On March 4, 2014, the Obama Administration released its Fiscal Year 2015 proposed budget, which includes significant changes to federal health care spending and certain Medicare program requirements. Described below are certain proposals of significance to the healthcare sector.
Inpatient rehabilitation facilities
The President’s proposal would impact inpatient rehabilitation facilities (“IRFs”) by reinstating the so-called “75% Rule” from its current 60% threshold (by requiring that an IRF serve an inpatient population of whom at least 75% required intensive rehabilitation services for treatment of one or more specified conditions). The FY 2015 proposed budget would implement a site-neutral payment policy equalizing payments for hips and knees, pulmonary conditions, and other conditions as determined by the Department of Health and Human Services (“HHS”) that are regularly treated in IRFs and skilled nursing facilities (“SNFs”). The FY 2015 proposed budget would also implement a bundled payment policy for IRFs, long-term care hospitals, SNFs and home health providers.
Critical access hospitals
The proposed budget would reduce critical access hospital (“CAH”) payments from 101% to 100% of reasonable costs and eliminate CAH designation for hospitals located fewer than 10 miles from the nearest hospital.
Clinical diagnostic laboratories
The FY 2015 proposed budget would reduce payment for clinical diagnostic laboratory tests by $7.9 billion from current levels.
The FY 2015 proposed budget expands the support for healthcare fraud prevention and reduction of improper payments. The FY 2015 Health Care Fraud and Abuse Control (“HCFAC”) program level of funding would be set at $2 billion, through both mandatory ($1.7 billion) and discretionary ($319 million) funding. The FY 2015 proposed budget would establish all additional HCFAC funding as mandatory, starting in FY 2016. The estimated yield of the Budget’s 10-year investment in HCFAC is savings of $7.4 billion in Medicare and Medicaid payments.
The FY 2015 budget also includes $400 million in discretionary and mandatory funding for the Office of Inspector General ($105 million increase from FY 2014); $100 million for the Office of Medicare Hearings and Appeals ($18 million increase from FY 2014); and $17 million for the 340B Prescription program (including a $7 million increase from the FY 2014 budget to establish a cost recovery fee to improve program integrity and oversight.)
Graduate medical education
The FY 2015 Budget proposes $530 million in mandatory funding for a new Targeted Support for Graduate Medical Education (“TSGME”) program, with $5.2 billion in total through FY 2024. This program, described as a “new competitive grant program,” will fund teaching hospitals, children’s hospitals, and community-based consortia of teaching hospitals and/or other healthcare entities to expand residency training with a focus on ambulatory and preventive care.
The new program will incorporate two existing Health Resources and Services Administration (“HRSA”) programs, the Children’s Hospital Graduate Medical Education program and the Teaching Health Center Graduate Medical Education program. Awardees of the two programs will be eligible to compete for funding through the TSGME program. A minimum of $100 million will be set aside specifically for children’s hospitals in FY 2015.
Also, beginning in 2015, the Budget proposes to reduce Medicare indirect medical education (“IME”) payments to teaching hospitals by 10%, for an estimated savings of $14.6 billion over 10 years. The Budget cited Medicare Payment Advisory Commission (“MedPAC”) conclusions that “Medicare add-on payments to teaching hospitals for the indirect costs of medical education significantly exceed the actual added patient care costs these hospitals incur.”
Additionally, the Budget specifies that HHS would be granted the authority to set standards for teaching hospitals receiving GME payments to encourage training of primary care residents and emphasize skills that promote high-quality and high-value healthcare.
Skilled nursing facility readmissions
The FY 2015 budget proposes to reduce SNF Medicare payments by up to three percent beginning in 2018 for facilities with high rates of care-sensitive preventable readmissions, estimating $1.9 billion in savings over 10 years. This proposal quoted a MedPAC analysis that showed that “roughly 19 percent of Medicare patients that are discharged from a hospital to an SNF are readmitted to the hospital for conditions that could have been avoided.”
Beginning in 2015, the FY 2015 budget proposes to equalize payments for treatment of three conditions performed by IRFs and SNFs, for estimated savings of $1.6 billion over 10 years. The budget noted that Medicare payments are significantly higher for services provided at an IRF and the intensive inpatient rehabilitation may not be appropriate for patients with relatively uncomplicated conditions that could be treated in an SNF. The budget stated that “this proposal would improve financial incentives to encourage efficient and appropriate provision of care by reducing the disparity in Medicare payments between the settings.”
The FY 2015 budget proposes to provide the Food and Drug Administration (“FDA”) with $25 million for oversight of compounding pharmacies under the Drug Quality and Security Act. This funding is intended to assist FDA with the conduct of routine and follow-up inspections of high-risk compounding pharmacies.
Post-acute care payment bundling
The FY 2015 budget proposes to establish a post-acute care bundled payment program for providers including long-term care hospitals (“LTCHs”), inpatient rehabilitation hospitals (“IRHs”), SNFs and home health agencies. The post-acute bundled payment program would begin in FY 2019 and is anticipated to reduce total Medicare payments by $8.68 billion.
The FY 2015 budget proposes to implement an expanded value-based purchasing program, which would include providers beyond those currently participating in value-based purchasing initiatives. The proposal would tie at least two percent of payments to quality and efficiency of care requirements for SNFs, home health agencies, ambulatory surgical centers (“ASCs”), and hospital outpatient departments.
Bad debt payment reductions
The FY 2015 budget proposes to reduce bad debt payments from 65% to 25% over a three-year period beginning in FY 2015. Total savings from the bad debt payment reduction is anticipated to be $30.8 billion over 10 years. These payment reductions are intended to make payments “in a way that more closely matches private sector standards.”