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Finance Committee Passes $10 Billion in Cuts for Medicare, Medicaid

Most savings will come from making pharmaceutical industry pay more, doctors get big pay boost

Oct. 26, 2005 – Senior citizens and their advocates most likely breathed a sigh of relief with the passage of a spending cut package by the Senate Finance Committee last night. It cuts $10 billion over five years from Medicare and Medicaid, but the cuts are primarily aimed at reducing subsidies for the pharmaceutical industry. The downside for some seniors was some tightening of rules for transferring personal assets to others when trying to qualify for Medicaid.

(See bill summary and statement by committee chairman below story)

The moderate Republicans on the committee held sway, however, on avoiding changes that would increase costs or reduce benefits for beneficiaries.

Still, all nine of the Democrats on the committee voted against the measure, saying it did not offer enough assistance to victims of Hurricane Katrina.

The committee chairman, Sen. Charles E. Grassley, R-Iowa, was also a loser on Katrina relief. The final bill adds $1.8 billion for Medicaid assistance in Louisiana, Alabama and Mississippi. Grassley had wanted $9 million. The compromise was apparently to save benefits for the elderly and poor in the regular Medicaid program.

Grassley conceded it was his fellow Republicans that blocked the Katrina relief package but indicated he hopes to find more health assistance for the hurricane victims.

Sen. Max Baucus, D-Mont., the ranking Democrat, made it clear that his opposition to the bill was the lack of assistance for the Katrina victims.

The biggest savings will come from requiring pharmaceutical companies to pay Medicaid higher rebates for drugs sold through the program. It also reduces payments to pharmacies. The estimated savings from these moves is $6 billion.

Doctors, who had carried on a vigorous campaign against Medicare cuts in their pay, received a big boost in the package. The committee agreed to give doctors an increase of $10.8 billion over five years. The got a one percent increase in their pay, versus a scheduled 4.5 percent decrease.

This is all part of a length process by the Republicans to cut $35 billion from the federal budget. The House has two committees working on their versions of the Medicare and Medicaid cuts. They are reportedly eyeing larger reductions in Medicaid.

The Coalition for Meaningful Medicaid Reform (CMMR), a pharmacy industry group, announced their opposition to the proposals on the suggested changes in the drug program.

Summary of Senate Finance Committee Reconciliation Package

Achieves Significant Budget Savings, Reduces Wasteful Spending, Targets Resources to Improve Medicaid And Medicare

Strengthens and Improves Medicaid and SCHIP:

> Directs resources where they are needed by achieving state and federal savings and improving access to health care for vulnerable populations.

> Promotes access to health care.

   • Ensures continuity of health coverage for low income children by providing funding to states that face shortfalls in the State Children’s Health Insurance Program (SCHIP) and expanding outreach and enrollment activities to get more kids covered. (Sec. 6051-6054.)

   • Expands Medicaid benefits through the Family Opportunity Act so that parents of severely disabled children can go to work and earn above-poverty wages while maintaining vital services for their severely disabled children. (Sec. 6041-6045.)

> Achieves savings, preserves services, protects beneficiaries.

   • Helps state Medicaid programs obtain millions in payments owed by third party payors each year. (Sec. 6021.)

   • Ends drug manufacturer gaming of the system by closing the authorized generic loophole so that appropriate rebates are paid to states. (Sec. 6003.)

   • Balances savings from pharmacy payment changes with an increase in the rebate paid by drug manufacturers to 17%. (Sec. 6002.)

> Cracks down on Medicaid fraud and abuse.

   • Encourages states to aggressively pursue Medicaid fraud by implementing state false claims acts, which at the federal level is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud every year. (Sec. 6023.)

   • Requires employers who do business with Medicaid to have a false claims act education program so that those with evidence of fraud against Medicaid know they may pursue claims, on behalf of the government, in order to recover the stolen funds. (Sec. 6024.)

   • Dramatically increases resources to fight fraud and abuse in Medicaid, which will protect state and federal budgets and generate savings of at least 13:1 from this investment. (Sec. 6026.)

