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Senate Finance Panel Options Eye Big Medicare Cuts

By John Reichard, CQ HealthBeat Editor

May 18, 2009 -- The Senate Finance Committee package of options released Monday to fund a coverage overhaul includes a wide array of changes in the Medicare and Medicaid programs, ranging from reducing payment updates to different health care sectors to reducing geographic variations in spending. The panel seems to be taking the approach that just about everybody is going to have to take a hit to fund a dramatic expansion of coverage.

The committee will conduct a "walk-through" of the options at a closed-door meeting Wednesday. The panel also is looking at taxes on alcohol and sweetened beverages, among many approaches to funding a package that could cost well over $1 trillion over 10 years. The package also includes a variety of other financing options outside the Medicare and Medicaid programs.

Medicare adjusts payments each year to various sectors through "market basket" changes meant to compensate for the rising costs of delivering the particular type of treatment involved. The options document notes that the Medicare Payment Advisory Commission (MedPAC) filed a report in March recommending reductions or elimination of market basket increases in a number of cases. The Finance Committee may make changes in addition to those recommended by MedPAC.

"These market basket changes could be adjusted from the MedPAC recommended levels or could be accomplished over multiple years," the options paper says. "An additional option in this area may include establishing differential payment updates for low and high-margin areas for fiscal year 2010 as well as in additional years," the paper says, apparently referring to profit margins.

The document also says that market basket adjustments for certain fee-for-service providers may be required to be adjusted "by some or all of the expected productivity gains as a way to improve the accuracy of Medicare payments." Options include "requiring productivity adjustments beginning in fiscal year 2011 and in subsequent years or requiring this change only for a set time period."

In the home health field, the paper notes that MedPAC has recommended eliminating the market basket increase in 2010. The Finance document says this recommendation could be accepted as well as making "further adjustments given the current levels of payments in the program." Another option could be to "re-base" home health payments to better reflect the current number, mix, and intensity of services "and to take into account the relative margins related to specific conditions and service areas." Other options may include limiting the number of payments an agency could receive for "outlier" cases involving unusually high costs.

The paper also contemplates changes in funding for graduate medical education (GME) and "DSH" payments, meant to compensate hospitals that treat a disproportionate share of poor people. In fiscal 2009, Medicare DSH spending will total $10.1 billion and $9.1 billion in Medicaid, the paper notes.

"Options include adjusting current GME and DSH payment levels to better reflect the actual costs hospitals currently incur in treating the low-income and uninsured and in training medical residents," the paper notes. "Another option would be to adjust DSH payment levels over time as the need for these resources decreases as more individuals become insured as a result of health care reform."

Still another approach would "consolidate Medicare and Medicaid payments to hospitals as a way to streamline and better account for and coordinate federal funding with the DSH and GME payment areas," the paper says.

Cuts in Medicare payments for imaging are on the table. The current method assumes that imaging machines are operated 50 percent of the time—but assuming a higher use rate would lower payments for advanced imaging technology while raising payments for other types of physician services. Another option would be to establish an expert panel to help the Centers for Medicare and Medicaid Services adjust payments "for potentially misvalued physician services," the options paper states.

It also eyes changes in Medicare payments for "durable medical equipment" (DME) needed at home to treat a beneficiary's illness or injury. The Office of the Inspector General "has identified potentially overvalued DME items and services," the paper says.

Changes to adjust for geographic variations in Medicare spending would cut a wide swath through the health care sector. One option would be to broadly review spending in both Part A of the program covering inpatient care and Part B covering doctor and related services outside the hospital. Spending cuts could be proposed "in areas where per beneficiary spending is above a certain threshold compared with the national average," the paper says.

"In this option, spending per beneficiary for Medicare Parts A and B would be adjusted to reflect differences in the price of inputs and the health status of the local population."

Another approach would require a similar analysis, "but require spending reductions only for individual providers who are above a certain threshold in spending compared to their peers in their local area."

The Finance Committee also will consider changes in Medicare out-of-pocket spending requirements to protect beneficiaries against catastrophic expense while at the same time require some minimal level of cost-sharing so that supplemental "Medigap" policies do not block beneficiaries from some sensitivity to the costs of using multiple services.

Drug companies could face provisions increasing rebates they must give in return for Medicaid coverage from 15.1 percent to as much as 23.1 percent. And they may have to pay the rebates for Medicaid HMO enrollees.

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