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President Obama’s FY 2013 Budget Proposal: Healthcare Implications

14M01D23 TLW Health-System-to-Health-System

President Obama released his FY 2013 budget proposal this week. The budget document can be found here: This document is the White House’s proposed budget. We anticipate that several aspects of the budget will be debated and changed in the final approved version (e.g., the “Buffett Rule,” expiration of Bush tax cuts).

The Department of Health and Human Services (DHHS) is slated to receive $300 million more than 2012 spending for a total budget request of $76.4 billion. The DHHS budget reflects a combination of reductions in spending, consolidation and/or elimination of programs, and incremental spending. Spending continues to emphasize the Affordable Care Act (ACA) and new initiatives from the Center for Medicare and Medicaid Innovation (CMMI) that support the ACA while achieving reductions in spending. Highlights of the DHHS budget include the following:

Medicare and Medicaid

  • Medicare reductions would total $268 billion from FY 2013 to FY 2023. Reductions are achieved primarily through new programs intended to drive reduced spending on Medicare. New programs are primarily being developed and released by CMMI; however, flexibility on specific implementation plans is allowed and encouraged.
  • Federal subsidies are reduced for those most able to afford Medicare. The budget also has a modified Part B deductible for new participants in an effort to encourage utilization changes for Medicare beneficiaries.
  • Medicaid reductions would total $52 billion from FY 2013 to FY 2023. These reductions are achieved through reducing the Medicaid provider tax threshold (starting in 2015) and using a single blended matching rate for Medicaid and the Children’s Health Insurance Program (CHIP).
  • NOTE: The proposed budget does not reflect the automatic triggers resulting from the failure of Congress’s Super Committee, which requires a 2 percent annual reduction in Medicare spending from FY 2013 to FY 2023, or $130 billion to $150 billion. [1]

Other Hospital Spending

  • Critical Access Hospitals (CAHs) would see a reduction of 1 percent of reasonable cost reimbursement and eliminate the CAH designation for those that are within 10 miles of a hospital.
  • $3.1 billion is allocated for the development of 25 new health centers in sites primarily for the underserved.
  • Funding for disease-specific chronic diseases will be consolidated. The Preventive Health and Health Services Block Grant will be eliminated. A new Consolidated Chronic Disease Program and a Prevention and Public Health Fund will be established instead.

GME Funding

  • The budget proposes reducing indirect graduate medical education by 10 percent. Estimates of the impact of these reductions in terms of training new physicians vary, but the AAMC estimates a reduction of 10,000 new physicians trained for each year that this reduction is in place (see


  • NIH funding is maintained at the current funding level of $31 billion. This is an effective cut in funding when adjusted for inflation.
  • Changes in the budget include policy changes that will increase first-time grantees and support new grants on innovation and comparative effectiveness research (CER).
  • Emphasis continues on translational medicine through the National Center for Advancing Translational Sciences.
  • NOTE: Recent changes impacting research funding, while not part of this proposed budget, reduced the NIH salary cap from $199,700 to $179,700, effective December 23, 2011. The notice can be found here:
  • NOTE: The Patient-Centered Outcomes Research Institute is funded separately, but the emphasis reinforces CER and translational medicine.

ACA Legislation Implementation Support

  • $860 million is designated to support building a federal health insurance exchange (HIX), making insurance policies available to individuals and others. HIXs are required if the individual mandate stays in place. If not, the need for HIXs diminishes significantly. The Supreme Court ruling on the constitutionality of the individual mandate could be as soon as June 2012. Massachusetts required an insurance exchange as part of implementing its individual mandate in 2005.
  • State Innovation Waivers, a program slated for 2017 in the ACA legislation, has been moved up 3 years to allow states to provide their own programs consistent with ACA legislation objectives.

What Does the Budget Mean for You?

  • While it is a proposal, and we can expect much debate on almost all aspects, it gives us direction on the White House priorities.
  • The reality of budget reductions is upon us. We can, and should, prepare for changes to Medicare reimbursement, state and federal reductions for Medicaid, and increased competition for research dollars.
  • If ACA stays in place and key components are funded, you should be preparing your institution to understand performance and outcomes measures more thoroughly. You should also be planning for different reimbursement models and perhaps entering pilot initiatives with commercial payors that shift your reimbursement toward outcomes-based models.
  • The more you can make incentives consistent throughout your organization, the better and faster you will be in a position to compete on value-based reimbursement models and weather the reductions in reimbursement.