Full 2010 Budget Proposal Reflects Commitment to Health Care Reform

President Barack Obama on May 7 released his full fiscal year 2010 budget, which reflects his commitment to health care reform. The budget proposes the creation of a health reform reserve fund of $600 billion over ten years as previously announced, financed through new revenue and reductions in Medicare and Medicaid funding. 

In addition, the Administration proposes removing retrospectively Part B drug spending from the calculation of physician services spending, which is a positive step long-advocated by the ACC and the physician community. In addition, the budget recommends reforming the physician payment system, instituting prior authorization for imaging services, reducing hospital readmissions, improving care coordination and addressing physician ownership in specialty hospitals. More details are below.

Part B Drugs
The budget proposes to retrospectively eliminate Part B drugs as part of the calculation of physician services spending. Under existing federal law, physicians are subject to reductions in payment if their spending exceeds that of the sustainable growth rate (SGR), which is based on gross domestic product. “Physician” spending currently includes Part B drugs (drugs administered by physicians, such as chemotherapy and infusion therapy); however, these drugs are not subject to the same price controls as other physicians services and are instead reimbursed based on average sales price.

The increasing use and cost of Part B drugs has been a significant contribution to "physician" spending each year, in turn increasing the total payment cuts that physicians must lobby Congress to overturn. The medical community has argued that because physicians do not control Part B drug prices they should not be a factor in calculating physician spending. Excluding Part B drugs from physician spending would lower the cost of replacing the SGR formula by an estimated $87 billion.

Bundling Payments
The budget proposes a bundled package of services for a hospitalization and the 30 days post-discharge.  A similar provision appeared in the Senate Finance Committee’s health reform policy options and excluded physician services from the bundle. This budget proposal does not specify whether physician services would be included. 

Demonstrations
The Centers for Medicare and Medicaid Services is nearly doubling the operations budget for research and demonstrations with an additional $30 million in funding, which could allow for more demonstrations on new payment methods in Medicare. 

Care Coordination
The budget includes a proposal to allow Medicare to pay groups of physicians referred to as "Physician Bonus Eligible Organizations" to coordinate care if they can improve quality and reduce spending.

Readmissions
The budget proposes a 30 percent reduction in payments for hospitals with readmission rates exceeding the 75th percentile, if readmission within the 30 days is related to the original admission.

Physician Ownership
The budget proposes the elimination of new physician-owned hospitals and prevents existing physician-owned hospitals from expanding. 

Imaging
The budget proposes the use of radiology benefit managers for advanced imaging in the Medicare program.  Radiology benefit managers are frequently used in the private insurance market but are not yet allowed in Medicare. 

Food and Drug Administration
The budget proposes a $511 million increase in spending for the Food and Drug Administration, the largest increase ever proposed for this agency. Included in this is $166 million in Funding for drug and medical device oversight. 

National Institutes of Health
Under the proposed budget, funding for the National, Heart, Lung, and Blood Institute (NHLBI) would increase by $35 million to $3.05 billion for 2010. NHLBI also received $763 million in 2009 and 2010 as part of the Recovery Act.