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Big Healthcare Reform Not in Cards; Fiscal Woes Mean Cuts More Likely

ELECTION WATCH

Big Healthcare Reform Not in Cards; Fiscal Woes Mean Cuts More Likely

By VITA REED

The healthcare industry, roiled by a presidential election a decade ago, isn’t likely to see the same fate this time around.

Back then, President Clinton came into power with plans to overhaul the nation’s healthcare system. That didn’t happen, but not before sending shockwaves through the industry here and elsewhere.

This time around, healthcare companies aren’t likely to see sweeping changes, whether President Bush is returned to office or defeated by Sen. John Kerry in November, observers said.

“There will be very little money to really expand on any kinds of health programs,” said Paul Feldstein, a professor at the University of California, Irvine Graduate School of Management who specializes in healthcare economics. “That’s the big thing facing both of them.”

By the same token, hospitals, drug makers and medical device companies could feel the sting of cuts in healthcare spending by Bush or Kerry.

The precedent: The Balanced Budget Act of 1997.

The legislation, adopted during Clinton’s second term, pounded Medicare funding to several sectors.

“Yes, I could see that happening,” Feldstein said. “And I could see that happening probably under both of them.”

After running up big deficits, Bush could face pressure from fiscal conservatives to balance the budget in his second term, when he has less to lose by doing so.

As for Kerry, he has said he would cut the deficit in half in four years by rolling back tax cuts and keeping spending in check.

Hospitals could be in for cuts, Feldstein said.

“I just see reduced payments to hospitals because they really did very well in the last act,” he said.

The Balanced Budget Act of 1997 called for cutting Medicare and Medicaid payments to hospitals by around $112 billion from 1998 to 2002.

At the time, hospital officials said the cuts actually stood to be closer to $227 billion and lobbied to restore funding.

Clinton signed bills offering some relief in 1999 and 2000, including a budget bill that called for at least $11.5 billion in new Medicare spending for hospitals from 2000 to 2005.

Laguna Beach’s South Coast Medical Center, which gets some 35% of its business from Medicare, is keeping a wary eye on the healthcare-related platforms from the presidential candidates, said John Davison, the hospital’s director of managed care.

“We are always concerned that there’s going to be a reduction in the reimbursement rates for Medicare because it affects us dramatically,” he said.

South Coast is one of the area’s midsize hospitals, posting some $55 million in yearly net patient revenue, according to the Business Journal’s most recent hospital list.

The original balanced budget act placed “tremendous pressure” on South Coast, Davison said.

“That really put a lot of pressure on us from our other payer sources (because) they wanted similar declines,” he said. “Just because the government cuts down reimbursements in a given area doesn’t mean our expenses went down.”

Cypress-based PacifiCare Health Systems Inc., which along with other health maintenance organizations got $14 billion in last year’s Medicare reform legislation, is betting on the political sanctity of seniors.

“The main thing for us is we don’t anticipate either party taking benefits away from seniors,” spokesman Tyler Mason said.

PacifiCare used its windfall funding from the Medicare Prescription Drug Improvement and Modernization Act to boost drug benefits to its Secure Horizons Medicare HMO members, among other things.

But PacifiCare still could see changes, Mason said.

“We think the legislation that was passed may be refined to some degree, but for the most part we’re going to be able to work with whoever’s in the White House and did so to get the legislation passed,” he said.

PacifiCare is “always mindful” of the possibility that Congress and whoever is president might look at cutting healthcare funding to balance the budget, Mason said.

One of PacifiCare’s competitors is openly worrying that private Medicare plans could be in for some suffering if Kerry bests Bush and Democrats regain control of Congress.

While a long shot, “a Democratic sweep in the November elections would not be good,” Anthony Marlon, chief executive of Las Vegas-based Sierra Health Services Inc., said on a conference call with analysts.

PacifiCare competes with Sierra in Nevada.

Marlon has said he is concerned that Kerry, if elected, might choose to roll back a 15% hike in Medicare reimbursement that was issued to Sierra in March.

If Kerry wins, he and congressional Democrats would be more likely to propose regulations to deal with Medicare, Feldstein predicted. For one, Kerry could push for importation of prescription drugs from Canada, he said.

Drugs from Canada, which generally are cheaper, are a hot-button issue among Democrats and seniors, particularly in northern border states. Big drug makers and many Republicans have fought importation, raising concerns about safety.

But Feldstein said there’s legislation in Congress that may even pass this fall that has some GOP support.

“Some Republicans are now for it because they see their constituents want it, particularly those who are on the border of Canada,” Feldstein said.

Another possible Medicare regulatory change Kerry could bring would be using the government to directly negotiate with drug companies over pricing, instead of using intermediaries.

Even with the introduction of a drug bill and other reforms, another looming issue is how to structure Medicare to withstand what’s coming later this century.

In 2011, the first wave of baby boomers turns 65 and is expected to lead to a Medicare population explosion.

“You can’t wait until 2011 to start doing something,you really should be doing it now,” Feldstein said.

“But it’s so politically divisive to do anything on Medicare reform that I don’t see much happening. It would take more money, but it would just be more difficult to change.”

If President Bush is re-elected, Feldstein said he might not be able to put more money into Medicare because of the federal health insurance program’s financial travails.

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