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President Obama, joined by acting White House budget chief Jeffrey Zients, released a fiscal 2014 budget blueprint April 10. The plan would squeeze roughly $400 billion from health programs in part by restraining growth in Medicare spending. Photo by AP / Wide World Photos

Obama budget signals quicker trigger on Medicare pay cuts

Physicians and hospitals express concerns about the White House budget's potential impact on pay, including a provision to accelerate work of a Medicare cost-cutting board.

By — Posted April 22, 2013

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Medical organizations hailed the Obama administration's efforts to boost mental and public health in its fiscal 2014 budget proposal, but provisions in the blueprint to achieve additional savings in Medicare sounded alarms about the possible impact on payment rates.

The White House's yearly budget blueprint, released April 9, provides a template for the administration as it negotiates with Congress on spending levels for departments and agencies. Lawmakers on Capitol Hill are not required to act on anything the administration proposes, and subsequent disputes during the authorization and appropriations phases often lead to short-term spending measures to keep the federal government operating, typically at the same funding levels as the previous year.

In this year's proposal, President Obama is attempting to offer middle ground between Republican interests in deep cuts to federal spending and Democratic efforts to raise revenues. Under his $3.8 trillion budget for the next fiscal year, Obama said he would replace the across-the-board sequester cuts that went into effect on March 1 with “smarter ones” that would eliminate waste to government programs, reducing the deficit by nearly $2 trillion over 10 years. As part of this strategy, the administration proposed a series of improvements that aims to reduce health spending by roughly $400 billion, with most of the net savings in Medicare. This would put the program “on a stable financial trajectory,” Kathleen Sebelius, Health and Human Services secretary, said during an April 9 teleconference. Medicare spending per beneficiary grew just 0.4% in 2012 in part due to provisions in the Affordable Care Act, she said. “Even more savings will be reached under this budget proposal.”

Mandating new Medicare drug rebates from pharmaceutical companies accounts for a large portion of these savings, although about a third of the net savings would come from provisions that affect physicians, hospitals and other health care professionals, according to an analysis by Washington consulting firm Avalere Health LLC.

The White House budget would delay cuts until 2015 to what Medicaid pays hospitals for treating more indigent patients, but it also would set more ambitious targets for an outside panel authorized by the ACA and charged with keeping down Medicare spending growth rates.

The Medicare Independent Payment Advisory Board would recommend policies for fast-track congressional consideration that would reduce growth rates in the event Medicare spending projections exceeded certain predetermined targets. To strengthen IPAB's charter for reducing long-term cost growth, the Obama budget proposes to lower the target rate of Medicare spending per beneficiary from 1% above the nation's gross domestic product to 0.5%. This is not a new proposal, but its inclusion in the budget means Obama continues to push for it.

Although the president is telegraphing some willingness to restrain Medicare and Medicaid spending, Republicans on Capitol Hill gave the document a cool reception, insisting the savings were too minimal. “The president's program takes only baby steps in reforming our entitlement programs,” Sen. Orrin Hatch (R, Utah), lead Republican on the Senate Finance Committee, said during a recent hearing.

Renewed calls for IPAB repeal

Physician organizations also gave the White House budget mixed reviews. The administration is committed to repealing Medicare's sustainable growth rate formula and replacing it with a system that encourages doctors to provide more efficient, higher-quality care. Such an approach would allow for several years of stable payments to give physicians time to adapt to new, accountable payment models. Jeremy A. Lazarus, MD, president of the American Medical Association, said the AMA was pleased that the administration supported SGR repeal and the move toward more value-based payment models.

But the budget “takes a step backward” by setting another arbitrary spending target for the Medicare IPAB, he said, a move that could mean deeper pay cuts for doctors. The AMA and others in organized medicine strongly support bipartisan IPAB repeal legislation, likening the IPAB to the SGR formula, another provision in Medicare statute that arbitrarily threatens cuts to doctor payments.

The encouraging news is that health care spending growth “has been well below projections so that the goals of the IPAB in savings are happening without the need for their intervention,” said M. Eugene Sherman, MD, chair of the American College of Cardiology Advocacy Steering Committee. But given the uncertainties that still surround the operations of this board, the ACC does not support lowering IPAB's threshold for action, he said.

Hospitals expressed their own warnings about certain provisions of the blueprint. While appreciative of the administration's proposal to delay reductions to the disproportionate share hospital payments that help cover care for poor patients who can't afford their bills, “we're concerned the delay comes at the expense of higher DSH cuts the following two years and a $3.6 billion baseline adjustment in 2023,” said Bruce Siegel, MD, MPH, president and CEO of the National Assn. of Public Hospitals and Health Systems.

Another area of concern for hospitals was the budget's measure to reduce Medicare's coverage of bad medical debt from 65% to 25% over three years. The administration's reasoning is that private payers typically don't cover unpaid amounts owed by beneficiaries. By bringing Medicare policy more in line with how private insurers operate, the White House estimates that the program could save more than $25 billion over 10 years.

