Healthcare Business News
Richard Umbdenstock, president and CEO of the American Hospital Association

Healthcare providers oppose Medicare cuts in Obama's 2015 budget

By Paul Demko and Jessica Zigmond
Posted: March 4, 2014 - 6:00 pm ET

President Barack Obama is proposing more than $400 billion in cuts to Medicare over the next decade in his fiscal 2015 budget, an almost identical amount to what he recommended last year. But those cuts are heavily weighted toward future years, with only $3.5 billion occurring in 2015.

The president's fiscal blueprint also includes $73.7 billion in discretionary spending for HHS in fiscal 2015. That's a reduction of $6.1 billion—or 7.6%—from the current budget.

The cost of running is pegged at $1.8 billion next year, with two-thirds of that covered by user fees.

A way to pay for a fix to the volatile Medicare sustainable growth rate is not outlined, even though the budget lauds efforts to find a solution to the issue.

Among some of the other proposals:
  • More than $200 million in increased funding in 2015 for mental health programs for children. That includes $130 million aimed at reducing the use of psychotropic drugs for children in foster care programs.
  • $770 million in savings from prohibiting pharmaceutical companies from delaying the availability of generic drugs. A similar plan was included in the administration's 2014 budget plan, but was not enacted.
  • Expanding “quality incentives” for Medicare prescription drug plans. This would likely be similar to the star-rating system used to determine whether Medicare Advantage plans qualify for bonus payments. However, the budget doesn't propose any appropriations for the program.
  • $25 million in funding over two years aimed at preventing fraud in the state and federal insurance exchanges.
The president's budget includes $629 million to support operations of the federal health insurance exchange in 2015. In addition, the CMS will collect about $1.2 billion in user fees from issuers in the federally funded marketplace, as well as collections from the reinsurance and risk adjustment programs. That brings the total cost of the federal exchange to $1.8 billion for next year.

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The Federation of American Hospitals, which is hosting its annual meeting in Washington, was quick to oppose the Medicare payment cuts included in the president's proposal, which the group says comes on top of about $117.5 billion in cuts over 10 years that hospitals have faced since 2010.

“Among the threats included in the budget proposal are cuts to rural and rehabilitation hospitals,” Chip Kahn, president and CEO of the Federation of American Hospitals, said in a statement. “In addition, it further threatens seniors' access to vital hospital services by calling for cuts in vital Medicare backstop funding,” he continued. “Many key members of Congress, Democrats and Republicans, also oppose these Medicare 'bad debt' payment cuts, which provide crucial protection for seniors and are core payments that hospitals in their districts depend upon.”

Richard Umbdenstock, president and CEO of the American Hospital Association, said in a statement that the president's budget includes some “problematic policies” that would undermine hospitals' ability to improve the healthcare system and ultimately put access to services at risk for patients.

“We are concerned that proposed cuts to teaching hospitals will jeopardize these important organizations, which play a critical role in medical research and training the next generation of caregivers,” Umbdenstock said. “While we recognize that increased funding for training new primary-care physicians is included in the president's budget, this proposal is overshadowed by an ill-advised cut of $14.6 billion for medical education at a time when a physician shortage is real and expected to balloon as our population ages.”

The administration's budget praised congressional leaders for agreeing to a structural fix to the Medicare SGR, which is slated to result in $24 billion in reduced payments to doctors in 2015 if nothing changes.

It will be important to watch how—if at all—the president's 2015 budget intersects with a current bicameral proposal to repeal the SGR, said Don Moran, who worked in the Office of Management and Budget during the Reagan administration and is now president and CEO of the Moran Co., a healthcare consulting firm.

For instance, the president's budget notes that Medicare will continue its transformation “from a passive payer to an effective purchaser of high-quality, efficient care.” It also highlights the ACA's value-based purchasing program for hospitals and its requirement of the CMS to develop plans to implement value-based purchasing programs for skilled-nursing facilities, home health agencies and ambulatory surgery centers. So the question then becomes how these priorities might fit in with the proposals included in the SGR legislation.

“It is possible that they're endorsing the SGR bill, but they're not saying that,” Moran said of the Obama administration. “How does this budget help or hinder that?”

But Joseph Antos, a health policy expert with the Center of the American Experiment, points out that no means of paying for the agreement—which is projected to cost $138 billion (PDF) over a decade—has been reached and the Obama administration didn't provide any suggestions. “He doesn't propose to pay for it, and neither does anybody else, so I think we can kiss that one goodbye for this year,” he said.

Elizabeth Carpenter, a director of Avalere Health, points out that many of the proposals are familiar from prior year budgets. “None of these are surprising, and there's a lot of proposals that people have talked about for some time,” Carpenter said. “Certainly there is a greater emphasis on certain programs that are particularly appealing to folks in the president's party.”

For instance, the budget calls for $14.6 billion over 10 years for healthcare training initiatives. That includes $5.2 billion to support 13,000 new residencies for physicians. However, the 2015 budget proposal contains only $100 million of that spending. In addition, the administration proposed spending $3.9 billion over six years to support the National Health Service Corps. That would increase the number of individuals enrolled in the program from 8,900 to 15,000.

The prospects for Obama's $3.9 trillion budget proposal actually being enacted are bleak. That's particularly true this year because congressional leaders hashed out a budget agreement in December for the 2014 and 2015 fiscal years. There will be little appetite for re-opening those congressional negotiations.

“The hard task has already been achieved, and that is the overall number that was agreed upon,” said Lara Brown, an associate professor at George Washington University's Graduate School of Political Management. “The president's budget proposal is to a certain extent a campaign document. They don't expect the Congress to actually pick it up.”

Senate Budget Chairman Patty Murray (D-Wash) has indicated that she doesn't intend to submit a budget for 2015. By contrast, House Budget Chairman Paul Ryan (R-Wis.), who is widely thought to be eyeing a 2016 presidential bid, plans to put forth his own fiscal blueprint, although he has not indicated when the details will be released. On Monday, Ryan issued a report, “The War on Poverty: 50 Years Later,” that provided a pointed critique of federal safety net programs, including Medicaid. It concluded that the federal healthcare program for the poor does little to improve the health of beneficiaries and in some instances dissuades them from entering the workforce. In the past, Ryan has proposed essentially turning Medicaid into a state block grant program.

But even if the president's budget isn't likely to gain much traction, it establishes a framework for the fiscal debate heading into the 2014 congressional elections. If Republicans are able to swing six seats and take control of the Senate, implementation of the federal healthcare law—the president's signature domestic achievement—would be jeopardized.

The Hill reported Tuesday that the Obama administration plans to announce that it will allow health plans that don't comply with the coverage requirements of the ACA to be expanded for another year. That would lessen the likelihood that tens of thousands of individuals would be receiving cancellation notices around the time that voters head to the polls in November.

Brown suggests that Democrats in tough re-election contests will seek to ignore the federal healthcare law, which remains broadly unpopular four years after passage. “Democrats are mostly going to change the subject as much as they can,” she said.

Follow Jessica Zigmond on Twitter: @MHjzigmond

Follow Paul Demko on Twitter: @MHpdemko

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