Obama Administration Releases FY 2016 Budget Proposal with Medicare/Medicaid Provisions

On February 2, 2015, the Obama Administration released its proposed federal budget for fiscal year (FY) 2016. The budget would impact all types of health care providers, health plans, and drug manufacturers if adopted as proposed – which is unlikely given Republican control of the House and Senate. Nevertheless, Congress can be expected to consider the Medicare and Medicaid savings proposals (many of which are carry-overs from prior budgets) during expected debate in the coming months on Medicare physician fee schedule (MPFS) reform legislation or during future budget negotiations.

The following is a summary of the major Medicare, Medicaid, and related policy proposals contained in the FY 2016 budget proposal.

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Obama Administration Proposes FY 2015 Budget with Medicare, Medicaid Savings Provisions

On March 4, 2014, the Obama Administration released its proposed federal budget for fiscal year (FY) 2015. Virtually all types of health care providers, health plans, and drug manufacturers would be impacted by the budget provisions if adopted as proposed – an unlikely scenario given the Republican House leadership’s reaction to the document. Nevertheless, the Medicare and Medicaid savings proposals (many of which are carry-overs from prior budgets) could resurface as spending offsets in the pending negotiations on Medicare physician fee schedule reform legislation or in future budget negotiations. Highlights of the Administration’s Medicare and Medicaid legislative proposals include the following (all savings estimates are for the 10-year period of FYs 2015-2024):

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Obama Administration's Proposed FY 2014 Budget Includes $401 Billion in Health Program Savings

Today, the Obama Administration released its proposed federal budget for fiscal year 2014. As widely reported, the budget incorporates an offer the President made to Congress in December 2012 to achieve nearly $1.8 trillion in additional deficit reduction over the next 10 years, including $401 billion in health savings (the Administration observes that this level of cuts would “provide more than enough deficit reduction to replace the damaging cuts required by the Joint Committee sequestration”).

Virtually all provider types – and drug manufacturers – would be impacted by the budget provisions, if adopted as proposed. The budget proposal is certainly subject to change during the legislative process, particularly as the House and Senate leadership pursue alternative budget frameworks, and indeed, gridlock could prevent significant action on entitlement reform this year. Nevertheless, the proposals bear careful monitoring because they could eventually be included in any long-elusive “grand bargain” to reform the Medicare program and reduce the federal debt.

Highlights of the Administration’s Medicare and Medicaid proposals include the following:

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President Obama Proposes FY 2013 Budget

On February 13, 2012, President Obama released his proposed fiscal year (FY) 2013 budget.  The budget includes a number of legislative proposals – some of which were included in the President’s September 2011 deficit reduction plan -- that would reduce Medicare spending by $302.8 billion and cut Medicaid spending by $55.7 billion over 10 years.  Highlights are available after the jump.

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President Obama Outlines Plans for Deficit Reduction/Entitlement Reform

On April 13, 2011, President Obama delivered a speech outlining his plan for reducing the federal budget deficit by $4 trillion within 12 years, in part through Medicare and Medicaid reforms. Specifically, the President is calling for $480 billion in Medicare and Medicaid cuts by 2023 and at least an additional $1 trillion in cuts over the subsequent decade. One mechanism the President proposes to control Medicare spending is directing the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) to hold Medicare cost growth per beneficiary to the gross domestic product per capita plus 0.5 percent (rather than 1.0 percent under the ACA) beginning in 2018. If spending growth exceeds the target, the IPAB's proposals go into effect automatically unless Congress enacts alternative legislation to achieve required savings. The President proposes additional budget enforcement measures to ensure savings targets are met. The President also calls for $200 billion in cuts in Medicare prescription drug spending (including by "leveraging Medicare’s purchasing power," speeding the availability of generic biologics, and prohibiting brand-name companies from entering into “pay for delay” agreements with generic companies). With regard to Medicaid, the plan calls for savings of at least $100 billion over 10 years. According to the summary, the President’s plan would replace the current federal matching formulas with a single matching rate that rewards states for efficiency and automatically increases if a recession increases enrollment and associated state costs. Additional Medicare and Medicaid "accountability" proposals include, among others: restricting states’ use of provider taxes to lower their state spending without providing additional health services; recovering "erroneous" payments from Medicare Advantage plans; capping Medicaid payments for durable medical equipment (DME); and implementing Medicaid management of high prescribers and users of prescription drugs, among other things.  President Obama also announced that he has asked Majority Leader Reid, Speaker Boehner, Minority Leader Pelosi and Minority Leader McConnell to each designate four members to participate in bipartisan, bicameral negotiations led by the Vice President, beginning in early May to develop a legislative framework for comprehensive deficit reduction.

