By Drew Armstrong, CQ Staff

March 6, 2007 – Lawmakers on a House health subcommittee heard suggestions on overhauling Medicare's physician payment system Tuesday, but some seemed unimpressed by the panel's advice.

Frustrations aside, House Energy and Commerce Health Subcommittee Chairman Frank Pallone Jr., D-N.J., made clear that an overhaul of the formula was a priority in the 110th Congress, and the sooner the better.

"The goal is to try and do some kind of permanent fix and not continue with these annual end-of-the-year changes," Pallone said. "We want to make an effort to do something, if possible, this year, certainly within this session of Congress."

None of the potential solutions are likely to be simple, however. Because MedPAC's members could not reach consensus, their March report instead lays out two avenues lawmakers could follow.

The first would discard the formula entirely and have Congress develop a new system to pay doctors based on the quality and value of the care they give. Doctors would be encouraged to work together to achieve better outcomes for patients and might be paid more for preventive care that stops costly health problems before they start.

The second option would use a modified version of the current formula but make it more sensitive to regional variations. A formula with spending targets based on small regions of the country or even individual groups of physicians and hospitals would reward those who keep costs down and try to control costs for higher spenders.

Lawmakers in the House and Senate are also concerned about the cost of any solution they choose. Preliminary estimates from the Congressional Budget Office suggest that a full overhaul of the formula might cost several hundred billion dollars over a decade, money Congress could be hard-pressed to find.

Medicare Payment Advisory Commission (MedPAC) Chairman Glenn M. Hackbarth attempted to highlight one area of his group's report that suggest privately run Medicare Advantage plans could be a major source of savings. According to Hackbarth, equalizing the private plans' payments with those of traditional Medicare could save the government around $160 billion over 10 years, a good start toward paying to overhaul the payment formula. MedPAC also has recommended a number of other payment revisions for fiscal 2008 that would generate tens of billions of dollars in savings that lawmakers might partly tap to pay to block scheduled physician payment cuts.

Pallone said he felt using the private plans as a funding source is "a major way to save money that should be looked at."

The insurance industry has criticized the MedPAC report for suggesting the private Medicare plans as potential cost savers, but Democrats have long eyed the larger relative payments they receive per beneficiary.

House Ways and Means Health Subcommittee members at an afternoon hearing on physician payment also expressed frustration with the MedPAC report, but that panel's chairman, Democrat Pete Stark of California, told colleagues they were as likely to be divided on the issue as the commission. "I think we have to look at MedPAC as a good example of what we face," Stark said.

With the lack of a ready-made solution, a few members of the subcommittee unloaded on Hackbarth and his commission.

"I have to tell you that looking at this is, well, I think it's one of the skimpiest things I've ever seen anybody come in here with," Rep. Anna G. Eshoo, D-Calif., said regarding Hackbarth's presentation.

"When you're here, you need to summarize it, but when you summarize you need to have some meat on the bones. I really have trouble understanding what you have recommended to us," Eshoo continued.

Rep. Diana DeGette, D-Colo., jumped on Hackbarth as well, giving somewhat louder voice to the frustrations many lawmakers expressed with the report.

"I think that we should either disband this commission and get a new one that will give us clear recommendations, or we should send the existing commission back to come up with a clear choice for us," DeGette said, calling the report "unfinished."

Pallone offered some comfort speaking to Hackbarth, acknowledging that as for the lack of one clear solution, "a lot has to do with what you were tasked to do." In 2006, Congress asked MedPAC to study alternatives to the physician payment system, known as the "Sustainable Growth Rate," but did not stipulate that the group come up with only one solution.

House Ways and Means Chairman Charles B. Rangel, D-N.Y., said a one-year fix this year to block scheduled physician payment cuts is possible, citing budgetary pressures and paying for legislation to lessen the impact of the alternative minimum tax. Rangel stopped short of saying a fix would be for one year only, however. "We're just going to have to establish our priorities," he said.

John Reichard contributed to this story.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 6, 2007 – Senate Finance Committee Chairman Max Baucus, D-Mont., said Tuesday he will seek $50 billion in new funding over the next five years as part of reauthorization of the State Children's Health Insurance Program (SCHIP).

"We have to find a way to pay for it and we will," Baucus said, but offered no specifics during remarks at an SCHIP forum sponsored by the journal Health Affairs. He did say that cuts to Medicare Advantage payments were "certainly one of the items that is on the table."

