On March 4, 2014, the Administration released its proposed fiscal year (FY) 2015 budget. The FY 2015 budget estimate for the Centers for Medicare & Medicaid Services (CMS) is $897.3 billion in mandatory and discretionary outlays, which is $54.3 billion above the FY 2014 level. The budget proposes reforms to the Medicare and Medicaid programs that are estimated to result in a savings of $414.5 billion over 10 years. The majority of this savings ($407.2 billion over 10 years) results from Medicare proposals.

The following is a summary of relevant Medicare and Medicaid provisions in the budget that are relevant to the post-acute care sector:

  • Limit Medicaid Reimbursement of Durable Medical Equipment (DME) Based on Medicare Rates: The proposal would limit federal reimbursement for a state’s Medicaid spending on certain DME services to what Medicare would have paid in the same state for the same services. [$3.1 billion in savings over 10 years.]   
  • Permit Prior Authorization for Medicare Fee-For-Service Items: The proposal would extend CMS’ authority to require prior authorization for Medicare DME service items to all Medicare fee-for-service items. In addition, the proposal would require the Secretary to implement prior authorization for power mobility devices and advanced imaging. [$90 million in savings over 10 years.]   
  • Adjustment of Payment Updates for Certain PAC Providers: The proposal reduces market basket updates for inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs) and home health agencies (HHAs) by 1.1 percentage points in each year 2015 through 2024. Payment updates for these providers would not drop below zero as a result of the proposal. The proposal reduces market basket updates for skilled nursing facilities (SNFs) under an accelerated schedule, beginning with a -2.5 percent update in FY 2015 falling down to a -0.97 percent update in FY 2022. [$97.9 billion in savings over 10 years.]   
  • Implement Bundled Payment for Post-Acute Care Providers: Beginning in 2019, the proposal would implement bundled payment for post-acute care providers, including SNFs, LTCHs, IRFs and home health providers. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates would be based on patient characteristics and other factors and would result in a permanent and total cumulative adjustment of 2.85 percent by 2021. Beneficiaries would have the same coinsurance responsibilities as they have under current law. [$8.7 billion in savings over 10 years.] 
  • Adjust Payments to SNFs to Reduce Hospital Readmissions: Payments to SNFs would be reduced by up to 3 percent beginning in 2018 for facilities with high rates of “care-sensitive preventable readmissions.” [$1.9 billion in savings over 10 years.]   
  • Equalize Payments for Certain Conditions Treated in IRFs and SNFs: Beginning in 2015, the proposal would reduce the disparity in Medicare payments between IRFs and SNFs for certain conditions involving hips and knees, pulmonary conditions and other conditions selected by the Secretary that are treated at both IRFs and SNFs. [$1.6 billion in savings over 10 years.]   
  • Modernize Payments for Clinical Laboratory Services: The proposal would lower payment rates under the Clinical Laboratory Fee Schedule by 1.75 percent every year from 2016 through 2023, and would authorize the Secretary to adjust payment rates under the schedule in a budget-neutral manner. The budget also supports policies to encourage electronic reporting of laboratory results. [$7.9 billion in savings over 10 years.]   
  • Modify Reimbursement for Part B Drugs: The proposal lowers payment of Part B drugs administered in the physician office and hospital outpatient settings from 106 percent of the Average Sales Price (ASP) to 103 percent of ASP starting in 2015. If the physician’s cost for purchasing the drug exceeds ASP + 3 percent, the drug manufacturer would be required to provide a rebate so that the net cost to the provider that acquires the drug equals ASP + 3 percent minus a standard overhead fee (determined by the Secretary). The rebate would not be included in determining the ASP. The Secretary would be authorized to pay a portion or the entire amount above ASP in the form of a flat fee rather than a percentage, with the modification to be made in a budget neutral manner relative to ASP + 3 percent. [$6.8 billion in savings over 10 years.]   
  • Exclude Certain Services from the In-Office Ancillary Services Exception to the Physician Self-Referral Law: Effective for calendar year 2016, the proposal would amend the in-office ancillary services exception to the physician self-referral law by prohibiting certain referrals for radiation therapy, therapy services, advanced imaging, and anatomic pathology services except in cases where a practice meets certain accountability standards established by the Secretary. [$6 billion in savings over 10 years.]   
  • Align Medicare Drug Payment Policies with Medicaid Policies for Low-Income Beneficiaries. Beginning in 2016, the proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy. The proposal would require manufacturers to pay the difference between the rebate levels they already provide Medicare Part D plans and the Medicaid rebate levels. In addition, manufacturers would be required to provide an additional rebate for brand name and generic drugs whose prices grow faster than inflation. [$117.3 billion in savings over 10 years.]   
