Monday, February 14, 2011

Updated Summary of President’s Budget Proposals

Apologies for sending a further e-mail, but this revised (hopefully final) summary reflects documents that weren’t available when I sent out my first summary document around lunchtime.  Specifically, the below reflects the Administration’s justifications for reductions and terminations, the HHS Budget in Brief, and the Treasury’s Green Book proposals.

Below is a summary of the changes included in the President’s budget proposal.  As previously indicated, the budget includes $62 billion in mandatory health care savings that would pay for approximately two years of a Medicare “doc fix.”  (However, the budget does NOT specify offsets for the $315.4 billion cost of a “doc fix” beyond 2013.) The $62 billion in savings comes from a “grab bag” of relatively minor tweaks to entitlement spending – the largest of which are $18.4 billion in savings from a reduction in Medicaid provider taxes and $12.9 billion in savings from the pharmaceutical industry, including a shorter exclusivity period for follow-on biologics and provisions to end so-called “pay-for-delay” arrangements.

I’ve also included discretionary request amounts for major HHS divisions below.  These numbers have been updated, and reflect the budget authority proposals included in the HHS Budget in Brief document.  (Some of these numbers are slightly different from the OMB budget document, but it’s not fully clear why – and unfortunately HHS staff weren’t particularly enlightening on this technical detail during their budget briefing.)  Of particular note is the more than $1 billion, 30% increase in the Centers for Medicare and Medicaid Services discretionary program management account – which likely reflects money needed to implement the health care law.  (Remember when Democrats attempted to refute the CBO letter indicating the law would lead to $115 billion in discretionary appropriations?  This 30% increase is a down payment on that $115 billion total…)  Since it’s drawn some attention, I’ll also point out that the Administration proposed eliminating the Graduate Medical Education program for children’s hospitals, which is a discretionary $318 million program run through HRSA. (For more details, see page 16 of the terminations document.)

I didn’t include it in the below summary, but page 97 of the Treasury Green Book “would repeal the additional [1099] information reporting requirements imposed by” the health care law.  However, the Treasury document scores this proposal as costing only $9.2 billion over ten years – far less than the $19 billion cost the Joint Committee on Taxation has previously assigned to 1099 repeal – so it’s unclear whether this discrepancy is a result of the differences in OMB and JCT scoring models, or whether there’s some other explanation.

A final note: Please keep in mind that these proposals were scored by the Office of Management and Budget, not CBO; the specific details on the scoring may change slightly when CBO issues its re-estimate of the budget in a few weeks.  (All numbers in my summary represent 10-year totals, except for the section on discretionary appropriations.)


Mandatory Spending

Medicare “Doc Fix”:  Freezes Medicare physician payments under the sustainable growth rate (SGR) mechanism, preventing a scheduled cut of more than 25 percent scheduled to take effect in January 2012.  Total cost of the provision is $369.8 billion over ten years – $54.4 billion in 2012 and 2013, and $315.4 billion in 2014 and succeeding years.  While the cost of the two-year fix is paid for, the $315.4 billion extension beyond 2014 is not – the budget summary tables include a line marked “offsets,” but none are specified in the document.  (Details of the $62.2 billion in pay-fors that would fund a two year fix are listed below.)  Note also that this year’s proposal calls for a ten-year freeze on physician payments; last year’s budget document assumed a 1 percent per year increase, likely explaining its higher cost ($371 billion last year vs. $369.8 billion this year).

Tricare for Life:  Assumes $530 million in new Medicare spending associated with a proposal to shift Uniformed Services Family Health Plan enrollees into Tricare for Life and Medicare.

Transitional Medical Assistance/QI Program:  Provides for temporary, nine-month extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  The extensions cost $665 million and $495 million, respectively.

Liability Reform:  The Justice Department portion of the budget calls for $250 million in new mandatory spending – $100 million in fiscal year 2012, followed by $50 million in 2013 through 2015, to “provide incentives for state medical malpractice reform.”  Specific details are unclear, but an article on this issue can be found here.

