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.

Among other things, the proposed budget would:

• Provide $610 million in discretionary funding for Health Care Fraud and Abuse Control, plus $581 million in program integrity funding to: reduce the Medicare fee-for-service improper payment rate; invest in prevention-focused, data-driven initiatives like predictive modeling; cost-avoidance activities; and Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiatives.
• Increase program integrity funding and legislative authorities, including: creation of a Medicare claims ordering system to validate physician orders for certain high-risk services, increased scrutiny of providers using higher-risk banking arrangements to receive Medicare payments, prior authorization for advanced imaging service; tracking of high prescribers and users of Medicaid prescription drugs; strengthened enforcement of manufacturer compliance with Medicaid drug rebate requirements; and exclusion of individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs.
• Reform post-acute care payment by reducing Medicare reimbursement for inpatient rehabilitation facilities (IRFs), long-term care hospitals, skilled nursing facilities (SNFs), and home health agencies by 1.1 percentage points beginning in 2014 through 2021 (updates would not fall below 0%), adjusting the standard for classifying a facility as an IRF; equalizing payments for certain conditions commonly treated in IRFs and SNFs; and adjusting SNF payments to reduce hospital readmissions.
• Require manufacturers to pay the same rebates for Medicare Part D low-income subsidy beneficiaries as they do for Medicaid, beginning in 2013 (manufacturers would be required to pay the difference between rebates paid to Part D plans and the Medicaid rebate levels).
• Reduce Medicare bad debt payments to 25% for all eligible providers over three years.
• Reduce Medicare add on payments to teaching hospitals for indirect costs of medical education by 10% and cut payments to critical access hospitals.
• Reduce reimbursement for certain advanced imaging equipment to account for higher levels of utilization of certain types of equipment.
• Provide an adjustment totaling $429 billion over 10 years to reflect the Administration’s best estimate of the cost of future congressional action to reform the Medicare physician fee schedule statutory Sustainable Growth Rate formula (details of the plan are not specified).
• Increase Medicare cost-sharing for higher-income beneficiaries, imposes Medicare home health copayments, and applies a premium surcharge for new beneficiaries with Medigap plans offering first-dollar coverage.
• Lower the Independent Payment Advisory Board’s target Medicare spending rate from the gross domestic product (GDP) per capita growth plus 1% to GDP per capita growth plus 0.5%.
• Reduce Medicaid spending by reducing the Medicaid provider tax threshold, instituting a single blended matching rate for Medicaid and CHIP; capping Medicaid durable medical equipment rates at Medicare levels, and rebasing Disproportionate Share Hospital allotments.
• Prohibit “pay for delay” agreements to increase the availability of generic drugs and biologics, and award brand biologic manufacturers seven years of exclusivity rather than 12 years.

Note that many provisions of the proposed budget would require Congressional approval to implement; leaders of both parties have indicated that Congress is unlikely to take up the President’s legislative proposals in its current form.