Congress Delays Medicare, Other Sequestration Cuts

Across-the-board cuts in federal spending scheduled to kick in Jan. 1 have been postponed for two months, until March, under the American Taxpayer Relief Act that Congress passed on New Year’s Day and the president signed into law Jan. 2.

The delay postpones a maximum cut of 2 percent in Medicare payments to physicians, clinical laboratories, and other health care providers and health plans in 2013, or a total of nearly $11.1 billion, under sequestration rules.

Unless blocked legislatively, sequestration will impose a cut of up to 2 percent on top of other Medicare payment reductions for pathologists and clinical laboratories in 2013.

Sequestration refers to automatic spending cuts required by the deficit reduction deal reached in July 2011 to raise the federal debt ceiling. Unless Congress decrees otherwise, the deal mandates that beginning in 2013 at least $1.2 trillion in federal spending must be cut over 10 years, split equally between defense and nondefense accounts. The portion of Medicare subject to the cut, capped at 2 percent, totals $554.265 billion over the 10-year period.
Sequestration will also force major cuts in programs created by the health care reform law and not subject to the 2 percent cap: $66 billion from grants to states to create health insurance exchanges and $76 billion from the prevention and public health fund.

Also hit: the Food and Drug Administration, which would lose $318 million (more than 8 percent of its budget), and the National Institutes of Health, whose budget would be cut by more than $2.5 billion.

While hospital and medical groups are lobbying Congress to repeal the 2 percent Medicare cut, its fate as part of sequestration will hinge on the outcome of other budget battles to increase the federal debt ceiling (due in February) and continue funding of government agencies (due in March).

Exempt From Sequestration
Medicare benefits to enrollees are not affected. Nor are Medicare incentive payments to physicians and hospitals for meaningful use of certified electronic health records. Also spared are Medicaid and the state Children’s Health Insurance Program.

Added Pain on the Bottom Line
For clinical labs, the Medicare sequestration will bring the total cut to 4.95 percent versus the 2.95 percent cut effective Jan. 1. For pathologists, it will come on top of other scheduled cuts, including a 1 percent cut to offset primary care fee increases, another 1 percent cut due to a change in the practice expense methodology, and a 52 percent cut in payment for the technical component of the most commonly ordered surgical pathology code, CPT 88305, while the global rate is to be cut by 33 percent (Statline, 2012, Nov. 1 and 5 at


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