Debt Plan Targets Medicare Overpayments


President Obama's plan to bring down the federal deficit includes about $320 billion in cuts to Medicare, Medicaid, and other federal health programs, and gives more power to the Independent Payment Advisory Board.

In the proposal, which was sent to Congress Sept. 19, the Obama administration calls for a combination of spending cuts and tax changes that it estimates would save about $4 trillion over the next decade. The plan includes about $248 billion in Medicare cuts — but the administration said that 90% of the savings would come by reducing “overpayments” to providers and drug companies. The president's plan would not change the eligibility age for receiving Medicare benefits.

“This plan reduces wasteful subsidies and erroneous payments while changing some incentives that often lead to excessive health care costs,” President Obama said during a speech in the Rose Garden.

But the president's plan was met with immediate opposition from Republicans in Congress. The top Republican in the Senate, Sen. Mitch McConnell (R-Ky.), said the president was “punting” on entitlement reform and that the proposal would not lead to meaningful deficit reduction.

The proposal includes $32 billion in payment cuts to skilled nursing facilities, long-term care hospitals, inpatient rehabilitation facilities, and home health care from 2014 through 2021. The administration expects to save another $4 billion over the next decade by paying skilled nursing facilities and inpatient rehabilitation facilities the same price for postacute care for hip and knee replacement and hip fractures. Currently, payments are higher in inpatient rehabilitation facilities.

The plan would also tie reimbursement for skilled nursing facilities to reductions in hospital readmissions. Under the Affordable Care Act, Medicare will begin penalizing hospitals with high readmission rates. The new deficit reduction proposal would reduce skilled nursing facility payments by up to 3% beginning in 2015 for those facilities with high rates of preventable hospital readmissions. The administration estimates that the policy will save about $2 billion over 10 years.

The proposal also calls for ending add-on payments for hospitals and physicians working in low-population states, starting in 2013. That would save about $2 billion over 10 years, according to the administration's plan. The president is also proposing 10% reductions in Indirect Medical Education add-on payments beginning in 2013, saving about $9 billion over 10 years.

In some good news for physicians, the proposal assumes that Congress will step in to stop pending cuts to Medicare physician payment rates. Without action from Congress, Medicare is scheduled to cut physician payments by nearly 30% in January 2012. However, the proposal also gives greater authority to the Independent Payment Advisory Board (IPAB), a panel that has been widely criticized by the physician community.

The panel was created under the Affordable Care Act, and charged with recommending Medicare cuts to reduce the rate of growth in the program. Under the Affordable Care Act, the IPAB would make recommendations for cuts when the projected Medicare growth rate per capita exceeds the gross domestic product plus 1%. But under the new proposal, that target rate would be lowered to gross domestic product (GDP) plus 0.5%. And the proposal calls for giving the panel new tools, such as the ability to consider “value-based benefit design” and an automatic enforcement mechanism for cuts. The president proposed that same change back in April when unveiling an earlier plan for managing the deficit.

One of the plan's biggest targets for Medicare spending cuts is the drug industry. Under the president's proposal, drug companies would be required to give the Medicare program the same rebates it gives to Medicaid for brand name and generic drugs provided to low-income beneficiaries. The change, which would take effect in 2013, is estimated to save about $135 billion over 10 years.

The president's deficit reduction proposal would also reduce the amount that Medicare pays to providers to cover bad debts.

Currently, Medicare reimburses providers for 70% of nonpayment of deductibles and copayments after they have made reasonable efforts to collect the money. Under the president's proposal, that amount would drop to 25%, which is similar to what private insurers pay. The change would be phased in over 3 years starting in 2013, and it is estimated to save about $20 billion over the next decade.

The president also plans to trim another $5 billion from the Medicare program by cutting waste, fraud, and abuse. For instance, starting in 2014 the proposal would put in place a prior-authorization requirement for the top-priced imaging services, a change that is estimated to save about $900 million over the next decade.

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