Medicare: FY2009 Budget Issues

Medicare: FY2009 Budget Issues

Order Code RL34359
Medicare: FY2009 Budget Issues
Updated May 30, 2008
Hinda Chaikind, Jim Hahn, Gretchen A. Jacobson,
Paulette C. Morgan, Jennifer O’Sullivan, Holly Stockdale,
Julie Stone, and Sibyl Tilson
Domestic Social Policy Division

Medicare: FY2009 Budget Issues
Summary
Each February, the President submits a detailed budget request to Congress for
the following federal fiscal year, along with projections for the five-year budget
window. The budget informs Congress of the President’s overall federal fiscal policy,
based on proposed spending levels, revenues, and deficit (or surplus) levels. The
budget request lays out the President’s relative priorities for federal programs, such
as how much should be spent on defense, education, health, and other federal
programs. The President’s budget may also include legislative proposals for spending
and tax policy changes. While the President is not required to propose legislative
changes for those parts of the budget that are governed by permanent law, such as
Medicare benefits, these changes are generally included in the budget.
The President’s 2009 budget estimates current law Medicare net outlays of $413
billion in FY2009. The budget includes Medicare legislative proposals with
estimated savings of $12.2 billion in FY2009 and $178 billion over the five-year
budget window. The President’s budget also includes Medicare administrative
proposals with estimated savings of $645 million in FY2009 and $4.7 billion over
the five-year budget window, which brings the estimated savings from the total
Medicare budget proposals to $12.8 billion in FY2009 and $183 billion over the five-
year budget window. Proposals include savings achieved through reductions in many
of the Medicare payment updates.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA, P.L. 108-173) requires the Medicare Board of Trustees to examine and make
a determination if general revenue Medicare funding is expected to exceed 45% of
Medicare outlays for the current fiscal year or any of the next six fiscal years. An
affirmative determination in two consecutive annual reports is considered to be a
Medicare funding warning in the year in which the second report is made. The
President has indicated that he intends to submit the required legislative proposal,
due within the 15-day period following the budget submission to Congress. As part
of the budget, the President has proposed reducing Medicare provider payments by
0.4% beginning in any year that the general revenue Medicare funding is expected
to exceed 45% of Medicare outlays. This reduction would increase each year, until
the percentage falls below the 45% trigger level.
Both the House and Senate Budget Committees have passed budget resolutions
and a conference agreement. On March 3, 2008, the Senate Budget Committee
reported a budget resolution (S.Con.Res 70), which subsequently was amended and
passed by the Senate on March 6. On March 7, the House Budget Committee
reported a budget resolution (H.Con.Res. 312), which was passed by the House on
March 13. On May 20, the Senate and House filed a conference report on the budget
resolution (H.Rept 110-659 accompanying S.Con.Res. 70). The conference report
provides $420 billion in total outlays for Medicare in 2009, an increase of $29.5
billion over 2008.
This report will be updated.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Medicare Part A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Inpatient Acute Care Hospital Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Skilled Nursing Facility Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Hospice Payment Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Inpatient Rehabilitation Facility (IRF) Update . . . . . . . . . . . . . . . . . . . . . . . 3
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Long-Term Care Hospital (LTCH) Update . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Reduce Acute Care Hospital Capital Payments . . . . . . . . . . . . . . . . . . . . . . . 4
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Reduce Disproportionate Share Hospital (DSH) Payments Made to Acute
Care Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Change the Budget Neutrality Requirement for Hospital
Geographic Reclassifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Rationalize Post-Acute Hospital Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Establish Hospital Value-Based Purchasing Program . . . . . . . . . . . . . . . . . . 5
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adjust Hospital Payment for Never Events . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Medicare Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Physicians’ Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Outpatient Hospital Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Ambulatory Surgery Center Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Ambulance Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Competitive Bidding for Laboratory Services . . . . . . . . . . . . . . . . . . . . . . . . 8
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Short-Term Power Wheelchair Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Limit Oxygen Rental Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Medicare Parts A and B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Home Health Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
End-Stage Renal Disease Payment Modernization . . . . . . . . . . . . . . . . . . . 10
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Extend Medicare Secondary Payer Status for End Stage Renal Disease . . . 11
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Eliminate Indirect Medical Education Payments for Managed Care
Enrollees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reduce Indirect Medical Education (IME) Adjustment . . . . . . . . . . . . . . . 12
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Premiums and Interactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Part B Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Part D Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Interaction with Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Use and Release of Medicare Claims Data . . . . . . . . . . . . . . . . . . . . . . . . . 14
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Premium Interactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Forty-Five Percent Rule (the Medicare Trigger) . . . . . . . . . . . . . . . . . . . . . . . . . 15
Quality Improvement Organization (QIO) Proposals . . . . . . . . . . . . . . . . . . . . . 15
Funding for the Ninth SOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Allowing the Secretary to Determine Geographic Scope of QIO
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Expand Pool of Contractors Eligible for QIO Work . . . . . . . . . . . . . . . . . . 16
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Allow for Early Termination of Contracts Without Panel Review . . . . . . . 16
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Establish Stricter Standards for Reviewing Beneficiary Complaints to
Address Perceived Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . 17
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Make QIO Authority to Conduct Quality Improvement Activities More
Explicit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Program Integrity Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Health Care Fraud and Abuse Control Program . . . . . . . . . . . . . . . . . . . . . 18
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Medicare Bad Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Limit Use of Mandamus Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Include Providers in Federal Payment Levy Program . . . . . . . . . . . . . . . . . 19
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Reducing Erroneous Medicare Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Medicare Administrative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Payment for Conditions Not Present on Admission . . . . . . . . . . . . . . . . . . 20
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Increase Inpatient Length of Stay Threshold . . . . . . . . . . . . . . . . . . . . . . . . 20
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Change Hospice Wage Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Case Mix Adjustment to Payments for Skilled Nursing Facilities . . . . . . . 21
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Strengthen Program Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Permanently Base Part D Risk Scores on Eligible Enrollees . . . . . . . . . . . . 22
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
President’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Congressional Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
FY2009 Budget Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
House Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Senate Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conference agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Tables
Table 1. President’s FY2009 Budget Medicare Proposals . . . . . . . . . . . . . . . . . . 22
Table 2. Staff Medicare Contacts for this Report . . . . . . . . . . . . . . . . . . . . . . . . 26

Medicare: FY2009 Budget Issues
Introduction
Each February, the President submits a detailed budget request to Congress for
the following federal fiscal year, along with projections for the five-year budget
window. The budget informs Congress of the President’s overall federal fiscal policy,
based on proposed spending levels, revenues and deficit (or surplus) levels. The
budget request lays out the President’s relative priorities for federal programs, such
as how much should be spent on defense, education, health, and other federal
programs. The President’s budget may also include legislative proposals for spending
and tax policy changes. While the President is not required to propose legislative
changes for those parts of the budget that are governed by permanent law, such as
Medicare benefits, these changes are generally included in the budget.
The President’s 2009 budget estimates current law Medicare net outlays of $413
billion in FY2009.1 The budget includes Medicare legislative proposals with
estimated savings of $12.2 billion in FY2009 and $178 billion over the five-year
budget window. The President’s budget also includes Medicare administrative
proposals with estimated savings of $645 million in FY2009 and $4.7 billion over
the five-year budget window, which brings the estimated savings from the total
Medicare budget proposals to $12.8 billion in FY2009 and $183 billion over the five-
year budget window. Proposals include savings achieved through reductions in many
of the Medicare payment updates.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA, P.L. 108-173) requires the Medicare Board of Trustees to examine and make
a determination if general revenue Medicare funding is expected to exceed 45% of
Medicare outlays for the current fiscal year or any of the next six fiscal years. An
affirmative determination in two consecutive annual reports is considered to be a
Medicare funding warning in the year in which the second report is made.2 The
President has indicated that he intends to submit the required legislative proposal,
due within the 15-day period following the budget submission to Congress. As part
of the budget, the President has proposed reducing Medicare provider payments by
0.4% beginning in any year that the general revenue Medicare funding is expected
to exceed 45% of Medicare outlays. This reduction would increase each year, until
the percentage falls below the 45% trigger level.
1 Department of Health and Human Services, 2009 Budget In Brief, available at
[http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf]
2 For additional information about the Medicare funding warning, see CRS Report RS22796,
Medicare Trigger, by Hinda Chaikind and Christopher M. Davis.

