President’s 2014 Proposed Budget Calls For Increase to Overall Healthcare Spending and Major Changes to Medicare Part D

President Obama unveiled his fiscal year 2014 budget for the U.S. Department of Health and Human Services (HHS).  The budget contained a number of notable figures and proposals, particularly given that many pieces of the Patient Protection and Affordable Care Act (PPACA) are set to go into effect in 2014.   

The new budget would provide HHS a total of $967.3 billion in outlays and $80.1 billion in discretionary spending, and it includes initiatives that aim to save $361.1 billion over a decade.  MedPage Today reported that the FY 2014 budget “is larger than the $848.2 billion actually spent in FY 2012 and the $907.8 billion estimated for FY 2013.” 

Medicare would eat up 54% — about $522 billion — of the amount proposed for next year, while 31% would go to Medicaid, with the remainder spent on other programs.  The budget proposal includes another $1.5 billion — in addition to the $1 billion already spent — to get ready for the implementation of the health insurance exchanges mandated by PPACA.   

Below is a summary of the major budget proposals as well as links to various stories covering next year’s budget.  As noted by the FDA Law Blog, “none of the Obama Administration proposals are automatic.  They are contingent upon the enactment of authorizing legislation, which will most certainly run into opposition in Congress.”  Interestingly, the almost $1 trillion budget comes at a time when doctors are being driven to bankruptcy.  

Food and Drug Administration (FDA) 

According to MassDevice.com, the newly unveiled HHS budget proposal allocates $4.7 billion to FDA, an increase of 21%, or $821 million, over 2012.  Of that total, $2.6 billion is dedicated to medical product safety, including authority over medical devices, drugs and biologics.  This would include a $59 million increase to FDA’s Center for Devices and Radiological Health (CDRH) compared with 2012—for a total of $435 million.   

CDRH’s budget request tabs about $151.6 million for approvals and clearances and around $39.9 million for post-market safety.  The rest is largely divided between radiation compliance enforcement, IT investments and mammography monitoring, reported FierceMedicalDevices.  The agency’s budget request comes with some performance benchmarks for CDRH, aiming to review and decide on 80% of PMA applications within 180 days of filing and 93% of 510(k)s within 90 days.  According to most recent numbers, the agency rules on about 60% of PMAs in 180 days and 90% of clearance requests in 90 days.  CDRH says it will need the whole $151.6 million–$39.5 million more than it got in 2012–and 80 new full-time equivalent workers to meet the goals. 

FDA’s Center for Drugs Evaluation and Research (CDER) would receive $1.29 billion and the Center for Biologics Evaluation and Research (CBER) would receive $338 million.  Of course, the center-specific budgets are supplemented by the FDA’s user fee programs—the most recent iteration, known as the Food and Drug Safety and Innovation Act (FDASIA). 

The budget further recommends a $15 million “medical products reinspection” user fee that would put the full cost of a reinspection and associated follow-up squarely on a manufacturer should the review turn up health and safety violations.  FDA would also get $43.4 million for food safety programs—implementing the Food Safety and Modernization Act (FSMA).  The food safety budget is $296 million, but the rest would come from user fees, including $58.9 million from food facilities for registration and inspection and $165.7 million from food importers. 

As reported by in-PharmaTechnologist.com, the budget requests an additional $10 million “for inspections in China, of which about $4.7 million will go for nine new full-time employees at FDA’s China office.”  FDA anticipates that this will “lead to 120 additional inspections of Chinese drug manufacturers by 2016.”  FDA justified its budget request in a 531-page report.  In separate testimony concerning her agency’s budget, FDA Commissioner Margaret Hamburg called her agency a “true bargain” for Americans.  “Americans each pay about $8 a year for FDA’s appropriations, which is substantially less than the amount Americans spend each year on snack chips alone,” she added. 

National Institutes of Health (NIH) 

The National Institutes of Health (NIH) got a 2% boost.  Of the $31.3 billion total, 84% will fund outside research.  NIH also hopes to spend $40 million “on research collaborations with academic institutions, the private sector, and other government agencies on the new Brain Research through Application of Innovative Neurotechnologies (BRAIN) Initiative.”  The budget also includes $3.1 billion for research on HIV and AIDS. 

The Centers for Disease Control & Prevention (CDC) 

The Centers for Disease Control & Prevention (CDC) got a 1% boost over its 2012 levels to $11.3 billion.  This includes nearly $5 billion for the agency’s immunization programs, which provide approximately 50% of the pediatric vaccines and 30% of the adolescent vaccines distributed annually in the U.S.   

