Released on February 14, President Obama’s 2012 fiscal year budget proposal (Budget) highlights the potential role of the Patient Protection and Affordable Care Act (PPACA) as a deficit reduction tool based upon the latest analysis by the Congressional Budget Office (CBO). While its conclusions have been challenged along political lines, the CBO expressly found that the PPACA will reduce the nation’s budget deficit by more than $200 billion in its first decade and more than $1 trillion over the second.

As related to health care, the Budget largely spares Medicare and Medicaid from deep cuts. Physicians were also largely spared from significant reimbursement cuts. The Budget proposes to freeze physician payment rates and offset these costs for the next two years with specific health savings. Although the sustainable growth rate formula used to determine Medicare physician payments calls for reductions in physician payment rates, Congress has overridden the reductions consistently since 2003. The current proposal takes a step further by continuing the current levels of physician payment rates for an additional two years.

Nonetheless, cuts were made in some health care-related areas. For example, the Budget proposes a phasing down of the Medicaid provider tax threshold over three years, beginning in 2015, to 3.5% in 2017 and beyond. Currently, the provider tax threshold is 5.5%, and such a lowered ceiling could ultimately have a negative effect on existing provider fee programs in Colorado and other states. The Budget also terminates the Children’s Hospital Graduate Medical Education Program, electing to redirect those resources to address the shortage of primary care providers.

In addition, the Budget puts forward a set of proposals intended to strengthen Medicare and Medicaid program integrity, in an effort to reduce waste and increase savings. These proposals include:

  • Increasing CMS’ authority to enforce appropriate reporting of provider enrollment information through civil monetary penalties or other intermediate sanctions.
  • Removing exceptions to the requirement that state Medicaid agencies reject medical claims when another entity is legally liable to pay the claim, and allowing Medicaid to recover costs from beneficiary liability settlements.
  • Requiring states to track high prescribers and utilizers of prescription drugs in the Medicaid program.
  • Requiring manufacturers that improperly report items for Medicaid drug coverage to fully repay affected states by paying a “rebate” equal to the amount the states paid for those items.
  • Increasing statutory civil monetary penalties on drug manufacturers that knowingly report false information under their drug rebate agreements for calculation of Medicaid rebate.  

Of course, the Budget’s specific proposals are fast becoming the focus of a partisan-driven budget controversy expected to unfold in the near future. Coupled with recent Congressional efforts to defund PPACA implementation, the federal budgeting process is likely to warrant ongoing attention among health care stakeholders in the next several months.