Obama budget freezes physicians' Medicare pay for 10 years

If Congress follows the White House proposal, $371 billion would go toward reversing planned annual cuts but would not increase Medicare rates.

By Doug Trapp — Posted Feb. 8, 2010

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President Obama promised spending freezes during his first State of the Union address, but his $3.8 trillion fiscal 2011 budget request still would protect physicians from Medicare pay cuts and extend enhanced federal support for state Medicaid programs.

Obama's proposal, unveiled Feb. 1, sets aside $371 billion over a decade to pay for the cost of preventing Medicare pay cuts under the sustainable growth rate formula. But the funding would only be enough to turn annual reductions into rate freezes, not to fund pay raises. Also, the president left the specifics of how to prevent the cuts up to Congress, said Jonathan Blum, director of the Centers for Medicare & Medicaid Services Center for Medicare Management.

"There's lots of different ways to reform physician payment in the long term," Blum said. Health and Human Services Secretary Kathleen Sebelius said she was confident Congress would prevent the cuts, which are scheduled to begin with a 21.2% reduction on March 1.

American Medical Association President J. James Rohack, MD, said the AMA "commends President Obama for recognizing that permanent reform is crucial to preserving physician care for current and future seniors who rely on Medicare." The AMA has urged Congress to pass a long-term overhaul that results in cost-based physician rate increases, not freezes.

Obama's $911 billion fiscal 2011 Dept. of Health and Human Services budget proposal also calls for several one-year spending increases, including $250 million more to fight health care fraud, a $290 million increase for community health centers and $1 billion more for biomedical research through the National Institutes of Health.

Obama asked for these hikes and others, despite pledging to freeze federal spending for three years starting in fiscal 2011. He exempted Medicare, Medicaid, Social Security and national security spending from the pledge -- more than 80% of the federal budget, according to Steve Bell. He is a former staff director and chief of staff for retired Sen. Pete Domenici (R, N.M.) and a visiting scholar at the Bipartisan Policy Center, a think tank focused on middle-ground solutions in health care, the budget and other areas.

"He deserves credit for even wanting to do that, which will draw great opposition from Congress -- especially the appropriators," Bell said.

Republicans criticized Obama for proposing a budget with a $1.3 trillion deficit, one of the biggest in history. "The president's new budget is like the last one -- more spending, more taxes and more debt -- at a time when the national debt has reached an alarming level," said Sen. Lamar Alexander (R, Tenn.), chair of the Senate Republican Conference.

Obama said on Feb. 1 that previous legislation -- including the 2001 and 2003 tax cuts and the Medicare drug benefit -- created much of the debt he faced when he entered office. He also inherited a deep recession, said Peter Orszag, PhD, director of the White House Office of Management and Budget.

"If we had taken office during ordinary times, we would have started bringing down these deficits immediately," Obama said.

House Appropriations Committee Chair David Obey (D, Wis.) said his panel would adhere to the president's fiscal 2011 spending targets. "We will not exceed his requested level for appropriations, but we will also not exempt any department or activity from review ... because none of them are without waste."

Medicaid funding extension

Obama's budget plan would help states by providing a six-month, $25.5 billion extension of enhanced Medicaid funding through June 2011. This would continue support from the most recent stimulus package, which increased the federal share of Medicaid by a total of $87 billion through the end of 2010.

"This is the president's statement that two more quarters [of federal assistance] are absolutely essential," Sebelius said. State Medicaid directors, governors and policy experts have warned that significant Medicaid cuts will be necessary if the stimulus act's Medicaid funding expires.

But the administration has not decided if it will support continuing the enhanced Medicaid funding beyond June 2011, the end of most states' fiscal years, said Cindy Mann, director of the CMS Center for Medicaid and State Operations. Medicaid enrollment typically remains high until an economic recovery is well under way, according to policy analysts. Although the administration's budget proposal assumes stronger economic growth, it still projects unemployment to be at about 8% at the end of 2012, Orszag said.

Health programs expanded

Obama's HHS budget also would help maintain health coverage through community health centers. It calls for a 13% increase for the facilities in fiscal 2011.

The additional funding would help create 25 new sites for health care access in communities without existing centers. It also would expand access to the more than 1,200 community health centers in the U.S., Sebelius said.

Medical research also received significant support from Obama. The boost to $32.2 billion "is the largest proposed funding increase for NIH we have seen in a president's budget in eight years," said Mark O. Lively, PhD, president of the Federation of American Societies for Experimental Biology. The budget also adds $208 million for research on the comparative effectiveness of different medical treatments and drugs, and for translating research findings into treatments, among other work.

The Obama budget proposes raising funding for the Health Care Fraud and Abuse Control program to $1.7 billion. This would allow an HHS/Justice Dept. anti-fraud task force to work in 13 additional cities.

Sebelius said the administration is working aggressively to hire a CMS administrator, the highest-ranking position still vacant at HHS. CMS has been without a permanent administrator since Mark B. McClellan, MD, PhD, left in October 2006. "We hope to have someone named in the not-too-distant future," Sebelius said.

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Boost for health spending

President Obama's fiscal 2011 Health and Human Services Dept. budget proposal of $911 billion would provide significant increases for improvements in health research, access, quality and training.

Budgets (in millions)
Fiscal 2009 Fiscal 2010 Obama fiscal 2011 request
National Institutes of Health $30,600 $31,200 $32,200
Centers for Disease Control and Prevention $6,900 $6,800 $6,900
Substance Abuse and Mental Health Services Administration $3,300 $3,400 $3,500
Food and Drug Administration $2,700 $3,300 $4,000
Community health centers $2,200 $2,200 $2,500
Health professions training $393 $498 $509
Agency for Healthcare Research and Quality $372 $397 $611

Note: 2009 figures have been updated to reflect actual spending.

Source: Dept. of Health and Human Services, February (link)

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