Providers Would Feel Impact of Budget Savings Proposals

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By Nathaniel Weixel

Feb. 9 — President Barack Obama's FY 2017 budget request is projected to cut $477 billion from Medicare over a decade to slow the pace of growth, much of it at the expense of health-care providers.

Changing the way Medicare reimburses certain providers would save over $421 billion. The budget request includes a package of proposals that the White House said would “extend Medicare’s solvency while encouraging provider efficiencies and improved patient care among hospitals and post-acute care providers.”

The $4.1 trillion budget proposal—Obama's highest proposal yet—stays under the sequestration caps for 2017 spending that were outlined in the 2016 congressional budget deal. It includes various proposals that are well-worn Democratic priorities, but also includes some provisions that could see bipartisan support. Such proposals include the previously announced $1.1 billion initiative to combat opioid abuse and a $500 million, two-year initiative to expand access to mental health services.

The budget request would raise $41 billion by increasing premiums for Medicare Part B doctor visit coverage and Part D prescription drugs. Fostering competition in Medicare Advantage programs is projected to save $77 billion. Speeding the availability of generic drugs is estimated to save $14 billion. In total, $378 billion in lower health costs are proposed in order to lower the projected deficits. It also would tweak the Cadillac tax on high-deductible insurance plans.

While much of the spending is mandatory for Medicare and Medicaid, the health budget also includes $77.9 billion of discretionary spending.

With a Republican-controlled Congress, it's not likely many of the proposals will be enacted.

“While major federal legislative changes are unlikely leading up to the election, the administration will likely pursue policy changes that can be implemented without Congress to secure its legacy on priority issues,” Elizabeth Carpenter, vice president at the consulting group Avalere Health, said in a statement. “In addition, the president’s budget serves as a potential starting point if a Democrat wins the 2016 presidential election.”

Provider Cuts

Leading up to the release of the budget, providers—especially hospitals—had lobbied the administration not to cut Medicare reimbursements. However, even if Congress were to approve the budget request, spending on Medicare still would exceed $1 trillion by 2026, according to budget tables.

Charles Kahn III, president and chief executive officer of the Federation of American Hospitals, said in a Feb. 9 statement that the proposal “misses the mark. It does offer hope for sustaining and expanding coverage gains. And it lifts the Medicare sequestration—but nullifies any benefit by replacing it with warmed over cuts that would threaten patient access to hospital care for low income Americans and seniors.”

The budget also proposes reductions to the annual payment updates received by post-acute care providers that would save almost $87 billion over 10 years.

Medicaid Proposals

According to budget tables, another large target is the pharmaceutical industry. Lowering Medicare drug payment policies so that they align with Medicaid policies for low-income beneficiaries would save $121.3 billion.

According to the Department of Health and Human Services, drug spending increased by 12.2 percent in 2014, making it one of the fastest growing portions of health-care cost. Taking aim at the prices Medicaid plans pay for certain drugs (especially hepatitis C medications), the budget would create a voluntary Medicaid purchasing pool for high-cost drugs, which would aim to negotiate deeper supplemental rebates on behalf of the program.

The budget also includes a previously announced proposal that would ensure a full three years of 100 percent federal funding for newly eligible coverage in all Medicaid expansion states.

CHIP Extension

The budget also would extend funding for the Children's Health Insurance Program an additional two years, through 2019. The program is scheduled to end in 2017, but experts and federal advisers have said CHIP is more affordable for families and covers a wider range of services than traditional Medicaid or commercial plans on the insurance exchanges. CHIP serves more than 8 million children of working parents who aren't eligible for Medicaid. The White House said the extension would ensure “continued, comprehensive, affordable coverage for these children.”

In an effort to control Medicaid costs, the budget would establish an 85 percent medical loss ratio for managed care plans—meaning 85 percent of premium dollars need to be spent on medical care, not administrative costs. The proposal aligns Medicaid with Medicare Advantage and private insurance requirements and builds on the policies in the proposed rule on Medicaid managed care published in 2015 .

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

To contact the editor responsible for this story: Brent Bierman at

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