By Mary Agnes Carey, CQ HealthBeat Associate Editor

February 9, 2007 -- House Ways and Means Democrats on Thursday continued their party's assault on provisions of President Bush's fiscal 2008 budget proposal that Democrats say would weaken the nation's already fragile health care safety net and increase the number of uninsured Americans.

Department of Health and Human Services Secretary Michael O. Leavitt did his best to defend the provisions under fire—saying that they would strengthen federal entitlement programs and help more Americans purchase health insurance—but Democrats grilling Leavitt on his third consecutive day of Capitol Hill testimony disagreed.

"It's clear from the president's budget our beliefs are very different," said Rep. Pete Stark, D-Calif. "It's all cuts. Just cuts," Stark said of the budget's plan to trim billions over the next five years in payments to hospitals, home health care agencies, and other health care providers who offer services under Medicare's traditional fee-for-service program.

Stark said the budget would not reduce payments to Medicare Advantage plans—coverage that offers both drug and other health care benefits—but Leavitt said after the hearing that the reductions to Medicare fee-for-service providers would also mean that payments to "MA" plans would be reduced by $12.5 billion over the next five years.

During the hearing, when Leavitt stated that MA plans were about integrating care for Medicare beneficiaries, Stark said Leavitt had no figures to support that statement. "Sounds like the for-profit plans have made huge political contributions and those are getting to you," said Stark, who has expressed an interest in reducing Medicare payments to MA plans.

Several Democrats on the panel criticized a provision in the president's budget that would offer a $7,500 tax deduction for individual health insurance policies and $15,000 for family coverage. Leavitt said allowing all Americans—not just those with employer-sponsored health insurance—to receive a tax benefit would help more Americans without coverage purchase it. He added that another element of Bush's plan—grants to states to help develop and finance coverage for the uninsured—would work with the tax changes to help lower-income Americans afford coverage

Democrats disagreed, saying the change could cause major damage to employer-sponsored health care and would give a greater tax benefit to those in higher-income tax brackets. "It is not defensible to the people of this country," said Rep. Sander M. Levin, D-Mich. While the administration's proposals may be well intentioned, "how you do it seems to hurt more people and help very few," said Allyson Y. Schwartz, D-Pa.

The three-minute rounds continued, with members on both sides questioning Leavitt about other areas of the budget. Several panel members said the proposal to stop Medicaid graduate medical education payments would hurt teaching hospitals, but Leavitt urged a more comprehensive overhaul of the system, stressing that "everyone needs to be bearing some of these costs."

When Democrats and Republicans alike complained that proposed cuts in Medicare hospital payments would hurt those facilities, Leavitt said hospital margins, access to capital, and quality of care were all "strong."

By John Reichard, CQ HealthBeat Editor

February 5, 2007 -- The fiscal 2008 budget proposal released by the White House Monday would reduce yearly Medicare payment updates across the health sector to grab the lion's share of the $76 billion the administration proposes to cut from the program over the next five years. The plan also would shave $26 billion from federal Medicaid spending over that period, for a total of $102 billion in cuts over both programs over five years.

The update reductions are in the "market baskets" used by the Centers for Medicare and Medicaid Services to track yearly changes in the added cost of delivering a particular type of care. Hospitals would take the biggest hit under the market basket changes proposed by the administration, seeing a reduction of 0.65 percentage points off the market basket increase for inpatient care in each of the five years and losing $13.8 billion in total as a result. The administration said the change is a "productivity" adjustment that reflects efficiency gains in delivering care.

Hospitals would see the same reduction in the market basket increase in Medicare payments for outpatient care. That change would save $3.4 billion.

Home health agencies would see the next largest reduction, with their payment rates frozen for the next five years, saving $9.7 billion. Skilled nursing facilities would have their rates frozen in 2008 and in 2009–2012 would see a 0.65 percentage point reduction each year in their market basket increases. That change would save $9.2 billion.

Inpatient rehabilitation facilities also would see a freeze in fiscal 2008 and market basket updates nicked by 0.65 percentage points in each of the following four years, costing them $1.9 billion in Medicare reimbursement over that period.

Medicare hospice payments also would see a 0.65 percentage point drop in their market basket increases in each of the five years, saving Medicare $1.14 billion. Both the updates for the Medicare ambulance fee schedule and ambulatory surgery centers would be set at the change in the consider price index minus 0.65 percentage points, with the starting year for that change fiscal year 2008 in the case of ambulances and fiscal year 2010 in the case of the surgery centers. The savings to Medicare would be $360 million and $90 million, respectively. Medicare also would save $2.4 billion by introducing competitive bidding for clinical lab services. Thus, update changes would account for about $39.5 billion of the Medicare cuts.

