HHS FY2015 Budget in Brief

Centers for Medicare & Medicaid Services

Centers for Medicare & Medicaid Services (CMS): Medicare

The Centers for Medicare & Medicaid Services ensures availability of effective, up-to-date health care coverage and promotes quality care for beneficiaries.

CMS Medicare Budget Overview

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Current Law Outlays and Offsetting Receipts




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Less: Premiums Paid Directly to Part D Plans /2





Subtotal, Benefits Net of Direct Part D Premium Payments





RelatedBenefit Expenses /3





Administration /4





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Premiums and Offsetting Receipts





Current Law Outlays, Net of Offsetting Receipts





Prevent Reduction in Medicare Physician Payments




Adjusted Baseline Outlays, Net of Offsetting Receipts





Proposed Law 




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Program Management



HCFAC Investment



Total Medicare Proposals, Net of Offsetting Receipts




Savings from Additional Mandatory HCFAC Investments



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1/ Represents all spending on Medicare benefits by either the Federal government or other beneficiary premiums. Includes Medicare Health Information Technology Incentives.

2/ In Part D only, some beneficiary premiums are paid directly to plans and are netted out here because those payments are not paid out of the Trust Funds.

3/ Includes related benefit payments, including refundable payments made to providers and plans, transfers to Medicaid, and additional Medicare Advantage benefits and savings from investments in Social Security disability reviews.

4/ Includes CMS Program Management, non-CMS administration, HCFAC, and QIOs. 

5/ Includes SMI transfers to Medicaid of $365 million in FY 2014 and $760 million in FY 2015 to extend the Qualified Individuals (QI) Program.

6/ Removes total Medicare discretionary amount: FY 2013- $6,017 million; FY 2014- $5,861 million; and FY 2015- $6,291 million.

CMS Medicare Programs and Services

In FY 2015, gross current law spending on Medicare benefits will total $605.9 billion. Medicare will provide health insurance to 55 million individuals who are 65 or older, disabled, or have end-stage renal disease (ESRD).

The Four Parts of Medicare

Part A ($203.1 billion gross feeforservice spending in 2015): Medicare Part A pays for inpatient hospital, skilled nursing facility (SNF), home health related to a hospital stay, and hospice care. Part A financing comes primarily from a 2.9 percent payroll tax paid by both employees and employers.

Generally, individuals with 40 quarters of Medicarecovered employment are entitled to Part A without paying a premium, but most services require a beneficiary copayment or coinsurance. In 2014, beneficiaries pay a $1,216 deductible for a hospital stay of 1–60 days, and $152 daily coinsurance for days 21–100 in a SNF.

Medicare Benefits by Service, 2015 Part B ($167.8 billion gross fee for service spending in 2015): Medicare Part B pays for physician, outpatient hospital, ESRD, laboratory, durable medical equipment, certain home health, and other medical services. Part B coverage is voluntary, and about 92 percent of all Medicare beneficiaries are enrolled in Part B. Approximately 25 percent of Part B costs are financed by beneficiary premiums, with the remaining 75 percent covered by general revenues.

The standard monthly Part B premium is $104.90 in 2014, the same as the 2013 premium. The last five years have been among the slowest periods of average Part B premium growth in the program’s history. The Part B deductible will also remain unchanged at $147.

Some beneficiaries pay a higher Part B premium based on their income: those with annual incomes above $85,000 (single) or $170,000 (married) will pay from $146.90 to $335.70 per month in 2014.

Part C ($149.8 billion in 2015): Medicare Part C, the Medicare Advantage (MA) program, pays plans a capitated monthly payment to provide all Part A and B services, and Part D services, if offered by the plan. Plans can offer additional benefits or alternative cost sharing arrangements that are at least as generous as the standard Parts A and B benefits under traditional Medicare. In addition to the regular Part B premium, beneficiaries who choose to participate in Part C may pay monthly plan premiums which vary based on the services offered by the plan and the efficiency of the plan.

In 2014, MA enrollment will total approximately 15 million. Over the past ten years, MA enrollment as a percentage of total enrollment has increased by 173 percent (see graph on Medicare Advantage Enrollment 2005-2014). CMS data confirm that Medicare beneficiary access to an MA plan remains strong and stable at 99.1 percent in 2014, premiums have remained stable, MA supplemental benefits remain largely unchanged, and enrollment is growing faster than traditional Medicare.

