Fiscal Year (FY) 2015 Budget Proposal and its Impacts on Medicare

On March 4, 2014, President Obama released the Administration’s proposed Fiscal Year (FY) 2015 Budget. The $3.9 trillion proposed budget outlines programs and cost saving measures to the Department of Health and Human Services. Below are some key Medicare proposals that would directly impact providers and payments.

The Department of Health and Human Services (HHS) proposed FY 2015 budget totals $1 trillion in outlays and proposes $77.1 billion in discretionary budget authority.

Specifically, the proposals call for the following legislative changes to Medicare. Unless otherwise noted, the proposals would begin in 2015.

Reduce Medicare bad debt payments from 65 percent to 25 percent over three years for all providers receiving bad debt payments ($30.8 billion in savings over 10 years);
Reduce graduate medical education payments by 10 percent and grant HHS the authority to set standards for teaching hospitals receiving GME to encourage training of primary care residents and promote high-quality and high-value health care ($14.6 billion in savings over 10 years);
Prevent hospitals within 10 miles of another hospital from being deemed a critical access hospital and receiving an enhanced reimbursement ($720 million in savings over 10 years);
Reduce market basket index (MBI) updates for long-term care hospitals, home health agencies and inpatient rehabilitation facilities by 1.1 percent in each year from 2015 to 2024. In addition, skilled nursing facilities would receive a negative 2.5 percent update in FY 2015, phased down to a negative 0.97 percent update in FY 2022 ($97.9 billion in savings over 10 years);
Re-implement the 75 percent rule for inpatient rehabilitation facilities ($2.4 billion in savings over 10 years);
Lower payment rates under the Clinical Lab Fee Schedule by negative 1.75 percent each year from 2016 to 2023;
Lower the Average Sales Price of Part B drugs administered in the physician office and hospital outpatients settings from 106 percent to 103 percent;
Modify face-to-face requirements for DMEPOS Claims to allow certain non-physician practitioners to document the encounter; and
Increase manufacturer drug discounts to 75 percent, beginning in 2016 ($7.9 billion in savings over 10 years).

The above list is not comprehensive of all the proposals included in the Administration’s FY 2015 proposed budget but is meant to provide a snapshot of the challenges providers will face as Congress struggles to find a solution to the Medicare physician payment system.

While the President’s proposed budget is considered “dead on arrival” by Congress, individual proposals, especially those that create Medicare savings, will be reviewed with the potential of offsetting the physician payment fix, estimated at $138 billion over 10 years.