On February 26, 2009, the Obama Administration released its proposed federal budget for fiscal year (FY) 2010. Most significantly in terms of health policy, the proposal would establish a reserve fund of $633.8 billion over 10 years to finance health reform. While half of the reserve funds would come from tax increases on higher-income individuals, the rest would come from health system savings impacting a wide range of providers, health plans, and manufacturers. While additional details are expected to be released in the coming weeks, the following are highlights of the information released to date:

  • Medicare Advantage (MA) Payments. The budget would replace the current mechanism for establishing MA rates with a competitive system in which Medicare payments would be based upon an average of plans’ bids. The Administration estimates a savings of more than $175 billion over 10 years from this provision – approximately half of the health care savings in the budget proposal.
  • Reducing Drug Prices. The Administration proposes establishing a regulatory pathway for approval of follow-on biologicals. Additionally, brand biologic manufacturers would be prohibited from reformulating existing products into new products to restart the exclusivity process. The Administration also would prevent drug companies from blocking generic drugs from consumers by prohibiting anticompetitive agreements between brand name and generic drug manufacturers intended to keep generic drugs off the market. The budget also would increase the Medicaid drug rebate for brand-name drugs from 15.1% to 22.1% of the average manufacturer price (AMP), apply the additional rebate to new drug formulations, and allow states to collect rebates on drugs provided through Medicaid managed care organizations. The budget also supports the Food and Drug Administration’s (FDA) efforts to allow Americans to buy drugs from other countries.
  • Medicare and Medicaid Payment Accuracy/Program Integrity. The budget would expand CMS’s capacity to identify excessive payments and correct problems, such as through use of National Correct Coding Initiative edits for Medicaid claims. The budget also proposes to dedicate additional resources for oversight and program integrity activities related to the Medicare prescription drug program, MA, and Medicaid.
  • Hospital/Post-Acute Care Bundling, Reduced Hospital Readmission Rates. The budget calls for bundling payments to hospitals and certain post-acute providers for services provided within 30 days after discharge from the hospital. In addition, hospitals with high rates of readmission would be paid less if patients are re-admitted to the hospital within the same 30-day period.
  • Hospital Quality Improvement. The budget would link a portion of Medicare payments for acute inpatient hospital services to hospital performance on specific quality measures.
  • Physician Payment System Reforms. The Administration supports “comprehensive, but fiscally responsible” reforms to the physician fee schedule formula.
  • Cancer Research. The budget includes over $6 billion in funding for the National Institutes of Health (NIH) to support cancer research.

Other Medicare/Medicaid health policy line-items identified in the budget charts include the following, among others:

  • Establishing survey and certification revisit and recertification user fees;
  • Enabling physicians to form voluntary groups that coordinate care for Medicare beneficiaries and to receive performance-based payments for coordinated care;
  • Addressing financial conflicts of interest in physician-owned specialty hospitals;
  • Requiring the use of radiology benefit managers for Medicare imaging services;
  • Aligning Medicare home health payments with costs; and
  • Imposing higher Medicare drug benefit premiums on certain higher-income beneficiaries.

Note that many provisions of the proposed budget would require Congressional approval to implement. To that end, a number of Congressional committees have scheduled hearings on the budget proposal, including a March 10 Senate Finance Committee hearing focusing on the budget’s health care provisions.