OCTOBER 13, 2005 -- Two new studies from the left-leaning Center on Budget and Policy Priorities detail Medicare and Medicaid spending cuts that center officials say would help lawmakers meet fiscal 2006 budget reconciliation targets without hurting program beneficiaries.

The Senate Finance and the House Energy and Commerce panels are developing health care spending cut proposals in order to meet budget reconciliation targets. Under the budget reconciliation plan, Finance must find at least $10 billion in savings and Energy and Commerce must find $14.7 billion in savings for programs under the panels' jurisdiction.

CBPP's reports, released Wednesday, urge the panels to follow recommendations from the Medicare Payment Advisory Committee (MedPAC), the National Governors Association, and the Bush Administration's Medicaid Commission to achieve spending reductions in the Medicare and Medicaid programs. Medicare is the federal health insurance program for the elderly and disabled; Medicaid is the federal–state health insurance program for the poor.

CBPP Senior Health Policy Analyst Edwin Park said Congress should follow recommendations in a June MedPAC report that could save—according to the Congressional Budget Office—between $20 billion and $30 billion over the next five years. MedPAC is an independent panel that advises Congress on payment rates for Medicare providers.

One of the MedPAC recommendations Park supported was elimination of a "stabilization" fund set up for private health care plans in the 2003 Medicare law (PL 108-173) to encourage plans to offer prescription drug coverage to beneficiaries.

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, has proposed eliminating the fund as part of his panel's budget reconciliation package and some House Republicans have expressed support for the idea. But Bush administration and insurance industry officials are likely to object to any changes in the new Medicare drug law, which begins Jan. 1.

Park also urged lawmakers to adopt MedPAC's recommendation that Medicare spend the same amount of money on beneficiaries enrolled in Medicare managed care plans as they do for beneficiaries in fee-for-service Medicare. According to MedPAC, on average, Medicare payment rates to private managed care plans now equal 107 percent of the costs of providing fee-for-service Medicare to comparable beneficiaries, Park wrote in the report.

Other MedPAC proposals CBPP backs include removing what Park described as double payments for medical education costs currently included in managed care reimbursement rates.

A separate Center analysis by Welfare Reform and Income Support Division Director Sharron Parrott examined Medicaid spending reduction proposals from NGA, the administration's Medicaid commission, and the Bush administration.

The ideas include increasing rebates pharmaceutical companies now pay to state Medicaid programs and requiring drug makers to pay those rebates on drugs provided to Medicaid patients by managed care plans.

In addition, studies from the General Accountability Office and the Department of Health and Human Services' Inspector General's office have identified problems with the administration and enforcement of the rebate program. Improved enforcement "would ensure that drug manufacturers are complying with the federal rebate and that Medicaid is getting a more favorable net price for prescription drugs," Parrott wrote.

Another opportunity for savings is in reducing the amount of money state Medicaid programs pay to pharmacies to reimburse them for the cost of medications they provide to Medicaid beneficiaries. Those payments, Parrott notes, tend "to be far above what pharmacies pay wholesalers for the drugs."

If lawmakers embrace other ideas for Medicaid savings, such as increasing beneficiary co-payments or allowing states to change what health services they cover—as endorsed by the governors' association—beneficiaries could be harmed, Parrott concluded.

OCTOBER 14, 2005 -- Republican leaders hoping to appease conservatives in an upcoming round of budget cuts face significant hurdles, including a compressed timeline, opposition from Senate moderates, and a shuffled House leadership team.

In the aftermath of Hurricane Katrina's devastation, with images of stranded victims playing incessantly on television screens, moderate Republicans and Democrats voiced strong opposition to cutting safety net programs like Medicaid. At the same time, GOP leaders are faced with a revolt from conservatives demanding spending cuts to offset spiraling costs for hurricane relief.

If Republicans accomplish their budget goals this fall, it would be the first time that Congress has significantly reined in the growth of mandatory spending programs since the Balanced Budget Act of 1997 (PL 105-33).