Part D ($85.2 billion projected gross spending in 2015):Medicare Part D offers a standard prescription drug benefit with a 2014 deductible of $310 and an average estimated monthly premium of $32.42. Enhanced and alternative benefits are also available with varying deductibles and premiums. Beneficiaries who choose to participate are responsible for covering a portion of the cost of their prescription drugs. This portion may vary depending on whether the medication is generic or a brand name and how much the beneficiary has already spent on medications that year. Lowincome beneficiaries are responsible for varying degrees of cost-sharing, with copayments ranging from $0 to $6.35 in 2014 and low or no monthly premiums.

For 2015, the number of beneficiaries enrolled in Medicare Part D is expected to increase by about 3 percent to 41 million, including about 12 million beneficiaries who receive the lowincome subsidy. In 2014, approximately 61 percent of those with Part D coverage are enrolled in a standalone Part D prescription drug plan, 34 percent are enrolled in a Medicare Advantage Prescription Drug Plan, and the remaining beneficiaries are enrolled in an employer plan or the Limited Income Newly Eligible Transition plan. Overall, approximately 90 percent of all Medicare beneficiaries receive prescription drug coverage through Medicare Part D, employersponsored retiree health plans, or other creditable coverage.

Medicare Advantage Enrollment 2005-2014 The Affordable Care Act closes the Medicare Part D coverage gap, or “donut hole,” through a combination of manufacturer discounts and gradually increasing federal subsidies. Beneficiaries fall into the coverage gap once their total drug spending exceeds an initial coverage limit ($2,850 in 2014), until they reach the threshold for qualified out-of-pocket spending ($4,550 in 2014), at which point they are generally responsible for five percent of their drug costs. Prior to the Affordable Care Act, beneficiaries were responsible for 100 percent of their drug costs in the coverage gap. Under the Affordable Care Act, in 2015, nonLIS beneficiaries who reach the coverage gap will pay 45 percent of the cost of covered Part D brand drugs and biologics, and 65 percent of the costs for all generic drugs in the coverage gap. Costsharing in the coverage gap will continue to decrease each year until beneficiaries are required to pay only 25 percent of the costs of covered Part D drugs in 2020 and beyond.

In 2013, more than 4.8 million beneficiaries reached the coverage gap and saved more than $4.5 billion on their medications due to the prescription drug discount program.  These savings averaged about $929 per person.

2015 Legislative Proposals

The FY 2015 Budget includes a package of Medicare legislative proposals that will save $407.2 billion over 10 years by more closely aligning payments with costs of care, strengthening provider payment incentives to promote highquality efficient care and making structural changes that will reduce federal subsidies to highincome beneficiaries and create incentives for beneficiaries to seek highvalue services. Together, these measures will extend the Hospital Insurance Trust Fund solvency by approximately five years.

PERFORMANCE HIGHLIGHT -- Healthcare Associated Infections
CMS in partnership with the Centers for Disease Control and Prevention (CDC), the Agency for Healthcare Research and Quality (AHRQ), and the Office of the Secretary is working to improve patient safety and reduce the national rate of hospital-acquired catheter-associated urinary tract infections. The goal is to reduce the national standardized hospital-acquired catheter-associated urinary tract infection ratio by 10 percent by September 2015 over the current March 2013 infection ratio baseline of 1.02 per 1,000 days of treatment.

Increase Value in Medicare Provider Payments

Reduce Medicare Coverage of Bad Debts: For most institutional provider types, Medicare currently reimburses 65 percent of bad debts resulting from beneficiaries’ nonpayment of deductibles and coinsurance after providers have made reasonable efforts to collect the unpaid amounts. Starting in 2015, this proposal would reduce bad debt payments to 25 percent over 3 years for all providers who receive bad debt payments. This proposal would more closely align Medicare policy with private payers, who do not typically reimburse for bad debt. [$30.8 billion in savings over 10 years]

Better Align Graduate Medical Education Payments with Patient Care Costs: MedPAC has found that existing Medicare addon payments to teaching hospitals for the indirect costs of medical education significantly exceed the actual added patient care costs these hospitals incur. This proposal would partially correct this imbalance by reducing these payments by 10 percent, beginning in 2015. In addition, the Secretary would be granted the authority to set standards for teaching hospitals receiving Graduate Medical Education payments to encourage training of primary care residents and emphasize skills that promote high-quality and high-value health care.  [$14.6 billion in savings over 10 years]

Reduce Critical Access Hospital Reimbursements to 100 percent of Costs:Critical Access Hospitals (CAHs) are small, rural hospitals that provide their communities with access to basic emergency and inpatient care. CAHs receive enhanced costbased Medicare payments (rather than the fixedfee payments most hospitals receive). Medicare currently pays CAHs 101 percent of reasonable costs. This proposal would reduce this rate to 100 percent beginning in 2015. [$1.7 billion in savings over 10 years]

