HHS Nominee Leavitt Says Federal Medicaid Funding Reductions Possible

Environmental Protection Agency Administrator Michael Leavitt, who President Bush last month nominated as the new HHS secretary, on Wednesday at a confirmation hearing "steadfastly refused to rule out budget cuts for Medicaid" and said that he could not confirm whether the Bush administration planned to replace the current Medicaid structure with block grants to reduce costs, the Washington Post reports (Connolly, Washington Post, 1/20). However, Leavitt, in testimony before the Senate Finance Committee, "left himself plenty of wiggle room," as he said that HHS could impose limits on optional Medicaid benefits, which are used by about two-thirds of beneficiaries, the New York Times reports (Pear/Stolberg, New York Times, 1/20).

According to CQ Today, Leavitt "deflected questions" about potential Medicaid reforms, as well as "deferred specific questions" about the implementation of the new Medicare law and his position on the reimportation of lower-cost prescription drugs from Canada and other nations (Schuler, CQ Today, 1/19). According to the Post, Leavitt often deferred such questions to the White House, "prompting exasperation from lawmakers" (Washington Post, 1/20). Leavitt also said that as HHS secretary he would not take action against federal whistleblowers in the department, such as FDA safety official David Graham, who in November 2004 testified that the agency was "virtually incapable of protecting America" from unsafe prescription drugs (New York Times, 1/20).

Although no members of the committee "expressed any reservations about Leavitt," some senators appeared to have "plenty of concern about Bush administration policies and how Leavitt might implement reforms," the Deseret Morning News reports (Spangler, Deseret Morning News, 1/20). Senators from both parties said that they expected Leavitt to receive confirmation within the next few days (New York Times, 1/20). "You've got the juice," Sen. Max Baucus (D-Mont.), ranking member of the committee, said (Washington Post, 1/20).

Although state officials and analysts have expected the Bush administration to propose block grants to replace the current Medicaid structure, senators on Wednesday "expressed relief" at the indication from Leavitt that the administration to date has not drafted such a proposal, the Times reports. "I know of no block grant proposal that would come to you," Leavitt said (New York Times, 1/20). He added, "I don't know what the administration is thinking with precision" (CQ Today, 1/19).

However, Leavitt, who as governor of Utah opposed caps on Medicaid spending, on Wednesday said that he would consider a proposal to impose limits on optional benefits or optional beneficiaries (New York Times, 1/20). According to the Post, Leavitt "pledged only to oppose changes ... for the remaining 'mandatory' beneficiaries" (Washington Post, 1/20). Leavitt said a number of times at the hearing, "Mandatory populations should remain mandatory. Optional coverage should remain optional. Optional populations should remain optional." However, Leavitt said that Medicaid beneficiaries receive more comprehensive benefits than those offered by most private health plans, adding, "This society needs to provide high-quality basic health care to its needy," although "it would be better for all to have high-quality basic health care than for a few to have a benefit package unmatched by anyone else in society" (New York Times, 1/20).

He added, "I believe Medicaid is a vital program. I believe it is a remarkably important means by which we serve the poor in this country. But it is not meeting its potential to do good in the lives of the poor that it can" (Washington Post, 1/20). Leavitt also said that the administration plans to "crack down" on "intergovernmental transfers" that states use to increase federal Medicaid matching funds. "We are going to have some awkward and somewhat sensitive conversations with our state partners," Leavitt said, adding, "Some are using transfer techniques that need to be reviewed" (Heil, CongressDaily, 1/20).

According to the Post, senators used the hearing "to put on the record the gripes, fears and questions they have" about HHS. Senators from both parties "warned against any approach that would limit federal spending on Medicaid, noting that a sluggish economy" has led to increased enrollment in recent years, the Post reports (Washington Post, 1/20). Sen. Olympia Snowe (R-Maine) said that limits on the amount of federal Medicaid funds provided to states would lead to increases in the number of uninsured U.S. residents. "It's an indeterminate number of people who might be in need," Snowe said, adding that Medicaid block grants "would shift costs to the states and would undermine support for the neediest people in the country."

Baucus added, "Caps on federal Medicaid spending will reduce flexibility, not increase it. And it is this flexibility that has allowed a swift response to recessions, epidemics, disasters like 9/11 and treatment innovations" (New York Times, 1/20). Sen. Jay Rockefeller (D-W.Va.) added that Medicaid waivers might not provide effective for all states (Gehrke, Salt Lake Tribune, 1/20).

