Medical Device Daily Washington Editor

WASHINGTON — The White House published its proposed budget for fiscal 2008 this past Monday, and the news is good for most, but not all, of the agencies that work under the umbrella of the Department of Health and Human Services.

And despite assertions by Michael Leavitt, secretary of HHS, to the effect that the administration is working to eliminate the federal budget deficit by 2012, spending increases at HHS promise to exceed recent figures for inflation, with the department's outlays slated to increase more than 4% when compared to 2007 expenditures.

Charlie Johnson, the assistant secretary for budget, technology and finance at HHS, led off a briefing on Monday by pointing out that "[w]e have an additional complication this year in making comparisons with our budget," due to the fact that much of the 2007 HHS budget is based on funding from continuing resolutions rather than completed budget bills. "Today, we'll talk principally about those things that are in place," Johnson said in reference to those spending resolutions.

According to the briefing book handed out for the press, the total HHS budget would amount to more than $697 billion, up from the approximately $670 billion currently going to the department under the continuing budget resolution. In 2006, the department's outlays came to slightly less than $613 billion.

The document indicated that Medicare will consume more than 55% of the HHS budget, while Medicaid will account for another 29%.

HHS secretary Michael Leavitt described the proposed budget as "an aggressive, yet responsible budget" that would balance the budget by 2012.

He said that the administration focused on six specific areas of attention, including the allocation of one-time funds that don't need to be replicated. He said that the budget reflected an emphasis "as a principal, [on] the delivery of direct services, not just replacing infrastructure" and reflected an attitude that "there should be no automatic renewal of a grant because its there."

The administration also seeks to eliminate programs whose concerns are addressed in other agencies, which in the past has resulted in redundant, multiple-agency funding. Leavitt also said that the White House "looked for under-performing programs, specifically programs where there was no measurable way to determine whether they were succeeding."

Leavitt noted that the 2008 HHS budget would total about $700 billion, an increase of $28 billion from 2007 levels, or 4%. The $95 billion increase in discretionary spending would bring that spending up to $67.6 billion.

Leavitt said American healthcare is an engine of innovation but that "our healthcare costs are growing at a rate that simply cannot be sustained."

As demonstration, he pointed out that Medicare spending has increased by more than a factor of 10 over the past quarter century, from $35 billion to $375 billion. "In the same time span, Medicaid spending has grown 13-fold, from $14 billion to $181 billion," a trend Leavitt said "could undermine the commitment we have made as a nation to seniors and low-income Americans."

Medicare budget outpacing enrollment

"We're taking fiscally responsible steps to modernize Medicare and Medicaid," Leavitt said.

The administration has targeted claims processing as one means of reducing the agency's administrative overhead for Medicare by reducing the current total of 40 contracts, which CMS pays on a cost basis, to 15 performance-based competitive contracts and another eight specialty contracts.

"We're proposing to slow the growth [of Medicare] from 6.5% to 5.6% per year," with legislative and other administrative changes, which Leavitt said will save $76 billion over the next five years, an amount frequently cited in the mainstream media as a reduction.

Leavitt noted that, despite efforts to slow its growth, "the program will continue to grow."

Among the proposals that the administration will take to Congress in order to shave that $76 billion off costs is a proposal to open clinical lab services to competitive bidding, anticipated to save just under $2.4 billion between 2008 and 2012.

The administration also seeks to eliminate payments to providers for "never" events and recommends a series of updates to provider payment systems that will surely draw fire on Capitol Hill, including no updates to payments for skilled nursing facilities in 2008 as well as no updates for home health between 2008 and 2012.

The budget document indicated that Medicare Part A funding for benefits will increase about 5%, from roughly $2.02 billion in the current fiscal year to around $2.12 billion in 2008 ($1.81 billion in 2006).

For Part B, funding would increase almost 4.5%, from almost $174 billion to more than $181 billion ($1.58 billion in 2006).

The total enrollment in Medicare is generally projected to rise to 37.3 million in 2008, excluding those who become eligible due to disability, an increase of about 600,000 from 2007, or about 1.6%.

Leavitt described the Medicare drug benefit as "an unparalleled success," stating that over the next 10 years, the program "will cost $113 billion less than originally anticipated." He noted that Part D is "saving seniors on average $1,200" for the 39 million enrollees. Outlays for Part D are projected at a bit more than $60 billion ($49 billion in 2007 and $33 billion in 2006).