updated 7/22/2009 8:56:21 PM ET 2009-07-23T00:56:21

Senate Democrats edged away Wednesday from their goal of passing ambitious health care legislation by early August amid heightening partisan controversy over tax increases and a proposed new government role in providing insurance to consumers.

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"I think the ultimate goal is to have a bill by the end of this year" that is signed into law by President Barack Obama, Sen. Chuck Schumer, D-N.Y., said in an interview with The Associated Press. He said Democrats would make "every effort to stick to the timetable" that included initial Senate action by August.

Separately, Republicans who met with Senate Majority Leader Harry Reid, D-Nev., said he expressed flexibility on the timetable, indicating he was willing to allow more time before legislation is brought to the floor.

The evident slippage coincided with a formal announcement that the nation's hospitals had agreed to give up $155 billion in projected Medicare and Medicaid payments over the next decade, money than can help defray the cost of the legislation the administration wants.

"Folks, reform is coming. It is on track," Vice President Joe Biden said at the White House, and he urged the Senate to enact legislation by the now-imperiled August goal.

Any failure to meet the goal would be a setback — but not necessarily a fatal one — for Obama's attempt to win legislation this year that both slows the growth in health care costs and extends coverage to nearly 50 million Americans who now lack it.

In the House, Speaker Nancy Pelosi, D-Calif., has vowed to pass legislation by the end of July, and the leadership is in the midst of deciding which tax increases and spending cuts will be included in the bill to ensure it does not add to the deficit.

For the second straight day, White House Chief of Staff Rahm Emanuel journeyed to the Capitol, where he met with senior Democrats involved in drafting the legislation.

Controversy dogged efforts in the House, as well, when Rep. Henry Waxman, D-Calif., said he had been assured by the administration that it was not bound by an $80 billion agreement with the pharmaceutical industry that Obama announced with fanfare at the White House last month. A White House aide, speaking on condition of anonymity, said later the White House supports the agreements, but did not specify whether it was bound by them.

Waxman, chairman of one of three committees with responsibility for the House legislation, did not say if the same were true of the deal with hospitals. He was interviewed by National Journal.

Across the Capitol, it seemed clear the drive to enact health care legislation was entering a new phase in the Senate, where attention has largely been focused for months on efforts by Sen. Max Baucus, D-Mont., to forge a bipartisan agreement within the Finance Committee he chairs.

On Tuesday, the Senate Democratic leadership made it clear it viewed a proposed tax on certain health care benefits as unacceptable, at the same time it relayed word that it favors allowing the government to sell insurance to consumers.

Both those positions appeared to undercut much of the work Baucus has been doing. He has said for weeks that any legislation would call for a tax on certain health care benefits, and Republicans are strongly opposed to the idea of government intervention in the private insurance industry.

Baucus told reporters during the day he was "very sensitive to the various concerns that senators have" on taxing benefits, yet added, "by far a better approach is a bipartisan approach."

Baucus met separately with committee Democrats and a bipartisan group during the day.

Who's who in the health care debate

Sen. Kent Conrad, D-N.D., said Democrats seemed encouraged after going over a list of alternative tax proposals to help raise $320 billion toward the cost of the bill. Among them was a plan to tax workers whose insurance costs more than $25,000 a year, far more than the $15,000 or so that had been under consideration.

A few hours after Biden prodded Democrats at the White House, Jim Manley, a spokesman for Reid, said, "our goal still remains to get a bill out of the Senate by the August recess." But Republicans who emerged from private meetings with Reid said he expressed flexibility on a timetable.

At the same time, they conveyed strong opposition to allowing the government to compete with private industry in selling insurance, and also sought assurances that any legislation that goes to the White House will not include it.

Sen. Judd Gregg, R-N.H., who did not attend the meeting in Reid's office, later told reporters a so-called public option "can only have one purposes ... to lead to a single-payer program" under which all policies are issued by the government.

"That is a non-starter," he said.

A second Senate committee is drafting legislation crafted more to the liking of Democrats, including an option for government-sold insurance and a requirement on businesses to pay an annual fee if they do not offer their workers insurance.

The announcement at the White House sparked its own share of controversy.

Public hospitals and children's hospitals, which serve many low-income patients, said such cuts would harm local communities. The National Association of Public Hospitals and Health Systems and the National Association of Children's Hospitals, which were not directly involved in the talks, said in a joint statement: "Such reductions could severely damage safety net providers if not carefully crafted."

"This is essential funding that supports trauma centers, burn care units and medical training," said Melissa Stafford Jones, president of the California Association of Public Hospitals.

The deal would allow hospitals to limit the damage to their budgets.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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