  • Accelerate Manufacturer Drug Discounts to Provide Relief to Medicare Beneficiaries in the Coverage Gap.The proposal would increase manufacturer discounts available to Medicare beneficiaries in the Medicare Part D coverage gap from 50 percent to 75 percent beginning in 2016, which would close the coverage gap for brand drugs in 2016. The coverage gap for generic drugs would continue through 2020. [$7.9 billion in savings over 10 years.]   
  • Strengthen the Independent Payment Advisory Board (IPAB) to Reduce Long-Term Drivers of Medicare Cost Growth: IPAB was established by the Affordable Care Act. In cases where the projected Medicare per capita growth rate exceeds a predetermined target growth rate, IPAB is required to recommend policies to Congress to reduce the Medicare growth rate to meet a specified target. The proposal would lower the target rate applicable for 2018 and after from gross domestic product (GDP) per capita growth plus 1 percentage point to GDP per capita growth plus 0.5 percentage points. [$12.9 billion in savings over 10 years.]   
  • Implement Value-Based Purchasing for Additional Providers: The proposal would implement a budget neutral value-based purchasing program for additional providers, including SNFs, HHAs, ambulatory surgical centers, and hospital outpatient departments, beginning in 2016. At least 2 percent of payments would be tied to quality and efficiency. [No budget impact.]  
  • Expand Medicare Data Sharing with Qualified Entities: The proposal would expand the scope of how qualified entities can use Medicare Parts A, B or D claims data that is currently available for evaluating the performance of providers and suppliers. [No budget impact.]   
  • Modify Documentation Requirement for Face-to-Face Encounters for DMEPOS Claims: The proposal would permit certain non-physician practitioners to document a beneficiary’s face-to-face encounter with a physician or non-physician practitioner as a condition for Medicare payment for an order. [No budget impact.]   
  • Introduce Home Health Copayments for New Beneficiaries: The proposal would create a co-payment for new beneficiaries of $100 per home health episode for episodes with five or more visits not preceded by a hospital or inpatient post-acute stay. The beneficiary cost sharing would begin in 2018. [$820 million in savings over 10 years.]   
  • Allow Civil Monetary Penalties for Providers and Suppliers who Fail to Update Enrollment Records: The proposal would allow CMS to impose monetary penalties if providers and suppliers fail to update their Medicare enrollment records. [$90 million in savings over 10 years.]   
  • Retain a Portion of Recovery Audit Contractor (RAC) Recoveries to Implement Actions that Prevent Fraud and Abuse: The proposal would change a current funding restriction which permits CMS to use funds recovered by RACs to administer the RAC program, but does not permit CMS to use the funds to implement corrective actions to prevent future improper payments (i.e., new processing edits and provider education and training). [$250 million in savings over 10 years.]   
  • Increase Access to and Transparency of Medicaid Drug Pricing Data: The proposal would fully fund a nationwide retail pharmacy survey incorporating prices paid by cash-paying, third-party insured, and Medicaid insured customers. The funding would allow the collection of the actual invoice prices from retail community pharmacies to be used by states for setting payment rates to pharmacies. CMS would be authorized to collect wholesale acquisition costs for all Medicaid-covered drugs. [$30 million in costs over 10 years.]   
  • Extend and Improve the Money Follows the Person Demonstration: The proposal would extend the demonstration through FY 2020 and would modify the demonstration to allow funds to be used to prevent individuals from entering an institution, as well as transition services. The proposal would reduce the institutional requirement from 90 to 60 days and would allow SNF days to count towards the institutional requirement. It would also allow individuals in certain mental health facilities to transition to home and community-based services under the demonstration. [No budget impact.]   
  • Permit CMS to Reinvest Civil Monetary Penalties Recovered from HHAs: The proposal would allow CMS to retain and invest civil monetary penalties assessed on HHAs for activities to improve the quality of care of patients receiving home health services. [$10 million in costs over 10 years.]   
  • Extend Funding for CMS Quality Measurement Development: The budget would extend through 2017 funding for a consensus-based entity focused on performance measurement. [$90 million in costs over 10 years.]

There are three important points that should be underscored in analyzing this proposed budget: (1) The President cannot impose a budget on the government, as only Congress can enact a budget; (2) many of the provisions in this budget, such as the application of Medicare DMEPOS rates as a ceiling on Medicaid rates, have been included in prior Administration budget requests, but Congress never acted on them; and (3) this budget, taken in total, will not be enacted. As a legislative package, it is dead on arrival. That said, a number of the provisions in this budget may be incorporated into future legislation – the Medicare physician payment legislation as pay-fors for the sustainable growth rate repeal, for example, or budget legislation, if Congress actually passes a budget.