By John Reichard, CQ HealthBeat Editor

February 26, 2007 -- With Democrats looking for big bucks to expand coverage of children in the State Children's Health Insurance Program and to prevent cuts in doctor payments, the "Budget Options" document released late last week by the Congressional Budget Office (CBO) might quickly become necessary reading for lawmakers and lobbyists.

The juiciest section for Democrats who complain that Medicare overpays managed care plans starts on page 167, estimating that $64.8 billion could be saved in 2008–2012 by equalizing payments to those plans and to fee-for-service providers.

Other options with big five-year savings include reducing Medicare payments to cover "indirect" medical education costs (IME), which saves $21.6 billion; shaving the payment increase to hospitals for inpatient care ($17.8 billion); trimming payments to home health agencies ($8.5 billion) and charging copays for those visits ($12.9 billion); and converting payments for "disproportionate share hospitals" (DSH) into a block grant program ($11.2 billion).

CBO says lawmakers can come up with some big savings by going after beneficiaries too. Increasing the share of Part B costs they must pay would save $42.2 billion, and revising other cost-sharing provisions while trimming the scope of Medigap coverage could save $27.8 billion.

Lawmakers are likely to be attracted to options that trim payments to those who provide rather than receive care. But those options carry political risks as well.

The option that would trim payments to private health plans in the Medicare Advantage part of Medicare is referred to as equalizing the "benchmark." Plans in Medicare Advantage submit bids reflecting the per capita amount of money for which they are willing to provide Medicare's covered benefits.

Medicare pays plans what they bid up to a benchmark figure; if they bid below the benchmark, they also receive 75 percent of the amount by which the benchmark exceeds their bid, but must return that 75 percent to beneficiaries either as added benefits or as premium rebates. If they top the benchmark, they pay the added amount themselves and must charge beneficiaries the full difference between the bid and the benchmark as an add-on to their premiums.

A benchmark is set for each county in the U.S. and must be at least as high as local per capita fee-for-service spending. "In many counties, the benchmark is higher than per capita fee-for-service spending, in some cases substantially" higher, CBO notes. Making the benchmark equal to local per capital fee-for-service spending in each county would save $8.1 billion in 2008 and $64.8 billion from 2008–2012, it said.

But while Democrats might like that option because of their rhetoric about greedy HMOs, the option also might slice into benefits enjoyed by populations traditionally identified as Democratic constituencies: lower-income Americans and minorities. HMOs say higher proportions of Medicare Advantage enrollees fall into those two categories. An argument against the option is that it "could lead many plans to limit the benefits they offer, raise their premiums or withdraw from the program," CBO said.

Reducing by 1 percentage point the payment increase hospitals are supposed to receive in fiscal 2008 for inpatient care would slice $17.7 billion over five years from Medicare spending, CBO said.

Freezing home health payments from 2008–2012 at 2007 levels would save $8.5 billion, while reducing payment increases for other types providers of post-acute care would raise several more billion dollars, the congressional budget analysts said.

Other options could net large savings but might be more difficult to achieve. Charging copayments for home health care has been proposed a number of times in the past, without success. Increasing the percentage of Part B costs for which beneficiaries are responsible from 25 percent to 30 percent would save $42 billion over five years, but that would mean sizeable increases in monthly premiums paid by beneficiaries.

Another option would create a combined deductible for Part A and Part B of the Medicare program, set at $500 in 2008, with beneficiaries charged a uniform coinsurance rate of 20 percent for amounts above the deductible, including inpatient care. However, a beneficiary's cost-sharing liability in 2008 would be capped at $5,000. This option would save $11.6 billion over five years. Another option would limit payouts by Medigap plans as a way of reducing utilization of services by Medicare beneficiaries. This provision would bar Medigap policies from paying any of a beneficiary's first $500 in cost-sharing in a given year, and limit Medigap coverage to half of the next $4,500 in cost-sharing. This option would save $14.4 billion. Combined, these two options modifying cost-sharing would save about $26 billion.

