iProtean—2015 Budget Proposal Cuts Healthcare Costs by $400 Billion

The administration’s fiscal year 2015 budget proposal details more than $400 billion in cuts to Medicare, Medicaid and other federal health spending over the next 10 years. Medicare provider payments would be cut $3.5 billion; $1.5 billion of those payment cuts would come from post-acute providers and $960 million from graduate medical education (GME).


Projected savings over 10 years for proposals related to Medicare include but are not limited to:

  • Reducing coverage of bad debts ($30.8 billion)
  • Reducing graduate medical education by 10% starting in 2015 ($14.6 billion)
  • Reducing payment updates for certain post-acute care providers ($97.9 billion)
  • Bundling payments for post-acute care services ($8.7 billion)
  • Increasing the Medicare Advantage coding intensity adjustment ($31 billion)
  • Aligning Medicare drug payment policies with Medicaid policies for low-income beneficiaries ($117.3 billion)
  • Reducing critical access hospital (CAH) payments from 101 percent of reasonable costs to 100 percent of reasonable costs
  • Prohibiting CAH designations for facilities less than 10 miles from the nearest hospital ($720 million)


Projected savings over 10 years for proposals related to Medicaid include:

  • Determining future state disproportionate share hospital (DSH) allotments based on states’ actual DSH allotments ($3.3 billion)
  • Limiting Medicaid reimbursement of durable medical equipment based on Medicare rates ($3.1 billion)
  • Lowering Medicaid drug costs through a variety of measures ($8.6 billion)


The cuts should be viewed as signals to what the president would be willing to accept for a limited set of issues such as a sustainable growth rate (SGR) replacement, according to a senior policy analyst at HFMA (reported in HFMA Weekly News). For example, the budget also backed the approach of the bipartisan proposal to replace the Medicare SGR, which sets physician pay rates. The legislation has not identified a way to cover its $138 billion 11-year cost, and has stalled on Capitol Hill.


Other notable additions to the proposed 2015 budget include:

  • $3.9 billion over the next six years for the National Health Services Corps to place 15,000 healthcare providers in needy areas
  • $4.6 billion for the “1,200 health centers” program in FY 15 and $8.1 billion over three years to support additional services
  • $5.4 billion over 10 years to extend through calendar year 2015 a requirement that states pay for primary care services at the same rate that Medicare does. (The federal government covers 100% of the difference between the Medicaid and Medicare rate.) This proposal also would expand eligibility to mid-level providers, including physician assistants and nurse practitioners, and exclude emergency codes.


(Sources: “Administration’s 2015 Budget Includes More Than $400 Billion in Medicare, Medicaid Savings,” Health Lawyers Weekly, March 7, 2013; “Obama Proposes $3.5 Billion in Medicare Provider Cuts,” HFMA Weekly News, March 7, 2013)


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