Sequester's Effects on Health Care

At midnight on Friday, March 1, the first round of automatic budget cuts outlined in the Budget Control Act of 2011 (the "sequester") went into effect.  Policymakers and analysts are still working through the details, but many of the cuts are actually intended to be phased in over time, and significant questions remain as to exactly how federal agencies will be implementing the cuts.  For example, Medicare is set to take a 2% cut, but no one knows yet whether it will be an across-the-board 2% reduction in payments to all health care providers and suppliers that Medicare pays, or whether it will be more targeted.  The Budget Control Act itself does not contain this level of detail (presumably because no one thought the cuts would actually end up taking place), leaving these details to be worked out between the White House and the administrative agencies.

Other health care-related cuts that are included in the Act include decreases to the Public Health and Prevention Trust Fund in the ACA, and decreases in the grants to states for establishing health insurance exchanges.  Again, the details of these cuts have not yet been determined.  In addition, discretionary spending within HHS is set to decrease by as much as 8% in the case of the FDA.  Depending on how the cut is implemented, effects could range from employee layoffs and/or furloughs to delayed drug approvals and decreased capacity for safety inspections.  The NIH is also set to take a significant cut, which could also result in employee layoffs and/or furloughs, and decreased funding for medical research.  Medicaid and the Childrens' Health Insurance Program (CHIP) are exempt from cuts.

Advocacy groups such as the American Hospital Association and American Medical Association have published analyses indicating that the effects of the sequester could have far-reaching indirect impacts on the health care industry, mostly in terms of reduced hiring and layoffs of existing employees - as many as 300,000 jobs.  Since the cuts are scheduled to take place over time, it is difficult to determine whether this number is accurate.

NBCH continues to monitor these developments and will provide additional information as it becomes available.  However, the administrative agencies are operating under "business as usual" until further directed.