For hospitals, less federal support on bad debt means higher uncompensated care costs, said Blair Childs, senior vice president of public affairs with the Premier health care alliance. The facilities are not going to get that money back, so this effectively is a cut, he said.

In his statement, Dr. Siegel cautioned lawmakers to weigh these Medicare cost savings “against their potential to financially burden beneficiaries and their providers.” The bad-debt provision, as well as the administration's proposed cuts to Medicare medical education payments, “would weaken the ability of hospitals to provide comprehensive services to communities and to train the next generation of physicians, nurses and allied health professionals,” he said.

The $11 billion in proposed cuts for Medicare graduate medical education funding received pushback from doctors' organizations as well. “In 2013, 528 U.S. medical school seniors failed to match to a residency program. As the nation deals with a physician shortage, it is important that all medical students can complete their training and care for patients,” the AMA's Dr. Lazarus said.

Budget would bolster public health

Glen Stream, MD, chair of the American Academy of Family Physicians board of directors, also expressed concerns about the proposed reductions to medical education. But several of the Obama budget's proposals deserve support, he said.

In particular, he commended the inclusion of a plan to raise tobacco taxes to reduce use of these products. “Experience has demonstrated that increased taxes on tobacco products inhibit the use of tobacco, especially among teenagers and young adults who haven't started smoking or using other tobacco products,” Dr. Stream said.

Physicians also supported the administration's continued efforts to boost awareness of and treatment for mental health problems in teenagers and young adults. The HHS portion of the budget calls for a $130 million investment to train 5,000 additional health care professionals, educate teachers and other adults on the signs of mental illness, and offer counseling services to young people. The budget also earmarks $30 million for the Centers for Disease Control and Prevention to create a national “violent death” surveillance system, as well as for additional research on gun violence.

In light of the December 2012 shootings at Sandy Point Elementary School in Newtown, Conn., the American Academy of Pediatrics said funding for more research and training would help improve safety in schools and communities. “Pediatricians now charge Congress with expanding upon the president's plan by proposing bigger, bolder policies to provide children, adolescents and young adults with access to high-quality, affordable mental health services,” said AAP President Thomas K. McInerny, MD.

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White House targets some doctor, hospital pay

Much of the $400 billion in net, 10-year health care savings in President Obama's fiscal 2014 budget proposal would come from larger Medicare drug rebates from pharmaceutical companies. However, a significant portion of the savings also would come from provisions that affect doctors, hospitals and other health professionals.

Proposal 10-year savings
Physicians and others
Modernize payments for clinical laboratory services $9.5 billion
Exclude services from in-office ancillary services exception $6.1 billion
Reduce payment for Part B drugs to 103% of average sales price in physician offices* $4.5 billion
Limit Medicaid payment for durable medical equipment $4.5 billion
Require prior authorization for advanced imaging
Reduce Medicare bad debt payments $25.5 billion
Reduce graduate medical education payments $11.0 billion
Rebase future Medicaid disproportionate share hospital allotments $3.6 billion
Reduce payments to and change designations of critical access hospitals $2.1 billion
Delay Medicaid DSH reductions until 2015
Post-acute care professionals
Implement market basket reductions $79.0 billion
Establish bundled payments $8.2 billion
Encourage appropriate use of inpatient rehabilitation facilities $2.5 billion
Implement skilled nursing facility readmissions reductions policy $2.2 billion
Equalize SNF-IRF payments for certain conditions $2.0 billion
Strengthen Medicare Independent Payment Advisory Board to reduce Medicare cost growth $4.1 billion

*Manufacturers would be required to pay Part B drug rebates in certain instances to preserve patient access to care.

Source: “Analysis of the President's Fiscal Year 2014 Budget: Implications for the Health Care Sector,” Avalere Health LLC, April 11

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HHS budget highlights

President Obama's fiscal 2014 budget blueprint calls for $80.1 billion in discretionary funds for the Dept. of Health and Human Services, a nearly $4 billion increase from 2012's enacted level. The proposal includes investment in Affordable Care Act implementation and medical research while eliminating or reducing funds to certain block grant programs. It also places a special emphasis on expanding mental health services. The 2014 request includes:

  • $371 billion in projected Medicare savings over 10 years
  • $22.1 billion in projected Medicaid savings over 10 years
  • $100 million to support Alzheimer's research, education and outreach
  • $2.4 billion for the Ryan White HIV/AIDS program
  • $1.5 billion to support ACA health insurance exchanges
  • $327 million to improve access to preventive and reproductive health services for 5 million low-income individuals
  • $130 million to expand mental health services for students and young adults through training, educational support and counseling help
  • $30 million for the Centers for Disease Control and Prevention to support a national “violent death” surveillance system and gun violence research

Source: “Fiscal Year 2014 Budget in Brief: Strengthening Opportunity and Health for All Americans,” Dept. of Health and Human Services, April 10 (link)

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External links

“Fiscal Year 2014 Budget in Brief: Strengthening Opportunity and Health for All Americans,” Dept. of Health and Human Services, April 10 (link)

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