that mean lawmakers will one day step up to make the structural necessary to stop kicking the can down the road every year with Medicare sequestration and PAYGO cuts? 

Congress last took action to address the Medicare sequester and PAYGO when it enacted the Protecting Medicare and American Farmers from Sequester Cuts Act in December 2021.  The law waives a 4% PAYGO cut until 2023, and it imposes a moratorium on the Medicare sequester until April 1, when a 1% cut goes into effect.  In July, the Medicare sequester then increases to 2%. 

While structural changes to address Medicare sequestration and PAYGO are possible, Congress is more polarized now than it was when passed MACRA seven years ago, leaving little room to pass comprehensive legislation to reform the budgeting process.  Additionally, the BCA and the PAYGO Act are far more complex than the legislation that eventually replaced SGR and would require significantly more effort for lawmakers to advance.  Therefore, until there’s widespread agreement among both parties on how to reform Medicare’s payment system, the near-annual ritual of delaying Medicare cuts is likely to continue to for some time.

Congress

What Will Congress Do about Pending PAYGO Cuts?

by Matt Gontarchick

The debt ceiling, appropriations, infrastructure, reconciliation – Congress has a lot on its plate right now.  On top of that, Congress has another item to address that health care stakeholders have been watching closely: an automatic 4% cut to Medicare starting on January 1, 2022.

What’s going on?  In March, the $1.9 trillion American Rescue Plan Act passed and raised the deficit. This triggered automatic PAYGO cuts to Medicare and other programs because of a law signed in 2010, the Pay-As-You-Go (PAYGO) Act, which prohibited new legislation from increasing the federal budget deficit. 

What’s Congress doing?  Congress has always acted to waive PAYGO cuts, but not in March of 2021 when lawmakers failed to reach an agreement. At the time, the House overwhelmingly voted to waive PAYGO, but a similar proposal in the Senate failed to garner enough votes to override a filibuster.  So far, there has been little word from lawmakers about the plans to address PAYGO as the end of the year approaches.

Why does it matter?  The American Hospital Association (AHA) estimates that a 4% reduction in Medicare spending, or about $36 billion, would result in $9.4 billion in cuts to hospitals provider for fee-for-service (FFS) Medicare reimbursement in calendar year 2022.  These losses would come at a time when hospitals and other providers are still grappling with revenue losses related to the COVID-19 pandemic.

It’s not just PAYGO: Health care providers are facing other cuts at the year’s end that, combined with PAYGO, could prove devastating.  These include:

  • Medicare sequestration.  Congress passed legislation back in April to extend the moratorium on 2% cuts to Medicare payments, known as sequestration, through the end of 2021.  The 2% cuts were initially postponed by Congress as a part of the CARES Act in 2020 to help providers struggling with the financial burden of the pandemic.
  • 2021 Physician Fee Schedule.  Finalized in July, the 2021 Physician Fee Schedule will cut payments to physicians next year by 3.75%.  The cut was initially set to go into effect in 2021, but Congress provided an extra $3 billion in funding in late 2020 to hold on the cuts until the beginning of 2022.

The bottom line: The combination of PAYGO, Medicare sequestration, and the Physician Fee Schedule could mean a 9% reduction in Medicare physician payments next year.

What’s being done?  Leading stakeholder organizations including the AHA and the American Medical Association (AMA) have sent letters to congressional leadership urging action to waive pending PAYGO cuts, as well as the coming Medicare sequester and Physician Fee Schedule cut.  Furthermore, on October 14, 245 bipartisan House members sent a letter to congressional leaders on the aforementioned Medicare cuts.  Congress has provided much assistance to health care providers over the course of the pandemic, and providers are urging Congress to take action once again to help the industry make it through what is hopefully the final stage of the pandemic.   

Congress

PAYGO Cuts Face Uncertainty in Congress

by Matt Gontarchick

While members of both parties agree the pending Medicare sequester needs to be extended, Republicans don’t seem favorable to waiving PAYGO budget rules to allow additional cuts to be averted.  The result is continued uncertainty for health care providers and a likely sign of spending fights to come in Congress.

Medicare is currently facing two automatic budget cuts.  Under the first cut, Congress was initially set to reduce 2% of the Medicare budget, or $18 billion, in Fiscal Year 2020 due to a process known as sequestration that provides an automatic spending reduction to enforce certain budgetary goals.  However, Congress opted to delay the 2% cut to April 1, 2021 due to the pandemic’s financial impact on health care providers.  The American Rescue Plan Act of 2021 (H.R. 1318) is scheduled to trigger a second cut to Medicare to the tune of 4%, or $36 billion.  This second cut is a requirement of the Pay-As-You-Go (PAYGO) budget rule, which says legislation that fails to offset spending increases must be offset by cuts to mandatory programs such as Medicare.  Unlike the sequester, PAYGO cuts would not go into effect until the beginning of 2022. 

Health care stakeholders are adamantly opposed to the cuts.  In letters sent to congressional leadership on March 11 and March 17 respectively, the American Hospital Association and American Medical Association (AMA) requested lawmakers find a bipartisan solution to avoid the both the sequester and PAYGO-triggered spending reductions.   In particular, AMA urged Congress to avoid legislation that would again induce PAYGO cuts to avoid creating further uncertainty in the health care system.

The House is set to take up a bill on March 19 that would waive PAYGO for the American Rescue Plan and delay Medicare sequestration through the end of the 2021(H.R. 1868). While both Democrats and Republicans agree the sequester needs to be delayed again, Republicans do not seem favorable to waiving PAYGO.  In a March 16 hearing on H.R. 1868 by the House Rules Committee, Ranking Member Tom Cole (R-OK) implied the American Rescue Plan was too large due to lack of bipartisan cooperation, and that a smaller COVID-19 relief bill could have passed Congress without triggering PAYGO cuts.  Additionally, many Republicans may be unwilling to waive a budgetary rule that was directly triggered by a massive bill that passed without a single GOP vote.

Likewise, it is unclear what the Senate will do with the measure once it is sent over from the House.  Introduced by Jeanne Shaheen (D-NH) and Susan Collins (R-ME), S. 748 would extend the sequester moratorium through the end of the COVID-19 health emergency but did not address the broader PAYGO issue.  The bill pays for the limited extension by extending the time period for sequestration by one year, through Fiscal Year 2031.

Given the political dynamics of the overall PAYGO issue and with Democrats controlling the Senate by just one vote, it is unclear at this time whether the Senate would take up the House measure or the Shaheen/Collins bill.  Adding to the uncertainty is the upcoming congressional recess period where both chambers will be out of session starting March 29 until April 13.  At this point, there hasn’t been any signal yet that the Senate will take action next week to avoid the current March 31 sequestration relief expiration from taking effect.  However, we would anticipate action at some point, even if it would have to be made retroactive, given the overall bipartisanship that remains generally for giving providers relief from the projected cuts.