The proposal also calls for Medicare savings of $11.5 billion by steps to "rationalize Medicare payments and subsidies." These changes include eliminating duplicate payments for certain medical education expenses in the case of Medicare Advantage payment rates. Medicare Advantage is the private health plan component of the Medicare program. That change would save $4.4 billion. Reducing payment rates for certain conditions treated in skilled nursing facilities and inpatient rehabilitation facilities would save $2.9 billion. Establishing a 13-month rental period for power wheelchairs would save $530 million. And reducing the rental period for oxygen equipment to 13 months would save $2.4 billion. Medicare also would save about $7 billion by phasing out payments for bad debt incurred by providers.

Other legislative changes would automatically reduce Medicare payments to all providers by 0.4 percent when general revenues account for more than 45 percent of all Medicare spending. "The sequester order would increase each year by 0.4 percent until general revenue funding is brought back to 45 percent," the Department of Health and Human Services said in a summary of its budget proposal.

Higher-income Medicare beneficiaries also would pay more for Medicare benefits in Part B of the program, which covers many health care expenses outside of the hospital, and Part D, the prescription drug benefit part of Medicare.

Higher-income beneficiaries would begin paying higher monthly premiums for the prescription drug benefit. And more Medicare beneficiaries would have to pay higher premiums for Part B because the income thresholds for paying those higher charges would no longer be subject to annual indexing. The Part D change would save $3.2 billion and the Part B change would save $7.1 billion.

Altogether, these various legislative changes would save $65.6 billion, with another $10.2 billion in savings coming from administrative changes in the Medicare program to improve "efficiency, productivity and program integrity," HHS said. The legislative and administrative changes combined would slow the yearly spending growth rate over the five years from 6.5 percent to 5.6 percent, the department said.

HHS would save $13 billion from legislative revisions and $12.7 billion from administrative changes in Medicaid. Legislative changes include reducing payments for administrative costs, reducing pharmacy reimbursement, and making it hard for owners of more valuable homes to qualify for Medicaid.

Administrative changes would include savings of $5 billion by revising payments for government providers, $3.6 billion from eliminating certain payments for school-based services, $2.2 billion in changes for rehabilitation services, and $1.8 billion by eliminating Medicaid payments for graduate medical education.

At an afternoon press briefing, HHS Secretary Michael O. Leavitt said the administration would target State Children's Health Insurance Program (SCHIP) payments to families with incomes below 200 percent of the federal poverty line, a step that would mean a gradual end to coverage of adults under the program and lower payments to states for children in families above 200 percent of the federal poverty line. Those payments would be made at the lower Medicaid federal matching payment rates instead of at enhanced SCHIP federal matching payment rates. An HHS official said the lower rates would not mean children would lose coverage.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

February 7, 2007 -- Capitol Hill lawmakers are reacting favorably to the newest labor-business coalition focused on reducing the number of uninsured Americans.

AT&T, Wal-Mart, and the Service Employees International Union (SEIU) are part of the wide-ranging group that announced Wednesday a set of principles to overhaul the nation's health care system by 2012. Other founding members include the Center for American Progress, the Howard H. Baker Jr. Center for Public Policy, the Communications Workers of America, and Intel.

The group, known as Better Health Care Together, favors quality, affordable health insurance coverage for all Americans and believes that individuals should protect and maintain their health. Better value for the health care dollar is another tenet, as is the belief that businesses, governments, and individuals should play a part in managing and financing a new American health care system.

Sen. Hillary Rodham Clinton, D-N.Y., who has formed her own exploratory committee and is considered a front-runner for the Democratic presidential nomination, said the coalition's formation "is one more piece of evidence that there's broad agreement that Americans deserve a health care system that covers everyone and lowers cost."

Clinton also said that passage of a universal health coverage plan "will be one of my top priorities as president."

Sen. Ron Wyden, D-Ore., who is championing his own measure (S 334) to create universal health care coverage, said the alliance of business and labor groups creates even more momentum for fixing the nation's health care system.

"What business and labor seem to be agreeing on more and more is that everyone needs to be covered and it can't be done on the backs of business if we are to be competitive in a 21st global economy," Wyden said.

Founders of Better Health Care Together have pledged to convene a national summit by May and recruit additional labor, business, government, and nonprofit leaders to join the coalition and support its principles.

Last month, SEIU also joined with AARP and the Business Roundtable to call on politicians to overhaul health care and Social Security. The group, dubbed "Divided We Fail," said that a joint effort from diverse organizations is needed to pressure lawmakers to act at a time when rising health care costs have strained American households and businesses alike.

February 6, 2007 -- Even when patients spend their own money on health care, there is little shopping based on cost or quality, according to a study the Center for Studying Health System Change released Tuesday.

While markets for self-pay medical procedures such as LASIK and cosmetic surgery are often noted as examples of consumer comparison shopping, significant barriers to effective shopping for other medical services exist, with consumers often instead relying on word-of-mouth recommendations to choose providers.

