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Health: Federal Payment Changes Would Save $399 Billion

By Kerry Young, CQ Roll Call

February 2, 2014 -- President Barack Obama's budget would strip away about $399 billion in federal health costs over a decade, with the bulk of the proposed savings coming from reducing Medicare payments for drugs and services for people recovering from serious illness or injuries.

Certain high-earners enrolled in Medicare, the federal health program for the elderly and disabled, also would pay more out of pocket for drug and outpatient services.
The White House would expand and overhaul certain other programs for the decade ending in fiscal 2025.

Among these new expenses is a $44 billion tab for what's described as an overhaul of Medicare payments to doctors to "promote participation in high-quality and efficient health care delivery systems."

The White House also wants to eliminate a 190-day lifetime Medicare limit on use of inpatient psychiatric center services, with an estimated ten-year cost of $5 billion. And the administration proposed to require full coverage of preventive health and tobacco cessation services for adults in traditional Medicaid, the health program for the poor, at a cost of $754 million.

In many cases, the fiscal 2016 budget request recycled past proposals. Some $66.4 billion over a decade would come from raising income-related premiums for Medicare Part B services, which include routine medical care, and the Part D prescription drug program. In last year's budget request, similar changes to Part D and Part B premiums were estimated to generate about $52.8 billion.

This year's request also projects $102 billion in savings over a decade from blocking payment increases for certain kinds of centers and hospitals that help people recover after serious illnesses and injuries. The estimate of savings was about $98 billion in the fiscal 2015 request.

The new budget plan estimates savings of $116 billion from aligning Medicare drug payment policies with less generous ones used for Medicaid. That was little changed from a $117 billion estimate cited in the fiscal 2015 request.

The latest White House budget also calls for cuts to so-called critical-access hospitals so that facilities are paid at 100 percent of "reasonable costs" for savings of $1.73 billion. 

Hospitals already have signaled their displeasure.

"While we welcome reform initiatives that strengthen hospital's progress in transforming health care delivery, policymakers must also understand that further hospital cuts undermine our ability to innovate and invest in key structural health care changes that are driving the health care spending slowdown and historic low growth in hospital prices," said Chip Kahn, president of the Federation of American Hospitals in a recent statement. "Cuts to hospital Medicare payments will destabilize this dynamic, and impede important transformations that are improving the efficiency and quality of our health care delivery system."

The American Hospital Association had registered objections last month to such proposals, asking Obama in a January letter not to repeat cuts such as the haircut for critical-access hospital payment rates.

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