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2007 Budget Favors Defense

Yesterday, a spokesman for the Office of Management and Budget would not comment on the 2007 budget before its release by the White House tomorrow morning.

The effort to curb Medicare spending by $36 billion by 2011 -- and by $105 billion a decade from now -- represents a sharp turnabout for the administration. Just last year, Bush said that the health insurance program that covers 41 million elderly and disabled people should be spared any cuts, saying that it would be wrong to change the program at a time when the administration was preparing to implement a new prescription drug benefit, the largest expansion in Medicare's four-decade history. The drug coverage began last month, amid widespread complaints that elderly patients -- especially the poor -- are having difficulty getting medicine.

The budget for the 2007 fiscal year does not touch the drug benefit, nor does it recommend cuts in payments to doctors, who have just won from Congress a one-year reprieve from Medicare rate reductions that were to have taken effect last month.

Instead, about $20 billion of the $36 billion would come from reducing automatic payment increases to hospitals and other institutional providers, such as ambulance services and skilled-nursing facilities, while the rest would be spread among other forms of care. The reductions are in sync with ones that have been recommended recently by a federal Medicare commission that advises Congress.

The spending slowdown Bush envisions is far larger than the $6.4 billion in Medicare reductions over the next five years that Congress approved, after intense political fighting, in the current year's budget.

Congress also agreed to $4.7 billion in cuts for Medicaid, another entitlement program that provides insurance to the poor. Those cuts were less than half what the White House requested last year. Legislative sources said that, this time, Bush will not ask for any significant reductions in Medicaid.

Yesterday, several Democrats and Republicans on and off Capitol Hill predicted that the Medicare changes Bush is seeking would face stiff hurdles in Congress.

One key senator, Budget Committee Chairman Judd Gregg (R-N.H.) has said lately he favors tightening spending on Medicare, Medicaid and Social Security, echoing Bush's warnings that costs for the programs will swell dramatically once the baby-boom generation begins to retire in a few years. Still, one GOP aide said, "To think that we are going to get $36 billion out of Medicare in an election year, it's going to be a challenge."

Senate Minority Leader Harry M. Reid (D-Nev.) immediately denounced the Medicare proposal. "The president's priority is to protect HMO and drug company profits while shifting costs to beneficiaries and providers," Reid said yesterday. "Cutting funding for hospitals and other providers won't solve the health care crisis."

Hospital industry lobbyists, who enjoy strong support on Capitol Hill, also made clear that they were prepared to fight such cuts. Charles N. Kahn III, president of the Federation of American Hospitals, a trade group for for-profit hospitals, said that many hospitals already are losing money on Medicare's reimbursement rates and are facing rising costs, including for better information technology. Bush's proposal, Kahn said, "is the wrong policy at the wrong time."

Staff writers Peter Baker in Waco, Tex., and Spencer S. Hsu and Ann Scott Tyson in Washington contributed to this report.

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