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US House Approves Medicare Reform Bill

June 28, 2002



From: Bill Finerfrock and Matt Bado

Re: House Approves Medicare Reform Bill

In the early morning hours of June 28, the House of Representatives approved the “Medicare Modernization and Prescription Drug Act of 2002\" (H.R. 4954) with a partisan vote of 221-208. The bill, as it was reported out of the Rules Committee, prohibited any amendments from being offered on the floor.

The approved bill would cost $350 billion over a 10-year period with beneficiaries purchasing drug coverage from private insurance companies through a competitive bidding process. The insurance plans would be able to offer their own deductibles and premiums as long as they fall within the model plan in the bill referred to as the “standard coverage” amount. Otherwise, beneficiaries would pay a $250 annual deductible with an approximate $33 monthly premium. Low-income seniors, who live at 100-150 percent poverty, would not be susceptible to any deductibles or premiums. The subsidy would be phased out using a sliding scale between 150 and 175 percent of poverty. The government would pay 80 percent of a beneficiary’s drug costs if totaling up to $1,000 annually; 50 percent up to $2,000; and none of the costs between $2,000 and $3,700. Finally, the bill would authorize free physicals to new Medicare beneficiaries; and eliminating the co-payment for home health care services.

To administer the drug benefit, the bill would establish a newly created independent agency that would oversee the benefit standards to avoid conflicting interests that might occur if, for example, an agency both sets the standards and administers its own plans.

The bill would increase Medicare payments to providers. For physicians, payments would increase 2 percent annually over the next three years. Absent this change, physicians could experience a dramatic drop in payments as a result in scheduled adjustments to the payment formula. Increased payments over the 10-year period would amount to $10 billion for physicians; $9-$10 billion for hospitals; $3-$4 billion for Medicare+Choice plans; and $2 billion for nursing homes. With regard to home health agencies, the bill would eliminate the scheduled 15 percent cut.

The legislation would expand the DME competitive bidding demonstration currently being conducted in Florida and Texas. Competitive bidding has generated considerable bi-partisan support. One of the Senate’s leading proponents of competitive bidding for DME, Senator Bob Graham (D-FL), is also one of the principle authors of the Democrat Medicare Prescription Drug/Reform initiative. He has typically included this as a major piece of his Medicare reform legislation.

The House passed bill would provide a 2-year increase in the level of adjustment for indirect costs of medical education. Under current law, the IME adjustment is set at 6.5 percent for fiscal year (FY) 2002 and 5.5 percent for FY 2003. This proposal would set the IME adjustment at 6 percent in FY 2003, 5.9 percent in FY 2004, and 5.5 percent in FY 2005.

It would earmark $2 billion for Medicaid (disproportionate share hospitals) payments to hospitals that provide care to the most under-served communities and the neediest seniors.

The bill also incorporates legislation previously adopted by the House that would make significant administrative and contracting reforms in the Medicare program. These proposed reforms have been outlined in previous reports. By including language in this bill that has previously been approved by the House, Members were attempting to send a signal to the Senate that these reforms are very important. The Senate has yet to act on Medicare contracting reform legislation.

Recent reports from the Senate have indicated that Senate Majority Leader Tom Daschle (D-SD) intends to bring Medicare Reform legislation to the floor of the Senate during the month of July.
It is likely that Senator Daschle will bypass the normal Committee process and bring his own bill directly to the Senate floor. Because the bill will not have gone through the normal process, few give this legislation much chance for success. Thus, despite the Majority Leader’s expression of his intent to consider legislation, it does not appear that any Medicare Prescription Drug/Reform legislation has enough support to pass the Senate. There are several competing Senate plans that have garnered considerable support, but no bill has generated support from a majority of Senators.

Should the Senate fail to pass a broad Medicare reform bill, it is does not mean that the effort to reform the program this year will fail. A narrow bill focusing on Administrative/Contracting reform, as well as physician and hospital payment improvements could generate enough votes to pass the House and Senate and get signed into law by the President. The effort to adopt a scaled down bill would probably begin in earnest in September, once it was clear that Congress could not agree to broader reforms. .

Source: Bill Finerfrock of Capitol Associates
Posted: 6/28/2002 Thru: 12/30/2002