Prohibit Critical Access Hospital Designation for Facilities that are Less Than 10 Miles from the Nearest Hospital: Beginning in 2015, this proposal would prevent hospitals that are within 10 miles of another hospital from maintaining designation as a CAH and receiving the enhanced rate. These hospitals would instead be paid under the applicable prospective payment system. [$720 million in savings over 10 years]

Target Support for Graduate Medical Education: This proposal would reinvest savings in workforce development, via a targeted grant program administered by HRSA. (See the HRSA chapter for more details.) [$5.2 billion in costs over 10 years]

Adjust Payment Updates for Certain PostAcute Care Providers:This proposal reduces market basket updates for inpatient rehabilitation facilities, long-term care hospitals, and home health agencies by 1.1 percentage points in each year 2015 through 2024. Payment updates for these providers would not drop below zero as a result of this proposal. This proposal will reduce market basket updates for skilled nursing facilities (SNF) under an accelerated schedule, beginning with a -2.5 percent update in FY 2015 tapering down to a -0.97 percent update in FY 2022. [$97.9 billion in savings over 10 years]

Implement Bundled Payment for Post-Acute Care Providers: Beginning in 2019, this proposal would implement bundled payment for post-acute care providers, including long term care hospitals, IRFs, SNFs, and home health providers. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates based on patient characteristics and other factors will be set so as to produce a permanent and total cumulative adjustment of 2.85 percent by 2021. Beneficiary coinsurance would equal that under current law (e.g., to the extent the beneficiary uses SNF services, they would be responsible for the current law coinsurance rate). [$8.7 billion in savings over 10 years]

Encourage Appropriate Use of Inpatient Rehabilitation Facilities:This proposal would adjust the standard for classifying a facility as an IRF. Under current law, at least 60 percent of patient cases admitted to an Inpatient Rehabilitation Facility (IRF) must meet one or more of 13 designated severity conditions. This standard was changed to 60 percent from 75 percent in the Medicare, Medicaid, and SCHIP Extension Act of 2007. Beginning in 2015, this proposal would reinstitute the 75 percent standard to ensure that health facilities are classified appropriately based on the patients they serve. [$2.4 billion in savings over 10 years]

Medicare EnrollmentAdjust Skilled Nursing Facilities Payments to Reduce Hospital Readmissions: A Medicare Payment Advisory Commission(MedPAC) analysis shows that roughly 19 percent of Medicare patients that are discharged from a hospital to a SNF are readmitted to the hospital for conditions that could have been avoided. To promote high quality care in SNFs, this proposal reduces SNF payments by up to three percent beginning in 2018 for facilities with high rates of care-sensitive preventable readmissions. [$1.9 billion in savings over 10 years]

Equalize Payments for Certain Conditions Treated in Inpatient Rehabilitation Facilities and Skilled Nursing Facilities: This proposal would adjust payments for three conditions involving hips and knees, pulmonary conditions, as well as other conditions selected by the Secretary. While these conditions are commonly treated at both Inpatient Rehabilitation Facilities (IRFs) and Skilled Nursing Facilities (SNFs), Medicare payments are significantly higher when services are provided in an IRF. Beginning in 2015, this proposal would improve financial incentives to encourage efficient and appropriate provision of care by reducing the disparity in Medicare payments between the settings. IRFs provide intensive inpatient rehabilitation that may not be appropriate for patients with relatively uncomplicated conditions that could be treated in a SNF. [$1.6 billion in savings over 10 years]

Modernize Payments for Clinical Laboratory Services: This proposal would lower the payment rates under the Clinical Laboratory Fee Schedule by 1.75 percent every year from 2016 through 2023 to better align Medicare payments with private sector rates and would also provide the Secretary the authority to adjust payment rates under the schedule in a budget-neutral manner. Additionally, the Budget supports policies to encourage electronic reporting of laboratory results. [$7.9 billion in savings over 10 years]

Modify Reimbursement for Part B Drugs: To reduce excessive payment of Part B drugs administered in the physician office and hospital outpatient settings, this proposal lowers payment from 106 percent of the Average Sales Price (ASP) to 103 percent of ASP starting in 2015. If a physician’s cost for purchasing the drug exceeds ASP + 3 percent, the drug manufacturer would be required to provide a rebate such that the net cost to the provider to acquire the drug equals ASP + 3 percent minus a standard overhead fee to be determined by the Secretary. This rebate would not be used in calculating ASP. The Secretary would also be given authority to pay a portion or the entire amount above ASP in the form of a flat fee rather than a percentage, with the modification to be made in a budget neutral manner relative to ASP + 3 percent. [$6.8 billion in savings over 10 years]