This year's budget-cutting process began in the spring, when Congress adopted a fiscal 2006 budget resolution (H Con Res 95) that called for authorizing committees to produce a five-year, $34.7 billion savings package this autumn. The savings package, as well as a companion $70 billion tax cut bill, are protected by an expedited, filibuster-proof process known as "reconciliation."

House Speaker J. Dennis Hastert, R-Ill., on Oct. 6 proposed increasing the savings target to at least $50 billion over five years along with an across-the-board cut in discretionary programs.

To help accomplish that goal, House Republican leaders have proposed writing a new budget resolution—a highly unusual move that will be the first significant test for House leadership in the wake of the indictment of Rep. Tom DeLay, R-Texas, and his removal as majority leader.

Every Democrat voted against the fiscal 2006 budget resolution, so Republicans have little room for error. GOP leaders also must overcome reluctance within their ranks to doling out budget pain before next year's midterm elections, even though the size of the proposed cuts is small compared to the federal budget deficit and previous deficit reduction packages enacted in the 1990s.

If Congress successfully rewrites its budget, it will be the first time it has done so since 1977, Hastert said. The gambit forced House GOP leaders to delay until Oct. 28 a deadline for authorizing committees to produce their packages of recommended cuts. The panels had been expected to deliver their cuts this week.

Under the reconciliation process, authorizing committees send their packages to the Budget committees, which must assemble them without changes into a bill that is sent to the floor.

The Senate, which so far has rejected the idea of amending the budget resolution, remains on schedule for an Oct. 26 markup by the Budget Committee.

Uncertain Goals
In both chambers, lawmakers are uncertain as to how much savings they ultimately will be asked to produce.

For now, the authorizing committee chairmen have targets established by the fiscal 2006 budget resolution.

To push the total savings from $34.7 billion to $50 billion, House Budget Chairman Jim Nussle, R-Iowa, has proposed that the authorizing committees receive the same percentage increase in their savings targets, but that is not set in stone. And there has been talk within the GOP caucus of slicing significantly more than $50 billion.

Senate leaders also hope to find additional savings in mandatory programs, but have rejected moving forward with a new budget resolution because of a tight schedule that includes passing remaining appropriations bills and debate over Supreme Court nominee Harriet Miers.

Senate Budget Chairman Judd Gregg, R-N.H., and Majority Leader Bill Frist, R-Tenn., have sought to cajole authorizing panels and moderates to approve more savings. Under budget rules, authorizing panels can slice more than the $34.7 billion target without a new budget resolution, said Betsy Holahan, a spokeswoman for Gregg.

"It's a floor, not a ceiling," she said.

Savings Still Small
Even if Congress can find $50 billion in savings in entitlement programs, it would be a minor snip at spending compared with previous efforts at budget-cutting. In 1997, a bipartisan budget-balancing deal sliced $198 billion.

It also would be a mere drop from the bucket of red ink that the government is expected to generate. Even before Hurricane Katrina barreled into the Gulf Coast, the Congressional Budget Office projected a $1.6 trillion cumulative deficit over the next five years. A $50 billion cut represents less than 1 percent of the projected $7.8 trillion in mandatory spending over that period.

And as Democrats are quick to point out, this year's budget resolution would increase the deficit overall, because it envisions as much as $106 billion in tax cuts, including up to $70 billion protected under special reconciliation rules that prohibit filibusters. "The deficit would be in better shape if they just stayed home," said Richard Kogan of the liberal-leaning Center for Budget and Policy Priorities.

G. William Hoagland, chief budget adviser to Frist, called the spending cut package "must-do" legislation, but acknowledged the vote could be so close that it would require Vice President Dick Cheney to break a 50-50 tie.

Added Incentive
While Republicans leaders cite deficit reduction as their chief reason for pursuing the spending cuts, budget rules provide another strong incentive; they would have to shrink their $70 billion tax cut bill unless they have implemented the spending cuts first.

"You've got to eat your spinach before you can have your dessert," Hoagland said.

Maya C. MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said though the savings plan is relatively small and largely symbolic, she hopes it could pave the way for more savings in the future.

