Federal Budget Cuts: Could Your Business be Affected?

by pharmacy on January 4, 2012

Last month, the Joint Select Committee on Deficit Reduction, otherwise known as the super committee, failed to find ways to avoid across-the-board cuts in the federal budget, which could affect the Medicare Part D program…and your bottom line.

The goal of the committee was to reduce the federal deficit by $1.2 trillion or more. Because the bipartisan committee failed to deliver, a procedure known as “sequester” was triggered. During the sequester, scheduled for 2013, the Office of Management and Budget is charged with implementing cuts in most programs, including defense and non-defense expenses, to equal the $1.2 trillion mark.

Under the sequester rules, Medicare payments to hospitals and other providers can be cut by a maximum of 2%. Hospitals are likely to take the biggest hit in the health industry. Cuts to providers include 32% in inpatient hospital care and 8% to the non-exempt portion of Medicare Part D. Up to 50% of Medicare Part D is exempt from cuts. It’s likely that every link in the medical provider chain will be feeling the bite.

The super committee, formed as part of the debt ceiling deal, included six U.S. Senators and six Congressmen, evenly split between Republicans and Democrats. The deal buster that prevented any consensus was Democrat unwillingness to cut Social Security and Medicare and Republican refusal to allow the Bush tax cuts to expire. In April,  the Congressional Budget Office (CBO) estimated that the draconian cuts proposed by Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) would amount to $856 billion from Medicare and $547 billion from Medicaid over a nine year period from 2013 to 2021. With baby boomers retiring in record numbers, there couldn’t be a worse time for cuts to Medicare, Medicaid, and Social Security.

While the forced cuts of the sequester sound as bleak as they are inevitable, in politics nothing is ever carved in stone. The issue will likely be fought out during the 2012 election year. President Obama has already said that he would “veto any legislation that seeks to avoid the automatic cuts.”

In an increasingly partisan political landscape, both parties recognize the need for change…a year is a long time. The American College of Physicians sent Congress a list of potential spending cuts including federal government authority to negotiate prices on Medicare drugs and a medical liability reform proposal that would cap damages at $250,000.

Dr. Glen Stream, president of AAFP, summed up the dilemma neatly. “This is no way to address the federal budget deficit. At some point, Congress must face up to its responsibility to its constituents. That time is now.”

Do you think things will improve and both sides of the aisle will work together before the system melts down? If there are massive cuts to Medicare, how will you help your customers bridge the gap?

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