Baucus has made SCHIP reauthorization the Finance panel's top health priority for the year and said Congress must act before the program's authorization and funding expire Sept. 30. Other Democrats, including Senate Health, Education, Labor and Pensions Committee Chairman Edward M. Kennedy, D-Mass., have said $50 billion is needed in new SCHIP funds over the next five years to help cover children eligible for the program. President Bush has proposed a far smaller expansion, seeking $30 billion over five years.

Baucus said he was confident the Finance panel could move an SCHIP package with broad bipartisan support, adding, "we have to do it fairly soon." He also said he is working with Senate Budget Committee Chairman Kent Conrad, D-N.D., to include SCHIP funding in the fiscal 2008 budget resolution. "There are lots of ways the budget resolution can be written. I would like to see it written in a way that protects SCHIP as strongly as possible," Baucus said.

House Budget Committee Chairman John M. Spratt Jr. of South Carolina has said his fiscal 2008 budget blueprint will not call for cuts in Medicare or Medicaid, two areas health care providers fear will face cuts to finance an SCHIP expansion.

Separately, House Appropriations Chairman David R. Obey, D-Wis., has said the fiscal 2007 supplemental spending bill for military operations in Iraq and Afghanistan will include at least $750 million for children's health insurance to cover shortfalls in 14 states. Baucus said while the supplemental is an appropriate vehicle for SCHIP shortfall funding, "nothing's definite yet."

Separately Tuesday, GOP Reps. Joe L. Barton of Texas and Nathan Deal of Georgia proposed legislation to address fiscal 2007 SCHIP funding shortfalls.

Their bill would limit the funds to coverage of low-income children and pregnant women who live below 200 percent of the poverty level, with eligibility based on gross income only. Their measure also would require states with funding shortfalls to use their own funds to expand SCHIP to additional populations.

"Shortfall states will have to stop using their rules to hide people's income and pretend that they make less than they really do," Barton and Deal noted in a news release.

March 5, 2007 – Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee, has introduced legislation he said would "fix glitches" with laws regarding Medicaid eligibility for newborns.

Grassley said in a news release that procedure implementations required by last year's budget savings bill (PL 109-171) have "erroneously inhibited" access to Medicaid for some newborns. Grassley said the provisions in question were intended to prevent ineligible adults from obtaining Medicaid coverage.

Some hospital and children's health groups have accused state Medicaid officials of incorrectly using the budget savings bill, also known as the "Deficit Reduction Act," as a way to deny Medicaid health coverage to babies born to undocumented parents, even though the children are U.S. citizens. Centers for Medicare and Medicaid Services (CMS) officials have said children are not being denied Medicaid coverage under the new law.

The American Academy of Pediatrics said Monday that it appreciates Grassley's efforts and is reviewing his legislation.

In a Senate floor speech March 2 about his legislation (S 751), Grassley said the budget savings bill did not change "two fundamental facts: the first, the mother—regardless of documentation status—was eligible for Medicaid at the time of the child's birth; and, second, the child is a citizen."

Grassley said while he supports provisions in the budget savings bill that require states to more fully document Medicaid applicants' citizenship, such steps are not necessary for newborns. "CMS and the states should recognize what is to me, common sense: A child born in the United States whose birth was paid for by Medicaid is a citizen under current law. No further documentation necessary."

Separately, Rep. Gene Green, D-Texas, has introduced legislation (HR 1238) that would require states to provide one year of automatic Medicaid eligibility to babies whose mothers are sufficiently poor that the baby's birth was covered by Medicaid.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 6, 2007 – As Democrats consider reducing Medicare payments to private health plans as a way to finance other spending priorities, the ranking Republican on the Ways and Means Committee warned Tuesday that those cuts could hurt poor and minority beneficiaries.

In a letter sent Tuesday to his House colleagues, Rep. Jim McCrery of Louisiana said Congress has "made that mistake before" with reductions to Medicare Advantage plans in the 1997 balanced-budget act that led to many of the plans dropping out of Medicare and more than 2 million Medicare beneficiaries losing access to both the plans and additional benefits they provided.

"For decades, Democratic demagogues have accused Republicans of trying to 'balance the budget on the backs of the poor.' Now Democrats are actually trying to do it," McCrery wrote.

Insurers face concerted efforts by congressional Democrats this year to cut Medicare Advantage payment rates and have mounted a campaign to oppose any reductions, saying their plans provide more benefits and save beneficiaries money. But Rep. Pete Stark of California, the chairman of the House Ways and Means Health Subcommittee, said the plans are overpaid, citing data from the Medicare Payment Advisory Commission that says Medicare payment rates to Advantage plans average 112 percent of fee-for-service payment rates.

