CHIP Home Health Medicaid Medicaid/Medicare Medicare Medicare Part D Part B Physician Compensation Public Policy

The President’s Proposal to “Live Within Our Means”

President Obama released a proposal last week to jump start the economy and reduce the deficit.  The proposal includes many cuts to Medicare and increased cost sharing.  Senators Coburn and Lieberman are supporting these cuts.

Increased cost sharing is a common theme in Medicare, Medicaid, but also for other programs as well.  For instance, the proposal includes increases to TRICARE pharmacy benefit co-payments to be fall more in line with the most popular Federal employee health plan

The proposal, however, also has some interesting provisions.  For instance, it would require providers to secure prior authorization to perform advanced imaging.  This is one of the first moves away from the fee-for-service free-for-all towards managed care (read: rationing).

A pro-competition rule would prohibit ‘pay-for-delay’ where brand drug companies pay off other drug makers to delay their introduction of a generic into the market.  The FTC is charged with enforcing this requirement. The proposal also would reduce the exclusive period of generic biologics.  Weakening patent protection, for this authors perspective, is likely a good idea.

Specific changes under consideration which are related to medicare are highlighted below (with potential savings per year in parentheses):

  • Reducing in bad debt coverage.  Currently, Medicare covers 70% of bad debts for providers, but will reduce this figure to 25% ($2 billion)
  • Reduce IME.  Reduce indirect medical education (IME) payments by 10% ($0.9 billion)
  • Reduce CAH payments.  Reduce payments to critical access hospitals (CAHs) from 101% of cost to 100% of cost.  The proposal would also reduce special add-on payments for rural hospitals and providers ($0.6 billion)
  • Post Acute Care adjustments. Eliminate Payment updates for SNFs, LTCHs, IRFs, and home health providers.  ($3.2 billion).  Equalize payments for certain conditions commonly treated in IRFs and SNFs ($0.4 billion)
  • Decreased payments for preventable readmissions. Reduces SNF payments by up to three percent beginning in 2015 for facilities with high rates of care-sensitive, preventable hospital readmissions.
  • Drug Rebates. Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Medicare Low-Income Subsidy beginning 2013 ($13.5 billion).
  • Require Prior Authorization for advanced imaging. ($0.9 billion)
  • Medi-gap surcharge.  Charging an extra 15 percent premium on people who have especially 1st dollar coverage through a Medi-gap plan ($0.3 billion)
  • Increased deductibles.  Increasing the deductible for doctors’ services (part B of Medicare) by $25 in 2017, 2019 and 2021 ($0.1 billion)
  • Home Health Copays. Requiring $100 co-payments for home health care visits.  MedPAC made a similar proposal for home health beneficiaries admitted from the community (rather than the hospital).  ($0.1 billion)
  • Premium hikes for the wealthy. Hiking the premiums by 15 percent for Medicare recipients who earn from $85,000 to about $210,000, to raise about ($2.0 billion)



  1. Jason,

    I don’t pretend to know enough about the process to come up with a good argument on my own – but what do you think the ideal amount of time is for patent protection on a drug is? I know the FDA review process eats a fair amount of time out of the patent.

    Do you think that a patent’s protection (shortened, of course) should start once the review is successful?

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