Highlights of the Administration’s Medicare Budget Proposals for Fiscal Year 2009

Updated Feb. 8, 2008

President Bush’s fiscal year 2009 budget does not propose cuts specifically targeted to diagnostic imaging services. While no new cuts are proposed for imaging or other physician payments, the current budget baseline reflects shrinking payments for physician services in the fee-for-service program. Unrelated to the budget but of great interest to physicians is the fact that the Sustainable Growth Rate (SGR) conversion factor that largely determines dollar reimbursements is scheduled to fall 11 percent on July 1, 2008, and at least 5 percent each subsequent Jan. 1.

The President’s budget proposes unprecedented reductions in Medicare spending for non-physician providers. The bulk of these cuts (budgeted to save $183 billion over five years) come from reductions in update factors for inpatient and outpatient hospital care, skilled nursing facilities, long-term care hospitals, hospices, ambulances, home health services, inpatient rehabilitation facilities, and ambulatory surgery centers.

Additional savings come from reductions in payments for inpatient hospital indirect medical education and disproportionate share hospital adjustments, and administrative and regulatory changes affecting hospitals, hospices, skilled nursing facilities, and Part D (prescription drug) plans.

Medicare spending has increased by 51 percent over the past four years and is projected to continue growing at unsustainable rates for several decades. In his message, the President emphasizes “unsustainable” entitlement programs for the long term. He asserts that his Medicare proposals would lower Medicare’s growth rate from 7.2 percent to 5 percent annually and eliminate one-third of the program’s 75-year unfunded liability of $34 trillion toward his goal of balancing the federal budget by 2012.

Medicare’s spending trends have triggered a provision from the 2003 Medicare Modernization Act requiring the President to offer reform legislation to rein in the program. If the growth rate is not cut, the Medicare Hospital Insurance Trust Fund is projected to be exhausted in 2019, under intermediate assumptions.

If enacted, the significant reductions in payments to hospitals could have adverse revenue ramifications for physicians who work in or with hospitals. Moreover, they could have unintended consequences for the non-hospital practice of radiology. The Deficit Reduction Act of 2005 capped technical component reimbursements for diagnostic imaging services provided in physician offices or freestanding imaging centers to the lesser of the amount under the Medicare Physician Fee Schedule or the amount under the Hospital Outpatient Prospective Payment System. Consequently, cuts to hospital outpatient updates could reduce imaging reimbursements in nonhospital settings.

Congressional Democrats have declared the President’s budget “dead on arrival” at Capitol Hill, underscoring the fact that many of the President's proposals have already been proposed and previously rejected by the Congress. They stated that his proposed Medicare and Medicaid spending reductions would harm access to care for seniors and the poor while doing nothing to address the underlying problem of rising costs across the entire health care system. Democrats criticized the White House for relying on spending reductions to fee-for-service providers to get the bulk of Medicare savings, while mostly sparing managed care plans. Congressional Democrats and the Medicare Payment Advisory Commission have said private plans are overpaid by Medicare by an average of 12 percent compared with fee-for-service Medicare providers, and have urged much larger spending reductions.