WASHINGTON, Feb. 8 (UPI) -- Here is President Bush's proposed fiscal year 2006 health budget in a nutshell: It gives more money to the Food and Drug Administration to beef up food protection and drug safety; chips away at funding for the Centers for Disease Control and Prevention; keeps Medicare sitting fat and happy, and makes Medicaid the new bad boy on the block.
The total Department of Health and Human Services spending plan comes in at $642 billion, $58 billion more than budgeted for FY 2005.
The FDA in 2005 struggled to deal with post-approval side effects of big-name prescription drugs, so the administration included a 4.5 percent funding increase -- about $81 million for a $1.9 billion total -- part of which will go to hire 25 new people for its drug safety office. That may or may not appease lawmakers who have called for establishment of a separate agency on drug safety.
When he announced his resignation as HHS secretary last fall, Tommy Thompson said: "For the life of me, I cannot understand why the terrorists have not attacked our food supply because it is so easy to do."
The Bush administration was quick to downplay the claim, yet Kathleen Heuer, chief financial officer at FDA, explained the proposed increase Monday by saying, "This threat is real and would wreak havoc not only on the safety of the food we eat, but also on confidence of the consumer and the whole farming and food sector economy."
Whatever the level of threat, $30.1 million in the FDA budget would go toward fighting it in FY 2006.
The budget request for the CDC is $7.5 billion, down $491 million from 2005. HHS Budget Director Kerry Weems said the reductions come from the agency taking "a pause" in its building schedule and eliminating programs -- such as the five-year VERB campaign that encourages youngsters to engage in physical activity. Weems added that the nation's stockpile of drugs, which had been depleted, has "gotten over a hump" in terms of replenishment efforts and does not need as much financial attention.
Medicare gets a pass -- exempt from cuts under Bush's plan as 2006 brings full implementation of the Medicare Modernization Act of 2003, which adds prescription-drug coverage to the senior health-insurance program. Bush anticipates the MMA, which includes competitive bidding for providers, actually will result in long-term savings, even as it spends at least $395 billion -- possibly $500 billion or more -- in the short term.
That leaves Medicaid, which the Bush administration quickly noted is not scheduled for any direct program cuts.
"We're not going after the benefits that poor people get under Medicaid," Josh Bolten, director of the Office of Management and Budget, told reporters. "We're trying to squeeze the anomalies out of the system, prevent measures that states and private parties have been using to circumvent the system and get federal money, to which we believe they're not entitled."
The 2006 plan calls for $45 billion in reductions over 10 years coming from three main areas:
--reducing overpayment for drugs provided to the Medicaid population;
--changing the rules to make it more difficult for the elderly to dump assets and qualify for Medicaid to pay for nursing home care, and
--further cracking down on how states claim federal matching money for Medicaid spending.
"We must have an uncomfortable, but necessary, conversation with our funding partners, the states," newly installed HHS Secretary Michael Leavitt told a healthcare conference in Washington last week.
The talk is about intergovernmental transfers. Example: a state makes deals with healthcare providers -- such as county-run nursing homes -- to charge more for a Medicaid service, but offer a rebate or discount, which is paid back to the state. The state then claims its federal-match money based on the original cost of the healthcare service, not on the discounted cost, resulting in a windfall for its treasury.
"If we don't close these loopholes, we project that over the next 10 years they will shift $40 billion through various means," Leavitt said.
Almost all states are legally bound to balance their budgets and when the national economy took a nosedive after 2000 it became almost impossible to do without making painful cuts. More than 40 states in some way reduced Medicaid spending while at the same time tried to ensure the most needy had access to healthcare services.
Using the intergovernmental transfer loophole was one way to get more federal money into a state program -- although not all states used the funds generated by the loophole for healthcare purposes.
That HHS would have an uncomfortable conversation with states may be putting it mildly if its track record on Medicare fraud is any indicator.
HHS investigators are well versed on ferreting out fraud, waste and abuse. From the mid-1990s, lawyers from the HHS Office of Inspector General actively and creatively prosecuted hospitals for "cooking the books" to increase their Medicare payments -- they presented Medicare with cost reports far different from a second set of true financial records that were secreted away.
OIG investigators simply showed up unannounced at hospitals and demanded repayment -- threatening hospital management with criminal prosecution. Hospitals scrambled to settle with the government, spawning a new healthcare compliance industry to deal with onerous and expensive federal settlement provisions requiring facilities prove they had mended their ways.
The HHS method of closing these Medicaid loopholes is not going to be anywhere near that extreme, but the agency holds enforcement authority and already has established agreements with states to settle such allegations.
Even Democrats support making states toe the line.
"Let me just say with respect to Medicaid, to the extent there are states that are gaming the system and the president is going after that kind of shell game, he'll get strong support, at least from this senator," Sen. Kent Conrad, D-N.D., usually a harsh critic of the Bush administration, told reporters Monday.
The real effect of Medicaid cuts remains to be seen, however, Robert Greenstein executive director of the Center for Budget Policy and Priorities in Washington, said at a news briefing Tuesday.
In a response to a question from HealthBiz, Greenstein said parts of the Medicaid proposals are "extremely vague," such as giving states more flexibility in administering their Medicaid programs without costing additional federal dollars.
"That may be a code word," Greenstein said, "indicating the administration may come up with a proposal to cap or block grant a portion of the Medicaid program."
HHS officials said the budget proposal did not seek to change Medicaid financing to a block-grant system, but Greenstein said giving states more leeway can lead to deals that limit federal spending.
That has been the criticism of some recent waivers between HHS and the states -- that the flexibility for states to include new coverage parameters or new eligible populations comes with it provisions that the federal government spend no additional dollars in the process.
Greenstein also said it is possible that in the administration's pursuit of lower drug prices for the Medicaid program, committees in Congress might work behind the scenes on an alternative that would create a block grant program.
All in all, he said, it is impossible to think $45 billion in cuts will not force the states, in some way, to reduce benefits, eligibility or coverage of the Medicaid program.
The talk around Washington has been about Medicaid cuts, but the president's proposal also includes more over $300 million more for community health centers and an expansion of coverage under the State Children's Health Insurance Program. The administration said its goal was to provide insurance coverage to an additional 14 million people.
When Congress gets done with the budget, the final legislation likely will look very different from the president's plan -- something the administration expects, but still hopes the general theme of fiscal accountability prevails in the long run.
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