FEBRUARY 6, 2006 -- Hospitals, pharmacists, and patient advocates said Monday the Bush administration's proposed fiscal 2007 Medicare and Medicaid cuts would erode the quality of care provided under the two government programs.

In Medicare, hospitals, home health agencies, skilled nursing facilities, and other providers would be hit with nearly $36 billion in cuts over the next five years compared with spending under current law.

The plan would also force a mandated cut in Medicare spending if general revenues exceeded 45 percent of total Medicare spending. However, administration officials said cuts under that "hard trigger" could be delayed for years if their other proposed reductions in Medicare spending growth become law.

The Bush plan also would reduce federal spending on Medicaid and the State Children's Health Insurance Program (SCHIP) by $13.6 billion over the next five years, financed in part by changes in Medicaid reimbursements to pharmacists.

Centers for Medicare and Medicaid Services Administrator Mark B. McClellan said Monday that many of the payment changes included in the fiscal 2007 budget are consistent with recommendations from the Medicare Payment Advisory Committee (MedPAC), which advises Congress on payment policy.

McClellan and Department of Health and Human Services Secretary Michael O. Leavitt also stressed that federal spending on both Medicare and Medicaid would continue to climb despite the proposed payment reductions. They said fiscal restraint is needed to ensure the programs continue to serve those who need them most.

Medicare Cuts Now . . .
The Bush budget proposes that the "market basket" used as the basis for calculating yearly Medicare payment increases for inpatient care be lowered by 0.45 percentage points. The proposal also would reduce the market basket increase in fiscal 2008 and fiscal 2009 by market basket minus 0.4 percentage points. The same market basket adjustments would apply to the Medicare hospital outpatient payment update.

The administration's budget would provide a zero percent payment update for skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities for fiscal 2007, according to HHS budget documents. Payments for hospice and ambulance services would be reduced by 0.4 percent for each of the years 2007 through 2009.

. . . And Later (Maybe)
As a way to help control spending caused by an influx of Baby Boomers into Medicare in several years, the Bush plan mandates a four-tenths of one percentage point reduction to all Medicare payments if general revenues top 45 percent of total Medicare financing and Congress does not intervene.

McClellan said the proposal builds on provisions in the Medicare drug law (PL 108-173) that require the president to submit legislation to Congress to curtail Medicare spending if general revenue contributions to the program are projected to pay more than 45 percent of total Medicare expenditures for two consecutive years. Under current law, the House and Senate are required to follow specific guidelines for consideration of such legislation, but they are not required to act on it.

By exercising discipline over Medicare spending now, tougher steps like the longer-term mandated cuts can be delayed, HHS officials emphasized. The trigger would be pushed off until 2017 instead of 2012, the current prediction of when general revenues will reach the 45 percent mark.

Provider Reaction
Health care provider groups said the proposed cuts would hurt their ability to provide medical care to some of the nation's oldest and most vulnerable Americans. Hospitals said they were already stretched too thin trying to prepare for a variety of threats, including pandemic flu and terrorist attacks.

Chip Kahn, president of the Federation of American Hospitals, called the proposed Medicare cuts "the wrong policy at the wrong time."

Dick Davidson, president of the American Hospital Association, said Medicare payments to hospitals are now "well below the cost of caring for its beneficiaries. In fact, in 2004, about seven out of every 10 hospitals lost money serving Medicare patients."

Other health care providers and seniors groups said it made no sense to reduce Medicare as millions of Baby Boomers begin to retire and enter the program. "Home health agencies are already going without a payment update this year, and nursing facilities depend on adequate Medicare payments to make up for Medicaid under-reimbursement in most states," said Larry Minnix, president and chief executive officer of the American Association of Homes and Services for the Aging.

Senate Finance Chairman Charles E. Grassley, R-Iowa, said spending reductions of the size envisioned by the Bush budget might be too tough for Congress to enact this year.

"Congress just finished reducing the growth of Medicare and Medicaid by $11.1 billion over the next five years, and it wasn't an easy legislative accomplishment," Grassley said in a statement. "Any more reductions of a significant scope could be difficult this year. If Medicare reductions do end up on the table, the Medicare Advantage regional stabilization fund has to be front and center."

Concerning Medicaid, the administration would trim billions of spending in a variety of ways. For example, it would save $3.8 billion by capping federal Medicaid payments to local government providers of health care in the states "to no more than the cost of furnishing services to Medicaid beneficiaries."

The budget would save another $2.1 billion by limiting the ability of states to assess taxes on providers as a way of increasing federal Medicaid matching payments. Spending would be reduced by $1.8 billion by ending payments for certain administrative services that the administration asserts are already funded through the Temporary Assistance to Needy Families program. Another $1.3 billion, including $130 million in fiscal 2007, would be trimmed by continued efforts "to further reduce Medicaid overpayments for prescription drugs."

The administration plan would save $1.2 billion by lowering reimbursement for services provided by certain case managers who coordinate the complex treatment needs of Medicaid patients. And it would save half a billion dollars by allowing states to "avoid costs for prenatal and preventive pediatric care claims where a third party is responsible through a non-custodial parent's obligation to provide coverage for a limited time."

The Medicaid cuts are sure to be controversial. The National Association of Chain Drug Stores said that further reductions in pharmaceutical-related payments in Medicaid would shrink access by Medicaid patients to needed medications.

FEBRUARY 7, 2006 -- One of the rituals that begins the annual process of health policy making is the slate of congressional staff previews in which aides sketch out the lay of the year's health care landscape for an attentive public and press.

As in past years, the health care tableau emerging for 2006 from these previews features a wide variety of issues. But one difference this year may be deeper passion over health care, as Republicans make an even stronger imprint on the traditionally Democratic issue.

Hill staffers at a Tuesday briefing at the annual National Health Policy Conference in Washington, D.C., presented an agenda featuring a mix of routine near-term issues and more long-range goals, the latter illustrating the fundamental battle shaping up over the future of health care.

Issues in the foreground included cheaper health care for small businesses, reauthorization of legislation governing the National Institutes of Health and the Ryan White Act, legislation to spur health information technology, and proposed bans on health care discrimination based on genetic makeup.

But in the background was a sense of growing tension over continuing Republican efforts to reshape the dominant systems of health care that are prized by Democrats, ranging from Medicare to Medicaid to employer-based health care.

The Year's Issues

• Cheaper health care for small employers is a near-term priority for the Senate Health, Education, Labor and Pensions Committee, said Steve Northrup, the committee's majority staff director. Chairman Michael B. Enzi of Wyoming and Sen. Ben Nelson, D-Neb., are working on a bill that would reduce costs by letting small employers buy health care that would be exempt from what Northrup said are costly benefit mandates.


GOP leaders for several years have championed legislation promoting "association health plans," which also would provide small businesses access to plans exempt from mandates. But Northrup said employers shouldn't have to be members of a trade association to get that kind of regulatory relief.


• Reauthorizations of the Bioterrorism Act of 2002 and the Ryan White Care Act should be important in Congress, Northrup said. He said Ryan White reauthorization is a priority for President Bush as well, and added that his Senate committee will also work with the House Energy and Commerce Committee on the legislation.
  
  According to Chuck Clapton, chief counsel for health for the House Energy and Commerce Committee, a top priority this year for the panel's chairman, Joe L. Barton, R-Texas, is reauthorization of the National Institutes of Health (NIH), the organization of which, he said, has been shaped over the decades by a series of public health crises.
  
  But Clapton said there has been no systematic attempt to examine whether NIH is organized in a way that delivers the greatest return on the large public investment in the agency—something Barton believes is badly needed.



• Medicaid's Section 1115 waiver process—which grants states freedom from certain Medicaid requirements—is likely to get a "fresh look" by the Senate Finance Committee, predicted Mark Hayes, the panel's GOP health policy director. That provision has been used to allow a number of changes to traditional Medicaid, but Hayes said it needs greater scrutiny to determine whether the programs it creates meet the requirement of being budget-neutral.
  
  The review will seek to determine which lessons can be learned from 1115 programs. Hayes said the examination will aim to turn 1115 back into a "demonstration program." States have used it widely to make major reforms as they sought greater flexibility in Medicaid. With passage of the Deficit Omnibus Budget Reconciliation Act, that flexibility may be achieved in other ways.
  
  States also will be facing funding shortfalls next year in the State Children's Health Insurance Programs. Hayes said the committee will seek legislation addressing those shortfalls.



