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President’s FY 2015 Budget Once Again Cuts Medicare Providers

March 7, 2014—President Obama March 4 released the fiscal year (FY) 2015 budget request calling for $402 billion in health-related cuts over 10 years. The budget proposes $354 billion in Medicare provider cuts, including nearly $15 billion in Medicare Indirect Medical Education (IME) payments, $68 billion in Medicare structural reforms, and $7 billion in Medicaid savings.

AAMC President and CEO Darrell G. Kirch, M.D., responded in a March 4 statement saying, “America’s medical schools and teaching hospitals are deeply concerned about the president’s FY 2015 budget proposal. At a time when the nation’s growing aging population is creating an urgent need for new physicians, this budget represents a nearly $15 billion reduction in payments to teaching hospitals for doctor training and complex patient care.”

Among the cuts of interest to AAMC members, the president’s budget includes $14.64 billion in reductions to Medicare IME payments. The policy reduces IME payments by 10 percent starting in 2015. Additionally, the Health and Human Services Secretary “would be granted the authority to set standards for teaching hospitals receiving Graduate Medical Education payments to encourage training of primary care residents and emphasize skills that promote high-quality and high-value health care.”

The administration proposes a $30.8 billion dollar cut in Medicare bad debt reimbursement. Phased in over three years, the budget would reduce reimbursement from 65% to 25% of bad debt. The administration also proposes a “clarification” related to Medicare Disproportionate Share Hospital (DSH) policies with no associated savings.

The clarification reiterates the Centers for Medicare and Medicaid Services’ (CMS) position that patients who exhaust Medicare Part A benefits or enroll in Part C should be included in the “Medicare Fraction” used to calculate a hospital’s DSH Payment Percentage (DPP). In November 2012, the Federal District Court of the District of Columbia ruled in Allina v. Sebelius that CMS must exclude those patients. The case is under appeal.

The president’s budget also assumes a net Medicaid savings of $7.3 billion over 10 years, largely through improved program integrity, reduced spending on prescription drugs, and an extension of DSH cuts scheduled under the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) (“DSH rebasing”). The budget assumes a 10-year savings of $3.3 billion under the rebasing proposal, which would have DSH allotments revert to pre-ACA levels, adjusted for inflation, in FY 2025.

The president’s budget assumes $5.4 billion in new Medicaid spending to extend by one year (through Dec. 31, 2015) the ACA’s “payment floor” for primary care services. Originally established for services provided in 2013 and 2014, the “payment floor” prohibits Medicaid payment rates for primary care services from falling below Medicare rates for the same services. Under the president’s plan, the “floor” would also apply to primary care services provided by mid-level providers, but not apply to emergency room codes (to “better target primary care”).

The administration also proposes $14.62 billion to fund three health workforce initiatives including a $5.23 billion transfer from the Medicare Hospital Insurance Trust Fund to establish a new graduate medical education grant program at the Health Resources and Services Administration (HRSA) [see related story], a $3.9 billion funding increase for the National Health Service Corps [see related story], and the previously mentioned $5.4 billion to extend the Medicaid “payment floor.”

Dr. Kirch praised the president’s recognition of the looming national physician shortage and need to invest in future physician training, but expressed great concern about using reductions from programs that currently support teaching hospitals as a pay-for stating, “As the nation’s hospitals are already required to absorb billions of dollars in funding cuts, these additional reductions to teaching hospitals would make it very difficult for them to carry out their missions.”

Dr. Kirch further highlighted the possibility of financially exhausting the ability of teaching hospitals to train additional resident positions stating, “These institutions already are supporting 10,000 residents per year above the federal residency training position cap, at a cost of more than $1 billion annually.”

Finally, the budget also supports a permanent repeal of the sustainable growth rate (SGR) and recognizes the bipartisan efforts of Congress over the past year. Although the budget assumes the SGR repeal cost at $110 billion, the Congressional Budget Office recently estimated the cost of full repeal at $121 billion. The president’s budget does not identify offsets to pay for SGR repeal.


Len Marquez
Director, Government Relations
Telephone: 202-862-6281

Christiane Mitchell
Senior Director Health Care Affairs
Telephone: 202-828-0461

Courtney Summers
Senior Legislative Analyst
Telephone: 202-862-6042


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806