Sequestration Set to Kick in, Cut Medicare by Billions

After two months of failed negotiations, the across-the-board spending cuts — better known as sequestration — will go into effect today pending a last-minute grand bargain, which many in Washington, D.C., do not expect.

Sequestration is set to kick in, cutting Medicare by almost $10 billion this year.Yesterday, the U.S. Senate floated two proposals to avoid the sequester, but both flopped. Sen. Harry Reid (D-Nev.), the majority leader, proposed a deal that would have reduced the deficit through a 50-50 measure: 50 percent increased taxes, 50 percent spending cuts from defense and agricultural programs. Sen. Reid's proposal, which lost on a 51-49 vote, would have exempted Medicare and Medicaid, according to an AHA News Now report.

Sens. Jim Inhofe (R-Okla.) and Pat Toomey (R-Pa.) proposed a counter deal that would have required President Barack Obama to submit a "sequestration replacement plan" of $85 billion in spending cuts by March 15. Defense cuts would have been limited to $42.6 billion. The vote failed 62-38.

Sequestration, which was postponed until today through the fiscal cliff bill at the end of last year, will cut $85 billion this fiscal year, which ends in October. According to a Congressional Budget Office (pdf) report released last month, Medicare will be reduced by 2 percent, resulting in $9.9 billion in cuts. Medicaid and Social Security are exempt from cuts.

Hospitals, physicians and others were originally expected to see Medicare payment reductions of $11.1 billion, but the two-month delay from Congress lessened the impact slightly. Medicare reimbursement cuts to providers will not go into effect until April, "thereby delaying some of the effect on outlays until the following fiscal year," according to the CBO report.

Many hospital and health system executives have been preparing for the impacts of sequestration since the national deficit talks first began in the summer of 2011. Most hospitals will lose millions in Medicare reimbursements, with larger providers taking cuts up to eight figures. David Blom, president and CEO of OhioHealth, an 18-hospital system based in Columbus, Ohio, told Kaiser Health News his system expects to lose $12 million on $2.5 billion in revenue.

"Let me say this about sequestration: I fully understand how the national debt reduction needs to be really high on our agenda," Mr. Blom told KHN. "Sequestration is unfortunate, in my opinion, to be making across-the-board cuts without really redesigning the system or just reforming the system. Can we live with it? Yes. I think we're able to live with it because we've anticipated it for some time. What I'm concerned about is even this sequestration won't be enough. So what is the next thing we'll be living with to deal with this national debt situation?"

Medicare will remain a high-priority issue for hospital executives this year and into 2014, where some say adept budgeting will become paramount.

"We budget very conservatively when it comes to projected [Medicare] reimbursements," Dan Moncher, CFO of Firelands Regional Medical Center in Sandusky, Ohio, said earlier this year. "We try to make sure our budget reflects the operating margin of a high-performing hospital — that's our goal. But that means we have to take a good, hard look at costs, staffing levels that are appropriate and maintaining the highest quality of care with [appropriate] staffing levels."

More Articles on Sequestration:

6 Key Observations on Sequestration and Hospitals
Teaching Hospitals Would Take Big Hit From Sequestration
Delaying PPACA Could Save U.S. From Sequester, Gov. Jindal Says

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