• Gene testing and health IT will be the subject of bicameral efforts, Northrup said. The Senate HELP Committee will work with House lawmakers on passage of legislation to prevent employers and insurers from discriminating based on their genetic makeup. Society will never be able to take advantage of the gains in genetic testing if people fear that the results will be used to deny them coverage, he said.
  
  Northrup said Enzi and his committee also aim to work with the House to pass legislation approved by the Senate to foster adoption of health care information technology. Senate legislation "will goose that process along," Northrup said. With final congressional passage rather than more health technology proposals, "instead of killing trees we'll be saving lives," he said.



• Medicare and HSAs evoked strong sentiments at Tuesday's session.
  
  A House Democratic aide who asked not to be identified said that the Bush administration's proposed tax breaks to promote health savings accounts (HSAs) were "close to immoral."
  
  Hayes said Democrats and others who depict Part D of the Medicare program as an attempt to break the Medicare system are "rather insulting."
  
  The Democratic aide said the Bush HSA plan would cost $156 billion over 10 years She argued that the money would cover more of the uninsured if spent through public insurance programs.
  
  Northrup said that HSAs would appeal to the healthy and wealthy but countered that they also provide the uninsured with an affordable way to get coverage. Hayes said the Bush plan would cover 8 million uninsured Americans.

FEBRUARY 8, 2006 -- Even as President Bush has proposed wringing $35.9 billion in savings from Medicare over the next five years, Democrats at a hearing Wednesday assailed administration officials over the launch of the new Medicare prescription drug benefit.

Health and Human Services Secretary Michael O. Leavitt appeared before the Ways and Means Committee to discuss the president's $698 billion fiscal 2007 budget for his department.

But, with months in front of them to complain about Bush's budget, Democrats focused their attention Wednesday on the more immediate opportunity to grill Leavitt on start-up problems with the drug plan (PL 108-173).

Rep. Benjamin L. Cardin, D-Md., asked Leavitt to support legislation he plans to introduce that would add more drugs to the formularies drug plans cover. He said a constituent had lost coverage for one of her drugs when she moved from Medicaid to a Medicare plan. Leavitt said Medicare could work with patients on a case-by-case basis, but that the formulary approach—which limits coverage to a limited list of drugs for specific conditions—was chosen as most efficient and cost-effective.

Leavitt recounted steps the administration has taken to alleviate problems some seniors have had in getting prescriptions filled under the new program. And he reminded lawmakers that HHS has promised to reimburse states for costs they incurred helping low-income beneficiaries get drugs they needed when their Medicare coverage did not kick in on time.

That did not satisfy panel Democrats, who requested an extension of the Feb. 15 deadline states must meet to apply for reimbursements.

Pete Stark, D-Calif., also warned Leavitt that he would be monitoring the prices of prescription drugs as the program continues, since insurers can change prices and formularies at any time but beneficiaries can change plans only once a year.

Meanwhile, Mark McClellan, administrator of the Centers for Medicare and Medicaid Services, was on the other side of Capitol Hill, appearing before the Senate Finance Committee to answer questions about the Medicare drug benefit.

Repeatedly prodded and interrupted by Max Baucus of Montana, the panel's ranking Democrat, McClellan told the committee his agency was working to fix the problems that have marred the start-up of the benefit.

But when asked if he would have the problems under control by March or April, McClellan hedged a bit, refusing to be pinned down.

McClellan also would not bite when pressed by senators to endorse a variety of legislative changes in the program, including a delay in the deadline for seniors to sign up for the drug benefit, steps to standardize Medicare drug plans to simplify comparative shopping, and a provision to bar insurance plans from dropping a drug from their formularies during the same year a beneficiary enrolls.

"I think Congress is going to change the enrollment period for you," said Sen. Ron Wyden, D-Ore.

Baucus told McClellan the administration has implemented the benefit "poorly," discouraging seniors from signing up by "paralyzing" them with choices.

Baucus said he will introduce legislation allowing "apples-to-apples" comparison of plans. McClellan said the administration will act on its own to make comparisons easier without elaborating on how it will do so.

Bush Budget Proposals
During discussion of Bush's new budget, Ways and Means Republicans praised proposals to shift health care toward a market-oriented approach through innovations such as tax-free health savings accounts (HSAs), which seek to drive down health costs by making consumers more aware of the costs of the treatment.

