By Drew Armstrong, CQ Staff

March 21, 2007 -- After several years spent lusting for oversight of Medicare's private insurance plans, known as Medicare Advantage, House Democrats started sharpening their knives on Wednesday with a first hearing on the plans' higher payment rates and the benefits they offer to enrollees.

Democrats have long eyed the plans as a potential source of billions of dollars in offsets that they could use to pay for other health priorities.

The Congressional Budget Office (CBO) gave the panel an estimate of possible savings from cuts to the plans, which could prove appetizing as lawmakers look for ways to pay for other programs.

Rep. Pete Stark, D-Calif., led his Ways and Means Health Subcommittee in grilling the head of the Centers for Medicare and Medicaid Services (CMS) on the private plans.

"Let me be clear, we have no intention of eliminating the Medicare Advantage program," Stark said in his statement. But "everything must be on the table—doctors' payments, hospital payments, post-acute payments drug plan payments and, yes, Medicare Advantage payments, too."

Rather, Democrats might be more inclined to follow the recommendations of the Medicare Payment Advisory Commission (MedPAC) and bring the private plans—known as Medicare Advantage—payments more in line with traditional Medicare.

According to the CBO, the government could save $64.8 billion over five years if Medicare Advantage payments were brought down to 100 percent of traditional Medicare fee-for-service.

If they decide to cut the plans' payment rates, Democrats could be slightly gentler and preserve some of the higher payment rates in rural areas meant to attract the plans to those regions. Typically, the cost of providing care to rural areas is higher, and the plans are given maximum payment rates as high as 140 percent of traditional Medicare.

According to the CBO estimate given to the committee, limiting private plan payments to no more than 120 percent of traditional Medicare would save $18 billion over five years. Limiting payments to 110 percent of traditional Medicare would save $38 billion over five years.

Reducing the payments would drive more people out of the private plans, likely back into traditional Medicare. The CBO estimated that reducing private plan payments to the levels of traditional Medicare would drive about half of the private plan enrollees out of the program.

Currently, the government sets a ceiling on private plan payments about 12 percent higher than traditional Medicare, on average. Private plans make bids at or below that rate, and the government gives the plans a rebate of the difference between their bid and the payment ceiling for their region.

The plans then have to invest three quarters of the funds back into benefits for the enrollees, and give the remaining quarter back to the government.

MedPAC's advice has long been that reducing the payments will force plans to find efficiencies if they want to provide the extra benefits and attract new enrollees.

On the other hand, the insurance industry often cites the additional benefits as a major advantage of the private plans.

MedPAC has argued that since the extra benefits are being paid for out of additional government payments—not from efficiencies found by the private plans—the higher payment rates should be reduced to put financial pressure on the plans to perform better.

In one of the hearing's few heated exchanges, Stark questioned CMS Acting Administrator Leslie V. Norwalk why her agency did not track plan enrollees use of the extra benefits.

"It is my understanding that you receive absolutely no data on service utilization," Stark lectured Norwalk. "To even suggest you know what kind of extra benefits are being used is fallacious!"

Norwalk told Stark that the plans had an incentive to get beneficiaries to use the benefits. "It certainly is in their best interest to," she said.

Stark quickly fired back, cutting off Norwalk, "Wait—what's in their best interest is profit!" he said.

Stark has long been critical of the plans and the private health insurance industry, questioning the data they have provided.

By Mary Agnes Carey, CQ HealthBeat Associate Editor
March 23, 2007 -- Hospital groups, lawmakers, and governors are continuing to fight the Bush administration on proposed regulatory changes to Medicaid they say would cut nearly $4 billion from the nation's health care safety net over the next five years.

"The administration's proposed cuts will force many public hospitals to slash vital services and some may even be faced with closure," Larry S. Gage, president of the National Association of Public Hospitals and Health Systems, said in a statement.

Sen. Jeff Bingaman, D-N.M., said during a news conference Wednesday that the proposal would cut more than $100 million from his state's hospitals and would devastate hospitals located in rural areas.

Bingaman is one of approximately 60 senators who have signed a letter sent to the Centers for Medicare and Medicaid Services (CMS) opposing the proposed regulations, saying the changes would "usurp state flexibility and fundamentally alter the nature of state funding for the Medicaid program."

The plan addresses funding arrangements targeted last year by the administration in its budget proposal for fiscal 2007. The administration says the mechanisms exaggerate the amount of money states actually spend for legitimate purposes in the Medicaid program, boosting federal payouts beyond the legal limit on the percentage the federal government pays for a state's Medicaid program.

Herb Kuhn, acting deputy administrator for the Centers for Medicare and Medicaid Services, said Thursday that only the comment period for the proposed rule was closed and he would not judge the outcome until the final regulation is released.