President Obama’s deficit reduction proposal comes at a time when the House of Representatives is considering a budget proposal for FY 2012 (H. Con. Res. 34) drafted by House Budget Chairman Paul Ryan (R-WI) that calls for $6.2 trillion in spending cuts over the next 10 years, although estimates of savings vary (see http://budget.house.gov/fy2012budget/). Among other things, the budget resolution includes significant structural reforms of the Medicare and Medicaid program and repeal of the ACA. With regard to Medicare, the plan would convert the Medicare program to a premium support model for individuals becoming eligible for Medicare beginning in 2022. Under this policy, traditional Medicare eventually would be replaced with a system whereby beneficiaries would choose among competing health plans meeting coverage standards (similar to current Medicare Part C plans), and a premium-support payment would be made to the plan, subsidizing its cost, with increased assistance provided to lower-income beneficiaries and those with greater health risks. The resolution also would convert federal Medicaid spending into a block grant program. In addition, the measure generally calls for repeal of the ACA, although presumably such efforts would focus on ACA insurance-related provisions rather than, for example, the extensive Medicare provider reimbursement or fraud enforcement provisions. The House Budget Committee approved the measure on a party-line vote, and it is scheduled to be considered by the full House this week. Note that the budget resolution simply provides the spending and revenue instructions for the Congressional committees; enacting legislation would need to be adopted to implement any of the proposed policy changes. Democratic leaders have widely criticized the Ryan plan. Nevertheless, particularly in light of today’s proposal by the President, it appears increasingly likely that some form of entitlement reform may advance this year.

President Obama Proposes FY 2012 Budget

On February 14, 2011, President Obama released his proposed fiscal year (FY) 2012 budget. The President proposes a variety of changes in Medicare and Medicaid policy and other Department of Health and Human Services (HHS) programs, including the following highlights:

  • The budget includes 19 new legislative proposals designed to strengthen program integrity for Medicare, Medicaid, and CHIP, saving $32.3 billion over ten years. The proposals include, among others: recovering “erroneous” payments from insurers participating in Medicare Advantage (MA); new sanctions for providers who do not update enrollment records; prepayment validation of physician orders for certain high risk services (such as durable medical equipment (DME) and home health) and prepayment review for all power wheelchair claims; identifying excessive utilization of certain prescription drugs under Medicaid; requiring drug manufacturers to repay states for improperly reported Medicaid-covered prescription drugs; regularly auditing drug manufacturer compliance with Medicaid drug rebate requirements and increasing penalties for noncompliance with rebate agreements; and providing the HHS Secretary with additional permissive authority to exclude providers from participation in federal health care programs if they are affiliated with a sanctioned entity. The President also includes as a “program integrity” provision a limit on states’ ability to use provider taxes to pay the state share of Medicaid by phasing down the Medicaid provider tax threshold from the current 6% to 3.5% by FY 2017.
  • The President proposes Medicare physician fee schedule Sustainable Growth Rate (SGR) relief through 2013 by extending the 0% update to the Medicare physician fee schedule for two additional years, and offsetting the cost with specific savings (e.g., Medicaid provider taxes and savings from the pharmaceutical industry) while the Administration works with Congress to achieve permanent reform.
  • With regard to prescription drug/biologics policy, the budget would reduce the length of the exclusivity period for generic biologics from 12 to 7 years; prohibit manufacturers who revise their product from extending their exclusivity period (“evergreening”); and provide the Federal Trade Commission (FTC) with authority to prohibit “pay-for-delay” agreements between brand and generic pharmaceutical companies that delay entry of generic drugs into the market.
  • The budget would cap federal reimbursement for a state’s aggregate Medicaid spending on certain DME services to what Medicare would have paid in the same state for the same services based in the Medicare DMEPOS competitive bidding program (savings $2.3 billion over 5 years).
  • In other areas, the budget proposes $2.7 billion in budget authority and $4.4 billion in total program resources for the Food and Drug Administration (FDA) and affirms the FDA’s commitment to advancing efforts to implement the Affordable Care Act’s (ACA) provisions to establish a pathway to approve biosimilar products; calls for $32 billion for basic and applied biomedical research supported by the National Institutes of Health, and would consolidate and eliminate certain public health programs (such as elimination of a children’s hospital graduate medical education program).