Paul D. Ryan, R-Wis., noted that about one-third of people who had signed up for HSAs had been previously uninsured. "HSAs have become a good pool for people with higher risk profiles," he said.

But Ryan said there is not enough information available to consumers about health care prices to allow them to make fully informed decisions in choosing doctors, hospitals, and other providers.

Leavitt said that as the use of health information technology and quality data reporting increases—as called for in Bush's budget—consumers would be able to make better choices.

Ranking Democrat Charles B. Rangel of New York criticized Bush's proposals to shift costs to consumers. "HSAs move the risk from the employer to the employee," with no guarantee of cost savings, he said.

Leavitt replied, "I think economists have been very clear that creating cost-conscious consumers will drive down the cost of health care."

FEBRUARY 6, 2006 -- President Bush proposed an austere budget Monday that challenges Congress to cut Medicare and domestic discretionary programs in an election year while boosting funding for defense, homeland security, and the wars in Iraq and Afghanistan.

The $2.77 trillion fiscal 2007 budget proposal would cut non-defense discretionary spending for the second straight year, with more than a dozen departments and agencies targeted for reductions, including education, health, housing, transportation, and agriculture programs.

Bush proposed saving about $15 billion in fiscal 2007 by eliminating or significantly reducing 141 discretionary programs, and $65 billion over five years by trimming the growth of entitlement programs, including $36 billion from Medicare.

At the same time, Bush again urged Congress to make his 2001 and 2003 tax cuts permanent, and he proposed a number of new tax breaks for individuals who set aside money in health savings accounts or purchase their own health insurance policies.

The health care–related tax credits would cost $51.7 billion over five years and $136.5 billion over 10 years. Other tax cuts would extend research and development credits and bolster charitable giving.

The tax cut plans combined would cost $280 billion over five years and $1.67 trillion over 10 years, far more than the budget cuts.

"To stay on track to meet my goal of cutting the deficit in half by 2009, we must maintain our pro-growth policies and insist on spending restraint," Bush said in his budget message.

Bush will face a difficult road in persuading lawmakers to approve another round of reductions in popular entitlement programs like Medicare.

The House only last week barely cleared a smaller $39 billion savings package (S 1932), the first since 1997 to slice Medicare, Medicaid, student loans, and other entitlement programs, after GOP leaders negotiated for months with skittish moderates.

Bush's package would pick up $16.7 billion by increasing pension insurance premiums paid by corporations. He is asking Congress to carve $5 billion from agricultural subsidies and smaller amounts from Medicaid, food stamps, and federal employee health benefits.

Lingering Deficit
Despite all the proposed spending cuts, the fiscal 2007 deficit would remain near record levels in dollar terms, at $354 billion, or 2.6 percent of gross domestic product.

The administration predicted that fiscal 2006 would end with a $423 billion deficit, a record in dollar terms, largely because of hurricane and war spending, but the deficit would drop to $208 billion by fiscal 2009, or 1.4 percent of GDP. That prediction is in line with Bush's pledge to cut the federal budget deficit in half by 2009, as measured against the initial fiscal 2004 deficit projection of $521 billion, while maintaining his tax cuts.

However, the long-term reduction in the deficit assumes that war spending ends, that a tax "patch" to freeze the impact of the alternative minimum tax is not extended, and that Congress adopts a number of new user fees and other proposals it has rejected in the past.

Overall non-security discretionary spending would drop from $400.4 billion to $398.3 billion, while the defense budget would rise 7 percent to $439.3 billion. That does not include a $50 billion request for fiscal 2007 war spending. Homeland security spending would rise 3 percent to $33.1 billion.

Discretionary spending overall would rise 3 percent to $870.7 billion under the proposed budget.

Bush also will ask Congress for an additional $70 billion for supplemental war spending in fiscal 2006 on top of the $50 billion already appropriated. That $70 billion request would bring the total spent on the wars since the Sept. 11, 2001, terrorist attacks to about $393 billion.

Another $18 billion will be requested in supplemental hurricane relief in fiscal 2006, and $2.3 billion in fiscal 2007 supplemental spending would go toward flu pandemic preparedness.

