Key Health Care Initiatives in President Obama's FY2010 Budget

12 May 2009 Publication
Authors: Kevin J. Egan Gary D. Koch Judith A. Waltz J. Mark Waxman

Legal News Alert: Health Care

On May 7, 2009, President Barack H. Obama submitted a detailed Fiscal Year 2010 budget proposal (Budget) to the U.S. Congress, an expansion of a budget outline he released in February 2009. The Budget would boost funding for the U.S. Department of Health & Human Services (HHS) to $879 billion in FY10, an increase of $63 billion over FY09. Consistent with the February outline, the Budget establishes a Health Reform Reserve Fund of $635 billion over 10 years, supported in part by a reduction of $309 billion in Medicare and Medicaid spending over the same period. The administration states that savings will be achieved in three areas to finance the reserve fund: “aligning incentives toward quality, promoting efficiency and accountability, and encouraging shared responsibility.”

The following summarizes some of the most significant health care provisions in the Budget, many of which will require additional legislation:

Hospital payments linked to quality. Under the Budget, hospitals would have five percent of their base operating payments linked to performance on specified quality measures, phasing to 15 percent by 2015. Payments not earned back would be split equally between a pool to fund additional hospital quality incentive payments and the Medicare Trust Fund. The administration estimates this will reduce program spending by $12 billion over 10 years.

Reduction of readmission rates. The Budget aims to reduce hospital readmission rates by adjusting payments for targeted conditions and procedures by 30 percent for hospitals with readmission rates exceeding the 75th percentile, if the patient is readmitted within 30 days of discharge due to complication or related diagnosis, beginning in 2012. Public reporting of readmission rates would start in 2013.

Bundling post-acute care. The Budget proposes bundling Medicare payments for inpatient hospital services and post-acute care provided within 30 days of discharge, beginning in 2013. A single payment would be made to hospitals to cover the cost of both acute and post-acute care services.

Physician- owned hospitals. The Budget would prohibit new physician-owned hospitals from seeking reimbursement for services furnished to beneficiaries referred to the hospital by a physician with a financial interest in the hospital. Existing physician-owned hospitals would be grandfathered in if they meet certain criteria, but would be prohibited from expanding.

Physician reimbursement. The budget includes $311 billion over 10 years to reflect anticipated action from Congress to prevent future cuts in Medicare reimbursement for physicians. Congress has enacted temporary legislative patches to prevent scheduled cuts, the result of a flawed payment formula, almost annually. In the Budget, the administration states that this should not be future policy and that the payment system needs to be reformed. The administration states it will continue to consider other options, including an assessment of whether physician-administered drugs should be removed from the payment formula.

Physician bonus eligible organizations (BEOs).The Budget would enable physicians to form voluntary groups that coordinate care for Medicare beneficiaries. BEOs would receive incentive payments if they improve the quality of care for patients and produce savings.

Competitive bidding for Medicare Advantage (MA) plans. The Budget would establish a competitive bidding system in which MA payments would be based on the average of plan bids submitted to Medicare. MA benchmarks would be set equal to the average MA plan bid in each county. Bids would be weighted by plan enrollment in the previous year.

Imaging services payments. To control costs and guard against potential waste and abuse, the Budget would require prior authorization from radiology benefit managers for the use and payment of advanced imaging services on Medicare beneficiaries.

Medicaid drug rebates. The Budget would increase the savings to Medicaid from brand-name drug rebates paid by drug manufacturers by increasing the rebate amount payable to states from its current level of 15.1 percent to 22.1 percent of average manufacturer price. It also would authorize states to collect rebates from drug manufacturers on drugs provided through Medicaid managed care organizations (MCOs) and plans. Currently, under an MCO arrangement, manufacturers are not required to pay the statutory rebates on drugs purchased by MCOs for Medicaid beneficiaries.

Fraud and abuse reduction. The Budget would invest $311 million in additional discretionary funds for eliminating fraud and abuse in Medicaid, Medicare Advantage, and the Medicare prescription drug program, resulting in an estimated $2.7 billion in savings over 10 years.

Workforce enhancement. The Budget also proposes spending $1 billion to bolster the nation's health care workforce through such measures as increasing loan repayment and scholarship programs for medical providers in medically underserved areas and expanding nursing schools.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Michelle A. Leeds
Washington, D.C.

Michael Scarano
San Diego, California

Ladonna Y. Lee
Washington, D.C.

J. Mark Waxman
Boston, Massachusetts

Judith A. Waltz
San Francisco, California

Kevin J. Egan
Chicago, Illinois

Gary D. Koch
Tampa, Florida

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