President Obama’s FY 2016 Budget Proposal And Health Care Providers

On February 2, 2015, President Barack Obama submitted his Fiscal Year 2016 budget to the Congress.  Overall, the proposed $4 trillion budget, if enacted, would increase the deficit by $474 billion, or 2.5 percent of the gross domestic product.  Policies proposed in the budget would add approximately $5.7 trillion to the national debt, compared to an approximate $8 trillion under current law.

The President would eliminate the sequestration process that would exceed the current discretionary spending caps by $74 billion.  Within the proposed higher spending caps, the President proposes $40 billion, or 8 percent, above the current fiscal year.  The discretionary spending proposals open the door for possible Administration-Congressional negotiations to raise the discretionary spending cap.

For Medicare, the budget’s legislative proposals would cut almost $400 billion over 10 years, most of which would come from providers.  The Medicare proposals are intended to reform the care delivery system, increase the value of Medicare providers’ payments, structurally reform Medicare and its appeals process, and continue implementation of the Affordable Care Act (ACA) Medicare reforms.

Medicare physician payments are assumed to be frozen at current rates but the budget proposed to repeal the Medicare sustainable growth rate (SGR) payment system.  The specifics of the payment alternative are not included in the budget, but it notes last year’s legislative efforts.  The budget estimates that replacing the SGR would cost $44 billion over 10 years.  HHS Secretary Sylvia Burwell signaled support for the legislation from the 113th Congress when she stated that,  “The administration supports the type of bipartisan, bicameral efforts that Congress undertook last year.”

Immediately after the President’s budget was submitted to Congress, the Congressional Budget Office (CBO) projected a ten-year freeze in Medicare physician payments at $137.4 billion.  CBO also updated the estimate of last year’s compromise SGR legislation from $144 billion to $177.4 over ten years.  The increased in costs are the results of using some of the budget offsets that are no longer available to pay for a permanent repeal of the SGR.

It seems unlikely Congress will enact SGR repeal by the current March 31st deadline.  That means another patch for either six or nine months.  It also translates into another round of further Medicare provider cuts to pay for the 18th such short-term fix.

Primary care physicians would benefit from the budget’s proposed conversion of the ACA’s temporary 10 percent Medicare primary care incentive payment program to a permanent program.  The budget assumes this program would be made permanent in a budget neutral manner within the Medicare Physician Fee Schedule.

The budget would also amend the physician self-referral in-office ancillary services exemption.  Effective Calendar Year 2017 the budget would prohibit self-referrals for radiation therapy, therapy services, advanced imaging, and anatomic pathology services, except in cases of a clinically integrated practice that has demonstrated cost containment.

For hospitals, the budget would revise the Hospital Readmission Reduction Program to use a Hospital-Wide Readmissions measure based on broad categories of conditions.  Hospitals also would be required to code conditions as “present on arrival” and not “present on admission” to meet Medicare Hospital Acquired Conditions payment and reporting requirements.

The budget would reduce payments for Critical Access Hospitals (CAH) from 101 percent of reasonable costs to 100 percent for a savings of $1.7 billion over 10 years.  In addition, the budget would prohibit the CAH designation for hospitals that are within 10 miles of another hospital.  This would save $770 million over 10 years.

Post-acute care providers would experience payment reductions in several ways.  The budget would reduce the market basket update for inpatient rehabilitation facilities, long-term care hospitals, and home health agencies by 1.1 percentage points in each year 2016 through 2025. Payment updates for these providers would not drop below zero as a result of this proposal. For skilled nursing facilities, the budget  would reduce market basket updates under an accelerated schedule, beginning with a -2.5 percent update in FY 2016 falling to a -0.97 percent update in FY 2023.

For post-acute care, the budget would also save $9.3 billion over 10 years by implementing a bundled payment for post-acute care providers, including long-term care hospitals, inpatient rehabilitation facilities, skilled nursing facilities, and home health providers.

Although Congressional Republicans declared the President’s budget dead-on-arrival (DOA), health care providers should assume they are in the clear.  Both the House and Senate Budget Committee Chairmen have promised to introduce budget resolutions which would balance the budget in 10 years.  They are not expected to propose new revenues.  You can’t balance the budget by cutting discretionary spending (or, for that matter, sequestration).  Entitlement spending is what drives Federal government spending.

Both Budget Committees will propose resolutions including reconciliation instructions to reduce spending.  Except for the President’s proposed home health copayment proposal, it seems unlikely the Congress will ask more of beneficiaries.  That leaves health care providers.  Proposals that reduce payments to hospitals (particularly post-acute care facilities) and physicians would almost certainly be included in a budget reconciliation package.  All providers should be vigilant.



Julius W. Hobson, Jr. is a Senior Policy Advisor at Polsinelli P.C. and Adjunct Professor of Political Management, Graduate School of Political Management, George Washington University

Morning Consult