Federal Update

Medicare and Medicaid in the Grip of Federal Budget Debate

Once again, Congress is grappling with the daunting task of finding the funds to stop the pending 4.4 percent Medicare physician-payment cut. This year’s challenge is exacerbated by the 2006 Budget Reconciliation instructions, which call for $10 billion in savings from Medicare/Medicaid -- a move opposed by the MMS and the entire Massachusetts Congressional delegation. Perhaps even more distressing is the realization that we will probably relive this fight again next year, as the prospects for a permanent change to the Medicare physician-payment formula grow more remote.

Senate Synopsis
The Senate-passed version of the Budget Reconciliation bill would replace the pending physician payment cut with a 1 percent increase for 2006. However, the bill would also initiate a value-based purchasing program (the politically correct term for “pay for performance”) in 2007, funded through a 2 percent withhold of Medicare payments from all physicians. Those who meet so-called “quality indicators” would receive their 2 percent back. Also of concern is a provision in the Senate bill that would give the Secretary of Health and Human Services a great deal of autonomy in developing the value-based guidelines.

While a number of medical organizations including the MMS have expressed support for payment reform that rewards quality, they agree that such programs must incentivize quality through additional funds, not through withholds of existing funds, and that such measures must be developed with the medical community’s input and pilot-tested before implementation. The Senate language does not meet those criteria.

Of equal importance, the Senate chose not to fund all of the $10 billion in savings from either Medicare or Medicaid alone. The budget-reconciliation process requires that any increases in spending (such as funding to stop the physician-payment cut) be offset with savings elsewhere. The Senate bill would rescind the “Stabilization Fund” for managed care plans -- funds set aside to cover beneficiaries if managed care plans failed to offer the Medicare Part D drug benefit. President Bush has threatened to veto any bill that eliminates the Stabilization Fund.

House Happenings
Meanwhile, the House passed a Budget Reconciliation bill that includes more than $49.5 billion in cuts to federal spending. In a slight concession to moderate House Republicans and Democrats, the bill calls for a $12 billion reduction in Medicaid, slightly less than what the original package called for. The MMS has consistently opposed Medicaid cuts, and all members of the Massachusetts Congressional delegation voted against the House bill.

The final budget battle will be played out in a House-Senate Conference Committee, which is currently expected to convene in December.

– Alex. Calcagno