By Phil Mattingly, CQ Staff

March 10, 2008 --The January defeat of Gov. Arnold Schwarzenegger's more than $14 billion health care overhaul in the California Senate may have been a setback for the Republican governor, but the plan could serve as the basis for a national debate on health care that is growing stronger in the days leading up to the presidential election.

At a health policy forum Friday by the New America Foundation, seven panelists who were at the heart of debate in California explored the possible national implications of Schwarzenegger's plan.

"This debate is really at the forefront of what is going to be a great national debate," said Peter Harbage, a fellow at the Center for American Progress. "It makes what happened in California just that much more important."

Schwarzenegger's massively ambitious plan was conceived almost entirely through bipartisan negotiations. The overhaul would have required all state residents to obtain coverage, provided subsidies for low income residents and created an insurance pool for the uninsured. The legislation also would have given all applicants insurance, regardless of any pre-existing conditions. In all, the plan was expected to provide insurance to 70 percent of an estimated 5.1 million uninsured state residents.

Portions of the Massachusetts health insurance plan, another state that requires its residents to have health insurance, served as a boiler plate for the California plan. But due to California's size and diverse population, the effort was considered much larger than that of Massachusetts'.

"The product was groundbreaking," said Richard Figueroa, one of Schwarzenegger's top health care policy advisors. "We believe it is a template for what can be the national health care model about how to fix the problem."

Figueroa said politics and outside opposition—but more than anything else, the budget constraints of the state—scuttled the plan. But Schwarzenegger plans to regroup and come back to the plan during his next three years in office, he said.

In the effort to extend insurance to all residents, employer and employee mandates were considered as possibilities. While the overall plan was considered a breakthrough in Schwarzenegger's "Post-Partisan" politics, the mandates brought out some of the strongest opposition to the plan.

Among those opposed was the National Federation of Independent Businesses, a lobbying firm that represents over 350,000 small businesses nationally. To them, the governor's plan "was similar to the problems in the movie Armageddon" in the scope of how bad it would have been, said Michael Shaw, a legislative director with the organization.

Small businesses also opposed the plan because of uncertainty over its affordability, something even Betsy Imholz, an ardent supporter of the plan, agreed was a problem.

"Frankly we have more to do on that as we move forward in the national debate," said Imholz, a special projects director with the Consumers Union of U.S., Inc. Imholz was involved in the ground level negotiations surrounding the plan. "We need a lot more policy work. We basically just looked at what people were paying and gave it our best shot."

A concern on the national front is the current state of the economy. One of the final blows to the Schwarzenegger plan was a larger-than-normal state deficit. Along with strong leadership, Imholz noted "timing and pacing" as two of the most important aspects of a successful plan. With the American economy in turmoil, questions of whether or not the country is prepared to undertake such a large debate linger.

But the national debate is only expected to grow hotter in the upcoming months with the looming presidential election in November. Both Sen. Barack Obama, D-Ill., and Sen. Hillary Rodham Clinton, D-N.Y., have proposed overhaul plans similar in concept to the California plan in their emphasis on cutting into the nearly 47 million uninsured Americans.

Sen. John McCain's health care plan is focused more on reining in the costs of health insurance. During the unveiling of his health plan in October 2007, McCain cited health care costs accounting for 16 percent of the gross domestic product—over $2 trillion—as the rationale for his plan.

No matter the plan, the question today is whether the roadblocks that led to the failure of Schwarzenegger's plan will serve as a learning experience candidates and involved parties on the national level - or if it will simply serve as foreshadowing, panelists said.

"Polarization, personalities and process," summarized Daniel Weintraub, a columnist with the Sacramento Bee on why the legislation failed. "Personalities will change, the process is correctable, but I think it's going to take a while to see whether the current polarization will change, either in California or in the national situation."

By Alex Wayne, CQ Staff

March 14, 2008 -- House Energy and Commerce Chairman John D. Dingell is seeking to block new Medicaid regulations by the Bush administration that have been criticized by many lawmakers and governors.

Separately, a child advocacy group issued a report Friday declaring that the new regulations would harm health care for children, especially those with disabilities.

Dingell, a Michigan Democrat, has previously criticized the administration's proposed Medicaid rules. They generally seek to prevent states from claiming federal reimbursement for services the government doesn't think should be provided under Medicaid.

Dingell's new bill (HR 5613), introduced late Thursday, would postpone seven of the rules for one year - potentially killing them, depending on who is president by then.