Note that many provisions of the proposed budget would require Congressional approval to implement. Numerous lawmakers have faulted the plan for not addressing entitlement reform, including changes to shore up the long-term financing of the Medicare program. House Republican leaders have committed to enacting a budget with “real entitlement reform,” although specifics have not yet been released. In the meantime, the House is debating a continuing resolution (H.R. 1) to fund the federal government for the last seven months of FY 2011 that would reduce federal discretionary spending by more than $100 billion compared to the President’s FY 2011 request, including reductions in a variety of HHS-administered programs such as community health centers and the National Health Service Corps. It is too early to know the specifics of how the short- and long-term budget debate will be resolved. Nevertheless, it appears that health care programs will be examined as part of any health care spending package. Moreover, there is growing resolve in Congress to tackle the fundamental fiscal condition of the Medicare program, which could have profound ramifications for the health care industry. 

White House Anti-Fraud Initiative

On March 10, 2010, the White House released a Presidential Memorandum Regarding Finding and Recapturing Improper Payments.” Under this initiative, all federal departments and agencies are directed to expand and intensify their use of “payment recapture audits” under their current authority to combat fraud and abuse in federal programs. As under the Medicare Recovery Audit Contractor program, private auditors will review government payments and receive compensation based on the amount of improper payments they identify and are reclaimed. The White House estimates that using payment recapture audits will save at least $2 billion over the next three years. The President also is calling for enactment of legislation to expand the government’s authority to use such audits to additional circumstances. 

Bipartisan Health Reform Summit

Yesterday President Obama convened a health reform summit in an effort to bring together key members of Congress and administration personnel to discuss ways to move forward on health reform. After a long day of policy debate, however, the summit failed to result in a bipartisan breakthrough on reform legislation.   While isolated areas of agreement were indentified, such as in the area of fraud and abuse efforts and certain aspects of insurance market reforms, the meeting largely highlighted the divisions between the two parties on fundamental aspects of reform. In particular, Democrats and Republicans at the meeting were far apart on such basic questions about how large a role the federal government should play in establishing insurance market rules, whether insurance coverage should be mandated, and how to achieve cost-savings in the health care system, among others. The summit is widely viewed as laying the groundwork for Democratic leaders to forge ahead with comprehensive health reform without Republican support -- if compromise can be reached among Democrats. In particular, Democrats appear to be ready to use a Senate parliamentary procedure known as “budget reconciliation” that would require only 51 Senate votes for passage in order to enact a bill in the coming weeks.   Additional background information on current health reform legislative efforts is available here.  

Obama Administration Releases Health Reform Plan in Preparation for Bipartisan Summit

Today the Obama Administration released an 11-page summary of its health reform proposal in preparation for a bipartisan health reform summit scheduled for February 25, 2010. Among other things, the proposal includes a relatively-detailed discussion how the Administration would promote access to affordable insurance, address health care fraud and abuse proposals, and bridge the differences between the House and Senate reform proposals in other key areas. Items of note include the following:

  • Access to Health Insurance – The Administration proposes expanding access to affordable insurance through a series of insurance market reforms, including an insurance purchasing pool; federal premium subsidies; a requirement that individuals buy insurance or pay a penalty (with exceptions); a requirement that employers defray costs employees receiving federal subsidies (with exceptions); expansion of Medicaid; and a new Health Insurance Rate Authority to provide federal assistance and oversight to states in conducting reviews of unreasonable rate increases and other insurance industry practices. There is no mention of establishing a public health insurance plan to compete with private insurers.
  • Waste, Fraud and Abuse – The Presidential proposal includes a variety of program integrity provisions, which include: a comprehensive sanctions database; registration and background checks of billing agencies and individuals; expanded access to the Healthcare Integrity and Protection Data Bank; liability of Medicare administrative contractors for claims submitted by excluded providers; strengthened standards for facilities that seek reimbursement as community mental health centers; limiting debt discharge in bankruptcies of fraudulent health care providers or suppliers; expanded use of technology for real-time data review; sanctions for illegal distribution of a Medicare or Medicaid beneficiary identification or billing privileges; a study of universal product numbers/claims forms for selected items and services under the Medicare program; a state Medicaid prescription drug profiling requirement; extrapolation of Medicare Advantage risk adjustment errors to contract payment for a given year; modification of certain Medicare medical review limitations; establishment of a CMS-IRS data match to identify fraudulent providers; and prevention of delays in access to generic drugs.
  • Cost-Containment Provisions – While the summary document does not include a detailed discussion of Medicare provider rate changes, it does include a limited number of cost containment/fiscal sustainability provisions, including: an adjustment in Medicare Advantage payments to reflect “unjustified coding patterns”; an excise tax on the most expensive health plans ($27,500 for a family plan) beginning in 2018 for all plans; and new Medicare Hospital Insurance taxes on high-income taxpayers.
  • Industry Fees -- The President proposes a $33 billion fee on brand name pharmaceutical manufacturers over 10 years (up $10 billion from Senate plan), beginning in 2011; a $67 billion assessment on health insurers over 10 years beginning in 2014 (with certain exceptions); and an excise tax (rather than fee) on medical device manufacturers, raising $20 billion over 10 years, starting in 2013.
  • Quality of Care – Although not discussed in the summary document, a separate description on the White House web site states the President’s plan would provide “incentives for doctors, and hospitals that improve quality while providing for better coordination that helps to reduce harmful medical errors and healthcare-acquired infections.” The plan also includes “innovative payment reforms so providers are rewarded for the quality of care they provide, rather than just additional tests or treatments.” Likewise, it would reward greater coordination of care between primary care providers and specialists.
  • Part D Coverage Gap – The President’s proposal fills the Medicare Part D prescription drug "doughnut hole" by providing a $250 rebate to Medicare beneficiaries who reach the coverage gap in 2010, and then phasing down the coinsurance requirement so it is the standard 25 percent by 2020 throughout the coverage gap.
  • Medicaid Matching Funds – The President would eliminate the Senate’s proposed enhanced Medicaid matching provision for Nebraska and instead provide additional federal financing for all states to support the expansion of Medicaid.
  • CLASS Act – The White House endorses the Community Living Assistance Services and Supports (CLASS) Program, a voluntary, privately-funded long-term services insurance program, but makes a series of changes designed to “improve the CLASS program’s financial stability and ensure its long-run solvency.”

The Administration also has released a variety of background and summary documents on the White House Health Care Meeting website.

President Obama Proposes Bipartisan Health Reform Summit

In an effort to jump-start progress on stalled health reform legislation, President Obama has invited Democratic and Republican lawmakers to a half-day, televised health reform summit on February 25, 2010. The event, announced by the President during a press interview on February 7, is billed as an opportunity for members of both parties to “put the best ideas on the table.”   Republican Congressional leaders have been reluctant to commit to participating in the meeting, however, unless the Democrats set aside the bills approved by the House and Senate in late 2009. In the meantime, Democratic leaders continue to work to resolve differences between the House and Senate approaches to the legislation. Our previous reports on health reform legislative efforts are available here.  

