President's budget addresses physician payment issues

April 19, 2013
Area(s) of Interest: Payor Issues and Reimbursement 

With the release of President Obama's 2014 budget last week, the administration showed its support for repealing the Medicare sustainable growth rate (SGR). Not only does the budget build in the cost of repealing the SGR, it calls for "the continued development of scalable payment models" to promote affordable quality care. The budget also eliminates the 2 percent Medicare sequestration cuts.

The price tag to repeal the SGR is estimated at $138 billion. Under the president's proposal, the wealthiest Americans would be asked to pay higher Medicare copayments and deductibles. Pharmaceutical companies would be required to increase the rebates given to low-income Medicare recipients by treating them similarly to Medicaid patients. The rebates would mean a major loss for big pharma.

The California Medical Association (CMA) is pleased that Obama's budget recognizes the need to eliminate the broken Medicare SGR and move toward new ways of delivering and paying for care that reward quality and reduce costs.

Additionally, the budget gives the Independent Medicare Payment Advisory Board (IPAB) ability to trigger cuts sooner. IPAB, established by the Affordable Care Act (ACA), will mandate arbitrary spending cuts if Medicare spending exceeds certain targets.

CMA has been lobbying long and hard for the board’s elimination and has offered other ways to control health care costs. This budget would allow the IPAB to make cuts to Medicare when spending hits GDP + 0.5 percent, versus the original ACA target of GDP + 1 percent. CMA sees this as a step backwards and supports bipartisan proposals to eliminate this unaccountable panel. However the congressional budget office estimates that the IPAB won’t likely be convened until 2020 because of the slower growth to Medicare spending in recent years.

CMA also has concerns with other items in the budget including an $11 billion cut to indirect medical education payments to hospitals.

While the president's budget does not represent a change in law and is not expected to be introduced as legislation, it does provide options for Congress to consider as it develops legislation to address the nation's fiscal issues this year. The proposal also offers insight into the Obama administration's budget priorities, which could play a role in the debate on government spending.

Below is a summary of the proposed Medicare changes in the president's budget:

  • Eliminates the 2 percent budget sequestration cuts to Medicare
  • Supports elimination of the SGR and development of a new payment system with a stable transition period.
  • Expands the data available to physicians to make medical decisions for patients
  • Requires wealthier Medicare beneficiaries to pay higher premiums, copayments and deductibles
  • Closes the Part D Doughnut hole and requires patients to pay more
  • Requires pharmaceutical manufacturers to pay higher rebates to low income beneficiaries
  • Establishes a 15 percent surcharge on MediGap supplemental insurance premiums to discourage overutilization.
  • Cuts Indirect Medical Education payments to hospitals by $11 billion
  • Reduces Medicare payments to hospitals to cover bad debt
  • Allows IPAB cuts when Medicare spending hits GDP + 0.5 percent vs. the ACA target of GDP + 1 percent
  • Reduces reimbursement for physician-administered drugs from 106 percent to 103 percent of Average Sales Price
  • Allows physician self-referral if certain accountability standards are met


Resources for physicians and health care providers on the latest news, research and developments.

Stay Informed

Opt in to receive updates on the latest health care news, legislation, and more.

Was this page helpful?