Obama Budget Replaces Sequester Cuts and SGR

April 10, 2013

President Barack Obama today released a proposed $3.8 trillion budget for fiscal 2014 that would shrink the federal deficit by $1.8 trillion over the course of 10 years, but not on the backs of physicians. Instead, they are on the receiving end of some federal largesse.

For starters, Obama's deficit reduction, similar to that in the budget plan approved on March 23 by the Democratic-controlled Senate, would replace the automatic, across-the-board cuts called sequestration that include a 2% decrease in Medicare reimbursement for physicians.

In addition, as in previous budget plans, Obama would perform a "doc fix" on the sustainable growth rate (SGR) formula for setting Medicare pay rates. That formula, hated by organized medicine, will trigger a 24.4% cut in physician pay on January 1, 2014, unless Congress steps in to prevent a collapse of the federal program. Under the Obama plan, physician pay rates would be frozen at their current level. The administration supports several years of fee-for-service "payment stability" that would give the Centers for Medicare & Medicaid Services more time to develop various pay-for-performance models from which physicians eventually could choose. The goal is to "provide predictable payments that incentivize quality and efficiency in a fiscally responsible way," the budget plan states.

As expected, Medicare spending gets trimmed substantially — $370 billion worth over the course of 10 years — but the cuts come mostly at the expense of hospitals, drug companies, nursing homes, and wealthy seniors, who will be asked to pay higher premiums. Obama refrained from raising the eligibility age for Medicare, an idea toyed with in Washington, DC.

In addition to these and other spending cuts, the Obama budget would trim the deficit by raising an additional $580 billion in revenue over the course of 10 years, mostly by eliminating tax loopholes and benefits for America's super-affluent.

With the president's numbers on the table now, a 3-way budget debate now gets underway. On March 21, the Republican-controlled House approved a budget plan that would reduce the federal deficit by $4.6 trillion and post a balanced budget in 2023. It achieves those numbers in part by lowering taxes for the wealthy and corporations, repealing the Affordable Care Act, turning Medicare into a premium-support program, and capping federal contributions to state Medicaid programs. The plan would not replace sequestration. Although it supports junking the SGR formula in theory, it does not set aside any money to cover the estimated $138 billion cost of repeal and freezing rates at their current levels for 10 years.

The competing Senate plan, similar to the president's, reduces the deficit by $1.85 trillion over the course of 10 years with a combination of revenue hikes and spending cuts. The math of the Senate Democratic plan assumes the $138 billion cost of repealing the SGR. And similar to Obama's budget, it preserves the Affordable Care Act and the basic structure of Medicare and Medicaid.

Increased Funding for Mental Health, HIV/AIDS Prevention and Treatment

The Obama budget proposal — which, like any other, requires Congressional action for any money to be spent — allocates $80.1 billion in discretionary funds to the Department of Health and Human Services (HHS), or almost $4 billion more than what was enacted in fiscal 2013. Here is where some of that money would go:

  • The Centers for Disease Control and Prevention (CDC) would receive more than $30 million for a nationwide violent-death surveillance system as well as research on the causes and prevention of gun violence.

  • HHS would use $130 million for a new initiative to teach teachers and other adults to recognize signs of mental illness in young people, train 5,000 more mental health professionals to serve students and young adults, and otherwise improve mental health services for this group.

  • Funding for the US Food and Drug Administration would increase by $821 million to improve food and medical-product safety.

  • The CDC and the Health Resources and Services Administration would receive an extra $30 million for HIV/AIDS prevention and treatment activities.

Winners and losers in the president's plan made their feelings known today.

"We are pleased that President Obama's 2014 budget recognizes the need to eliminate the broken Medicare physician payment formula known as the SGR and move toward new ways of delivering and paying for care that reward quality and reduce costs," said Jeremy Lazarus, MD, president of the American Medical Association (AMA), in a press release. "The president's proposals align with many of the principles developed by the AMA and 110 other physician organizations on transitioning Medicare to include an array of accountable payment models."

Rich Umbdenstock, president and chief executive officer of the American Hospital Association, was not pleased.

"Today’s proposal contains troubling reductions to assistance to hospitals that help defray some of the costs of caring for low-income seniors known as bad debt," Umbdenstock said in a press release. "In addition, the budget would jeopardize the ability of hospitals to train the next generation of physicians by cutting funding for graduate medical education, and hinder care for people in rural communities by reducing funding for critical access hospitals.

"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."