President Obama Releases FY 2011 Budget Request

The Obama Administration has released its proposed federal budget for fiscal year (FY) 2011. In its budget documents, the Administration reaffirms its commitment to enacting health reform legislation, and it assumes $150 billion in federal savings attributable to health reform over the 2011-2020 period. The document states that the budget “supports health insurance reform” by expanding patient-centered health research on treatment effectiveness; increasing investment in health information technology, prevention, and wellness activities; and initiating Medicare payment reform demonstrations. Nevertheless, the budget does not outline comprehensive reform plans, nor does it repeat the sweeping Medicare and Medicaid budget savings proposals included in the Administration’s proposed FY 2010 budget. In other health policy areas, the budget would: expand funding for biomedical research, health centers for the medically underserved, and HIV/AIDS prevention and treatment; provide a six-month, $25.5 billion extension of the American Recovery and Reinvestment Act (ARRA) temporary increase in federal Medicaid matching funds; expand Medicare and Medicaid anti-fraud efforts; address high-risk billing activity associated with the Medicaid drug benefit; expand Food and Drug Administration (FDA) user fees; and fund an FDA to “provide regulatory pathways for new technologies such as biosimilars.”  A separate FDA press release on the budget proposal announces that the Administration is seeking $4.03 billion for the FDA in FY 2011, which is a 23% increase over the agency’s current $3.28 billion budget.  The following initiatives are the major components of the FDA's FY 2011 budget increase:  transforming food safety ($318.3 million); Protecting Patients Initiative ($100.8 million); advancing regulatory science ($25.0 million); and tobacco-related initiatives ($215.0 million).  Note that many provisions of the proposed budget would require Congressional approval to implement. To that end, Congress is holding a series of hearings on the proposal, including Senate Finance and House Energy and Commerce Committee hearings focusing on the health policy provisions of the budget. Several other budget hearings scheduled for the week of February 8 were postponed due to extreme weather conditions in the Washington, D.C. area.

President Obama Delivers State of the Union Address

On January 27, 2010, President Obama delivered his State of the Union address to Congress. While the economy was the overwhelming focus of the address, President Obama reaffirmed his commitment to health insurance reform. Acknowledging setbacks on this issue, he nevertheless implored Congress to “not walk away from reform.” He asked Congress to “take another look at the plan we've proposed,” calling it a “vast improvement over the status quo.” He offered to work with members of either party on refinements that “bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses.”

Upcoming Congressional Hearings on President Obama's Budget Request.

On February 1, 2010, President Obama is scheduled to deliver his proposed federal budget for fiscal year 2011, which is likely to again include provisions that would, if adopted, significantly impact federal health care policies. Congressional panels already have scheduled hearings on the upcoming proposal, including Senate Finance Committee and House and Senate Budget Committee hearings set for February 2, 2010 and House Ways and Means Committee hearings on February 3.  In addition, the Senate Finance Committee is holding a hearing on February 3 to discuss the health policy provisions of the budget proposal with Department of Health and Human Services (HHS) Secretary Kathleen Sebelius.

White House proposes $313 billion in additional Medicare/Medicaid cuts

The White House has proposed $313 billion in new Medicare and Medicaid cuts over 10 years, in addition to the provisions included in the Administration's proposed FY 2010 budget. Among other things, the Administration is endorsing: incorporating productivity adjustments into Medicare payment updates; reducing hospital subsidies for treating the uninsured as coverage increases; paying "better" prices for Medicare Part D drugs (including reducing reimbursement for beneficiaries dually eligible for Medicare and Medicaid); increasing the equipment utilization factor for advanced imaging from 50 percent to 95 percent; adopting MedPAC’s recommendations for 2010 payments to skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals; and cutting waste, fraud, and abuse (including prepayment review for physicians in high-risk areas or those that order a high volume of high-risk services such as durable medical equipment, home health, and home infusion services).

The following chart summarizes the Obama Administration's health reform financing proposals released to date:

Health Care Reserve Fund
($ in billions)
10 years
FY 2010 Budget
-  Medicare and Medicaid Savings
-  Revenues
Additional Medicare and Medicaid Savings
-  Incorporate productivity adjustments into Medicare payment 
-  Reduce hospital subsidies for treating the uninsured as  
    coverage increases
-  Pay better prices for Medicare Part D drugs

-  Other




HHS Office of Health Reform Established

On May 11, 2009, HHS Secretary Kathleen Sebelius announced the establishment of the HHS  Office of Health Reform, which is charged with leading the Department's efforts to pass health reform legislation and coordinating with the White House Office of Health Reform.  Jeanne Lambrew, PhD, has been named Director of the HHS Office of Health Reform.   The complete announcement with staff biographies is reprinted after the jump.