"Maybe it serves as little more than a warmup for what needs to happen," she said. Ultimately, Congress will need to look at both higher taxes and budget cuts to address the country's long-term fiscal woes, she said.

Stephen Slivinski, a conservative budget analyst at the Cato Institute, gave a mild cheer to Hastert for seeking deeper cuts, but said the proof will be in whether a deal actually happens.

"I'm still not convinced that it's anything more than lip service," Slivinski said. He added that he also worries that much of the savings will come from revenue increases from items like auctioning off radio spectrum and charging companies higher pension fees rather than true belt tightening.

"Republicans used to pride themselves on being the Grinch, and now they pride themselves on being the Santa Claus party," Slivinski said.

Contentious Debates Ahead
The hot-button issues that complicate the chances of enacting the budget package include:

• A plan by GOP leaders to include language that would open Alaska's Arctic National Wildlife Refuge to oil drilling. More than two dozen Republicans in the House and seven in the Senate oppose the plan.
• A planned $10 billion cut to Medicaid opposed by two key moderate Republicans on the Senate Finance Committee, with possible cuts to Medicare posed as an alternative by Chairman Charles E. Grassley, R-Iowa. Grassley has warned that resistance from the White House and conservative Republicans to his bipartisan proposal for Medicaid relief for low-income hurricane victims threatens to scuttle the savings package.
• Efforts to add about $10 billion to stave off a scheduled reduction in Medicare payments to physicians, which would require offsetting cuts.
• Opposition from corporate interests to increasing pension insurance premiums.
• Billions of dollars in proposed cuts to student loan subsidies.
• A fight over possible cuts to agricultural subsidies and food stamps, complicated by a regional war over an expiring $600-million-a-year milk subsidy program.

Special Senate Rules
Once the budget packages reach the Senate floor, special rules apply that protect the bill. In addition to prohibiting filibusters, amendments must be germane and debate is limited. However, an amendment to strike a provision is always in order.

Once passed in each chamber, the reconciliation conference committee and subconferences could involve dozens of members of Congress, many of whom were not involved in the last major reconciliation deal eight years ago.

Democratic leaders and left-leaning interest groups, meanwhile, are girding for battle, charging that Republicans are cutting programs for the poor to help pay for another round of tax cuts for the wealthy.

A coalition of labor unions and liberal interest groups launched Emergency Campaign for America's Priorities, a group modeled on the campaign to defeat President Bush's Social Security plan, Oct. 13.

Gerald W. McEntee, the president of the American Federation of State, County and Municipal Employees, said the group will spend "as much as necessary" to stop reconciliation.

OCTOBER 13, 2005 -- Private insurance plans and home health agencies are targeted for Medicare payment reductions as part of a package of health care spending cuts proposed by Senate Finance Chairman Charles E. Grassley, R-Iowa.

The package, which several sources described as fluid with staff negotiations continuing, would produce $12 billion in mandatory spending cuts over five years, or $2 billion more than the Finance Committee is required to produce under the fiscal 2006 budget resolution (H Con Res 95). The House Energy and Commerce panel has assembled a tentative package of spending reductions focused on Medicaid, according to a draft outline.

The Finance draft would eliminate an incentive fund created by the 2003 Medicare drug law (PL 108-173) to encourage companies to offer the new prescription drug benefit. Grassley's plan also would implement language in the Bush administration's fiscal 2006 budget proposal to give higher payments to insurers that cover sicker patients and lower payments to plans that enroll healthier patients, according to sources familiar with the negotiations.

Katrina Relief, Disabled Children
Grassley intends to insert his revised Katrina Medicaid package (S 1716) into his reconciliation measure, as well as legislation (S 183) he has backed for years that would allow middle-income families to buy into Medicaid on a sliding premium scale to cover their disabled children.

The White House opposes the Katrina expansion of Medicaid, and GOP leaders have kept it off the Senate floor. But if the proposal becomes part of the budget reconciliation bill, it would be guaranteed a ride to the floor.

Grassley, however, may have a difficult time gaining a committee consensus on changes to Medicare and Medicaid.

