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Health Care Reform:

Health Insurance & Affordable Care Act

What Federal Budget Cuts Could Mean to Health Care

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Some predict measurable fallout from the budget cuts as soon as the next few weeks.

Hospitals

The nation's 3,500 hospitals are reimbursed largely by Medicare; Medicaid, the government-run insurance program for lower-income Americans; and private insurance. But only Medicare payments would be affected by the anticipated budget cuts.

Yet some say the showdown between Obama and Republicans in Congress could cause a sea change in the federal government's approach to reimbursing hospitals.

"We now [face] a situation where the reimbursement rate-setting process is heavily impacted by deficit-reduction strategies," said Ken Perez, director of healthcare policy and marketing at MedeAnalytics, a health-care performance management firm in Emeryville, Calif. "In the old days, payments weren't based on what the government could pay, but by what was considered fair."

Perez said the anticipated $1.3 million reduction to the average hospital's revenue by the mandated cuts would likely lead to a loss of about 25 full-time positions. He added that already -- between last October and January -- 60 hospitals that he knows of have laid off employees. "There's a clear relationship between any suspected reductions [in revenue] and laying off people," he said.

Henry Aaron, a senior fellow at the Brookings Institution, in Washington, D.C., agrees. "Hospital margins are typically quite small and with some exceptions, there will be some institutions so close to the edge already this will put them in a state of crisis."

Physicians

Doctors would be reimbursed at 98 cents on the dollar for their services to Medicare beneficiaries if the cuts go through. While that may sound like a small reduction in payment, Dr. Jeremy Lazarus, president of the American Medical Association, is worried.

"Since 2001, Medicare payments for physician services have only increased by 4 percent, while the cost of caring for patients has increased by more than 20 percent. A 2 percent cut would only widen this already enormous gap between what Medicare pays and the cost of providing care to seniors," said Lazarus, a private-practice psychiatrist in Denver.

Aaron framed the problem facing physicians who treat Medicare patients in simple terms.

"A doctor's income is the difference between expense and revenue," he said. "If you're running an office with expensive equipment that you're making payments on, and a large staff to whom you have obligations, you feel the impact."

Research

The U.S. National Institutes of Health, the National Science Foundation, the FDA and the CDC represent only a fraction of the total research effort in the United States. But the mandated cuts to these agencies could lead to potential delays in research funding and slowdowns in particular projects at critical junctures, according to Dr. Francis Collins, director of the NIH.

In a conference call with reporters, Collins said the cuts could affect areas of research that include cancer, Alzheimer's disease, a universal influenzavaccine that would cover all flu strains, and the brain activity map mentioned by Obama in his State of the Union speech this month.

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