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Finally, the Program Management Budget account request for 2009 is $3.31
billion. Of that $3.31 billion, 70% or $2.34 billion would be directed towards
Medicare administrative operations activities such as processing and paying claims,
responding to beneficiary questions, and conducting appeals. The remaining 30% of
the $3.31 billion would be directed towards compensating individuals employed at
CMS, performing surveys and inspections of Medicare provider facilities, and
conducting research. The President’s budget also includes a legislative proposal to
collect $35 million in revisit user fees from health care facilities found to be deficient
during an initial Medicare inspection or re-certification. Enactment of the revisit fee
proposal is contingent upon authorizing legislation.
The rest of this report includes brief discussions of current and proposed law for
each of the 2009 Medicare program proposals, along with Table 1, which details the
Administration’s estimates of the costs and savings for each proposal. The
President’s budget reflects the passage of the Medicare, Medicaid and SCHIP
Extension Act of 2007 (P.L. 110-173). Table 2 provides a list of CRS staff contacts
for this report.
Medicare Part A
Inpatient Acute Care Hospital Update
Current Law. Inpatient services provided by acute care hospitals are
reimbursed based on the inpatient prospective payment system (IPPS) on the basis
of their Medicare discharges. Each year Medicare’s IPPS per discharge payment
amount is increased annually by an update factor that is determined, in part, by the
projected increase in the hospital market basket (MB) index. The MB is a fixed price
index that measures the change in the price of goods and services purchased by
hospitals to create one unit of output. Typically, hospitals have received less than the
MB index as an annual update. For FY2007 and beyond, however, hospitals that
submit required quality data will receive the full MB update for inpatient services.
Those that do not submit the data will receive a reduction, so that the inpatient update
will be MB minus 2 percentage points starting in FY2007. The reduction for not
submitting quality data would apply for the applicable year and would not be taken
into account in subsequent years.
President’s Proposal. Acute care hospitals would receive a zero percent
update for inpatient services provided in FY2009 through FY2011, regardless of
whether inpatient quality data is submitted. The inpatient hospital update would be
set at MB minus 0.65 percentage points for subsequent years. The President’s budget
estimates that the proposal would save $3.99 billion in FY2009 and $64.2 billion
over the five-year budget period.
Skilled Nursing Facility Update
Current Law. Skilled nursing facility (SNF) care is reimbursed based on a
prospective payment system (PPS). The PPS payments are based on a daily (“per-
diem”) urban or rural base payment amount that is adjusted for case mix and area

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wages using the hospital wage index. The urban and rural federal per diem payment
rates are increased annually by an update factor that is determined by the projected
increase in the SNF market basket index. This index measures changes in the costs
of goods and services purchased by SNFs. Medicare law requires that the SNF base
payments be adjusted each year by the SNF market basket (MB) update — the
measure of inflation of goods and services used by SNFs. For FY2008, the SNF
payment update is the full market basket increase of 3.3%. The update for future
years, without changes to current law, is also the full market basket increase.
President’s Proposal. Under the President’s proposal, SNF payments would
be frozen in FY2009 through FY2011, and annually updated by the MB minus 0.65%
in FY2012 and beyond. The President’s budget estimates that the proposal would
save $990 million in FY2009 and $17.03 billion over the five-year budget period
between FY2009 and FY2013.
Hospice Payment Update
Current Law. Payments for hospice care are based on one of four
prospectively determined rates which correspond to four different levels of care for
each day a beneficiary is under the care of the hospice. The four rate categories are:
routine home care, continuous home care, inpatient respite care, and general inpatient
care. The prospective payment rates are updated annually by the increase in the
hospital market basket. The FY2008 payment rates are updated by the market basket
increase of 3.3%. Without changes to Medicare law, the update will grow by the
market basket for FY2009 and beyond.
President’s Proposal. Hospice payments would be frozen in FY2009
through FY2011, and annually updated by the MB minus 0.65 percentage points in
FY2012 and beyond. The President’s budget estimates that the proposal would save
$350 million in FY2009 and $5.14 billion over the five-year budget period between
FY2009 and FY2013.
Inpatient Rehabilitation Facility (IRF) Update
Current Law. Inpatient rehabilitation facilities (IRFs) are paid based upon the
inpatient rehabilitation facilities prospective payment system (IRF-PPS), and paid a
fixed amount per discharge. The annual update to the payment is based on the MB
for rehabilitation, psychiatric, and long-term care.
President’s Proposal. The IRF per discharge payment amount would be
frozen in FY2010 and FY2011 and increased by the MB minus 0.65 percentage
points in subsequent years. The President’s budget estimates that the proposal would
save $510 million in FY2009 and $4.82 billion over the five-year budget period.
According to the President’s budget documents, these savings “include the impact
of repealing certain provisions of Sections 114 and 115 of the Extension Act of
2007.” However, no further details are provided.

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Long-Term Care Hospital (LTCH) Update
Current Law. Long-term care hospitals (LTCHs) are paid based upon the
LTCH-PPS, and paid a fixed amount per discharge. The annual update to the
payment is based on the MB for rehabilitation, psychiatric, and long-term care.
President’s Proposal. The LTCHs per discharge payment amount would
be frozen in FY2009 and FY2011 and increased by the MB minus 0.65 percentage
points in subsequent years. The President’s budget estimates that the proposal would
save $320 million in FY2009 and $2.94 billion over the five-year budget period.
According to the President’s budget documents, these savings “include the impact
of repealing certain provisions of Sections 114 and 115 of the Extension Act of
2007.” However, no further details are provided.
Reduce Acute Care Hospital Capital Payments
Current Law. Medicare pays the capital related costs of inpatient hospital
services using a prospective payment system that is similar to that used to reimburse
hospitals for their operating costs.
President’s Proposal. The proposal would reduce capital payments made
to acute care hospitals by 5% in FY2009. The budget includes estimated savings of
$490 million in FY2009 and $3.05 billion over the five-year budget period for this
proposal.
Reduce Disproportionate Share Hospital (DSH) Payments
Made to Acute Care Hospitals
Current Law. Medicare provides additional funds to hospitals that qualify for
a disproportionate share hospital (DSH) adjustment. Approximately 2,700 hospitals
receive the additional payments for each Medicare discharge based on a formula
which incorporates the number of patient days provided to low-income Medicare
beneficiaries (those who receive Supplemental Security Income (SSI)) and Medicaid
recipients. A few urban hospitals, known as “Pickle Hospitals,” receive DSH
payments under an alternative formula that considers the proportion of a hospital’s
patient care revenues that are received from state and local indigent care funds. The
percentage add-on for which a hospital will qualify varies according to the hospital’s
bed size or urban or rural location.
President’s Proposal. The proposal would phase in a 30% reduction in
DSH payments made to acute care hospitals over two years, starting in FY2009. The
budget includes estimated savings of $1.75 billion in FY2009 and $20.69 billion over
the five-year budget period for this proposal.
Change the Budget Neutrality Requirement for Hospital
Geographic Reclassifications.
Current Law. Medicare payments to acute care hospitals are adjusted by the
wage index of the area where a hospital is located. In certain circumstances, a

