By John Reichard, CQ HealthBeat Editor

November 19, 2009 -- The newly released Senate Democratic leadership bill overhauling the nation's health care system would trim federal spending on Medicare, Medicaid and other federal health programs by $491 billion in 2010–19, according to a newly released estimate prepared by the Congressional Budget Office and the Joint Committee on Taxation.

Permanent reductions in the annual updates to Medicare's payment rates for most services in the fee-for-service sector—other than physicians' services—would account for $192 billion of those savings. Another big slice would come from payments to private health plans in Medicare. These "Medicare Advantage" plans would see cuts totaling $118 billion over the 10 years.

Hospitals would see a reduction totaling $43 billion in Medicare and Medicaid "disproportionate share hospital" payments, which are made to facilities treating large numbers of uninsured or underinsured patients.

The legislation also would establish an Independent Medicare Advisory Board, which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program's spending. The recommendations would take effect automatically unless blocked by legislative action. The estimate said "this arrangement would reduce Medicare spending by an additional $23 billion over the 2015–19 period."

Cuts to government health programs along with tax increases would be used to fund coverage of the uninsured. By 2019, CBO and JCT estimate, "the number of nonelderly people who are uninsured would be reduced by about 31 million, leaving about 24 million nonelderly residents uninsured," the analysis said. About one-third of the remaining uninsured would be unauthorized immigrants. The share of legal nonelderly residents with insurance coverage would rise to 94 percent from 83 percent now.

Inflation-adjusted Medicare spending per beneficiary "would increase at an average annual rate of roughly 2 percent during the next two decades—much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear," CBO and JCT say.

The bill would cut the federal deficit $130 billion over the 2010–19 period, or by $77 billion not including "off budget" effects related to spending on Social Security and the U.S. Postal Service. In the second decade, the amount of deficit reduction would equal about one-quarter of a percentage point of the Gross Domestic Product. The bill "would probably continue to reduce budget deficits relative to those under current law in subsequent decades," the analysis says.

The estimate does not factor in added administrative costs involved in implementing the legislation, such as some $5 billion to $10 billion that would be required for added staffing in 2010–19 at the Centers for Medicare and Medicaid Services.

CBO and JCT project a net cost of $599 billion over 10 years for the proposed expansions in insurance coverage. That net cost reflects a gross total of $848 billion in subsidies provided through insurance exchanges, increased net spending for Medicaid and the Children's Health Insurance Program, and tax credits for small employers. Those costs are offset by tax revenues and other provisions.

CBO estimates that state spending on Medicaid, which would cover many of the uninsured by raising income eligibility to 133 percent of the federal poverty line, would increase by about $25 billion over the 2010–19 period.

The public plan would be a relatively small factor in insurance coverage. "Roughly one out of eight people purchasing coverage through the exchanges would enroll in the public plan . . . meaning that total enrollment in that plan would be 3 million to 4 million." States could pass laws opting opt of the public plan; the estimate assumes about two-thirds of the U.S. population would have a public plan available in their state.

November 18, 2009 -- The House passed legislation (HR 3962) on Nov. 7 that includes a number of provisions that Democrats believe could lead to lower prescription drug prices.

The bill would allow the secretary of Health and Human Services to negotiate prices with drug manufacturers participating in Medicare's prescription drug benefit, which the industry has long opposed. It would expand rebates that drug companies must pay the government for drugs provided to Medicaid recipients and would require the same rebates be paid for low-income seniors enrolled in Medicare's drug program. And it would encourage seniors on Medicare's plan to use generic drugs by offering them a free prescription fill when they switch from a brand-name drug.

AARP has endorsed the House bill, while PhRMA has not.

"While well-intentioned, the bill—as passed—would have the unintended consequences of killing tens of thousands of jobs in our industry at a time when the American economy is struggling and unemployment has soared above 10 percent," Johnson said in a statement after the measure was passed.

PhRMA made an agreement this summer with the White House and Senate Finance Chairman Max Baucus, D-Mont., to contribute $80 billion over 10 years toward the cost of a bill that Baucus' committee has approved (S 1796). House Democratic leaders, however, say they are not bound by that agreement and believe more savings can be extracted from the drug industry.

