Bloomberg News

Drugmakers, Hospitals Targeted for Cuts in Obama’s 2013 Budget

February 17, 2012

(For further information on the budget, see {BUDG <GO>})

Feb. 14 (Bloomberg) -- President Barack Obama’s budget plan would trim spending on federal health programs at the expense of drugmakers, hospitals and nursing homes while seeking nearly $1 billion for carrying out the 2010 health-care law.

The fiscal 2013 blueprint, released yesterday, contains a package of changes to Medicare, the U.S. health insurance program for the elderly and disabled, and Medicaid, the health plan for the poor that would help save $362 billion over a decade to slow medical spending.

Drug companies led by Pfizer Inc. would have to provide $156 billion in discounts over the next decade for medicines sold to low-income senior citizens, on top of $80 billion in discounts and rebates the industry agreed to help fund the cost of the health-care overhaul.

Because Medicare and Medicaid have different payment programs, Medicare is “receiving significantly lower rebates and paying higher prices than Medicaid” for drugs, the administration said in budget documents.

Obama’s proposals are unlikely to become law unless they’re included in legislation to raise the government’s debt limit, said Joe Antos, a health economist at the American Enterprise Institute, a nonprofit research group in Washington.

“Anything that has a policy significance is simply not going to go anywhere this year,” he said by phone. “All of these ideas and others will be on the table in early 2013 when the debt limit has to be raised again.”

Job Losses Forecast

The rebates proposed yesterday may cause hundreds of thousands of jobs to be lost, said John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America, a Washington trade group that represents the industry.

The budget would “weaken our ability to innovate and create jobs,” Castellani said in a statement. The spending plan “should not be considered,” he said. New York-based Pfizer, the world’s largest drug maker by market value, had no comment, said Peter O’Toole, a spokesman.

Brand-name drug manufacturers already provide rebates worth at least 15 percent the price of their medicines to Medicaid. The administration is proposing to extend that policy to cover so-called “dual eligibles,” about 9 million senior citizens who qualify for both Medicare and Medicaid.

A 2003 law written by congressional Republicans shifted drug coverage for dual eligibles from Medicaid to Medicare plans administered by private insurers.

The drug industry successfully fought efforts by House Democrats under then-Speaker Nancy Pelosi of California to require rebates for dual eligibles in the 2010 health-care overhaul.

Hospital Payment Cuts

Under Obama’s budget, Medicare spending would increase by $45 billion in fiscal 2013, to $523 billion. The administration proposed raising premiums on wealthier senior citizens beginning in 2017 to save $28 billion through 2022. The budget also would cut payments to long-term care hospitals such as those run by Kindred Healthcare Inc. and to nursing homes, saving about $63 billion over a decade.

Payments to the facilities “in excess of the costs of providing high quality and efficient care place a drain on Medicare,” the administration said in budget documents.

Long-term care hospitals and nursing homes are trying to improve the quality of care and “remove costs out of the system” through such measures as reducing re-admissions, said Mark Parkinson, the president and chief executive officer of the American Health Care Association, a Washington trade group.

Approach Criticized

“We shouldn’t have an approach focused solely on cuts,” he said in a statement. Obama’s budget “reflects that singular direction,” he said, and “is tantamount to cutting Medicare benefits.”

Susan Moss, a spokeswoman for Louisville, Kentucky-based Kindred, didn’t return a phone message.

There’s probably “room for some efficiencies” in payments to long-term care providers, said Antos, who advises the Congressional Budget Office on health issues. Cuts that are too deep could hurt access to care, he said.

“If they’re big enough and sustained long enough, they absolutely will have an impact that everyone’s mother will know,” he said.

The budget requests about $1 billion more in 2013 for the Centers for Medicare and Medicaid Services, the agency that runs the two U.S. entitlement programs and also oversees most of the implementation of the 2010 health-care law.

Building An Exchange

About $864 million of the increase would go toward enacting the health law, said Marilyn Tavenner, acting administrator of the Medicare agency. Her agency must build a federal health insurance exchange, or marketplace, where people will be able to purchase coverage if it’s not provided through their jobs.

The agency also has to help states that are choosing to build their own exchanges. The state-based markets would sell individual policies while the U.S. identifies people eligible for subsidies to help them buy coverage.

Republicans who control the U.S. House have said they will not appropriate money to implement the health-care law. The administration intends to move forward regardless, using money provided by the law or diverted from other programs, officials said.

“We will always meet the statutory directive to have exchanges available in states that don’t do it by 2014,” said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight, the office in Tavenner’s agency responsible for exchanges. The government “will work with existing, available funding sources” if Congress doesn’t appropriate additional money, he said in an interview.

--Editors: Adriel Bettelheim, Reg Gale

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net


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