The President’s Proposed FY 2017 Budget: The Impact on Medicare

On February 9, 2016, President Obama unveiled his Fiscal Year 2017 Budget.[1]  With respect to Medicare, this year’s proposed budget is very similar to last year’s, both good and bad, with some notable exceptions.  While not a comprehensive analysis of all of the Medicare-related provisions, the Center for Medicare Advocacy provides these comments about the budget’s potential impact on Medicare beneficiaries, including their access to services and out-of-pocket expenses.   

Proposals We Support

• Prescription drug rebates – The President's drug rebate proposal would restore the law to what it was before Part D, by allowing Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy (LIS).   Drug manufacturers would pay the difference between rebate levels already provided to Medicare Part D programs.  Manufacturers would also be required to provide an additional rebate for brand name and generic drugs when their prices rise faster than inflation.  Implementing drug rebates would save the Medicare program $121.3 billion over ten years.
• Other drug-related provisions  – Common-sense provisions aimed at bringing greater transparency to drug pricing and obtaining fair drug prices include prohibiting “pay for delay” arrangements between brand and generic drug manufacturers, which slow the entry of more affordable generics into the marketplace, and shortening the length of exclusivity for biologics from 12 years to 7 years.  A proposal first introduced in last year’s budget would allow the Secretary of Health and Human Services to negotiate prices with drug manufacturers for biologics and high-cost prescription drugs covered under Part D. (While we support broader negotiation authority, this would be an important first step.)
• Closing the Part D Donut Hole more quickly – The President's budget would close the Donut Hole in 2018 – 2 years sooner than under current law – by accelerating manufacturer drug rebates and increasing brand-name drug discounts in the Donut Hole.
• Eliminating 190 day cap on inpatient psychiatric hospital care – As noted in the President’s budget, this limit on services “is one of the last obstacles to behavioral health parity in the Medicare benefit.”[2] A provision in the President’s budget would remove this obstacle.
• Allow Secretary of HHS to introduce Medicare primary care incentive payments – In an effort to boost access to primary care providers, the Affordable Care Act implemented a temporary 10% primary care incentive payment program. The proposed budget would allow the Secretary to introduce additional primary care payments into the Medicare physician fee schedule; such payments would be exempt from beneficiary cost-sharing.

In addition, the Center supports repeal of the 36 month rental for oxygen equipment[3] as a better alternative for beneficiaries who have been left without services and equipment between months 37 and 60 in the event they moved from a service area or had unmet maintenance needs.

We also support the proposal to eliminate beneficiary coinsurance for screening colonoscopies with polyp removal[4], but urge expansion of this concept to other medically necessary services received at the time of, and obtained as a result of, preventive services or screenings.

One provision would suspend coverage and payment for questionable Part D prescriptions.[5] If the Secretary uses this new authority to require additional information about nursing home residents who are prescribed antipsychotic drugs under Part D, this proposal could lead to a necessary reduction in the inappropriate, off-label, and life-threatening prescribing of these drugs.^[6]  Conversely, adequate safeguards would be required in order to ensure that proposed conditions of coverage do not restrict access to medically necessary medications.

The Budget proposes to achieve over $77.2 billion in savings over 10 years by reforming Medicare Advantage (MA) payments through competitive bidding.[7]   The Center is generally in favor of leveling the playing field between traditional Medicare and MA, and addressing wasteful payments such as MA “upcoding” (plans reporting enrollees as being more sick than they actually are for purposes of receiving higher risk-adjusted payments). However, it is unclear how this provision would play out, and whether it would adequately address wasteful spending on MA plans above traditional Medicare levels.

The Budget proposes setting a national standard for income and asset definitions for the Medicare Savings Programs[8]. Currently, the eligibility criteria are federal standards; states may have more, but not less, generous standards. For example, Connecticut currently has no asset limit for the Qualified Individual Program (QI). It is unclear from the proposal whether the national standards would be made more generous, or if the new standards would be more restrictive than what some states currently use. Therefore, more details are needed to determine if this budget proposal would be helpful or harmful for low income beneficiaries.  

Proposals of Concern

The FY 2017 Budget includes a number of Medicare legislative proposals that would reduce net Medicare spending by $419.4 billion over 10 years.  Unfortunately, approximately $56.4 billion of the total would be saved by implementing “structural reforms” that would shift additional costs directly onto Medicare beneficiaries.[9]  The Center continues to oppose these proposals. We note that one provision that would have added a surcharge on Part B premiums for new beneficiaries who purchase Medigap policies with low cost-sharing, included in previous budgets, was excluded from the FY 2017 budget.  Presumably, this is because Congress passed a physician payment bill in 2015 that imposes limitations on Medigaps purchased by new beneficiaries beginning in 2020.[10]  Thus the concept is unfortunately already in the law.