Exclude Certain Services from the In-Office Ancillary Services Exception: The in-office ancillary services exception to the physician self-referral law was intended to allow physicians to self-refer for certain services to be furnished by their group practices for patient convenience. While there are many appropriate uses for this exception, certain services, such as advanced imaging and outpatient therapy, are rarely furnished on the same day as the related physician office visit. Additionally, there is evidence that suggests that this exception may have resulted in overutilization and rapid growth of certain services. Effective calendar year 2016, this proposal would seek to encourage more appropriate use of ancillary services by amending the in-office ancillary services exception to prohibit certain referrals for radiation therapy, therapy services, advanced imaging, and anatomic pathology services except in cases where a practice meets certain accountability standards, as defined by the Secretary. [$6 billion in savings over 10 years]

Increase the Minimum Medicare Advantage Coding Intensity Adjustment: Starting in 2016, this proposal changes the yearly increase to the minimum coding intensity adjustment from 0.25 percentage points to 0.67 percentage points until the minimum adjustment plateaus at 8.26 percent in 2020 and thereafter. [$31 billion in savings over 10 years]

NEW INITIATIVE -- Closing the Coverage Gap

Medicare Part D Coverage Gap Cost-Sharing by Year/1


Percent Cost Sharing Paid by Enrollee for Branded Drugs (Current Law)

Percent Cost Sharing Paid by Enrollee for Branded Drugs (Proposed Law)

Percent Cost Sharing Paid by Enrollee for Generic Drugs (Proposed and Current Law)

2010 /2




















































1/   Savings only apply to applicable beneficiaries who do not receive the low‑income subsidy.

2/   Percent cost sharing does not include a $250 rebate for each beneficiary who hits the coverage gap in 2010.


Align Employer Group Waiver Plan Payments with Average Medicare Advantage Plan Bids: Beginning in payment year 2016, this proposal would establish payment amounts for Employer Group Waiver Plans based on the average MA plan bid in each individual market. [$3.7 billion in savings over 10 years]

Align Medicare Drug Payment Policies with Medicaid Policies for LowIncome Beneficiaries: Currently, drug manufacturers are required to pay specified rebates for drugs dispensed to Medicaid beneficiaries. In contrast, Medicare Part D plan sponsors negotiate with manufacturers to obtain planspecific rebates at unspecified levels. Analysis has found substantial differences in rebate amounts and prices paid for brand name drugs under the two programs, with Medicare receiving significantly lower rebates and paying higher prices than Medicaid. Prior to the establishment of Medicare Part D, manufacturers paid Medicaid rebates for drugs provided to the dual eligible population. This proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D LowIncome Subsidy, beginning in 2016. The proposal would require manufacturers to pay the difference between rebate levels they already provide Part D plans and the Medicaid rebate levels. Manufacturers would also be required to provide an additional rebate for brand name and generic drugs whose prices grow faster than inflation. [$117.3 billion in savings over 10 years]

Accelerate Manufacturer Drug Discounts to Provide Relief to Medicare Beneficiaries in the Coverage Gap:Currently, beneficiaries in the Medicare Part D coverage gap receive a 50 percent discount from pharmaceutical manufacturers on their brand drugs. The Affordable Care Act closes this gap by 2020 through a combination of manufacturer discounts and federal subsidies. Beginning in plan year 2016, this proposal would increase manufacturer discounts to 75 percent, effectively closing the coverage gap for brand drugs in 2016. The phase-out for generic drugs would continue through 2020. [$7.9 billion in savings over 10 years]

Strengthen IPAB to Reduce LongTerm Drivers of Medicare Cost Growth: Created by the Affordable Care Act, the Independent Payment Advisory Board (IPAB) has been highlighted by economists and health policy experts as a key contributor to Medicare’s longterm solvency. Under current law, if the projected Medicare per capita growth rate exceeds a predetermined target growth rate, IPAB will recommend policies to Congress to reduce the Medicare growth rate to meet a specified target. To further moderate Medicare cost growth, this proposal would lower the target rate applicable for 2018 and after from gross domestic product (GDP) per capita growth plus 1 percentage point to GDP per capita growth plus 0.5 percentage points. [$12.9 billion in savings over 10 years]

Clarify the Medicare DSH Statute: This proposal would clarify that individuals who have exhausted inpatient benefits under Part A or who have elected to enroll in Part C plan should be included in the calculation of the Medicare fraction of hospitals’ Disproportionate Share Hospital (DSH) patient percentages. [No budget impact]

