AAMC Reporter: March 2007

Federal Budget Process Could Yield Mixed Results

House Ways and Means Health Subcommittee Chair Rep. Pete Stark (D-CA) discussed the federal budget and other matters at the Feb. 28 meeting of the AAMC Executive Council

Following the February release of the Bush administration's fiscal year 2008 budget proposals, work is underway on Capitol Hill to bolster or restore support for a variety of programs important to academic medicine and the nation's health care system. In the early stages of the budget debate, the forecast is optimistic for some areas, less so for others.

"We're trying to gin up congressional support," said Lynne Davis Boyle, assistant vice president in the AAMC's office of governmental relations. "It's a little bit of a chess match."

As with all federal budgets, the $2.9 trillion fiscal year 2008 spending plan is divided into two main categories: mandatory spending for programs such as Medicare and Medicaid and discretionary or non-mandatory spending for areas such as the National Institutes of Health (NIH) and the Health Resources and Services Administration's Title VII health professions training programs. The Bush budget proposes a $57 billion discretionary spending increase for fiscal year 2008, which largely targets "security" funding—characterized as defense, homeland security, and international affairs. The remaining discretionary areas would receive a $3.5 billion increase. The NIH budget would be cut by 1.7 percent, and Title VII would be almost completely eliminated.

Looming over all aspects of the budget discourse is the president's proposal to eliminate the federal budget deficit by fiscal year 2012, thus potentially creating a thriftier legislative environment. Another key change potentially hampering spending is the new Democratic controlled Congress's reinstatement of the so-called "pay-as-you-go" rules, which stipulate that any spending increase must be offset by equivalent reductions elsewhere.

AAMC Office of Governmental Relations Senior Associate Vice President David Moore said that while speculation is rampant that the proposals will be rejected wholesale by a Congress generally not in a mood to cooperate with the president, this speculation is not entirely true.

"There's a lot of thought that the president's budget is dead on arrival in the Democratic Congress," Moore said. "But while the budget in whole cloth obviously won't be fully accepted, the president does establish pretty firm benchmarks such as eliminating the deficit and limiting discretionary spending. It's going to be a challenge for Congress to go beyond those benchmarks." Medicaid and Medicare might fall victim to this environment— potentially as a result of the pay-as-you-go rules. Davis Boyle said there is a chance the State Children's Health Insurance Program (SCHIP), which is up for reauthorization and has both congressional and White House support, could be funded by draining Medicaid or Medicare coffers.

"More money for SCHIP would be great, but our fear is they will be robbing Peter to pay Paul by taking dollars out of Medicare or Medicaid to cover that," Davis Boyle said. President Bush's Medicare proposals would pull $76 billion over five years from hospitals and other providers. Teaching hospital Medicare payments proposed for reductions or eliminations included indirect medical education reimbursement for treating Medicare Advantage beneficiaries, hospital inflation adjustment payments, Medicare bad debt payments, and others. Moreover, the budget assumes a 10 percent cut in Medicare physician payments previously scheduled and set to take effect in calendar year 2008. Among $25.7 billion in proposed Medicaid cuts was nearly $1.8 billion from a "regulatory clarification" that Medicaid is not intended to fund graduate medical education.

According to Davis Boyle, lawmakers may view these areas as ripe for cuts.

"Hospitals have been getting their full expected inflation payments for several years now, so there are rumblings that it might be hospitals' turn for cuts this time around," she said. "Democrats have indicated they will be looking very closely at the managed care rates, because they might see some extra money in there."

On the discretionary side, Moore said there is reason for "cautious optimism" in some areas, particularly NIH. "There are very strong signals that the NIH budget should grow," Moore said.

These signals include the NIH Reform Act of 2006, which became law in January and calls for increased spending, and a fiscal year 2007 joint funding resolution, approved in February, which included an additional $600 million for NIH.

The AAMC plans to increase its advocacy for medical research at the Veterans Administration (VA). While VA medical care received a proposed $2.1 billion increase, the VA Medical and Prosthetic Research program received a proposed $1 million cut.

"Given the severity of the injuries that a lot of soldiers are coming home with right now, research is important for finding ways to treat these injuries," Moore said. "So unfortunately, we are in a position to make a strong case for increasing VA medical research."

On the other hand, the battle for Title VII could be more difficult.

With virtually all Title VII programs receiving no funding and cuts now also being recommended for Title VIII, which provide the same training for nurses as Title VII does for physicians and other health professionals, the administration appears serious about deep rollbacks for these programs.

"It could be very hard to get back to higher funding levels," Moore said. "The administration seems a little more hard-line about Title VII now. It will probably be more of an uphill battle."

Lawmakers have tentatively set an ambitious timetable for completing the budget. The House and Senate budget committees expect to enact congressional budget resolutions, which set broad spending parameters, by mid-April, with congressional subcommittees beginning debate in May.

—By Scott Harris

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