Washington Health Policy Week in Review

Washington Health Policy Week in Review is a weekly newsletter that offers selected stories from the daily newsletter CQ HealthBeat.

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Ways and Means Democrats Outline Possible Medicare Cuts for Debt Panel

By John Reichard, CQ HealthBeat Editor

September 7, 2011 -- The House Ways and Means Democratic staff has prepared a list of possible cuts to the Medicare program totaling more than $500 billion over 10 years, according to documents obtained by CQ HealthBeat.

Sarah Baldauf, a spokeswoman for California Democratic Rep. Pete Stark, the top Democrat on the Ways and Means Health Subcommittee, said the cuts are for "internal" use and that the list does not represent an endorsement of such reductions.

The list is being circulated among Democrats to prepare them for possible cuts that will be considered by the Joint Committee on Deficit Reduction. The committee is charged with recommending $1.2 trillion in cuts over 10 years as part of the debt ceiling law. If the recommendations do not become law, a trigger mechanism will cut two percent from Medicare payments as part of an overall package of reductions. The law also permits a combination of legislation from the committee and automatic reductions to reach that savings figure.

Some of the cuts, but certainly not all, were based on previous recommendations by the Medicare Payment Advisory Commission.

The summary lists the various cuts, policy rationale, and likely reaction of interest groups. Among the biggest reductions is $125 billion achieved by raising the eligibility age in Medicare over time to 67. Other major cuts include saving $120 billion by requiring drug companies to pay rebates for drugs now covered by Medicare that are provided to beneficiaries eligible for both Medicare and Medicaid; and $62 billion by bringing rural facilities known as critical access hospitals, sole community hospitals, and Medicare-dependent hospitals into the standard Medicare hospital payment system.

The leak of the list is like taking a baseball bat to a hornet's nest—it's full of controversial cuts that will set off frenzied lobbying activity on Capitol Hill.

Skilled nursing facilities, home health agencies, inpatient rehabilitation facilities and long-term care acute hospitals would absorb up to $28 billion in cuts over two years through a freeze on their Medicare rates over that period. Adding a co-payment to the first 20 days of a skilled nursing facility stay would raise $21 billion. Recouping fiscal 2011 "overpayments" to skilled nursing facilities would raise $4.5 billion—more than what was contained in a final payment rule recently issued by the Centers for Medicare and Medicaid Services.

A "value-based purchasing" program would cut reimbursements to skilled nursing facilities by collecting payments from them to form a pool of money to pay for higher-quality facilities' increased rates. While some of the facilities would receive more, the net effect of the program would be to reduce their payments overall. The list did not specify how much money would be saved.

Greg Crist, a spokesman for the American Health Care Association, said, "This is what happens when you only look at numbers, and not the policies or the implications."

Crist added that skilled nursing facilities "have already faced three rounds of cuts this year. There's only so much that can be absorbed or passed on. Access to our facilities would be jeopardized the way these proposals are structured now." The nursing home industry also has predicted job losses from the cuts.

Skilled nursing facilities and hospitals would see cuts of up to $30 billion through fewer reimbursements for the losses they sustain when Medicare patients don't pay the out-of-pocket charges they are supposed to pay.

A 10 percent co-payment per episode of illness treated by home care agencies would raise $40 billion. Resetting payment levels to those agencies to reflect the fact that they now make fewer visits to patients per bout of illness would save $3 billion.

Teaching hospitals would lose up to $15 billion from lower payments for graduate medical education.

Hospitals in general would get to $5 billion in cuts through a recouping of previous overpayments from "coding creep"—classifying patients into higher paying categories when a new payment system took effect categorizing patients based on the severity of their illnesses.

About $24 billion would be raised from charging new co-payments and deductibles for clinical lab services. Medical imaging providers would take reductions of up to $2 billion from changes including "prior authorization"—requiring doctors to get permission from Medicare to order a specific imaging test.

Trimming payments for diabetic testing supplies would raise $800 million. Specifically, payment rates derived from competitive bidding for mail-order diabetic testing supplies would be instituted in retail pharmacies.

Another $3.2 billion would be saved by cutting payments for drugs administered in doctor's offices, such as drugs used in cancer chemotherapy. About $700 million would be garnered through tougher fraud-fighting efforts, including closer scrutinization of the sale of power wheelchairs.

Almost $3 billion would be raised by recovering erroneous payments to Medicare Advantage plans, the private health plans in Medicare. About $14 billion would be brought in by charging higher premiums to high-income Medicare patients for Part B doctor care and Part D prescription drug benefits.

Taxes or other changes to Medigap plans that pick up out-of-pocket Medicare charges would raise between $12 billion and $53 billion. Use of the "chained CPI" to set certain Medicare payments would save $7 billion.

The Democrats' list also noted that Republicans will likely propose budget savings by cutting back subsidies in the health care overhaul law. The list also notes a change in that law many Democrats would favor that would add a public option to insurance exchanges—a government-run health plan that the uninsured could enroll in. That would produce $88 billion for deficit reduction, the list says. But that has essentially no chance of becoming law.

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