The Specifics on How Obama Plans To Cut Health Programs By $320 Billion

In his plan to trim the federal deficit, President Barack Obama Monday proposed $320 billion in cuts to Medicare and Medicaid, largely by changing how the federal government pays health providers, slashing payments to drug companies, and dramatically changing the way it splits the costs of Medicaid with the states, according to a fact sheet the White House released. Thus far, the most direct impact on imaging would be a requirement that doctors get approval from Medicare before ordering the most expensive imaging services. Click here to view the White House fact sheet on President Obama’s plan.

On the positive side for radiologists, the changes in “how the federal government pays health providers” has more to do with how benefits are structured rather than cutting reimbursement to physicians and radiologists in particular. Some Medicare beneficiaries would see their portion of costs go up under the president’s plan, a move we predict we will see more of as healthcare reform matures (meaning there will be a continued trend toward cost shifting from Medicare to the patient).

The administration’s proposal also includes the $300 billion needed to fix the flawed Medicare payment formula that threatens to slash fees to doctors each year. Since 2003, Congress has repeatedly stepped in at the last minute to avert the cuts from taking effect.

Under this current proposal, Medicare beneficiaries would see costs go up for the first time. Beneficiaries receiving home health services would pay a $100 co-payment per treatment episode starting in 2017, which would raise $400 million over 10 years. The deductible for Medicare Part B would increase by $25 in 2017, 2019 and 2021 for new beneficiaries, raising $1 billion over the next decade and higher income Medicare beneficiaries would pay higher premiums for Medicare Part B and Medicare prescription drug plans, raising $20 billion over 10 years.

The biggest cut to Medicare requires pharmaceutical companies to lower their rates. The proposal would save Medicare an estimated $135 billion over 10 years starting in 2013. The change would allow the federal government to receive the same brand name and generic rebates for low-income Medicare patients as are provided to Medicaid beneficiaries.

The cuts to the major health entitlement programs are part of a White House plan to reduce the federal deficit by more than $3 trillion over the next 10 years. The plan is the administration’s opening move in negotiations on deficit reduction to be taken up by the joint House-Senate “super committee.” If a deal is not enacted by Dec. 23rd, cuts could take effect automatically across government agencies.

One of the biggest changes proposed by Obama is how the federal government splits Medicaid spending with states, at a proposed savings of $14.9 billion over 10 years. Currently, states and the federal government share the cost of Medicaid, with the federal government paying about two-thirds and the states one-third of the total. The percentage varies by state based on the wealth of each state, with poorer states getting a higher match rate. The state match rate also varies for both Medicaid and the Children’s Health Insurance Program, which covers children from low-income households.

Obama is proposing that beginning in 2017, the matching rates from the two programs would be blended to a single rate, but from 2014 through 2016, states with a higher enrollment would get a higher federal match rate. The idea is to give states incentives to enroll more people starting in 2014 when the health overhaul law expands Medicaid. An additional 16 million people will be eligible for Medicaid starting in 2014. The federal government will still pay all the costs for the expansion of Medicaid coverage from 2014 through 2016, as promised in the health law.

Based on Obama’s proposal and its lack of focus on physician reimbursement, it appears the main threat to radiology revenue remains the CMS proposal published in July of this year. As we previously reported, the proposed 2012 Medicare Physician Fee Schedule (MPFS) rule that was posted to the Federal Register web site on July 1, 2011 includes deep and unsupportable cuts to imaging reimbursement. CMS proposed expanding the multiple procedure payment reduction (MPPR) policy to include the professional component of advanced (CT, MR & US) imaging services. In addition, CMS asks for comments on potentially expanding their multiple procedure payment reduction policy to the TC and PC of ALL imaging services. These rules could become final between now and the end of 2011 and would result in meaningful cuts in reimbursement.

As always, ADVOCATE will continue to keep you up to date as news becomes available.

With best regards,
Kirk Reinitz, CPA
President & CEO