Implement Value-Based Purchasing for Additional Providers: This proposal would implement a budget neutral value-based purchasing program for several additional provider types, including skilled nursing facilities, home health agencies, ambulatory surgical centers, and hospital outpatient departments, beginning in 2016. At least 2 percent of payments must be tied to the quality and efficiency of care. [No budget impact]

Increase Income-Related Premiums under Medicare Part B and Part DExpand Medicare Data Sharing with Qualified Entities: The Affordable Care Act includes a provision which allows CMS to make Medicare Parts A, B, or D claims data available to qualified entities for the purpose of publishing reports evaluating the performance of providers and suppliers. This proposal would expand the scope of how qualified entities can use Medicare data beyond simply performance measurement. For example, entities would be allowed to use the data for fraud prevention activities and value-added analysis for physicians. In addition, qualified entities would be able to release raw claims data, instead of simply summary reports, to interested Medicare providers for care coordination and practice improvement. This proposal includes additional resources for CMS by making claims data available to a qualified entity for a fee equal to Medicare’s cost of providing the data. [No budget impact]

Modify Documentation Requirement for Face-to-Face Encounters for DMEPOS Claims: Currently, a physician must document a beneficiary’s face-to-face encounter with a physician or non-physician practitioner as a condition for Medicare payment for an order. This proposal would modify that requirement by allowing certain non-physician practitioners to document the face-to-face encounter. [No budget impact]

Establish Quality Bonus Payments for Part D Plans Based on Quality Star Ratings: This proposal would allow Medicare to revise the Part D plan payment methodology to reimburse plans based on their quality star ratings. Plans with quality ratings of four stars or higher would have a larger portion of their bid subsidized by Medicare, while plans with lower ratings would receive a smaller subsidy. This proposal is modeled after the MA quality bonus program, but would be implemented in a budget neutral fashion. It would not impact risk corridor payments, reinsurance, low-income subsidies, or other components of Part D payments. [No budget impact]

Suspend Coverage and Payment for Questionable Part D Prescriptions: This proposal would provide the Secretary authority to suspend coverage and payment for drugs prescribed by providers who have been engaged in misprescribing or overprescribing drugs with abuse potential. The Secretary would also be able to suspend coverage and payment for Part D prescription drugs when those prescriptions present an imminent risk to patients. In addition, the proposal would provide the Secretary authority to require additional information on certain Part D prescriptions, such as diagnosis and incident codes, as a condition of coverage. [No budget impact]

Medicare Structural Reforms

Increase Income-Related Premiums under Medicare Part B and Part D: Under Medicare Parts B and D, certain beneficiaries pay higher premiums based on their higher levels of income. Beginning in 2018, this proposal would restructure income-related premiums under Medicare Parts B and D by increasing the lowest income-related premiums five percentage points, from 35 percent to 40 percent, and creating new tiers every 12.5 percentage points until capping the highest tier at 90 percent. The proposal maintains the income thresholds associated with these premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This proposal would help improve the financial stability of the Medicare program by reducing the federal subsidy of Medicare costs for those who need the subsidy the least. [$52.8 billion in savings over ten years]

Encourage the Use of Generic Drugs by Low Income Beneficiaries: Beginning inplan year 2016, this proposal would induce greater generic utilization by lowering copayments for generic drugs. Brand copayments would be increased to twice the level required under current law. The Secretary would have new authority to exclude brand drugs in therapeutic classes from this policy if therapeutic substitution is determined not to be clinically appropriate or a generic is not available. Brand drugs could be obtained at current law cost-sharing levels if beneficiaries successfully appeal. In addition, the change in cost-sharing would be applied to LIS beneficiaries receiving a partial subsidy upon reaching the catastrophic coverage level. Beneficiaries qualifying for institutionalized care, who currently face no copayments, would be excluded from these increases.[$8.5 billion in savings over 10 years]

Modify Part B Deductible for New Enrollees:Beneficiaries who are enrolled in Medicare Part B are required to pay an annual deductible ($147 in calendar year 2014). This deductible helps to share responsibility for payment of Medicare services between Medicare and beneficiaries. To strengthen program financing and encourage beneficiaries to seek high-value health care services, this proposal would apply a $25 increase to the Part B deductible in 2018, 2020, and 2022 respectively for new beneficiaries beginning in 2018. Current beneficiaries or near retirees would not be subject to the revised deductible. [$3.4 billion in savings over 10 years]

