President Barack Obama's budget proposal would slash more than $415 billion in Medicare funding over the next 10 years—largely echoing previous editions—and he inserted several provisions that would advance the administration's effort to move Medicare to value-based payments.
With the lame-duck president facing Republican majorities in the House and Senate, his spending blueprint is generally considered dead-on-arrival. Some observers, however, say that details of the president's budget are likely to influence whatever budget deal is reached with congressional leaders.
Many of the proposed Medicare cuts are similar to ones in Obama's previous budgets, including lower payments for some post-acute providers. The president is also calling for the end of sequestration, the broad federal cuts triggered by the Budget Control Act of 2011 that reduced Medicare rates by 2% through 2021. Obama also touted the Patient Protection and Affordable Care Act as a reason for the country's subdued healthcare costs.
But his 2016 budget (PDF) had several newer items that are certain to raise some eyebrows in the healthcare industry.
Notably, about $126 billion of the Medicare savings are expected to come from pharmaceutical changes. Obama said his “administration is deeply concerned with the rapidly growing prices of specialty and brand-name drugs,” thereby proposing HHS to negotiate prices for “biologics and high-cost prescription drugs.” Currently, Medicare is not able to negotiate for drugs. High-cost drugs such as Sovaldi, Harvoni and Viekira Pak, which treat hepatitis C, have been one of the mostly hotly contested issues among providers, payers and drugmakers the past year.
If Medicare were able to negotiate drug rebates for lower-income beneficiaries like state Medicaid programs can, it would save more than $116 billion over the next decade, according to the budget.
Obama also called for more care to be provided in “the most appropriate ambulatory setting” to save on costs, a measure that would save $29.5 billion through 2025. The Medicare Payment Advisory Commission has consistently advocated for such a policy, arguing that many services can be safely provided in outpatient settings. Outpatient procedures command lower reimbursement, which would save Medicare money. Hospitals, however, have criticized such measures, saying those types of payment adjustments would hurt their ability to fund other, less profitable service lines.
Other healthcare provisions include a permanent fix to Medicare's sustainable growth-rate formula for paying physicians, the reduction of Medicare bad-debt payments to providers, and almost $16.3 billion in cuts to graduate medical education funding. Obama also proposed funding the Children's Health Insurance Program through 2019, which would cost $11.9 billion, and extending Medicaid's enhanced primary-care doctor payments through 2016 at a cost of $6.3 billion.
For yet another year, Obama proposed cutting the enhanced Medicare payments to critical-access hospitals. The government pays those rural hospitals with fewer than 25 inpatient beds 101% of their costs. The extra 1% payment has been used to help prop up those hospitals since they usually experience unstable volumes and high rates of lower-income patients.
In the budget document, the president said cutting those payments to 100% of costs, as well as eliminating the critical-access tag for several hospitals, would save $2.5 billion over the next decade.
Obama's budget is expected to go nowhere in the Republican-led Congress and mostly serves as a political tool to showcase the president's priorities. His budget, which relies heavily on increased taxes on wealthy people and corporations, was previewed during his State of the Union address.
The GOP already has sharpened its rhetoric. Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, said in a statement that Obama's budget “shamelessly panders to the Democratic base and does nothing to put our nation back on a sound fiscal footing.”
But the proposal, more progressive in some of its policies than past budgets, has also emboldened Obama allies to speak out in support. “Building on the economic progress we have made, this proposal helps stretch the paychecks of working families, encourages higher wages and sharpens our competitive edge in the 21st century global economy,” said Rep. Chris Van Hollen (D-Md.), ranking member of the House Budget Committee.
Follow Bob Herman on Twitter: @MHbherman