American College Of Surgeons - Inspiring Quality: Highest Standards, Better Outcomes

What Is Sequestration?

In 2011, Congress passed the Budget Control Act that set a mandated sequestration starting January 2, 2013, if Congress could not reduce the deficit by $1.2 trillion–$1.5 trillion over a 10-year period. Congress then passed the American Taxpayer Relief Act of 2012, which delayed the mandated modified sequestration until March 1, 2013. Sequestration is meant to reduce federal spending; primarily consisting of deficit reduction sequester, mandating automatic, across-the-board spending cuts for federally funded programs in order to meet national budget goals, and discretionary caps, limiting future federal spending. Hitting sequestration will force deficit reductions and restraint in federal spending, which could help the economy in the long term, however, in the short term it could be potentially catastrophic in terms of job loss and harm to the economy. The amount of sequestration cuts total around $85 billion over seven months including $42.5 billion from discretionary defense funding, $26.4 billion from discretionary non defense funding, $5 billion from mandatory non defense funding, $11.2 billion from Medicare (cuts to Medicare are not to benefits; Medicare percentage remains the same because Medicare cuts are capped), and $0.1 billion from mandatory defense funding. Should sequestration go into effect here are some of the cuts that will be implemented.

Impact on Health Care

Department of Health and Human Services (HHS) reductions will include: personnel reductions, reduced research on cancer and childhood diseases, reduction in services and nutrition assistance for women and children, reduced investment and grants dedicated to research projects, and reduced funding for Affordable Care Act implementation. Private-sector jobs will be impacted as well, including: hospitals, medical research institutions, nursing and residential care facilities, physicians and independent care contractors, outpatient care facilities, insurance carriers, pharmacies, and health care equipment retailers.

Sequestration would have wide-ranging implications for academic medicine, with the National Institutes of Health (NIH), Title VII health professions programs, the National Health Service Corps, and several other programs facing mandatory cuts. Programs for academic medicine are spread across the HHS, so the cuts will be felt industry-wide.

Medicare physician and hospital payments would face a 2-percent cut. While the decrease is small in comparison to other sequestration-related cuts, it still could have a significant impact. Medicare payments provide support for graduate medical education (GME), and a reduction in federal GME funding could limit the ability of teaching hospitals to train residents. Cuts in Medicare funding for GME come at a critical time when the industry is trying to find solutions to an increasing physician shortage. Training more physicians has been considered the main solution to the shortage problem, but if Medicare funding for GME is reduced, there will not be enough residency spots to accommodate medical school graduates. Specifically, here are some of the financial impacts to programs:

  • Centers for Disease Control and Prevention (CDC) cuts will be around $350 million or more. The CDC’s mission is to prevent and detect outbreaks of infectious diseases like flu, tuberculosis, and foodborne illnesses and to improve prevention and screening for chronic diseases like cancer and diabetes.
  • The NIH will be cut by about $1.6 billion. More than four-fifths of NIH funding is used to support research and research training at more than 2,500 universities and institutes throughout the country. This will mean that fewer physicians and scientists will be working to find better treatments and cures for diseases like cancer, Alzheimer’s disease, and diabetes.
  • Community health centers would be reduced by about $120 million, which could translate to roughly 900,000 fewer patients being served.
  • Medicare physician and hospital payments will be reduced by 2 percent.
  • Food and Drug Administration (FDA) cuts reduce non user fee funding by $133 million. No matter how FDA implements funding cuts, the safety of imported and domestic food and medical products will be reduced

Impact on Other Budget Items

Department of Defense (DoD) reductions will include: personnel reductions, reduced military training, reduction in base services for military families, reduced weapons spending, reduced research and development efforts, and delays in facilities equipment and maintenance investments. Private-sector jobs will be impacted as well, including: defense contractors, weapons manufacturers, defense equipment vendors and suppliers, military construction agencies, aerospace industry, ship and boat industry, and intelligence agencies.

Consumer Safety Service, Domestic Security Service, and other services reductions will include: Federal Aviation Administration air traffic control functions, food processing plant inspections, Environmental Protection Agency water and air protection functions, FBI, border patrol, federal prosecutors, correctional officers, customs agent staffing, Federal Emergency Management Agency response capabilities, National Weather Service severe forecast capabilities, housing and food assistance programs, National Park Services, and education grants. Specifically, here are some of the financial impacts to programs touched by the cuts:

  • DoD civilian employees will face severe cuts and the DoD is considering the furlough of up to 800,000 civilian employees. The impact will be felt nationwide as 86 percent of the total DoD workforce is assigned to duty stations outside the Washington, DC, metropolitan area. The furloughs will impact mostly veterans because veterans make up 44 percent of the DoD civilian workforce.
  • In addition to sequestration, defense expenditures will be reduced by an additional $6 billion stemming from the enforcement mechanism that narrows the definition of national security.
    • Of that $6 billion, the Defense Health Program will lose $3 billion, which will exhaust funding in August and has not resolved whether medical care will remain available for uniformed personnel, their dependents, and eligible retirees.

Job Impact

It is important to note, these are large and arbitrary cuts, and will have severe impacts across government. The job losses will also extend across all sectors and will have broad implications well beyond the federal workforce. The reductions would impact everything from military readiness and international affairs to schools and the economy. It is estimated the required budget slashing could cut economic growth in half for 2013. The Bipartisan Policy Center estimates at least a million jobs will be lost due to sequestration and the Congressional Budget Office (CBO) estimates up to 1.4 million jobs are at stake.

Should you have questions and comments concerning sequestration and physician payment reform, please contact the ACS Division of Advocacy and Health Policy Legislative Team at or 202-337-2701.