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Obama Budget Targets Medicare and Medicaid Payments

Elyas Bakhtiari and John Commins, for HealthLeaders Media, February 27, 2009

President Barack Obama on Thursday unveiled a $3.1 trillion budget that includes a reserve fund of $630 billion over 10 years for healthcare reform, financed in part by cutting waste and changing payment incentives for physicians, hospitals, and insurers.

One of the biggest reimbursement changes involves a switch to bundled payments for hospitalizations. Under the model, providers would receive a single bundled payment to cover both a hospital stay as well as care for the patient for 30 days after release. The change intends to reduce the 18% of hospitalizations that result from readmissions, and the administration claims it will save $26 billion of wasted money over 10 years, in part by reducing payments to hospitals that have high rates of readmission.

Physicians would also be affected by the bundled payment change, but the budget is generally less clear regarding physician reimbursement, stating only that the payment system will be reformed. Few details are provided, other than a general goal to create "better incentives for high-quality care rather than simply more care."

The administration says these payment changes that align incentives for quality and efficiency, combined with greater accountability, can save $316 billion over three years. Much of that could come from Medicare Advantage.

The budget proposal notes that the government pays Medicare Advantage plans 14% more than what it spends for traditional fee-for-service plans, and Obama plans to establish payments through a competitive bidding system, which would save more than $175 billion over 10 years.

Karen Ignagni, president and CEO of America's Health Insurance Plans, immediately denounced the budget plan, claiming it would cut benefits for seniors. "Unfortunately, this proposal would force seniors enrolled in Medicare Advantage to fund a disproportionate share of the costs to reform the health care system," Ignagni said. "A cut of this scale would jeopardize the health security of more than 10 million seniors enrolled in Medicare Advantage and would turn back the clock on innovative payment incentives to improve the quality of care that patients receive."

What the insurance industry sees as cutting benefits, however, the Obama administration views as waste reduction. The Government Accountability Office has labeled Medicare a "high risk" for fraud and abuse, and the budget includes funding to help identify excessive payments and correct problems.

The administration acknowledges that the $634 billion is only a "down payment," and that additional funds will be needed to achieve universal coverage. The budget comes just days after the Center for Medicare and Medicaid Services projected that national health spending will reach $4.4 trillion and comprise just over one-fifth of GDP by 2018.


Elyas Bakhtiari is a managing editor with HealthLeaders Media. He can be reached at ebakhtiari@healthleadersmedia.com.

John Commins is the human resources and community and rural hospitals editor with HealthLeaders Media. He can be reached at jcommins@healthleadersmedia.com.

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