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HHS Report on First 100 Days of Obama Administration

On April 29, 2009, the Obama Administration released a report on HHS progress over the first 100 days of the Obama Administration. The report addresses implementation of the American Recovery and Reinvestment Act of 2009, efforts to promote health reform, regulatory review initiatives, and release of the President's proposed budget, among other things.

Sebelius Confirmed as HHS Secretary

On April 28, 2009, the Senate voted to confirm Governor Kathleen Sebelius as Health and Human Services Secretary.  The vote was 65 to 31.  HHS Deputy Secretary Bill Corr was unanimously confirmed by the Senate on May 6. 

Sharfstein Named Acting FDA Commissioner

Dr. Joshua M. Sharfstein has been appointed by President Obama to be the FDA principal deputy commissioner. On March 30, 2009, Dr. Sharfstein began serving as Acting Commissioner for Food and Drugs, replacing previous Acting Commissioner Frank Torti, until the U.S. Senate confirms a new Commissioner of Food and Drugs (President Obama’s nominee for that post is Dr. Margaret Hamburg).

Federal Coordinating Council for Comparative Effectiveness Research

On March 19, 2009, HHS announced the members of the Federal Coordinating Council for Comparative Effectiveness Research. The Council was authorized by the American Recovery and Reinvestment Act (ARRA) as part of a major expansion of federal efforts to compare the effectiveness of different medical treatments, including both infrastructure changes and an infusion of $1 billion in funding for comparative effectiveness research. The Council is charged with helping to coordinate and guide investments in comparative effectiveness research, advising the President and Congress on federal comparative effectiveness research infrastructure needs, and reviewing federal agency organizational expenditures for comparative effectiveness research. The Council must report to the President and Congress by June 30, 2009 on current federal comparative effectiveness research and recommendations for research conducted under ARRA funding. The members of the Council are as follows:

  • Anne Haddix, chief policy officer, Office of Strategy and Innovation, Centers for Disease Control and Prevention;
  • Thomas Valuck, Medical Officer and Senior Adviser, CMS Center for Medicare Management;
  • Peter Delany, Director, Office of Applied Studies, Substance Abuse and Mental Health Services Administration;
  • Carolyn Clancy, Director, Agency for Healthcare Research and Quality;
  • Deborah Parham Hopson, Associate Administrator, HIV/AIDS Bureau, Health Resources and Services Administration;
  • David Hunt, Chief Medical Officer, Office of the National Coordinator for Health Information Technology;
  • James Scanlon, Acting Assistant Secretary for Planning and Evaluation, HHS;
  • Elizabeth Nabel, Director, National Heart, Lung, and Blood Institute, National Institutes of Health;
  • Garth Graham, Deputy Assistant Secretary for Minority Health, Office of Minority Health, HHS;
  • Jesse Goodman, Acting Chief Medical Officer, Food and Drug Administration, and Director, FDA Center for Biologics Evaluation and Research;
  • Michael Marge, Acting Director, Office on Disability, HHS;
  • Neera Tanden, Counselor, Office of the Secretary, HHS;
  • Joel Kupersmith, Chief Research and Development Officer, Department of Veterans Affairs;
  • Michael Kilpatrick, Director of Strategic Communications for the Military Health System, Department of Defense; and
  • Ezekiel Emanuel, Special Advisor for Health Policy, Office of Management and Budget

In a related development, the Institute of Medicine is accepting public comments on priorities for comparative effectiveness research under the ARRA.  Stakeholders can submit answers to a questionnaire through March 27, 2009.


National Health IT Coordinator Named

On March 20, 2009, HHS announced the selection of David Blumenthal, M.D., M.P.P. as the Obama Administration's choice for National Coordinator for Health Information Technology. As the National Coordinator, Dr. Blumenthal will lead the implementation of a nationwide interoperable, privacy-protected health information technology infrastructure, as called for in the American Recovery and Reinvestment Act. Dr. Blumenthal most recently served as a physician and director of the Institute for Health Policy at the Massachusetts General Hospital/Partners HealthCare System in Boston.