This week, President Bush released his $3.1 trillion budget request for FY 2009 that proposes, among other things, reductions of $183 billion from Medicare and $17 billion from Medicaid over 5 years. Specific payment cuts proposed in the President's budget plan include a 3-year freeze on the annual Medicare payment update for hospital inpatient and outpatient services, skilled nursing facilities, inpatient rehab facilities, long-term acute care hospitals and home health agencies, with annual updates of market basket minus 0.65% for each successive year beginning in FY 2012. Other cuts include (1) a reduction in the indirect medical education ("IME") add-on adjustment from 5.5% to 2.2% over 3 years; (2) a 5% reduction in hospital capital payments for FY 2009; (3) a 30% reduction in hospital disproportionate share ("DSH") payments over 2 years; (4) phasing out payment for bad debt over 4 years; and (5) eliminating reimbursement for never events. The targeting of these supplemental PPS payments signals a continued effort by CMS to find ways of eliminating these payments, which, particularly in the case of DSH and bad debt, the Agency has been fighting to limit on a regulatory level. The congressional mandate of these very important payments is the last bulwark of defense to obtain payment.

With the exception of eliminating IME payments to hospitals for MedicareAdvantage beneficiaries, payment cuts to Medicare/Advantage plans were mostly spared in the President's budget plan. The budget also calls for the establishment of a hospital value-based purchasing program, end-stage renal disease ("ESRD") "payment modernization" and extending Medicare secondary payor status for ESRD from 30 to 60 months. Noticeably absent from the President's budget plan is a proposal to fix the Medicare physician fee schedule. A $19.7 billion increase in federal funds over 5 years for the State Children's Health Insurance Program ("SCHIP") was also included in the President's budget request. According to the Administration, this increase would allow for SCHIP coverage of children with family incomes up to 200% FPL