Washington Highlights: February
11, 2005
Bush Submits FY
2006 Budget
Contents
Prior Issues
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President Bush Feb. 7 unveiled the details of his FY 2006 budget
request to Congress. The $2.568 trillion spending plan assumes a
$390 billion deficit in FY 2006, and calls for $840 billion in discretionary
spending, an increase of $17.6 billion (2.1 percent). Defense spending
is increased by 4.8 percent and homeland security grows by 3.2 percent.
All other discretionary spending is slated for a 0.5 percent decrease
to $389 billion. The President's budget also proposes new budget
reforms, including capping discretionary spending at the FY 2006
level for 5 years, a stricter standard for emergency spending designations
and a requirement that the President and Congress concur in those
designations, and a line-item veto.
Discretionary spending within the Department of Health and Human
Services is decreased by nearly $1.8 billion (2.6 percent) to $67.1
billion. As in previous budgets, the Administration proposes increases
for a few priority programs, calls for the elimination of several
programs, and freezes funding for the majority of discretionary
health programs.
The following summarizes the discretionary budget proposals for
programs of interest to medical schools and teaching hospitals.
National
Institutes of Health: The president's budget assumes a program
level for NIH in FY 2006 of $28.845 billion, an increase of $196
million (0.7 percent). This includes a request for appropriations
through the Labor-HHS-Education Appropriations Subcommittee of $28.510
billion, an increase of $145 million (0.5 percent). The NIH program
level also includes $80.3 million through the VA-HUD Appropriations
Subcommittee for the National Institute of Environmental Health
Sciences Superfund research program, $150 million for diabetes research,
and $97.1 million through the department's Public Health and Social
Services Emergency Fund (PHSSEF) for research on radiological/nuclear/chemical
countermeasures.
The Administration's budget will support an estimated 9,463 new
and competing renewal research project grants (RPGs), an increase
of 247 competing RPGs over FY 2005. However, the total number of
RPGs will decrease by 402 to an estimated 38,746. The average cost
of competing RPGs is $377 thousand. This cost is skewed, however,
by more than 100 AIDS clinical trials cycling from noncompeting
into competing status awards (average cost $2.8 million per award),
as well as the 14 G-8 HIV Vaccine awards (average cost $2.4 million
per award.). When adjusted for these large grants, the average cost
for a competing RPG is $347 thousand. While no inflationary increases
are provided for direct, recurring costs in non-competing RPG's,
where the NIH has committed to a programmatic increase in an award,
such increases will be provided.
Most stipends levels for individuals supported by the Ruth L. Kirschstein
National Research Service Awards (HRSA) program are maintained at
FY 2005 levels. However, stipend levels for post-doctoral fellows
with 1 to 2 years of experience are increased by 4 percent, bringing
these stipends closer to the goal NIH established for post-doc stipends
in March 2000. In addition, individual post-doctoral fellows will
receive an increase of $500 in their institutional allowance for
rising health benefit costs. However, these increases in stipends
and health insurance are financed by reducing the number of Full-Time
Training Positions (FTTPs); NIH will support a total of 17,442 FTTPs
in FY 2006, a decrease of 397 from the FY 2005 Appropriation.
The budget includes $30 million for construction of additional
biosafety level (BSL) 3 laboratories for biodefense research. Consistent
with its FY 2005 budget, the administration does not request funds
for non-biodefense extramural research construction. The administration
also repeats its proposal to reduce the salary cap on extramural
grants to Executive Level II.
Health Professions: For the fourth consecutive year, the
budget eliminates all funding for the Title VII health professions
programs, with the exception of $10 million for Scholarships for
Disadvantaged Students and $1 million for Workforce Information
and Analysis. Title VII nursing receives level funding with FY 2005
at $150 million. The children's hospital graduate medical education
program receives a cut of $101 million (33 percent) below last year's
level of $301 million.
National Health Service Corps: The Administration's budget
request includes $127 million for the National Health Service Corps
(NHSC), a decrease of $5 million from the FY 2005 level. This decrease
is the result of proposed administrative cost savings, and the number
of awards is anticipated to remain the same.