Separately Tuesday, Senate Finance Committee Chairman Max Baucus, D-Mont., said Medicare Advantage cuts were one possibility to help finance an expansion of the State Children's Health Insurance Program (SCHIP), which is up for reauthorization this year.

According to McCrery's letter, 40 percent of Medicare-eligible African Americans and 53 percent of Hispanics are enrolled in Medicare Advantage plans. In 2004, the most recent figures available, Medicare Advantage was the leading supplemental coverage choice for beneficiaries with income between $10,000 and $20,000, and nearly half of all Medicare Advantage enrollees and 64 percent of minority enrollees have income below $20,000, McCrery said.

"If we eliminate this program we will be falling into the Democrats' trap, and moving one step closer to a socialist-style government-run health care system," he wrote.

By John Reichard, CQ HealthBeat Editor

March 9, 2007 -- House Speaker Nancy Pelosi, D-Calif., announced Friday afternoon that the House budget resolution will include a reserve fund to cover all children who are eligible for the State Children's Health Insurance Program (SCHIP), a step that if approved by Congress would lower the number of uninsured children by "millions" over the next five years.

SCHIP enrollment now totals about 6 million children. Another 6 million children are eligible for the program but are not enrolled, say congressional analysts.

Pelosi did not say how much money was involved, but Senate Finance Committee Chairman Max Baucus, D-Mont., used a figure of $50 billion over five years for the added cost of covering all eligible children. However, a congressional staffer who cited Congressional Budget Office data has put the five-year cost at $32 billion.

The statement issued by Pelosi described the reserve fund as "budget-neutral," which means the costs of SCHIP expansion would be offset elsewhere in the federal budget. SCHIP expires Sept. 30. The reserve fund would address funding for the planned five-year reauthorization of the program.

Pelosi also said the House would act to prevent shortfalls in 14 states that are projected to run out of SCHIP funding this fiscal year. She said $750 million will be included for that purpose in the supplemental spending bill to be marked up by the House next week. The supplemental measure is expected to go to the floor of the House the week of March 19.

The House is expected to mark up its version of the budget resolution the week of the 19th with floor action the week of March 26.

By Drew Armstrong, CQ Staff

March 8, 2007 – Members of the House Ways and Means Committee began probing Medicare's dark corners Thursday, seeking areas for oversight in the program's annual spending of approximately $400 billion.

At the joint hearing of the Oversight and Health subcommittees, members estimated that as much as half of the $10.8 billion in Medicare overpayments in 2006 resulted from fraud. While fraud fighters have been looking at payments to hospitals, physicians, and equipment providers for years, Democrats are eager to add oversight of the Medicare drug benefit to the mix.

But Thursday's hearing was more a lighting of the torches than a full-fledged descent into the fraud cave's darkest corners. Much of the decidedly sedate hearing seemed dedicated to letting Health Chairman Pete Stark, D-Calif., and Oversight Chairman John Lewis, D-Ga., put out feelers on a wide variety of topics, including dialysis services, medical equipment manufacturers, physician and hospital payments, and other fraud schemes.

According to Health and Human Services Inspector General Daniel R. Levinson, investigators won back an average $13 for every $1 spent on fraud-busting efforts. The largest settlements have come from cases against pharmaceutical companies, Levinson said.

Asked by Rep. Bill Pascrell Jr., D-N.J., where the committee might look more closely for fraud, U.S. Attorney R. Alexander Acosta highlighted durable medical equipment as one example.

In one type of scam, Acosta explained, a company would fraudulently obtain a Medicare provider number then collect the names and Social Security numbers of Medicare beneficiaries. Using the beneficiary information, the fraudulent company then would bill Medicare for equipment such as wheelchairs and shut down a few months later before watchdogs could catch on.

After Acosta outlined how prosecutors had made some efforts to pursue criminal cases and jail time against some offenders, Stark told the panel he might be interested in seeking tougher sentences for those convicted of fraud.

"We aren't the judiciary, but I suspect that we do have the legislative authority to change penalties," Stark said.

Clearly impressed by some of the more flagrant scams described and the large dollar amounts recovered, committee members asked the panel what resources they could provide to speed investigators' efforts.

"My focus is on doing more with what we have," Acosta said, asking if he could consult with Justice Department colleagues and get back to the committee on what resources they might need.

He'll likely get that chance. After six years out of power in the House, Democrats are eager to dust off their oversight powers with more hearings. "We'll be back," said Stark in his closing remarks.