April 11—President Obama released a proposed budget that includes approximately $46 billion in Medicare and Medicaid payment cuts to hospitals. Many of the items included have appeared in the president’s budget in previous years.
Estimated Healthcare Payment Cuts 2014

The White House positioned the budget proposal, released on April 10, as “its final offer to Republicans in the deadlocked deficit reduction talks,” reports the Los Angeles Times.

However, in light of opposition to the president’s proposal from both sides of the aisle, it may just be an opening offer, according to HFMA technical director Chad Mulvany. “The legislation passed over the New Year [the American Taxpayer Relief Act] also allowed the Treasury to ignore the debt ceiling until April 15,” Mulvany says. “However, Congress won’t have to work out a deficit reduction/debt limit increase deal immediately. Most estimates suggest the federal government can meet all of its commitments until sometime this summer.”

Unlike budget resolutions passed earlier this year by the Senate and the House of Representatives, the president’s proposal identifies specific cuts. For hospitals, these include Medicaid disproportionate share hospital payments, Medicare bad debt reimbursement, critical access hospital payments, and payments for graduate medical education as well as reduced payments for Part B drugs.
Federal Budget Resolutions 2014

“Unfortunately, this isn’t the first time payment reductions to safety net, rural, and teaching hospitals have appeared in a budget proposal,” says HFMA’s Mulvany. “Even though it appears that debt reduction efforts will target specific cohorts of hospitals, all providers should focus on reducing their cost structures due to the uncertainty surrounding the federal fiscal situation.” The president’s proposal also includes $249 billion to permanently fix the sustainable growth rate (SGR), the flawed Medicare physician payment formula known in industry circles as the “doc fix.” The cost of the fix would be offset by cuts that would affect other providers, Mulvany says.

Although it’s not likely the president’s budget will lead to a “grand bargain” later this summer, if Congress moves forward with an SGR fix, it will likely contain many of the offsets included in the president’s budget.

HFMA Analysis: Unfortunately, this isn’t the first time payment reductions to safety net, rural, and teaching hospitals have appeared in a budget proposal. Even though it appears that debt reduction efforts will target specific cohorts of hospitals, all providers should focus on reducing their cost structures due to the uncertainty surrounding the federal fiscal situation.

Publication Date: Thursday, April 11, 2013