Sequestration Begins

In August 2011, President Obama proposed that if he and Congress were unable to agree on long-term spending reductions, automatic across-the-board cuts in virtually all federal programs would occur. Well, Congress and the President have been unable to reach an agreement on how to reduce the long-term debt and as a result, on March 1st, spending cuts in most federal programs took effect. For Medicare, the cuts have been delayed until April 1st and they have been capped at 2% of program funding. Most other agencies subject to sequestration will see their budgets reduced between 5% and 7%.

At this time, neither Centers for Medicare & Medicaid Services (CMS) nor the Department of Health and Human Services (HHS) has issued any guidance on just how the 2% sequestration-related cut in provider payments will occur. However, we do expect an announcement in the near future.

Break Away from the Static

While it is possible that Congress and the President could come to an agreement on long-term spending reductions to replace the sequestration cuts, it is unlikely that this will occur before April 1st. Therefore, all Medicare providers should anticipate a 2% reduction in their Medicare payments beginning May 1st.

According to a report issued by the Office of Management and Budget (OMB), approximately $42.5 Billion must be cut from domestic spending for Fiscal Year 2013. An equal amount will be cut from Defense spending.

Of the $42.5 Billion being cut out of domestic spending, approximately one-fourth ($11.347 Billion) is coming out of the Medicare program despite the fact that the percentage cut for Medicare will be well below most other federal programs as a percentage of their budget. Most domestic, non-defense programs affected by sequestration will experience a 5% cut in funding.

ADVOCATE will provide more information as it becomes available.

Best regards,
Kirk Reinitz, CPA