At Wednesday's news conference, National Governors Association Executive Director Raymond C. Scheppach said the administration's plan would be "a major obstruction in states moving forward in broad reform" to cover the uninsured. "It's not the time to pull $5 billion out of the system. What we need is additional funding to move the system forward."

Rick Pollack, executive vice president of the American Hospital Association, said the administration's plan would affect not only Medicaid patients but also anyone who needs trauma care, neonatal care, and burn treatments.

Cage said he hoped the senators' letter—as well as the groups' opposition—would spur the administration to "come to its collective senses and withdraw this proposed regulation."

By Mary Agnes Carey, CQ Health Beat Associate Editor

March 23, 2007 --The Department of Health and Human Services (HHS) will continue to work with Louisiana state and local officials to improve access to health care services in areas hardest hit by Hurricane Katrina, HHS Secretary Michael O. Leavitt told House lawmakers this week.

In a letter to the House Energy and Commerce Oversight and Investigations Subcommittee, Leavitt said short-term efforts to rebuild the state's health care system include authorizing $15 million of the remaining federal funds for state payments to recruit and retain professional health care workers in the greater New Orleans area. In his letter, dated March 21, Leavitt said HHS also was reviewing Medicare graduate medical education (GME) payments in response to suggestions that more funding would help retain sufficient numbers of interns and residents.

Leavitt also wrote that his agency is open to a demonstration application from Louisiana officials that focuses on improving the New Orleans region health care system first, with plans for eventual state-wide expansion.

Earlier this month, witnesses told the subcommittee that the New Orleans area continues to struggle with providing basic health services more than 18 months after Hurricane Katrina devastated the Gulf Coast. Some witnesses and committee members said HHS was not doing enough to help the area recover.

Subcommittee Chairman Bart Stupak, D-Mich., issued a statement that he was pleased Leavitt "is taking a fresh look" at the federal government's initial responses to handling Katrina's damage to the New Orleans health care system. He also urged Leavitt to convene a summit in Louisiana to address the state's pressing medical workforce issues.

"As became apparent during our hearings, while long term solutions are needed to repair New Orleans' health care infrastructure, immediate relief is also needed for the residents of the Gulf Coast who lack access to health care," Stupak said.

By John Reichard, CQ HealthBeat Editor
March 23, 2007 -- In a move that portends resistance from rural-state senators to possible Medicare payment cuts to private health plans, Utah Republican Orrin G. Hatch fell one vote short Friday in an attempt to require a reserve fund to pay for wider coverage of uninsured children and other Medicaid and Medicare changes.

Hatch's amendment to the fiscal 2008 Senate budget resolution would have required the reserve fund to expand the State Children's Health Insurance Program (SCHIP) and other "improvements" without reducing benefits to Medicare Advantage enrollees or coverage options in Medicare.

"Essentially, my amendment protects Medicare beneficiaries' coverage choices, especially coverage choices for those beneficiaries living in rural areas," Hatch told managed care executives Friday morning.

House Democrats have clarified that they view cuts to Medicare Advantage, the private health plan side of Medicare, as essential to paying for coverage of more uninsured children through SCHIP. Insurers warn that cuts will cause plans to trim benefits or leave the Advantage program, a result Hatch's amendment aims to prevent.

Senate Finance Chairman Max Baucus, D-Mont., hasn't said he will try to cut Medicare Advantage payments, but appears to be headed in that direction as he seeks ways to fund wider coverage of uninsured children. He said Advantage cuts are "on the table" and has pressed HHS Secretary Michael O. Leavitt on why the administration is seeking fiscal 2008 cuts on the fee-for-service side of Medicare while sparing Medicare Advantage plans.

Baucus canceled a scheduled speech morning at the same Friday meeting, which was sponsored by America's Health Insurance Plans, the nation's largest health insurance lobby. Baucus cited the fact the Senate was debating the budget resolution.

Hatch, a member of the Finance Committee, said he doesn't think the panel would support Advantage cuts. "I don't see the votes there right now," he said. A Senate Finance Committee aide said the cuts "are not an uncontroversial change."

After Hatch offered his amendment on the Senate floor, Baucus urged his colleagues to reject it, saying he plans to take a careful look at Medicare Advantage cuts.

"On April 11 the Finance Committee is going to be holding a hearing on Medicare Advantage plans and other providers' plans that affect Medicare," Baucus said. "We want to do this right. We want to do this in a very thoughtful, considerate way."

Baucus also said "the more thoughtful way is not to hamstring the committee" before the hearing by adopting an amendment preventing it from making changes "to these programs," an apparent reference to Medicare Advantage.

Senate action on another amendment to the budget resolution theoretically could ease pressure for Medicare Advantage cuts to pay for wider coverage of children through SCHIP reauthorization later this year. In a 59-40 vote, the chamber agreed to adjust the resolution to allow for an increase in federal cigarette taxes by no more than 61 cents per pack. The amendment assumes the revenue would be used to reauthorize SCHIP. The language isn't binding, however, and it's unclear whether the White House would go along with such a tax hike.