The House committee leaders asked GAO to essentially duplicate AARP's work, comparing recent price increases for brand-name and generic products with measures of inflation. They also asked GAO to single out any particular products or companies that "demonstrate anomalous drug pricing trends" relative to the rest of the industry.

GAO has previously identified spikes in drug prices ahead of major legislation affecting the industry. In 2002, the year before Congress passed the law that established Medicare's drug benefit (), GAO found that prices for 44 brand-name and 43 generic drugs commonly prescribed for federal employees increased 6.7 percent, compared with price increases of 4 percent and 4.3 percent for the same drugs in 2000 and 2001.

The committee leaders said they expect the GAO report to provide a "benchmark" for drug prices before the health care overhaul, and they would request a follow-up study if the bill becomes law and its policy changes are implemented.

By Drew Armstrong and Meghan McCarthy, CQ Staff

November 19, 2009 -- The House passed a bill Thursday that would stop a scheduled cut in Medicare physician payment rates scheduled for January and would restructure the formula that determines how doctors are paid under the federal health care program.

The bill (HR 3961), which passed, 243183, would block a 21 percent physician- payment cut required by a 1997 formula originally designed to control costs. The formula has called for cuts for most of the past decade, forcing Congress to step in to maintain the status quo. The most recent of those "fixes" was enacted in 2008.

The measure would restructure the formula on a long-term basis beginning in 2011, taking into account spending since 2009 or, beginning in 2014, spending for the previous five years. It would provide two separate updates, one for evaluation, management and preventive services, and another for other services.

"What this legislation does is do away with a gimmick," said John D. Dingell, D-Mich. "I would remind my colleagues that HR 3961 solves a problem that's plagued the Congress since 2002 and actually ends a budget gimmick that artificially reduces the deficit by assuming physician payments will be cut by 40 percent over the next several years,"

The legislation has become a priority for the White House, which is concerned that steep payment cuts could prevent patients from seeing the doctors of their choice.
The White House issued an official statement of administration policy that supports the House effort. "A cut of this magnitude could reduce access to physicians for Medicare beneficiaries throughout the country," according to the statement, which was issued Wednesday.

Even so, action in the Senate is unclear. Senators rejected a similar bill (S 1776) in October, voting down a procedural motion, 47–53. Majority Leader Harry Reid, D-Nev., has promised to bring the physician payment bill back up after the Senate finishes work on a health care overhaul, which could mean sometime in 2010.

Although the House bill's language will not technically become part of the health care overhaul (HR 3962) that passed Nov. 7, it is a critical part of the broader health care picture.

"This is not a mere problem with mere budgeting," said Democrat Henry A. Waxman of California, the chairman of the House Energy and Commerce Committee. "It's a kitchen table problem for America's seniors and for the physicians who are partners in the Medicare program."

But Republicans said the measure would only add to the nation's deficit.

"The issue here is twofold," said Minority Leader John A. Boehner of Ohio. "One is that the proposal will not fix the problems that docs have in terms of their reimbursement down the road. It is a flawed formula that is not eliminated in this proposal. Secondly, it's going to add some $250 billion worth of debt put onto the backs of our kids and grandkids."

Joe L. Barton of Texas, the ranking Republican on the Energy and Commerce panel, said the bill was "nothing more than a political payoff to the American Medical Association" for the group's support of the House health care overhaul.

According to the Congressional Budget Office, the House bill would cost $210 billion over a decade. The spending is not offset in the measure, but provisions of the fiscal 2010 budget resolution (S Con Res 13) would prevent the measure from violating pay-as-you-go rules.

The rule governing floor debate of the measure provided for the incorporation of another bill (HR 2920) upon passage. The added language would make pay-as-you-go budget policies statutory, meaning that most new spending would have to be offset. The language provides exemptions for certain policy areas, however, including legislation regarding physician payments.

Adding the language to the doctor bill was a requirement for winning the support of fiscally conservative "Blue Dog" Democrats.

By Alex Wayne, CQ Staff

November 18, 2009 -- House Democrats have ordered an investigation into recent price increases by drug manufacturers, out of suspicion that the increases are an attempt to maximize profits ahead of potential price controls included in a health care overhaul.

AARP, the interest group for Americans age 50 and older, reported this week that drug companies raised prices for brand-name products 9.3 percent since October 2008, despite a 0.3 percent reduction in the Consumer Price Index, the standard measure of inflation.

