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Closed-Door Deal Makes $22 Billion Difference
GOP Negotiators Criticized for Change In Measure on HMOs

By Jonathan Weisman
Washington Post Staff Writer
Tuesday, January 24, 2006

House and Senate GOP negotiators, meeting behind closed doors last month to complete a major budget-cutting bill, agreed on a change to Senate-passed Medicare legislation that would save the health insurance industry $22 billion over the next decade, according to the nonpartisan Congressional Budget Office.

The Senate version would have targeted private HMOs participating in Medicare by changing the formula that governs their reimbursement, lowering payments $26 billion over the next decade. But after lobbying by the health insurance industry, the final version made a critical change that had the effect of eliminating all but $4 billion of the projected savings, according to CBO and other health policy experts.

That change was made in mid-December during private negotiations involving House Ways and Means Chairman Bill Thomas (R-Calif.), Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) and the staffs of those committees as well as the House Energy and Commerce Committee. House and Senate Democrats were excluded from the meeting. The Senate gave final approval to the budget-cutting measure on Dec. 21, but the House must give it final consideration early next month.

The change in the Medicare provision underscores a practice that growing numbers of lawmakers from both parties want addressed. More than ever, Republican congressional lawmakers and leaders are making vital decisions, involving far-reaching policies and billions of dollars, without the public -- or even congressional Democrats -- present.

The corruption scandal involving Republican former lobbyist Jack Abramoff and the bribery plea of former congressman Randy "Duke" Cunningham (R-Calif.) have prompted calls for a restructuring of lobbying rules and congressional practices that make lobbying easier.

A prime target for changes are the closed-door negotiations known as conference committees, where members of the House and Senate hash out their differences over competing versions of legislation. House and Senate Democrats last week proposed that all such conference committees meet in the open and that any changes be made by a vote of all conferees.

"It happens in the dead of night when lobbyists get a [Republican lawmaker] in the corner and say, 'We've got to have this,' " said Rep. Fortney "Pete" Stark (Calif.), the Democrats' point man on Medicare issues. "It's a pattern that just goes on and on, and at some point the public's going to rise up."

Grassley disputed the CBO's interpretation of the change as "ridiculous," dismissing what appears to be a major insurance industry victory as merely a mistake in CBO calculations, not a substantive policy change. He said he accepted the policy change because he "didn't see a big difference from the Senate position and the conference position."

But other lobbyists and aides said too much important work is being done in these closed-door conclaves. That is especially true with the budget-cutting bill containing the change in the Medicare reimbursement formula that is nearing final passage.

"I have worked many [budget] bills, and this was the most closed that I've ever seen," said one prominent Republican health care lobbyist, who spoke on the condition of anonymity for fear of jeopardizing his access to Congress.

Another health care lobbyist, not involved with the issue, said the result was a major victory for health insurers: "That's a $22 billion difference; $22 billion is a lot of money."

If no one can say which lawmakers made the change, there is no doubt who instigated it. Last month, as House and Senate negotiators sat down to finalize the budget-cutting bill, the insurance industry moved to thwart the Senate's "risk adjustment" provision.

"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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