"The restrictions the administration is imposing on Medicaid are harmful and will undoubtedly put the health of thousands of our most vulnerable children at unnecessary, indefensible risk," Dingell said in a statement.

Medicaid is a joint state–federal entitlement for the poor in which the federal government pays about 57 percent of the costs. The federal share is estimated to total about $204 billion in fiscal 2008. States and the federal government have long argued over which should bear more of the program's costs, a dispute that has intensified in the last years of Bush's presidency.

The Government Accountability Office (GAO) has found that many states have used creative ways to collect more federal reimbursement for Medicaid services than they deserved, sometimes using the excess to pad their budgets. Governors say they have stopped the practices that the GAO criticized, but the Bush administration counters that its new regulations are necessary to prevent new schemes.

Dennis G. Smith, director of the federal Center for Medicaid and State Operations, said misuse of Medicaid funds is rampant, with some states using the program's money for unrelated purposes such as building schools, paying parole officers, and funding foster care.

Combined, the Office of Management and Budget says, the regulations would reduce federal spending on Medicaid by about $15 billion over five years.

"We should be doing a better job for people who rely on our programs, and for people to sort of accept less, the expectations that we have created, you are shortchanging the very people the program's designed to serve," Smith said in an interview. "We have certainly conveyed our willingness to work with Congress on these issues, but I think that in the absence of congressional action we certainly believe we have not only the authority but the obligation to address these issues."

It is not clear what lawmakers think about the regulations. While many Democrats and some Republicans have said they oppose them, legislation to block the new rules has not advanced up to now.

One of the regulations that Dingell wants to postpone took effect March 3; the rest are scheduled to be implemented over the course of the year. The regulations seek to limit reimbursement for several services, including salaries for interns and residents at hospitals; transportation to school and school-based Medicaid services; foster care and child welfare services; and case management services states provide to some Medicaid patients.

One regulation would limit Medicaid payments to public hospitals; another would limit taxes that some states levy on Medicaid providers as a way of reducing the program's draw on state budgets.

Smith said the administration has no intention of delaying the regulations on its own just because of congressional concerns.

First Focus, a child advocacy group, issued a report Friday stating the new regulations would be particularly harmful to children. The report, written by Sara Rosenbaum, chairwoman of the department of health policy at George Washington University, concludes the regulations would undermine a Medicaid program aimed at ensuring that low-income children with serious health needs are identified at an early age and treated intensively through adolescence.

"[W]hile the regulations pose a direct threat to programs and services for children of any age, and whose special needs arise from any cause, the most endangered group of children may be those who were born prematurely and at very low birthweight, and who may require both immediate and ongoing services throughout their lives as a means of achieving maximum rehabilitation from birth injury," Rosenbaum wrote.

She recommended a broad moratorium on the new regulations, like the one Dingell introduced Thursday.

Smith said Rosenbaum's report "mischaracterizes the regulations and the impact of the regulations," and uses the early childhood health program as a "smokescreen." Rosenbaum made no mention of the "abuses" that the administration's Medicaid regulations are intended to rectify, Smith said.

"These rules represent less than 1 percent of federal spending," Smith said. "If we can't take on these issues, then how are we going to take on the bigger issues that everyone has been talking about this past week?"—referring to an overhaul of entitlement programs.

By Annie Johnson, CQ Staff

March 11, 2008 -- A group of hospital associations filed a lawsuit on Tuesday asking a federal court to stop the Bush administration from implementing a proposed Medicaid rule that could cut billions of dollars in funding to safety net hospitals.

"The impact would not just be felt by low income and vulnerable patients but by entire communities" said Larry Gage, president of the National Association of Public Hospitals and Health Systems.

The Centers for Medicare and Medicaid Services has been under fire for the set of proposed regulations, which now total at least seven and are slated to roll out this year.

The first regulation, which limits federal reimbursement for targeted case management, took effect Mar. 3; Tuesday's lawsuit focuses on a rule to be implemented May 25. Congress last year placed a moratorium on its implementation until May 25.

The coalition, led by the National Association of Public Hospitals and Health Systems, the American Hospital Association, the Association of American Medical Colleges, and supported by the National Association of Children's Hospitals, filed suit in the U.S. District Court for the District of Columbia asking the court to reject the regulation on three grounds:

• CMS overstepped its authority in dictating to states the governmental status of entities within their jurisdiction.
• Congress has barred the agency from imposing a cost limit on Medicaid payments to governmental providers.
• CMS improperly issued the rule on the day (May 25, 2007) that a Congressional moratorium blocked the rule took effect.

