New Federal Budget Proposal Mostly Spares Physicians

February 13, 2012

February 13, 2012 — President Barack Obama's proposed budget for fiscal 2013 would squeeze $364 billion in savings from federal health programs, hitting hospitals hard while mostly sparing physicians.

The $3.8 trillion budget proposal, released this morning, repackages many of the healthcare measures that the president presented last fall to the Joint Select Committee on Deficit Reduction, the so-called super committee, which was charged with recommending at least $1.2 trillion in deficit reduction. The bipartisan committee became another partisan warfare committee and failed to reach its goal. In a continuation of governmental trench warfare, Obama's budget proposal for fiscal 2013 is already under attack by Congressional Republicans. In a press release, House Speaker John Boehner (R-OH) called it "a collection of rehashes, gimmicks, and tax increases that will make our economy worse."

As they feared, hospitals take it on the chin in the president's new set of numbers. Under the plan, hospitals would receive $36 billion less over the course of the next 10 years in Medicare funds that offset unpaid deductibles and copayments owed by patients. At this time, Medicare covers 70% of patient bad debt. The Obama administration considers a 25% offset more reasonable. Medicare funding of residency training programs also would fall by $10 billion, with the Obama administration reasoning that they are overcompensated for their costs.

Physicians do not go entirely unscathed in the proposed budget for the fiscal year, which begins on October 1, 2012. The plan would reduce Medicare payments for advanced imaging procedures by $820 million through 2022. The Medicare Payment Advisory Commission (Medpac) has called for such a decrease in light of burgeoning expenditures for diagnostic imaging, which Medpac sees as a signal of overpricing. Furthermore, the president's budget would require prior authorization for the most expensive imaging services, "to protect...[Medicare] beneficiaries from unwarranted, and potentially harmful, imaging use."

Physicians also would find themselves paying civil monetary fines under the proposed budget if they do not update their Medicare enrollment information. Unreported changes in provider information invite fraud, according to the Obama administration. The proposed budget estimates that the government will collect $90 million worth of these fines in the coming 10 years.

More Affluent Medicare Beneficiaries Would Pay More

Obama's new mantra is that everyone "does their fair share" to reduce the federal deficit. His budget for fiscal 2013 applies that principle to affluent Medicare beneficiaries, who would shoulder a bigger share of healthcare costs.

  • Beginning in 2017, beneficiaries who are charged higher Medicare Part B and Part D premiums because of their high income would pay 15% more.

  • The annual deductible for Medicare Part B would increase by $25 in 2017, 2019, and 2021 for new beneficiaries, with the hope that it would spur seniors to seek good care at lower prices.

  • Beneficiaries would owe a $100 copayment for home-health episodes with 5 or more visits that are not preceded by a hospitalization.

  • Seniors who buy MediGap policies to pay for costs not covered by Medicare (eg, copays) tend to use more services, which boosts Medicare spending. The administration wants to tack a surcharge onto Medicare Part B premiums beginning in 2017 whenever beneficiaries buy a MediGap policy that subjects them to little, if any, cost-sharing. The surcharge would equal roughly 30% of the Part B premium.

Lip Service on "Doc Fix," but No Details

One subject dear to physicians that received only a passing reference in the budget proposal was Medicare's sustainable growth rate (SGR) formula for calculating physician reimbursement. The SGR formula will trigger a 27.4% reduction in Medicare rates on March 1 unless Congress acts to avert it, something lawmakers have done with scheduled cuts every year going back to 2003. Repealing the SGR formula and merely freezing Medicare rates for the next years would cost $316 billion, according to the Congressional Budget Office.

In its previous budget for fiscal 2012, the Obama administration provided a detailed plan for a 2-year "doc fix" for the Medicare reimbursement crisis, priced at $54 billion. The new proposed budget for fiscal 2013 does not outline any path forward. However, "the administration is committed to working with the Congress to fix the SGR, providing predictable Medicare physician payments that incentivize quality and efficiency in a fiscally responsible way," the budget document states. "Failing to do so masks the long-run deficit."

Federal Deficit in Fiscal 2013 Would Drop to $901 Billion

Overall, the federal deficit would shrink by more than $4 trillion over the course of 10 years under Obama's proposed budget. For every $2.50 in spending cuts, the budget raises $1 in new revenue from higher taxes on those making more than $250,000 a year and closed tax loopholes for corporations. The budget includes the $1 trillion in cuts to discretionary spending that were called for in the Budget Control Act passed last year.

The president's proposed budget would lower the federal deficit from $1.33 trillion in fiscal 2012 to $901 billion in fiscal 2013. As a share of the gross domestic product (GDP), the deficit would decrease from 8.5% to 5.5% during this time. By fiscal 2022, the projected federal deficit would be $704 billion, or 2.8% of GDP.

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