Medical Device Daily Washington Editor

WASHINGTON – Rumor is that the 2009 White House budget proposal for the Department of Health and Human Services isn’t finding a welcoming home in many Democratic congressional offices.

And the appearance of Michael Leavitt, the HHS secretary, in the Senate Finance Committee yesterday did little to blunt this perception, even with Leavitt’s repeated assurances that the proposed reductions in healthcare spending were not really reductions but only attempts to slow the growth costs.

The reaction of Senate Democrats during Leavitt’s appearance bolstered the notion that FY09 will, like its two immediate predecessors, end up as a year of continuing budget resolutions for HHS.

(For all the attention concerning FDA funding in recent weeks, the subject was ignored in yesterday’s hearing.)

Committee chairman Max Baucus (D-Montana) said, “I am just as interested as the president in controlling healthcare spending,” but that cutting more than $180 billion out of Medicare and $18 billion from Medicaid “is not the way to go.”

He called the amount of the cuts “truly staggering,” and that a significant portion “comes from cuts to Medicare providers,” but none from Medicare Advantage plans (MA). “This budget demonstrates where the president’s budget priorities really lie,” Baucus said.

He acknowledged that the budget calls for $19 billion more over five years for the Children’s Health Insurance Plan (CHIP), but that “this level is far below what the Congress chose to provide last year” for this program.

Chuck Grassley (R-Nebraska), the ranking minority member, said, “We were not successful in reauthorizing” CHIP last year. While he said he hoped to pass a bill this year, “it is more likely the debate will be revisited in the 111th Congress.”

Grassley said the White House’s CHIP proposal is a “more thoughtful and more realistic proposal than last year,” but asked “why the administration has done such an about-face on CHIP?”

The system for payment to doctors under Medicare Part B, Grassley said, “is fundamentally flawed,” a reference to the sustainable growth rate [SGR] mechanism. He said that a failure to address this “probably will threaten access to beneficiary access.” On the other hand, he admitted that following MedPAC recommendations “is very difficult for Congress to do.”

Leavitt said that Medicare “makes up 56% of the $737 billion budget HHS presents today” and said that the numbers should be seen “as a stark warning.”

“If it remains on autopilot, 11 years from now, Medicare will be broke,” he said, in reference to the hospital insurance trust fund. However, Leavitt said, “American sensitivity to entitlement warnings has become numbed by a repeated cycle of alarms and inaction.”

Leavitt described fee-for-service (FFS) Medicare as “a system of price fixing” in which “government decides who gets treated and how they get treated.” This, he said, “has contributed substantially to the dilemma we face today.” Private markets would make things more efficient, he said, touting Medicare Part D as proof.

“We have taken steps to ensure that Medicaid is sustainable,” Leavitt said, adding that the $18 billion widely described as a cut “is the amount by which we restrain the growth rate,” not an actual cut.

Baucus asked Leavitt: “How can we engage in a solid discussion about healthcare?” — given the “huge, draconian cuts” in the proposed budget, charging that it “sounds like you’re trying to privatize Medicare and Medicaid.”

“You propose huge cuts in private fee-for-service, but no cuts for MA,” Baucus said.

Leavitt described the budget proposal as “the basis of a good conversation,” repeating the view that the budget numbers do not cut spending, but impose “a reduction in the growth rate from 7.2% to 5%.”

Leavitt made the case that for sustainability, “a better way to do that would be to get consumers involved” in making decisions about providers. He said that greater proliferation of healthcare information technology and value-based purchasing are needed and that “Medicare Advantage is a better way to do that.”

Baucus disagreed, describing the budget as “a non-starter.”

Leavitt got a friendlier welcome from the GOP, but even some of these legislators had concerns about the contrast in FFS and MA financing.

Olympia Snowe (R-Maine) asked, “Why aren’t we demanding the same standards” from MA plans as from FFS providers?

Leavitt said “the 80% of the difference” between MA and FFS financing “goes to beneficiaries,” a program that he termed “particularly popular among those on low incomes and among minority populations.”

But he said he isn’t a fan of the statutory scope of MA plans. “I’m troubled by the fact that I’m required to conduct competition on a county-by-county basis rather than statewide.”

Orrin Hatch (R-Utah) complimented Leavitt for the work HHS has done on health information technology, describing it as “nothing short of spectacular.”

But he said he was “concerned about the magnitude of Medicare cuts,” and he asked why “market-basket increases are the primary area of savings.”

Leavitt said he has experienced “some frustration with the scoring system” that does not allow calculations on how transparency would affect costs.

The University of Utah (Salt Lake City), Hatch said, “would stand to lose millions of dollars by the end of May” if the cuts for graduate medical education go through. “The CME portion” of the budget “is unworkable,” he said.

Leavitt said, “My guess is that they would not disagree with the notion that it has become part of their funding,” but “there are parts where we’re paying duplicate” monies.

“The system we have now lacks logic,” he said. It should “not be funded entirely by Medicare and Medicaid” because other payers benefit from the program as well. “This is a big-picture issue.”

Regarding prospects that HHS will be funded in FY09 via continuing resolutions, Hatch told Medical Device Daily, “it could be.”

He said that Democrats “don’t want to do anything” with the Bush administration in power, a state of affairs he termed “very disappointing.”