President Obama's Fiscal 2010 Budget

Transforming and Modernizing Americafs Health Care System

One of the biggest drains on American pocketbooks is the high cost of health care. Many families are one illness or accident away from financial ruin. Health insurance costs reduce workersf take-home pay to a degree that is both underappreciated and unnecessarily large. At the same time, health care costs are consuming a growing share of federal and state government budgets. The United States spends over $2.2 trillion on health care each year—almost $8,000 per person. That number represents approximately 16 percent of the total economy and is growing rapidly. If we do not act soon, by 2017, almost 20 percent of the economy—more than $4 trillion—will be spent on health care.

At the same time that we strive to contain costs, we cannot stand by as tens of millions of Americans lack health care coverage. An unhealthy workforce leads to an unhealthy economy, and moving to provide all Americans with health insurance is not only a moral imperative, but it is also essential to a more effective and efficient health care system.

For too long, we have recognized the problems with health care, but have not taken responsibility for them. We can no longer afford to wait. That is why the President has already begun the process of reforming health care by:

Transforming and Modernizing Americafs Health Care System
To build on these steps, the Budget sets aside a reserve fund of more than $630 billion over 10 years that will be dedicated towards financing reforms to our health care system. The President recognizes that while a very large amount of money and a major commitment, $630 billion is not sufficient to fully fund comprehensive reform. But this is a first crucial step in that effort, and he is committed to working with the Congress to find additional resources to devote to health care reform. The Administration will explore all serious ideas that, in a fiscally responsible manner, achieve the common goals of constraining costs, expanding access, and improving quality.

To achieve these goals and finance reform, the President looks forward to working with the Congress over the coming year, and as he does, the President will adhere to the following set of eight principles:

Financing Health Care Reform. The reserve fund is financed by a combination of rebalancing the tax code so that the wealthiest pay more as well as specific health care savings in three areas: promoting efficiency and accountability, aligning incentives towards quality and better care, and encouraging shared responsibility. Taken together, the health care savings would total $316 billion over 10 years while improving the quality and efficiency of health care, without negatively affecting the care Americans receive. These savings include:

Under current law, Medicare overpays Medicare Advantage plans by 14 percent more on average than what Medicare spends for beneficiaries enrolled in the traditional fee-for-service program. The Administration believes itfs time to stop this waste and will replace the current mechanism to establish payments with a competitive system in which payments would be based upon an average of plansf bids submitted to Medicare. This would allow the market, not Medicare, to set the reimbursement limits, and save taxpayers more than $175 billion over 10 years, as well as reduce Part B premiums. These overpayments threaten Medicarefs finances and increase the premiums paid by participants in traditional Medicare.

The Administration will accelerate access to make affordable generic biologic drugs available through the establishment of a workable regulatory, scientific, and legal pathway for generic versions of biologic drugs. In order to retain incentives for research and development for the innovation of breakthrough products, a period of exclusivity would be guaranteed for the original innovator product, which is generally consistent with the principles in the Hatch-Waxman law for traditional products.

Additionally, brand biologic manufacturers would be prohibited from reformulating existing products into new products to restart the exclusivity process, a process known as ever-greening.

Finally, the Budget will bring down the drug costs of Medicaid by increasing the Medicaid drug rebate for brand-name drugs from 15.1 percent to 22.1 percent of the Average Manufacturer Price, apply the additional rebate to new drug formulations, and allow States to collect rebates on drugs provided through Medicaid managed care organizations. All the savings would be devoted to the health care reserve fund.

Office (GAO) has labeled Medicare as "high risk" due to billions of dollars lost to overpayments and fraud each year. To save Medicare and Medicaid, increase quality, and make sure Medicare and Medicaid patients get the care they deserve, we need to rein in these abuses and use this money for reform. The Centers for Medicare and Medicaid Services (CMS) will address vulnerabilities presented by Medicare and Medicaid, including Medicare Advantage and the prescription drug benefit (Part D). CMS will be able to respond more rapidly to emerging program integrity vulnerabilities across these programs through an increased capacity to identify excessive payments and new processes for identifying and correcting problems.

18 percent of hospitalization of Medicare beneficiaries resulted in the readmission of patients who had been discharged in the hospital within the last 30 days. Sometimes the readmission could not have been prevented, but many of these readmissions are avoidable. To improve this situation, hospitals will receive bundled payments that cover not just the hospitalization, but care for certain post-acute providers the 30 days of care after the hospitalization, and hospitals with high rates of readmission will be paid less if patients are re-admitted to the hospital within the same 30-day period. This combination of incentives and penalties should lead to better care after a hospital stay and result in fewer readmissions—saving roughly $26 billion of wasted money over 10 years. The money saved will also be contributed to the reserve fund for health care reform.

As part of health care reform, the Administration would support comprehensive, but fiscally responsible, reforms to the payment formula. The Administration believes Medicare and the country need to move toward a system in which doctors are paid for high-quality care rather than simply more care.

www.omb.gov