On February 9, 2016 the Obama administration released its proposed fiscal year (FY) 2017 budget. The budget, which would top $4 trillion, allocates nearly $1 trillion to CMS. This is an increase of $26 billion from the FY 2016 budget. Included in the FY 2017 budget are legislative proposals that the administration claims would save the government $419 billion over ten years. These reforms include, among others, a new system for determining Medicare Advantage payments and bonuses for Part D drug plans, as well as a reduction in payments to post-acute care providers.
In order to encourage Medicare Advantage plans to submit cost-effective bids, the FY 2017 budget proposal incorporates competitive bidding. Under the proposal, an adjusted benchmark is calculated as “the lesser of the current law fee‐for‐service benchmark or the average Medicare Advantage plan bid plus a five percent ‘buffer’ to protect beneficiary rebates.” Benchmarks are the maximum monthly amount that Medicare will pay for required benefits in a Medicare Advantage plan’s benefit package in a particular county. Competitive bidding would reward Medicare Advantage plans for lowering their bids by allowing them to keep the difference between their bid and the benchmark as the beneficiary rebate. The budget proposal also standardizes quality bonus payments across counties by removing the doubling of the quality bonus payment and lifting the cap on benchmarks for Medicare Advantage plans entitled to receive a quality bonus payment. The administration estimates that these Medicare Advantage reforms would save the Medicare program approximately $77 billion over ten years.
The FY 2017 budget proposal also establishes quality bonus payments for high performing Part D plans. Modeled after the Medicare Advantage Plan Quality Bonus Program, Part D plans with quality ratings of four stars or higher would have a larger portion of their bid subsidized by Medicare. Plans with lower ratings would receive a smaller subsidy. These proposed bonus payments would be implemented in a budget neutral fashion, and would not impact reinsurance, low income subsidies, or other components of Part D payments.
While the proposed FY 2017 budget increases Medicare spending overall, it also reduces payments to certain post-acute care providers. Beginning in FY 2017, the proposed FY 2017 budget would reduce the market basket updates for inpatient rehabilitation facilities, long-term care hospitals, and home health agencies by 1.1 percent in FY 2017 and FYs 2019-2026. In FY 2018, the proposal calls for a one percent update. For skilled nursing facilities, the market basket update reductions are implemented on an accelerated schedule, beginning with a 2.5 percent reduction in FY 2017. These reductions should save the Medicare program $86.6 billion over ten years.
In addition to payment reforms, the proposed FY 2017 budget also contains a request for $725 million in discretionary funding to combat health care fraud. This is a 6.5 percent increase from FY 2016. This budget request would fund the Health Care Fraud and Abuse Control Account, with $487 million allocated to CMS program integrity activities, $122 million to the HHS OIG, and $116 million to the Department of Justice. The FY 2017 budget contains several legislative proposals to further strengthen program integrity, including: (i) allowing Recovery Audit Contractors to retain a portion of their recoveries to implement actions that prevent fraud and abuse, (ii) suspending coverage and payments for questionable Part D prescriptions, and (iii) expanding prior authorizations to all Medicare fee-for-service items and services.
Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.
