Obama Spending Plan Seeks to Avert Major Medicare Physician Payment Reductions

President Obama has released a $3.6 trillion spending plan for the 2010 fiscal year that would block steep reductions in Medicare physician payment rates that are scheduled to take place based on the sustainable growth rate, or SGR, formula, during the next several years.

The spending plan would provide $329.6 billion in funding during the next 10 years to block reductions in Medicare physician payment rates that many expect will exceed 40 percent during the next seven years.

Peter Orszag, director of the Office of Management and Budget, said previous administrations' budgets were based on the premise that the cuts called for by the SGR would actually take place, even though it was widely assumed that Congress would act to block the reductions.

"Congress would never allow (the cuts) to happen, and each year, they would fill in the hole, even though it had not been budgeted for," said Orszag during a Feb. 26 White House press briefing announcing the release of the plan.

"We don't want to pretend that we are going to reduce Medicare physician payment rates by 20 percent next year," he said. "We are going to show in the budget the cost of filling in the hole."

Kevin Burke, director of the AAFP Division of Government Relations, said there are a lot of competing interests for federal dollars, and it helps that the president has telegraphed his desire to avoid the pay cuts.

"What the president's budget proposal says is that he supports using the $329 billion for physician payment," said Burke. "By including it in the budget, the president has made it many times easier for legislators to accept his proposal for allocating these federal funds for paying physicians and finding a comparatively small additional amount to pay for a reasonable increase."

"If it is not in the president's budget," Burke added, "then those many competing interests make it much more difficult for Congress to find the funds necessary to avoid physician payment cuts."

Orszag said the Obama administration wants to reform the health care system by working with Congress to give physicians incentives to provide "high-quality care rather than just more care." Part of that process involves providing encouragement for primary care physicians, he said in response to a question from AAFP News Now.

Orszag alluded to a recent study by the Dartmouth Atlas Project that shows substantial variations in health care costs across the United States without corresponding differences in quality or outcomes.

"The evidence suggests that a lot of variation you see across the United States is correlated with the number of (sub)specialist visits that you have and the ratio of (sub)specialists to primary care physicians without any corresponding improvement in quality," he said. "Primary care physicians provide cost-effective, high-quality care," especially when compared with other approaches.

"Health care is perhaps the most important driving force in our long-term fiscal gap," added Orszag. "It is already reducing workers' take-home pay to a degree that, I think, is underappreciated and unnecessarily large. At the state government level, it is crowding out a variety of other priorities, including higher education."

The administration's spending plan also calls for the creation of a reserve fund of $634 billion to cover health care expansion during the next 10 years, but it does not provide details on what that expansion would entail. It does say, however, that health care reform should be based on eight principles, including portability of coverage, a choice of health care plans, and an investment in prevention and wellness.

"People should not be locked into their job just to secure health coverage, and no American should be denied coverage because of pre-existing conditions," the plan says.

Orszag called the $634 billion for the health care reserve fund a "very substantial down payment" on health care reform. He said, however, "we acknowledge that more is necessary, and we will work with Congress to fill in any additional resources that are required to finance health care reform."

The budget calls for financing health care reform by increasing taxes on the wealthiest Americans and by improving the quality and efficiency of the health care system. It also calls for reduction in payments to Medicare Advantage plans and private heath care plans operating under the Medicare program, as well as reductions in prescription drug prices.