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Half-Trillion More in Medicare, Medicaid Cuts? We Can Do That, Baucus Says

By John Reichard, CQ HealthBeat Editor

October 26, 2011 -- Lobbyists were scrambling to pry loose details about how a surprisingly big package of Medicare and Medicaid cuts proposed by Senate Finance Committee Chairman Max Baucus would hit the health industry—including to what extent, if any, the cuts might be used to fix Medicare's doctor payment formula.

The size of the cuts proposed by Baucus, D-Mont., in deficit negotiations—$500 billion in Medicare and Medicaid over 10 years, according to congressional aides—stirred speculation about whether a "doc fix" might be included. According to one participant at the negotiating session, the $500 billion did not include funding for a solution to the Medicare physician payment problem. But Baucus did mention that it could be included later.

The cuts proposed by Baucus appear to be part of a share-the-pain approach in which Democrats offer big entitlement cuts to get Republicans to agree to tax increases.

Other details about where the $500 billion would come from were sketchy. But congressional sources said $400 billion would come from Medicare and $100 billion from Medicaid. Of the $400 billion in Medicare cuts, providers and beneficiaries would each see $200 billion in reductions.

Proposals on the table when White House and GOP negotiators were discussing a "grand bargain" earlier this year may offer some clues as to the specific cuts Baucus has in mind. Big-ticket items mentioned by participants that would affect Medicare beneficiaries included limits on Medigap coverage, increases in Medicare Part B and Part D premiums, higher co-payments for home health care, and increases in the Medicare eligibility age.

Changes mentioned that would affect providers and suppliers include cuts to home health agencies, skilled nursing facilities and rural hospitals; lower payments to compensate hospitals and nursing facilities for beneficiaries who don't pay their out-of-pocket charges; and requiring drugmakers serving the Medicare population to give the same discounts they now give Medicaid beneficiaries to low-income Medicare enrollees.

Regarding Medicaid, negotiators have discussed limiting the use by states of taxes on providers as a way to increase federal matching payments, as well as a "blended FMAP" approach that could be used to trim the federal government's overall share of Medicaid costs.

In addition to reducing deficit spending, lawmakers also have to find a way by the end of the year to fund the doc fix. Baucus appears to have a small physician payment patch in mind. That's because replacing the payment formula entirely to prevent continuing yearly cuts would cost at least $300 billion over ten years. A more modest fix—for example, delaying by one year the 30 percent payment cut scheduled for Jan. 1—would require offsets totaling some $25 billion over 10 years, according to the Congressional Budget Office.

Julius W. Hobson, a senior policy adviser with the law firm Polsinelli Shugart, said that "in meetings last week with staff from authorizing committees, the Joint Committee and leadership, no one was really positive on inclusion of [a doc] fix in the deficit reduction package, if there is one."

That means the Senate Finance and House Ways and Means and Energy and Commerce committees would have to come up with a physician payment patch after the Joint Committee on Deficit Reduction wraps up its work at the end of November.

Hobson said it seems that nothing will happen on physician payment until the Joint Committee is done with its work. "No one will predict the length of a fix," he said. I have been told one, two, and three to five years." Hobson said it all depends on what offsets are available after the Joint Committee is done.

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