Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Obama's HHS Budget Plan Eyes Cheaper Doc Payment Fix

By John Reichard, CQ HealthBeat Editor

May 7, 2009 – The fiscal 2010 budget proposal released Thursday by the Obama administration recaps the Medicare cuts it proposed earlier this year to pay for a health overhaul, but offers new details on efforts to fight fraud and how it might reduce the cost of legislation erasing deep scheduled Medicare cuts in payments to doctors.

The budget would add $125 million in funding next year to the nearly $1.5 billion now spent on the "HCFAC" program, established under 1996 legislation creating a joint effort by HHS and the Justice Department to crack down on health care fraud. A total of $311 million next year in discretionary funding for the Health Care and Fraud and Abuse Control Program would be allocated as follows: $220 million for Medicare; $31 million for Medicaid; $30 million for the Department of Justice; and $30 million for the HHS Office of the Inspector General.

Part of the Medicare money would be used to go after fraud in the private plan side of Medicare, the Medicare Advantage side offering private health plans and the Medicare Part D side offering coverage through private prescription drug plans.

Adding to administration headaches paying for a health overhaul is the cost of erasing deep cuts scheduled in doctor payments under Medicare's current payment formula, including a 21 percent cut next year. Budget documents show that preventing cuts and keeping doctor payments flat over the next ten years would cost a whopping $311 billion, a huge increase in the tab for the health overhaul package if it includes the doctor payment fix.

The HHS "Budget in Brief" document notes that "as part of health care reform, the administration would support comprehensive, but fiscally responsible, reforms to this payment formula. Consistent with this goal, the administration will explore the breadth of options available under current authority to facilitate such reforms including an assessment, both substantively and legally, of whether physician administered drugs should be covered under the payment formula." According to a Centers for Medicare and Medicaid Services (CMS) estimate, not including the cost of those drugs in assessing adherence to physician spending targets would lower the 10-year legislative cost of a freeze from $311 billion to $181.5 billion. But the $129.6 billion reduction in how much the legislation would cost Congress would increase the federal deficit by that amount.

Obama is proposing Medicare changes that would contribute $288 billion over 10 years to a reserve fund to help pay for an overhaul of the nation's health care system. Revisions include varying payment to hospitals by the quality of care they provide. An incentive payment "would link a portion of base operating payments to performance on specified quality measures," the HHS budget summary notes. "The portion of payments linked to performance would be 5 percent in 2011, phasing to 15 percent by 2015."

"Payments not earned back would be split equally between a pool to fund additional hospital quality incentive payments and the Medicare Trust Fund." CMS estimates savings of $12 billion over ten years as a result. Changes to encourage hospitals to improve quality of care to prevent readmissions would save $8.4 billion over that period.

Another $177 billion would be saved through a competitive bidding program to base payments to Medicare Advantage plans on the average of their bids to serve the Medicare population. A total of $16 billion would be saved via payment "bundles" combining hospital and post-hospital care in skilled nursing facilities or other forms of post-acute care. About $250 million would be saved by contracting with "radiology benefit managers" to "ensure appropriate payments for imaging services." A total of $34 billion would be saved by home health payment changes including freezing payments in fiscal 2010 and "rebasing payments in fiscal year 2011."

Establishing a mechanism at the Food and Drug Administration easing approval of cheaper "follow-on" versions of biotech drugs would save $6 billion, and improved screening for payment errors and other measures to improve payment accuracy would save $2.1 billion. Reallocating the "Medicare Improvement Fund" toward a health overhaul would save $23 billion. Charging affluent seniors higher premiums for Medicare drug coverage would save $8 billion. In addition, Medicare would save $27 billion over 10 years through administrative changes such as adjustments to payments to Medicare Advantage plans to reflect the way they code patients; adjustments in payments to prescription drug plans based on the way they code patients; and changes in the way skilled nursing facility patients are classified. The skilled nursing change by itself would save $18 billion.

Publication Details