Other options would go after teaching hospitals and create a block grant program, both of which would be politically difficult. Reducing the "IME adjustment"—from the current 5.35 percent to 2.2 percent—that increases payments to teaching hospitals would save $21.6 billion over five years. IME payments compensate teaching hospitals for costs not attributable either to residents' compensation or the direct costs of running a teaching program. Examples include the added demands placed on staff as a result of teaching activities and the greater number of tests and procedures ordered by residents, CBO said. Converting Medicare payments to disproportionate share hospitals—those that treat a disproportionate number of low-income patients—would save $11.2 billion over five years.

By John Reichard, CQ HealthBeat Editor

February 26, 2007 -- Sen. Edward M. Kennedy, D-Mass., said Monday that Congress ought to be able to come up with the $50 billion he estimated is needed over five years to cover all children eligible for the State Children's Health Insurance Program (SCHIP), but he hedged on whether it would do so this year or over the next several years.

In remarks delivered at a forum sponsored by the Alliance for Health Reform, Kennedy said the issue is whether Congress will have the will this year to move forward to enroll all of those eligible or slip back from the current enrollment level of six million children.

"We'll have to see . . . what we're able to do," Kennedy said after the speech. Although Sen. Kent Conrad, D-N.D., has said he intends to earmark funds in the fiscal 2008 budget resolution that would go beyond current enrollment levels, it is unclear how much more money he will be seeking.

"Let's be honest about it, we have a lot of budget problems out there," said Sen. Orrin G. Hatch, R-Utah, who also spoke at the event. Financing an expansion of current enrollment is a valid idea but also is "a real fiscal concern," Hatch said. However, Hatch did say that he hopes Congress will provide funds to cover more uninsured children.

Kennedy and Hatch were instrumental in efforts to create SCHIP as part of the 1997 Balanced Budget Act. The legislation expires at the end of this year. Both the Senate Finance Committee and the House Energy and Commerce Committee are planning to mark up legislation reauthorizing the program in late spring, congressional aides said.

House Energy and Commerce Committee Chairman John D. Dingell, D-Mich., and Sen. Hillary Rodham Clinton, D-N.Y., are planning to introduce legislation sometime this month that would increase coverage of uninsured children, but details haven't been resolved, said Jodi Seth, a spokeswoman for Dingell.

Congress faces difficulty finding funds to pay for expanded SCHIP enrollment, but cuts in Medicare payments to managed care plans may be one possible source of money.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

February 28, 2007 -- As part of the Bush administration's ongoing efforts to promote greater transparency in health care, Department of Health and Human Services Secretary Michael O. Leavitt Wednesday announced a new venture that would create local health care collaboratives to provide public reports on the cost and quality of health care providers.

Under the plan, HHS would select qualified regional collaboratives, which would be chartered as "Value Exchanges." Local physicians, nurses, hospitals, and other health care providers would work together with health plans, employers, unions, and other health care purchasers toward the goal of publishing reports, which consumers could use to help comparison shop for health care, much like they do in other areas, such as cars or appliances.

"This is what this economic sector has lacked that every other sector has," Leavitt said during a breakfast with health care reporters.

With a mantra in mind of "national coordination, local control," Leavitt said the groups would be independent, nonprofit organizations administered at the local level, with the hope of bringing such collaboratives into a national system administered by HHS' Agency for Healthcare Research and Quality (AHRQ). HHS has asked for $4 million in fiscal 2008 to establish and operate the collaboratives, and AHRQ Director Carolyn M. Clancy said providers would lead in the development of standards.

Leavitt predicted that within two years the collaborations would start to publish data on a limited number of procedures with a national network developing in five years. Such reporting is part of the administration's plan of "four cornerstones" to achieve value-driven health care, which also include broader use of health information technology and providing incentives for better quality and value in health care services.

The system Leavitt described would include two types of collaboratives: "community leaders," which are less developed collaboratives with the goal of increasing stakeholder participation and quality measurement capacity, and the more developed "Value Exchanges," already functioning collaboratives that meet existing criteria and are selected by HHS to be chartered and carry out quality improvement and public reporting.

Last August, President Bush signed an executive order that requires providers and health plans doing business with federal health programs to publicize data on the cost and quality of their care and to organize billing and insurance claims in a way that allows the cost and quality of medical procedures to be compared easily. The administration also has reached out to major employers to do the same.

