Bush’s FY 2003 Budget Calls for $9B Reduction in Medicaid Payments Over Five Years, Increased Funds for Bioterrorism

The proposed fiscal year 2003 budget that President Bush submitted to Congress on Feb. 4 would save $9 billion over five years by "reducing [Medicaid] payments to public hospitals and by cracking down on state efforts to obtain extra federal money to finance health care for the poor," the New York Times reports (Pear, New York Times, 2/2). At the same time, the administration is seeking a one-year spending increase of $4.5 billion for bioterrorism preparedness, much of which would go toward state and local public health systems (Miller, New York Times, 2/4). The proposed $2.13 trillion budget, a 9% increase over spending in the current fiscal year, seeks large increases in spending related to defense and national security and attempts to hold down increases on most other domestic programs (Lightman, Hartford Courant, 2/4). Federal officials said Bush will not seek any significant cuts in Medicare payments to hospitals, but said the proposed Medicaid "cutbacks," which would affect public hospitals in at least 31 states, were necessary to prevent "abuse" by some states. Under federal Medicaid rules, states can pay public hospitals up to 150% of the Medicare rate for certain services. The Bush administration says that public hospitals often "kick back" the extra federal money to the states, which can use it for services not related to health care. In an attempt to reduce Medicaid spending, the administration is seeking to reduce Medicaid's upper payment limit to 100% of the Medicare rate, and HHS officials in January published a regulation that would make such changes effective March 19. "The federal government is effectively paying more than its share of state Medicaid expenditures," CMS Administrator Tom Scully said. The proposal has been met with resistance by state officials, who say it would limit their ability to care for Medicaid beneficiaries at a time when most states are facing budget deficits. Mississippi and Arkansas, for example, say they would lose $40 million and $20 million a year, respectively, in payments to public hospitals under the proposed rules. Govs. Jeb Bush (R-Fla.) and Rick Perry (R-Texas) have joined Sen. Edward Kennedy (D-Mass.) and the New York and California House delegations in protesting the administration's plan, the Times reports. Sens. Blanche Lincoln (D-Ark.) and Thad Cochran (R-Miss.) have proposed a bill (S 1745) that would delay the cuts for one year. Rep. Nathan Deal (R-Ga.) has introduced a similar bill (HR 3360) in the House (Pear, New York Times, 2/2).

Reflecting the Threat
Meanwhile, Bush has requested $11 billion over two years for bioterrorism preparedness, a "far larger amount than even biodefense experts had expected," the Times reports. The proposed budget seeks $5.9 billion for fiscal year 2003, which begins Oct. 1, up from the $1.4 billion approved for this fiscal year. The increase would "come on top of" a $3.7 billion supplemental request that Congress has already approved. The administration says the size of the proposed increase reflects the shortcomings in the nation's public health system exposed during the anthrax incidents last fall, which caused five deaths and 18 otherinfections and put thousands of Americans on antibiotics. "The anthrax letters showed us that even a relatively unsophisticated, small-scale attack can cause enormous disruption since our toolbox for countering such strikes is fairly bare," a senior administration official, said, adding, "And compared to the full destructive potential of biological warfare, the anthrax letters were a slingshot." Under the president's request, federal agencies would receive $1.8 billion, and states and localities would receive $1.6 billion. The NIH would receive $1.75 billion -- $441 million for basic research, $592 million for drug and vaccine development, $194 million for new drug trials and $522 million for new research laboratories at federal, university and industry facilities, according to Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases. The administration is also seeking $650 million to expand the national pharmaceutical stockpile and increase the number of "push packs" of medications and supplies that can be sent to sites of bioterrorist attacks or disease outbreaks. In addition, spending on emergency response personnel and programs would increase from $291 million to $3.5 billion (Miller, New York Times, 2/4).

Drug Treatment and Medical Errors
Two other areas where Bush is looking to increase spending are patient safety and drug treatment, the Washington Post reports. HHS Secretary Tommy Thompson announced on Feb. 1 that the proposed budget will seek a $127 million increase for a five-year drug treatment initiative and an additional $10 million for a program to reduce medical errors. A proposed $67 million of the drug treatment funding, which is intended to serve 546,000 people -- up 52,000 from the current fiscal year -- would go toward competitive drug treatment grants, while $60 million would go to states and communities in the form of block grants. The $10 million for reducing medical errors would be split evenly between the Agency for Healthcare Research and Quality and the FDA, which would raise spending on patient safety to $22 million, allowing the agency to "improve its follow-up reports of programs resulting from the use of regulated products and find new ways to reduce medication errors." AHRQ, whose funding for patient safety would rise to $60 million, would use part of the money to issue challenge grants to states to develop ways to reduce medical errors (Nakashima, Washington Post, 2/12). The budget documents are available online.