Introduce Part B Premium Surcharge for New Beneficiaries Purchasing Near First-Dollar Medigap Coverage: Medicare requires cost-sharing for various services, but Medigap policies sold by private insurance companies provide beneficiaries with additional coverage for these out-of-pocket expenses. Some Medigap plans cover all or almost all copayments, including even modest copayments for routine care that most beneficiaries can afford. This practice gives beneficiaries less incentive to consider the cost of services, leading to higher Medicare costs and Part B premiums. This proposal would introduce a Part B premium surcharge for new beneficiaries who purchase Medigap policies with particularly low costsharing requirements, starting in 2018. Other Medigap plans that meet minimum cost-sharing requirements would be exempt from the requirement. The surcharge would be equivalent to approximately 15 percent of the average Medigap premium (or about 30 percent of the Part B premium). [$2.7 billion in savings over 10 years]

Introduce Home Health Copayments for New Beneficiaries: This proposal would create a copayment for new beneficiaries of $100 per home health episode, starting in 2018. Consistent with MedPAC recommendations, this copayment would apply only for episodes with five or more visits not preceded by a hospital or inpatient postacute stay. Home health services represent one of the few areas in Medicare that do not currently include some beneficiary cost-sharing. This proposal aims to encourage appropriate use of home health services while protecting beneficiary access. [$820 million in savings over 10 years]

Increase the Availability of Generic Drugs and Biologics

Prohibit Brand and Generic Drug Manufacturers from Delaying the Availability of New Generic Drugs and Biologics: Beginning in 2015, this proposal would prohibit anticompetitive pay-fordelay agreements between branded and generic pharmaceutical companies. This proposal increases the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into anticompetitive agreements which block consumer access to safe and effective generics. This proposal would save money in Medicare and Medicaid. [$9.1 billion in Medicare savings over 10 years]

Modify Length of Exclusivity to Facilitate Faster Development of Generic Biologics: This proposal would increase competition for biologic drugs by reducing the number of years (from 12 to 7) that a drug company has exclusivity or monopoly pricing power and prohibits additional years of exclusivity due to formulation changes. The proposal also modifies how Part B pays for treatment where generic biologics are available by allowing them to be classified in the same category as their biosimilar. Reimbursement would be made based on the weighted average sales price. This proposal would save money in Medicare and Medicaid. [$4 billion in Medicare savings over 10 years]

The Affordable Care Act Highlights Strengthening Medicare

The Affordable Care Act takes numerous steps to strengthen the quality, accessibility, and sustainability of care provided to Medicare beneficiaries.

Accountable Care Organizations (ACOs): ACOs are a transformative aspect of the Affordable Care Act. ACOs are groups of doctors, hospitals, and other health care providers who join together voluntarily to deliver coordinated, highquality care to the patients they serve. Coordinated care helps ensure that beneficiaries get the right care at the right time, with the goal of avoiding unnecessary duplication of services, preventing medical errors, and reducing Medicare costs. ACOs currently cover over 5.3 million Medicare beneficiaries across the country.

Medicare Shared Savings Program (MSSP): This initiative is a feeforservice program established by the Affordable Care Act designed to improve beneficiary outcomes and increase value of care. ACOs that meet certain quality objectives and reduce overall expenditures get to share in the savings with Medicare and may also be subject to losses. Since the first cohort of ACOs entered the program in 2012, 343 MSSP ACOs have been established. In the first year of the program, Medicare ACOs generated interim shared savings totaling $128 million for the Medicare trust fund. Fiftyfour ACOs had lower expenditures than projected, and 29 will share interim savings.

Advance Payment ACO Model: With 35 ACOs currently participating, this initiative, sponsored by the CMS Innovation Center, tests whether prepaying a portion of future shared savings could increase participation in the Medicare Shared Savings Program.

Pioneer ACO Model: Also sponsored by the Innovation Center, this model includes 22 health care organizations and providers that already have experience coordinating care for patients across care settings and are prepared to take on greater financial risk. Initial results from the independent evaluation of the Pioneer ACO Model shows that Pioneer ACOs have generated gross savings of $147 million. In addition, all the ACOs successfully reported quality measures and performed better than their published rates on most measures.

Primary Care and Prevention: Beginning in 2011, primary care providers and surgeons in health professional shortage areas started receiving an additional 10 percent payment for primary care services or major surgical procedures, respectively. In addition, approximately 25 million people with traditional Medicare reviewed their health status at a free Annual Wellness Visit or received one or more other preventive service without cost sharing during the first eleven months of 2013.

Improving Quality and Value: Medicare continues its transformation from a passive payer to an effective purchaser of highquality, efficient care. The Affordable Care Act established a valuebased purchasing program for hospitals and required CMS to develop plans to implement valuebased purchasing for SNFs, home health agencies, and ambulatory surgical centers. Implementing these provisions will continue to be a high priority for CMS in FY 2015, which will be the third year of qualitybased payment adjustments for hospitals, and will include patient mortality measures for the first time.