Preparedness: The Health Resources and Services Administration
(HRSA) Bioterrorism Hospital Preparedness program is cut by $8 million
to $483 million in the President's budget, while funding for the
Bioterrorism Curriculum Development program is level funded at $28
million. The State Bioterrorism Preparedness program administered
by the Centers for Disease Control and Prevention (CDC) is cut by
$130 million to $797 million. Also within CDC, $203 million is added
to the Strategic National Stockpile.
AHRQ: The Agency for Healthcare Research and Quality (AHRQ)
receives level funding at $319 million, with all funds allocated
via transfers from other public health service agencies. The budget
designates $50 million for health information technology, $34 million
for patient safety, and $15 million for comparative effectiveness
research.
Health IT: Outside AHRQ, the FY 2006 budget includes $75
million for the new Office of the National Coordinator for Health
Information Technology. Although Congress did not provide funding
for this initiative in the final FY 2005 budget, the Administration
has directed $50 million in FY 2005 funds from the Secretary's discretionary
budget.
VA Research: The President's proposal includes $393 million
for the direct costs of research in the Department of Veterans Affairs
medical and prosthetics research program, a decrease of $9.3 million
(2.3 percent). The budget again assumes the combination of the direct
and indirect components of the research program into a single research
business line, with a total of $786 million. The budget also proposes
to establish three new performance measures for the VA research
program: the percentage of clinicians who remain paid VA employees
at least three years after completion of a career development award;
the annual number of patent disclosures filed by VA investigators;
and the annual number of peer-review publications that show VA listed
as the affiliated institution.
VA Medical Care: The FY 2006 budget request includes $30.7
billion for VA medical care, an increase of $752 million (2.5 percent).
However, this figure includes $2.59 billion in collections and revenue
generated through proposed legislation. With all collections and
new revenue sources removed from the calculation, the budget request
includes $28.1 billion for medical care, an increase of $117 million
(0.04 percent).
National Science Foundation: The Administration's FY 2006
budget proposal includes $5.61 billion for the National Science
Foundation (NSF), an increase of $132 million (2.4 percent). This
figure includes $4.33 billion for NSF Research and Related Activities,
an increase of $113 million (2.7 percent).
Higher Education: The President's budget request also includes
several proposals related to the reauthorization of the Higher Education
Act. Proposals of particular interest to medical schools and teaching
hospitals include:
- Eliminating the Perkins Loan Program and reclamation of the
federal portion of the revolving fund;
- Increasing annual subsidized Stafford loan limits for freshmen
to $3,500 and for sophomores to $4,500;
- Increasing annual unsubsidized Stafford loan limits for graduate
and professional students to $12,000;
- Maintaining current variable interest rate on Stafford loans;
- Replacing the current fixed-rate formula on consolidation
loans with a variable rate;
- Allowing reconsolidation on multiple occasions subject to
a 1 percent borrower origination fee; and
- Eliminating the single holder rule.
Information:
Dave Moore, Senior Director
AAMC Government Relations
dbmoore@aamc.org
(202) 828-0525
Jonathan Fishburn, Director, Research, Education and Veterans' Legislative Affairs
AAMC Government Relations
jfishburn@aamc.org
(202) 828-0525
Erica Froyd, Director, Public Health and Research Legislative Affairs
AAMC Government Relations
efroyd@aamc.org
(202) 828-0525
President's Medicaid Proposal Assumes Lower Than
Expected Expenditure Growth, Budget Cuts, and Programmatic Reforms
Just days before the President released his FY 2006 budget proposal,
Centers for Medicare and Medicaid Services (CMS) Administrator Mark
McClellan, M.D., Ph.D., announced that the budget would reflect
new projections indicating a lower than expected increase in FY
2004 Medicaid spending. According to the revised data, program spending
grew by 9 percent in FY 2004, 2 percent less than earlier projections
of 11 percent. According to Dr. McClellan, the 10-year projected
growth rate subsequently fell from 7.8 percent to 7.6 percent annually.
The Congressional Budget Office (CBO) has not yet confirmed the
revised CMS projections.
Despite the slow-down in spending growth, the President's budget
proposal includes $60 billion in Medicaid reductions through FY
2015, including program savings generated by "payment reforms"
that would further restrict states' use of upper payment limit (UPL)
and intergovernmental transfer (IGT) funding mechanisms. According
to the budget proposal, the UPL and IGT reforms represent a ten-year
federal savings of $3.3 billion and $11.9 billion, respectively.