The study, published as a Web exclusive in the journal Health Affairs and funded by the California HealthCare Foundation, examines the market for LASIK, a surgical procedure conducted to reduce a patient's dependency on glasses or contact lenses, and self-pay markets for in vitro fertilization, cosmetic rhinoplasty, and dental crowns. In those markets, consumer shopping was more difficult and less prevalent than in the LASIK market, for reasons ranging from urgency in some cases to the cost of obtaining multiple price quotes, the study found.

In an accompanying Health Affairs article focused on shopping for price in medical care, Center for Studying Health System Change President Paul Ginsburg noted that current efforts to increase price transparency for health services often downplay "the complexity of decisions about medical care, patients' dependence on physicians for guidance about appropriate services and the need for information on quality."

By Mary Agnes Carey, CQ HealthBeat Associate Editor

February 9, 2007 -- Funding levels, outreach activities, and coverage of adults are all among the major issues in the debate over reauthorization of the State Children's Health Insurance Program (SCHIP), experts said at a forum Friday.

Battle lines already are emerging over SCHIP provisions in President Bush's fiscal 2008 budget proposal. The president's plan would increase SCHIP funding by $675 million, to $5 billion in fiscal 2008. The president also proposes transferring unspent money within SCHIP so the program could spend $1.2 billion more in fiscal 2008. But Democrats have argued that it will take an additional $12 billion to $15 billion over the next five years to fully fund the program.

Gayle Lees Sandlin, director of the Alabama Department of Public Health, said Bush's proposal would reduce the size of her state's SCHIP program by 25 percent.

Bush's proposal also would encourage states to scale back coverage of all adults and children from higher-income households. Eligibility would be capped for new entrants at 200 percent of the federal poverty level, offering lower federal matching funds for those above that threshold. Such curbs could reduce SCHIP enrollment.

As of 2005, about 600,000 adults received coverage through the program, with 12 states covering parents of SCHIP recipients and six states covering childless adults, said Diane Rowland, executive vice president of the Henry J. Kaiser Family Foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured. In addition, 15 states cover pregnant women through either waivers or an option to cover "unborn children."

Created in 1997 as part of the Balanced-Budget Act (PL 105-33), SCHIP provides coverage to more than six million children each year, yet two million children remain uninsured despite being eligible for the program, said Genevieve Kenney, a principal research associate and health economist at the Urban Institute. "That suggests that more work needs to be done. The job isn't finished," she said.

The program, Kenney said, is "on the verge of a funding crisis," with 14 to 17 states projected to face funding shortfalls in May. Georgia is slated to run out of SCHIP funds even sooner, which could affect coverage for 270,000 children. At the same time states are facing funding shortfalls, about $4 billion in unspent SCHIP funds have accumulated in other states, with Texas accruing 25 percent of the unspent funds, she said.

Speakers at the forum, hosted by the Alliance for Health Reform and the Kaiser Commission on Medicaid and the Uninsured, said that key issues in the SCHIP debate will include how much flexibility and funding states should receive and how excess SCHIP funding should be redistributed.

Lawmakers also must debate whether or not to promote higher enrollment among children eligible for Medicaid and SCHIP, which includes finding ways to overcome enrollment barriers, such as streamlined applications processes or a review of current documentation requirements that may be hindering enrollment. Possible expansions to cover low-income families and low-income groups are another vision for the program, Kenney said.

Finding more funding for SCHIP will be difficult under "pay as you go," or PAYGO, budget restrictions, which require new entitlement spending or tax cuts be accompanied by tax or spending offsets. Sen. John D. Rockefeller IV, D-W.Va., chairman of the Alliance for Health Reform, said PAYGO rules are "terrific for the budget and terrible for people" and he urged broader thinking and greater funding to help solve the nation's health care woes.

"How important is health care?" Rockefeller asked. "Everything is getting worse and constantly will continue to do so."

By John Reichard, CQ HealthBeat Editor

February 9, 2007 -- Launching a plan to conduct "aggressive" oversight of the pharmaceutical industry, Rep. Henry A. Waxman, D-Calif., said Friday that he is sending letters to the Medicare program and to Medicare prescription drug plans to determine how profitable they are and how much of the savings they negotiate are being passed on to Medicare beneficiaries. Waxman said the findings would help determine whether the Medicare prescription drug program is "wasting taxpayer dollars" and overcharging Medicare beneficiaries.

Witnesses at a House hearing chaired by Waxman said it would be difficult to design a program that is more costly than the Medicare Part D program, which offers the prescription drug benefit. These assertions run counter to those of administration analysts who say that market forces are sharply lowering estimates of the overall cost of the program while keeping monthly premiums relatively low.

