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Budget Would Fund Two-Year Doc Fix by Targeting Waste, Drug Payments

By John Reichard and Jane Norman, CQ HealthBeat

February 14, 2011 – The centerpiece of the Obama administration's fiscal 2012 budget proposal is the prevention of Medicare payment cuts to physicians, and it proposes an increase in funding for the National Institutes of Health by $745 million at a time when Republicans want to slash federal programs across the board.

The budget was good news doctors and biomedical researchers as well as for hospitals, which avoided direct Medicare cuts—contrary to speculation that their payment updates would be trimmed beyond the levels in the health care overhaul law. But it was bad news for programs that train doctors in children's medical hospitals; the White House proposed zeroing-out funding for those accounts.

The budget also would reduce funding for certain programs at the Centers for Disease Control and Prevention, and to some degree, draw money from a preventive-care trust fund created by the health care overhaul law (PL 111-148, PL 111-152). Public health advocates envisioned the fund as going entirely to pay for new programs, not to plug budget holes in existing CDC programs.

The Obama budget would take the physician payment issue off the table through the 2012 elections while preserving funding for the health care overhaul, the president's signature legislative accomplishment.

The budget says preventing cuts in 2012 and 2013 to physician payments would cost $62 billion over 10 years. About half of that total would be offset through "program integrity" provisions—targeting fraud, waste, and abuse. The remainder of the money would come partly from $10.5 billion in other Medicaid cuts and $13 billion from lower payments to pharmaceutical companies.

President Obama said in remarks at a Baltimore school that the budget proposal includes "savings to make sure doctors don't see their reimbursements slashed" and to ensure that they remain in the Medicare system.

The president's focus on doctor payments follows a House Ways and Means Committee hearing last week in which Republicans repeatedly raised concerns about physicians leaving the Medicare program. The GOP is raising the issue as millions of baby boomers begin entering the program. The Medicare Payment Advisory Commission has said that doctor participation in the program remains stable.

Republicans have talked about using provisions that fund the health care overhaul law to instead fund a permanent overhaul for the controversial "Sustained Growth Rate" (SGR) Medicare doctor payment formula, which sets physicians up for years of big payment cuts.

Obama has said he is committed to permanently fixing the payment formula, but it appears that his budget proposal only offers proposals to pay for two years of forestalling payment cuts. The budget document puts the 10-year cost of "SGR relief"—continuing to review the formula from 2014 to 2021—at $315 billion.

The budget document says the budget proposes to continue current payment levels for physicians and offset the costs with "specific health savings, and assumes sustainable growth rate relief in future years with fully offset, consistent with recent congressional action."

The proposal adds: "The administration is committed to working with the Congress to achieve permanent, fiscally responsible reform and to give physicians incentives to improve quality and efficiency, while providing them with predictable payments for the care they furnish to Medicare beneficiaries."

Finding Offsets
The "pay-fors" involved in the doc fix are many, and some are relatively small. Some $32 billion comes from expanding program integrity authority at the Centers for Medicare and Medicaid Services, including $18 billion of reductions in the Medicaid provider tax threshold starting in 2015. Another $6.2 billion would come from recovering erroneous payments made to insurers in the Medicare Advantage program. And $3.4 billion would come from tracking "high prescribers and utilizers of prescription drugs in Medicaid."

Another big category of pay-fors for the doc fix relates to pharmaceuticals. Of the $13 billion to be saved in this category, $8.8 billion would come from prohibiting brand and generic drug companies from delaying the introduction of generic drugs and $2.3 billion from "modifying the length of exclusivity to facilitate faster development of generic biologics." Another $1.7 billion would come from streamlining "pharmacy benefit contracting in the Federal Employees Health Benefit Program."

John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), wasn't happy with the budget proposals when it came to prescription drugs. "PhRMA is disappointed that the president's budget proposal would diminish crucial incentives for future U.S. medical innovations," Castellani said in a statement.

In reality, changing the exclusivity period for biotech drugs from 12 years to 7 years and ending "pay for delay" deals in which brand name companies pay generic drug makers to delay introduction of their products after receiving FDA marketing approval will be difficult to get through Congress.