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hospital can apply for and receive a reclassification to an area with a higher wage
index. Geographic reclassifications established by decisions of the Medicare
Geographic Classification Review Board are required by statute to be budget neutral.
Accordingly, the per discharge amount used to pay all hospitals is reduced.
President’s Proposal. Under this proposal, the budget neutrality offset for
all the reclassified hospitals within a state would be achieved by adjusting the wage
index values for hospitals within that state (rather than reducing the per discharge
amount for all hospitals in the nation.) The budget includes no savings for this
proposal.
Rationalize Post-Acute Hospital Payments
Current Law. Patients receiving treatment for certain conditions such as hip
and knee replacements can receive rehabilitative care in a variety of post-acute care
settings, including a skilled nursing facility (SNF) and an inpatient rehabilitation
facility (IRF). Generally, care provided in an IRF is paid at a higher rate than care
provided in a SNF.
President’s Proposal. The proposal would encourage development of site-
neutral reimbursement rates for conditions that overlap in the different post-acute
care settings. The proposal would limit payment differentials for the following five
conditions: (1) knee replacements, (2) hip replacements, (3) hip fractures, (4) chronic
obstructive pulmonary disease, and (5) other pulmonary diseases. The base IRF
payments for these service would begin with the SNF rate, increased by (1) 25% of
the difference between the SNF and IRF overhead amount and (2) 33% of the
difference between SNF and IRF patient care costs. The budget includes estimated
savings of $250 million in FY2009 and $1.65 billion over the five-year budget
period, for this proposal.
Establish Hospital Value-Based Purchasing Program
Current Law. Section 501(b) of the MMA provided an incentive for an
eligible hospital to submit quality data for ten quality measures known as the “starter
set” in order to avoid a 0.4 percentage point reduction in its annual payment update
from CMS for FY2005, 2006 and 2007. Section 5001(a) of the Deficit Reduction Act
of 2005 (P.L. 109-171, DRA) required hospitals to report additional quality measures
to receive the full market basket increase to their payment rates. Payment rates were
reduced by 2 percentage points for any hospital that did not submit certain quality
data in a form and manner, and at a time, specified by the Secretary.
The DRA required CMS to develop and implement a method for hospital
value-based purchasing in 2009. The value-based purchasing system must be budget
neutral while creating incentives for high-quality hospitals and minimum benchmarks
for low-quality hospitals. The Tax Relief and Health Care Act of 2006 (P.L. 109-432
TRHCA) requires hospital outpatient departments to submit data on quality measures
in order to avert a 2 percentage point reduction in their annual payments starting in
2009.

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President’s Proposal. The President’s budget mentions value-based
purchasing programs for hospitals but does not include specifics. However, the
proposals are expected to achieve $1.65 billion in savings over the five-year window
from 2009 to 2013.
Adjust Hospital Payment for Never Events
Current Law. The TRHCA directs the Inspector General in the Department
of Health and Human Services to study and report to Congress on (1) the incidences
of never events (those listed and endorsed as serious reportable events by the
National Quality Forum [NQF] as of November 16, 2006) for Medicare beneficiaries;
(2) the extent to which the Medicare program paid, denied payment, or recouped
payment for services furnished in connection with such events, and the extent to
which beneficiaries paid for them; and (3) the administrative processes of CMS to
detect such events and to deny or recoup payments for related services. According
to NQF, never events are errors in medical care that are clearly identifiable,
preventable, and serious in their consequences for patients, and indicate a real
problem in the safety and credibility of a health care facility. Examples of “never
events” include surgery on the wrong body part, foreign body left in a patient after
surgery, mismatched blood transfusion; major medication error, severe “pressure
ulcer” acquired in the hospital and preventable post-operative deaths.
President’s Proposal. The proposal would prohibit Medicare payment for
a never event. Hospitals would also be required to report occurrences of never events
or receive a reduced annual update. The President’s budget does not include savings
in FY2009, but does include estimated savings of $190 million over the five-year
budget period.
Medicare Part B
Physicians’ Services
Current Law. Medicare payments for services of physicians and certain non-
physician practitioners are made on the basis of a fee schedule. The fee schedule is
intended to relate payments for a given service to the actual resources used in
providing that service. The fee schedule assigns relative values to services that reflect
physician work (i.e., the time, skill, and intensity it takes to provide the service),
practice expenses, and malpractice costs. The relative values are adjusted for
geographic variations in costs. The adjusted relative values are then converted into
a dollar payment amount by a conversion factor. The conversion factor for the first
half of 2008 is $38.0870, 0.5% above the 2007 level.
The fee schedule places a limit on payment per service but not on overall
volume of services. The formula for calculating the annual update to the conversion
factor responds to changes in volume. If the overall volume of services increases, the
update is lower; if the overall volume is reduced, the update is higher. The intent of
the formula is to place a restraint on overall increases in Medicare spending for
physicians’ services. Several factors enter into the calculation. These include (1) the

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Medicare economic index (MEI), which measures inflation in the inputs needed to
produce physicians’ services; (2) the sustainable growth rate (SGR), which is
essentially a target for Medicare spending growth for physicians’ services; and (3) an
adjustment that modifies the update, which would otherwise be allowed by the MEI,
to bring spending in line with the SGR target. The SGR target is not a limit on
expenditures. Rather, the fee schedule update reflects the success or failure in
meeting the target. If expenditures exceed the target, the update for a future year is
reduced. As a result, payments to physicians were reduced in 2002. Physician
payments have been slated for reductions in each year since 2002, but congressional
actions have prevented these reductions through June 2008.
On December 29, 2007, the President signed into law the Medicare, Medicaid,
and SCHIP Extension Act of 2007 (P.L. 110-173). This law sets a minimum update
of 0.5% for January-June 2008. In the absence of further legislation, the reduced
conversion factor slated to go into effect January 1, 2008, will go into effect on July
1, 2008, with further reductions taken in subsequent years.
President’s Proposal. The President’s proposal does not address the
physician payment update. Thus, the cut in the conversion factor slated to go into
effect in July 2008 and the further reduction slated for January 2009 would be
allowed to go into effect, with no new budgetary savings or costs.
Outpatient Hospital Update
Current Law. Hospital Outpatient Department (HOPD) services are paid
based on an outpatient prospective payment system (OPPS). The unit of payment is
the individual service or procedure as assigned to an ambulatory payment
classification (APC). Medicare’s payment for HOPD services is calculated by
multiplying the relative weight associated with an APC by a conversion factor. The
conversion factor is updated on a calendar year schedule. These annual updates are
based on the hospital MB. Starting in CY2009, however, the outpatient update for
hospitals that do not submit required quality data will be the MB minus 2 percentage
points. The reduction for not submitting quality data would apply for the applicable
year and would not be taken into account in subsequent years.
President’s Proposal. Hospitals would receive a zero percent update for
outpatient services provided in FY2009 through FY2011, regardless of whether the
required quality data is submitted. The HOPD update would be set at MB minus
0.65 percentage points for subsequent years. The President’s budget estimates that
the proposal would save $580 million in FY2009 and $6.05 billion over the five-year
budget period.
Ambulatory Surgery Center Update
Current Law. Until January 1, 2008, Medicare used a fee schedule to pay for
the facility services related to a surgery provided in an ambulatory surgery center
(ASC). The associated physician services (surgery and anesthesia) are reimbursed
under the physician fee schedule. The ASC fee schedule was periodically increased
by the consumer price index for all urban consumers (CPI-U). The Medicare