The President's blueprint also proposes a "phase down"
of allowable state provider taxes, with the maximum allowable amount
falling from 6 to 3 percent. The provider tax provisions would also
make managed care organizations subject to the 3 percent maximum.
Combined, the provider tax reforms would offer an estimated savings
of about $7.6 billion over ten years.
In conjunction with the IGT, UPL, and provider tax provisions,
the Administration's budget proposes additional reforms, including
greater state flexibility in determining eligibility and benefits
among optional populations, except acute care services for the disabled.
Under the proposal, enhanced flexibility would not require "burdensome
waiver applications." According to a CMS press release, this
could include "new options for the funding of uncompensated
care" that would permit "more coordinated approaches"
to serving the uninsured. The President would also devote about
$4 billion in funding over 5 years to support outreach programs
that would enroll eligible, uninsured children in Medicaid.
The President's budget proposal does not outline specific strategies
for achieving savings via the payment reforms or provider tax phase-down,
nor does it provide details regarding increased state flexibility.
The President designates $6.2 billion in State Children's Health
Insurance Program (SCHIP) funding for FY 2006, including $5.4 billion
in allotments, $0.1 billion in outreach programs to increase enrollment,
and $0.7 billion in unspent, redistributed allotments. The President
also proposes reauthorization of SCHIP in FY 2006, one year earlier
than scheduled. While the reauthorization would establish funding
levels according to current law, the President's plan would extending
the initial spending period for state allotments from 2 years to
3 years. It would also "better target SCHIP funds in a more
timely manner," implying possible changes in the calculation
and redistribution of state allotments.
The Bush blueprint seeks additional Medicaid savings by restructuring
the pharmacy reimbursement to reflect average sale prices ($15 billion
over ten years), eliminating loopholes regarding the transfer of
assets to gain eligibility for long-term care benefits ($4.5 billion
over ten years), and establishing an allotment for administrative
claims ($6 billion over ten years). The President also proposes
spending an additional $25 million to finance "efforts to root
out erroneous and fraudulent uses of Medicaid and SCHIP funding."
Information:
Christiane Mitchell, Senior Legislative Analyst
AAMC Government Relations
cmitchell@aamc.org
(202) 828-0526
Medicare Budget Focuses on Prescription Drug Benefit
Implementation; Assumes Cuts to Hospitals and Physicians
The key focus of the President's FY 2006 Medicare budget is the
implementation of the "Medicare Prescription Drug, Improvement,
and Modernization Act of 2003" (MMA), and specifically the
new Part D prescription drug benefit due to take effect next year.
Additionally, the Medicare budget assumes that hospitals and physicians
will be reimbursed at levels set forth by the MMA. For physicians,
the 5 percent cut in CY 2006 would not be reversed. Additionally,
the budget also proposes "administrative improvements"
that will affect the Medicare hospital payment system.
With the Medicare budget totaling $345 billion in FY 2006, an increase
of 15 percent, the bulk of the Medicare budget documents include
descriptions of the provisions included in the Medicare reform law:
providing a discount prescription drug card and voluntary prescription
drug benefit; expanding private plan choices for Medicare beneficiaries;
improving Medicare fee for service benefits; combating waste, fraud
and abuse; and reforming regulatory procedures.
While there are no specific legislative proposals to reduce provider
payments, the budget does assume current law reductions to Medicare
physician fees, approximately negative 5 percent in CY 2006. In
a budget briefing, Centers for Medicare and Medicaid Services (CMS)
Administrator Mark McClellan, M.D., Ph.D., indicated that he had
been working with the physician community to determine whether there
are any ways to make administrative changes to the formula.
Furthermore, the budget documents indicate that the Department
of Health and Human Services (HHS) will make a number of administrative
changes "to rationalize several components of Medicare's payment
system." According to a Medicare budget fact
sheet, this includes:
- "Orderly implementation of the final rule for inpatient
rehabilitation facilities; expansion of post-acute transfer
policies to all DRGs to discourage double payments; and
- Refin[ing] the inpatient hospital payment system and related
regulatory provisions to assure that payments are appropriate
for specialty and non-specialty hospitals."