> Ends overpayments to pharmacies by reforming the broken AWP system used to reimburse pharmacists for prescription drugs. (Sec. 6001.)

> Protects Medicaid benefits for long term care coverage.

   • Provides new options for private coverage of long term care through Long-term Care Partnerships. (Sec. 6012.)

   • Closes loopholes that permit the unscrupulous “gaming” of Medicaid eligibility rules to intentionally shelter assets to qualify for taxpayer-financed long term care coverage in Medicaid. (Sec. 6011.)

   • Promotes availability of PACE in rural areas. (Sec. 6113)

> Makes a down payment to respond to the health care needs of low income families affected by Hurricane Katrina by providing $1.8 billion to protect Medicaid benefits in Alabama, Louisiana, and Mississippi. (Sec. 6032.)

Preserves and Protects Medicare for Future Generations:

> Begins implementation of Value-based Purchasing in Medicare, which makes critical and necessary systematic changes to Medicare payment policies to encourage and reward quality and patient safety while controlling rising health care costs. (Sec. 6110.)

> Preserves access to health care for seniors and individuals with disabilities in Medicare:

   • All providers paid under the Medicare Physician Fee Schedule will see a 1.0% payment rate increase instead of a 4.4% payment cut in 2006. (Sec. 6105.)

   • Ensures beneficiaries are not denied access to critical inpatient rehabilitation facility services by freezing implementation of the “75% rule” at the 50% level.

   • Ensures all beneficiaries needing extensive therapy services are not denied these needed services by extending the moratorium on therapy caps. (Sec. 6108.)

   • Ensures access to ESRD facilities that provide high quality dialysis services to over 430 thousand beneficiaries with kidney disease. (Sec. 6107.)

> Fights waste in the Medicare program by preventing unnecessary payments to durable medical equipment suppliers for maintenance of capped rental equipment. (Sec. 6109.)

> Protects access for international volunteers.

   • Waives the Part B late enrollment penalty for international volunteers and provides a special enrollment period. (Sec. 6114.)

> Protects access for rural beneficiaries.

   • Extends the hold-harmless provisions for small rural hospitals and sole community hospitals from implementation of the hospital outpatient prospective payment system. (Sec. 6106.)

   • Extends the Medicare Dependent Hospital program, which provides financial protections to rural hospitals with less than 100 beds that have a greater than 60 percent share of Medicare patients. (Sec. 6101.)

   • Expands coverage of additional preventive benefits under Federal Qualified Health Centers. (Sec. 6115.)

> Preserves access to community hospital care by ending unfair competition from physician-owned limited service hospitals. Prohibits new physician-owned limited service hospitals from having any ownership or investment interest by physicians who refer Medicare and Medicaid patients to the facility. (Sec. 6104.)

Statement by Senator Chuck Grassley on the Committee Proposal

Tuesday, October 25, 2005

Today we meet to consider the Senate Finance Committee’s title of the Deficit Reduction Omnibus Reconciliation Act of 2005. This mark captures billions of dollars in savings and additional revenues for the states through reformed pharmacy policies and improved drug rebate practices.

These savings do not affect any beneficiary or service under Medicaid. In fact, the chairman’s mark increases and preserves coverage under Medicare and Medicaid.

It would provide improved access to health care for over 500,000 disabled children and it would save states from having to cut back or eliminate coverage for over 697,000 low income beneficiaries currently enrolled in the SCHIP program.

The following illustrates the dramatic savings we achieve -- if states used their savings under this mark to provide for both state costs and the federal match, they could cover a total of 610,000 additional children for the next five years under Medicaid.

I had hoped to be joined by my friend and partner on the committee, Senator Baucus. I believe that the Finance Committee functions best when Democrats and Republicans work together and craft policy based on compromise and mutual agreement. I began this process with the anticipation that Senator Baucus and I could agree on a proposal that improves and strengthens the Medicaid program. I am disappointed that extenuating circumstance prevented Senator Baucus from continuing our work together on this legislation.