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Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173,
MMA) changed the update cycle from a fiscal year to a calendar year and eliminated
updates for calendar years 2006 though 2009. MMA also established that a revised
payment system for surgical services furnished in an ASC will be implemented on
or after January 1, 2006 and not later than January 1, 2008. The new ASC payment
system, implemented on a phased in basis starting January 1, 2008, is based on the
OPPS used to pay for HOPD services. As established by the TRHCA, starting in
CY2009, the annual increase for ASCs that do not submit required quality data may
be the required update minus 2 percentage points.
President’s Proposal. The ASC conversion factor would be frozen in
CY2010 and CY2011 and would be established at the CPI minus 0.65 percentage
points in subsequent years. If applicable, ASCs that do not submit quality data will
receive the additional 2-percentage-point reduction. The President’s budget does not
include savings in FY2009, but does include estimated savings of $450 million over
the five-year budget period.
Ambulance Services
Current Law. Ambulance services are paid on the basis of a fee schedule. The
fee schedule establishes seven categories of ground ambulance services and two
categories of air ambulance services. The national fee schedule is fully phased in for
air ambulance services. For ground ambulance services, payments through 2009 are
equal to the greater of the national fee schedule or a blend of the national and
regional fee schedule amounts. The portion of the blend based on national rates is
80% for 2007-2009. In 2010 and subsequently, the payments in all areas will be
based on the national fee schedule amount.
The payment for a service equals a base rate for the level of service plus
payment for mileage. Geographic adjustments are made to a portion of the base rate.
Additionally, the base rate is increased for air ambulance trips originating in rural
areas and mileage payments are increased for all trips originating in rural areas. There
is a 25% bonus on the mileage rate for trips of 51 miles and more.
The fee schedule amounts are updated each year by the CPI-U. The update for
2008 is 2.7%.
President’s Proposal. Payments for ambulance services would be frozen for
the three-year period 2009 - 2011; thereafter they would be annually updated by the
CPI-U minus 0.65 percentage points. The budget includes estimated savings of $60
million in FY2009 and $1.27 billion over the five-year budget period, for this
proposal.
Competitive Bidding for Laboratory Services
Current Law. Section 302(b) of the MMA required CMS to conduct a
demonstration project on the application of competitive acquisition for payment of
most clinical laboratory services that would otherwise be payable under the Medicare

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Part B fee schedule. Pap smears and colorectal cancer screening tests are excluded
from this demonstration.
CMS has outlined how the competitive bidding process will work when the
demonstration program begins operation. Certain laboratories will be required to bid
in the demonstration. These are laboratory firms with $100,000 or more in annual
Medicare Part B (fee-for-service) payments for tests (covered in the demonstration)
provided to beneficiaries residing in the competitive bidding areas (CBAs),
regardless of where the laboratory firm is located. Small laboratories or laboratory
firms with less than $100,000 in annual Medicare Part B (fee-for-service) payments
for demonstration tests provided to beneficiaries residing in the CBAs would not be
required to bid. The competitively set demonstration fee schedule will be used to pay
for laboratory services in the CBA for the duration of the demonstration. Multiple
winners are expected in each CBA. Beneficiaries will only be able to receive services
from winning bidders and entities not required to (and did not) bid.
CMS has stated that the demonstration will apply in two Metropolitan Statistical
Areas (MSAs). The San Diego metropolitan area has been selected as the first
location. The project has not yet begun.
President’s Proposal. The proposal would extend the use of competitive
bidding to all laboratory services. The budget includes estimated savings of $110
million in FY2009 and $2.29 billion over the five-year budget period, for this
proposal.
Short-Term Power Wheelchair Rentals
Current Law. In general, Medicare pays for certain durable medical
equipment (DME) items, such as hospital beds, nebulizers and power-driven
wheelchairs under the capped rental category. Suppliers are required to transfer the
title of DME equipment in the capped rental category to the beneficiary after a 13-
month rental period. Beneficiaries have the option to purchase power-driven
wheelchairs when they are initially furnished.
President’s Proposal. The proposal would establish a 13-month rental
period for power wheelchairs to ensure that a chair is not purchased if the period of
medical need is less than 13 months. The budget includes estimated savings of $80
million in FY2009 and $720 million over the five-year budget period, for this
proposal.
Limit Oxygen Rental Period
Current Law. Rental payments for oxygen equipment, including portable
oxygen equipment, are converted to ownership at 36 months. The supplier is
required to transfer the title of the equipment to the beneficiary at that time. Medicare
will continue to make payments for oxygen contents (in the case of gaseous and
liquid oxygen), for the period of medical need.

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President’s Proposal. The proposal would move oxygen and oxygen
equipment from a 36-month rental period to a 13-month period, the same as the
capped rental category. Medicare would continue to pay for refills of gaseous and
liquid oxygen, as medically necessary. The budget includes estimated savings of
$210 million in FY2009 and $3.00 billion over the five-year budget period, for this
proposal.
Medicare Parts A and B
Home Health Update
Current Law. Home health agencies (HHAs) are paid under a prospective
payment system. Payment is based on 60-day episodes of care for beneficiaries,
subject to several adjustments, with unlimited episodes of care in a year. The
payment covers skilled nursing, therapy, medical social services, aide visits and
medical supplies. The base payment amount, or national standardized 60-day episode
rate, is increased annually by an update factor that is determined, in part, by the
projected increase in the home health market basket index. This index measures
changes in the costs of goods and services purchased by HHAs. For HHAs that
submit the required quality data, the home health MB update is the full 3% for
FY2008. For HHAs that do not submit this quality data, their increase will be
reduced by 2 percentage points to 1% for CY 2008. Without changes to current law,
payments for FY2009 and future years would continue to be updated by the market
basket.
President’s Proposal. Payments for HHAs would be frozen in FY2009
through 2013, and thereafter they would be annually updated by the MB minus 0.65
percentage points. For this proposal, the HHS budget includes an estimated savings
of $440 million in FY2009 and $11.03 billion over the five-year budget period of
FY2009 through FY2013.
End-Stage Renal Disease Payment Modernization
Current Law. Medicare reimbursement for dialysis services is paid based on
a basic case-mix adjusted prospective payment system for dialysis services furnished
either at a facility or in a patient’s home. The basic case-mix adjusted system has two
components: (1) the composite rate, which covers services, including dialysis; and
(2) a drug payment adjustment for the difference between the payment amounts for
separately billable drugs and biologicals and their acquisition costs, as determined
by Inspector General reports. Additionally, certain drugs, biologicals and laboratory
tests are billed separately. The Secretary is required to update the basic case-mix
adjusted payment amounts annually beginning with 2006, but only for that portion
of the case-mix adjusted system that is represented by the add-on adjustment and not
for the portion represented by the composite rate.
Dialysis services are offered in three outpatient settings: hospital-based
facilities, independent facilities, and the patient’s home. There are two methods for

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payment. Under Method I, facilities are paid a prospectively set amount, known as
the composite rate, for each dialysis session, regardless of whether services are
provided at the facility or in the patient’s home. The composite rate is derived from
audited cost data and adjusted for the national proportion of patients dialyzing at
home versus in a facility, and for area wage differences. Hospital-based dialysis
facilities receive an upwards adjustment to the composite rate. Beneficiaries electing
home dialysis may choose not to be associated with a facility and may make
independent arrangements with a supplier for equipment, supplies, and support
services. Payment to these suppliers, known as Method II, is made on the basis of
reasonable charges, limited to 100% of the median hospital composite rate, except
for patients on continuous cycling peritoneal dialysis, when the limit is 130% of the
median hospital composite rate.
President’s Proposal. Beginning CY2009, the payment for providers of
dialysis services furnished by hospital-based facilities would be the same as the rate
for such services furnished by renal dialysis facilities that are not hospital based. A
bundled payment system under which a single payment would be made for Medicare
renal dialysis services would be implemented and re-based beginning CY2011. The
budget includes estimated savings of $10 million in FY2009 and $1.06 billion over
the five-year budget period, for this proposal.
Extend Medicare Secondary Payer Status for End Stage
Renal Disease
Current Law. Under Medicare Secondary Payer (MSP) rules, Medicare is
prohibited from making payments for any item or service when payment has been
made or can reasonably be expected to be made by a third party payer. For
individuals with Medicare entitlement based solely on End-Stage Renal Disease
(ESRD), MSP rules apply for those covered by an employer-sponsored group plan,
regardless of the employer size or current employment status. Medicare entitlement
based on ESRD usually begins with the third month after the month in which the
beneficiary starts a regular course of dialysis, referred to as the three-month waiting
period. In addition to the waiting period, for individuals whose Medicare eligibility
is based solely on ESRD, any group health plan coverage they receive through their
employer or their spouse’s employer is the primary payer for the first 30 months of
ESRD benefit eligibility, referred to as the 30-month coordination period. After 30
months, Medicare becomes the primary insurer.
Medicare coverage ends 12 months after the month the beneficiary stops dialysis
treatment or 36 months after the month the beneficiary has a successful kidney
transplant. However, if Medicare coverage ends, and then begins again, based on
ESRD, the 30-month coordination period will also begin again.
A large group health plan is a plan offered by an employer that normally
employed at least 100 employees on a typical business day during the preceding
calendar year. This also applies to certain smaller plans that are part of a multiple or
multi-employer plan.

