Daily Briefing primer: Budget sequestration

How across-the-board budget cuts will affect hospitals

Topics: Finance, Medicaid, Reimbursement, Medicare, Payer and Regulatory Policy, Market Trends, Strategy

August 9, 2013

Budget sequestration has triggered about $1 trillion in across-the-board cuts to the federal budget, including a 2% reduction to Medicare reimbursement rates.

How budget sequestration was created

During budget and debt-ceiling negotiations across the summer of 2011, Congress created a debt "supercommittee" tasked with developing and passing at least $1.5 trillion in federal spending cuts over 10 years.

However, the committee failed to reach a deal by its self-imposed Thanksgiving 2011 deadline, which triggered up to $1.2 trillion in automatic spending cuts starting in 2013.

Subsequent efforts to repeal the sequester were unsuccessful and on March 1, President Obama signed an order to initiate the cuts. 

How the sequester will affect health care

The Office of Management and Budget (OMB) in March 2013 released a 70-page memo detailing how each federal agency and program would be affected by the sequester. Jeffrey Zients—the acting OMB director, and the former CEO of the Advisory Board Company—said the president's order includes a:

  • 7.8% reduction in discretionary defense spending;
  • 5% cut to discretionary domestic spending;
  • 2% cut to Medicare, which takes effect April 1; and 
  • 5.1% reduction to domestic mandatory programs.

Medicaid is among the programs that are exempt from sequestration. 

The Washington Post in July 2013 examined the actual impact of budget sequestration cuts, outlining the health care agencies and funds that made it through the spring unscathed despite early predictions of a breakdown in services. Find out what actually got cut—and what didn't.

From the Daily Briefing archives

USAT: The hospitals taking a 'critical' hit from sequestration (August 7, 2013)
A USA Today investigation reveals that military hospitals are delaying procedures and sending away patients because of furloughs that have left beds in "critically short supply."

Lawmakers, cancer group take action to protect cancer services (April 9, 2013)
Congressional offices and the Livestrong Foundation are pledging to preserve cancer services in the wake of reports that the sequester's Medicare cuts have made it "impossible" for oncologist to treat some patients.

Sequestration puts medical research on ice—literally (April 8, 2013)
Budget sequestration cuts have created uncertainty over the future of U.S. medical research, forcing many projects into freezers until funding issues are resolved.

Conway: Why the sequester could shake up the cancer care market (April 5, 2013)
Why are cancer clinics warning that they'll turn away Medicare patients? In a Daily Briefing interview, Lindsay Conway reviews market economics and offers takeaways for hospitals.

Cancer clinics: Sequester is forcing us to turn away patients (April 4, 2013)
The sequestration cuts are forcing cancer clinics to turn away thousands of patients, Sarah Kliff writes in the Washington Post. But are the claims true?

Sequestration could affect EHR incentives (March 6, 2013)
Hospitals that participate in the Medicare portion of the federal electronic health record incentive payment program could lose up to $37,500 as a result of budget sequestration, Modern Healthcare reports.  

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