When the budget ax swung Monday, hospitals, doctors, insurers, prescription drug plans, graduate medical education and other health care providers were on the chopping block.

Providers that offer Medicare Advantage (Part C) plans and Medicare Prescription Drug (Part D) plans felt the effect of the cuts immediately. Medicare pays these providers on the first business day of every month to operate for the coming month.

But a majority of health care providers won’t feel the pain until weeks, even months, after the budget cuts technically go into effect.

Providers face 2 percent cuts, known as sequester, to their Medicare reimbursements. The cuts will reduce Medicare payments by $11 billion a year, the White House estimated.

The sequester cuts were triggered when President Obama and Congress failed to reach an agreement on a total of $1.2 trillion in cuts to federal spending over the next 10 years, as mandated by the Budget Control Act of 2011.

For providers, the total payment is reduced after the services are added up and deductibles and co-payments are applied. The underlying Medicare fee schedule, which attaches a dollar amount to individual services, is not changed.

It takes time for a routine doctor exam to turn into a paycheck. Typically, Medicare claims submitted on paper are paid within 30 days, according to a spokesman for Diversified Service Options, which operates two Medicare contractors. Electronic claims are normally processed within two weeks.

Many other payments will be reduced, including interim payments to critical access hospitals and cancer hospitals; and pass-through payments for graduate medical education, organ acquisition and Medicare bad debts.

A pass-through payment can also include, for example, a new drug used in the treatment of cancer that was not already included in the standard payments for cancer treatment. The new drug would be considered an add-on.

Providers Express Concern About the Payment Reductions

Sequestration cuts have provoked an outcry from a wide array of providers and Medicare industry advocates.

In a statement released on April 1, the Community Oncology Alliance (COA) said, “This is bad news for all seniors, but likely devastating for seniors struggling with cancer. The administration has decided to apply the sequester cuts not only to services physicians and others provide, but also to the fixed, pass-through costs of chemotherapy and related cancer-fighting drugs used to treat and manage this life-threating disease.”

Fifty-four percent of all new cancer diagnoses are made to people at least 65 years old.

The COA has launched a website, the Sequestration Cancer Care Cut Resource Center, to field thoughts and requests from oncologists, practice administrators and patients.

Leaders of the American Academy of Family Physicians met with House and Senate staff members from Feb. 11-12 and called on members to write to their representatives to stop the cuts.

According to the organization, “A small group practice receiving $280,500 in Medicare revenue for 2012 would receive $16,929 less in total revenue in 2013.”

Last month the American Medical Association (AMA) criticized the cuts.

“The across-the-board cut will hit physicians particularly hard because of the fundamentally flawed Medicare physician payment system,” said Jeremy A. Lazarus, AMA president. A two percent cut widens the already enormous gap between what Medicare pays and the actual cost of caring for seniors. “

Hospital advocacy groups state-by-state have started sounding the alarm.

The Colorado Hospital Association estimated its state hospitals will lose $35 million in the first year, which will lead to longer wait times and reduced services for patients, especially at rural hospitals where Medicare is the primary insurers. 

In Wisconsin, state hospitals will lose $1 billion in Medicare payments over the next 10 years, the Wisconsin Hospital Association estimated. Coupled with hospital pay cuts in the Affordable Care Act, Wisconsin state hospitals will be out $2.6 billion over the coming decade.

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