The Affordable Care Act also required CMS to implement a qualitybased bonus payment for MA plans based on a fivestar rating system beginning in 2012. In 2014, the number and market share of four or fivestar plans each increased significantly, suggesting that the rating system has begun to encourage quality improvement.

Highlights from the Pathway for SGR Reform Act of 2013

The Pathway for SGR Reform Act of 2013, passed along side with the Bipartisan Budget Act of 2013, included multiple provisions that affect Medicare.

Medicare Physician Update: The Act averted nearly a 24 percent reduction to physician payment rates and provided a half percent increase to rates for the first three months of 2014. CBO estimated the cost of this 3month provision to be $7.3 billion over 10 years (FY 2014–2023).

Medicare Extenders: The Act included provisions that extend current Medicare payment policies for the first three months of 2014. Some examples of these policies include extending: the exceptions process for outpatient therapy caps; the work Medicare physician fee schedule geographic practice cost index floor at 1.0; and the add-on payments for ambulance services. CBO estimated the cost of these Medicare extenders to be approximately $0.8 billion over 10 years (2014 – 2023).

Mandatory Savings: The Act also included a few provisions that reduced expenditures. CBO estimated the total savings from these provisions at $8.6 billion over ten years. Major savers include:

  • Medicaid DSH allotments: The Act made technical adjustments to the calculation of future Medicaid DSH allotments (Savings: $3.9 billion)

  • Modifications to Medicare sequestration for fiscal year 2023:  The Bipartisan Budget Act of 2013 extended the sequestration of Medicare provider payments along with the sequestration of other non-exempt mandatory programs through FY 2023.  An additional provision in the Pathway for SGR Reform Act of 2013 accelerates FY 2023 savings from sequestration by applying a higher percentage Medicare reduction to the first six months. (Savings: $2.1 billion from acceleration of Medicare spending reductions in FY 2023)

  • Payment for Inpatient Services in LongTerm Care Hospitals (LTCHs): Starting in FY 2016, the Act placed new, clinical restrictions on which inpatient hospital stays are eligible to receive the higher LTCH Medicare payment rate, as opposed to the standard inpatient hospital rate. In addition, the Act delayed implementation of certain existing restrictions on LTCH payment and reinstated a moratorium on new LTCH facilities or beds. (Savings: $3 billion)

Medicare Quality Improvement Organizations

The mission of the Quality Improvement Organization (QIO) program is to improve the effectiveness, efficiency, economy, and quality of services delivered to Medicare beneficiaries. The upcoming five year contract cycle, or 11th Statement of Work, begins on August 1, 2014 and provides approximately $725 million in FY 2015 and $4 billion over 5 years. The 11th statement of work focuses on implementing the HHS Quality Strategy and the Institute of Medicare recommendations to continually improve health care for Medicare beneficiaries. QIOs are experts in the field working to drive local change which can translate into national quality improvement.

The 11th statement implements for the first time several changes to the QIO program enacted in the Trade Adjustment Assistance Extension Act of2011, including the authority to determine the geographic scope of QIO contracts and contract with a broader range of entities to perform QIO functions. Additionally, the contract period is now five years, with increased flexibility to terminate a QIO for poor performance. 

Estimated QIO Funding 11th Statement of Work Major Planned Activities

Clinical Quality Improvement: The key goals for the upcoming contract cycle are improving the health status of communities; delivering patient-centered, reliable, accessible, and safe care; and better care at lower costs. Through improving cardiac health, reducing disparities in diabetic care, using immunization information systems and meaningful use of health IT to improve prevention coordination, CMS aims to improve the health status of beneficiaries. These goals will also be achieved by efforts to reduce healthcare associated infections, healthcare associated conditions in nursing homes, and hospital readmissions and adverse drug events.

Value Based Purchasing Support Contracts and Quality Measures: This work provides QIO assistance to the hospital value-based purchasing and readmission reduction programs and the physician quality reporting system. Additionally, this funding supports LTCH, IRF, Hospice, ASC and Cancer Hospital public reporting programs.

Infrastructure, Coordinating Centers, and Special Initiatives: This work includes the program’s IT standard data processing system and small scale special innovative projects or special initiatives.

Beneficiary and Family Centered Care: This effort is the traditional QIO case review work, including beneficiary complaints, concerns related to early discharge from health care settings and patient and family engagement. So far in the 10th Statement of Work, QIOs have worked to resolve more than 180,000 concerns and appeals received from beneficiaries and their families.

