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White House Urges More Cuts in Medicare, Medicaid Payments to Providers

By Alex Wayne, CQ Staff

July 9, 2009 -- The White House wants House Democrats to make deeper spending cuts in Medicare and Medicaid and do more to change payment systems for doctors and hospitals as part of a health overhaul they are writing.

Peter R. Orszag, director of the Office of Management and Budget, in a letter Wednesday to three House committee chairmen, expressed the White House’s support for Medicare spending cuts already included in the legislation. The Congressional Budget Office says that the Medicare changes House Democrats propose—a mix of spending increases and cuts—would save the government $152 billion over the next 10 years. But the White House wants more savings, Orszag said.

"Adopting a deficit-neutral health reform that expands coverage ... is not enough," Orszag wrote, "because it would perpetuate a system in which best practices are far from universal and costs are too high."

Orszag said that changes currently proposed would "begin the process" of overhauling the health system to improve the quality of care and reduce both costs and waste. But he added that "it would be desirable to build upon these measures with additional steps that would make our health care system sustainable for generations to come."

Specifically, he recommended that House leaders cut deeper into the additional payments from Medicare and Medicaid that go to hospitals with many uninsured patients. The White House contends these payments, known as "disproportionate share hospital," or DSH, payments, will be less necessary if a health overhaul expands insurance coverage to most Americans.

Hospitals agree to some extent, but want some DSH payments preserved to help pay for the care of illegal immigrants and other people who would remain uncovered.

CBO projects that DSH payments from both Medicare and Medicaid will total $18.9 billion in fiscal 2009.The House bill would require reports on Medicare and Medicaid DSH payments—in 2016—but would not cut spending in the programs.

Ways and Means member Chris Van Hollen, D-Md., said his panel had focused heavily on the types of changes Orszag wrote about in private talks on the bill this week. "There’s a lot in there," he said, referring to the Democrats’ bill. "A lot of us want more."

Orszag also recommended Democrats include “changes to the process through which Medicare policies are set” in their bill. The White House has endorsed a proposal to strengthen an advisory panel called the Medicare Payment Advisory Commission, or MedPAC, which regularly recommends adjustments in Medicare spending.

Some lawmakers have proposed changing the law so that MedPAC’s recommendations would be binding unless affirmatively rejected by Congress. But many lawmakers are leery of surrendering so much power to an appointed panel.

Three House committees—Ways and Means, Education and Labor, and Energy and Commerce—share jurisdiction over the emerging health care overhaul. They are expected to start formal markups of the legislation next week.

Joseph J. Schatz contributed to this story.

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