Drug prices rose 8.7 percent in 2008, and at rates ranging from 5.3 percent to 7.4 percent since 2002, AARP said. General inflation averaged about 2.8 percent per year between 2002 and 2008.

Henry A. Waxman of California, chairman of the Energy and Commerce Committee, and Charles B. Rangel of New York, chairman of the Ways and Means Committee, wrote Nov. 17 to the Government Accountability Office (GAO), Congress' chief investigatory agency, asking for a report into the price increases "on an expedited basis." The letter was released Wednesday.

The drug industry, Waxman and Rangel wrote, "has been monitoring this legislation closely, and recent studies have indicated that the industry may be artificially raising prices for certain pharmaceutical products in expectation of new reforms that could otherwise reduce prescription drug prices or price growth by encouraging patients and the government to be more efficient purchasers.

"Any price gouging is unacceptable, but anticipatory price gouging is especially offensive."

The letter was also signed by the heads of two Ways and Means subcommittees, Health Chairman Pete Stark, D-Calif., and Oversight Chairman John Lewis, D-Ga.

A spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA) did not immediately respond to a request for comment. But in a statement issued in response to AARP's report, the trade association's senior vice president, Ken Johnson, cited government studies showing slower growth in prescription drug prices than AARP reported.

Johnson also said that AARP ignored the larger effect medicines can have on health care costs.

"In AARP's skewed view of the world, medicines are always looked at as a cost and never seen as a savings—even though medicines often reduce unnecessary hospitalizations, help avoid costly medical procedures, and increase productivity through better prevention and management of chronic diseases," Johnson said.

By John Reichard, CQ HealthBeat Editor

November 21, 2009 -- An improbably unified Democratic party closed ranks Saturday evening to push its giant health overhaul package past another key milestone in the Senate, prevailing in a 60 to 39 vote on a procedural motion that opens the way for Senate action on the measure after lawmakers return in December from their Thanksgiving holiday recess.

Doing it meant a cross-country flight by Sen. Max Baucus from the bedside of his ailing mother in Montana, a Saturday night punching the time clock for nonagenarian West Virginia Sen. Robert Byrd after months of battling various health problems, and straining rightward to pick up the votes of three red-state Democrats at odds with the public-option passion of many of their peers.

As their fellow Democrats managed to do in the House with passage of a similarly massive proposal, Senate Democrats pushed health care overhaul legislation farther in their chamber than it has ever gone before.

But the closer Democrats get to their goal of making an overhaul the law of the land, the tougher the resistance and the greater the doubts that they will ultimately prevail. Just as liberals in the House had to stomach tough anti-abortion language to win their victory, liberals in the Senate face the marginalization if not the elimination of the public option as the price they must pay for getting legislation through the chamber next month.

And at the same time, conservatives and centrists in the party will have to be willing to buck growing public unease over the financial risks that will be involved in making the measure law. Although it's considered budget-neutral by the Congressional Budget Office—no pushover in budget matters—the Senate bill worries other influential analysts.

Medicare actuary Richard Foster has expressed doubts that elements of its financing provisions will survive future lobbying to override Medicare cuts, and Republicans won a coup Saturday when Washington Post columnist David Broder pointed to the results of a recent Quinnipiac University poll saying that most Americans believe a health overhaul will add to the federal deficit.

"While the CBO said that both the House-passed bill and the one (Senate Majority Leader Harry) Reid has drafted meet Obama's test by being budget-neutral, every expert I have talked to says that the public has it right," Broder said in a column to be published Sunday. "These bills, as they stand, are budget-busters," Broder wrote. "The challenge to Congress—and to Obama—remains the same: Make the promised savings real and don't pass along unfunded programs to our children and grandchildren," he added.

On the other hand, Obama is no novice at accomplishing the improbable—and the party unity he has forged so far may be difficult to undo in the end.

By John Reichard, CQ HealthBeat Editor

November 19, 2009 -- One of the accomplishments of the White House in the current health overhaul debate has been keeping industry groups more or less at the bargaining table. One lure was the possibility that the Senate would embrace legislation that was more industry friendly, and that the Senate would get the upper hand in House-Senate negotiations on a final bill. But how are industry groups feeling now that the Senate bill has been unveiled?

