Absent an agreement in today’s Senate votes on dueling legislative proposals to prevent the budget “sequester,” automatic wholesale spending cuts will likely take effect tomorrow evening in the form of a 5% hit for all government agencies. This will amount to $85 billion (2.4% of the federal budget) in total. The cuts are a result of a 2011 law mandating that, if Democrats and Republicans should be unable to agree on a plan to reach the goal of $4 trillion in deficit reduction, then over a trillion dollars of arbitrary cuts would start to take effect this year. The draconian nature of the law was an intentional effort to force the parties to reach some other compromise.
A failure to achieve that goal may now have serious consequences, in particular for the healthcare industry. Estimated cuts for this fiscal year include $210 million to FDA, $1.6 billion to the National Institutes of Health (“NIH”), and $11 billion to Medicare. While the so-called “mandatory” programs (Medicaid, the Children’s Health Insurance Program, and Social Security) are exempt, the remaining reductions have given the industry more than enough to worry about. According to Bill Hall, spokesman for the Department of Human Health and Services, “It will affect all disease areas, all research areas. Because it is across the board and deep down in every single institute, it would affect virtually everything.”
More specifically, hospitals and doctors anticipate a 2% cut in Medicare reimbursement fees and, by some estimates, up to 200,000 job losses; the pharmaceutical industry expects a substantial increase in drug and medical device approval delays from FDA; and research institutes will undoubtedly see the effects of the NIH cuts. Francis Collins, director of NIH called the sequester “sand in the engine” that will force NIH to reject 1,000 promising new research proposals. As a result, he continued, “Medical research in America will be slowed by this, advances that could have happened sooner will happen later or perhaps not at all…” The pharmaceutical industry may also see effects of research program cuts to the extent of NIH-industry collaboration.