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On the Hill: Obama’s FY 2017 Budget, FMAP, 21st Century Innovations

President Obama’s fiscal year (FY) 2017 budget request to Congress, which the administration released Feb. 9, contains provisions that would strengthen Medicaid coverage and access, but also make damaging cuts to Medicare payments for essential hospitals’ services.

The budget request reserves its largest cuts, however, for the pharmaceutical industry, which would face the creation of a Medicare Part D rebate program that would cut Medicare spending on drugs by more than $120 billion over 10 years. America’s Essential Hospitals issued a Feb. 9 media statement on the budget, which contains numerous provisions that would affect essential hospitals and their patients.

Key Medicaid and CHIP Provisions

The president’s budget would make these changes to Medicaid and the Children’s Health Insurance Program (CHIP):

  • extend 100 percent federal matching for three years to states that have not yet expanded Medicaid
  • reinstate Medicaid payment parity with Medicare for primary care services
  • create a state Medicaid option for states to enroll beneficiaries for 12 consecutive months
  • extend to FY 2026 Medicaid disproportionate share hospital (DSH) funding cuts, which are scheduled to expire in FY 2025
  • strengthen the Medicaid drug rebate program
  • extend through FY 2019 funding for CHIP, which is scheduled to expire at the end of FY 2017.

Key Medicare Provisions

The budget request also would

  • cut Medicare coverage for bad debt from 65 percent to 25 percent over three years, resulting in nearly $33 billion in cuts to hospital payments over 10 years;
  • cut Medicare Graduate Medical Education (GME) payments by 10 percent starting in FY 2017 and target GME payments toward specialties with emerging needs. Overall, the budget would cut Medicare GME by nearly $18 billion over 10 years;
  • reduce Medicare Part B drug payments to physicians and hospital outpatient departments from 106 percent to 103 percent of average sales price, reducing hospital reimbursement by more than $7 billion over 10 years; and
  • Institute drug rebates in Medicare Part D to match the rebates received by state Medicaid programs, thereby reducing Medicare Part D spending by more than $120 billion over 10 years. The budget also would require enhanced transparency on pharmaceutical drug pricing.

In other news this week, the majority leadership of the Senate Finance and House Energy and Commerce committees released a letter to Centers for Medicare & Medicaid Services (CMS) Acting Administrator Andy Slavitt requesting more information about the administration’s focus on providing housing-related services in Medicaid. The letter notes that coverage for these services is susceptible to waste, fraud, and abuse.

On Feb. 10, the Energy and Commerce Committee was expected to hold its rescheduled hearing on Examining Medicaid and CHIP’s Federal Medical Assistance Percentage (FMAP). Witnesses included representatives from the U.S. Department of Health and Human Services Office of Inspector General; the Congressional Research Service; the Medicaid and CHIP Payment and Access Commission; and the Government Accountability Office. The hearing will examine the current FMAP system and the challenges it faces, such as states’ ability to fund their Medicaid programs.

On Feb. 9, the Senate Committee on Health, Education, Labor, and Pensions (HELP) held the first in a series of meetings to consider more than 20 bipartisan bills that will make-up its 21st Century Innovations legislative package. The bills span a range of topics, from improving disease research to approval processes and health information technology.

Also Feb. 9, the Senate Judiciary Committee continued to look at mental health and addiction in a hearing titled Breaking the Cycle: Mental Health and the Justice System. Witnesses included a mental health advocate, law enforcement, and the Minnesota State Public Defender.

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About the Author

Walsh is the senior manager of legislative affairs for America's Essential Hospitals.