Obama budget proposal sidesteps Medicare mandatory spending cuts

The administration again calls for ending steep physician pay cuts by eliminating Medicare's sustainable growth rate formula, but without saying how to finance it.

By Charles Fiegl amednews staff — Posted Feb. 20, 2012

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The Obama administration's fiscal 2013 budget proposal to Congress calls for replacing deep, mandatory health spending cuts with $360 billion in targeted health spending decreases, while providing a permanent solution to Medicare's sustainable growth rate formula.

President Obama released his $3.8 trillion budget blueprint on Feb. 13. His plan abandons the $1.2 trillion, across-the-board cut in federal spending that he and Congress approved in July 2011 as a fallback plan if lawmakers could not agree on a long-term deficit reduction measure.

That across-the-board reduction is known as sequestration and would start in 2013. Under the agreement, nearly every federal program would be exposed to cuts, except total reduced spending in the Medicare program would be capped at 2%, and Medicaid and Social Security would remain untouched.

Lawmakers have said they would work to reverse some of the automatic cuts to save certain defense and discretionary programs. The White House budget blueprint meets those same sequestration savings targets, but it also relies on lowering federal deficits through tax increases on upper-income earners.

The sequestration instructions forced the administration to slow federal spending rates in its proposal, said Alan Krueger, chair of the president's Council of Economic Advisers. But he said following through on the deep automatic cuts across nearly all defense, education and other federal programs would cause undue harm. "That's bad policy," he said. "So we believe the sequester should be replaced with balanced deficit reduction."

Medicare's SGR formula that helps determine physician pay represents bad policy, too, said acting White House Office and Management Budget Director Jeffrey Zients. For the last decade, Congress has agreed to patch these Medicare cuts, but the temporary measures have exacerbated the problem.

At this article's deadline, lawmakers had struck a tentative bipartisan deal that would prevent a 27% Medicare pay cut from taking effect March 1 by keeping pay rates stable through the end of 2012.

The Obama budget accounts for a full SGR repeal, but it offers few details on how the administration would propose paying the roughly $300 billion, 10-year cost of eliminating the formula. Democrats and some Republicans have expressed support for using unspent war funds to pay for a repeal, a tactic that has won the favor of organized medicine. But several GOP leaders have dismissed the war funding strategy as an accounting gimmick.

The American Medical Association appreciates the inclusion of an SGR repeal in this year's White House budget, said AMA President-elect Jeremy A. Lazarus, MD. "Scheduled cuts to physicians who treat seniors and military families have threatened patient access to care, and temporary patches by Congress have made the problem bigger and more expensive. The time has come for a permanent solution."

But the president's budget, along with any budgets that might be adopted by Congress, serves only as a guideline for establishing annual spending levels and tax policy. Actual funding for federal programs in fiscal 2013 will be set by House and Senate appropriators, who often do their work without guidance from any congressional budget.

Republican lawmakers denounced Obama's newest budget and said Congress would not go along with the priorities it establishes.

The budget calls for $22 trillion in entitlement spending during the next 10 years. Medicare, Medicaid and Social Security are on a path to consume 10% of the gross domestic product, said Sen. Orrin Hatch (R, Utah). "These programs are on autopilot to fiscal ruin. They are the leading driver of our debt, and they threaten seniors currently relying on the programs and our children and grandchildren who'll have to pay for them."

The budget does address health entitlement spending and would lower future deficits, Krueger said. Medicare spending would be reduced by $302.8 billion from 2013 to 2022. The budget proposes aligning Part D drug pay policy with Medicaid to save $155.6 billion. Adjusting postacute care payments would save $56.7 billion, and reducing Medicare coverage of hospitals' bad debt would lower spending by $35.9 billion.

The Assn. of American Medical Colleges opposes a White House plan to lower Medicare graduate medical education payments by $9.7 billion over 10 years. "Such cuts would mean that up to 10,000 fewer physicians will be trained every year when the nation already faces a shortage of nearly 92,000 doctors in the next 10 years," said AAMC President and CEO Darrell G. Kirch, MD.

The National Assn. of Public Hospitals and Health Systems also objected to proposed Medicaid policy changes that would limit the federal matching funds states could procure to pay hospitals and physicians. The proposal to squeeze those funds by $21.8 billion could lead some states to make pay cuts or otherwise pass costs onto doctors and patients, said Bruce Siegel, MD, MPH, the association's president and CEO.

The Centers for Medicare & Medicaid Services has earmarked $1.9 billion in the budget to prevent fraud and waste. The administration believes that investment would return about $5 billion by 2017.

Medicare has begun using more prepayment predictive modeling technology to flag fraudulent claims, but the administration still is trying to determine the added money it saves the program through deterring additional fraud, said Peter Budetti, MD, CMS deputy administrator and director of the agency's Center for Program Integrity. "As everybody in the public health community knows, it's hard to measure the effects of prevention."

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Proposed 2013 funding for HHS

President Obama's fiscal 2013 budget proposal for the Dept. of Health and Human Services totals $940.9 billion in outlays and proposes $76.7 billion in discretionary spending. Total proposed outlays would represent an 8% increase from 2012 levels. The 2013 budget calls for:

  • $1 billion in additional spending to implement the health system reform law, which includes setting up insurance exchanges.
  • $66 million to promote electronic medical records.
  • $8.1 billion for Head Start programs.
  • $1.1 billion for tobacco prevention activities.
  • $5 million for the public-private Million Hearts initiative.
  • $3.3 billion for domestic HIV/AIDS prevention and treatment activities.
  • $30.9 billion for biomedical and behavioral research at the National Institutes of Health.

Source: Fiscal Year 2013 Budget in Brief, Dept. of Health and Human Services, February (link)

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