President's FY 2016 Budget Proposal Would Save Nearly $400 Billion

BNA’s Health Care Daily Report™ sets the standard for reliable, high-intensity coverage of breaking health care news, covering all major legal, policy, industry, and consumer developments in a...

By Nathaniel Weixel

Feb. 2 — President Barack Obama's fiscal year 2016 budget request released Feb. 2 includes nearly $400 billion in proposed health-care savings over 10 years.

According to budget tables, much of the savings would affect Medicare providers, at nearly $350 billion over the decade ending in 2025. Large parts of the savings come from adjustments to provider rates and Medicare structural reforms. For example, the budget proposes to save approximately $100 billion through 2025 by adjusting payment updates for certain post-acute care providers, and to align Medicare drug payment policies with Medicaid for some low-income patients, saving $116 billion over the decade.

The administration also proposes to reduce Medicare bad debt payments, saving over $31 billion. The budget would also extend the Medicare Hospital Insurance Trust Fund solvency by approximately five years, and extend the Medicaid primary care payment increase through calendar year 2016.

In addition, the budget proposes extending the Children's Health Insurance Program through 2019, which would cost about $11.8 billion over 10 years. That proposal would be paid for through an increase in tobacco taxes, the administration said. Without congressional action, CHIP funding will expire Sept. 30, the end of FY 2015.

The budget also calls for replacing Medicare's sustainable growth rate (SGR) formula with one that promotes new payment models and more efficient delivery of care. Payments to doctors are set to be cut by 21 percent in April if the SGR isn't replaced or patched.

Many of the legislative proposals have appeared in previous budgets proposed by the administration.

For example, the budget proposes to save over $66 billion over the decade by increasing income-related premiums under Medicare Parts B and D. For FY 2015, the White House proposed similar changes to Medicare premiums that were estimated to save almost $53 billion.

The proposed health spending blueprint would also provide for continued full implementation of the Affordable Care Act in FY 2016 through the operation of health insurance exchanges, the premium tax credits and cost-sharing assistance, HHS Secretary Sylvia Mathews Burwell told reporters at a press conference announcing the budget plan.

‘More of the Same.'

Republican lawmakers immediately criticized the budget request as partisan posturing.

“For six years the president has pursued higher taxes and higher spending, and our economy has paid the price,” House Ways and Means Committee Chairman Rep. Paul D. Ryan (R-Wis.) said in a statement. “This budget is simply more of the same.”

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said the request “lacks fiscal responsibility, not ever reaching a balance, and does nothing to reform the greatest drivers of our debt—Medicare, Medicaid, and Social Security. This budget is partisan, not practical. Even the White House has conceded it will be a nonstarter with Congress.”

Health-care stakeholder groups took issue with the plan to cut Medicare payments.

Rich Umbdenstock, president and chief executive officer of the American Hospital Association, in a statement said the proposed reductions in the budget “are short-sighted at a time when our nation’s health care infrastructure needs to be strengthened. Many items in today’s proposal would seriously challenge hospitals’ ability to keep the promise of maintaining access to quality health care services.”

Umbdenstock noted the budget blueprint doesn't spare “teaching hospitals, post-acute providers or critical access hospitals—all of which play key roles in ensuring that people in the communities they serve have access to health care. It also seeks to reimburse hospitals at the same amount as physician offices and other ambulatory facilities, failing to recognize the very different clinical capabilities, access to all and 24/7 emergency services hospitals provide.”

Bruce Siegel, president and chief executive officer of America's Essential Hospitals, which represents safety-net facilities, said those hospitals “cannot withstand more reductions in federal spending. These proposed cuts would jeopardize access to care for low-income patients, as well as trauma care and other vital services to entire communities.”

Pharmaceutical Research and Manufacturers of America (PhRMA) President and Chief Executive Officer John J. Castellani in a statement decried the proposal to align Medicare Part D with Medicaid.

“The President’s budget contains harmful proposals that fundamentally alter the structure of the Medicare Part D program. Medicare Part D is a widely successful program, keeping costs low for both beneficiaries and taxpayers through plan competition and negotiation, while also helping to hold down other health care costs by improving adherence to needed medicines,” Castellani said. “The program has improved seniors’ access to medicines and kept premiums low, but the President’s proposals could jeopardize that access by driving up premiums, reducing choice and restricting coverage.”

Action Unlikely

Although the administration's spending proposals are unlikely to be enacted by Congress as submitted, they can serve as road maps, helping to guide Democrats in negotiating specific FY 2016 appropriations.

“I don't think there are too many [proposals] in here that will change how Congress sees” its relationship with the president, Elizabeth Carpenter, a director at the consulting firm Avalere Health, told Bloomberg BNA. “There's nothing game-changing in there, lots of things we've seen before.”

Some of the strongest language in the budget described a proposal to grant the secretary of HHS the authority to negotiate drug prices for biologics and other medications in the Medicare Part D program. Tricia Neuman, senior vice president at the Kaiser Family Foundation, told Bloomberg BNA it was interesting that although no savings were proposed, there was a clear escalation of rhetoric. The budget alludes to congressional debate on the issue of drug prices and says the administration wants to work with Congress.

Delivery Reform

Many of the policy proposals in the budget are intended to reform the health-care delivery system to focus on value, and analysts said they're in line with the administration's goal of making 30 percent of Medicare payments through alternative payment models by 2016.

For example, the budget encourages post-acute providers, such as nursing homes and home health agencies, to deliver care efficiently by making a single (bundled) payment for such services. It also includes proposals that will enhance the ability of accountable care organizations to increase quality and reduce costs.

The budget proposes allowing ACOs to pay certain beneficiaries' costs for primary care visits. It also would allow the Centers for Medicare & Medicaid Services to assign beneficiaries to federally qualified health centers and rural health clinics participating in the Medicare Shared Savings Program (MSSP), which is the ACA provision calling for the creation of ACOs.

Neuman noted that although those ACO provisions won't generate much savings ($140 million combined over 10 years), they show the administration's willingness to “push the ACO envelope” by giving the organizations more latitude over their patient population.

SGR Reform

The budget also includes a proposal to “accelerate physician participation in high-quality and efficient health-care delivery systems” by repealing the SGR formula and reforming Medicare physician payments “in a manner consistent with the reforms included in recent bipartisan, bicameral legislation.”

Reforming the SGR would cost $44 billion over 10 years. The reform would eliminate the SGR entirely and establish annual physician payment updates while creating incentives for physicians and other practitioners to participate in alternative payment models focused on quality and efficiency. It would also streamline value-based incentives for the physicians who remain outside of such models. However, the budget didn't offer any way to pay for the repeal.

The proposal is similar to what was included in the bill that passed the House in 2014, the proposed SGR Repeal and Medicare Provider Payment Modernization Act (H.R. 4015). Republicans in 2014 proposed delaying the Affordable Care Act's individual mandate to pay for the bill, and that failed to advance in the Democratic-controlled Senate.

The most recent patch was signed into law April 1, 2014.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at

The HHS budget specifics are at