All of the supplemental funding requested by Bush would be treated as emergency funds, not subject to annual congressional caps on discretionary spending. But the money would add to the deficit.

The new budget anticipates that the cost of the Medicare prescription drug benefit will drop by $10 billion from earlier projections in 2006, and by $130 billion over the next 10 years.

House Budget Chairman Jim Nussle, R-Iowa, and Senate Budget Chairman Judd Gregg, R-N.H., have both endorsed additional cuts to entitlement programs this year, but not all of their Republican colleagues have been as enthusiastic, particularly in an election year.

"I think it's a good budget because it challenges the Congress to be fiscally disciplined and we need to do that," Gregg said, contending that it is possible for Congress to pass another savings package.

"I don't see why we can't. I think most people expect Republicans to stand up and be fiscally disciplined."

Democrats, who voted en masse against last year's budget savings package, attacked the budget immediately.

"It represents the same reckless fiscal course the Bush administration has followed for the last five years," said Sen. Kent Conrad of North Dakota, the ranking Democrat on the Budget Committee. "It explodes deficits, but then conceals them by providing only five years of numbers and leaving out large costs, like long-term Alternative Minimum Tax (AMT) reform and realistic ongoing war costs."

FEBRUARY 10, 2006 -- The White House hopes to eliminate six Health and Human Services programs to save $866 million in fiscal 2007—with the biggest savings coming from the community services block grant, according to the president's "hit list."

The Office of Management and Budget (OMB) estimates it could save another $1 billion by slashing funding for another half-dozen HHS programs—provided Congress agrees.

The administration tried to whittle or close most of the same programs last year, but Congress wouldn't go along. It's unclear whether the White House will have much more success this year.

According to the list released yesterday, the biggest savings, $630 million, would come from ending the community services block grant, which funds "Community Action Agencies" that provide employment, housing, nutrition, and health care services for the poor.

The administration claims the programs haven't delivered. What's more, they aren't subject to performance measures and aren't required to meet minimum standards to get funded, OMB said.

OMB also said the services the agencies provide are too scattershot to be effective and that larger federal programs may better meet the needs involved by focusing money on a specific service.

Also proposed for elimination:

• The CDC Preventive Health and Health Services Block Grant: The Centers for Disease Control and Prevention has budget authority to spend $99 million under the grant this year, but OMB said "other grants cover many of the same areas." Authorized in 1981, the grant funds chronic disease prevention, immunizations, injury reduction programs, and programs to prevent sex offenses.
• Community Services Programs: Funding this year totals $40 million for grants to offer low-income Americans employment, training, and business development opportunities. Money also goes for migrant and seasonal farmworkers and for rural housing. The administration wants to consolidate the programs into another administration initiative.
• Maternal and Child Health Small Categorical Grants: OMB would save $39 million by ending certain small categories of funding under this $693 million grant program. Under its proposal, funding would stop for programs addressing traumatic brain injury, screening newborns to check their hearing, and emergency medical services for children. The programs involved haven't shown improved outcomes or set long-term goals, OMB said.
• Urban Indian Health Program: Started in 1976, the program funds primary, preventive and behavioral health care targeting the 60 percent of American Indians and Alaska Natives that live in urban areas. The program has budget authority to spend $33 million in fiscal 2006. Providers that get this money get 60 percent of their operating funds from other sources, OMB said, adding that many Indians served by these providers can get care at community health centers.
• Real Choice System Change Grants: HHS now has budget authority to spend $25 million on the grants, but says they won't be needed next year because of funding to move disabled individuals into home- and community-based care under programs such as the HHS Money Follows the Person initiative.

Proposed for big cuts but not for elimination:

• Social Services Block Grant: OMB wants to save $500 million by cutting budget authority from $1.7 billion this year to $1.2 billion in fiscal 2007. The block grant funds services to help families become economically self-sufficient, and to prevent neglect or abuse within families. The program lacks performance measures to show it is delivering results, OMB said, and the White House says it overlaps with other programs including Temporary Assistance for Needy Families.



• Children's Hospital Graduate Medical Education Payment Program: Started under the Clinton administration, the program began as a $40 million subsidy to children's hospitals but has grown eightfold since then without justification for such an increase, OMB said.
  
