Medicare Payment Cuts Proposed 

President Barak Obama’s 2014 budget proposal, released Wednesday, calls for $5.6 billion in Medicare payment cuts for the coming fiscal year. The proposed budget, intended to cut the federal deficit by $1.8 trillion over the next 10 years, would eliminate the sequester cuts put into effect in March. The proposed cuts affect primarily pharmaceutical companies and hospitals, and do not directly reduce benefits paid to Medicare recipients.

Medicare Payment Cuts for Pharmaceuticals

Most of the fiscal 2014 Medicare savings would result from the $3.1 billion expected to be saved by adopting the Medicaid drug rebate program for the dual eligible population. The idea is that Medicare Part D should benefit from the same lower prices for pharmaceuticals as those paid by the Medicaid program, at least for people who qualify for both Medicare and Medicaid. Proponents contend that medications for Medicaid eligible patients should not cost more when those patients are eligible for Medicare as well. This proposed change would provide substantial savings to the government, while not reducing benefits to individuals. Pharmaceutical companies would be paid less, which they contend affects their ability to develop, test and market newer drugs.

Another $740 million in savings would come from barring pharmaceutical firms from agreeing to delay the availability of generic versions of brand name drugs. This would make the less expensive generics available sooner, benefiting both governmental and private purchasers. Other proposed cuts include $780 million from graduate medical education, $830 million from post-acute care providers, $200 million less for hospital bad dept payments, $190 million in cuts to inpatient rehabilitation hospitals, and $90 million in cuts to critical access hospitals. While these cuts do not directly reduce benefits to Medicare recipients, the hospital industry claims they will undermine efforts to transform medical care to an overall more cost-effective approach.

Many Oppose Medicare Payment Cuts

Republican leadership in Congress opposes the cuts, and considers them inadequate to make a real difference in the financial condition of the Medicare program, so it is unlikely that they will be enacted without revisions. According the Sen. Orrin Hatch (R-Utah), ranking member of the Finance Committee, “Trying to reduce costs by cutting what doctors and hospitals get paid or introducing price controls for prescription drugs doesn’t change the fundamental problems with Medicare and only threatens seniors’ healthcare.”

Are Medicare Payment Cuts Needed?

Structural changes to Medicare are needed over the long-term to ensure the program’s continued viability. Without some changes, the Medicare hospital insurance trust fund is projected to be depleted in 2024. However, the 2014 budget proposal makes few suggestions in this regard. Over the long-term it is anticipated that premiums will increase for more well-to-do recipients, yielding a savings of some $67.8 billion. But the current proposal does little more than encourage low-income seniors to choose more generic drugs.

Medicaid Spending Increased

With respect to other health care issues, the 2014 budget proposal increases Medicaid spending by $428 million to accommodate expected new enrollment encouraged by the Patient Protection and Affordable Care Act, backs off previous policies to cut Medicaid provider assessments, and delays cuts to the Medicaid Disproportionate Share Hospital program. It proposes an increase in discretionary funding for HHS, including $31 billion for the National Institutes of Health to support medical research, a measure praised by the medical research community and advocacy groups.


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