By John Reichard, CQ HealthBeat Editor

February 5, 2013 -- Buried deep inside a Congressional Budget Office (CBO) report released last week is an estimate that overhauling the Medicare physician payment formula over the next decade would cost just $138 billion.

That's dramatically lower than the roughly $300 billion CBO has previously estimated.

American Medical Association President Jeremy Lazarus seized on that nugget from page 31 of the report, issuing a statement saying "now is the time to end this failed policy once and for all and protect access to care for seniors now and in the future."

The "sustainable growth rate" (SGR) formula used to determine payment levels under the Medicare physician fee schedule targets projected Medicare spending on physician services. When actual spending exceeds the target, the SGR requires offsetting cuts the following year.

The CBO report though shows that Medicare spending has been growing at a much slower clip than previous CBO.

As a result, CBO is lowering its estimates of how much spending in the future will miss the yearly targets—if at all. That margin of difference has shrunk dramatically, and so too the cost of eliminating the SGR.

The $138 billion is what it would cost to freeze payments to doctors over the next 10 years. For that figure to hold, an SGR overhaul would have to keep payments flat, and the kind of SGR overhaul physician groups envision would increase payments somewhat each year. So, depending on the terms of an SGR overhaul, it could cost considerably more than $138 billion. But the cost would be nothing like previous cost estimates.

CBO actually began revising downward the cost of a 10-year freeze last summer, pegging it at $245 billion over a decade's time, as estimates of Medicare spending growth began to slow.

The report also notes that cuts under the current formula, while big next year, would not continue the following year. The 2014 cut is projected to be 25 percent but payments "will increase by small amounts in subsequent years," CBO projected. This year, had Congress not stepped in last month, physician payments would have been cut by 27 percent starting Jan. 1.

Holding payment rates through 2023 "at the levels they are now would raise outlays for Medicare ... by $14 billion in 2014 and about $138 billion (or about 2 percent) between 2014 and 2023," the CBO report says. In a footnote, it explains that the cost is lower than previously estimated "primarily because of lower spending for physicians' services in recent years. Under the sustainable growth rate, future payment updates depend on the difference between spending in prior years and spending targets established in law."

The report adds that "actual spending has been lower than projected—and lower than the spending targets inherent in the sustainable growth rate—for the past three years. Because actual spending has been lower than spending targets, CBO now estimates that payment rates will increase beginning in 2015. Those higher payments narrow the difference between growth under current law and a freeze at current levels, thereby reducing the estimated cost of restricting the payment rates."

The lower figures could aid an effort in the House to develop an alternative to the SGR on a bipartisan basis. However, finding offsets totaling $138 billion over 10 years is still a huge undertaking, raising the question whether lawmakers will actually bite the bullet and do it.

By John Reichard, CQ HealthBeat Editor

February 5, 2013 -- Medicare outlays grew by just 3 percent in fiscal 2012, the slowest rate of growth since 2000, according to a recent Congressional Budget Office (CBO) report.

And that slower pace of Medicare spending growth is projected to continue, with CBO analysts estimating relatively modest growth of 4 percent, or $21 billion, in fiscal 2013.

The revised Medicare figures contributed to the overall CBO projection that the deficit will shrink to $845 billion in fiscal 2013 under current law, its lowest level as a percentage of the economy since 2008. The fiscal 2012 deficit totaled $1 trillion.

Compared to its analysis released last August, CBO, citing technical adjustments, lowered its estimates of mandatory federal spending in 2013-2022 by $296 billion, largely because of Medicare and Medicaid adjustments.

CBO explained the change by noting the recent slowdown in overall health spending growth.

"In recent years, health care spending has grown much more slowly, both nationally and for federal programs, than historical rates would have indicated," the report said. "For example, in 2012, federal spending for Medicare and Medicaid was about 5 percent below the amount that CBO had projected in March 2010."

Health spending analysts inside and outside the federal government have tied the overall health spending slowdown to a decreased demand for health care services because of declines in income stemming from the recent economic downturn. But they've also speculated that changes in the way providers are paid to make them more efficient have helped to curb spending growth.

Democrats are eager to tie the slowdown to the health care overhaul law (PL 111-148, PL 111-152), which has trimmed Medicare payment increases to hospitals and other providers. But a number of the payment changes in the law touted by Democrats as cost-saving measures have yet to take hold on a widespread basis.