Separately, the Robert Wood Johnson Foundation (RWJF) Thursday announced a two-year $115 million program to build upon an already established program the foundation has created to help community coalitions improve the quality of care provided for chronic illnesses in doctors' offices, clinics, and other outpatient settings.

Much like the collaborations Leavitt described, the RWJF grantees will work to establish measures to help health care providers improve their ability to provide care and publicly report their performance. RWJF will work in up to 20 communities to improve the quality of health care in those communities by focusing more on coordinating care around the needs of patients and reducing racial and ethnic disparities in care.

"There is no one health care system in America, and communities have different strengths and weaknesses when it comes to health care," RWJF President and Chief Executive Officer Risa Lavizzo-Mourey said in a statement. "RWJF can help align the many organizations, government and non-government, at the national level on issues like performance measures and public reporting. And we can support the efforts of doctors, nurses, patients and other stakeholders to achieve high-quality health care in their own communities."

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 2, 2007 -- A financial analysis of President Bush's fiscal 2008 budget gave new ammunition Friday to opponents of the administration's plan to change the current tax treatment of employer-provided health care insurance.

"Very preliminary" estimates prepared by the Joint Committee on Taxation (JCT) found that Bush's plan to treat health care benefits as taxable income and give those who purchased health insurance a tax deduction—$15,000 for families and $7,500 for individuals—would raise $526 billion in taxes over the next decade, rather than be budget neutral as administration officials said when Bush released his plan.

The Office of Management and Budget did not immediately respond Friday to a Congressional Quarterly request for comment on the JCT estimates of Bush's health tax deduction proposal.

Also on Friday the Congressional Budget Office (CBO) said President Bush's fiscal 2008 budget narrowly fails to balance the budget by fiscal 2012 despite increasing taxes on high-cost employer-provided health plans.

Administration officials have said that ending the different tax treatments for people who buy insurance through their employer and for those who buy their own insurance would allow more people to purchase health insurance and reduce the number of the uninsured.

Even though the health proposal was already facing stiff opposition in the Democratic-controlled Congress, critics of the president's budget said the new analysis was further evidence of how Bush's plan would do more harm than good.

"This tax plan would undermine employer-provided health care while doing little to expand coverage to those most in need," Senate Budget Committee Chairman Kent Conrad, D-N.D., said in a statement.

The left-leaning Center on Budget and Policy Priorities, which has been critical of Bush fiscal 2008 budget, said the new CBO analysis confirms president's plan is "fiscally irresponsible.

"CBO's figures include a Joint Tax Committee estimate that the administration's proposal to change the tax treatment of health insurance will produce a tax increase of more than $500 billion in the coming decade, something the administration says it did not intend," said Robert Greenstein, the center's executive director.

Sen. Judd Gregg, R-N.H., the Senate Budget Committee's ranking member, said Bush's budget should be praised for its provisions designed to slow the growth of entitlement spending, especially in Medicare.

"On the spending side of the ledger, the president's budget takes critical steps to slow the growth of entitlement programs that threaten to overwhelm future generations, and even very small modifications will result in significant savings down the road," Gregg said.

By John Reichard, CQ HealthBeat Editor

March 1, 2007 -- A long-awaited report released Wednesday by the Medicare Payment Advisory Commission (MedPAC)offered lawmakers no quick way out of the chamber of policy horrors they find themselves in regarding Medicare physician payments, but the report's silver lining may be the added pressure it creates on top policy makers to get moving on rethinking the U.S. health care system from the ground up.

Those pressures are many and have been ignored for many years, but it was obvious at a Senate Finance Committee hearing Wednesday that lawmakers are getting really sick of the annually recurring and ever intensifying nightmare they face blocking physician payment cuts.

The way out of that nightmare, MedPAC advised in its report, is to get moving on renovating much of the structure of U.S. health care. The advisory group also released separate recommendations on updating Medicare payments in other health care sectors.

