Budget bill seeks curbs on Medicare Advantage payments

March 1, 2006

WASHINGTON, D.C. -- Congress approved the $40 billion budget reconciliation bill for 2006 last month, after it was sidelined for weeks by opponents. The measure reduces some crop support programs and student loans, but the bulk of the savings comes from changes to Medicaid and Medicare: $11 billion over the next five years and nearly $50 billion over 10 years.

WASHINGTON, D.C.-Congress approved the $40 billion budget reconciliation bill for 2006 last month, after it was sidelined for weeks by opponents. The measure reduces some crop support programs and student loans, but the bulk of the savings comes from changes to Medicaid and Medicare: $11 billion over the next five years and nearly $50 billion over 10 years.

One significant revision affects the method for calculating Medicare payments to Medicare Advantage (MA) plans. Although some additional payment curbs fell by the wayside during final negotiations over the legislation, a change in how Medicare calculates risk adjustment to MA plans could reduce plan payments by more than $10 billion over the next 10 years.

The legislation changes the schedule for phasing out the "budget neutrality" adjustment to payment rates, which currently returns to MA plans all of the savings that would result from application of risk adjustment based on beneficiary health status. However, the bill leaves it to the Centers for Medicaid and Medicare Services (CMS) to implement this rate adjustment, which opens the door to scaling back the revision before it is fully implemented.

These are offset by a provision that cancels a major cut in fees for physicians. Instead of a 4.4% reduction, rates will increase during the next three years and moderate slightly after that.

CHANGES CAUSE A STIR

The Medicaid program faces significant change that generated an outcry from healthcare providers and consumer groups.

The budget bill restricts coverage of nursing home care for people with sizeable assets, and states gained leeway to reduce Medicaid benefits and to levy copays for certain services and drugs, which is projected to end coverage for about 45,000 enrollees by 2010 because they will be unable to pay new premiums and copays, according to the Congressional Budget Office. Patient advocates blasted these proposals as likely to deny Medicaid services to thousands of low-income individuals.

About half of the Medicaid savings come from provisions that reduce payments for prescription drugs. Pharmacists face cuts in dispensing fees, and brand-name pharmaceutical companies may find it harder to block generic competition.

Despite opposition from patient groups and some healthcare providers, the budget bill squeaked by with strong support from physicians desperate to cancel the doctors' fee cut and conservative Republicans who saw the measure as a chance to control some runaway federal spending.