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President’s Proposal. Beginning in 2009, the coordination period for ESRD
MSP would be extended to from 30 months to 60 months, but only for those
individuals who receive group coverage through a large group health plan. The
budget includes estimated savings of $110 million in FY2009 and $1.11 billion over
the five-year budget period, for this proposal.
Eliminate Indirect Medical Education Payments for Managed
Care Enrollees
Current Law. As established by the Balanced Budget Act of 1997 (BBA97),
Medicare makes separate, additional direct graduate medical education and indirect
medical education (IME) payments to teaching hospitals to account for the inpatient
care provided to Medicare’s managed care enrollees. In addition, the value of IME
is also included in the maximum amount Medicare is willing to pay Part C plans for
services to Medicare enrollees in certain locations and in certain years.
President’s Proposal. The proposal would eliminate separate IME
payments to teaching hospitals for the Medicare managed care enrollees that they
serve. It would not reduce payments made directly to Medicare Advantage plans.
The budget includes estimated savings of $1.01 billion in FY2009 and $8.85 billion
over the five-year budget period, for this proposal.
Reduce Indirect Medical Education (IME) Adjustment
Current Law. Teaching hospitals that train physicians in approved residency
programs have higher Medicare inpatient costs per discharge than non-teaching
hospitals. These hospitals receive an indirect medical education adjustment (IME)
based on a statutory formula that increases payments by about 5.5% for each 10%
increase in teaching intensity in FY2008. MedPAC has found that the IME
adjustment is set higher than the empirically estimated increase in hospitals’ cost per
case due to teaching.
President’s Proposal. The proposal would lower the IME add on payment
from 5.5% to 2.2% over a three-year transition period, starting in FY2009. The
budget includes estimated savings of $890 million in FY2009 and $12.9 billion over
the five-year budget period for this proposal.
Premiums and Interactions
Part B Premiums
Current Law. Medicare Part B is financed through a combination of
beneficiary premiums and federal general revenues. In general, beneficiary premiums
equal 25% of estimated program costs for the aged. (The disabled pay the same
premium as the aged.) Federal general revenues account for the remaining 75%. The
2008 premium is $96.40.

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Beginning in 2007, higher-income enrollees pay a higher percentage of Part B
costs. The increase is phased in over three years. In 2008, they pay total premiums
ranging from 31.7% to 61.7% of the value of Part B. When fully phased-in during
2009, higher income individuals will pay total premiums ranging from 35% to 80%
of the value of Part B.
CMS estimates that 5% of enrollees will pay the higher premiums in 2008. For
singles, the higher monthly premium amounts are $122.20 for beneficiaries with
incomes (in 2006) over $82,000 and less than or equal to $102,000, $160.90 for
incomes over $102,000 and less than or equal to $153,000, $199.70 for incomes
greater than $153,000 and less than or equal to $205,000, and $238.40 for incomes
greater than $205,000. For couples filing joint tax returns, the premium amounts are
$122.20 for beneficiaries with incomes over $164,000 and less than or equal to
$204,000, $160.90 for incomes over $204,000 and less than or equal to $306,000,
$199.70 for incomes greater than $306,000 and less than or equal to $410,000, and
$238.40 for incomes greater than $410,000.
The income thresholds for higher Part B premiums are increased each year by
the percentage increase in the CPI-U.
President’s Proposal. The proposal would eliminate the annual CPI-U
adjustments. Consequently, each year the number of beneficiaries subject to the
higher premium would increase. The budget includes estimated savings of $110
million in FY2009 and $2.57 billion over the five-year budget period, for this
proposal.
Part D Premiums
Current Law. In 2006, Medicare Part D began providing coverage for
outpatient prescription drugs for Medicare beneficiaries. Coverage is provided
through private prescription drug plans (PDPs) or Medicare Advantage prescription
drug (MA-PD) plans. The program relies on these private plans to provide coverage
and to bear some of the financial risk for drug costs; federal subsidies covering the
bulk of the risk is provided to encourage participation. Unlike other Medicare
services, the benefits can only be obtained through private plans. Further, while all
plans have to meet certain minimum requirements, there are significant differences
among them in terms of benefit design, drugs included on plan formularies (i.e., list
of covered drugs) and cost-sharing applicable for particular drugs.
Medicare Part D is financed through a combination of beneficiary premiums and
federal general revenues. In addition, certain transfers are made from the states.
Beneficiaries pay different premiums depending on the plan they have selected. On
average, beneficiary premiums account for 25.5% of expected total Part D costs for
basic coverage. Except for persons entitled to low-income subsidies, all persons
selecting a particular Part D plan pay the same monthly premium amount.

CRS-14
President’s Proposal. The proposal would establish income-related
premiums for Part D.3 Under the proposal, the income thresholds would be the same
as those established for income-relating Part B premiums (see above). Further, as
proposed for Part B, the income thresholds would not be updated in future years.
Consequently, each year the number of beneficiaries subject to the higher premium
would increase. The budget includes estimated savings of $350 million in FY2009
and $3.18 billion over the five-year budget period, for this proposal.
Interaction with Medicaid
Current Law. Medicaid provides coverage for Medicare Part B premiums for
certain low-income persons. One coverage group is known as “Qualifying Individuals
1 (QI-1s).” Individuals are eligible as QI-1s if they are entitled to Medicare Part A,
their incomes are at least 120% of the Federal poverty level but less than 135%, and
they have limited assets. The benefit for the QI-1 group was originally set to expire
in December 2002; however, Congress has extended the provision on several
occasions. Most recently P.L. 110-173 extended the coverage through June, 2008.
President’s Proposal. The President’s Medicaid proposals include an
extension of the QI program through September 30, 2009. The Medicare costs reflect
program expenditures for this group of individuals. The budget includes estimated
costs of $270 million in FY2009 and $270 million over the five-year budget period,
for this proposal.
Use and Release of Medicare Claims Data
Current Law. The President has proposed a Healthcare Transparency
Initiative, with the stated goals of making quality and price and cost information
available to allow consumers, employers, and payers to choose better value in
healthcare. The President’s corresponding executive order emphasized the sharing
of information on health care quality and cost, promoting interoperable health
information technology (HIT) systems, and providing incentives for consumers to
choose efficient, high quality providers.
President’s Proposal. The President’s proposal would seek broader
authority to release Medicare fee-for-service claims and other data for purposes of
quality improvement, performance measurement, and public reporting. This proposal
aims to improve the transparency and availability of comparative health care cost and
quality data for beneficiaries. The budget includes no savings associated with this
proposal.
Premium Interactions
The savings for the individual proposals listed in Table 1 are the “gross”
savings. However, there is an “offsetting” cost associated with Part B benefit savings
3 Though specifics are not provided, it is expected that the percentage increases would be
tied to a benchmark premium for basic coverage.