Leavitt at a hearing on Tuesday before the Senate Health, Education, Labor and Pensions Committee said that as governor of Utah he used a Medicaid waiver to implement reforms -- such as a "limited benefit plan" -- that could serve as a model for other states (California Healthline, 1/19). "I just question whether what you did in Utah sort of says, 'Well, we can do this in all of America," Rockefeller said, adding, "I would suggest to you that in Appalachia and other areas they can't, and I would urgently hope that you would think about this matter now that you have the entire country population very much at your mercy or at your help" (Salt Lake Tribune, 1/20).

Leavitt said, "The waiver was not intended to show the way for any national approach. It was designed to solve a unique problem" (CongressDaily, 1/20). Leavitt said, "The entire system of health care in our country is inefficient. We can dramatically improve it," adding, "We won't do it by futzing around the edges. We will have to be bold."

Leavitt also said at the hearing that although prescription drug reimportation might not reduce costs, "if it can be shown that it can be done safely, then it's a discussion we should have" (Salt Lake Tribune, 1/20). Members of the committee "made it clear that the issue of drug importation would continue receiving attention this year," CQ Today reports. "American consumers are demanding lower prices on prescription drugs, and I believe that legalizing importation under conditions that ensure safety is the right thing to do," committee Chair Chuck Grassley (R-Iowa) said (CQ Today, 1/19).

Snowe, in response to comments that Leavitt made on reimportation, said that if prescription drugs are "not affordable, they cannot be effective," adding "It's hard to understand the resistance, the intransigence on this issue" (Washington Post, 1/20). In response to a question from Grassley, Leavitt did not support reforms to the system used by FDA to monitor the safety of prescription drugs on the market but said that he would "protect the integrity" of the agency (CQ Today, 1/19). Leavitt also said that long-term home health care can provide a less-expensive alternative to nursing home care, which he said has contributed to increased health care costs (Deseret Morning News, 1/20).

Leavitt said that long-term care "is the most significant challenge we face in Medicare and Medicaid," adding that he would examine a number state models to help address the issue nationwide (CongressDaily, 1/20). Leavitt also disclosed "a potential conflict of interest," the Salt Lake Tribune reports. According to his 2003 financial disclosure, Leavitt holds a stake in an insurance company operated by his family and owns stock in several pharmaceutical companies. Leavitt said that he has worked with the Office of Government Ethics to resolve the issue (Salt Lake Tribune, 1/20).

In a "strong defense of Medicaid spending," Baucus on Wednesday said, "If forced to make cuts in Medicaid this year, we should all realize that it is unrealistic and misleading to say that we are simply cutting fraud and closing loopholes." According to Baucus, CMS last week reported that $199 million in total Medicaid spending in 2003 was attributable to fraud.

Baucus said, "That is less than seven hundredths of a percent of total Medicaid spending. ... That is a far cry from the $20 billion cut in Medicaid that the administration proposed in its 2005 budget last year." He attributed recent increases in Medicaid spending to higher enrollment and "the same health care cost inflation that affects every insurance plan" (CQ Healthbeat, 1/19).

In related news, members of the National Governors Association on Wednesday held a private discussion in Washington, D.C., to consider Medicaid reform proposals, the AP/Washington Times reports (AP/Washington Times, 1/20). Governors in a bipartisan letter in December 2004 asked the Bush administration to avoid federal limits on Medicaid funds. In the letter, the governors said that proposals to reduce the federal budget deficit should not "simply shift federal costs to states." The letter said that Medicaid costs currently account for an average of 22% of state budgets, which has led to "a strain on funding for other crucial state responsibilities"(California Healthline, 1/19).

More than a dozen governors from both parties on Wednesday met for almost three hours to discuss potential Medicaid reforms. "We're certainly giving the message very clearly that whatever the (federal) budget proposal, that we would find that simply cutting the Medicaid budget is unacceptable," Arkansas Gov. Mike Huckabee (R) said, adding, "You couldn't tell who the 'R's and who the 'D's were in the room. There's a real sense of 'Let's tackle this problem'" (AP/Washington Times, 1/20).

NPR's "Morning Edition" on Thursday reported on the "preview of some major health care fights to come" over Medicaid reforms and prescription drug costs at the Leavitt confirmation hearing on Wednesday. The segment includes comments from Baucus, Leavitt, Snowe and Sen. Trent Lott (R-Miss.) (Rovner, "Morning Edition," NPR, 1/20). The complete segment is available online in RealPlayer.