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Medicare Looms Large in the Budget Crosshairs

By John Reichard, CQ HealthBeat Editor

January 29, 2007 -- Between Democrats looking for ways to pay for an expansion of children's health coverage and Republicans looking for ways to trim entitlement spending, Medicare is in line for major cuts, lobbyists and analysts are predicting in the days leading up to the Feb. 5 release of the Bush administration's fiscal 2008 budget proposal.

Treasury Secretary Henry Paulson told the Wall Street Journal in an interview published Friday that "you will see a number of changes relating to Medicare" aimed at slowing the trajectory of its spending growth.

The paper quoted unnamed sources as saying the administration would propose cuts totaling $90 billion over five years, a figure consistently mentioned in speculation in the past couple of weeks about the size of Medicare cuts to be proposed by the administration.

Last year, the administration proposed cuts in Medicare payments to providers totaling almost $36 billion, citing recommendations from the year before by the independent federal Medicare Payment Advisory Commission as the basis for the specific revisions proposed. These included cuts in payments to hospitals, home health agencies, and skilled nursing facilities.

By law, certain providers are entitled to a yearly increase in Medicare payments equal to a "market basket" that tracks the yearly cost of providing the particular type of care. Nicking the market basket increase in hospital care for a few years can generate significant cuts; cutting the increase sharply or freezing it at least for some providers likely would be the source of much of the savings sought by the administration.

But cuts in payments for home oxygen treatment and increases in out-of-pocket charges to wealthy Medicare beneficiaries also are sources of potential savings cited by budget analysts.

The Bush budget proposal last year called for lowering by 0.45 percentage points the market basket increase for inpatient hospital care. The proposal also would have reduced the market basket increase in fiscal 2008 and fiscal 2009 by market basket minus 0.4 percentage points. The same market basket adjustments would have applied to the Medicare hospital outpatient payment update.

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

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