CRS-15
that occurs because any savings to the program are shared between the Medicare
program and beneficiaries, as beneficiaries pay a share (generally 25% of program
costs, or for certain higher income beneficiaries a larger share) of program costs. For
example, for those beneficiaries paying 25% of premiums, for every dollar saved, the
Medicare outlays will be reduced by about $0.75 and beneficiaries will save about
$0.25. The estimated offsetting costs are shown in the interaction line of the table;
$692 million in FY2009 and $6.474 billion over the five-year budget period.
Forty-Five Percent Rule (the Medicare Trigger)
The MMA amended the Social Security Act, adding an additional responsibility
that requires the Medicare Board of Trustees to examine and make a determination
if general revenue Medicare funding is expected to exceed 45% of Medicare outlays
for the current fiscal year or any of the next six fiscal years. An affirmative
determination in two consecutive annual reports is considered to be a Medicare
funding warning in the year in which the second report is made.4
Because the Medicare trustees issued such a warning in 2007, MMA requires
that the President submit legislation to Congress responding to the warning within
the 15-day period, beginning on the date of the budget submission to Congress this
year. The President’s budget proposal would reduce Medicare provider payments by
0.4% in beginning in any year that the general revenue Medicare funding is expected
to exceed 45% of Medicare outlays. This reduction would increase each year, until
the percentage falls below the 45% trigger level.
Quality Improvement Organization (QIO) Proposals
Funding for the Ninth SOW
Current Law. Medicare contracts with private organizations called quality
improvement organizations (QIOs) to monitor and improve the quality of care
provided to Medicare beneficiaries. To fulfill this responsibility, QIOs perform a
diverse mix of activities for the Medicare program, including providing technical
assistance to providers on quality improvement, investigating beneficiary complaints
related to the quality of care, and reviewing the necessity of medical services
delivered to Medicare beneficiaries. Operating under three-year contracts called
Statements of Work (SOWs), CMS contracts with 41 organizations to provide
services to Medicare beneficiaries in all 50 states, Puerto Rico, the District of
Columbia, and the Virgin Islands. With an estimated budget of $1.23 billion, the 41
QIOs are scheduled to complete the eighth SOW in July 2008.
President’s Proposal. The President’s budget provides $1.1 billion to the
QIOs for the ninth SOW set to begin in August 2008. For the ninth SOW, the QIOs
4 For additional information about the Medicare funding warning, see CRS Report RS22796,
Medicare Trigger, by Hinda Chaikind and Christopher M. Davis.

CRS-16
will provide technical assistance and quality improvement assistance to providers in
support of three themes: (1) prevention of chronic illness, (2) reducing unnecessary
hospitalizations, and (3) patient safety. The President’s budget also proposes changes
to QIO oversight and management such as requiring ongoing performance
management reviews, financial penalties for QIOs that do not meet certain
performance thresholds, and targeted funding to areas with low performing providers.
Allowing the Secretary to Determine Geographic Scope of
QIO Contracts
Current Law. The Secretary is required to establish geographic areas
throughout the United States with respect to QIO contracts. Each state must be
designated as a geographic area. The Secretary has the authority to establish local or
regional areas as geographic areas only when the volume of medical necessity
reviews or other factors warrant such an establishment. If the Secretary does decide
to establish a local or regional area as a geographic area, the Secretary must establish
that review activity can be conducted more efficiently at the local or regional level
rather than the state level.
President’s Proposal. The President’s proposal would allow the Secretary
to negotiate local, regional, or national QIO contracts. The President’s budget does
not include savings in FY2009 for this proposal, but does include estimated savings
of $50 million over the five-year budget period (FY2009-FY2013).
Expand Pool of Contractors Eligible for QIO Work
Current Law. To become a QIO, entities must meet certain requirements.
Entities must be either physician-sponsored or physician-access organizations. A
physician-sponsored organization is defined as an entity that is composed of a
substantial number of licensed doctors practicing medicine in the area and who are
representative of the physicians practicing in the area. A physician-access
organization is one that has available to it the services of a sufficient number of
doctors practicing medicine in the area. The Secretary is prohibited from entering
into QIO contracts with a health care facility, health care facility association, a health
care facility affiliate, or payer organization.
President’s Proposal. The President’s proposal would expand the pool of
quality organizations eligible to become QIO contractors. The President’s budget
does not include savings in FY2009, but does include estimated savings of $30
million over the five-year budget period (FY2009-FY2013).
Allow for Early Termination of Contracts Without
Panel Review
Current Law. If the Secretary determines that a QIO is not meeting its
contractual requirements, the Secretary is required to notify the QIO that its contract
may not be renewed at least 90 days prior to the expiration of the contract. Upon
informing the QIO of its notice of intent to terminate the contract, the Secretary is
required to provide the QIO with the opportunity to present data and other

CRS-17
information pertinent to its performance under the contract. Such information must
be reviewed in a timely manner by a panel appointed by the Secretary. The panel is
required to submit a report of its findings to the Secretary in a timely manner. The
Secretary is not required to accept the findings of the panel and has the authority to
amend the contract to modify the QIO’s functions. If the Secretary decides to
terminate a QIO’s contract after the panel has submitted its report, it must provide
the QIO with 90 days notice.
President’s Proposal. The President’s proposal would allow for early
termination of contracts without panel review for poor performing QIOs. The
President’s budget does not include any estimated savings associated with this
proposal.
Establish Stricter Standards for Reviewing Beneficiary
Complaints to Address Perceived Conflicts of Interest
Current Law. In addition to providing technical assistance to providers on
quality improvement, QIOs are required to investigate and respond to beneficiary
complaints about the quality of health care services. Specifically, QIOs review the
services provided to the beneficiary to ensure that they meet professionally
recognized standards of care. If after investigating the complaint, the QIO identifies
a potential quality of care concern they are required to inform the beneficiary of the
outcome of the investigation and provide the practitioner with reasonable notice and
opportunity for discussion. QIOs are also required to implement quality
improvement interventions with the provider in response to quality concerns
identified during complaint investigations.
President’s Proposal. The President’s proposal would eliminate a perceived
conflict of interest between QIOs beneficiary protection and quality improvement
activities by establishing stricter contractual standards for reviewing beneficiary
complaints. The President’s budget does not include any estimated savings
associated with this proposal.
Make QIO Authority to Conduct Quality Improvement
Activities More Explicit
Current Law. Section 1154 of the Social Security Act describes the functions
of Medicare QIOs. The law directs QIOs to review some or all of the professional
activities of Medicare providers to ensure that the services provided to Medicare
beneficiaries are reasonable and medically necessary, that the quality of services
meets professionally recognized standards of care, and that the services provided
could not be provided more effectively and economically in another health care
setting. The statute does not make reference to the quality improvement activities
QIOs undertake in conducting these medical review functions.
President’s Proposal. The President’s proposal would expand the statutory
authority of QIOs to include quality improvement activities. The President’s budget
does not include any estimated savings associated with this proposal.

CRS-18
Program Integrity Proposals
Health Care Fraud and Abuse Control Program
Current Law. The Health Insurance Portability and Accountability Act
(HIPAA) of 1996 (P.L. 104-191) established the Health Care Fraud and Abuse
Control Program (HCFAC) and Medicare Integrity Program (MIP) to conduct health
care fraud and abuse activities. To fund these activities, HIPAA established within
the Hospital Insurance Trust Fund an expenditure account called the HCFAC
account. Monies are to be appropriated from the Trust Fund to the HCFAC account
in amounts that the Department of Health and Human Services (DHHS) and the
Department of Justice (DOJ) jointly certify as necessary to finance anti-fraud
activities.
HCFAC funds enforcement and prosecution efforts impacting all federal health
care programs. MIP, however, funds activities to prevent and investigate fraud in
Medicare. HCFAC supports anti-fraud activities performed by the DHHS, the HHS
Office of the Inspector General (OIG), the DOJ, and the Federal Bureau of
Investigation (FBI). MIP funds are allocated to CMS for activities such as medical
reviews of claims, provider audits, investigations, and physician education.
HIPAA capped mandatory funding for the HCFAC and MIP programs at the
FY2003 level of $355 million for HCFAC and $720 million for MIP. The DRA
appropriated additional mandatory funds for MIP ($36 million in FY2008 and $48
million in FY2009) for the establishment of a Medicare-Medicaid data matching
program. The TRHCA increased the mandatory annual appropriation for HCFAC
by the percentage increase in the consumer price index through 2010. In FY2008,
mandatory HCFAC and MIP funding for health care fraud activities totaled $1.1
billion.
The law currently mandates that HHS and the DOJ submit an annual report to
Congress on HCFAC activities. The law does not require that MIP activities be
included in this report.
President’s Proposal. The President’s FY2009 budget includes a
discretionary request of $198 million to augment the mandatory funding for health
care fraud activities. Of this $198 million, $147 million would be allocated to MIP
to conduct oversight activities related to the Medicare prescription drug benefit and
Medicare Advantage plans. The remaining $51 million would support anti-fraud
activities conducted by the OIG and DOJ. To ensure funding for this proposal, the
administration proposes to fund them as contingent appropriations and would employ
a budget enforcement mechanism to allow for adjustments by the Budget
Committees. Statutory spending limits would also be established.
The President’s budget also includes a proposal to change the structure of the
HCFAC account by separating the unified funding stream provided to the DHHS and
DOJ into two separate funding streams. The annual negotiations process between the
two agencies would be eliminated. Further, MIP would be required to contribute
results of its activities to the annual HCFAC report.

