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Hospitals Close to Agreeing to $150 Billion-$170 Billion in Cuts for Health Reform

Jul 02, 2009

The hospital industry is close to a deal with the White House and congressional Democrats in which the industry would agree to federal funding cuts of $150 billion to $170 billion over the next decade to help pay for a health system overhaul, according to people familiar with the talks.

The deal, which isn’t final, could be announced within days. A critical feature is an agreement on phasing in the Medicare and Medicaid cuts.

Hospitals have been objecting to President Barack Obama's proposals to slash payments over 10 years. They have been seeking assurances that cuts would occur in stages as more people get insurance under reform legislation. If the cuts were to take effect sooner, hospitals say, they'd lose billions of dollars in revenues while caring for large numbers of uninsured patients.

An agreement would boost President Obama's drive for reform legislation by addressing the biggest concerns of one of the most influential players in the health care overhaul debate. It would provide more money to cover the uninsured and it would come at a crucial time--just as members of the House and Senate return from their July 4th break. Democrats are hoping to complete floor action in both chambers before the start of the August recess.

A hospital agreement would follow a recently announced deal involving the pharmaceutical industry, the White House and the Senate Finance Committee. Under the deal, which was endorsed by the powerful seniors' group, AARP, the Pharmaceutical Research and Manufacturers of America said it would spend $80 billion over 10 years to expand the Medicare drug program and help defray the cost of an overhaul.

The negotiations involve the American Hospital Association, the Catholic Health Association; the Federation of American Hospitals; administration officials, and congressional staff.

Hospital costs make up the biggest slice of national health expenditures--about 31 percent of the $2 trillion spent annually. That's why hospitals are a target for Obama and Democrats searching for ways to finance reform legislation.

Beyond the timing of payment cuts, hospitals are concerned about proposals to expand the powers of a panel that advises Congress on payment rates for hospitals. Under an Obama proposal, the Medicare Payment Advisory Commission would set the rates itself (though Congress could overrule it). Such an arrangement would make it harder for the industry to effectively lobby against payment reductions.

Hospitals also have raised concerns about proposals to create a government-run insurance plan to compete with private insurers. They want to make sure that such a plan doesn't link its payment rates to Medicare rates, which are lower than those paid by private insurers.
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