2010 HHS budget looks to use Medicare savings for reform

Washington -- Preventing Medicare pay cuts for physicians and finding funding for additional rate updates could prove easier if Congress follows a health budget released May 7 by President Obama.

The president's fiscal 2010 budget for the Dept. of Health & Human Services totals $879 billion in outlays, an increase of $63 billion over fiscal 2009. Although it calls for additional spending in several areas, it also proposes saving hundreds of billions of dollars from Medicare so the money can be spent elsewhere, possibly on boosting physician pay or other reforms.

In a shift from the previous administration, the budget also says the department will look into the feasibility and legality of removing the costs of physician-administered drugs from the calculation of the Medicare physician pay formula.

The American Medical Association and other physician organizations have maintained that these unrelated drug costs artificially skew the results, causing physicians to exceed spending limits and making the threat of cuts to doctors much larger. The organizations have said Medicare has the authority to take Part B drugs out of the equation retroactively at any time, an administrative move that would free up billions of dollars for physician pay and reduce the size of the upcoming cuts that Congress would need to address.

But the Bush administration steadfastly refused to make the administrative change, insisting that it did not have the statutory authority under Medicare law to make such a move. Obama says in his HHS budget that his administration at least will look into the option.

"We take it as a very positive sign that President Obama's budget says that the new administration will explore this issue," said AMA President-elect J. James Rohack, MD. "The AMA will work with the administration to expedite the removal of drugs from the formula, as this will significantly reduce the overall legislative cost of permanently reforming the Medicare physician payment update system."

But although the budgetary cost to Congress of tackling physician rate cuts would become smaller under such a move, the billions of dollars that would be shifted into physician pay by the administrative change would run up federal deficit spending. GOP lawmakers and other budgetary hawks on Capitol Hill have announced that they will oppose new health care spending that does not have the appropriate funding offsets.

Spending and saving

To promote more honest budgeting, the Obama administration is adjusting its Medicare budget estimates by $311.1 billion over 10 years to reflect its best estimate of how much more Congress will spend on boosting physician pay. That figure is based on the freezes and modest increases Congress has approved in recent years.

Obama has said he supports fixing the Medicare physician payment system. In the fiscal 2010 budget outline he introduced in late February, he said Congress should assume that fixing the sustainable growth rate formula outright would cost $330 billion over the decade.

The total White House fiscal 2010 budget for the Centers for Medicare & Medicaid Services is $758.9 billion, an increase of $56.3 billion over the fiscal 2009 level.

Despite the increase, Obama is calling on Congress to capture hundreds of billions in savings from Medicare.

The HHS budget includes language on establishing a competitive bidding system for Medicare Advantage that would save nearly $180 billion over 10 years.

HHS also has announced its intent to increase funding for Medicare fraud and abuse control.

"We estimate that for every $1 we spend to stop fraud in the system, we save $1.55," said HHS Secretary Kathleen Sebelius. "The president's budget lays out funding for anti-fraud efforts over five years that we estimate could save $2.7 billion."

The administration's Medicaid budget also calls for producing about $8.8 billion in savings over five years that would be achieved largely by mandating increased Medicaid drug rebates from manufacturers and managed care plans.

Altogether, the budget calls for Medicare and Medicaid savings totaling $309.1 billion over 10 years that would be used to finance a portion of a health reform reserve fund.

Curtailing physician-owned hospitals

The president's proposed HHS budget also calls on Congress to prohibit new physician-owned hospitals from seeking payment for services rendered to beneficiaries who are referred to the facility by a physician with a financial interest in the hospital.

If Congress follows the White House lead, existing physician-owned hospitals that practice such self-referral would be grandfathered in if they meet certain criteria, but they would be prohibited from expanding.

The AMA supports physician-owned hospitals and has strongly resisted attempts to curtail their growth.

But community hospital supporters and some in Congress argue that such facilities cherry-pick the healthiest, most profitable patients and leave the general facilities to shoulder the burden of costlier cases and charity care.

Some key lawmakers in Congress have been attempting for years to ban specialty hospitals or at least prevent new facilities from opening their doors.