Discretionary Spending

When compared to Fiscal Year 2010 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $380 million (13.8%) increase for the Food and Drug Administration;
  • $684 million (9.1%) decrease for the Health Services and Resources Administration;
  • $572 million (14.1%) increase for the Indian Health Service;
  • $580 million (9.0%) decrease for the Centers for Disease Control;
  • $745 million (2.4%) increase for the National Institutes of Health;
  • $1.029 billion (30.6%) increase for the Centers for Medicare and Medicaid Services program management account; and
  • $270 million (86.8%) increase for the discretionary Health Care Fraud and Abuse Control fund.

With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only.  The Administration’s budget also would allocate $1 billion in mandatory spending from the new Prevention and Public Health “slush fund” created in the health care law, likely eliminating any real budgetary savings (despite the appearance of same in the table referred to above).

Detail to Fund Two Year “Doc Fix” (Total savings of $62.2 billion)

Program Integrity Provisions (Total savings of $32.3 billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  As proposed in the budget, the above provisions would save $18.4 billion.

Medicaid Third-Party Liability:  Strengthens third-party liability provisions allowing Medicaid to recover costs from other insurers, saving $1.6 billion.

High-Risk Products:  Requires states to track high prescribers and utilizers of prescription drugs within Medicaid, saving $3.5 billion. Also creates a system to validate orders for high-risk products and services (e.g., imaging services, DME, home health, etc.), saving an additional $1.8 billion.

MA Repayment Provisions:  Recovers payments to insurers participating in the Medicare Advantage (MA) program.  MA plans are currently paid on a prospective basis, with those payments adjusted according to the severity of beneficiaries’ ill health.  Some sample audits have discovered instances where plans could not retrospectively produce the necessary documentation to warrant the prospective coding adjustment that some beneficiaries received.  The budget would apply this adjustment, currently contemplated for some beneficiaries based on the sample audit, to ALL beneficiaries.  The budget scores this proposal as saving $6.2 billion.

Other Provisions:  Also included in the program integrity section are proposals that would:

  • Require manufacturers to repay states in cases of improper reporting (savings of $125 million);
  • Allow civil monetary penalties for providers who do not update enrollment information (savings of $80 million);
  • Permit the exclusion of officials affiliated with sanctioned entities from participating in health care programs (savings of $50 million);
  • Require prepayment review for all power wheelchairs (savings of $240 million);
  • Use up to 25 percent of Recovery Audit Contractor recoveries to implement anti-fraud actions (savings of $230 million);
  • Provide flexibility to HHS/CMS in using predictive modeling to recover improper and/or fraudulent payments (savings of $100 million); and
  • Limit debt discharges in bankruptcy proceedings associated with fraudulent activity (savings of $150 million).

Provisions without Scoreable Savings:  Included on this list are proposals to:

  • Enforce Medicaid drug price rebate agreements;
  • Increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug price rebate agreements;
  • Require drugs to be listed with the FDA in order to be reimbursed under the Medicaid program
  • Prohibit federal funds from being used as a state’s share of Medicaid/SCHIP spending unless specifically authorized;
  • Increase scrutiny of providers receiving Medicare reimbursement through higher-risk banking arrangements;
  • Study the feasibility of using universal product numbers in Medicare to improve payment accuracy; and
  • Strengthen penalties for illegal distribution of Medicare, Medicaid, and SCHIP identity and billing information

Medicaid Provisions (Total savings of $10.6 billion)

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  Saves $6.4 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $4.2 billion.

Medicare Provisions (Total savings of $6.5 billion)

Quality Improvement Organizations:  Includes several provisions regarding the Quality Improvement Organization (QIO) program within Medicare.  Proposals would require QIO contracts to be determined on a geographic basis to maximize efficiency (savings of $2.2 billion), eliminate conflicts of interest between QIOs’ activities on beneficiary protection and quality improvement (savings of $710 million), expand the eligible pool of QIO contractors (savings of $170 million), extend QIO contract from three to five years (savings of $160 million), and align QIO contract terminations with federal regulations (no savings scored).  Provisions would save $3.1 billion total.

Health IT Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  Estimated savings of $3.2 billion.

Pharmaceutical Provisions (Total savings of $12.9 billion)

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  Saves $2.3 billion over ten years.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  Saves $8.8 billion over ten years.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  Saves $1.8 billion.