Senate Finance Committee Chairman Max Baucus, D-Mont., was in a receptive mood, even though it doesn't help him solve the immediate problem he faces with doctors scheduled to take a 10 percent payment cut next year. Rather than faulting MedPAC for offering no quick policy fix for the doctor payment dilemma—that the current "SGR," or sustainable growth rate, payment formula forces sharp cuts every year unless Congress pays for increasingly costly yearly fixes to erase the cuts—Baucus spent much of the hearing probing for answers on how to bring down underlying health cost growth.

The SGR Dilemma
Medicare's formula for paying doctors involves setting a yearly rate by which spending on doctor care in the program can grow. The spending target calculated using the SGR triggers automatic payment cuts in following years if outlays exceed the target—as they chronically do.

But rather than restrain the number of tests and procedures ordered by doctors, the target creates an incentive for them to order even more as they try to recover from cuts by ordering a higher volume of services, analysts say. Also, Congress usually intervenes to block the cuts, with the money it spends to do so adding to the sums above the target that must be recovered in subsequent cuts.

The Way Out?
The new report on alternatives to the current system urges promoting efficiency in a different way—through fundamental payment and organizational changes to promote efficiency. Those changes would inevitably extend to the care doctors give to patients generally, not just those in Medicare.

The report urges fundamental revisions such as payment systems that pay more for higher quality and greater efficiency, measurements of resource use to guide doctors on whether they overuse services, and more accurate calculation of prices to eliminate incentives for overuse of unneeded types of care.

Other steps include creating incentives for doctors to work together with hospitals to streamline treatment, by paying a set fee for "bundled" services that combine both types of care, for example. Medicare should encourage doctors and hospitals to organize into groups that can be measured on the quality and efficiency of their care, MedPAC also advised. And incentives should be created to bring more doctors into primary care that allows better preventive care and coordination of care, it said. To provide the most effective types of treatment, much more research should be conducted comparing how well various approaches work for treating a given condition.

The commission divided on the subject of whether expenditure targets should be maintained, but said if they are, one target should apply to Medicare as a whole, not just to doctors. That would increase incentives to coordinate care, the advisory panel said.

Hill Reaction
Baucus did not enter the hearing expecting any magic bullets from MedPAC—the commission has clarified for months that it wouldn't provide any—and Baucus said the evening before "I don't think MedPAC has enough fleshed-out ideas on how to do that."

Further, Baucus indicated Wednesday that he wouldn't be overhauling the SGR this year. "I think we're still at the point where we have to deal with this on a yearly basis," he said regarding erasing payment cuts. "I think we're going to get there, but I don't think this year. It's premature."

Also pushing Baucus in the direction of a more fundamental inquiry was Peter Orszag, the new director of the Congressional Budget Office. The answers to unsustainable health spending growth in Medicare and Medicaid require a broader focus, he testified.

Noting evidence that cost growth can be constrained without adverse health consequences, Orszag said that "moving the nation toward capturing this opportunity is essential to putting the country on a sound long-term fiscal path. It is the central long-term fiscal problem facing the United States."

Orszag's estimates of the costs of eliminating the SGR underscored why Congress should broaden its focus to address health system costs generally. Scrapping the formula and replacing it with yearly Medicare doctor payment increases based on a Medicare Economic Index measuring the rising yearly cost of doctor care would cost Congress $262 billion over 10 years, he said.

As spending grows on Medicare Part B—the part of Medicare that pays for doctor care—the monthly premiums beneficiaries must pay for Part B also rise, Orszag noted. To keep the $262 billion from elevating the premium over that period, Congress would have to shell out another $70 billion, he said. Thus, the overall cost of a fix that doesn't also create new costs for beneficiaries would be $332 billion, he said.

Even a simple patch that keeps the SGR in place and merely prevents cuts from occurring in 2008—while not blocking them in future years—would cost $34 billion over 10 years, he said.

"We've got to get at the underlying reasons health costs are going up," Baucus said after Orszag was finished. "What do we do?" he asked witnesses.

The crux of the problem is payment incentives in the fee-for-service system, said MedPAC Chairman Glenn Hackbarth, who urged differential payments with doctors getting more or less depending on the quality and efficiency of their care.