The federal government pays about 57 percent of the cost of Medicaid, a joint federal-state health care program for the poor. The federal share is estimated to total about $204 billion in 2008.

The regulation would save almost $4 billion over five years by placing restrictions on the amount of Medicaid reimbursement for public hospitals at no more than the cost of providing that service, according to CMS.

The coalition of hospitals said the regulation would actually cut $5 billion from their budgets.

CMS said the rule is intended for hospitals to pay their share of Medicaid costs.

"The fact is, the purpose of the cost rule is to preserve the integrity of the Medicaid partnership, in which the federal government and the states share the financial obligations for serving people who rely on this important program," said Jeff Nelligan, spokesman for CMS. "It is ironic that hospitals are suing over a rule that is designed to protect them because we firmly believe it's the state responsibility to fund its share of the Medicaid program, not the responsibility of providers."

But hospitals have fired back that if funding is cut, then so will programs for beneficiaries.

In Alameda County, Calif., programs for patients with HIV/AIDS and the trauma center itself might be gutted, said Wright Lassiter III, CEO of the Alameda County Medical Center in Oakland.

"The first question that I have to consider and discuss with our board and community is, 'Can we find a way for the system to still be viable?'" Lassiter said.

For many hospitals, that answer is no, the groups said.

In all, the Bush administration's proposed Medicaid regulations would shift $50 billion in costs to the states, according to a report House Democrats released last week, a number CMS contests as too high. The Office of Management and Budget had estimated the new rules would reduce the federal share of Medicaid by about $15 billion over the next five years.

By John Reichard, CQ HealthBeat Editor

March 11, 2008 -- As Democrats contemplate reducing payments to private insurers in Medicare, the chairman of the Medicare Payment Advisory Commission told a House panel on Tuesday that paying the plans more than traditional fee-for-service providers increases the threat to Medicare's long term viability.

Medicare spends about $10 billion more each year on beneficiaries enrolled in the plans, known as Medicare Advantage, but there is little data to show added value worth the extra investment, commission Chairman Glenn M. Hackbarth told the Ways and Means Health Subcommittee.

While the commission, known as "MedPAC," supports private plans in Medicare as a way to offer beneficiaries choices for coverage, MedPAC has also advocated that Medicare pay the same amount, adjusted for risk, whether a beneficiary chooses a private plan or gets care from Medicare's traditional fee-for-service program. In 2008, MedPAC projects Medicare Advantage payments will be 113 percent of expected fee-for-service expenditures, while payments to private fee-for-service plans will be 117 percent.

"By increasing payment to levels significantly above traditional Medicare, we have changed the signal we are sending to the market: Instead of efficiency-enhancing innovation, we are getting plans (for example, private [fee-for-service] plans) that are not well designed to manage care or improve quality and have higher cost," Hackbarth said in prepared testimony on the commission's March report to Congress.

Plans entering Medicare in 2004 or later also show poorer performance than older plans on clinical indicators of quality, and some plan types, such as private fee-for-service plans, are exempt from quality reporting requirements, which makes it difficult for either the beneficiary or the program to judge their value, Hackbarth said.

The fastest growth in "MA" plans is in private fee-for-service plans, which have no requirement to coordinate care or report quality measures, and special needs plans, which have not yet been fully evaluated, the MedPAC chairman testified.

Subcommittee Chairman Pete Stark, D-Calif., said he'd try to implement MedPAC's recommendations on MA payments, a step he tried to take last year in legislation to reauthorize and expand the State Children's Health Insurance Program (SCHIP). The proposed cuts to MA plans were ultimately dropped due to Republican opposition. Senate Finance Committee Chairman Max Baucus, D-Mont., and other Democrats have proposed cutting payments to Medicare Advantage plans as part of Medicare legislation this spring.

President Bush and congressional Republicans are sure to once again oppose any sizeable reductions in MA payments. At Tuesday's hearing, ranking subcommittee member Dave Camp of Michigan said that cuts the size that MedPAC recommends would "leave 22 states without a single senior enrolled in Medicare Advantage" and those who still had coverage "would see their benefits slashed and out-of-pocket costs increase."

But Camp didn't rule out evaluating how Medicare currently pays the plans. "I want to be clear that I'm not suggesting we shouldn't look at savings opportunities in the Medicare Advantage arena, including adjusting benchmarks to recognize true market forces," Camp said.

Separately, Camp and Rep. Jim McCrery, R-La., the ranking Republican on the full Ways and Means panel, have sent a letter to Acting Centers for Medicare and Medicaid Services (CMS) Administrator Kerry Weems asking CMS to issue tougher regulations on the marketing of MA plans.

