Medicare Providers Say Obama Budget Plan Would Further Exacerbate Payment Woes

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By Steve Teske  


Health care providers April 10 cried foul over Medicare spending reductions in President Obama's fiscal year 2014 budget proposal, saying the cuts will further hurt providers already struggling with reductions included in the Affordable Care Act and other recently enacted laws.

Obama April 10 proposed a budget plan for FY 2014 that would reduce federal health care spending $401 billion over 10 years but largely leave Medicaid spending intact as states move to expand program coverage under ACA.

The budget proposal would reduce Medicare spending $371 billion over 10 years, taking money from numerous provider groups, including hospitals, managed care plans, nursing homes, and home health agencies.

It also would reduce Medicaid spending about $22 billion over 10 years, less than half of the $56 billion proposed in the FY 2013 plan. But the proposal would increase Medicaid spending in fiscal 2014 (see related article).

Providers said the White House proposal, if it were to become law, would harm patient access to care and negatively impact providers who already are reeling from ACA and the so-called fiscal cliff deal provisions.

Piecemeal Reductions

“The cumulative weight of these painful, piecemeal reductions coming on top of so many other cuts is affecting access to care for seniors and disabled Americans,” the Federation of American Hospitals said in an April 10 statement.

“Addressing our nation's fiscal challenges and increasing the efficiency of our health care system are critical path goals which demand creative, reasoned and sustainable solutions,” FAH said. “Proposals that would continue to cut critical reimbursement to hospitals are counterproductive, mask efforts to attack the true drivers of cost in the health care system, and will make the task of finding a durable solution addressing Medicare's fiscal viability even more difficult.”

“Instead of payment cuts that undermine hospitals' ability to transform health care, we urge the Obama Administration and Congress to seek a more transformational approach to reduce costs,” the Premier healthcare alliance added in a statement.


“The reality is that one in four hospitals operate in the red, so additional cuts will hamper their ability to provide access to the latest treatments and technologies, and could result in fewer caregivers and longer waits for care,” AHA said.  



Providers noted, however, that the budget plan would cancel sequestration, across-the-board spending cuts to federal programs called for in the Balanced Budget Act of 2011. Under the law, Medicare provider spending is being reduced 2 percent annually.

The budget, which was previewed April 5, comprises the last offer from Obama to House Speaker John Boehner (R-Ohio) in the fiscal cliff talks that were held late last year, which was rejected by House Republicans. Many of the cuts also mirror those proposed by the White House in its FY 2013 spending blueprint (67 HCDR, 4/8/13).

Congressional Republicans again rejected the White House plan, saying that while Obama included some entitlement reforms in his budget, particularly for Social Security, the president still is seeking large tax increases to accompany them.

Pharmaceutical Cuts

The biggest Medicare spending cut would come from allowing Medicare to benefit from the same rebates that Medicaid receives for brand-name and generic drugs provided to low-income beneficiaries under Medicare's prescription drug program. That would save about $123 billion over 10 years.

The budget also proposes to save $50 billion over 10 years by making the wealthy pay more for their Part B and Part D coverage beginning in 2017. It also would reduce Medicare spending by $79 billion over 10 years by reducing marketbasket updates by 1.1 percentage points for post-acute care providers, such as inpatient rehabilitation facilities, long-term care hospitals, nursing homes, and home health agencies. The marketbasket is a measure of provider inflation and is used to help set provider payment rates.

Obama's proposal also would strengthen the Independent Payment Advisory Board, saving $4.1 billion over 10 years. IPAB, a 15-member advisory board included in ACA, is authorized to issue proposals to reduce Medicare spending if costs exceed a specific target. It has yet to become operational.

The budget blueprint also would reduce the amount of reimbursement hospitals can get to help defray the cost of outstanding patient bad debt, reduce spending for graduate medical education, and cut reimbursement to critical care access hospitals.

The blueprint also would reduce Medicare Advantage program spending by about $19 billion over 10 years.

Troubling Provisions

“Today's proposal contains troubling reductions to assistance to hospitals that help defray some of the costs of caring for low-income seniors known as bad debt,” the American Hospital Association said in an April 10 statement.

“In addition, the budget would jeopardize the ability of hospitals to train the next generation of physicians by cutting funding for graduate medical education, and hinder care for people in rural communities by reducing funding for critical access hospitals. The proposed cuts to post-acute providers, particularly to inpatient rehabilitation hospitals, would limit specialized care, while an expanded Independent Payment Advisory Board would remove elected officials from the Medicare decision-making process.”

“The reality is that one in four hospitals operate in the red, so additional cuts will hamper their ability to provide access to the latest treatments and technologies, and could result in fewer caregivers and longer waits for care,” AHA said.

In addition to allowing Medicare to benefit from the same rebates that Medicaid receives for brand-name drugs, the White House budget plan would accelerate drug discounts for Medicare beneficiaries in the so-called prescription drug coverage gap, saving about $11 billion over 10 years.

The Pharmaceutical Research and Manufacturers of America said in an April 10 statement that the White House budget “is bad for patients, bad for innovation, and bad for the economy” and would jeopardize the success of the Medicare prescription drug benefit.

Physician Payment Fix

A Centers for Medicare & Medicaid Services spokesman told BNA the budget also assumes Congress will prevent scheduled Medicare physician cuts from taking effect, and includes a payment freeze throughout the 10-year budget window. House Republicans are crafting legislation to replace Medicare's current physician payment system with a new model for physician reimbursement (65 HCDR, 4/4/13).

Physicians' Medicare reimbursement will be reduced about 25 percent in 2014 unless Congress intervenes.

The House and Senate already have passed FY 2014 budget proposals, which are intended as frameworks for legislative action and are not binding on committees or appropriators. With the submission of his budget, Obama joins House Republicans and Senate Democrats in laying out perhaps opening bids in negotiations to reach a larger budget deal likely to take place later this year.

Observers say the next deadline for reaching a possible budget agreement likely will occur this summer, when Congress will have to address the expiration of the federal government's authority to borrow money.

The House budget plan (H. Con. Res. 25) would cut Medicaid spending by $810 billion over 10 years and block-grant the program, turn Medicare into a premium support system, and repeal large portions of the Affordable Care Act. The Senate budget plan (S. Con. Res. 8) would reduce Medicare spending $275 billion over 10 years by building on ACA reforms.

Drastic Changes Not Needed

Speaking at the White House, Obama said changes must be made to Medicare, “but they don't have to be drastic ones. And instead of making drastic ones later, what we should be doing is making some manageable ones now. “

“The reforms I'm proposing will strengthen Medicare for future generations without undermining that ironclad guarantee that Medicare represents,” the president said. “We'll reduce our government's Medicare bills by finding new ways to reduce the cost of health care--not by shifting the costs to seniors or the poor or families with disabilities.

“I don't believe that all these ideas are optimal, but I'm willing to accept them as part of a compromise--if, and only if--they contain protections for the most vulnerable Americans,” Obama said.

Boehner April 10 rejected the budget plan, saying: 'I would hope that [Obama] would not hold hostage these modest reforms for his demand for bigger tax hikes. Listen, why don't we do what we can agree to do? Why don't we find the common ground that we do have and move on that?”

By Steve Teske  

The White House budget for HHS can be found at

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