Other Support Contracts and Staff: This work supports consumer assessment of healthcare providers and systems surveys, quality information for compare websites, the QIO quality improvement and evaluation system, other QIO needed Medicare surveys, and staff.

QIO Success Stories

Over the course of the current contract cycle, QIOs have worked with providers, patients, families, nursing homes, home health agencies, pharmacists and many more in the community to increase coordination of care and improve patient safety. QIOs have supported nursing homes in achieving a 34 percent reduction in pressure ulcers among nursing home residents, resulting in several thousand fewer pressure ulcers. Pressure ulcers add an estimated burden of over $1 billion of expenditures and an additional 2.2 million Medicare hospital days to the United States healthcare system and decrease the quality of life for patients. QIOs worked with communities and providers to prevent potential adverse drug events, with more than 44,000 adverse events avoided. By working with QIOs, communities across the country have collectively saved over 27,000 people from being readmitted and over 95,000 people from being admitted to the hospital, resulting in improved coordination of care and millions of dollars in savings.

FY 2015 Medicare Legislative Proposals

Dollars in millions

(Negative numbers reflect savings and positive numbers reflect costs)

Increase Value in Medicare Provider Payments


2015 -2019

2015 -2024

Reduce Medicare Coverage of Bad Debts




Better Align Graduate Medical Education Payments with Patient Care Costs




Reduce Critical Access Hospital Payments to 100 percent of Costs




Prohibit Critical Access Hospital Designation for Facilities that are less than 10 Miles from the Nearest Hospital




Target Support for Graduate Medical Education




Adjust Payment Updates for Certain Post-Acute Care Providers




Implement Bundled Payment for Post-Acute Care Providers




Encourage Appropriate Use of Inpatient Rehabilitation Facilities




Adjust Skilled Nursing Facilities Payments to Reduce Hospital Readmissions



Equalize Payments for Certain Conditions Treated in Inpatient Rehabilitation Facilities and Skilled Nursing Facilities




Modernize Payments for Clinical Laboratory Services



Modify Reimbursement for Part B Drugs




Exclude Certain Services from the In-Office Ancillary Services Exception



Increase the Minimum Medicare Advantage Coding Intensity Adjustment



Align Employer Group Waiver Plan Payments with Average Medicare Advantage Plan Bids



Align Medicare Drug Payment Policies with Medicaid Policies for Low-Income Beneficiaries



Accelerate Manufacturer Drug Discounts to Provide Relief to Medicare Beneficiaries in the Coverage Gap



Strengthen IPAB to Reduce Long-Term Care Drivers of Medicare Cost Growth


Clarify the Medicare DSH Statute

Implement Value-Based Purchasing for Additional Providers

Expand Medicare Data Sharing with Qualified Entities

Modify the Documentation Requirement for Face-to-face Encounters for DME Claims

Establish Quality Bonus Payments for Part D Plans Based on Quality Star Ratings

Suspend Coverage and Payment for Questionable Part D Prescriptions

Medicare Structural Reforms


2015 -2019

2015 -2024

Increase Income Related Premiums Under Part B and Part D



Encourage the Use of Generic Drugs by Low Income Beneficiaries



Modify Part B Deductible for New Enrollees



Introduce a Part B Premium Surcharge for New Beneficiaries Purchasing Near First-Dollar Medigap Coverage



Introduce Home Health Copayments for New Beneficiaries



Increase the Availability of Generic Drugs and Biologics


2015 -2019

2015 -2024

Prohibit Brand and Generic Drug Manufacturers from Delaying the Availability of New Generic Drugs and Biologics (Medicare impact)




Modify Length of Exclusivity to Facilitate Faster Development of Generic Biologics (Medicare impact)



Medicare-Medicaid Enrollee Proposals


2015 -2019

2015 -2024

Ensure Retroactive Part D Coverage of Newly-Eligible Low Income Beneficiaries

Integrate the Appeals Process for Medicare-Medicaid Enrollees

Pilot the Program of All-Inclusive Care for the Elderly to Individuals Between Ages 21 and 55 (Medicare impact)

Other Proposals


2015 -2019

2015 -2024

Extend the Qualified Individuals Program through CY 2015 (Medicare interaction)/1




Reduce Fraud, Waste, and Abuse in Medicare











1/ States pay Medicare Part B premium costs for Qualified Individuals (QIs) that are in turn offset by a reimbursement from Medicare Part B. Costs of the proposal to extend the QI program are reflected in Medicare outlays.

2/ Adjusts for savings realized through IPAB and other Medicare interactions.


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