Budget cuts hit healthcare from flu watch to hospitals

NEW YORK Tue May 7, 2013 6:08pm EDT

A patient waits in the hallway for a room to open up inside the emergency room at a hospital in Houston, Texas July 27, 2009. REUTERS/Jessica Rinaldi

A patient waits in the hallway for a room to open up inside the emergency room at a hospital in Houston, Texas July 27, 2009.

Credit: Reuters/Jessica Rinaldi

NEW YORK (Reuters) - America's budget cuts may be beginning to take a toll on the public health system, from efforts to track global flu outbreaks to policing a surge in food and drug imports.

Participants at the Reuters Health Summit in New York this week spoke to the immediate impact of $85 billion in automatic government-wide budget cuts that began on March 1. This so-called sequestration was set in motion when Congress failed to reach a deal to reduce the nation's budget deficit.

The budget of the U.S. Centers for Disease Control and Prevention has been cut by $300 million as it monitors a deadly new strain of bird flu in Asia.

CDC Director Thomas Frieden expressed concern that the loss of the funding will hamper the agency's ability to track outbreaks worldwide that could lead to a new pandemic. It would also affect the help that the CDC provides local authorities to identify and contain sickness at home.

"It would limit our ability to track flu in countries around China," Frieden said.

U.S. state and local health departments have cut 45,000 job cuts in recent years, making the system more vulnerable than it was in the 2009 swine flu pandemic, Frieden said.

"That'll be thousands fewer staff to detect and respond to threats," he said. "We often provide a significant portion of their budget for things like tracking," he added. "Any weak spot is potentially a weak spot everywhere."

The new strain of bird flu, known as H7N9, has so far sickened at least 129 people and killed 31 since it surfaced in February. According to the latest CDC estimates, the flu kills about 20 percent of the people it infects.

The current strain cannot cause a pandemic because it is not spread from person to person, but the concern remains that it could mutate into something far more contagious. <ID:L2N0DN0NS>

'EVEN MORE WITH LESS'

Budget cuts are also inhibiting the Food and Drug Administration's ability to hire the staff it needs to enforce new safety regulations and police surging imports of regulated products from U.S. trading partners including China.

"The pressures we're under are enormous," said FDA Commissioner Margaret Hamburg, another Summit speaker. "What it boils down to is that we're in a situation where an agency that has already been stretched pretty thin is now having to find ways to do even more with less in the context of a lot of added responsibilities."

As a result, agency staff are doing multiple jobs at once: "The experts who are doing our guidance and developing our regs are often the same experts that are doing the product reviews and committing to more engagement and more frequent meetings and organizing and running and analyzing the findings from advisory committees."

Hamburg says FDA has been hit by a funding loss of nearly $300 million in funding, not only from the federal budget but also from reduced user fees that private sector companies pay to cover the costs of reviewing new medicines. It comes as FDA is charged with new food safety responsibilities and seeks additional oversight powers over compounding pharmacies in response to a deadly drug-related meningitis outbreak.

Hamburg said the FDA is trying to avoid reductions in food inspections and staff furloughs by cutting budgets for travel and conferences, postponing new hiring and limiting contracts for information technology and scientific research.

A longer term problem may be a diminished FDA ability to attract talented staff, she said.

"Among the many things that are making jobs in public service less attractive, is the current budget environment," she said.

MEDICARE CUT HITS HOSPITALS

The sequester includes a 2 percent across-the-board funding cut to the Medicare health plan for the elderly, costing hospitals and doctors billions of dollars in revenue.

Tenet Healthcare Corp (THC.N), a Dallas-based hospital chain, says it will absorb $50 million in Medicare cuts this year due to sequestration rather than cut back on programs or turn away patients.

"Basically, we'll just end up this year having $50 million less of income than we otherwise would have had," Tenet Chief Executive Trevor Fetter said.

The sequester is due to cut $85 billion in federal spending through September 30 and a total of $1.2 trillion over 10 years unless halted. Congress is being besieged by requests for targeted relief for government agencies and private organizations, including cancer clinics, and has already made an exception for air traffic controllers to prevent flight delays.<ID:L2N0DJ2RK>

But the U.S. Department of Health and Human Services, which oversees everything from flu shots to school nutrition, has shown no sign so far of asking Congress to allow it to shift funds within its budget to better manage the cutbacks.

"Program managers are working with grantees and partners to manage the impact of the sequester, and trying to minimize the impact wherever feasible. These conversations and reviews are ongoing and will continue through the fiscal year and into next year," said an HHS official who spoke on condition of anonymity.

On Wall Street, the sequester has had little direct impact so far on the investment market for healthcare companies. But as the latest uncertainty to hang over healthcare since the beginning of debate on President Barack Obama's Affordable Care Act in 2009, it has caused second thoughts among some dealmakers on Wall Street.

"If you have very big picture strategy discussions with big companies, (drugmaker) CEOs, overall there's still uncertainty in CEOs' mindsets; there's still uncertainty in the boardroom," said Henry Gosebruch, managing director of healthcare M&A at JPMorgan Chase (JPM.N).

"It's just creating an environment where historically it's been fine to wait if you want to do that big M&A deal. You just wait it out," he said. "Uncertainty is the enemy of deals."

Follow Reuters Summits on Twitter @Reuters_Summits

(Reporting by David Morgan; Editing by Michele Gershberg and Steve Orlofsky)

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