THURSDAY, Feb. 28 (HealthDay News) -- "Sequestration" is
Washington-speak for the approximately $85 billion in annual
federal spending cuts mandated by the Budget Control Act of 2011.
Those cuts were originally set to take effect on Jan. 1, but were
delayed in the deal to avert the so-called "fiscal cliff" of tax
increases and budget reductions.
But those cuts are set to kick in Friday, with spending
reductions coming to a wide range of areas and programs, including
health care, defense, education, air travel and agriculture.
Portions of health care and related programs would be somewhat
unscathed -- for instance Medicaid, the government-run insurance
program for poorer Americans, would be left untouched.
But experts point to three key areas that health-care consumers
should be concerned about, not just in the days ahead but as
Congressional Republicans and President Barack Obama continue to
wrangle over the budget for the next fiscal year starting in
While the mandated budget cuts are threatening in the short run,
experts said the real challenge lies down the road. For instance,
the combination of an increasingly tight federal budget and the
growing number of retiring baby boomers could bring the financial
challenges facing Medicare -- the government-run insurance program
for older Americans -- to a whole new level.
"The real issue that the public should be concerned about is, what do the president and Congress plan to do next [fiscal] year, Oct. 1? They're twiddling their thumbs right now and what we need is a functioning government," said Joseph Antos, a health policy expert with the American Enterprise Institute in Washington, D.C.
Some predict measurable fallout from the budget cuts as soon as
the next few weeks.
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
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
"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."
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 influenza vaccine that would cover all flu strains, and
the brain activity map mentioned by Obama in his State of the Union
speech this month.
Collins anticipates some negative consequences to work being
done at the NIH. He said it would be difficult to apply 5.1 percent
cuts -- or $1.56 billion -- to the seven months left in this fiscal
year. "Science is best supported in the circumstances in which you
have a stable trajectory where you can plan month to month," he
said. "It's a time of extraordinary scientific progress and
Antos, of the American Enterprise Institute, said consumers
shouldn't worry that scientific research will stop immediately due
to relatively small trims to a federally supported research agency
such as the NIH: "There is plenty that is not financed by the
federal government alone. Remember that the NIH sponsors somewhat
theoretical [long-term] research. They're still going to run with
the projects they've got going."
Still, Mary Woolley, president and CEO of Research!America, a
Washington, D.C., nonprofit group that supports medical and
scientific research, thinks research needs to be given a much
higher public priority. "Those that feel that [the budget cuts] are
just a paper cut are misinformed. It's a serious self-inflicted
wound," she said. "If we don't continue to robustly fund the
research and evidence base that will help us get a handle on
escalating health-care costs, we could bankrupt the nation."
Woolley said Congress has to start focusing on big-ticket items
such as Medicare and Medicaid that have a huge impact on health
care. "The sequester is a side show compared to what really needs
to happen: tax reform and entitlement reform. People know both of
these need work, and they're hard, but that's the job [our
representatives] are elected to work on," she said.
For more information about health-care costs, visit the
Kaiser Family Foundation.
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