The National Federation of Independent of Business issued a statement Monday hinting that it was verging on an all-out attack on Democratic health overhaul legislation. Fabled for defeating the Clinton health overhaul, NFIB has been much more conciliatory in tone in the latest debate. But now the gloves may be coming off.

"We oppose the Patient Protection and Affordable Care Act due to the amount of new taxes, the creation of new mandates, and the establishment of new entitlement programs," said NFIB Vice President Susan Eckerly. "There is no doubt all these burdens will be paid for on the backs of small business.

"The impact from these new taxes, a rich benefit package that is more costly than what they can afford today, a new government entitlement program, and a hard employer mandate equals disaster for small business," she added.

"We are disappointed that, after so many months of discussion, small business could be left with the status quo or something even worse," Eckerly continued. "Unless extreme measures are taken to reverse the course Congress is on, small business will have no choice but to hope for another chance at real reform down the road.

"Congress is running out of opportunities to prove to small business that they are serious about helping our nation's job creators. We are hopeful that a robust bipartisan debate will produce a bill that small businesses see as a solution and not another government burden," Eckerly said.

Insurers had nothing good to say about the bill. Karen Ignagni, president of America's Health Insurance Plans said in a news release that "this proposal encourages people to wait until they are sick to purchase coverage, which will significantly drive up costs for those who are currently insured. The legislation also imposes rating rules that will raise the cost of coverage for millions of young families in more than 40 states.

"The new health care taxes and fees will raise the cost of coverage for individuals, families, and employers," Ignagni added. "Health plans will be required to pay a $6.7 billion tax beginning next year for the next 10 years, in addition to 'stabilization' fees of $25 billion in 2014, 2015, and 2016. According to Fortune magazine's analysis of the companies listed under 'Insurance and Managed Care', earnings in 2008 totaled $8.61 billion with a profit margin of 2.2%—ranking the industry 35th on the Fortune list."

The "stabilization fees" are payments insurers would have to make under the proposal into state reinsurance funds to cover claims for high-risk individuals in the individual and small group markets. If they had to pay those claims, they'd get money back from the fund.

"This bill will also exacerbate the health care cost shift as health care providers offset reductions in public program reimbursements by charging more to families and employers who have private coverage," Ignagni continued. "The new government plan will cause even more cost-shifting and threaten the employer-based coverage with which Americans are overwhelmingly satisfied.

"The $117 billion in cuts to Medicare Advantage will threaten the choices that seniors have across the country and significantly reduce seniors' benefits in many major metropolitan areas.

"Congress is being forced to turn to these financing mechanisms because it has been unwilling to make a commitment to specific strategies and enforceable objectives that will bend the health care cost curve downward," Ignagni said.

Hospitals took their time responding to the bill. They have called for insurance coverage of 97 percent of legal residents below age 65; according to the Congressional Budget Office, the bill would cover 94 percent. Hospital lobbyists say they need that level of coverage to be able to offset the financial damage from Medicare cuts they've agreed to.

American Hospital Association spokeswoman Alicia Mitchell said Thursday afternoon that "we are still reviewing" the proposal.

The Senate proposal would, by CBO's reckoning, cover 31 million of the uninsured by 2019 while the House passed measure, HR 3962, would cover 36 million or 96 percent of legal residents below age 65.

Groups that don't like the Senate bill still have opportunities to modify it by persuading lawmakers to amend it on the Senate floor or in any House-Senate negotiations on a final overhaul package. But at each step of the legislative process that they don't get their way, the stakes get higher.

The drug industry, however, issued the kind of statement that the White House no doubt is happy to hear. Pharmaceutical Research and Manufacturers of America (PhRMA) Senior Vice President Ken Johnson said that "while we are still reviewing the Senate bill, we remain committed to do our part to make comprehensive health care reform a reality this year.

"Compared to the House bill, which would have a chilling effect on medical progress in America, the Senate approach provides a much better blueprint for reform," Johnson added. "If we are going to cure cancer in our lifetime—as President Obama has challenged us to do—we believe any health reform package must support medical progress and innovation in America.

"What's critical now is that we remain focused on the important goal of helping pass a comprehensive health care reform bill that can get to the President's desk this year. We will continue to be a constructive partner to help meet this goal," Johnson said.