• Implementing a Co-Payment for Home-Health Care.  Starting in 2020, this proposal would create a home health co-payment of $100 per 60-day home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay.[11]  As the Center has argued in the past, this provision is misguided.  It will create a barrier to home-and-community based services, encourage hospitalization and decrease home care for people with long-term and chronic conditions.  Further the cost-savings are minimal.
• Increasing the Part B Deductible for New Beneficiaries. The President's plan would increase the Part B deductible ($166 in 2016) for new beneficiaries by $25 dollars in 2020, 2022 and 2024 (for a total $75 increase).  This proposal continues efforts to increase out-of-pocket costs for Medicare while beneficiary incomes remain low.  According to the Kaiser Family Foundation, 50% of Medicare beneficiaries’ annual incomes are below $24,500.[12]
• Further expanding Means-Testing of Medicare Part B and D Premiums.  Certain Medicare beneficiaries already pay higher Part B and D premiums based upon their income.  Starting in 2020, this proposal would increase the amount of premiums paid by higher income individuals and also freeze the income level for higher payments at $85,000, not adjusting for inflation, cost of living, or any other such factors, until 25% of beneficiaries were paying the higher premiums.[13]
• Encouraging the Use of Generic Drugs by Low-Income Beneficiaries.   Starting in 2018, this proposal would force the increased use of generic drugs by Part D Low-Income Subsidy (LIS) enrollees by doubling copayments for brand name drugs from their current low level, while lowering specified copayments for generic drugs.  We generally support promoting the use of generic drugs as long as individuals are not denied access to medically necessary brand name drugs.  We do not support doing so by correspondingly increasing the cost-sharing for brand name drugs paid by low-income individuals.
• Part D “lock-in” proposal – In an effort to prevent prescription drug abuse, the budget includes a proposal to allow the Secretary of HHS to establish a program in Part D that “would require that high-risk Medicare beneficiaries only utilize certain prescribers and/or pharmacies to obtain controlled substance prescriptions”.[14]  While the proposal notes that the program would be “required to ensure that beneficiaries retain reasonable access to services of adequate quality” we are concerned that, among other things, such a program might be overly restrictive on beneficiaries without adequate focus on potential provider-side solutions.[15]
• Various payment reforms – While we support paying providers accurately for high-quality services, we are concerned about how access to care might be negatively impacted by several proposals aimed at delivery system and payment reforms.  For example, one proposal focuses on Budget-Neutral Value-Based Purchasing for Skilled Nursing Facilities, Home Health Agencies, Ambulatory Surgical Centers, Hospital Outpatient Departments, and Community Mental Health Centers.[16]  Value-based purchasing (VBP) demonstrations in Medicare Advantage, hospitals, and skilled nursing facilities did not find improved quality of care for Medicare beneficiaries or reduced Medicare costs.  Extending VBP in a budget-neutral manner also perpetuates racial disparities.^[17]  Another proposal seeks to Reinstate the 75% Rule for Inpatient Rehabilitation Hospitals.[18]  By increasing from 60% to 75% the percentage of inpatient rehabilitation hospital (IRH) patients who must meet one of 13 conditions, the proposal would restrict the availability of IRHs for Medicare beneficiaries who need the intensive rehabilitation that only IRHs can provide.[19] 
• Providing Authority to Expand Competitive Bidding for Certain Durable Medical Equipment — The Budget proposes to expand the competitive bidding program (CBP) to additional categories[20], including (but apparently not limited to): inhalation drugs (which are already included in the CBP[21]); ostomy, tracheostomy, and urological supplies (which makes sense given their recurrent, standard, and general nature); and all prosthetics and orthotics. The category of “all” prosthetics and orthotics is cause for great concern. Straying far from the standard and general nature of current CBP categories into customized prosthetics and orthotics is a mistake. Uniquely tailored items should not be included in a volume driven, non-customized competitively bid program. Access and availability for customization that is medically necessary will be reduced when suppliers are not compensated for the extra labor and unique equipment. Customized orthotics and prosthetics should not be included in the CBP.
• Reforming the Medicare Appeals Process – the Center has considerable experience representing beneficiaries in the Medicare administrative appeals process.  Regrettably, we have witnessed greatly diminished success rates at the lower levels of review, and significant delays in obtaining administrative law judge (ALJ) hearings[22] ─ where beneficiaries receive the fairest review of their claims.  Given this experience, we are greatly alarmed at proposals first introduced in last year’s budget and reintroduced this year that would further restrict access to meaningful review of individuals’ claims.  These proposals include:
  • Establishing a refundable filing fee for providers, suppliers, and State Medicaid agencies, including those acting as a representative of a beneficiary, at each level of Medicare appeal;
  • Increasing the amount in controversy (AIC) for ALJ hearings (the 3rd, and most meaningful, stage in the appeals process) to equal the amount required for judicial review in federal court (the 5^th and final stage in the appeals process).  The ALJ AIC would increase ten-fold (from $150 in 2016 to $1,500);
  • Allowing attorney adjudicators (presumably with less experience and training than ALJs) to hear appealed claims below the higher AIC threshold;
  • Remanding appeals to the redetermination level if new evidence is introduced.  As noted above, beneficiaries, who often have problems obtaining timely documents and other support for their appeals, experience an almost non-existent success rate at these lower appeal levels (a denial rate of about 98%).

In December 2015, the Audit & Appeal Fairness, Integrity, and Reforms in Medicare (AFIRM) Act of 2015 (S. 2368) was introduced in the Senate.[23] Working from these appeals proposals in last year’s Budget, the Senate Finance Committee improved several issues of concern to beneficiaries, but left others in place when marking up the AFIRM Act in June 2015.[24] The Center remains concerned that rather than addressing the underlying reasons for the appeals backlog, (including the dreadful quality of review at the first two levels of appeal, and the enormous volume of inappropriate classification of inpatient hospital stays as outpatient Observation), these proposals would hinder beneficiary appeal rights.

Conclusion

The Center supports a number of provisions of the President’s proposed budget that would improve the program’s finances without harming beneficiaries or reducing access to care. We remain concerned, however, about provisions that would shift additional costs to beneficiaries and hinder access to both care and meaningful review of coverage denials.