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Bush Medicare, Medicaid Cuts Declared 'Dead Before Arrival'

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 31, 2008 -- Lawmakers and lobbyists are dismissing the possibility that Congress will go along with massive cuts the Bush administration is planning to propose in the Medicare and Medicaid programs when it unveils its fiscal 2009 budget proposal Feb. 4. A senior administration official said Thursday afternoon that the cuts would total some $200 billion over five years, $178 billion in the Medicare program.

Medicare is "still growing at a rate higher than inflation," the official said. The budget plan "slows Medicare's rate of growth from 7.2 percent to 5 percent." The official added that the plan would reduce by nearly one-third the "unfunded obligation" in Medicare over 75 years. Medicare is funded through premium payments and automatic payroll deductions, but also by yearly outlays from general revenues.

President Bush said in his State of the Union address Monday night that the nation must begin confronting the rising cost of entitlement programs. "Everyone in this chamber knows that spending on entitlement programs—like Social Security, Medicare and Medicaid—is growing faster than we can afford," he said.

But even before the news broke Thursday that the proposed cuts would approach $200 billion, lawmakers and lobbyists who reacted to an earlier report that the cuts would total some $100 billion were emphatically predicting that the reductions would go nowhere.

"This budget will be dead on arrival," declared Rep. Pete Stark, D-Calif., Chairman of the House Ways and Means Health Subcommittee. Frederick H. Graefe, a Washington hospital lobbyist, insisted that the plan is "dead before arrival!," he insisted. "You can quote me on that—please!"

Stark, reacting to a published report that said the cuts would total $105 billion, said the Bush budget "would endanger the health care of America's seniors, people with disabilities, and low-income children." The proposed cuts "show his single-minded focus on starving popular and effective programs, while protecting fat cat insurance companies that are overpaid with taxpayer dollars."

Senate Finance Committee Chairman Max Baucus, D-Mont., was milder in tone but similarly insistent that such cuts would not occur. Democrats "will oppose those cuts," he said. "You have to be frugal, clearly, but those are Draconian," Baucus said of the $105 billion figure. Republican Senator Gordon H. Smith of Oregon agreed that the cuts would be a non-starter.

Asked how Democrats would respond to the challenge of rising entitlement costs, Baucus said "It's critical to address not only the symptoms but the causes of entitlement growth. And the most difficult problem right now is Medicare." The important question to ask, he said, is "What's the cause of health care increases?"

Baucus has shown particular interest in recent weeks in the testimony by Congressional Budget Office Director Peter R. Orszag emphasizing that health costs throughout the economy, not just in federal programs, must be addressed by policy-makers, in part by conducting extensive research comparing the costs and treatment results of various medical procedures and products.

Hospitals would bear the brunt of Medicare cuts, according to a Thursday New York Times report that assumed $105 billion in total cuts. Hospitals would take $83 billion of the $91 billion in Medicare cuts in 2009–2013. Of the $83 billion, $15 billion would come from an across the board reduction in annual updates for inpatient care; $25 billion from payments to "disproportionate share" hospitals (DSH) that treat larger numbers of poor patients; $20 billion from payments to cover the building and equipment costs of hospitals; and $23 billion from certain special payments designated to compensate teaching hospitals for their expenses.

Payment rates would be frozen for nursing homes in 2009, and rates for home health agencies would be frozen at 2008 levels in 2009 through 2013.

It wasn't immediately clear how much harder hospitals would be hit by Medicare cuts totaling $178 billion.

Hospital lobbyists were already sharply critical of the impact of the smaller, but still large cuts. The budget axe should fall elsewhere, suggested Steve Speil, vice president for policy at the Federation of American Hospitals, a lobby for for-profit facilities. "From what we hear the Medicare budget would subsidize health plan profits and slash hospital payments," he said. "Someone should ask seniors what they think about this."

It's widely assumed the administration won't propose cuts to private health plans in Medicare's Medicare Advantage program. Those plans say that cuts to their payments would lessen health care options for Medicare beneficiaries and trim benefits, or add to out-of-pocket costs, for enrollees in the plans.

Speil said the proposal for cuts to hospitals is occurring at a time when hospitals are already losing money on Medicare patients, and have been for a while. An analysis by the Medicare Payment Advisory Commission (MedPAC), the chief advisory body to Congress on Medicare payment levels, shows "falling, negative margins" in each consecutive year over the 2003-2008 period, he said.

"What is particularly distressing are the cuts to DSH payments that are used to treat the indigent and uninsured," Speil said.

"The magnitude of the cuts reported are of great concern, especially for the patients who rely on hospitals every day," said Alicia Mitchell, a spokeswoman for the American Hospital Association. "These reported cuts fly in the face of what MedPAC has recommended to Congress." MedPAC has recommended a full inflation update of about 3 percent for hospital inpatient and outpatient payments in fiscal 2009.

Cuts to Medicaid over five years would reportedly total some $17 billion over five years under the administration plan. But the total could actually be much higher because of regulatory and other administration actions by the Bush administration, lobbyists said.

The focus on Medicaid in Congress in recent days has been on whether to temporarily increase the share the federal government pays of Medicaid costs—on a possible increase in the "federal medical assistance percentage" (FMAP) that makes up the federal share of federal–state funding of the program. But lawmakers apparently will not include such increases in the economic stimulus package they are debating.

Although there has been some talk of a second stimulus package later this year, Baucus said on Thursday he didn't know whether FMAP increases would be a part of that package. "I don't know, most of the talk on the second stimulus package is more in the nature of infrastructure and energy" provisions, he said.

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