Providers Could Feel Pain from Obama's Proposed Cost Reductions

Janice Simmons, for HealthLeaders Media , June 15, 2009

In talking to the nation about reforming the healthcare system on Saturday, President Barack Obama cited several more areas where costs could be cut—which is likely to draw unpleasant responses from healthcare providers.

These saving proposals, according to the president, will contribute an additional $313 billion over the next decade to pay for healthcare reform efforts—bringing the total offsets put forward by the administration to nearly $950 billion over 10 years. This would extend the solvency of Medicare’s Hospital Insurance Trust Fund by seven years to about 2024, the administration said, plus reduce beneficiary premiums for physician and outpatient services by $43 billion during the 10 years.

In comments Friday, American Hospital Association President and CEO Rich Umbdenstock, sharply criticized any payment cuts, saying paycuts were not reform. "This week we asked Disproportionate Share Hospitals to push back on proposed cuts. Expect a steady stream of similar calls for action in the weeks ahead."

The savings, as proposed by the administration, would come from these areas:

  • Incorporating productivity adjustments into Medicare payment updates (estimated savings $110 million over 10 years). Since most Medicare payments "have not been systematically adjusted to reflect" systemwide improvements, the administration has proposed permanently adjusting most annual Medicare payment updates by half of the economy wide productivity factor estimated by the Bureau of Labor Statistics.
  • Reducing subsidies to hospitals for treating the uninsured as coverage increases (estimate savings $106 million over 10 years). Instead of paying hospitals to treat patients without health insurance, the administration suggests that people will have insurance coverage now--making these subsidies obsolete.
  • Paying less for Medicare Part D drugs (estimated savings of $22 million). Drug reimbursement could be reduced for beneficiaries dually eligible for Medicare and Medicaid.

Also, additional savings would come from adjusting payment rates for physician imaging services to better reflect actual usage and adopting a Medicare Payment Advisory Commission recommendation for 2010 payments to skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at

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