Fall 2023 Federal Government Shutdown: Possible Effects on the Health Care Industry

With each beat of the clock and no sign that the wind is shifting toward bicameral bipartisan compromise on Capitol Hill, it becomes increasingly inevitable that the federal government will “shut down” at 12:01 a.m. on Sunday, October 1, 2023, when the 2024 federal fiscal year begins. Under the Anti-Deficiency Act (31 U.S.C. § 1341), federal agencies are prohibited from expending or newly obligating federal funds without an appropriation or other approval from Congress. In June 2023, Congress passed, and President Biden signed, the Fiscal Responsibility Act, which lifted the federal debt ceiling and established caps on discretionary spending for each of FY 2024 and FY 2025. Yet even though this legislation was designed to avoid an impasse over FY 2024 appropriations that might precipitate a shutdown, and even though the Senate Appropriations Committee reported out all 12 FY 2024 appropriation bills on a timely, bipartisan basis, the House has yet to take up any of these bills, and a stopgap continuing resolution bill (or “CR”) jointly agreed to by the Senate Majority Leader and Senate Minority Leader to keep the government open through November 17 was promptly rejected by U.S. House Speaker Kevin McCarthy mid-week. Accordingly, a shutdown looms this weekend, with no obvious endgame or prospect for effective Congressional action in sight.

Federal Health Care Program Expenditures Continue in the Near Term

Federal health care program expenditures, including those necessary to fund Medicare and Medicaid, as well as premiums supporting exchange-based, individual market policies sold under the Affordable Care Act, would continue for at least a few months during a shutdown because they are not contingent on annual appropriations.

Furloughs in Agencies Administering Federal Health Care Programs

In the event of a government shutdown, hundreds of thousands of federal employees would be on furlough, and all nonessential federal agencies must cease work, causing disruption and delay on a sweeping basis. This will have an immediate disruptive effect on interactions with the Executive Branch agencies that administer, regulate and bring enforcement actions relating to these programs, including the Centers for Medicare and Medicaid Services (“CMS”), the Office of Inspector General for the Department of Health and Human Services (“HHS-OIG”), and the Department of Justice (“DOJ”). For instance, it is estimated that roughly half the CMS workforce will be furloughed and prohibited from working, potentially indefinitely.¹ To the extent furloughed, these employees will not have access to their official phones, email accounts, snail mail, or other forms of communication and are highly unlikely to risk violation of federal law by responding to inquiries or filings. CMS’s Center for Medicare and Medicaid Innovation (“Innovation Center”) will continue to operate as it is prospectively funded through 2029, but will be hampered in its work by the furloughs impacting other components of CMS and HHS’s Office of the General Counsel.

Increased Appeals Backlogs

Although services necessary to authorize and effectuate federal health care program spending will likely continue as a high priority, other agency activities will likely suffer for the duration of any shutdown. As such, the already pronounced backlog in scheduling and conducting administrative appeals arising from CMS provider and health plan audits and recoupment efforts will only build, further delaying final agency action.

Extended Litigation

Litigation in which the federal government is a party will also be affected. In particular, for so long as the shutdown continues, lawyers working at DOJ and other executive branch agencies will likely seek extensions on pending civil motions, judicial hearings and trials, except to the limited extent that delay poses significant jeopardy to human life or safety.²

In addition to these direct impacts on the ordinary-course business of government, including the responsiveness of CMS and other HHS agencies, a shutdown would also inflict indirect effects on private stakeholders in the health care industry. To take just two examples, a shutdown could further affect the U.S. government’s credit rating, thus increasing the difficulty and expense of borrowing. Likewise, a prolonged lapse in federal funding could significantly reduce staffing at the Federal Trade Commission (“FTC”) and DOJ, thus slowing the pace of mergers.

Antitrust and Pre-Merger Notifications

The FTC has funding to continue operations for three weeks, until October 20, during a government shutdown. After that, however, the agency’s Bureau of Competition will be forced to furlough up to 50% of its staff. Likewise, approximately 42% of personnel at the DOJ Antitrust Division may be furloughed. That would be expected to extend the length of ongoing merger reviews and investigations. Hart-Scott-Rodino filings would still be accepted, although it is possible that parties may be asked to refile notices or risk receiving extensive second requests to buy time.

Ratings

The threat of a government shutdown has already damaged the U.S. credit rating, with further reductions likely if the threat materializes. Fitch Ratings downgraded the U.S. credit rating to AA+ in August 2023, citing the fiscal deterioration and an erosion of governance due to “repeated . . . political standoffs and last-minute resolutions.”³ S&P Global Ratings had similarly downgraded the U.S. to AA+ more than a decade ago, citing political polarization following a debt ceiling stalemate. S&P has said it could again lower the U.S.’s rating.⁴ Finally, Moody’s Investors Service has warned that a government shutdown would “underscore the weakness of U.S. institutional and governance strength relative to other AAA-rated sovereigns.”⁵ Such developments may rattle debt markets, making it more costly for health care companies and investors to borrow.

Bottom Line

While federal health care program payments will continue during a short shutdown, be prepared for delays and disruption resulting from the furlough of approximately half of the federal workforce across agencies, including CMS, HHS-OIG, DOJ, and FTC.