Major Healthcare Implications of President Obama’s Budget

February 13, 2012

Pardon Our Dust

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President Obama yesterday released his proposed budget, which serves as an outline of his re-election message and a blueprint of White House strategy for action on deficit reduction and taxes that will take place after the elections as the Bush tax credits expire and the sequestration passed as part of the 2011 deficit reduction is about to go into effect.  
Rep. Paul Ryan, Chairman of the House Budget Committee, will most likely produce a budget resolution similar to the resolution his committee produced last year, which contained many Medicare “reforms” in addition to cuts. The Senate is unlikely to propose a budget resolution, or act on one, sent to it from the House. Therefore, we are likely to have another year without a final budget resolution. 
The President’s budget would reduce Medicare and Medicaid spending as well as freezing spending in other health programs by approximately $360 billion over 10 years.  The Medicare and Medicaid savings come from payment “innovations.” Many of these proposals are similar to what was proposed by the Administration in September 2011 during deficit reduction talks. These include Medicare drug rebates for low income beneficiaries, and increased power to the Independent Payment Advisory Board to drive down Medicare spending. The President is also proposing a “modified” Part B deductible for beneficiaries who join the program after 2017, and adding a co-payment for home health services.  Also in 2017, the Administration proposes to apply a premium surcharge for new beneficiaries if they choose to have Medigap coverage that provides first dollar coverage. 

Additional savings in the President’s budget come from:
  • Reducing Indirect Medical Education payments by $10 million;
  • Reducing Medicare payments for bad debt by $36 billion;
  • Reducing payments to rural providers by $2 billion; and
  • Reducing payments to skilled nursing facilities, long-term care hospitals and inpatient rehab facilities by $63 million.

In regards to Medicaid, the President proposes curtailing provider taxes that states can impose in 2015 – a construct states use to draw federal dollars.  The Administration also proposes a single blended matching rate for Medicaid and CHIP spending beginning in 2017.  The budget also rebases Disproportionate Share Hospital allotments in 2021.  These Medicaid proposals are projected to save approximately $51 billion over 10 years. 
Under the Obama budget, the Centers for Medicare & Medicaid Services (CMS) would receive a 26-percent increase ($1 billion) in its program management funds justified by CMS’ new responsibilities for reform.
The budget would freeze biomedical research fund at $30.7 billion at the National Institutes of Health. The increases in the Food & Drug Administration (FDA) budget come from new industry user fees, including a proposed $220 million food establishment charge. However, the budget also proposes trimming five years off the existing 12-year exclusivity, allowing biosimilars to come to market within seven years. This achieves $11 billion in savings. An additional $3.8 billion in savings is achieved by letting the Federal Trade Commission block patent settlement agreements that extend the time branded drugs stay on the market without competition from generics including “pay for delay” arrangements.
The budget also would include $50 million to establish the Strategic Investor, an independent venture capital entity in the Office of the Assistant Secretary for Preparedness and Response.