Another category of savings—"other Medicaid savings"—includes realizing $6.4 billion from trimming Medicaid durable medical equipment payments and $4 billion from "rebasing" payments to "disproportionate share hospitals—"DSH" facilities that treat unusually large numbers of poor patients. Hospitals slammed Medicaid cuts in the budget proposal, suggesting they would threaten the most vulnerable patients.

A final category of pay-fors consists of "other Medicare proposals." These include savings of $3.2 billion from dedicating penalties for not adopting electronic health records to the Medicare program and $2.2 billion from efficiencies relating to contracting with Quality Improvement Organizations or "QIOs," the entities responsible for improving quality of care in Medicare.

HHS Budget Rises
The budget proposal requests $79.9 billion in discretionary budget authority for the Department of Health and Human Services, which is slightly above the actual 2010 funding level, budget documents say. That level in 2011 is projected to be $79.8 billion.

Budget documents say the request "supports administration priorities such as implementation of the Affordable Care Act, biomedical research and Head Start." Savings would come from proposed reductions in community services block grants and home energy assistance, which are provided through HHS.

The budget proposal points out "significant deficit reduction" results—$230 billion over the next decade, from passage of the health care law. And it says that the budget proposal supports new consumer protections in the law such as review of premium increases and expanded coverage for Americans with preexisting conditions.

Likely to draw opposition from advocacy groups are consolidations and eliminations of public health programs such as graduate medical education programs at children's hospitals.

The request includes $2.7 billion in budget authority and $4.4 billion in total program resources for the Food and Drug Administration, which will help cover the costs of the food safety law (PL 111-353).

Funding for the NIH would total $32 billion, compared to a total of $31.2 billion in fiscal 2010.

At the NIH, implementation of the National Center for Advancing Translational Sciences and the Cures Acceleration Network, will "increase its focus on bridging the translational divide between basic science and therapeutic applications," the budget proposal says.

The administration also seeks $765 million for advanced development of next-generation medical countermeasures against chemical, biological, radiological and nuclear threats and $655 million to ensure that medical countermeasures continue to be available from the Strategic National Stockpile during a public health emergency.

Discretionary HIV/AIDS prevention and treatment activities throughout the department would receive $3.5 billion. Included in that is $22 million for the Enhanced Comprehensive HIV Prevention program for the metropolitan areas most affected by the epidemic.

In addition, the budget proposes limiting state financing practices beginning in 2015 as recommended by a national fiscal commission, and providing $581 million to carry out activities to reduce payment error rates and ramp up criminal enforcement for all three programs.

The administration in its proposal creates a new Comprehensive Chronic Disease Prevention Program that will organize research on chronic diseases such heart disease, stroke, diabetes, cancer and arthritis.

CDC Funding Shuffle
The proposal would trim funding for the Centers for Disease Control and prevention from $6.5 billion to $5.9 billion. However, some of the funding from the $1 billion Preventive and Public Health Fund created by the health law would go to CDC programs.

"It's difficult to quantify" how much money from the trust fund would go under the proposal to plug holes in existing CDC programs, said Rich Hamburg, deputy director for Trust for America's Health, which lobbies for public health funding. "There are definitely cuts" in the CDC budget, Hamburg said. "And the cuts would be bigger if not for the preventive fund."

TFAH officials said that overall there would be an increase in chronic disease prevention programs because of the prevention fund money, but at the same time the budget would cut funding in core CDC programs.

"The cuts to public health emergency preparedness are particularly troubling," said TFAH Executive Director Jeff Levi. "These cuts could decimate the progress that has been made in the last decade, after September 11, 2001 and the anthrax attacks to better prepare the country for potential disease outbreaks and bioterrorism events. We'd be leaving Americans unnecessarily vulnerable to diseases, disasters, and bioterrorism."

The budget would trim $72 million from Public Health Emergency Preparedness grants and $35 million from Academic Centers for Public Health Preparedness and Advance Practice Centers, TFAH said. In addition, $46 million would be cut from the Hospital Preparedness Program.

Of the $1 billion in the preventive fund, $752 million would go to the CDC, but some of that would be new CDC funding. For example, $221 million would go for Community Transformation Grants, which are much praised by TFAH and would allow local communities flexibility to work in a coordinated way with multiple players at the local level to identify their own public health needs and allot dollars accordingly.

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