CRS-19
Medicare Bad Debt
Current Law. Medicare pays the costs of certain items on a reasonable cost
basis (outside the applicable prospective payment system) including the unpaid debt
for beneficiaries’ coinsurance and deductible amounts. While some providers receive
100% reimbursement for allowable bad debt, since 2001, acute care hospitals receive
70% of the reasonable costs. SNFs also receive 70% for only those beneficiaries who
are not dually eligible for Medicare and Medicaid. For the dual eligibles, the bad debt
reimbursement will remain at 100%. Other providers currently receiving
reimbursement for bad debt include critical access hospitals, rural health clinics,
ESRD facilities, federally qualified health clinics, community mental health clinics,
and certain health maintenance organizations, among others.
President’s Proposal. This proposal would phase out bad debt
reimbursements over four years for all Medicare providers (FY2009-FY2012). The
President’s budget expects to save $250 million in 2009 with this proposal and $8.5
billion over the five year budget period.
Limit Use of Mandamus Jurisdiction.
Current Law. Mandamus jurisdiction involves a plaintiff going to court to
seek injunctive relief in the form of a writ of mandamus to compel a governmental
agency or officer of an agency to comply with a statutory obligation (such as issuing
a fee schedule that is required in a statutory provision). Mandamus is only available
where (1) the plaintiff has a clear right to relief, (2) the defendant has a clear duty to
act, and (3) there is no other adequate remedy available to the plaintiff. The Supreme
Court has stated that “the common law writ of mandamus, as codified in 28 USCS
1361, is intended to provide a remedy for a plaintiff only if he has exhausted all other
avenues of relief and only if the defendant owes him a clear, nondiscretionary duty.”
Heckler v. Ringer, 466 U.S. 602 (U.S. 1984).
President’s Proposal. The President’s budget would limit mandamus
jurisdiction as a basis for obtaining judicial review and clarify the Secretary’s
authority to resolve appeals of Medicare determination. The President’s budget does
not include savings in FY2009, but does include estimated savings of $60 million
over the five-year budget period (FY2009-FY2013). These savings are for existing
cases only and do not include projected savings from future cases.
Include Providers in Federal Payment Levy Program
Current Law. The Federal Payment Levy Program (FPLP) authorizes the
Internal Revenue Service (IRS) to collect overdue taxes through a continuous levy
on federal payments made to delinquent taxpayers. The FPLP is implemented in
coordination with the Department of the Treasury’s Financial Management Service
(FMS). FMS may reduce any federal payments subject to the levy by 15%, or the
exact amount of tax owed if it is less than 15% of the payment. The Department of
Health and Human Services (DHHS) does not participate in this program, which
would enable it to collect tax debt from physicians and other Part B providers.

CRS-20
President’s Proposal. This proposal would allow Medicare provider
payments to be included in the FPLP. The President’s budget does not include any
estimated savings associated with this proposal.
Reducing Erroneous Medicare Payments
Current Law. CMS developed the Comprehensive Error Rate Testing (CERT)
Program to assess how well Medicare claims administration contractors process
Medicare claims. The CERT program measures the accuracy of Medicare claims
processing activities by calculating national, contractor-specific, and provider-
specific claims error rates. To reduce the volume of improper payments, Medicare
contractors are expected to educate providers on how to correct billing mistakes and
identify potential fraud. Medicare fee-for-service error rates in 2007 and 2008 were
3.9%, and 3.8% respectively.
President’s Proposal. The President estimates that efforts to improve
payment accuracy will result in a further reduction of the Medicare fee-for-service
claims error rate from 3.8% in 2008 to 3.7% in 2009. The President’s budget does
not include any estimated savings associated with this proposal.
Medicare Administrative Proposals
These five provisions propose to strengthen program integrity, correct for
inappropriate provider payments, and adjust payments to encourage efficiency and
productivity. The budget includes estimated savings of $645 million in FY2009 and
$4.74 billion over the five-year budget period from these proposal in aggregate.
Payment for Conditions Not Present on Admission
Current Law. As required by the DRA, starting October 1, 2008, acute care
hospitals will not receive additional payment when one of the identified conditions
is acquired during hospitalization. For patients where the specified condition was not
present on admission, the hospital would be paid as though the secondary diagnosis
was not present.
President’s Proposal. The budget proposal would expand the policy and
withhold Medicare payment for certain conditions if they were not present at the time
of the hospital admission.
Increase Inpatient Length of Stay Threshold
Current Law. Under IPPS, Medicare reduces payment to an acute care
hospital if a patient in a given diagnostic related category (DRG) is admitted to a post
acute setting and receives clinically related care within three days of discharge from
the hospital. The post acute settings covered by the transfer policy include LTCHs,
IRFs, inpatient psychiatric or skilled nursing facilities, and home health care.

CRS-21
President’s Proposal. The budget proposal would increase the inpatient
length of stay threshold that would trigger the transfer payment adjustment.
Change Hospice Wage Index
Current Law. Payments for hospice care are adjusted to reflect local
differences in area wage levels by the hospice wage index. The hospice wage index
has been developed using the most current hospital wage data, including any changes
to the Metropolitan Statistical Areas (MSAs) definitions. The original hospice wage
index was based on the 1981 Bureau of Labor Statistics hospital data and had not
been updated since 1983. On April 13, 1995, the Hospice Wage Index Negotiated
Rulemaking Committee signed an agreement for the methodology to be used for
updating the hospice wage index. In the August 8, 1997 Federal Register (62 FR
42860), CMS published a final rule implementing a new methodology for calculating
the hospice wage index based on the recommendations of the negotiated rulemaking
committee. The hospice wage index is updated annually and is published in the
Federal Register. It is based on the most current available hospital wage data, as well
as any changes by the Office of Management and Budget (OMB) to the definitions
of MSAs.
President’s Proposal. This proposal would phase-out the hospice-specific
wage index adjustment over three years.
Case Mix Adjustment to Payments for
Skilled Nursing Facilities
Current Law. Skilled Nursing Facility (SNF) care is reimbursed based on a
prospective payment system. The PPS payments are based on a daily (“per-diem”)
urban or rural base payment amount that is adjusted for case mix using a resident
classification system (Resource Utilization Groups III) based on data from resident
assessments and relative weights developed from staff time data. The PPS payments
are also adjusted by area wages using the hospital wage index.
President’s Proposal. The President proposes to correct for case mix
distribution in the skilled nursing payment system but the budget does not include
any specifics.
Strengthen Program Integrity
Current Law. The Health Insurance Portability and Accountability Act
(HIPAA) of 1996 established the Medicare Integrity Program (MIP) to reduce
improper payments and conduct activities to prevent health care fraud and abuse in
the Medicare program. The types of fraud prevention activities include 1) medical
reviews of claims to determine if services are medically reasonable and necessary,
2) financial audits, 3) investigations of potential fraud cases, 4) provider education
to inform providers of Medicare billing procedures, and 5) Medicare secondary payer
activities.