Max Baucus of Montana, the Finance panel's ranking Democrat, has told Grassley he does not want to discuss spending cuts until the Katrina bill passes. Finance GOP moderates Gordon H. Smith of Oregon and Olympia J. Snowe of Maine will object to Medicaid cuts they deem too steep. It is not yet clear whether they will approve of the balance Grassley struck in the draft.

Medicare Changes
Eliminating the "stabilization" fund set up for private health care plans by the 2003 Medicare law would save approximately $6.8 billion over the next five years, while adopting the administration's "risk adjustment" proposal would save $5.4 billion, sources said.

Other Medicare spending cuts under consideration and their projected savings over five years include reducing payments to hospitals for outpatient care ($400 million), reducing the amount of bad debt that skilled nursing facilities can write off to 75 percent from the current 100 percent ($500 million), and a home health market basket freeze ($2.1 billion).

Some say faster implementation of proposals to allow competitive bidding in the Medicare program and linking Medicare Advantage payments to the quality of care they provide—a concept known as "pay-for- performance"—could save as much as $5.5 billion.

The tentative package would give physicians participating in Medicare a zero payment update for one year, averting a scheduled 4.3 percent cut, at a cost of $6.6 billion over five years. The proposal also would include legislation to implement "pay for performance" guidelines for all Medicare providers as well as spend more on payments to rural hospitals and rural home health agencies. In addition, the measure would extend implementation of a cap on therapy services provided to Medicare beneficiaries.

Medicaid Modifications
Concerning Medicaid, both the Finance and Energy and Commerce proposals would revise Medicaid payments for prescription drugs to base them on an "average manufacturer's price," defined in the House draft as a manufacturer-reported price that is the average of actual sales prices, including most manufacturer discounts. That change is expected to save $5 billion over the next five years.

Both packages also would make it more difficult for individuals to transfer their assets to children or others in order to impoverish themselves enough to quality for Medicaid coverage of nursing home care, a step projected to save between $1.5 and $2 billion.

Grassley's tentative Medicaid proposal would require drugmakers to pay additional rebates of approximately $1.5 billion over the next five years, and a managed care provider tax would bring in another $1 billion.

On the Medicaid spending side, the revised Katrina Medicaid package would consume about $6.1 billion of those savings. In addition, Grassley wants to include his so-called Family Opportunity Act, to extend Medicaid to disabled children of families earning up to 300 percent of the federal poverty line, at a cost of $3 billion over five years.

In the Energy and Commerce proposal for Medicaid, states could increase cost-sharing required of beneficiaries, a step expected to raise $2 billion. States also could alter the benefits package available to beneficiaries. The measure also would create health savings accounts for Medicaid beneficiaries. Finally, states would be required to verify an applicant's eligibility for Medicaid or risk reduced federal funding.

OCTOBER 11, 2005 -- A study billed as the first of its kind to evaluate "pay-for-performance" programs has found they result in significant improvements in quality.

The report, published in Wednesday's edition of the Journal of the American Medical Association, compared clinical quality improvements on Pap smears, mammography, and hemoglobin testing for diabetics for two groups in a large health plan, PacifiCare Health Systems.

PacifiCare's California network, which implemented a quality incentive program (QIP) in 2003, was compared with Pacificare's Pacific Northwest group, which did not participate in a quality incentive program. The California medical groups received bonuses for meeting specific targets in clinical quality scores.

According to a news release from The Commonwealth Fund, a private, nonpartisan foundation that studies health and social issues and funded the report, researchers found that quality scores for cervical cancer screening improved 5.3 percent in the pay-for-performance group, compared with 1.7 percent in the group without pay-for performance. The difference was not significant for either mammography or hemoglobin testing, though both groups did improve.

The study's authors also found that 75 percent of bonus payments went to physician groups whose performance was above the bonus threshold before the quality incentive program was implemented.

