February 12, 2007
As part of his plan to balance the federal budget by 2012, President George W. Bush is calling for whopping spending cuts in Medicare totaling nearly $76 billion over the next five years, with most of the savings achieved by reducing provider payment updates and raising premiums for higher-income beneficiaries. The plan also seeks savings by introducing nationwide competitive bidding for Medicare lab services, an idea anathema to the clinical laboratory industry.
The Bush administration’s budget request for fiscal 2008, submitted to Congress on February 5, underscores major policy differences with the Democratic-controlled Congress. Massive Medicare spending cuts aren’t likely to be entertained in either the House or the Senate. However, Democratic healthcare initiatives could be constrained by the party’s pledge in the November elections to balance the budget and by congressional pay-as-you-go rules requiring that new spending be offset by cuts elsewhere.
Overview of Budget Request
The administration’s $2.9 trillion tax and spending blueprint for FY 2008 (which begins October 1 of this year) proposes a big boost for defense spending and the wars in Iraq and Afghanistan, along with big cuts in entitlement and discretionary programs, with Medicare absorbing the biggest reductions. The budget also would make permanent across-the-board tax breaks due to expire at the end of 2010.
Curbing Medicare Spending Growth
The budget seeks net Medicare savings of $65.6 billion over the next five years from legislative changes and $10.2 billion from administrative changes. This would slow the program’s annual rate of spending growth from 6.5% to 5.6%, according to HHS budget documents.
Which providers would get the ax? The budget proposes to:
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Reduce the update for inpatient hospitals, outpatient hospitals, hospices, and ambulance services by -0.65% annually, starting in fiscal 2008. Estimated savings over FY 2008-2012: inpatient hospitals, $13.8 billion; outpatient hospitals, $3.4 billion; hospices, $1.14 billion; and ambulance services, $360 million.
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Freeze the update for skilled nursing facilities and inpatient rehabilitation facilities in 2008 and reduce it by 0.65% annually thereafter. Estimated savings over FY 2008-2012: SNFs, $9.2 billion; rehabilitation hospitals, $1.9 billion.
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Freeze the update for home health agencies in 2008 and reduce it by 0.65% annually thereafter. Estimated savings over FY 2008-2012: $4.7 billion.
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Reduce the annual update for ambulatory surgical centers by 0.65%, starting in 2010 for savings of an estimated $90 million.
Medicare Physician Fee Cut Assumed
For pathologists, the budget is bad news, since it assumes that a projected 8% cut in Medicare physician spending will go forward in 2008, as scheduled under current law. The budget does not address reforms to the statutory Sustainable Growth Rate (SGR) formula used to calculate annual Part B physician fee updates. Under the SGR, when actual Medicare spending for physician services exceeds a target, this triggers a negative update, as has happened for most of this decade and is expected to become even more drastic well into the next unless Congress intervenes. Up to now, lawmakers have blocked physician fee cuts and granted either a modest increase or, as in 2006, a freeze on fees at 2005 levels.
House Ways & Means health subcommittee chairman Pete Stark (D-CA) faulted the Bush administration for failing to address physician payment reform, which he called “a significant problem that … has been allowed to fester and grow.” He also criticized the budget for advocating permanent and long-term Medicare spending cuts that, he said, even a GOP-run Congress would not enact.
Senate Finance Committee chairman Max Baucus (D-MT) also criticized the squeeze on Medicare providers, while Medicare managed care plans are slated for payment increases. “If you’re going to cut fee-for-service, why not cut Medicare Advantage?” he asked. “That’s where the experts say the fat is. I’ve seen many analysts say that MA plans get more than they need. I’ve not seen any analysts say they do not.”
The MA program offers beneficiaries a variety of coverage options, including HMOs, PPOs, special needs plans, and private fee-for-service plans. In 2006, about 17% of beneficiaries were enrolled in an MA plan. All beneficiaries also had access to at least one type of MA plan, up from 77% in 2004, according to HHS budget documents.
The Blue Cross and Blue Shield Association urged Congress not to cut payments to MA plans this year, arguing that plan reimbursement has been cut $13 billion in the last two years and further cuts could drive plans to reduce services or leave the Medicare market. About 8.3 million beneficiaries are enrolled in managed care plans, the highest number on record, according to the Blues.
The Medicare Payment Advisory Commission found that MA plans are paid as much as 111% above the rate for fee-for-service, but the Blues dispute this figure, saying it does not account for budget neutrality cuts or payment add-ons for indirect costs. The Blues also note that the MA program has sustained cuts of more than $6 billion in the $10 billion managed care reserve fund that Congress has redirected this year to higher primary care payments. More cuts would be “disastrous,” said a Blues spokesperson, noting that MA payments are scheduled to rise 1% in 2007, while medical inflation will be up 8%.
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February 12, 2007 - Table of Contents