Wendell Primus, a senior health aide to House Minority Leader Nancy Pelosi, D-Calif., recently credited the health care law with helping to get Medicare per capita spending growth "down to its very lowest level." In terms of cost control, "we've done about as good a job as can be done, and that message needs to get out there," Primus told a Washington, D.C., conference sponsored by AcademyHealth, an organization that represents health services researchers.

CBO's projections show federal Medicare and Medicaid spending roughly doubling over the next decade, however, as many more baby boomers enter their retirement years and as Medicaid enrollment grows under the health care law.

Medicare spending will grow from $551 billion in fiscal 2012 to $1.079 trillion in fiscal 2023, according to the new projections. Federal spending on Medicaid will grow from $251 billion in fiscal 2012 to $572 billion in fiscal 2023, the CBO report said.

Gene Sperling, head of the National Economic Council at the White House, said last week that in order to encourage states to expand their Medicaid programs under the health care law, the Obama administration would not trim Medicaid spending in its upcoming fiscal 2014 budget proposal. During that speech, delivered at a conference sponsored by the left-leaning advocacy group Families USA, Sperling suggested that Medicare likely would take deeper cuts as a result.

However, the CBO numbers could lead Democrats to press for smaller Medicare reductions.

"The promises we made to the elderly and disabled in the form of Medicare, Medicaid and Social Security means that spending is going to go up," Primus said. "There is no other way, unless you are really going to go back on those promises."

CBO shaved its Medicaid spending estimate for 2013–2022 by 5.5 percent, or $236 billion less in federal Medicaid spending over that period. CBO also lowered its estimate of Medicaid spending per person and slightly reduced its estimate of Medicaid enrollment, down to 84 million rather than 85 million.

But the congressional analysts also noted that outlays for Medicare, Medicaid, the Children's Health Insurance Program, and subsidies offered through health insurance exchanges "will soon be even greater than outlays for Social Security. Spending for major health programs will be nearly 5 percent of GDP in 2013, and such spending is projected to grow rapidly when provisions of the [health care law] are fully implemented by mid-decade, reaching 6.2 percent of GDP in 2023."

Sen. Charles E. Grassley of Iowa, a senior Republican on the Senate Finance Committee, said in a written statement that the numbers show the need for changes in health care entitlement programs.

"This information from the nonpartisan Congressional Budget Office emphasizes the need for the president and Democratic leaders in Congress to come to the table to work on health care costs rather than simply attacking proposals made by House Republicans," he said. "By 2015, health care programs will cost taxpayers more than anyplace else the government spends money and will continue to do so through 2023."

The report also examined an alternative fiscal scenario that included blocking Medicare physician payment cuts, undoing automatic spending reductions and extending certain expiring tax provisions. "If lawmakers were to make those changes to current law, and if other changes in policies with offsetting effects on budget deficits were not enacted, deficits and debts would be significantly higher than the amounts shown in CBO's current baseline," the report said. "Debt held by the public would reach 87 percent of GDP by 2023, the largest share since 1947."

By John Reichard and Dena Bunis, CQ HealthBeat

February 7, 2013 – The White House renominated Marilyn Tavenner to head the Centers for Medicare and Medicaid Services (CMS) last week, hoping to put a permanent administrator atop the agency for the first time in seven years.

If ever there was a time to try to obtain Senate confirmation of Tavenner to head the agency it's now. With the health care law moving toward implementation after the Supreme Court upheld its constitutionality in 2012 and the next election 21 months away, Republicans may be less inclined to vote against her as a way of registering their fierce opposition to the overhaul.

They would almost certainly would use a Senate Finance Committee confirmation hearing to attack the law and raise questions about its viability. They would also likely seize the opportunity to call for major changes in Medicare and Medicaid. But the 61-year-old Tavenner—a former nurse and for-profit hospital industry executive who was well liked by her peers, many of them Republicans—isn't the lightning rod for criticism of the law that former CMS Administrator Donald M. Berwick was when the White House unsuccessfully nominated him to head the agency.

Facing heated Republican opposition to the Berwick nomination, Senate Finance Committee Chairman Max Baucus, D-Mont., never scheduled a confirmation hearing for Berwick. And with the 2012 election less than a year away, he didn't hold one for Tavenner either after the White House announced its intention to nominate her on Nov. 23, 2011. She started as acting administrator on Dec. 5.

