Why Congress Temporarily Suspended Medicare Payment Cuts This Month

Medicare faced some significant cuts this month until Congress intervened

A pair of bills enacted over a decade ago almost cut Medicare’s payments to health care providers this January. That is, until Congress passed emergency legislation in early December to delay their effects.

These narrowly-avoided cuts came from the Statutory Pay-As-You-Go (PAYGO) Act of 2010 and the Budget Control Act of 2011. The former requires Congress to offset future spending increases with either higher taxes or cuts to federal programs. The latter calls for yearly “uniform cuts” to all mandatory spending (such as Medicare) from 2013 to 2021.

How much were Medicare payments going to be cut this January?

Hospital and health care provider payments would have been cut significantly due to the compounding effects of the two bills and some external factors:

Back in May 2020, a 2% uniform cut to Medicare provider payments, stemming from the Budget Control Act, was postponed until December 2020 as lawmakers were hesitant to reduce health care payments during a pandemic. As COVID continued to strain our health care system over the following year, this postponement was extended twice, positioning the 2% uniform cut to take effect in January 2022.

The $1.9 trillion coronavirus relief package in March 2021 also pushed annual spending over a predetermined threshold, triggering a 4% PAYGO cut to Medicare provider payments in 2022.

For those keeping score, we were now expecting a 6% cut in January (2% uniform plus 4% PAYGO).

But it didn’t stop there. During the height of the pandemic, lawmakers temporarily increased payments to Medicare providers by 3.75%, a provision that was set to expire on December 31st, 2021. So come January, payments would automatically decrease by 3.75%, back to their pre-pandemic levels.

On paper, all of this meant that Medicare payments to health care providers would fall by 9.75% in January 2022.

Why did Congress stop that from happening?

Two reasons. First, provider advocacy groups, doctors, and hospitals expressed concerns with the cuts. Second, the rise of the omicron variant led to yet another surge in COVID cases and an increased burden on providers.

In light of these issues, Congress delivered temporary relief through the Protecting Medicare and American Farmers from Sequester Cuts Act, which was signed into law by the president on December 10th, 2021.

What’s in the bill?

The bill addresses the three components of the Medicare payment cuts in different ways:

  1. It suspends the 2% uniform cut from the Budget Control Act through March 2022.
  2. It delays the 4% PAYGO cut until 2023.
  3. It continues the increased payments to health care providers. However, it lowers the rate from 3.75% to 3%.

This accounts for almost the entirety of the 9.75% payment cut that providers were concerned with.

The bill also makes several modifications to the PAYGO Act and tweaks things such as clinical laboratory fees.

What’s the bottom line?

Medicare recipients, interest groups, health care providers, and policymakers all continue to seek greater structural reform to our nation’s largest federal health insurance program. More comprehensive, bipartisan deals will need to be reached in order to keep Medicare sustainable and effective as a program, especially in the wake of the pandemic.

However, knowing that the 9.75% payment cuts have largely been avoided is expected to provide some comfort for both health care providers and Medicare beneficiaries during the new year.

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