It also includes $40 million for an advanced molecular detection program “to find outbreaks quicker, to find a higher proportion of outbreaks, to stop them sooner, and figure out how they’re spreading so we can prevent them more effectively,” CDC Director Thomas Frieden, MD, MPH, said at the press conference, which is particularly important given the new H7NP bird-flu virus in China.  CDC would also receive more than $30 million for a nationwide violent-death surveillance system as well as research on the causes and prevention of gun violence. 

The CDC and the Health Resources and Services Administration (HRSA) would receive an extra $30 million for HIV/AIDS prevention and treatment activities.  Overall, HRSA will see an increase to $9 billion, including $2.4 billion for the Ryan White program for people living with HIV/AIDS — a small increase from 2012 levels. 

Medicare Part D (Drugs) 

The proposal seeks to cut from Medicare $371 billion in 10 years in a number of ways.  Under the FY 2014 budget, Medical Marketing & Media reported that drug companies would pay more to the government in several ways.  Obama’s budget would: 

• Mandate that the Medicare Part D prescription drug program pay the lower Medicaid rates on drugs prescribed to so-called “dual eligibles,” low-income seniors who qualify for both Medicare and Medicaid.  That measure would reap an estimated $123 billion in savings over a decade, according to the Office of Management and Budget.
• Hiking Part D manufacturer discounts for branded drugs from 50% to 75% in 2015 in order to close the Part D “Donut Hole” five years early.  PPACA originally called for the coverage gap—an artifact of an inane Congressional accounting trick—to be eliminated by 2020.  Jacking up discounts would save an estimated $11 billion over 10 years, says OMB.
• Pushing generics for low-income beneficiaries by “increasing specified copayments for branded drugs from their current law level,” unless a generic substitute is unavailable, “while lowering specified copayments for generic drugs by more than 15%.”  That measure would save an estimated $7 billion over 10 years.
• Banning “pay for delay” agreements (est. savings: $11 billion over 10 years)
• Cutting biologics exclusivity from 12 years to 7 (est. savings $3 billion over 10 years),
• Barring additional periods of exclusivity for brand biologics due to minor changes in product formulations, referred to as ‘evergreening’
• Clarifying the definition of brand drugs and excluding authorized generic drugs from AMP calculations on branded drugs ($8.8 billion)
• Cracking down on Medicare fraud and abuse, and stepping up civil and criminal enforcement. That would include expanded authority to exclude individuals affiliated with companies sanctioned for fraudulent or other prohibited actions. 

“The budget would also make wealthier seniors pay higher premiums for prescription drugs under the Part B and D programs, lower the Medicare growth threshold for intervention by the Independent Payment Advisory Board (IPAB) and boost Medicare and Medicaid fraud enforcement,” MM&M writes.  Specifically, IPAB would make recommendations on how to contain Medicare spending if the projected Medicare per capita growth rate exceeded the gross domestic product (GDP) plus 0.05 percent, instead of 1%.  Senate Republicans in February reintroducing a bill to repeal IPAB, a key provision of healthcare reform, reported FierceHealthcare 

PhRMA called the budget proposal “bad for patients, bad for innovation and bad for the economy,” and said it would undermine Medicare Part D, “a model for success,” while deterring investments in biologics R&D.   

The Generic Pharmaceutical Association (GPhA), warned that measures to end pay-for-delay settlements and change Medicare rebates “would do more harm than good.”  Noting that Medicare Part D continues to operate at 40 percent less than the original estimates, GPhA credits the program’s success to the market-based competition built into the program. “Imposing rebates would upset this structure,” the group said, as reported by BIOWorld. 

The American Medical Association (AMA) applauded the proposal for tackling physician payment issues.  “We are pleased that President Obama’s 2014 budget recognizes the need to eliminate the broken Medicare physician payment formula known as the SGR [sustainable growth rate] and moves toward new ways of delivering and paying for care that reward quality and reduce costs,” AMA president Jeremy Lazarus, MD, said in a statement.  “It is critical for physicians to have a period of stability and the flexibility to choose options that will help them lower costs and improve the quality of care for their patients.”  The AMA, however, blasted the provision strengthening IPAB, “which would set another arbitrary spending target and rely solely on payment cuts to reach it,” an AMA statement said. 

On the other hand, the American Psychiatric Association and the American Academy of Family Physicians criticized the proposal for the way it seeks to expand access to mental health care.  HHS proposed $130 million in funding to improve access to mental health services for students and young adults; much of the funding would be used to train 5,000 mental health professionals to identify and refer youth for treatment, and to pay for treatment by social workers, counselors, psychologists, and other nonphysicians.  HHS Secretary Sebelius wrote about this new program in a separate blog post. 

