WASHINGTON – President Barack Obama asked Congress for $76.8 billion for the Department of Health and Human Services Thursday in a fiscal year 2010 federal budget outline.

Some of the funding would come from changes to the way healthcare is provided, with a new emphasis on pay for performance for Medicare providers.

Under the president's budget request, Medicare Advantage would be revamped, physicians and hospitals could expect to be paid for performance under Medicare, pharmaceutical companies would face steeper competition from generic drug companies and the government would clamp down on inadvertent and fraudulent overpayments under Medicare. The budget also calls for "comprehensive, but fiscally responsible" reforms to the physician payment formula, moving toward rewarding doctors for efficient quality care.

The president's request kicks off the annual budget process and lists his priorities for the upcoming fiscal year, which begins Oct. 1. Obama has asked Congress to invest in healthcare IT, expand research on comparative effectiveness, double current cancer research funding and increase the numbers of healthcare providers  in rural areas. He also requests assistance for the Indian health system.

The president's proposed budget would finance healthcare reform by eliminating certain tax breaks for what he calls the wealthiest Americans and promoting efficiency and accountability in Medicare and Medicaid. Together, these will make an estimated $316 billion available over 10 years, according to the administration.

Obama's proposal would crack down on Medicare Advantage plans and pharmaceutical companies. Medicare Advantage, paid 14 percent more than fee-for-service Medicare, would be replaced with a competitive system based on the average of plans' bids submitted to Medicare. According to the administration, this would allow the market, not Medicare, to set the reimbursement limits and save taxpayers more than $175 billion over 10 years, as well as reduce Part B premiums.

The proposal would also reduce drug prices by preventing drug companies from blocking generic drugs from consumers.

The president's plan would also make hospitals responsible for readmissions of Medicare patients by bundling payments for an entire stay, including post-acute care for 30 days. Hospitals with high rates of readmission would be paid less if patients are re-admitted to the hospital within the same 30-day period. This combination of incentives and penalties should lead to better care and save roughly $26 billion of wasted money over 10 years, according to the proposal.

Obama said he considers measures in the newly passed American Recovery and Reinvestment Act of 2009 as a down payment on healthcare reform. These include $19 billion for health information technology and $1 billion for comparative effectiveness research, and subsidies for the newly unemployed to maintain health insurance.