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Policymakers Likely to Pore Over New Menu of Simpson-Bowles Cuts

By John Reichard, CQ HealthBeat Editor

April 19, 2013 -- The new Simpson-Bowles plan released late last week is likely to get serious scrutiny in health policy circles because it's so specific. Also, it affirms approaches popping up in other deficit-reduction proposals.

The proposal is strong stuff to be sure, if lawmakers decide someday that deficit spending represents a true crisis, its remedies may not be out of the question.

And even if the plan or something like it never becomes law, elements of it could be picked off to offset the cost of other legislation, such as a fix for the Medicare physician payment formula.

In order to help shrink deficit spending by $2.4 trillion from fiscal 2014 to 2023, the plan would make $585 billion in health care cuts, primarily from Medicare and Medicaid. It would reduce non-defense discretionary spending by $165 billion, putting the National Institutes of Health, the Centers for Disease Control and Prevention, and the Food and Drug Administration (FDA) on the chopping block.

But that's dramatically less than the discretionary spending cuts those agencies now face under the sequester provisions of the budget control law (PL 112-25). The plan would replace "abrupt across-the-board cuts by restoring 70 percent of the sequestration cuts in 2013 and limiting the defense and non-defense spending growth to inflation through 2025," says a summary of the plan.

The plan tilts toward spending cuts, with those reductions accounting for 70 percent of its reduced deficit spending and revenue increases accounting for 30 percent.

Perhaps the most radical aspect of Simpson-Bowles occurs long term. Starting in 2018 it would limit per-capita spending growth among enrollees in federal health programs to the increase in the gross domestic product.

Here's a rundown of how the plan would cut the $585 billion:

  • Delivery system and payment changes ($60 billion): Health care law (PL 111-148, PL 111-152) provisions would be expanded that reduce Medicare payments in cases of preventable hospital readmissions. Many experts "believe much more can be done to discourage avoidable readmissions by expanding the program to include more medical conditions and higher penalties on more types of providers," the plan says. But penalties should be calibrated "to adjust for patient demographics, types of conditions, and timing of readmission."

The plan also urges "a system in which many providers are paid a fixed amount for a bundle of services for all of a patient's care." To accomplish that, it would expand the "Medicare Acute Care Episode" demonstration program, a test of bundled payment started in 2009 under authority granted in a 2008 Medicare law (PL 108-173). It would expand competitive bidding beyond the current program for durable medical equipment to also establish bidding programs for medical devices, laboratory tests, radiologic diagnostic services "and various other commodities."

An alternative Medicare benefit package would be developed to encourage coordinated care. "For example, a new plan option could merge Medicare Part A, B, and D into a single benefit package, provide care coordination services, and offer lower cost sharing to beneficiaries who use high-value providers and services," the plan says.

The Centers for Medicare and Medicaid Services (CMS) should study ways to make beneficiaries more price conscious. "In the meanwhile, we recommend prohibiting 'gag clauses,' which prevent insurers from releasing price information to the consumer," the plan states. CMS also should mandate "public reporting of prices for a basket of routine elective procedures." The plan also takes steps to limit supplemental coverage that covers out-of-pocket costs. That would give beneficiaries an incentive to shop for the best price, helping to trim Medicare outlays, the plan says.

The plan also suggests the possibility of basing payments to Medicare Advantage plans on bids filed by insurers to offer a package of benefits. CMS should have power to aggressively implement and expand pilot programs that test different forms of health care delivery. And the Independent Payment Advisory Board "should not be restricted through special interest carve-outs, and policymakers should consider giving it expanded authority to change benefit design and reform cost-sharing rules."

  • Change Medicare cost sharing ($90 billion): The plan proposes "a new simple regime that calls for more 'skin in the game' for first-dollar coverage, offers better protections against catastrophic costs, provides important low-income protections, and discourages the use of costly supplemental plans." Originally Simpson-Bowles called for a single unified deductible of $550 for Medicare Part A and Part B, co-insurance charges of 20 percent on covered services up to a ceiling of $5,500 in out-of-pocket costs, and a smaller co-insurance rate of 5 percent on costs up to $7,500. The new proposal would make some adjustments to vary the deductible and other out-of-pocket charges based on income.

Also, "we would restrict Medigap plans so that they are no longer able to provide first-dollar coverage within the Medicare deductible and can cover no more than half of the base Medicare co-insurance."

  • Change the medical malpractice system ($20 billion): Rather than cap damage awards, the proposal would establish a statute of limitations for malpractice claims; make defendants liable for only their share of the responsibility for injury; place sliding-scale limits on lawyer contingency fees; create a provider safe harbor for certain FDA-approved products; and apply a health court model in some instances, among other changes.
  • Increase income-relating of Medicare premiums ($65 billion): In the case of Part B and Part D, "we recommend increasing existing income related premiums by 15 percent so that the 35 percent premium increases to 40.25 percent, the 50 percent premium to 57.5 percent, and so on." In other words the wealthy would pay an increasing share of those program costs through premiums that grow more than they do now with income. In addition, income relating of premiums would begin at a lower income threshold such that close to 15 percent of the senior population would be subject to the practice.
  • Increase the Medicare age ($35 billion): Similar to a proposal by the Urban Institute, the plan would increase the Medicare eligibility age by one month per year beginning in 2017 until it reaches age 66, and then by two months per year until it reaches the normal Social Security retirement age. At that rate the Medicare age would reach 67 by the mid-2030s. In addition, people at age 65 not yet eligible for the program could buy into Medicare with premium charges varying based on income. This approach would reduce federal spending "while encouraging work, increasing economic growth, and having only a modest effect on national health spending."

Other elements of the plan would cut $70 billion in payments to skilled nursing facilities, home health, inpatient rehab, and long-term care hospital providers; reduce graduate medical education payments; and reduce enhanced payments for rural providers. A total of $65 billion in Medicare payments to hospitals would be trimmed by phasing out "bad debt" payments to compensate facilities when patients don't pay out-of-pocket costs.

In addition, $90 billion would be saved by restoring Medicaid rebates for drugs for dually eligible beneficiaries who qualify for both Medicare and Medicaid coverage. Another $25 billion in savings would come from cracking down on fraud, requiring prior authorization for advanced medical imaging, trimming some bonus payments to Medicare Advantage plans, trimming clinical lab payments, and equalizing payments for evaluating and managing patients so the rates are the same in doctors' offices and in hospital outpatient departments. And a total of $65 billion would be saved by limiting state tactics to increase federal Medicaid matching payments such as taxes on providers.

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