“We are deeply concerned that the administration’s efforts to expand the supply of mental health professionals appear to stop at nonphysician practitioners,” the two groups said in a statement. “Along with the administration, we recognize the growing need for mental health providers; however, providing a small amount of training to lesser-qualified health professionals at the expense of utilizing veteran medical psychiatrists will only serve to exacerbate the problem we are trying to solve.” 

Rich Umbdenstock, president and chief executive officer of the American Hospital Association, was not pleased.  Today’s proposal contains troubling reductions to assistance to hospitals that help defray some of the costs of caring for low-income seniors known as bad debt,” Umbdenstock said in a press release.  “In addition, the budget would jeopardize the ability of hospitals to train the next generation of physicians by cutting funding for graduate medical education, and hinder care for people in rural communities by reducing funding for critical access hospitals.” 

Other Changes to Medicare-Related Payments 

Under Obama’s budget, teaching hospitals would see indirect medical education payments drop 10 percent.  The Association of American Medical Colleges (AAMC) applauded proposed increases to medical research funding but expressed “deep concern” about indirect medical education (IME) payment cuts that could prevent teaching hospitals from offering 24/7 trauma and burn unit services.  “Cutting essential federal support for teaching hospitals could mean up to 10,000 fewer physicians trained every year when the nation already faces a shortage of nearly 92,000 doctors in the next 10 years,” AAMC President and CEO Darrell G. Kirch, M.D., said. 

Some of the Medicaid legislative proposals offer hospitals a financial reprieve, for now. The proposed budget would push back health reform’s cuts to disproportionate share hospital (DSH) payments one year to 2015.  That means the payment reductions already scheduled for next year would be spread over 2016 and 2017. 

“While safety-net hospitals can breathe a temporary sigh of relief, the National Association of Public Hospitals and Health Systems still worries about facing higher DSH cuts in 2016 and 2017, as well as a $3.6 billion baseline adjustment in 2023, according to a statement today from NAPH President and CEO Bruce Siegel, M.D.,” reported by FierceHealthcare. 

The budget also delivered some good news to rural hospitals today, which have been coming under greater financial pressure thanks to rising uninsured rates and Medicaid expansion rejections.  About $122 million would go toward targeted rural health programs, such as efforts to improve access to care and health outcomes, and maintain funding for Rural Hospital Flexibility grants. 

Meanwhile, the 340B drug discount program, which has been making headlines recently, would get $10 million, $6 million more than the 2012 figure. 

Other Agencies and Programs 

• $434 million for the Agency for Healthcare Research and Quality (AHRQ), of which $301 million would be spent on research on issues affecting the cost, quality, and effectiveness of healthcare” and another $26 million on health information technology research. 
• $327 million for the Title X Family Planning Program, which provides access to primary care and reproductive health services for low-income women in historically underserved communities. 
• The Substance Abuse & Mental Health Services Administration (SAMSHA) got a 0.1% boost.  SAMHSA is putting $55 million into Project AWARE, which trains mental health workers to provide help in a crisis, and Healthy Transitions to support young people with mental health or substance abuse problems, reported POLITICO.
• The budget also includes $498 million for the independent Patient Centered Outcomes Research Institute (PCORI), which will further research into comparative effectiveness of various medical treatments. 

Federal Science Spending 

Federal agencies collectively requested $142.8 billion for scientific research and development in the coming fiscal year, through Science, Technology, Innovation, and STEM Education.  Agencies requested $77.18 billion for defense research and development for 2014, which is a 9 percent drop from the amount spent in 2012, adjusted for inflation, reported FierceGovernment. 

The Defense Department’s requested $68.29 billion for research and development, a $4.53 billion drop from its 2012 funding level of $72.92 billion. The reduction is due to reductions in weapons-systems development activities as its programs mature and transition to the production phase, the document says. 

For nondefense research and development, agencies requested $69.6 billion, which is almost 5 percent more than was spent in 2012, adjusted for inflation.  Agencies will rely on partnerships to support the programs facing the largest cuts said Director of the Office of Science and Technology Policy John Holdren.  “The great merit of partnerships is to leverage government funds combining them with private-sector funds and in some cases, philanthropic funds, to get a much larger impact than the government could ever do alone,” Holdren said during an April 17 hearing of the House Science, Space and Technology Committee. 

Homeland Security Department requested $1.37 billion, which is an inflation-adjusted 174 percent bump from the 2012. That boost comes from a request of $714 million to construct the National Bio- and Agro-Defense Facility, a laboratory to study and develop countermeasures for animal, emerging and zoonotic diseases that threaten human health and our agricultural industry. 

NASA’s research and development budget request dropped to $11.6 billion, 1.57 percent below the 2012, inflation adjusted.  The Energy Department requested $12.7 billion for research and development and National Institutes of Health asked for $31.3 billion