Obama budget would delay Medicare pay cuts

The two-year freeze and other proposals are starting points for budget discussions with Congress that are likely to prove contentious.

By Doug Trapp — Posted Feb. 21, 2011

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President Obama's fiscal 2012 budget proposal would freeze current Medicare pay rates for physicians until 2014, spreading the $54 billion cost of the freeze over a decade in part by squeezing savings from drug manufacturers and states.

Obama supports a permanent repeal of the sustainable growth rate formula that helps determine physician pay, White House Office of Management and Budget Director Jack Lew said during his Feb. 14 budget presentation. But doing so would cost an estimated $371 billion over 10 years. Instead, Obama's budget would extend physician payment rates in effect through Dec. 31 until the end of 2013. Without congressional intervention, doctors face a cut of more than 25% starting in January 2012 and an additional cut the following January.

"It's a very significant down payment," Lew said. "Three years should give us the time to figure out how to fix it and pay for it."

American Medical Association President Cecil B. Wilson, MD, said the AMA is pleased with the plan.

"The president's budget includes a renewed commitment to permanently fix the broken Medicare physician payment system, which the AMA strongly supports," Dr. Wilson said. "It also contains funding to delay the devastating cuts scheduled to occur Jan. 1, 2012, for another two years, which is important for providing stability in the Medicare system while a permanent solution is enacted."

Obama's budget proposal also includes $250 million in grants to states to reform the way medical liability disputes are resolved. The Dept. of Justice would award the grants with the Dept. of Health and Human Services. These would be in addition to the $50 million in funding for similar grants in the health reform law.

Dr. Wilson commended the White House for including the new funding in its budget. The AMA continues to support a House GOP effort to implement caps on damage awards, which Obama has not supported.

The White House budget, as well as any budget adopted by lawmakers, is only a spending blueprint. Any actual 2012 spending requires appropriations approval by the Republican-controlled House and the Democratic-controlled Senate.

Fiscal 2011 spending levels also remain unresolved. At this article's deadline, House Republicans were crafting a proposal to cut tens of billions from federal programs for the remainder of fiscal 2011, which ends on Sept. 30. A continuing resolution that Congress adopted in December 2010 to continue funding the government expires on March 4.

House Republicans also propose to end all funding for the implementation of the national health system reform law. The president's fiscal 2012 request includes $465 million to continue implementing the law, including about $330 million to the Centers for Medicare & Medicaid Services.

Predicting where Obama and Congress come together on the budget is difficult, Lew said. He noted that few observers thought the president and Congress would reach an agreement in December 2010 to extend the Bush tax cuts temporarily. "Every side begins with its deeply held views."

Lew also said the budget attempts to strike a balance to ensure that the federal government pays only once for health services and at the proper rate, but also invests in research and other areas. "We need to make sure we're not cutting things that are vital to the future growth of the economy."

For example, Obama's proposal would increase the National Institutes of Health budget by $745 million over fiscal 2010 levels to reach nearly $32 billion. "Support for this critical investment -- even during a time of unprecedented budgetary constraints -- will help to improve the lives of millions of people," said William T. Talman, MD, president of the Federation of American Societies for Experimental Biology.

But the proposal also would fund $18 billion for the Medicare physician pay freeze by capping the amount of federal Medicaid funding states can secure by adopting provider taxes. Those caps would not take effect until 2015, one year after full implementation of the health reform law.

Many cash-strapped states say they rely on these funds and are asking HHS for flexibility to reduce their share of Medicaid spending. The Centers for Medicare & Medicaid Services is reaching out to states and working on individual solutions, said Donald M. Berwick, MD, CMS administrator.

Obama also would end pharmaceutical patent dispute settlements that lead to delays in the introduction of generic drugs, using the savings to help freeze doctor pay rates. But the Generic Pharmaceutical Assn. said the assumption that this plan would save the government $8.8 billion over a decade is "fatally flawed." The Federal Trade Commission already has the authority to review patent settlements, the association said.

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Paying for a pay freeze

President Obama's fiscal 2012 budget request calls for Medicare physician payment cuts to be delayed two years, until 2014. The $54 billion cost would be offset during the next decade by billions in cuts elsewhere in the system. The proposals and their savings include:

$18.4 billion Limit states' ability to use provider taxes to boost federal Medicaid funding (starting in 2015)
$8.8 billion Prohibit drugmakers from delaying generic drug introductions
$6.4 billion Limit Medicaid durable medical equipment pay
$6.2 billion Recover erroneous payments to private Medicare plans
$4.2 billion Reduce Medicaid funding for hospital indigent care (starting in 2021)
$3.5 billion Require states to track Medicaid high prescribers
$3.3 billion Reform Medicare Quality Improvement Organization contracting
$3.2 billion Use physician penalties for EMR nonadoption to boost pay rates
$2.3 billion Limit original biologic drug exclusivity
$1.8 billion Streamline pharmacy benefit contracting for federal workers' health plans
$1.8 billion Validate physicians' orders for certain high-risk services
$1.6 billion Limit Medicaid liability payments
$240 million Require prepayment review for all powered wheelchairs

Source: White House Office of Management and Budget, February (link)

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