I understand that a number of members are very concerned that the Congress has not acted on legislation vital to help the thousands of families who have had their lives devastated by Hurricane Katrina. I share their strong desire to move Hurricane Katrina relief legislation as soon as possible and I have been working very hard to clear the way for Senate consideration of the Hurricane Katrina relief. I draw my colleague’s attention to the Hurricane Katrina Medicaid provisions in the chairman’s mark. I want to emphasize that this is a down-payment on the help we should provide to the states of Mississippi, Louisiana and Alabama and the other states affected by this terrible disaster. I intend to continue working so that we can enact legislation that would direct additional relief to these states. I would hope that Congress would act on the Emergency Health Care Relief Act separately from this reconciliation process. If that occurs, then provisions related to Hurricane Katrina that are included in the chairman’s mark would no longer need to be included.

Again, I regret that the Senate’s inaction on Hurricane Katrina relief is a principal reason why Senator Baucus is unable to support moving forward with a budget reconciliation package at this time. However, I do note that a number of provisions in this legislation are bipartisan proposals that Senator Baucus and I agree on.

In particular, he and I worked together to develop the Medicare Value Purchasing Act, which is included in this bill.

And we worked together to address the moratorium on specialty hospitals which is also included.

Regardless of the fact that Senator Baucus is not able to support the mark before the committee today, I appreciate his ongoing comity and good will. I sincerely appreciate the fact that even when we disagree, Senator Baucus supports the effort to keep the process going.

The mark before the committee represents nearly a year’s worth of work on the part of myself, members of the committee and our staffs. It is a carefully crafted compromise. Because it is a compromise, not every member on the committee got everything he or she may have wanted.

Now, I want to point out that the chairman’s mark makes a number of improvements over current law. It achieves significant budget savings and makes real progress in getting a handle on the federal deficit which threatens our economic security.

It reduces wasteful and unnecessary spending and directs these savings where they are needed the most. Because we are able to achieve gross savings, above the net needed to meet our reconciliation instructions, we were able to direct funding to improve access to health care to vulnerable populations. I think it bears repeating that this mark would ensure the continuity of health coverage for over 697,000 low income children by providing funding to states that face shortfalls in the State Children’s Health Insurance Program. Additionally the mark includes several provisions that would expand outreach and enrollment activities, to get eligible children covered through SCHIP or Medicaid.

The mark would expand Medicaid benefits for approximately 500,000 children through the Family Opportunity Act, so that parents of severely disabled children can earn above poverty level wages and still maintain vital services for their children. I would note that the Family Opportunity Act has broad bipartisan support and is cosponsored by 13 members of the Senate Finance Committee. This has been a priority of mine for several years and I am very optimistic that we will see enactment of the FOA by year’s end.

Additionally, we include funding for the “Money Follows the Person” rebalancing demonstration program which would allow individuals currently in institutions to transition to a home and community based setting.

The chairman’s mark also provides new options for private coverage of long term care through long-term care partnerships as well as providing improved access to health care for seniors and individuals with disabilities in Medicare.

It helps protect rural beneficiaries of Medicare and preserves access to community hospital care by ending unfair competition from physician-owned limited service hospitals. These important program improvements are possible because of the savings that are achieved through the other important provisions in this package.

The chairman’s mark includes provisions that would help state Medicaid programs obtain millions in payments owed by third party payers. It makes a number of significant reforms to the pharmacy payment system, close drug rebate loop holes and cracks down on Medicaid fraud and abuse. This is responsible policy that is long over-due.

Finally, I would like to thank all the members of the Finance Committee and their staffs for their hard work on these important issues. I am impressed by the degree of expertise and insight of my colleagues on this committee. We may disagree on specific provisions. However, I am convinced, that no matter the differences in our approach, we share a common goal: and that is to improve the lives and well being of our constituents and our nation as a whole. I look forward to a lively debate on these issues that will continue over the coming weeks.

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