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President’s Budget With $440 Billion in Provider Cuts Starts FFY 2017 Budget Process

President Obama has released his federal fiscal year (FFY) 2017 budget request to Congress, calling for more than $440 billion in Medicare and Medicaid provider payment reductions — targeting graduate medical education (GME), critical access hospitals (CAHs) and post-acute care (PAC) providers — along with steep cuts to pharmaceuticals and Medicare Advantage plans. In this last budget of his administration, President Obama reprises many previously stated priorities and spending reductions.

While the additional Medicaid spending is most welcome, CHA is once again disappointed that the Obama administration has chosen to back Medicare and other Medicaid payment reductions in the FFY 2017 budget process when current Medicare and Medicaid payments fall short of covering the cost of care for patients.

The release of the President’s budget launches the beginning of the annual federal budget process. While Congress is under no obligation to consider any of the proposals, CHA is extremely concerned that the administration’s budget provides support, once again, for billions in Medicare and Medicaid cuts to providers and increases the risk that Congress will turn to these provider reductions as offsets for its non-health care-related budgetary priorities. The next steps in the budget process are for the House and Senate to develop budget resolutions, which should adhere to the budget caps set forward in the Bipartisan Balanced Budget Act enacted November 2015.

Medicare Provisions (10-year estimates)

  • Reduce bad debt payments to providers ($32.9 billion).
  • Reduce CAH payments from 101 to 100 percent of reasonable costs and eliminate the option of CAH status for hospitals located closer than 10 miles ($2.58 billion).
  • Change and reduce indirect medical education payments ($17.8 billion).
  • Increase Teaching Health Centers’ GME payments over 10 years ($527 million).
  • Provide $295 million in mandatory funding for Children’s GME in each of FFYs 2017 through 2021 ($1.47 billion).
  • Reduce the payment updates for post-acute care providers over 10 years ($86.6 billion).
  • Raise the “60 percent  rule” threshold for inpatient rehabilitation facilities back to 75 percent ($2.2 billion)
  • Revise and reform PAC payments using bundled payments ($9.9 billion) and reform and reduce hospice payments ($9.3 billion).
  • Reform Medicare Advantage payments ($77 billion).
  • Eliminate the 190-day lifetime limit on inpatient psychiatric care ($2.4 billion).

Of note, the budget proposal does not appear to include any new site-neutral payment proposals.

Medicaid Provisions

  • Extend funding for the Children’s Health Insurance Program through 2019 ($1.67 billion).
  • Allow for 12-month continuous Medicaid eligibility for adults ($11 billion) and extend full Medicaid coverage to pregnant and post-partum Medicaid beneficiaries ($375 million).
  • Require early periodic screening and diagnostic treatment for children in inpatient psychiatric facilities ($505 million).
  • Rebase Medicaid disproportionate share hospital allotments in 2026 ($6.6 billion).

Drug and Behavioral Health Provisions 

  • Fight opioid addiction ($1.1 billion).
  • Expand access to behavioral health care through early intervention programs, community behavioral health clinics, workforce investments and expanding the Electronic Health Record Incentive program to some behavioral health professionals.
  • Combat rising prescription drug prices by allowing the Secretary to negotiate prices for biologics and high-cost prescription drugs, prohibiting drug companies from delaying the availability of new generic drugs and biologics, and reducing the exclusivity period prior to the development of generics.