Orszag offered two starting steps that seemed to intrigue Baucus—creating an entity along the lines of Britain's National Institute for Clinical Excellence to carry out research comparing types of care to determine best practices and creating a health information technology "backbone" to push that type of information back to providers to guide how they provide care. Those steps would create the type of infrastructure that would allow the hard choices to be made on revising health care, he said.

Hackbarth emphasized that the steps he was urging would require large new "investments" in the Centers for Medicare and Medicaid Services.

In other words, the message to Baucus was: To save money you've got to spend money. That led him to plead with Orszag to "score" the cost of legislation making those types of investments by subtracting the many long-term savings they would create. "The budget scoring laws are what they are and even God can't change them," Orszag replied.

The report on physician payments overshadowed MedPAC's separate set of recommendations on how Congress and Medicare should revise payments to providers generally next year. Those recommendations were consistent with language approved by the commission at its meeting in January.

Grabbing the attention of Democratic lawmakers is language in the report governing payments to managed care and other private health plans in the Medicare Advantage program in Medicare. Payments to those plans are 112 percent of what they are in traditional fee-for-service Medicare to provide the same benefits, MedPAC Executive Director Mark Miller said at a morning briefing.

Rep. Frank Pallone Jr., D-N.J., the chairman of the House Energy and Commerce Health Subcommittee, agreed with MedPAC that payments should be equal. "There's no reason there should be this differential for Medicare Advantage or HMOs," he said Thursday. Pallone said he "always felt from the very beginning that this was only done by the Republican majority because these are their friends and these are the ones that help pay for their campaigns, and this is just a special interest thing they were doing for people that were helping them keep their majority."

"I think that report is absolutely right and that differential should be eliminated, we should pump it back into Medicare and possibly use it for SCHIP or for the physicians payments—use it for something other than the HMOs. So we'll look at it as a possible source for SCHIP" or some other part of the Medicare program, Pallone said.

By Adrianne Kroepsch, CQ Staff

February 27, 2007 -- Patients are turning to credit cards to meet rising out-of-pocket medical expenses and are accruing heavy medical debt as a result, according to a new report by advocacy groups Demos and the Access Project.

That debt load is "a symptom of problems in our health care system, and it's a drain on families and society," Demos Federal Affairs Coordinator Cindy Zeldin said Monday at a congressional briefing.

The groups took a look at medical debt—a less scrutinized component of oft-studied general credit card debt—in the recently released report, titled "Borrowing to Stay Healthy." The report found that an increasing number of low- and middle-income households are covering medical expenses with plastic and are in higher debt as a result. Among those in the report who claimed to have medical debt, 44 percent cited credit card debt higher than $10,000.

The majority (62 percent) of adults with medical debt are actually insured, Access Project Executive Director Mark Rukavina said. "Obviously, for many people, health insurance isn't quite working."

When medical debt rises, patients show care-seeking behavior similar to those with no insurance coverage at all, Rukavina said, citing a report by the Kaiser Commission on Medicaid and the Uninsured. Indebted patients are less likely to seek a second doctor's opinion, or they avoid seeking health care entirely, he said. Medical debt also "spills over" from the health care arena, he said, damaging credit and lingering for years as "a hole that people have a hard time digging themselves out of."

Medical credit cards now entering the marketplace could worsen the problem, panelists said. The advocacy groups "have some serious concerns" about blending finance and medicine, which could morph the provider–patient relationship into one between debtor and creditor, Rukavina said. "Slapping it on plastic may be encouraged by more and more providers, but it may not be in the best interest of the patient," he said.

The groups want to see medical debt on the political radar during the 2008 presidential campaigns. "It's primary time and everybody is coming out with health plans. . . . it's time to think about what health coverage really means," Zeldin said. "Getting medical debt into the debate is important."

Reps. Pete Stark, D-Calif., and Barney Frank, D-Mass., sponsored the Monday briefing but didn't attend. Chairman of the House Ways and Means Health Subcommittee, Stark is "concerned about medical debt," said committee health policy aide John Rigg. "It illustrates the increasing financial pressure on American families now." The panel intends to take a serious look at medical debt during the 110th Congress, he said.