  "In 2006, the program provided an average subsidy of $4.9 million to 61 children's hospitals," OMB said. "However, children's hospitals are more likely to have positive profit margins than other hospitals. In 2000, 74 percent of children's hospitals had positive margins, compared to 67 percent of all hospitals, and 59 percent of major teaching hospitals."
  
  Budget authority would be sliced from $297 million this fiscal year to $99 million in fiscal 2007, for a savings of $198 million. Payments "will be directed to those hospitals with the greatest financial need that treat the largest number of uninsured patients and train the greatest number of physicians."
  
  
• HRSA Health Professions Programs: Budget authority would be cut from $295 million this year to $159 million in fiscal 2007, saving $136 million. Grants given out by the HHS Health Resources and Services Administration under the programs aim to direct health care professionals including doctors, dentists, and nurses to medically underserved communities.
  
  While there are "regions and pockets" of the country that have shortages of health professionals, "only two of every 10 providers who benefit from the programs' long-term training support enter shortage areas," OMB said. Funds would be concentrated on training and education of nurses.



• HRSA Rural Health Programs: The Health Resources and Services Administration funds rural facilities known as "Critical Access Hospitals" as well as state offices of rural health and planning to create rural provider networks. But OMB says budget authority for these programs should be shrunk to $27 million because HHS has 225 other health and social services programs serving rural areas. The reduction would save $133 million.
  
  The remaining money would be used to continue state offices of rural health and to continue research on rural health care.



• Poison Control Centers: HHS supports poison control centers while they secure certification and other sources of funding. Budget authority for these efforts would fall from $23 million in fiscal 2006 to $13 million in fiscal 2007. Many centers no longer need assistance to achieve certification, OMB said.

Try, Try Again
The administration tried but failed last year to shut down five of the six programs on the fiscal 2007 termination list.

The new program added to the termination list is the Urban Indian Health Program. Sen. Jeff Bingaman, D-N.M., asked HHS Secretary Michael O. Leavitt in a Senate Finance Committee hearing Feb. 9 why the administration wants to shutter that program. Leavitt said community health centers are available in the same area. "That just feels inefficient to me to create a separate system for one population," Leavitt said.

The administration also sought major cuts last year in the children's GME, health professions, and rural health programs, but Congress appropriated considerably larger sums than the White House wanted. The administration did not seek a major cut last year in the Social Services block grant or in poison control centers.

The health professions program is a perennial target of Bush budget cutters but is strongly defended by family physicians. They've already weighed in this year, saying Thursday the reductions would eliminate funding for family medicine training programs.

"Fewer students training to be family physicians means fewer physicians to care for our most underserved populations—the elderly, poor, disabled, and those who live in rural areas and the urban core," said Larry S. Fields, president of the American Academy of Family Physicians. "An investment in family medicine training by the Bush administration would have helped slow the rapidly increasing health cost of health care due to sub-specialization and would have helped staff the president's community health centers. By zeroing out all funding for these training programs, Americans' access to quality, affordable heath care has been compromised," Fields said.

FEBRUARY 7, 2006 -- The U.S. Chamber of Commerce said Tuesday that state legislatures should not follow Maryland's lead with legislation that requires large employers to provide health insurance to their workers.

The Maryland General Assembly last month overrode a veto by Republican Gov. Robert L. Ehrlich Jr. to enact a bill requiring companies with more than 10,000 workers in the state to spend at least 8 percent of payroll on employee health care or put that amount into a fund for the uninsured.

"Targeting big companies with politically motivated health care mandates on a state-by-state basis is not only unfair, it is illegal," Chamber President and CEO Tom Donohue said in a statement. "These bills may prompt other states to try their hand at setting national policy, but they do nothing to address our nation's mounting health care crisis."

The measure has been dubbed the "Wal-Mart" bill because its supporters have charged that Wal-Mart, along with other employers, does not spend enough on health care coverage for its employees, thus shifting the financial burden for providing health care to uninsured Americans on to state and federal health care programs, including Medicaid.

Wal-Mart officials have said that more than three-quarters of the company's workers have health insurance, and employees are offered the choice of as many as 18 health plans that cost as little as $11 per month in some areas.

Labor unions and their allies are pressing in more than two dozen states for legislation similar to the Maryland bill.

The Chamber said it will back lawsuits filed by the Retail Industry Leaders Association challenging the law.