The implementation of the inpatient rehabilitation final rule is
estimated to save the Medicare program $70 million in FYs 2006 and
2007, $180 million in FY 2008, $230 million in FY 2009, and $260
million in FY 2010. The expansion of the post-acute transfer policies
is estimated to save $740 million in FY 2006, $900 million in FY
2007, $960 million in FY 2008, $1 billion in FY 2008, and $1.1 billion
in FY 2009.
Information:
Lynne Davis Boyle, Assistant Vice President
AAMC Government Relations
ldavisboyle@aamc.org
(202) 828-0526
President's Budget Proposes Improving Affordability
and Access to Health Care
Included in the President's FY 2006 budget request are several
proposals intended to increase the number of insured individuals,
provide greater access to health care, as well as improve the affordability
of coverage. Totaling $127 billion over 10 years, the proposals
target low and middle-income families and small business through
tax incentives, health savings accounts, state purchasing pools
and association health plans. Proposals include:
- $74 billion in health insurance tax credits would be available
to individuals and families with incomes of $30,000 and $60,000,
respectively, to help pay for premiums for standard coverage
and high deductible insurance;
- $28 billion in above the line tax deductions for premiums
for high deductible insurance;
- $19 billion in tax rebates for small businesses that contribute
to their employees' health savings accounts. Small employers
would receive a tax credit of up to $500 per employee with family
coverage and $200 per employee with individual coverage;
- $4 billion in grants to states to establish health insurance
purchasing pools; and
- $2 billion for community health centers in medically underserved
areas, a $304 million increase.
In addition, the President calls for legislation that would allow
small businesses to join together through industry and professional
associations to purchase health plans for their employees. The President's
FY 2006 budget proposal also reiterates the Administration's belief
that the medical liability crisis is a key force behind rising healthcare
costs. "Reforms to our medical liability law will increase
access to quality, affordable health care for all Americans, while
reducing frivolous and time-consuming legal proceedings against
doctors and health care providers."
Information:
Lynne Davis Boyle, Assistant Vice President
AAMC Government Relations
ldavisboyle@aamc.org
(202) 828-0526
AAMC Asks OIG to Create EHR Safe Harbor
The AAMC, along with the American Medical Group Association, Deaconess
Billings Clinic, Intermountain Health Care, and Partners HealthCare
System, Inc., responded to the Department of Health and Human Services
(HHS) Office of Inspector General's (OIG) annual request for suggestions
for new safe harbors by asking
that one be created to protect the support that hospitals, health
systems, and multi-specialty group practices provide to affiliated
physicians for dissemination and maintenance of electronic health
records (EHRs). The Bush Administration has announced its strong
support for the development of integrated health information systems,
and the EHR will be a central component. Many have recognized that
the physician self-referral prohibition and the anti-kickback statute
may be barriers to such development. David Brailer, M.D., Ph.D.,
head of the Office of National Coordinator for Health Information
Technology (ONCHIT) recommended "HHS could explore safe harbors
or exceptions to these laws that could accelerate EHR adoption without
creating inappropriate conflicts of interest or potential for abuse."
The AAMC's request to the OIG establishes a strong case for safe
harbor protection and suggests ways to craft the safe harbor to
promote the Administration's goals while avoiding violations of
the fraud and abuse laws. A copy of the letter is available at:
Information:
Ivy Baer, Director & Regulatory Counsel
AAMC Health Care Affairs
ibaer@aamc.org
(202) 828-0490
CMS Proposes New Rule for Organ Transplant Centers
The Centers for Medicare and Medicaid Services (CMS) Feb. 4 published
a proposed rule on Requirements for Approval and Re-Approval of
Transplant Centers to Perform Organ Transplants [70
Federal Register 6140]. The proposed rule sets forth
requirements that heart, heart-lung, intestine, kidney, lung and
pancreas transplant centers must meet to participate as Medicare-approved
centers. The focus is on a transplant center's ability to perform
successful transplants and deliver quality patient care as shown
by good outcomes and sound policies and procedure. Centers meeting
the criteria will be approved for 3 years, and could have the approval
renewed if they continue to meet the requirements. Comments may
be submitted
electronically by April 5, 2005, and should refer to file code
CMS-3835-P. Written comments may also be submitted by mail to: Centers
for Medicare and Medicaid Services, Department of HHS, CMS-3835-P,
PO Box 8013, Baltimore, MD 21244-8013.
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