Obama's Budget for 2015: 10 Points for Hospitals Know

President Barack Obama has released his fiscal year 2015 budget, which includes more than $414 billion in proposed cuts to Medicare and Medicaid over the next decade.

Similar to last year's budget proposal, most of the reductions would come at the expense of hospitals and health systems. However, the cuts are predominantly back-loaded. Providers would only lose $3.5 billion in Medicare funds in 2015.

Within the budget, President Obama said that even though healthcare spending growth has declined over the past few years, "we know that over the long run, the growth of healthcare costs continues to be our nation's most pressing fiscal challenge," he said.

Here are the main provisions in President Obama's budget that will affect hospitals and health systems the most during the next 10 years.

•    Reduction of Medicare bad debt payments to providers. Medicare reimburses hospitals, physicians and other providers 65 percent of bad debts that result from Medicare patients not paying their deductibles and coinsurance. This occurs after providers have made "reasonable" efforts to recoup the unpaid bills. The budget proposes slashing that rate to 25 percent. In FY 2015, this provision would cost hospitals and other providers $340 million. From 2015 through 2024, it would save more than $30.8 billion. This was proposed in last year's budget but was not enforced.

•    Cuts to teaching hospitals and graduate medical education payments. The budget proposes reducing Medicare add-on payments to teaching hospitals by 10 percent. Typically, hospitals receive those add-on payments to cover the indirect costs of teaching new physicians. In addition, HHS would encourage teaching hospitals to train more primary care residents through new GME payment standards. Teaching hospitals would lose $960 million in Medicare payments in this upcoming year alone and more than $14.6 billion during the next decade.

•    Changes to critical access hospitals. Similar to last year, President Obama has again proposed the reduction of enhanced Medicare payments to CAHs, which are small rural hospitals with 25 or fewer acute-care beds. CAHs are not on Medicare's standard inpatient prospective payment system. Instead, Medicare reimburses them 101 percent of reasonable costs. Medicare pays slightly above cost to ensure the CAH stays open for its community. The budget proposal would reduce that figure to 100 percent starting in 2015. CAHs would lose $110 million in 2015 and $1.7 billion through 2024. In addition, the budget calls for removing CAH designation — and subsequently the enhanced payments — from facilities that are within 10 miles of another hospital. That would equate to $40 million in savings in 2015 and $720 million in savings during the next decade.

•    Payment reductions to post-acute providers. Inpatient rehabilitation facilities, long-term care hospitals and home health agencies would have their Medicare reimbursements slashed by 1.1 percent each year from 2015 through 2024, resulting in $97.9 billion in savings. Many of the same providers would also be enrolled in Medicare bundled payments, starting in 2019, which would save $8.7 billion.

•    Medicaid program changes. The budget calls for an additional $3.26 billion in reduced Medicaid disproportionate share hospital payments. Under the Patient Protection and Affordable Care Act, Medicaid DSH payments were supposed to be cut by $18.1 billion from 2014 to 2020. However, the Bipartisan Budget Act of 2013 delayed some of those cuts and extended the duration of payment reductions through FY 2023.

•    More contributions from high-income Medicare beneficiaries. Starting in 2018, high-income Medicare beneficiaries would pay more in premiums, which the government projects would increase revenue by almost $53 billion through 2024.

•    Increased targeting of Medicare and Medicaid fraud. The Office of Inspector General would receive increased funding to expand CMS healthcare fraud and abuse efforts. In addition, the Office of Medicare Hearings and Appeals would receive $100 million next year to improve the backlog within the RAC program.

•    Health center investment. President Obama requested $4.6 billion over the next 10 years to support, build and staff 150 new health centers in areas of the country that lack primary care treatment.

•    Continuation of enhanced Medicaid payments for primary care physicians. Beginning  Jan. 1, 2013, and running through Dec. 31, 2014, states started increasing Medicaid payments for certain primary care physicians (like those in family medicine or internal medicine) to Medicare rates, with the federal government covering 100 percent of the difference. The president's budget proposal would extend that enhanced rate through Dec. 31, 2015, costing $5.4 billion during the next two years.

•    Training support for new physicians and providers. President Obama's budget includes an investment of $14.6 billion during the next decade to train new healthcare providers. Policies include more than $5.2 billion in a competitive GME program to incentivize high-quality training for primary care practitioners and other physicians in "high-need specialties." Mandatory funding for pediatric training children's hospitals, as well as placement of 15,000 healthcare providers in areas of need, were also included.

Overall, President Obama's budget calls for HHS to receive more than $1 trillion, with about 85 percent of all outlays going toward Medicare and Medicaid programs. Many portions of the PPACA — including the health insurance exchanges, accountable care organizations, bundled payment initiatives and value-based purchasing — were included in the total. HHS Secretary Kathleen Sebelius said in a statement the president's outline gives the country a stable healthcare blueprint.

"Our budget promotes economic growth and contributes to a thriving middle class by making key investments — in preparing our children to compete in tomorrow's economy, in maintaining America's leadership in biomedical innovation, in fostering safer, healthier schools and communities — all while helping to reduce the long-term deficit in a balanced way," Ms. Sebelius said.

However, hospitals and health systems ripped into the president's budget, saying the country's hospitals have already shouldered significant reductions to their pay. Richard Umbdenstock, president and CEO of the American Hospital Association, said with about a quarter of all hospitals already operating in the red, further cuts to federal health programs will result in direct negative impacts to patients. "The administration's proposal would impact access to the latest treatments and technologies, and may bring about longer waits for care and fewer caregivers to treat our nation's sickest patients," he said.

The Federation of America Hospitals, the Association of American Medical Colleges and America's Essential Hospitals similarly criticized portions of the budget. FAH President and CEO Chip Kahn said cuts to hospitals would come on top of sequestration, which slashes Medicare pay to providers by 2 percent each year over the next decade. "Medicare funding for hospitals cannot continue as a piggybank to bankroll other programs," he said.

Darrell Kirch, MD, president and CEO of AAMC, said he was "deeply concerned" about President Obama's budget proposal. He said cuts to GME payments, stagnant funds for the National Institutes of Health and other provisions would "undermine the ability of teaching hospitals to train the next generation of doctors at a time when the AAMC estimates a shortage of 90,000 physicians…by the end of the decade."

America's Essential Hospitals President and CEO Bruce Siegel, MD, welcomed some of the proposals, but he said the reduction in GME payments, as well as further erosion of Medicaid DSH payments, could force safety-net hospitals to "scale back services to those most in need or, in some cases, close their doors altogether."

The budget is not likely to go anywhere, however. Congress agreed to a two-year, bipartisan spending deal, reached in December, but analysts have said the budget shows what the president "would implement in an ideal world," according to Politico.

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