The Centers for Medicare and Medicaid Services (CMS), meanwhile, has released new data showing that Medicare drug plans are making wide use of low-cost generics.

Waxman, who chairs the House Committee on Oversight and Government Reform, challenged administration claims that the private plans and pharmacy benefit managers that negotiate on their behalf are able to negotiate low prices.

The "evidence seems to point in the opposite direction," he said. "Analyses by my staff and others suggest that drug prices under the plans are higher than prices in other federal government programs, higher than prices in Canada, and even higher than prices available at Costco and Drugstore.com," Waxman said in his opening statement.

The Medicare overhaul law (PL 108-173) prevents public disclosure of the prices that Medicare drug plans pay drug manufacturers for prescription drugs. The prices plans charge beneficiaries for drugs are publicly disclosed, however.

Because the government does not know what prices Part D plans are getting for drug products they cover, it does not know how well market forces are working in the Part D program, said Gerard F. Anderson, a health policy professor at the Johns Hopkins Bloomberg School of Public Health.

"The secretary of [the Department of Health and Human Services] and the Congress should know the prices Part D plans pay for each of the 4,300 drugs on one or more of the Part D formularies in order to determine if the Part D market is working," Anderson said.

Anderson said the price data "is buried somewhere in Baltimore at CMS headquarters," but the CMS actuaries, and analysts from the Congressional Budget Office, the Congressional Research Service (CRS), and the Government Accountability Office have not examined it.

"At the present time, CBO and CRS are not even authorized to review the data," he said.

The HHS secretary should compare the lowest price any Part D plan is getting to prices paid by Medicaid, the Department of Veterans Affairs or Canada, he continued. Legislation (HR 4) recently passed by the House that would give the HHS secretary authority to negotiate prices in Part D would require him or her to know the actual prices plans are obtaining, he said.

"The secretary does not need to negotiate prices for each of the 4,300 drugs," Anderson testified. "Let the market work where the market is working effectively; the secretary should intervene only where there is market failure."

The hearing also dealt with prices paid by Medicaid and the "340B Program" run by the Public Health Service. That program is intended to provide federally funded health clinics access to prescription brand-name and generic drugs at low prices.

"According to whistleblowers who have filed dozens of cases over the last decade, drug manufacturers have deliberately crafted business plans to avoid giving Medicaid proper discounts," Waxman said. Federal auditors also have found that the public health clinics are being overcharged, Waxman said.

Anderson said government programs do not know what prices they are paying for drugs because pricing formulas "are so complicated and/or the data is not being compiled." He urged the government to obtain better value for taxpayer dollars by moving away from paying different prices for the same drugs.

Waxman made it clear he will press the administration to beef up efforts to bring fraud cases against pharmaceutical firms, which have returned billions of dollars already to the U.S. Treasury.

Waxman and a witness from the Department of Justice sparred over whether or not the Bush budget proposal would reduce funding for attorneys to counter fraud in the health care sector. But the witness, Associate Deputy Attorney General Ron Tenpas, acknowledged that the department has a backlog of 150 cases alleging fraud by pharmaceutical firms. Tenpas said that since 1999, federal fraudbusters have collected more than $5.3 billion in criminal fines and civil settlements from drug makers.

HHS spokeswoman Christina Pearson said Friday that "We have a substantial record showing that a competitive marketplace is working for seniors in Part D. Premiums have gone down, the Part D program costs less than originally estimated. Those have gone down but enrollment and beneficiary satisfaction continue to go up as shown by multiple independent surveys. The numbers show that Part D is a very successful program for people with Medicare and taxpayers."

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, said Part D is not only saving beneficiaries money but its overall cost is not as great as initially projected.

"America's seniors and disabled are seeing savings on average $1,200 a year, according to CMS, and have the ability to choose from a wide range of plans that fit their individual health needs," he said. "And more than 80 percent of seniors are satisfied with their coverage, according to the Kaiser Family Foundation. Both CMS' Office of the Actuary and the nonpartisan Congressional Budget Office have recently reported that the program will cost 26 percent less than previously expected over the next ten years," he said.

Data released by CMS on Feb. 8 said that generic use is especially high among those in the Medicare drug benefit, with generic drugs accounting for nearly 60 percent of drugs dispensed to people in Medicare drug plans. "The new Medicare data mark the third consecutive quarter of growth in generic utilization among those in the Medicare prescription drug benefit, indicating that beneficiary choice and broad formularies are yielding even greater savings as the program has progressed," CMS said.

The Pharmaceutical Care Management Association, which represents pharmacy benefit management firms, took some credit for the boost. "New data released today by the Centers for Medicare and Medicaid Services showing generic-drug utilization exceeding 60 percent in Medicare Part D underscores the role of pharmacy benefit managers in expanding access to lower cost, clinically proven prescription drugs," the association said.