The White House’s proposed budget for FY10 comes as an opening salvo in what is shaping up as a major effort to initiate healthcare reform this year.
One of the budget’s most prominent features is a plan to establish a $630 billion reserve fund to finance healthcare reform over the next 10 years. More than half of this amount would come from affluent households, which would see their itemized deductions capped at 28 percent. The remainder of the funds would come from various stakeholders in the healthcare system, including drug makers, insurance companies, and hospitals.
As reported in the New York Times, pharmaceutical companies would be asked to increase the discounts they offer to Medicaid to at least 22.1 percent. Health insurance companies would be asked to give up an estimated $176 billion over 10 years as payments for Medicare beneficiaries enrolled in private Medicare Advantage plans are cut. Medicare would use a bundled payment system for hospitals, and penalize hospitals with high patient readmission rates within 30 days after initial discharge, saving an estimated $26 billion. And pay-for-performance initiatives linking hospital payment to specified quality outcomes would provide another $12 billion over the 10 year period.
Richard L. Clarke, president and CEO of HFMA, noted that the budget proposals contain components consistent with HFMA’s principles of healthcare payment reform, but also cautioned that “both bundled payments and pay-for-performance are monumental shifts and should be implemented in a phased and thoughtful manner.”
Another interesting perspective on the projected cost savings of the proposals came in testimony by Douglas Elmendorf , director of the Congressional Budget Office, before the Senate Finance Committee on Wednesday, Feb. 25. Elmendorf noted that “many analysts agree that payment systems should move away from a fee-for-service design,” as proposed in the budget. But with respect to alternative payment approaches, such as bundled payments, the “precise effects are uncertain.” Almost inevitable, he said, are cutbacks in the number and types of services provided relative to current levels if healthcare costs are to be reduced. He also testified that savings resulting from reduced payments to hospitals with high rates of readmission may be slow to materialize, as Medicare would first have to gather information about readmission rates and notify hospitals before payment reductions could be implemented.
Health insurers are already pushing back. In a statement on the budget, Karen Ignani, president and CEO of America’s Health Insurance Plans, argues that the budget’s proposals regarding Medicare Advantage “would force seniors enrolled in Medicare Advantage to fund a disproportionate share of the costs to reform the healthcare system.” The markets responded to the budget’s health insurance proposals by sending the stocks of insurers down sharply.
Other organizations are taking a wait-and-see approach. The American Hospital Association noted that a “careful and thoughtful approach to experimenting with bundled payments for post-acute services and providing incentives for improving quality of care through value-based purchasing are areas worthy of consideration,” but also said that it found the budget’s approach to these issue “problematic.” And the Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement of congratulations on a budget proposal “that lays a solid foundation for essential comprehensive healthcare reform,” while urging “against the adoption of policies that could undermine innovation and disrupt patient access to life-saving medicines.”
