Medicare payments to nursing homes would now be slashed by 11.1 percent for 12 months beginning October 1, 2011. This has led to the healthcare sector witnessing the first triggers of Medicare hospital reimbursement cuts in lieu of raising the federal debt ceiling.

The U.S. nursing homes sector lost close to $3.87 billion as it failed to battle with Medicare while the agency attempted to recover over payments made to hospital care providers in the skilled segment. The cut in payments to skilled nursing facilities affected stock movement of companies such as Kindred Healthcare that fell 30 percent and Skilled Healthcare which lost more than 43 percent.

Although the hospital cut has given a breather to other health care programs under the Medicaid in the phase I debt reduction formulae, efforts from the Centres for Medicare & Medicaid Services (CMS) to cut readmissions will lead hospitals with the highest rates to lose up to three per cent of reimbursements, effective October 2012.

According to a statement by Medicare, the new rates "correct for an unintended spike in payment levels and better align Medicare payments with costs." The industry's Washington lobby group, The American Health Care Association, said "Medicare is moving too fast", and "that the sudden cuts won't give nursing homes time to adjust."

The program "makes reductions beyond what is necessary," Mark Parkinson, chief executive officer of the association, said in an e-mail. "This drastic reduction will be especially challenging for skilled nursing facilities to manage." To stop the cuts, or at least make them smaller, nursing homes lobbied Medicare regulators and Congress.

Acknowledging the industry was overpaid, the American Health Care Association urged Medicare put off the cuts and wait to collect more data. Some industry watchers however viewed that the proposed cut on hospital reimbursements is a corrective measure by the government, because nursing homes have largely become dependent on government payments that are under the Medicare and Medicaid's purview.

Government coverage for many such programs is supported by tax payers which are being increasingly difficult to fund, leading to the proposed cut for middle income and affluent individuals. While this increases cost-sharing, benefits get reduced; reducing access to healthcare in the long run.

The Associated Press (AP) reported that the agreement between President Barack Obama and congressional leaders decrees an automatic two percent cut to Medicare providers such as hospitals which is in addition to a six percent cut previously enacted to finance Obama's health care law, which is just being phased in. The debt deal would allow the government to keep borrowing and stave off an unprecedented default on obligations to investors, social security recipients, federal employees and others.

As regards cuts on spending in the hospital sector, health experts note that it would be difficult to differentiate between hospital readmissions and appropriately categorize cases as avoidable or unavoidable. Industry experts debate that city hospitals in remote location that deal with chronic patients might be treated unfairly and might get penalized in certain cases of readmissions.

It has been estimated that around seven percent of acute care hospitals experience higher-than average readmission rates for heart failure, heart attack, or pneumonia.

With hospitals feeling the pinch on their bottom lines as a result of the Medicare reimbursement cut, they are already stepping in efforts on outpatient care or coordinating care programs that enable patient care at home from hospitals.

However, industry buzz continues on the second phase motive which is likely to reduce Medicare and Medicaid benefits to providers.

But sceptics are hard up on the drug price control order under the Medicaid saying that although price controls on drug is a tempting way to cut debt funding, it may trigger drug companies to pass on the added cost incurred by them, as a result of the CMS cut onto patients in the long run.

Thus, the current debate looms large and the axe is surely on senior citizens to either succumb to the CMS directives or hunt for private insurers, which in both cases could prove expensive.

This decision will now be fuelled by the willingness of the newly appointed 12-member joint congressional commission to achieve $1.2 trillion in savings by the end of the year.

Failing which, there would be mandatory across the board-spending cuts. It's a wait and watch mode as the current plan states that social security Medicaid, unemployment insurance and civilian and military retirement would be spared from cuts.