The Office of Management and Budget (OMB) issued a report on September 14, 2012 detailing the magnitude of impending across-the-board cuts to Federal spending beginning on January 2, 2013 in a process known as "sequestration."  These cuts stem from the failure of the so-called congressional "supercommittee" to agree on a plan to reduce the Federal budget deficit by $1.2 trillion by 2021 as mandated by the Budget Control Act of 2011.  The Budget Control Act caps the sequestration of Medicare payments to providers and suppliers at two percent.  The report estimates that the two-percent reduction in Medicare payments will result in a total dollar amount of nearly $11.1 billion in FFY 2013.  Non-defense discretionary spending is expected to fall 8.2 percent while defense discretionary spending will fall 9.4 percent.  The report calls these potential cuts "devastating" and urges congressional intervention to stave them off.

The report estimates that CMS itself will face a $63 million cut in "program management" funds and will incur a $40 million cut for demonstration project grants in FFY 2013.  Grants to the affordable insurance exchanges established by the Affordable Care Act face a $66 million reduction.  Certain specific programs and divisions of CMS are ostensibly "exempt" from sequestration because their budgets are considered intragovernmental transfers.  These programs—such as the budget for the Office of Medicare Hearings and Appeals, and Medicare EHR Incentive Program payments—will not themselves face cuts; rather, the overall program budget for CMS (what the report calls the "paying account") will incur the reductions.  This exemption process spares these programs from facing double sequesters.  CMS and other agencies retain discretion, however, in how to distribute budget cuts across such programs.

The OMB report is available here. 

Reporter, Christopher Kenny, Washington, D.C., +1 202 626 9253, ckenny@kslaw.com.