The White House had barely sent out the notice of Tavenner's reappointment when health groups began calling for a confirmation hearing. And Republicans signaled a willingness to hear the acting administrator out.

"On behalf of the 45,000 members of the American Association of Nurse Anesthetists, I write to urge the Senate to schedule hearings and votes to confirm the President's nominee for Administrator of the Centers for Medicare & Medicaid Services (CMS), Ms. Marilyn Tavenner,'' Janice Izlar, president of the association, wrote in a letter to Majority Leader Harry Reid, Minority Leader Mitch McConnell Baucus and Finance ranking member Orrin G. Hatch. "As critical as CMS is to the life and health of every American and to the fiscal state of the country, the nation's interest is best served by the agency being led by an Administrator who carries the full responsibility and authority of the position leaders of the Finance."

Similar sentiments came in statements from Families USA, the Federation of American Hospitals, the American Hospital Association and the American Medical Association.

Neither Reid nor Baucus had any immediate reaction to the president's renomination.

Senators Want to Question Tavenner at Hearing

When told of the president's renomination and asked if he would support Tavenner's confirmation, McConnell, in a brief interview off the Senate floor, said that "I really haven't given it any thought at all.''

Hatch, who has said in the past that he had a "favorable" opinion of Tavenner, reiterated those sentiments even as he said he will have questions for the nominee.

"I've met with Ms. Tavenner and found her to be smart and diligent,'' Hatch said in a statement. "With Medicare and Medicaid on an unsustainable fiscal path, the cost of health care continuing to rise, and with the implementation of the health law moving forward, there are many questions she'll need to fully answer before I decide whether or not to support her nomination."

Even one Democrat who strongly supports Medicare and Medicaid and is an ardent backer of the health care law (PL 111-148, PL 111-152) didn't rush to demand an immediate confirmation when told of the president's renomination.

"I'm going to have to have some discussions with her,'' Sen. Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee, said in an interview at the Capitol. The Iowa Democrat said he has had some concerns about "how CMS interprets certain things which sometimes don't seem to make sense."

Sen. Charles E. Grassley, Jr., a senior Republican on the Finance Committee, urged regular order for this nomination. "I hope the Obama administration supports the nomination going through the committee process and avoids the divisive, unconstitutional circumvention through recess appointment as it tried with the previous nomination of Donald Berwick to head the Centers for Medicare and Medicaid Services," Grassley said in a statement. "It's been seven years since this massive federal agency has had a Senate-confirmed administrator. The Senate should give Ms. Tavenner every opportunity to show she is a worthy choice to lead the agency."

Asked whether Republicans would likely hold up a Tavenner confirmation on the floor, a Senate GOP aide said. "I don't see it coming. I don't see any reason anyone is going to put a hold on it," absent some unforeseen revelation.

The aide said he expected her to be confirmed. "If she's got a Daschle-type problem of course not,'' the aide added, referring to tax issues that derailed former Majority Leader Tom Daschle's bid for HHS secretary. Asked about timing for a confirmation hearing, the aide said that Jack Lew is first up for Treasury Secretary and "then after that then maybe we go directly" to Tavenner, perhaps in the work period between Feb. 26 and March 22.

Tavenner has won plaudits as a steady, productive manager ever since joining the agency in February 2010 as its top operating executive.
A Virginian, Tavenner is well liked by such moderates as Mark Warner and Tim Kaine, the two Democratic senators from her state. She also has drawn praise from the right, with House Majority Leader Eric Cantor, R-Va., calling her a good choice to run CMS.

By Rebecca Adams and John Reichard, CQ HealthBeat

February 4, 2013 – Last week Ohio Gov. John R. Kasich became the fifth Republican governor to announce support for expanding Medicaid, a decision that Health and Human Services (HHS) Secretary Kathleen Sebelius called "a great step forward."

Kasich's decision, which was announced in conjunction with the release of his two-year budget proposal, was widely anticipated. He had faced intense pressure from medical providers, business groups, religious organizations and patient advocates to expand the health care program for the poor.

Sebelius, who spoke to reporters last week after a speech in Washington to AcademyHealth's National Health Policy Conference, addressed a concern of many governors.

