White House Deficit Reduction Proposal Targets Medicare

President Obama on Wednesday presented a plan aimed at reducing the federal deficit by $4 trillion over the next 12 years. Healthcare will be expected to contribute its share with changes in the Medicare and Medicaid programs accounting for$480 billion in savings by 2023 and another $1 trillion in savings by 2033.

In a speech delivered at George Washington University, the President outlined in broad strokes the steps his administration will take to reduce healthcare costs. He said passage of the Accountable Care Act will reduce the deficit by $1 trillion and that his deficit reduction proposal will build on that success. He said that savings in the Medicare program will involve reducing wasteful subsidies and erroneous payments, and cutting spending on prescription drugs.

President Obama also proposed capping the growth of Medicare spending per beneficiary and strengthening the Independent Payment Advisory Board, a 15-member commission of doctors, nurses, medical experts, and consumers who recommend ways to reduce spending.

In a nod to the Partnership for Patients program announced by the Department of Human Services on Tuesday, the president said "we will change the way we pay for health care, not by procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results.

The President made it clear that he will oppose efforts by Rep. Paul Ryan(R-WI) to reduce the deficit by recreating Medicare or Medicaid. "Their plan lowers the government's healthcare bills by asking seniors and poor families to pay them instead. Our approach lowers the government's healthcare bills by reducing the cost of healthcare itself."

Obama's defense of the Medicare and Medicaid programs was more emphatic later in the speech: "I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations."

President Obama's willingness to reduce Medicare drew the ire of the American Medical Association. In a statement issued by her office, Ardis D. Hoven, MD and AMA chair released a statement expressing "strong concerns about the potential for automatic, across-the-board Medicare spending cuts because they are not consistent with meeting the medical needs of patients, which is our primary focus. The AMA urges President Obama and Congress to work with the medical profession on patient-centered reforms."

A White House fact sheet available here provides additional details of how costs will be reduced and savings achieved. Among the highlights:

• Set a new target of Medicare growth per beneficiary as the gross domestic product plus 0.5%. According to the fact sheet this is consistent with the reductions in Medicare spending since ACA passed and the new Medicare proposals included in the president's speech.
• Address the drivers of Medicare cost growth by providing the Independent Payment Advisory Board with additional enforcement measures. The IPAB, which was created by the Affordable Care Act, analyzes the drivers of excessive and unnecessary Medicare cost growth and recommends to Congress policies to reduce the rate of growth.
• Replace the patchwork of federal matching formulas with a single matching rate that rewards efficiency for the Medicaid and the Children's Health Insurance e Plan program.
• Work with the National Governors Association to develop recommendations to reform and strengthen Medicaid.
• Incentivize more efficient, higher quality care for high-cost Medicaid beneficiaries, including those who are eligible for both Medicaid and Medicare.

• Improve patient safety through the Partnership for Patients, a public-private partnership focused on preventing patients from getting injured or sicker while they are in the hospital and helping patients heal without complication. Achieving the initiative's goals means more than 1.6 million patients will recover from illness without a preventable complication and costs will be reduced by up to $50 billion in Medicare and billions more in Medicaid over the next 10 years.
• Cut unnecessary prescription drug spending by leveraging Medicare's purchasing power and by implementing management of high prescribers and users of prescription drugs.
• Reduce abuse and increase accountability in Medicaid and Medicare, recover erroneous payments from Medicare Advantage, and establish upper limits on Medicaid payments for durable medical equipment.

In addition to the healthcare cuts, the president proposed a reduction in domestic spending to save $750 million; additional efforts to identify waste in the defense department budget; and to reduce spending in the tax code by not renewing the tax cuts for the wealthiest Americans.