Congress Likely to Reject Hospital Cuts

Congress is likely to resist many of the deep cuts to health care providers anticipated in Bush's proposed 2009 budget, though analysts say some cost-cutting proposals could become law.

Bush's proposed budget would cut nearly $200 billion over five years from Medicare and Medicaid, the government health plans for seniors and the poor, mainly by freezing payments to hospitals, rehabilitation clinics and other care centers.

Those sectors are already lobbying against Bush's proposal, and analysts don't expect those proposed cuts to become reality, especially in a year when many lawmakers are up for re-election.

Bush and Congress are more likely to agree on stemming the cash flow to home health care providers like Amedisys Inc. and Gentiva Health Services Inc. Bush proposed cutting payments to these providers last year, though Congress did not follow through.

The companies are already on Congress' radar because they are projected to be reimbursed 11.5 percent more than their actual costs for 2008.

Other companies facing the budgetary knife include nursing home operators such as Sunrise Senior Living and Assisted Living Concepts, and makers of home-oxygen equipment like Invacare Inc.

Before the budget was even released, the American Hospital Association was pressuring lawmakers to reject the payment freezes.

"That level of reduction is so outrageous that it will be summarily rejected by members of both parties in Congress," said Tom Nickels, senior vice president for the American Hospital Association. Democrats on Monday suggested they agreed, criticizing Bush for cutting health care services when seniors and the poor are threatened by economic uncertainty.

"Democrats have already declared President Bush's health care budget proposal as 'dead on arrival' and we believe investors should do the same," wrote Tony Clapsis, in a note to investors.

However, Citigroup analyst Paul Heldman points out that Democrats have promised to trim Medicare before the second half of 2008, and some Bush proposals could be useful for that purpose.

According to Heldman, "Bush's budget for fiscal 2009 is significant only in that it signals to Congress where he is willing to cut the growth of Medicare."

For now, both Congress and the White House seem to be leaning toward smaller health care companies, like home care providers and oxygen-equipment makers.

Unable to agree on Medicare spending for 2008, lawmakers left Washington last year without funding the program for the full year. Instead, they passed a six-month funding plan and promised to revisit the issue before that money runs out in late June.

At the heart of the debate is how to avoid a 10 percent payment cut to physicians in Medicare, which is mandated by a complex government formula. Congress is expected to pass a bill with $10 billion in savings before July to avoid the pay cut.

Democrats in the House wanted to offset the payment cut to physicians by instead reducing payments to private Medicare health plan operators, like Humana Inc. But Bush has threatened to veto any bill that lowers payments to those private companies.