"I think there's a nervousness, and an understandable nervousness," Sebelius said, on the part of governors who worry that if they expand Medicaid, a "federal budget deal changes the formula." The formula provides a 100 percent federal match for those newly eligible for Medicaid for three years, a reimbursement that then phases down to 90 percent in 2020.

"I think the president made it very clear that he understands that this framework is essential to giving governors the confidence, that he would oppose any change in that framework,and he intends to keep the deal," Sebelius added. A top Obama official said last week that the president's fiscal 2014 budget proposal would not cut Medicaid.

Kasich said at a briefing for reporters that "this is the right decision for Ohio."

The administration had predicted that GOP governors would find it hard to turn down federal funding. The dynamic among states Republican leaders began shifting when three Western governors—including Arizona's Jan Brewer, a darling among conservatives—made statements beginning in mid-December that they supported broadening the program.

Kasich's decision puts his political reputation as a cost-cutter somewhat in jeopardy among conservative activists. Fifteen years ago, Kasich was in a role similar to that of House Budget Chairman Paul D. Ryan, R-Wis. One of the most fiscally conservative Republican members of Congress in the 1990s, Kasich used his perch as House Budget Committee chairman from 1994 to 2000 to become a nationally known spokesman for the virtues of budget reduction. During his tenure, Congress passed a far-reaching budget deal (PL 105-33) that was at the time projected to save a net $7 billion in Medicaid spending over the next five years.

Kasich's announcement will bring the total number of governors who have expressed support for expansion to 21. The District of Columbia also plans to expand Medicaid as called for in the 2010 health care law (PL 111-148, PL 111-152). In order to make the expansion happen, in most states the governors need to have the support of their state legislatures.

Last week, Pennsylvania GOP Gov. Tom Corbett is likely to announce whether he supports the expansion of Medicaid.

Kasich's Arguments for Expansion

The expansion will bring in $13 billion over seven years into the state, said Kasich and Greg Moody, director of the Ohio's Office of Health Transformation.

"It's our money," Kasich said at the press briefing. "Let's bring it home."

Overall, Kasich estimated that his state will save $773 million through 2020 if it expands. The projection assumes savings from higher tax revenues. In addition, expansion would enable the state to get more federal dollars in the future for some residents, such as prisoners or those who are currently covered in Medicaid as part of its optional population. Those in that category would be eligible for the higher federal subsidies.

An estimated 1.5 million Ohioans currently don't have coverage. More than 270,000 of them would be eligible for Medicaid in the first year if the state Legislature agrees with Kasich's position. An additional 230,000 people who are already eligible for Medicaid but have not enrolled are expected to sign up.

The governor said he has been negotiating with Obama administration officials to give the state some flexibility in implementing the expansion, such as allowing some of the people who are coming into the system to get benefits through the state's exchange instead of Medicaid.

"There is a discussion now about some flexibility," Kasich said, so that people whose household income is from 100 percent to 138 percent of the federal poverty line might be "able to buy onto the exchange to receive private insurance coverage,'' Kasich said when he unveiled his budget.

"We don't know what the details are going to be yet. We don't know what the cost is going to be for buying into the exchange, although it appears they're willing to waive budget neutrality," Kasich said. "I don't know where this is going to lead us, but I believe that these motions that lead us to a more flexible way to accomplish this is positive. But I want to be clear: I don't know if it'll be workable at the end of the day."
Kasich and Moody presented several justifications for the decision to expand.

Those with low incomes would continue to get their care through emergency rooms rather than in doctors' offices or other more appropriate settings, which Kasich said "costs everybody a lot of money." And if Ohio did not expand, hospitals would be put at a disadvantage if federal funding decreased for uncompensated care provided to the uninsured.

Kasich emphasized that state officials "are not endorsing an individual mandate" and that he is proposing that if the federal government reduces its financial commitment, the expansion would automatically be reversed.

A fact sheet also mentioned the sway of business groups. "Providing Medicaid coverage to more low-income, working Ohioans can spare employers job-killing penalties," it read.

And Kasich said he wanted to save money for local jurisdictions that provide mental health care funding, saying he is "very pleased about beginning to build that safety net for mental health."

As part of the expansion, Ohio would streamline the state's 150 or so Medicaid eligibility categories into three: children and pregnant women; people who are age 65 or older who have Medicare coverage or who need long-term services; and other non-pregnant adults who do not need long-term services and supports.

