Government

Bush budget plan slashes billions from Medicare, Medicaid spending

Democratic leaders in Congress reject many of the president's proposed cutbacks.

By David Glendinning , Doug Trapp — Posted Feb. 26, 2007

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President Bush presented an austere fiscal year 2008 budget to Congress earlier this month, pledging no new money for Medicare physician reimbursements and proposing to slash the rate of public health program growth in other areas.

The administration's decision not to call for any funding to help reverse Medicare physician pay cuts prompted strong criticism from physician organizations, including the AMA and the American College of Physicians. If no changes are made, doctors could see an across-the-board cut of 10% or more next calendar year.

"The AMA is deeply disappointed that President Bush has once again ignored an opportunity to right the wrongs in the current Medicare physician payment system by failing to call on Congress to stop the cuts and provide payments in line with practice costs," said AMA Board of Trustees Chair Cecil B. Wilson, MD. "Without adequate funding, physicians cannot make needed investments in health information technology and quality improvement, and seniors' access to health care is placed at risk."

Bush's $2.8 trillion budget proposal is not binding on Congress. Democratic leaders, who will largely control the agenda this year, immediately announced that some of the proposed health program reductions were essentially dead on arrival.

But the document gives Congress a good indication of where the White House's priorities are and where appropriators may encounter resistance if they try to boost federal spending.

Centers for Medicare & Medicaid Services Acting Administrator Leslie Norwalk declined to say what prompted the administration to omit any mention of reversing physician fee cuts, but indicated the potential cost could have been a factor. Several times in the past, the White House budget has not set aside money to boost doctor pay, but lawmakers have approved such appropriations anyway.

"We'll be spending a lot of time working both with Congress and with the various medical societies to figure out how we address this," she said. "It's not an inexpensive fix."

Bush has called on Congress to increase defense spending while eliminating the federal budget deficit by 2012. The plan assumes not only that physicians will undergo yearly Medicare rate reductions for each of the next five years but that lawmakers will approve more than $75 billion in additional Medicare reductions over that time. The proposal would slow the program's projected growth rate from 6.5% to 5.6% over five years. The slowdown would mainly come from cuts to hospitals and other nonphysician groups, as well as increased premiums for beneficiaries with higher incomes.

Medicaid included in proposed cuts

Consumer groups, Democrats and physician associations also reacted negatively to the budget plan's call to slow Medicaid spending by $25.7 billion over the next five years. Many of the proposed reductions were in previous budgets, and their purpose is the same, CMS' Norwalk said.

"The focus of these proposals is to reduce fraud and to make sure that we're paying for what we should be paying for: Medical services to those who are low income," she said.

A few of the Medicaid proposals would redefine rules to allow CMS to reduce the federal Medicaid matching rate for some aspects of the program to 50%, compared with a previous rate of 75% or higher, said Joy Johnson Wilson, health policy director at the National Conference of State Legislatures.

The budget also seeks to eliminate $1.78 billion in Medicaid funding for graduate medical education. States use this funding to support teaching hospitals, to attract doctors to work in underserved areas or for training certain types of physicians, according to Lynne Davis Boyle, assistant vice president for the Office of Governmental Relations at the Assn. of American Medical Colleges.

American Academy of Family Physicians President Rick Kellerman, MD, criticized the proposed cuts, saying they would "mean fewer doctors to care for underserved populations -- the elderly, poor, disabled and those who live in rural areas and the urban core."

The American College of Physicians expressed disappointment at the budget proposal. "Congress should review the president's budget requests and assure adequate funding for programs that are critical to the health care of low-income children and adults, the elderly and veterans," said ACP President Lynne Kirk, MD.

The budget would reduce the State Children's Health Insurance Program federal matching rate to 50%, from as high as 76%, for enrolled children in families earning more than 200% of the federal poverty level and for enrolled adults. Bush also calls for a five-year reauthorization of SCHIP at just below $5 billion a year, with a goal of maintaining the current cumulative enrollment of about 6 million.

Although the Bush administration said the funding was adequate for the program's mission, the AMA's Dr. Wilson said the budget would move SCHIP in the wrong direction.

"This proposal ties states' hands by narrowly focusing the program as they work on innovative ways to provide health care coverage for more of the uninsured," Dr. Wilson said.

The AAFP's Dr. Kellerman agreed. "By not providing the funding needed to maintain the program, the Bush administration is threatening health care for indigent children. The AAFP believes the U.S. government should expand SCHIP, not narrow its reach."

The AMA and AAFP are two of 16 members of the Health Coverage Coalition for the Uninsured, which calls for expanding SCHIP.

At least 16 states cover children above 200% of the poverty line and would see reduced SCHIP matches, according to the Georgetown University Health Policy Institute. The same applies to the five states covering childless adults with SCHIP.

Mary Anne McCaffree, MD, a professor of pediatrics at the University of Oklahoma Health Sciences Center, disagrees with the philosophy behind trimming the matching rate. "It would be great ... if people who were higher than the poverty level could work and pay their rent and pay for health insurance," said Dr. McCaffree, chair of the American Academy of Pediatrics' Committee on Federal Government Affairs. "It doesn't work that way."

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ADDITIONAL INFORMATION

Target: Medicare

President Bush has proposed cutting Medicare's projected spending by more than $75 billion over the next five years. Here are some of the biggest ways the White House hopes to save the government money:

Action 5-year savings
Inpatient hospital updates of inflation minus 0.65% each year $13.8 billion
Home health agency updates of 0% each year $9.7 billion
Skilled nursing facility updates of 0% in 2008 and inflation minus 0.65% each following year $9.2 billion
Part B premiums increased for patients with higher incomes $7.1 billion
Outpatient hospital updates of inflation minus 0.65% each year $3.4 billion
Part D premiums increased for patients with higher incomes $3.2 billion

Source: White House budget proposal

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The Medicare pie

The White House estimates that the government will pay roughly $454 billion in fiscal year 2008 for Medicare benefits. Here is how the money would be divided under the president's plan:

Hospital inpatient 28.5%
Managed care 18.5%
Drug benefit 13.2%
Physicians 12.9%
Hospital outpatient 5.8%
Nursing homes 4.8%
Home health 3.2%
Hospice 2.2%
Other 10.8%

Note: Percentages do not add to 100 because of rounding

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Target: Medicaid

President Bush's Medicaid budget includes $25.7 billion in Medicaid reductions through a mix of legislative and administrative proposals. The proposed cuts would limit Medicaid spending to a 7.1% increase between 2008 and 2012, compared with a 7.3% increase without the cuts. Here are some areas where the administration is looking for savings:

Action Five-year savings
Lowering federal matching rates for certain services and purchases $6.47 billion
Redefining which local entities, such as hospitals, can receive and transfer funds to local governments $5 billion
Ending funding for certain administrative costs for school-based services $3.64 billion
Ending funding for graduate medical education $1.78 billion
Using average manufacturer's prices to determine payment range for prescription drugs $1.2 billion

Sources: Centers for Medicare & Medicaid Services, National Conference of State Legislatures, Center for Budget and Policy Priorities, Georgetown University Health Policy Institute

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