By Ken Perez 

When health reform cuts are added to potential debt deal decreases, acute care hospitals may conceivably face a Medicare decrease of about $5 million per year beginning in FY12.

The Budget Control Act of 2011, generally referred to as the debt deal, creates and tasks a 12-member Joint Committee of Congress (the so-called Super Committee or Super Congress) to produce proposed legislation by November 23, 2011 that would reduce the U.S. deficit by at least $1.5 trillion over 10 years. Each chamber of Congress would consider the proposal of the Joint Committee on an up-or-down basis without any amendments by December 23, 2011.

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If the Joint Committee fails to agree on and produce a proposal with at least $1.2 trillion in spending cuts, the debt deal sets up a new sequestration process to cut spending across-the-board and ensure that any debt limit increase is met with greater spending cuts.

The across-the-board spending cuts would apply to FY13 through FY21, and apply to both mandatory and discretionary programs. Exempt from the cuts: Medicaid, welfare programs (e.g., food stamps), and other low-income subsidies, as well as Social Security, veterans' benefits, civilian and military retirement, and net interest payments.

However, the across-the-board cuts would apply to Medicare, though the cut to Medicare is capped at 2 percent, which would reportedly save $126 billion.

How large a cut could the Joint Committee conceivably propose for Medicare? That's the $64 million, or in these times, perhaps the $64 billion question. Given all the "across-the-board" language, a proportional model could provide a good analytical starting point: 

  • Since Medicare accounts for about 13 percent of the federal budget over the next 10 years, $150 billion to $200 billion in Medicare cuts could be expected over the period.
    • Assumption: Medicare will bear its proportional share of the reductions.
  • The inpatient prospective payment system (IPPS) would be cut by $50 to $65 billion over the period, impacting all of the roughly 3,400 hospitals in the program.
    • Assumptions:
      • 100 percent of the cuts will be covered by reduced reimbursements to providers; a number of commentators on the debt deal contend that this is the intent of the legislation and it will be more politically popular than reducing benefits to Medicare recipients.
      • The IPPS would bear its proportional share of the cuts; the IPPS accounts for approximately 33 percent of Medicare outlays during the 10 years.

What would this mean on a per-hospital basis? The IPPS cuts would translate into a cut of $1.5 to $1.9 million for the average IPPS hospital (with an estimated 210 beds) per year, which would be equivalent to a 2.3 percent to 2.9 percent average annual reduction to the IPPS.

We need to remember that such debt deal-driven cuts would be in addition to health reform-mandated reductions to the IPPS, which total $112 billion for FY12 to FY19. So what would be the combined, cumulative impact? For the 10-year period of FY12 to FY21, payments to hospitals under the IPPS would be sliced by $162 to $177 billion. This would translate into a cut of approximately $5 million per hospital per year, relative to pre-health reform conditions.

Ken Perez is director of healthcare policy and senior vice president of marketing, MedeAnalytics, Emeryville, Calif., and a member of HFMA's Northern California chapter (

Discussion Starters

Forum members: Please add your insights, questions, and comments about this article via the Payment and Reimbursement Forum's LinkedIn discussion board.

  • Do you think the Joint Committee will produce a proposal with at least $1.2 trillion in spending cuts by November 23? If so, how do you think Medicare will fare in that proposal?
  • Has your hospital started to factor in estimated debt deal cuts to Medicare into your financial projections? Or are you taking a wait-and-see approach?
  • Do you think the average hospital can absorb $5 million in Medicare cuts per year? If not, what steps do you think your hospital can take to offset these reductions?

Or perhaps you have another discussion starter?

Publication Date: Thursday, September 15, 2011