Health Biz: Medicaid lines become clearer


WASHINGTON, Jan. 20 (UPI) -- Lines are being drawn in the Senate on Medicaid reform as Michael Leavitt, the Environmental Protection Agency administrator and nominee for health and human services secretary, goes through his hearing process.

The former Utah governor got an easy ride Tuesday in the Senate Health, Education, Labor and Pensions committee, but Wednesday the Democrats on the Senate Finance committee began to lay the groundwork for what likely will be contentious debate over the financing of the largest government healthcare program -- covering 51 million people and spending more than $304 billion each year.


There is much agreement that Leavitt has extensive experience with Medicaid from his time as governor -- the same was felt about outgoing HHS Secretary Tommy Thompson of Wisconsin -- who got little chance to pursue that avenue because Sept. 11, 2001, anthrax, Cipro wars, bioterror, Medicare drugs and a flu vaccine shortage kept him more than busy.

It could be, however, Leavitt's Medicaid experience may come back to bite him. What lawmakers focused on was Utah's recent Section 1115 waiver -- a mechanism that allows states to be more innovative in their use of Medicaid money -- that allowed Utah to reduce benefits for some Medicaid recipients and put the savings into a pool to create an insurance program for 18,000 uninsured state residents.


The goal -- reducing the number of uninsured -- is not the issue, but some lawmakers are wary of an administrative waiver process, over which Congress has little regular oversight. Also, the idea of reducing benefits to a group already covered by Medicaid is worrisome to Democrats, who worry the administration will use the waiver process to limit spending.

The Bush administration has made it clear it wants to cap or limit federal expenditures on Medicaid, which is financed by the federal government matching the dollars states spend on their Medicaid programs.

Committee Chairman Sen. Charles Grassley, R-Iowa, is one Republican concerned about the waiver process. He brought up the Utah waiver, asking Leavitt to be specific about his vision for Medicaid. Grassley pointed to Leavitt's 1997 testimony as governor before the committee, during which Leavitt said capping Medicaid would force states to either cut back services or come up with additional funds.

"I believe as I did then that mandatory populations should remain mandatory and that optional coverage and groups should remain optional," Leavitt carefully responded to Grassley and others who asked him his opinion on caps for Medicaid.

"I'm looking for the flexibility that a manager of healthcare has in any other circumstance," Leavitt told the committee.


Leavitt said the Utah waiver was not intended to be a model for any national approach to Medicaid reform, but rather was designed to solve a problem of the uninsured in Utah. He said the Utah Medicaid program provides its beneficiaries with services and benefits 35 percent to 40 percent richer than what is provided by private insurance plans. State officials decided to reduce some of the most generous benefits to some Medicaid populations and use the savings to create a basic healthcare package for the uninsured.

"It's not perfect," he testified, "but we have provided healthcare for 18,000 people who had none."

Leavitt said rather than focusing on changes in Medicaid, he thought the program is just inefficient and its resources can be better managed.

Sen. Max Baucus, D-Mont., the ranking Democrat on the committee, said he was sympathetic with state governments that want to use the waiver process to create more innovative Medicaid programs, but said the Government Accountability Office has chastised the administration for overstepping its legal bounds in use of the waivers.

Baucus said waivers "must not undermine Medicaid in the process. It does not allow wholesale reform of medicaid."

Baucus also downplayed the administration's push to make Medicaid reform an urgent matter, citing increasing costs and fraud and abuse. He said data show $119 million in Medicaid spending was attributable to fraud in 2003 -- less than 0.007 percent of the total.


"If I scored 99.93 percent on an exam, I'd hardly think of it as a crisis," Baucus said. "The administration believes that other program fraud and abuse exist, of course, and I am sure that is the case. But identifiable, calculable fraud is limited to $119 million. That is a far cry from the $20 billion cut in Medicaid that the administration proposed in its 2005 budget last year."

The Bush administration points to a rapid growth in Medicaid expenditures, but Democrats contend spending growth in Medicaid is far below that of Medicare or the private health insurance industry. They argue the extra spending is spurred by increasing numbers of beneficiaries -- those who turned to Medicaid as a last resort because of a poor economy and those who lost employer-provided healthcare coverage.

Sen. Jeff Bingaman, D-N.M., said critics who point to rising Medicaid expenditures need to realize much of the increase come from nursing homes beneficiaries.

"It's not the inefficiency of the system, it is the fact that we don't have any policy for providing long-term care in this country -- we never have had," Bingaman said.

"I see a problem developing here with respect to supporting the mandate of Medicaid," began Sen. Jay Rockefeller, D-W.Va.


Rockefeller asked Leavitt if Medicaid is operated more cheaply than Medicare and private insurance would it have a cap where it affects optional programs or populations.

"I urgently hope that you would think about this matter now that you really have the entire country .... at your mercy," Rockefeller said.


Wall Street will be watching the healthcare industry in 2005 and Chris Brown, manager of the Pax World Balanced Fund, told reporters this week some companies have a lot of cash on hand, which could translate into more mergers and acquisitions.

Pax World Balanced Fund, ranked in the top 2 percent of Lipper Analytical Services-tracked funds in 2004, bills itself as America's first socially and environmentally responsible mutual fund and only deals in companies that fit its criteria -- that means nothing in the defense or gambling.

Brown said the merger of Johnson & Johnson and medical products maker Guidant is one example that could be followed by other healthcare companies with money to spend.

"I'm going to be looking for attractive investment opportunities in certain healthcare and tech stocks," Brown said during a teleconference. "While investment opportunities may be as broad-based, I do see certain segments of healthcare and technology as promising."


Pharmaceutical companies that do not have new drugs in the research and development pipeline "could result in only mixed prospects at best," he said. "But HMOs focusing on reducing healthcare costs, such as (insurer) Wellpoint, and personal benefit managers (PBMs) such as Caremark could flourish in 2005."



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