The proposed regulations include requiring all beneficiaries who enroll in MA plans to be called within 10 days of enrollment to make sure they understand how the plans differ from traditional fee-for-service, and allow beneficiaries who have been "intentionally misled" by a MA plan sponsor or sales agent to un-enroll from the plan. MA insurers have also asked Congress to pass new regulations that would ban sales techniques such as door-to-door sales and cold-calling.

By CQ Staff

March 12, 2008 -- A study released Wednesday by America's Health Insurance Plans (AHIP) finds that Medigap coverage may have a much smaller impact on Medicare spending than previously thought.

Medigap plans are supplemental insurance for Medicare beneficiaries that help cover co-pays, deductibles, and other services not covered by Medicare. In an article published in the March/April issue of Health Affairs, AHIP researchers conclude that previous studies might have overestimated how Medigap coverage impacts Medicare costs, and that past projections of potential Medicare cost savings from restrictions on Medigap coverage are likely overstated.

Previous studies have asserted that Medigap policy holders incur as much as 25 percent more Medicare expenditures than beneficiaries with fee-for-service Medicare alone because Medigap generally provides coverage on a first-dollar basis, which means that beneficiaries do not have to spend any of their own money before coverage begins.

The AHIP analysis found that nearly half of that increase could be explained by controlling for the use of services received through the Veterans Administration or at military facilities. Thirteen percent of fee-for-service only beneficiaries relied on the VA or military facilities as their primary source of care, compared to just one percent of Medigap purchasers, the study found. Since those services are not billed to Medicare, Medicare costs for fee-for-service-only beneficiaries appear artificially low compared to beneficiaries with Medigap coverage.

Beneficiaries' health status also may explain much of the difference in health costs between the two groups. While previous studies have claimed that Medigap holders were healthier than beneficiaries in traditional Medicare with no supplemental coverage, the studies relied on beneficiaries' self-reported health status rather than claims data. AHIP's analysis found that for each condition and across age groups, the incident of illness was actually higher among Medigap policy holders than among all Medicare beneficiaries.

Separately on Wednesday, AHIP released a study of the Medigap market that found enrollment in the program has remained constant in recent years, with the number of standard Medigap policies that are active increasing by three percent between 2004 and 2006.

By John Reichard, CQ HealthBeat

March 14, 2008 -- Amendments to the fiscal 2009 spending blueprint may not mean much given President Bush's threat to veto spending bills that exceed amounts he wants to spend on federal health programs. In fact, the lawmakers themselves who develop the spending bills aren't beholden to budget resolutions. But the amendments—ranging from a $2.1 billion increase for the National Institutes of Health to provisions that would give $375 million more to the Food and Drug Administration—point to possible congressional priorities.

And some of those priorities could actually become law if lawmakers decide to delay final action on fiscal 2009 spending until after Bush leaves the White House.

The budget measures approved by the House on Thursday and the Senate early Friday (S Con Res 70 and H Con Res 312) leave open the possibility of a budget deal in which Medicare changes are approved in the Senate by a simple majority. The House measure includes instructions that could be used for Medicare legislation and the Senate measure does not; but if the respective chambers agree on a final budget blueprint after they return the week of March 31 from their spring recess, it could include the House-approved instructions. That language allows legislation to move in the Senate with protection against a filibuster if the measure reduces the federal deficit.

Senators offered dozens of amendments, many related to health care, to modify the budget plan approved last week by the Senate Budget Committee.

Republican attempts to get Democrats to focus on restraining Medicare spending growth fell short in action on the Senate floor. An amendment by Sen. John Ensign, R-Nev., to shift more of the cost of the Medicare prescription drug benefit to affluent seniors won just two Democratic votes, those of Sen. Thomas R. Carper of Delaware and Sen. Claire McCaskill of Missouri. Eight Republicans joined 46 Democrats and two Independents in defeating it, 56 to 42. Individuals with incomes above $82,000 and couples with incomes above $164,000 would have been required to pay higher monthly premiums for the Medicare Part D benefit.

Meanwhile, lawmakers appear to be gearing up to increase Medicare spending compared to current law by offering legislation to block a projected 10.6 percent cut in Medicare payments to physicians required under current law. Sen. Debbie Stabenow, a Michigan Democrat, announced Thursday that she is introducing a bill that would block any cuts in payments to doctors for 18 months.

