Published 5/1/2013

What Do You Know About Sequestration?

Jamie A. Gregorian. Esq.

Although most of the automatic spending cuts referred to as sequestration went into effect on March 1, and Medicare payment cuts went into effect on April 1, most Americans have not yet felt their impact. As the New York Times put it, “[t]he process of trimming government budgets is slow and cumbersome, involving notifications to unions about temporary furloughs, reductions in overtime pay and cuts in grant financing to state and local programs. Less federal money will, over time, mean fewer government contracts with private companies. Reduced overtime pay for airport security checkpoint officers will make lines longer, eventually.”

For Medicare providers, however, the 2 percent reduction in Medicare payments that went into effect on April 1 may already be having an impact. The Centers for Medicare and Medicaid Services (CMS) estimates that reimbursing Medicare claims at 98 percent of their value will result in $11 billion in lost revenue to Medicare doctors, hospitals, and other providers.

Sequestration cuts will affect the entire spectrum of health care. The National Institutes of Health research budget will be reduced by $1.6 billion. Cuts to the Food and Drug Administration (FDA) will be approximately $209 million—this includes the user fees paid by industry to support the FDA’s product reviews. As a result, fees from device and drug manufacturers will likely be used to partially underwrite budget cuts, rather than drug and device approvals. Medicaid and the Children’s Health Insurance Program were spared the budgetary knife.

Shortly after the cuts went into effect, President Obama said that he “will continue to seek out partners on the other side of the aisle so that we can create the kind of balanced approach of spending cuts, revenues, entitlement reform that everyone knows is the right way to do that.” Speaker Boehner’s office offered a chilly response: “The president’s outreach is always appreciated, but we’re not going to get anywhere until he realizes spending is the problem.”

According to a Gallup poll conducted on March 2–3, an outright majority of Americans does not think that they know enough to say whether sequestration will be good or bad. When asked “Do you think the sequestration is a good thing or a bad thing for the country?” more than half (51 percent) responded that they didn’t know.

Although those with an opinion did lean in the direction of sequestration being bad, the opinion was not overwhelming. This indicates that most Americans are taking a “wait-and-see” attitude, a position that is increasingly being encouraged by decision makers in Washington who themselves do not quite know the full impact of the budget cuts. By the time you read this article, the full impact should be clearer.

Most people in Washington professed opposition to sequestration before it happened and, depending on their political persuasion, largely blamed the other side. What these cuts will actually mean to average Americans remains unclear, and what the next steps to getting the nation’s fiscal house in order have yet to be determined. One of the biggest unknowns is what sequestration will mean for patients who depend on Medicare and Medicaid. Although stopgap efforts and half-measures are in ample supply, long-term solutions remain elusive.

Jamie A. Gregorian, Esq. is senior manager, specialty society affairs and research advocacy in the AAOS office of government relations. He can be reached at gregorian@aaos.org