Budget Breakdown: How President Obama's FY 2014 Budget Would Affect Hospitals

Yesterday, President Barack Obama released his budget proposal for the federal government's 2014 fiscal year, and the budget includes roughly $400 billion in Medicare cuts over the next decade.

President Barack Obama's budget for 2014 would cut Medicare by almost $400 million.Hospitals and other providers would shoulder a large portion of the Medicare cuts — $306 billion — and President Obama also included $18.9 billion in reduced Medicaid payments. However, his proposal would eliminate the 2 percent Medicare cuts from sequestration.

Here are provisions in President Obama's budget that would impact hospitals and health systems the most over the next 10 years:

•    Reduction of Medicare bad debt payments, which would cut $25 billion from the Medicare program.

•    Modification of Medicare's indirect medical education payments for teaching hospitals, which would cut $11 billion in total IME funds.

•    A cut of $2 billion to supplemental Medicare payments to rural hospitals and providers.

•    Post-acute care providers — including skilled nursing facilities, long-term care hospitals and inpatient rehabilitation facilities — would absorb some of the largest cuts. Adjusting payments to these providers would result in roughly $94 billion of savings for Medicare.

•    Medicaid disproportionate share hospital payments would be delayed. Medicaid DSH payment reductions are supposed to go into effect this October, under the Patient Protection and Affordable Care Act, but President Obama has proposed postponing this until 2015, which would benefit safety-net hospitals.

Other non-provider savings would come from improving Medicare Advantage payments, encouraging the use of generic drugs, increasing Part B and D premiums for wealthier seniors and continuing efforts to prevent Medicare waste, fraud and abuse.

Those provisions also fall within the budget of HHS, which would receive $80.1 billion in discretionary funds next year — an increase of almost $4 billion from FY 2013. The HHS budget would save roughly $371 billion over the next 10 years "by aligning payments with costs of care, strengthening provider payment incentives to promote high-quality efficient care and making structural changes" to engage Medicare beneficiaries more. HHS would also provide $31 billion in research funding for the National Institutes of Health, a slight increase that would help teaching hospitals and academic medical centers.

The American Hospital Association and Association of American Medical Colleges blasted President Obama's and HHS' budget on several fronts, mostly due to the reduction of Medicare bad debt payments and the loss of graduate medical education.

"America's hospitals must continue to meet the needs of the patients and communities they serve in spite of current financial pressures," AHA President and CEO Rich Umbdenstock said in a statement. "Even though Congress already cut Medicare and Medicaid payments for hospital services by billions of dollars, the administration has proposed additional reductions. The solution to what ails our nation's fiscal health is not further cuts to providers that care for millions of America's seniors, but creative solutions to modernize the Medicare program."

In a press conference yesterday, HHS Secretary Kathleen Sebelius, surrounded by CMS Acting Administrator Marilyn Tavenner and other top U.S. health officials, elaborated on the president's budget. She said HHS will "invest in areas we know are critical" while "making tough choices we wouldn't have made at other times."

HHS highlighted the proposed delay of Medicaid DSH payments, saying it is necessary as states are still grappling with the Patient Protection and Affordable Care Act's Medicaid expansion.

"This allows states to complete that process before they run into what they see as a cut that they can't stop right now as they decide on Medicaid funding in the future," Secretary Sebelius said.

The National Association of Public Hospitals and Health Systems, which represents safety-net hospitals that rely on large Medicare and Medicaid populations, praised the measure but said it's only a stop-gap and may hurt member hospitals down the road.

"NAPH appreciates the administration's willingness to delay cuts to [DSH] payments until 2015, given the uncertain future of Medicaid expansion," Bruce Siegel, MD, president and CEO of NAPH, said in a statement. "But we're concerned the delay comes at the expense of higher DSH cuts the following two years and a $3.6 billion baseline adjustment in 2023."

The HHS budget would request a specific amount of funding from Congress to implement the health insurance exchanges in each state, an expense many of the health law's Republican opponents have predicted would be prohibitively large. The agency asked for $1.5 billion from Congress to set up the exchanges and educate consumers on how to enroll and understand their health insurance options.

Republican lawmakers, having lost legal challenges to the PPACA, have recently made attempts to deny HHS funding for insurance exchanges as a plan B strategy. That's likely to occur in this case, as well, although HHS officials have shown confidence their plan B funding measures — for the 33 exchanges the agency must help build or operate — would prevail if Congress denies the requested $1.5 billion.

HHS officials also declared their intent to institute a 10-year repeal of the politically poisonous sustainable growth rate — which would cut physicians' Medicare payments by 25 percent in 2014 — though the budget does not itemize how the costs of preventing the SGR's major cuts to Medicare payments would be offset.

More Articles on Hospital Finance:

Obama's $3.8T Budget Would Save Medicare $370B
Slower Inflation Trend is Mostly Good for Non-Profit Hospitals, Moody's Says
Sequestration Set to Kick in, Cut Medicare by Billions

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