CRS-22
President’s Proposal. This proposal would strengthen program integrity in
Medicare payment systems to root out excessive or inappropriate payments. The
specifics of this proposal were not available at the time this report was published.
Overall these five proposals are estimated to save $0.6 billion in 2009 and $4.7
billion over the five year budget period (2009-2013).
Permanently Base Part D Risk Scores on Eligible Enrollees
Current Law. Medicare makes payments to Part D plans based on plan bids,
adjusted for expected case mix of enrollees. Per capita monthly direct subsidy
payments equal to the adjusted amount minus the beneficiary premiums. Following
the close of the calendar year, CMS makes retroactive adjustments to reflect actual
plan experience. Direct subsidy payments are adjusted to reflect updated status about
beneficiary health status and enrollment.
President’s Proposal. The proposal would permanently base Part D risk
adjustment scores on eligible enrollees rather than on actual enrollees. The budget
includes estimated costs of $400 million in FY2009 and $3.2 billion over the five-
year budget period.
The President’s FY2009 Budget Medicare Proposals are summarized in Table
1.
Table 1. President’s FY2009 Budget Medicare Proposals
(dollars in millions)
HHS estimates
FY2009-
Proposals
FY2009
FY2013
Legislative Proposals
Medicare Part A
Hospital Update
-3,990
-64,200
Skilled Nursing Facility Update
-990
-17,030
Hospice Update
-350
-5,140
Inpatient Rehab Facility Updatea
-510
-4,820
Long-Term Care Hospital Updatea
-320
-2,940
Eliminate Duplicate Hospital IME Payments for MA
-1,010
-8,850
Reduce Indirect Medical Education Add-On
-890
-12,900
Reduce Hospital Capital Payments by 5% in FY2009
-490
-3,050
Reduce Hospital Disproportionate Share Payments
-1,750
-20,690
Set Base Payment for 5 Post-Acute Conditions
-250
-1,650
Establish Hospital Value-Based Purchasing Program
—
-1,650
Eliminate Payments for Never Events
—
-190
Budget Neutrality for Purposes of Geographic
Reclassification
—
—
Medicare Part B

CRS-23
HHS estimates
FY2009-
Proposals
FY2009
FY2013
Outpatient Hospital Update
-580
-6,050
Ambulance Update
-60
-1,270
Ambulatory Surgical Center Update
0
-450
Competitive Bidding for Clinical Laboratory Services
-110
-2,290
Establish 13-Month Rental Period for Power
Wheelchairs
-80
-720
Reduce Rental Period for Oxygen Equipment from 36
to 13 Months
-210
-3,000
Medicare Parts A and B (dollars or combined A and B spending)
Home Health Update
-440
-11,030
End-Stage Renal Disease (ESRD) Payment
Modernization
-10
-1,060
Extend Medicare Secondary Payer Status for ESRD
-110
-1,110
Improve Program Integrity
Phase-Out Medicare Bad Debt Payments Over four
Years
-250
-8,460
Limit Use of Mandamus Jurisdiction
—
-60
Include Medicare Providers in FPLP
—
—
Premiums and interactions
Eliminate Annual Indexing of Income-Related Part B
Premiums -110
-2,570
Establish Income-Related Part D Premium Consistent
with Part B
-350
-3,180
QI Extension/Interactions Reducing Beneficiary Part
B Premiumsb
692
6,474
Seek Broader Authority to Release Medicare FFS
Claims Information
—
—
Improve Long-Term Fiscal Sustainability
Apply -0.4% Sequester When Medicare Fund
Warning is Triggered
—
—
QIO proposals
Allow Secretary to Determine Geographic Scope of
Contracts
—
-50
Expand Pool of Contractors Eligible for QIO Work
—
-30
Allow for Early Termination of Contracts without
Panel Review
—
—
Eliminate Conflict of Interest
—
—
Make QIO Authority More Explicit
Total, Medicare Legislative Proposals
-12,167
-177,965

CRS-24
HHS estimates
FY2009-
Proposals
FY2009
FY2013
Medicare Administrative Proposals
Improve Medicare Efficiency, Productivity, and
Program Integrity
-645
-4,739
Total, Medicare Administrative Proposals
-645
-4,739
Total, Medicare Budget Proposals
-12,812
-182,704
Source: Department of Health and Human Services, 2009 Budget in Brief, available at
[http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf].
Notes: Totals may not add due to rounding.
a. Includes the impact of repealing certain provisions of Sections 114 and 115 of the Extension Act
of 2007.
b. The $270 million Medicare effect of the QI extension proposal is not scoreable for PAYGO
purposes.
Congressional Activity
FY2009 Budget Resolution
House Activity. The House Budget Committee reported the Fiscal 2008
Congressional Budget Resolution (H.Con.Res. 312) on March 7, 2008. The House
resolution provides for a total of $420.0 billion in outlays in 2009, and $2.4 trillion
in outlays over five years. The House resolution assumes the extension of Medicare
premium assistance for qualified individuals with incomes between 120% and 135%
of the federal poverty level and limited financial resources. The House resolution
also assumes that savings from Medicare program efficiency improvements will
offset the costs of extending the premium assistance program, as well as other
initiatives to improve the Medicare program for beneficiaries.
Senate Activity. The Senate Budget Committee passed the Fiscal 2008
Congressional Budget Resolution (S.Con.Res. 70) on March 3, 2008. The
Senate-passed resolution provides for a total of $420.2 billion in outlays for 2009,
and $2.4 trillion outlays over five years. For 2009, the discretionary funding levels
include a discretionary cap adjustment of up to $198 million for program integrity
activities of the Health Care Fraud and Abuse Control (HCFAC program) to address
improper payments, fraud, and abuse in the Medicare program. In addition, the
mandatory funding levels assume Medicare savings of $1.3 billion in 2013, allowing
for legislation to delay the Medicare trigger. The Senate resolution specifies that
policies to enact these savings will be determined by the Senate Finance Committee.
Conference agreement. Both the House and the Senate filed the conference
report on May 20, 2008 (H.Rept. 110-659 accompanying S.Con.Res. 70). The
conference report provides for $420 billion in total outlays for Medicare in 2009, an
increase of $29.5 billion over 2008, and $2.4 trillion in outlays over five years. The

CRS-25
discretionary and mandatory spending levels in this function are consistent with the
CBO baseline funding levels.

CRS-26
Table 2. Staff Medicare Contacts for this Report
Phone
Topic
Staff member
number
Part A
Hospice Care
Julie Stone
7-1386
Inpatient Hospital Services
Sibyl Tilson
7-7368
Inpatient Rehabilitation Facilities
Sibyl Tilson
7-7368
Medical Devices
Gretchen Jacobson
7-1686
Skilled Nursing Facilities
Julie Stone
7-1386
Part B
Ambulatory Surgical Center Services
Sibyl Tilson
7-7368
Drugs
Jennifer O’Sullivan
7-7359
Durable Medical Equipment
Paulette Morgan
7-7317
Outpatient Hospital Services
Sibyl Tilson
7-7368
Physicians and Other Part B Providers
Jennifer O’Sullivan
7-7359
Premiums
Jennifer O’Sullivan
7-7359
SGR options
Jennifer O’Sullivan
7-7359
Jim Hahn
7-4914
Parts A&B
Beneficiary Issues
Jennifer O’Sullivan
7-7359
End Stage Renal Disease (ESRD)
Hinda Chaikind
7-7569
Gretchen Jacobson
7-1686
Home Health Services
Julie Stone
7-1386
Part C
Medicare Advantage
Hinda Chaikind
7-7569
Paulette Morgan
7-7317
Holly Stockdale
7-9553
Part D
Benefits & Premiums
Jennifer O’Sullivan
7-7359
Jim Hahn
7-4914
Drug Pricing
Gretchen Jacobson
7-1686
Jim Hahn
7-4914
Administration
Integrity (fraud, waste, and abuse)
Holly Stockdale
7-9553
Quality Improvement Organizations
Holly Stockdale
7-9553
Other
Medicare Secondary Payer
Hinda Chaikind
7-7569
Medicare Trigger
Hinda Chaikind
7-7569
Medicare HI & SMI Trust Fund Financing
Jennifer O’Sullivan
7-7359
Pay for Performance/Value-Based Purchasing
Jim Hahn
7-4914
Price Transparency
Jim Hahn
7-4914
Rural Issues
Sibyl Tilson
7-7368