Stabenow's bill would stop the six months of cuts in 2008 that begin in July and replace them with a 0.5 percent increase, then in 2009 replace the cuts with a 1.8 percent increase. Bonus payments of 1.5 percent for reporting data on quality of care would be extended through 2009.

An amendment to the Senate budget measure added by Democrat Jeff Bingaman of New Mexico is designed to increase the number of Americans eligible for the comprehensive Medicare drug benefit for low-income beneficiaries. Sen. Olympia J. Snowe, R-Maine, who said she joined Bingaman in proposing the amendment, issued a statement Friday saying the Senate also approved an amendment calling for a vote this spring on legislation (S 2687) to curb marketing abuses in the Medicare Advantage program.

Senate Republicans took a stab at countering, at least to some degree, efforts by Democrats to block regulations developed by the Bush administration to trim Medicaid outlays compared to levels called for under current law. The regulations in part address tactics used by states to increase federal Medicaid spending that many analysts regard as inappropriate.

Iowa Republican Charles E. Grassley suggested on the Senate floor Thursday that while the regulations may in some instances go too far, they address "real problems" with inappropriate spending. Blocking the regulations entirely would cost taxpayers $19.7 billion over five years, he said. Grassley said the Senate Finance Committee should develop legislative changes to replace the regulations, not simply cancel them. Rather than push for an amendment to that effect, however, he joined in a successful effort by Republican Sen. Wayne Allard of Colorado to win approval of an amendment to ensure that the Health and Human Services secretary has authority to prevent fraud and reduce inappropriate spending in the Medicaid and State Children's Health Insurance Program (SCHIP).

Senate Finance Committee Chairman Max Baucus, D-Mont., meanwhile, won approval of a "Sense of the Senate" amendment that administrative regulations should not undermine Medicaid's health coverage guarantees or shift Medicaid cost burdens to the states. And in the House, Rep. John D. Dingell, D-Mich., the chairman of the Energy and Commerce Committee, and Rep. Tim Murphy, R-Pa., announced legislation on Thursday that would place a one-year moratorium on the administration's Medicaid regulations.

Other amendments adopted by the Senate dealt with a wide range of issues.

An amendment by North Dakota Democrat Byron L. Dorgan would shift funding to allow for an increase of $1 billion in the budget for the Indian Health Service.

An amendment offered by Sen. Edward M. Kennedy would increase by $71 million the resources available to the Food and Drug Administration for food and drug safety purposes. Kennedy noted in a news release Thursday that the Budget Committee's budget bill provides for an increase of $304 million; his measure would bring the total to $375 million, the increase recommended by an FDA scientific advisory group that says the agency is so underfunded that the nation verges on a public health catastrophe as a result.

An amendment by California Democrat Barbara Boxer would allow for legislation to cover more pregnant women in SCHIP. States have the option of providing such coverage under SCHIP, and in some cases do so.

Another amendment, sponsored by Sen. Richard M. Burr, R-N.C., would match President Bush's spending request for the Biomedical Advanced Research and Development Authority, backers said. BARDA, which is part of the Department of Health and Human Services, develops drugs, vaccines, therapeutics and diagnostics used in public health emergencies, including nuclear, biological, and other terrorist attacks.

The provision would raise the amount for overall health programs by $148 million. Backers of the provision said they want to target those funds to BARDA; when coupled with the $102 million included in the fiscal 2008 omnibus spending measure (PL 110-161), the increase would bring the agency's total budget to $250 million.

An amendment by Sen. Christopher J. Dodd, D-Conn., would boost funding for autism research, education, and early detection by $197 million at the National Institutes of Health, the Centers for Disease Control and Prevention, and the Health Resources and Services Administration. Another Dodd amendment would increase spending under the Maternal and Child Health Block Grant by $184 million.

Up to $160 million would be spent on a three-year extension of a pilot program for background checks on caregivers hired by long-term care facilities under an amendment by Sen. Herb Kohl, D-Wis.

An amendment by Sens. Hillary Rodham Clinton, D-N.Y., and John W. Warner, R-Va., would increase funding by $53 million for respite care for family caregivers for the frail elderly and disabled.

Another amendment by Dorgan would increase organ donations by funding programs authorized by a law popularly known as the Organ Donation and Recovery Improvement Act of 2004.

Amendments by Sens. John E. Sununu, R-N.H., and John Kerry, D-Mass., would promote the use of electronic prescribing of prescription drugs.

And an amendment by Sen. John Vitter, R-La., expresses the sense of the Senate that legislation should be brought to the floor legalizing the importation of certain prescription drugs as a way to counter high prices in the United States for the products.

Matt Korade contributed to this story.