FY 2012 Budget Includes “Doc Fix”

Ensures Physicians Won’t Lose $62 Billion in Medicare Compensation Over Next Two Years

On February 14, 2011, U.S. President Barack Obama presented his $3.7 trillion fiscal year (FY) 2012 budget to Congress. The FY12 budget includes major changes to domestic health care spending and includes his promise to prevent cuts to Medicare-compensation for doctors for another two years. The U.S. Food and Drug Administration (FDA) and the National Institute of Health (NIH) are also expected to see increases to their budgets.

This FY12 budget is the springboard for extensive negotiations between the political parties and within the Congress who must reach agreement on a final budget.

President Obama's plan reiterates his proposal for a five-year freeze on all discretionary spending with a savings of more than $400 billion over the next decade. This freeze is not an across‐the‐board cut, but an approach in which some areas “critical for growth and job creation” are protected or increased while other programs are cut back.

Specifically, the U.S. Department of Health and Human Services (DHHS) will receive funding levels slightly above FY2010 levels, at $79.9 billion. This includes:

• 5.7 percent increase for FDA
• 3.4 percent increase for NIH
• 17.8 percent increase for the Centers for Medicare and Medicaid Services (CMS)
• 86.8 percent increase for the discretionary Health Care Fraud and Abuse Control fund

In addition, President Obama’s budget includes $62 billion in mandatory health care savings that would pay for approximately two years of what insiders call the Medicare “doc fix” at current reimbursement levels. That $62 billion in savings comes from a variety of reforms to entitlement, spending such as $3.2 billion in savings redirecting Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 and $1.8 billion in savings through a system to validate orders for high-risk products and services.

Although the FY12 budget only provides offsets for approximately two years, it estimates the full ten‐year cost of a “doc fix” at $369.8 billion. The FY12 budget also mentions the need for a long‐term plan to reform physician payment rates “in a fiscally responsible way and to craft a reformed reimbursement system that gives physicians incentives to improve quality and efficiency.”

The FY12 budget also would provide $250 million ($100 in 2012; and $50 each subsequent year through 2016) for medical malpractice reform initiatives. These funds would pay for incentives directed through the Department of Justice to individual States. In addition, the budget would deny the deduction for punitive damages, with an overall savings projection of $312 million over 10 years.

The FY12 budget calls for an accelerated implementation of the health care reform law, the Affordable Care Act (ACA) including cost-saving components such as Accountable Care Organizations (ACOs) and adjusting payments to hospitals with high readmissions or hospital‐acquired conditions. Within the Centers for Disease Control and Prevention (CDC), the budget also includes $47 million to reduce healthcare associated infections (HAIs) and expands reporting of HAIs through hospitals and Ambulatory Surgical Centers.

The FY12 budget requires Quality Improvement Organizations (QIO) contracts to be determined on a geographic basis to maximize efficiency; eliminate conflicts of interest between QIO beneficiary protection and quality improvement activities; expand the eligible pool of QIO contractors; extend QIO contracts from three to five years; and align QIO contract terminations with federal regulations.

The FY12 budget creates a new Comprehensive Chronic Disease Prevention Program (CCDPP) by consolidating the CDC’s Heart Disease and Stroke, Diabetes, Cancer, Arthritis and other Conditions, Nutrition, Health Promotion, Prevention Centers, and select school health activities into one competitive grant program. The CCDPP also provides States with additional flexibility to address the leading causes of death, while increasing accountability and improving health outcomes.

Next Steps
Congressional Budget committees will now meet to examine the President’s proposal and craft a new budget resolution that sets the amounts available to Congressional Appropriators. (Congressional appropriators are Members of Congress serving on the “Appropriation Committees” which allocates the monies available to the various federal programs.)