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Bush Medicare, Medicaid Cuts Slammed

FEBRUARY 6, 2006 -- Hospitals, pharmacists, and patient advocates said Monday the Bush administration's proposed fiscal 2007 Medicare and Medicaid cuts would erode the quality of care provided under the two government programs.

In Medicare, hospitals, home health agencies, skilled nursing facilities, and other providers would be hit with nearly $36 billion in cuts over the next five years compared with spending under current law.

The plan would also force a mandated cut in Medicare spending if general revenues exceeded 45 percent of total Medicare spending. However, administration officials said cuts under that "hard trigger" could be delayed for years if their other proposed reductions in Medicare spending growth become law.

The Bush plan also would reduce federal spending on Medicaid and the State Children's Health Insurance Program (SCHIP) by $13.6 billion over the next five years, financed in part by changes in Medicaid reimbursements to pharmacists.

Centers for Medicare and Medicaid Services Administrator Mark B. McClellan said Monday that many of the payment changes included in the fiscal 2007 budget are consistent with recommendations from the Medicare Payment Advisory Committee (MedPAC), which advises Congress on payment policy.

McClellan and Department of Health and Human Services Secretary Michael O. Leavitt also stressed that federal spending on both Medicare and Medicaid would continue to climb despite the proposed payment reductions. They said fiscal restraint is needed to ensure the programs continue to serve those who need them most.

Medicare Cuts Now . . .
The Bush budget proposes that the "market basket" used as the basis for calculating yearly Medicare payment increases for inpatient care be lowered by 0.45 percentage points. The proposal also would reduce the market basket increase in fiscal 2008 and fiscal 2009 by market basket minus 0.4 percentage points. The same market basket adjustments would apply to the Medicare hospital outpatient payment update.

The administration's budget would provide a zero percent payment update for skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities for fiscal 2007, according to HHS budget documents. Payments for hospice and ambulance services would be reduced by 0.4 percent for each of the years 2007 through 2009.

. . . And Later (Maybe)
As a way to help control spending caused by an influx of Baby Boomers into Medicare in several years, the Bush plan mandates a four-tenths of one percentage point reduction to all Medicare payments if general revenues top 45 percent of total Medicare financing and Congress does not intervene.

McClellan said the proposal builds on provisions in the Medicare drug law (PL 108-173) that require the president to submit legislation to Congress to curtail Medicare spending if general revenue contributions to the program are projected to pay more than 45 percent of total Medicare expenditures for two consecutive years. Under current law, the House and Senate are required to follow specific guidelines for consideration of such legislation, but they are not required to act on it.

By exercising discipline over Medicare spending now, tougher steps like the longer-term mandated cuts can be delayed, HHS officials emphasized. The trigger would be pushed off until 2017 instead of 2012, the current prediction of when general revenues will reach the 45 percent mark.

Provider Reaction
Health care provider groups said the proposed cuts would hurt their ability to provide medical care to some of the nation's oldest and most vulnerable Americans. Hospitals said they were already stretched too thin trying to prepare for a variety of threats, including pandemic flu and terrorist attacks.

Chip Kahn, president of the Federation of American Hospitals, called the proposed Medicare cuts "the wrong policy at the wrong time."

Dick Davidson, president of the American Hospital Association, said Medicare payments to hospitals are now "well below the cost of caring for its beneficiaries. In fact, in 2004, about seven out of every 10 hospitals lost money serving Medicare patients."

Other health care providers and seniors groups said it made no sense to reduce Medicare as millions of Baby Boomers begin to retire and enter the program. "Home health agencies are already going without a payment update this year, and nursing facilities depend on adequate Medicare payments to make up for Medicaid under-reimbursement in most states," said Larry Minnix, president and chief executive officer of the American Association of Homes and Services for the Aging.

Senate Finance Chairman Charles E. Grassley, R-Iowa, said spending reductions of the size envisioned by the Bush budget might be too tough for Congress to enact this year.

"Congress just finished reducing the growth of Medicare and Medicaid by $11.1 billion over the next five years, and it wasn't an easy legislative accomplishment," Grassley said in a statement. "Any more reductions of a significant scope could be difficult this year. If Medicare reductions do end up on the table, the Medicare Advantage regional stabilization fund has to be front and center."

Concerning Medicaid, the administration would trim billions of spending in a variety of ways. For example, it would save $3.8 billion by capping federal Medicaid payments to local government providers of health care in the states "to no more than the cost of furnishing services to Medicaid beneficiaries."

The budget would save another $2.1 billion by limiting the ability of states to assess taxes on providers as a way of increasing federal Medicaid matching payments. Spending would be reduced by $1.8 billion by ending payments for certain administrative services that the administration asserts are already funded through the Temporary Assistance to Needy Families program. Another $1.3 billion, including $130 million in fiscal 2007, would be trimmed by continued efforts "to further reduce Medicaid overpayments for prescription drugs."

The administration plan would save $1.2 billion by lowering reimbursement for services provided by certain case managers who coordinate the complex treatment needs of Medicaid patients. And it would save half a billion dollars by allowing states to "avoid costs for prenatal and preventive pediatric care claims where a third party is responsible through a non-custodial parent's obligation to provide coverage for a limited time."

The Medicaid cuts are sure to be controversial. The National Association of Chain Drug Stores said that further reductions in pharmaceutical-related payments in Medicaid would shrink access by Medicaid patients to needed medications.

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