Administration's Budget Seeks Changes in Medicare Physician Payment System

The Obama administration has released details of a fiscal year, or FY, 2010 budget proposal that calls for reforming the current Medicare payment system by aligning payment incentives with improvements in quality and efficiency.

"The administration believes that the current Medicare physician payment system, while having served to limit spending to a degree, needs to be reformed to give physicians incentives to improve quality and efficiency," said a budget-in-brief document (117-page PDF; About PDFs) released by HHS in early May. "As part of health care reform, the administration would support comprehensive, but fiscally responsible reforms to this payment formula."

The Obama administration's budget estimates that it would cost $311 billion to prevent physician payment cuts that are called for under the sustainable growth rate, or SGR, formula and to keep physician payments level during the next 10 years.

To help compensate, the budget would greatly increase funding for a Medicare Integrity Program to help fight fraud and abuse.

"We know these dollars will pay off," said HHS Secretary Kathleen Sebelius during a press conference announcing the release of the administration's budget. "For every dollar we spend cracking down on fraud and abuse, we save $1.55 for the taxpayers. The president's budget lays out funding for anti-fraud efforts over the next five years totaling $1.7 billion, which would result in a savings estimate of $2.7 billion, so it's a good investment to make."

Physicians are facing a 21 percent reduction in payment rates on Jan. 1 unless Congress acts to block the cut. Sebelius, in response to a question posed by AAFP News Now, called the 21 percent cut in the physician payment rate "unacceptable," saying it would "go a long way to total disruption of the system that is so critically important to seniors and disabled Americans."

"We are aggressively investigating all of our options, looking at the administrative options within the department of HHS, as well as having this dialog with Congress about a congressional fix," Sebelius said. "We're working actively toward that solution."

She added, "I don't think there's any question that the physician fix has to be done."

The Obama administration released an outline of a FY 2010 budget in late February, followed by a more detailed FY 2010 budget proposal on May 7. The detailed budget, similar to the budget outline, establishes a health reform reserve fund of $635 billion during the next 10 years to help finance fundamental reform of the nation's health care system. But that amount, although significant, is not sufficient to fully fund comprehensive reform, making it more of a down payment on health care reform, according to the HHS budget-in-brief document.

"This budget moves us one step closer to making health reform a reality for all Americans," said Sebelius. "The $635 billion reserve fund established in the budget for health care reform is a historic commitment to reform, and it's a smart investment."

In many respects, the budget seeks to build on the recently enacted American Recovery and Reinvestment Act of 2009, or ARRA, which makes substantial investments in education and training programs for primary care physicians and other health-related programs. The administration's budget, for example, proposes $34 million in additional funding for the National Health Service Corps, or NHSC, in FY 2010, money that would augment the $300 million allocated to the NHSC by the ARRA.

In addition, the Obama administration has proposed an increase in Title VII grants for training family physicians from $48.4 million in the current fiscal year to $56 million in FY 2010.

The administration also is budgeting $828 billion, including $78.3 billion in discretionary spending, for HHS in FY 2010. This is slightly less than the amount allocated to HHS during the current fiscal year, but the ARRA has allocated an extra $22.4 billion for the agency in FY 2009 and in FY 2010.

The administration's budget also would provide the following funding levels: