Healthcare Business News
President Barack Obama

Reform funding remains priority in Obama budget

By Jessica Zigmond and Rich Daly
Posted: February 13, 2012 - 3:15 pm ET

President Barack Obama released his fiscal 2013 budget that includes about $5 billion in Medicare payment cuts for that year and aims to save about $364 billion in total federal healthcare spending over the next decade.

The administration's fiscal 2013 budget has requested $76.4 billion for HHS, or about $300 million above fiscal 2012's funding level. “The budget maintains investments in the administration priorities such Affordable Care Act implementation and Head Start,” according to an HHS summary (PDF) in the administration's financial blueprint said. “Savings are achieved through difficult trade-offs, such as the consolidation of environmental health and substance-abuse-prevention grant programs.”

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With a baseline of about $528 billion for the Medicare program in fiscal 2013, the president's budget proposes about $5 billion in Medicare reductions (PDF) for that year to the Medicare program. The bulk of Medicare spending reductions come from requiring drug rebates from manufacturers (PDF) through the Part D program, just as they are required to provide in Medicaid. Out of the $5 billion in total fiscal 2013 savings that the budget projected from such measures, $3.8 billion would come from Medicare adopting the Medicaid drug policies. Another $770 million would be saved through Medicare payments on patients' bad debts. Additionally, the budget would save $180 million in fiscal 2013 by returning to the so-called 75% rule for inpatient rehabilitation facilities. For this, these facilities must meet a compliance threshold that specifies a minimum percentage of patients with designated medical conditions who require special services. The budget also projects saving $40 million by cutting reimbursements for some types of medical imaging technology.

Meanwhile, the majority of the targeted reductions in improper payments ($110 million from the total of $161 million) would come from barring states from waiving third party liability when other entities are financially responsible for costs incurred by Medicaid.

For the next fiscal year, the budget proposes cuts to HHS' Centers for Disease Control and Prevention, which would see its funding level decrease to about $5.07 billion for fiscal 2013 from $5.73 billion in fiscal 2012, and to the Substance Abuse and Mental Health Services Administration, which has a budget request of $3.15 billion in fiscal 2013, compared with about $3.35 billion in fiscal 2012.

As part of the plan, the CMS would see an increase of about $993 million —a 21% boost—in its overall funding level for the next fiscal year, up to about $4.8 billion in fiscal 2013 from about $3.8 billion in fiscal 2012. Meanwhile, the National Institutes of Health would see its funding remain level at about $31 billion in fiscal 2013, while a budget summary mentions “implementing new grant management policies to increase the number of new research grants awarded and continue to focus resources for first-time grantees.”

According to the budget, the administration said it is “committed to working with Congress to fix the SGR” and that failing to fix the problem “masks the long-run deficit,” but it did not offer suggestions on how to achieve this goal.

The budget includes several cost-saving initiatives that aim to extend the Medicare Hospital Insurance trust fund by two years. Such changes include reducing provider pay rates that “exceed patient care costs;” cutting reimbursements to providers for patients who did not pay their deductibles and copayments; and cutting Medicare pharmaceutical reimbursement rates to the level of Medicaid.

Food and Drug Administration funding would increase by $11 million, or about half of 1%, to $2.5 billion. The agency's total budget authority—including funding from fees—would rise from $3.8 billion to 4.5 billion, a nearly 15% increase.

The proposed budget would accelerate by three years the issuance of state innovation waivers—to begin in 2014—to implement various aspects in the Patient Protection and Affordable Care Act. That change to the 2010 healthcare law was first proposed by Sen. Ron Wyden (D-Ore.).

To reduce fraud and other improper payments in federal healthcare programs, the budget would spend $610 million on prevention programs that target “high risk services and supplies,” among other steps.

In the area of public health, the budget includes $547 million to develop the next generation of medical countermeasures against chemical, biological, radiological and nuclear threats. Also in fiscal 2013, the administration plans to use remaining pandemic flu resources to support the development of facilities for vaccines and other biologics.

Meanwhile, an HHS summary noted that in total, the budget spurs investments that will help train more than 2,800 additional primary care providers expected to enter the workforce over the next five years. It would also allocate $1.25 billion from the Prevention and Public Health Fund to improve health outcomes and lower costs, such as through immunizations and ways to reduce healthcare-associated infections.

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