On February 9, 2016, the Obama Administration released its proposed fiscal year (FY) 2017 budget, which contains significant Medicare and Medicaid reimbursement and program integrity legislative proposals – including $419 billion in Medicare savings over 10 years. These proposed policy changes would require action by Congress, and Republican Congressional leaders have already voiced general opposition to the overall budget plan. In addition, many of these proposals have been included in prior Obama Administration proposed budgets without garnering Congressional support. Nevertheless, Medicare and Medicaid savings proposals often find their way into subsequent spending bills as offsets, so these budget policies are worth monitoring.

The largest pool of Medicare savings would result from various Medicare prescription drug proposals, which are summarized in a separate post. Other significant savings ($77 billion over 10 years) would be achieved by Medicare Advantage (MA) payment reforms, including the use of a competitive bidding system to establish rates for MA plans and standardization of quality bonus payments across counties. In addition, the budget proposal would allow the Secretary of Health and Human Services (HHS) to authorize MA organizations to deliver medical services via telehealth by eliminating otherwise applicable Part B requirements that certain covered services be provided exclusively through face-to‐face encounters (an estimated $160 million in savings over 10 years).

In addition, the budget calls for bundled Medicare payments for post-acute providers – long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), and home health agencies (HHAs). Under this proposal (which also was included in the Administration’s FY 2016 budget proposal), payments would be bundled for at least half of the total payment for post-acute care providers beginning in 2021, with rates set to produce a permanent and total cumulative adjustment of -2.85 percent by 2023. Beneficiary coinsurance obligations would remain at current levels. The Administration estimates $9.9 billion in savings over 10 years from this provision. The budget proposal also would reduce Medicare market-basket updates for post-acute care providers. Specifically, the update for IRFs, LTCHs, and HHAs would be reduced by 1.1 percentage points in FY 2017, and each year from FY 2019 through FY 2026 (the update for 2018 is currently set at 1 percent for these providers for 2018; the payment update would not drop below zero as a result of this proposal). The budget also would accelerate reductions in the market-basket update for SNFs, providing a ‐2.5 percent update in FY 2017; a ‐2 percent update in FY 2019; a ‐1 percent annual update in FYs 2020 through 2023; and a ‐0.97 percent update in FY 2024. Payment updates for SNFs could drop below zero as a result of this proposal. The revised updates would save $86.6 billion over 10 years.

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