Ohio officials have already said that the state plans to partner with the federal government on an exchange and will submit a blueprint by the Feb. 15 deadline.

By Rebecca Adams, CQ HealthBeat Associate Editor

February 6, 2013 -- Michigan Gov. Rick Snyder recently joined five other Republican governors in supporting an expansion of Medicaid in his state.

Republican's control both chambers of the Michigan legislature, so it's unclear whether those lawmakers will go along with Snyder's recommendation. But Snyder made a pitch for broadening the program at a news conference in Michigan last week and is expected to provide more information in his upcoming budget.

The expansion would allow about 470,000 more uninsured low-income people to qualify for Medicaid, according to the state. Currently, 1.9 million people receive Medicaid benefits.

The addition of Michigan brings the count of states whose governors who have expressed interest in expanding the health care program for the poor to 22, plus officials in the District of Columbia. Eleven Republican governors have rejected the idea. The Republican governors who would like to expand are in Arizona, Michigan, Nevada, New Mexico, North Dakota and Ohio. Thirty states currently have GOP governors.

"While this is a federal program that we would not have necessarily created for Michigan, it is critical that the state control its implementation," Snyder said in a statement. "Failure to go through with the expansion means that Michigan tax dollars will go to cover health care costs for other states that do take part. We can ensure the program remains financially stable and guard against changes in the federal commitment."

For states that do expand, the federal government will pick up the entire cost of covering the new beneficiaries for the first three years. That federal match will phase down to 90 percent of the costs in 2020.

Snyder's announcement came a day after Pennsylvania Republican Tom Corbett said he could "not recommend" the expansion of Medicaid in his budget proposal. Earlier in the week, Ohio Republican Gov. John Kasich said he does support expansion.

Patient advocates praised the decision.

"The commitments today and on Monday by governors in Michigan and Ohio to expand their states' Medicaid programs will provide needed health coverage for well over a million uninsured people," Families USA executive director Ron Pollack said in a statement. "It is also indicative of an inevitable movement that will ultimately result in Medicaid expansions in all states across the country."

• Governor's News Release
  

By Rebecca Adams, CQ HealthBeat Associate Editor

February 7, 2013 -- Federal officials are delaying until 2015 the Basic Health Program, a health care overhaul option that would allow states to use federal tax subsidies to help cover low-income people whose income is too high to qualify for Medicaid.

The program is an alternative to offering that population coverage in the exchanges that will begin operating in January 2014 under the overhaul (PL 111-148, PL 111-152). It is intended to help those with incomes between 139 percent and 200 percent of the federal poverty level. The delay in the start of the program was explained in a "frequently asked questions" document from the Centers for Medicare and Medicaid Services (CMS).

CMS officials cited as the reason for delay "the scope of the coverage changes that states and the federal government will be implementing on January 1, 2014, and the value of building on the experience that will be gained from those changes."

People who get their insurance through this program would not have to reimburse the federal government if their income fluctuates during the year, unlike under other health programs where a change in circumstances could change their eligibility. For example, without the basic program, if someone's income increased slightly, he or she could become eligible for private insurance through the exchange markets, while a slight decrease could shift them into the population that is eligible for Medicaid. People not in the basic program who get their coverage through the exchanges also would have to pay back any subsidies that they received during the year if it was determined later that they had not actually qualified for them.

The benefit to the federal government is that the Basic Health Program would simplify and perhaps reduce the costs of overseeing the care of this population. A state that decided to use this option would receive 95 percent of the amount of the premium tax credits and cost-sharing reductions that would have been provided in the exchange for this group of people.

CMS officials said they will release proposed rules for the basic health program for comment in 2013 and final guidance in 2014, so that the program will start in 2015.

In the meantime, state officials who want to create a system for the population whose income is near the dividing line between eligibility for Medicaid and the exchanges are encouraged to talk to CMS officials about other options in 2014. For instance, CMS officials have said in the past that states can use Medicaid funds to buy coverage in the exchange market for Medicaid beneficiaries. And some states that already have expanded their Medicaid coverage for adults could offer to help that population pay their premiums in the exchange.

The document covers a wide range of other topics, as well. It provides technical details about the higher federal matching rate for the people who become newly eligible for Medicaid in 2014 if a state expands and how states should transition to a system that uses modified adjusted gross income as a method of figuring out individuals' eligibility. The memo also answers detailed questions about coverage for pregnant women and children.