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Closed-Door Deal Makes $22 Billion Difference

"It is our understanding that CBO is scoring significant savings from this new adjustment," officials from America's Health Insurance Plans (AHIP) wrote in urgent talking points sent to Capitol Hill. "The savings . . . are best viewed as a new and unanticipated payment reduction."

Since managed-care companies first began working through Medicare in the 1990s, the government has recognized an issue in the way the companies are paid for their participation. Private insurers attract healthier seniors than the traditional government-run Medicare system, so their payment rates -- based on the elderly population as a whole -- exceed the actual cost of treatment.

In 2003, the government began lowering payments to Medicare HMOs to account for their healthier population of beneficiaries. But to keep those HMOs from fleeing the system, the Bush administration added a "hold harmless" payment that negated that cut.

The White House intended to phase out that payment through 2010, a plan written into law by the version of the budget-cutting bill that passed the Senate in November. But to secure those savings, the Senate also required yearly audits to account for "coding creep" or "upcoding" that health policy experts say physicians and hospitals working for the HMOs have used that, wittingly or unwittingly, make their patients appear sicker than they are.

The insurance industry lobby has denied such a problem exists, saying that the huge savings that CBO and other health care analysts have projected would never materialize. Even so, the industry fought the changes tooth and nail, said health care aides in the House and Senate.

Karen Ignani, chief executive of AHIP, said the industry would have liked the yearly audit provision to be removed. Instead, it got what the CBO sees as a strict time limit. According to the final bill language, the results of a risk adjustment analysis are to be "incorporated into the risk scores only for 2008, 2009 and 2010."

The original Senate measure was supposed to reduce payments to Medicare HMOs by $2.9 billion in 2010, $3.3 billion in 2012 and $4.5 billion in 2015. Now, CBO scorekeepers think savings will peak at $2.9 billion in 2010. By 2012, the government will be paying the HMOs $100 million more than now scheduled, and $900 million more by 2014.

Republican aides involved in the change dismiss its significance, saying the CBO is reading too much into it. The Bush administration had planned to phase out "hold harmless" payments through 2010, and negotiators wanted to make the audit adjustments coincide with that time frame, the aides said.

Grassley agreed: "If CBO continues to say there needs to be a legislative requirement to conduct the analyses past 2010, then I look forward to passing legislation continuing the reports and achieving even bigger budget savings."

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