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Health cuts would be spread over a wide variety of programs

By Tracy Jan
Globe Staff / September 20, 2011

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WASHINGTON - The deficit-reduction plan President Obama unveiled yesterday included a detailed array of nips and tucks to Medicare and Medicaid that would add up to $320 billion in cuts over the next decade, including provisions that would hit Boston’s teaching hospitals, the region’s major biotech drug manufacturers, and, eventually, wealthy Medicare beneficiaries.

While such cuts would trigger another round of intense lobbying battles on Capitol Hill, they will not produce the sort of political upheaval that could have resulted from a more systemic change, such as raising the eligibility age for Medicare.

Among the tweaks would be another bid to cut the extra Medicare money teaching hospitals receive for training residents. While this proposal would not cut as deeply as a plan floated this summer, it would still cost the Bay State’s 30 teaching hospitals about $50 million, an industry representative said.

“Any cut that disproportionately hits a small number of hospitals in the country is a problem,’’ said John Erwin, executive director of the Conference of Boston Teaching Hospitals. Overall, the 10 percent reduction in Medicare reimbursements over a decade would save $9 billion nationwide.

More than 75 percent of the savings, or $248 billion, in Obama’s health care cuts would come from Medicare; 90 percent of that comes from reducing overpayments. Cuts affecting beneficiaries would not take effect until 2017.

Another $72 billion in savings would come from Medicaid and other health programs.

“This contributes to deficit reduction without resorting to any truly scary reform or fundamental changes in the program, like privatization or rolling back the age of eligibility,’’ said Drew Altman, chief executive of the Kaiser Family Foundation, a nonpartisan policy group.

The Medicare eligibility age would remain at 65, despite Obama’s earlier signals that he was willing to gradually increase it to 67, a move most Democrats strongly opposed.

“It’s a way to put further reductions on the table while keeping the Medicare club for Democrats in the next election,’’ Altman said. “The cuts are spread over a long list of things - all of which are significant but none of which are gigantic, so you may upset a lot of people but you don’t upset any single lobby too much.’’

The largest savings would come from aligning Medicare drug payment policies with Medicaid policies for low-income beneficiaries, a change that would save $135 billion. Now, manufacturers must pay specified rebates for drugs dispensed to Medicaid patients, but can negotiate rates with Medicare plan sponsors, resulting in substantial differences in prices paid for brand-name drugs.

The Obama administration characterizes the health care changes as modest.

The president vowed to veto any bill that takes a single dime from Medicare beneficiaries without also increasing taxes for the wealthiest Americans and corporations.

Industry representatives greeted the proposed cuts with a mix of relief and concern.

Robert Coughlin, chief executive of the Massachusetts Biotechnology Council, said a proposal to cut the exclusivity period for brand name high-tech drugs from 12 years to seven would hurt the biotech industry, saying that companies would not have enough time to recoup the often hefty cost of developing the drugs. The proposal would result in savings of $3.5 billion over a decade to federal health programs.

“Who is going to be incentivized to invest in innovation if you can’t make your money back?’’ Coughlin said.

The state’s hospital association expressed concern about the cuts to providers, which are already struggling with reduced Medicare and Medicaid payments under the health care overhaul. Massachusetts hospitals are already slated for almost $53 billion dollars in Medicare reimbursement reductions as a result of the Affordable Care Act, said Lynn Nicholas, chief executive of the Massachusetts Hospital Association.

While Max Richtman, chief executive of the National Committee to Preserve Social Security & Medicare, said he was grateful that Social Security appears to be off the table, he is worried about rising costs for beneficiaries.

New beneficiaries would be subject to a $100 copayment per episode for Medicare home health services, beginning in 2017. And those choosing to buy Medigap, policies sold by private insurers to cover many costs Medicare does not, would incur a surcharge to discourage people from getting unneeded services.

John Rother, executive vice president at AARP, said he is relieved that there is not a flat-out prohibition against Medigap policies. “It’s an effort to spread the pain as widely as possible by protecting the most vulnerable beneficiaries,’’ Rother said.

Medicare beneficiaries making at least $85,000 annually would see a 15 percent increase in premiums starting in 2017. This would help improve the financial stability of Medicare by reducing the federal subsidy for those who can most afford the cuts, Obama officials said.

Other proposed cuts include limiting the amount Medicare reimburses hospitals for debt when patients who don’t pay their bills, reducing payments to rural hospitals, and requiring prior authorization for advanced imaging.

Eric Zimmerman, a Medicare law and policy analyst and partner at the Washington, D.C. law firm of McDermott Will & Emery, said that although Obama’s plan is unlikely to survive intact, the various interest groups are wise to be concerned.

“Stakeholders would dismiss it at their peril,’’ Zimmerman said. “Even though this will not likely advance as a package, individual aspects of it most certainly could advance.’’

Tracy Jan can be reached at tjan@globe.com.