A tobacco tax hike would be a welcome development for health plans and hospitals that might otherwise have a harder time ducking the budget axe. And it might mean less health care lobbying pressure on lawmakers. "Better to chew on tobacco than to get chewed on by the American Hospital Association," said D.C.-based health care consultant Alec Vachon.

According to one managed care industry executive, Advantage plans could still take cuts with the tax hike but not as quickly. "If the price on SCHIP goes down, then maybe you phase in payment reductions over years," the executive said.

But the executive said all Medicare Advantage plans remain at risk of taking a major hit because of apparently strong support for covering more kids through SCHIP, despite Friday's positive developments for the HMO industry.

While some plans actually are paid less than fee-for-service providers despite overall average payments to MA plans that are 112 percent higher than those to traditional providers, "in the dark all HMOs look the same" to Hill staffers, the executive said. "They don't want to recognize the difference between the plans."

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 19, 2007 -- Many of the health care proposals pending on Capitol Hill could significantly reduce the number of uninsured Americans and decrease health care costs, according to a Commonwealth Fund study released Monday.

The report analyzed 10 health plans introduced in the 109th and 110th Congresses as well as President Bush's proposal to give tax deductions of $7,500 to individuals and $15,000 to families for purchasing health insurance, no matter what the cost or type of insurance or whether it is purchased through an employer.

Legislation sponsored by Sen. Ron Wyden, D-Ore., (S 334) and a bill from Rep. Pete Stark, D-Calif., that was introduced in the 109th Congress and is expected to be reintroduced later this year, would cover nearly all of the uninsured, while Bush's proposal could cover one in five Americans, the study concluded.

Instead of companies helping to buy insurance for their workers, Wyden proposes that private insurers offer coverage directly to consumers. Employers would transfer money they now spend on employee health insurance to workers' wages, and workers would purchase insurance themselves.

The Commonwealth Fund Commission on a High Performance Health System analysis said the Wyden proposal would increase federal spending by $24.3 billion in 2007, because of the offsetting tax revenue effects of requiring employers to "cash out" their health benefits as wages to employees. The bill would also reduce overall health spending by $4.5 billion, partly through insurance administration savings, the analysis concludes.

Stark's plan, which would open the Medicare program to everyone, would cost the federal government $154.5 billion in 2007 but reduce overall spending by $60.7 billion due to savings in insurance administration and prescription drugs. The Commonwealth Fund's analysis found that the president's plan would cost the federal government $70.4 billion in 2007 and reduce health system spending by $11.7 billion because people would reduce their use of health services. Insurance administration costs would also increase under the president's plan, the study concluded.

In addition to reviewing legislation, the report also looks at other ideas, such as expanding existing public health insurance programs like Medicare and the State Children's Health Insurance Program (SCHIP) as well as strengthening employer-based health insurance, to help reduce the number of uninsured.

Wyden's office had no immediate comment on the Commonwealth Fund study. A senior Bush administration official said the analysis did not consider both elements of the president's plan—a tax deduction and working with states to provide affordable health care options to consumers—so its full impact on the health system was not completely reflected.

In a statement, Stark said the analysis "confirms AmeriCare is a practical and affordable proposal to provide universal health coverage," said Stark.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 22, 2007 -- A new health care plan proposed by two Senate Republicans includes so many changes to the nation's health care system that one of its sponsors, Richard M. Burr of North Carolina, says the bill will not pass this year.

But that won't stop Burr and his colleague, Tom Coburn of Oklahoma, from trying. Their measure would overhaul just about every area of health care. Both senators say radical change is needed to make the health care system work better for all involved, especially for the approximately 47 million who do not have health care insurance.

"Not many people are super happy with the health care we have in this country," Coburn, a physician, said Wednesday in a briefing with reporters. "This addresses every major problem our health care system faces."

Under the bill, individuals would receive a tax credit of $2,000 and families would receive $5,000 to help pay for health insurance premiums.

Transparency—posting all prices for services rendered—would be required of all physicians, hospitals and other health care providers. Governors would have maximum flexibility under Medicaid.

Prevention would be a key focus, with money that now goes to several federal health care agencies' prevention programs instead being pooled into one fund and focused on fighting the five chronic diseases where prevention could save billions of dollars: heart disease, cancer, stroke, chronic obstructive pulmonary disease, and diabetes, which cause two-thirds of American deaths.

The ads developed by the government would be much like the direct-to-consumer advertising the drug industry now uses.

Burr, who served a decade in the House before joining the Senate, described the proposal as "the first comprehensive reform of health care in my adult life." While Burr said he doubted it would become law, he said it would be a catalyst for change. "Comprehensive health care is a series of steps," he said.