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Health Care Provisions in Budget Package Appear to Largely Follow House Plan

DECEMBER 18, 2005 -- As House and Senate negotiators reached a compromise on the budget savings package early Monday morning, the final language on cuts to Medicare and Medicaid appeared to largely take its lead from the House version of the bill, a more conservative and market-driven proposal that would increase cost-sharing for Medicaid patients and maintain a fund designed to encourage the participation of managed care plans in Medicare.

The budget savings package would cut a net $6 billion from Medicare, the health program for the elderly, down from estimates of $8.3 billion on Sunday evening.

Last-minute changes were won early Monday morning by lawmakers and businesses who objected to a provision requiring Medicare beneficiaries to own rather than rent durable medical equipment after a certain time period. After much lobbying, the period of time was changed from 18 months to 36 months for oxygen equipment. That change meant $2 billion less in savings from Medicare in the overall spending cuts package.

The bill would save a net total of $4.8 billion from the low-income health care program Medicaid, according to a preliminary Congressional Budget Office (CBO) estimate obtained Sunday evening.

The legislation would mark a big victory for health insurers, whose intense lobbying efforts over the weekend pushed lawmakers to keep alive a fund included in the 2003 Medicare drug law (PL 108-173) designed to encourage preferred provider organizations to participate in Medicare. The Senate bill would have eliminated the fund, for a savings of $5.4 billion over five years. Moderates had argued that enough plans had signed up for Medicare already.

Another powerful lobby, the American Medical Association, failed to get the increase in doctor payment rates it had sought for treating Medicare patients, but physicians also would not be subject to a 4.4 percent drop that is scheduled to take effect Jan. 1. Instead, according to the CBO documents, the payment rate would be frozen at 2005 levels for the next year, at a cost of about $7.3 billion. The Senate budget bill provided a 1 percent increase in the rate, but the House bill did not address it.

Doctors will likely be unhappy with another provision of the bill that would reduce Medicare payments for some imaging services in 2006 and 2007. According to the Medicare Payment Advisory Commission, which advises Congress on Medicare payment issues, spending on medical imaging has grown faster than any other service in recent years.

According to the preliminary CBO budget estimates dated Sunday evening, lawmakers also found $6.5 billion in Medicare savings by implementing a Bush administration plan to give higher Medicare payments to insurers that cover sicker patients and lower payments to plans that enroll healthier patients.

Home health care providers would also take a hit, according to the CBO scores. Freezing payments for home health care services at 2005 rates would save $2 billion for Medicare, although agencies that serve rural areas would get a boost.

Savings to the Medicaid program in many ways appear likely to mirror the House budget savings package. The net savings of $4.8 billion is about half of what conservatives sought, but the bill maintains many of the elements they had pushed for, including giving states more flexibility in designing Medicaid benefits and allowing states to set co-payment levels for some services. The cost-sharing provisions would save about $1.9 billion over five years, a figure that jumps to $9.7 billion when projected 10 years out, according to the preliminary CBO estimates.

The cost-sharing provisions, which conservatives say will cause patients to be more involved in their care if they have a monetary stake in it, are among the parts of the bill that have rankled moderate GOP senators such as Gordon H. Smith of Oregon.

"The cost-sharing is one of the key pieces Sen. Smith fought to keep out of the Senate version. If it continues to look like the House package, Sen. Smith would be inclined to vote against the bill," said Smith spokesman Demetrios Karoutsos.

Six other moderates joined Smith in writing a letter to Senate Majority Leader Bill Frist, R-Tenn., last week asking him to avoid such changes to the program, though it is unclear whether they plan to vote for the bill.

House conservatives also prevailed over Senate negotiators and got provisions included in the final bill that tighten restrictions on seniors who transfer their assets and then qualify for Medicaid. The asset transfer rules would save about $2 billion over five years.

The asset transfer provisions angered the powerful seniors lobby AARP.

"AARP strongly opposes the current conference agreement. This is irresponsible policy and will harm millions of low-income Medicaid beneficiaries, millions of older persons who need long-term care and unfairly increases Part B premiums for all Medicare beneficiaries," said Kirsten Sloan, chief health lobbyist for AARP, Sunday night.

Also included in the Medicaid savings are changes to the way pharmacists are reimbursed under Medicaid. An expected savings of $3.6 billion, according to the preliminary estimates, would come from changing the reimbursement formula to more accurately reflect the actual costs pharmacists pay to acquire the drugs.

The conference agreement also funds a program to allow Medicaid coverage for disabled children whose families are not eligible for the program—a priority for Senate Finance Chairman Charles E. Grassley, R-Iowa—at $1.4 billion over five years.

Overall, according to the preliminary CBO numbers, the conferees found $6.9 billion in Medicaid savings, but $2.1 billion of that total was reallocated to states most affected by Hurricane Katrina, to help specifically with Medicaid costs.

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