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Biden Announces Deal with Hospitals to Cut Medicare, Medicaid Payments by $155 Billion

By John Reichard, CQ HealthBeat Editor

July 8, 2009 -- Vice President Joseph R. Biden Jr. announced an agreement Wednesday in which three associations representing the hospital industry agreed to Medicare and Medicaid cuts totaling $155 billion over ten years as part of a health overhaul that assumes coverage of 95 percent of the American people.

"Folks, reform is coming," Biden declared. "We have never been as close as we are today."

Biden said the agreement calls for payments to be shaved as more patients treated by hospitals obtain coverage.

Neither Biden nor hospital executives answered questions at a White House event to announce the agreement between the groups, which are the Federation of American Hospitals, the Catholic Health Association and the American Hospital Association.

But Federation President Chip Kahn said when reached later that two-thirds of the cuts would come from adjustments to yearly payment updates and the remaining one third from other reductions, including lowering payments made to compensate hospitals for treating uninsured patients. Cuts in these "disproportionate share hospital" (DSH) payments would be tied to whether milestones are met for increased coverage. Kahn said a "small part" of the changes in yearly payment updates would hinge on coverage gains but for the most part would kick in regardless.

Kahn said the full details of the agreement will be a part of the “chairman’s mark” to be released by Senate Finance Committee Chairman Max Baucus, D-Mont. Asked how hospitals would respond if lawmakers try to cut more deeply than in the agreement, Kahn said, "We have an agreement with the White House that I’m very confident will be seen all the way through conference."

When asked whether the agreement would preclude charging Medicare rates in any public plan, Kahn said the deal didn’t specifically provide for that. However, hospitals assume that the Finance Committee will consider alternatives that involve negotiating payment rates that do not involve the Health and Human Services Secretary setting payments based on Medicare rates.

Biden apologized for the half hour delay in starting the event, saying that he had just come out of meeting with Baucus and Senate Majority Leader Harry Reid, D-Nev. Baucus, who was originally scheduled to appear at the event, was not present because he had to return to Capitol Hill for a vote, Biden said.

Reid has come under fire from Sen. Michael B. Enzi, R-Wyo., for pressuring Democrats to move ahead on a health overhaul without greater efforts to enlist Republican support. Baucus has consistently expressed a need for a bipartisan approach to a health overhaul. Reid said later Wednesday that he is seeking a bipartisan bill.

The three associations said in a joint statement that "today’s package makes significant strides in reforming our health care delivery system." We are pleased to see restrictions on physician self-referral to hospitals in which they have an ownership interest, proposals to simplify administrative red tape and no cuts to funding that teaching hospitals rely upon to train the next generation of physicians. In addition, the disproportionate share programs (DSH) that help hospitals care for the uninsured and underinsured and support important community resources would not be reduced until 2015, and reductions would only occur if coverage expansions actually took place. Roughly 60 percent of the existing DSH payments would be preserved to support our nation’s safety net.

"We applaud the work of Senator Baucus in putting together this important framework and stand ready to work with the Senate, House and the Administration to enact comprehensive health reform that works for patients and families and the hospitals and health care professionals that serve them," the groups added.

Republicans weren’t voicing much enthusiasm.

"My concern with this idea is that it does not do anything to address the geographic inequity in Medicare and Medicaid reimbursement rates, [in] which rural providers often get paid less than urban providers for the very same procedure," Sen. Charles E. Grassley of Iowa said in a conference call with reporters from his home state.

Grassley, the top Republican on the Senate Finance Committee, added, "What’s more, the deal abandons a promise made by Barack Obama when he was a candidate in a letter that he sent to the National Rural Health Association last October, and this was obviously when he was running for president. His letter, and I quote, 'Extending insurance coverage is a hollow victory if there’s no facilities or providers available. That’s why I will take concrete steps to address this geographic inequity.'"

"This is a great deal for hospitals, not American taxpayers," said Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee. "After all, why should hospitals care whether they get their taxpayer subsidies through Medicare or some other taxpayer-funded, government-run insurance plan? Either way, it will be middle class families footing the bill through higher taxes, all while seeing jobs and the health care coverage they have and like disappear."

"At the end of the day, American taxpayers are still being asked to pay higher taxes for a $1.5 trillion government takeover of health care," Camp added. "Health care reform does not have to cost that much, and wouldn’t if we focused on eliminating the inefficiencies within the current system instead of providing taxpayer-funded insurance to non-citizens and those who already have private health insurance."

Meanwhile, a key Democrat Wednesday questioned a different industry deal involving Baucus and the White House, an $80 billion agreement with the Pharmaceutical Research and Manufacturers of America that involves filling in half the "doughnut hole" gap in Medicare prescription drug coverage. It is "really a Senate agreement," House Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., told a breakfast meeting sponsored by the National Journal. "Why that should be anything that should bind us in unclear. The White House is not bound —they tell us they’re not bound by that agreement. We’re certainly not bound by that agreement." Waxman appears to favor deeper cuts in pharmaceutical reimbursement to fund a health overhaul than Baucus does.

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