The federal government breathed a great sigh of relief Tuesday with the enactment of the Budget Control Act, which raised the debt ceiling and make spending cuts of roughly the same amount. The deal makes it possible for a short-term increase in the debt ceiling of around $900 billion.  It requires cuts of about $1 trillion from the current budget over the next 10 years.

In this initial phase of budget cuts, Medicare and a number of other mandatory programs will not be affected.

But that is just the beginning.  The second phase is the Joint Select Committee on Deficit Reduction – a group that is tasked to reduce the deficit by an additional $1.5 trillion.  And Medicare payments to providers, defense programs, tax increases and loophole closures, and a swath of other discretionary programs, are on the table.

The makeup of the Joint Committee will be bicameral and bipartisan, consisting of 12 Member of Congress: three Republicans and three Democrats from the Senate and three Republicans and three Democrats from the Senate.   

The committee is required to report their recommendations to the Congress by a majority vote of the committee members no later than November 23, 2011.  The Congress would be required to act on the recommendations, without amendment, by December 23, 2011.  If the savings is between $1.2 and $1.5 trillion, the debt ceiling will be raised again by the corresponding amount.

If the committee fails to approve a bill or Congress does not enact the recommendations, the debt ceiling would be automatically raised by $1.2 trillion and across-the-board-cuts kick in until savings hit $1.2 trillion.  This automatic triggering or cuts, a process referred to as "sequestration", exempts several high-ticket items such as Social Security, Medicaid, VA benefits and pensions, federal retirement funds, civil and military pay, child nutrition, SSI, WIC, and other programs.  But Medicare provider payments are not.  Benefits and beneficiary cost sharing would not change, but providers would be subject to the across the board cuts.  Some sources have reported that these cuts would result in a 2% reduction in Medicare reimbursement rates for providers.

To complicate matters, Congress and the President also face the expiration of the SGR doctor reimbursement fix at the end of December 2011, the upcoming 2012 elections, the expiration of the Bush era tax cuts, and the nuances of a possible lame duck session if the Senate majority turns Republican as most pundits currently predict.  To top it off, in 2013 the debt ceiling will again need to be raised.  

The take away from the debt ceiling debate is not that it is over and we can return to business as usual.  In fact, we are just beginning the painful process of a government living within its means and for healthcare companies, each one of the deadlines and events are notable inflection points where business plans and lobbying strategies and will have to be revaluated and retooled.

Stay tuned.