On Capitol Hill, lawmakers and health policy experts have said linking Medicare payments to the quality of care provided will improve beneficiary care while lowering cost. For example, Senate Finance Chairman Charles E. Grassley, R-Iowa, and the panel's ranking Democrat, Max Baucus of Montana, are sponsoring legislation (S 1356) that would link Medicare provider payments to quality of care provided.

And in June, Centers for Medicare and Medicaid Services Administrator Mark B. McClellan wrote a letter to House Ways and Means Committee leaders detailing CMS' plan to move forward on pay-for-performance programs for Medicare providers. Separately, the Medicare Payment Advisory Commission (MedPAC) has urged taking about 1 percent to 2 percent of current payments for physicians and other providers and redistributing it to caregivers who improve the quality of their care or meet quality benchmarks.

In a news release, Commonwealth Fund President Karen Davis noted that "there is widespread consensus that existing financial incentives in the U.S. health care system are misaligned and fail to reward high quality . . . We need to move from just paying for services that get rendered to rewarding delivery of the right care."

OCTOBER 12, 2005 -- A research group that tracks changes in the health care marketplace said Wednesday that many hospitals are easing eligibility for free care following lawsuits and bad press faulting facilities for charging uninsured patients more than insured patients.

"It is now common policy for hospitals to provide charity care to uninsured persons with incomes under 200 percent of poverty and offer sliding-scale discounts beyond this income threshold, in some cases up to 400 percent or 500 percent of the poverty level," said the study by the Washington, D.C.–based Center for Studying Health System Change. Twice the federal poverty level adds up to $38,700 for a family of four.

But Hispanic advocacy group Consejo De Latinos Unidos said HSC missed the mark in its study by not focusing more on uninsured middle-class Americans, who continue to take a huge hit under hospital billing practices.

"The real victims of price gouging, aggressive billing techniques, and ruthless collectors are middle-class uninsured families who are not poor enough to qualify for government aid or charity care, but are not wealthy enough or healthy enough to own private insurance," the organization said in a press release.

"These middle class uninsured families may own a home, have a decent paying job, or a college savings account for their children. Some hospitals target these hard-earned assets by charging the uninsured four or five times more than what they would accept as payment in full from an insurance company for the exact same care. The public relations induced guidelines that hospitals have adopted do little to help the middle class."

Nonprofit hospitals were rocked by suits filed several years ago by Richard Scruggs, the plaintiff's attorney whose litigation forced the tobacco industry to pay states tens of billions of dollars. "Virtually all of the suits against hospitals filed in federal court have been dismissed without merit, but state court action is still possible," the center noted.

Hospital industry critics say policies about how much or even whether to charge the uninsured for care too often are unclear. That has led uninsured patients who are eligible for charity care vulnerable to aggressive billing practices in some cases.

"In every HSC community, most hospitals have either recently changed their pricing, billing, and collection practices or tried to improve the clarity of the information provided to patients," said HSC research analyst Andrea B. Staiti, who cowrote the study with HSC Senior Researcher Peter J. Cunningham and Robert E. Hurley of Virginia Commonwealth University.

HSC's finding that pricing for the uninsured has become more generous is based on visits to 12 communities earlier this year. Researchers also found, however, that hospitals in some cases "have engaged in other activities to manage their payer mix that inhibits access to care for some uninsured.

"For example, Jackson Memorial Hospital in Miami and Harborview Medical Center in Seattle, both county-owned hospitals, have started limiting non-emergency care provided to out-of-county residents and are working to attract more private-pay patients," the study found.

The flap over charging the uninsured the highest prices led to hearings in the previous session of Congress. The American Hospital Association said federal regulations made it difficult to charge the uninsured lower prices. Industry critics were skeptical, but the Medicare program issued clarifications of billing regulations. Hospital associations followed up with guidelines to members about billing the uninsured.

The study also found that changes in billing and collection practices didn't affect hospital profits.

"Almost all of the hospitals interviewed that had adopted more generous charitable policies indicated that expenses previously classified as bad debt have shifted to charity care write-offs, with little impact on hospital bottom lines," the study said.

The communities visited in the study were Boston; Cleveland; Greenville , S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y.