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updated 7/5/2011 12:19:56 AM ET 2011-07-05T04:19:56

Obama administration officials are offering to cut tens of billions of dollars from Medicare and Medicaid in negotiations to reduce the federal budget deficit, but the depth of the cuts depends on whether Republicans are willing to accept any increases in tax revenues.

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Administration officials and Republican negotiators say the money can be taken from health care providers like hospitals and nursing homes without directly imposing new costs on needy beneficiaries or radically restructuring either program.

Before the talks led by Vice President Joseph R. Biden Jr. broke off 12 days ago, negotiators said, they had reached substantial agreement on many cuts in the growth of Medicare, which provides care to people 65 and older, and Medicaid, which covers lower-income people. Those proposals are still on the table when Congress reconvenes this week, aides said, and are serious options that Democrats could accept in exchange for Republican concessions that raise revenues.

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“Congress smells blood,” said William L. Minnix Jr., the chief lobbyist for nonprofit nursing homes.

Mr. Minnix, the president of a trade group known as LeadingAge, is urging nursing homes to “bombard your senators with the message that Medicaid cannot be cut by $100 billion” over 10 years, as President Obama and many Republican lawmakers have suggested.

A coalition of hospital lobbyists, worried about the direction of the budget talks, has begun a national advertising campaign to block further cuts in the two health care programs, which account for about 55 percent of hospital revenues. The hospitals have made a commitment to spend up to $1 million a week through August on television, print and online advertising.

“This is white-knuckle time for a lot of people,” said Bryant Hall, a health care lobbyist whose clients include drug and biotechnology companies. “Stakeholders and beneficiaries are anxiously watching the budget negotiations.”

They may have reason to be anxious.

Senator Charles E. Schumer of New York, the No. 3 Senate Democrat, said: “We are very willing to entertain savings in Medicare. Medicare gives very good health care very inefficiently.”

In return, Mr. Schumer said, Republicans should be willing to consider some additional revenue.

Negotiators said they were seriously considering cuts in Medicare payments to hospitals for uncollectible patient debt and the training of doctors; steps to eliminate Medicare “overpayments” to nursing homes; a reduction in the federal share of some Medicaid spending; and new restrictions on states’ ability to finance Medicaid by imposing taxes on hospitals and other health care providers.

Medicare and Medicaid insure more than 100 million people, account for 23 percent of all federal spending and are likely to be an important part of any budget deal. Military spending, which accounts for about 20 percent of federal expenditures, is likely to be included as well.

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Most Republicans have ruled out tax rate increases to reduce the deficit. Mr. Obama has rejected the idea of Medicare vouchers, Medicaid block grants or any rollback of the new health care law. But he and the Republicans say they still hope to find some common ground.

Mr. Obama has embraced the goal of reducing deficits by a total of $4 trillion over 12 years — an ambitious goal that suggests the size of any grand bargain.

In a speech in April, Mr. Obama offered to slow the growth of Medicare and Medicaid without cutting benefits. He said his ideas would save $340 billion over 10 years and a total of nearly $500 billion in the two programs by 2023. His numbers quickly became a starting point in the negotiations.

As for Medicaid, administration officials have indicated that they could accept savings of $100 billion or more over 10 years, much to the dismay of many House Democrats. The lawmakers say the cuts would impair access to care for the poor and shift costs to the states, which are facing a huge expansion in Medicaid eligibility and enrollment, scheduled to start in 2014 under the new health care law.

While insisting on new revenue at his news conference last week, Mr. Obama also said, “We’ll have to tackle entitlements,” adding that “health care cuts” need to be part of any deal.

Senator Joseph I. Lieberman, the Connecticut independent, described a fiscal and political imperative: “We can’t balance the budget without dealing with mandatory spending programs like Medicare. We can’t save Medicare as we know it. We can save Medicare only if we change it.”

The new health care law trimmed Medicare payments to most providers. Many states, in fiscal distress, are cutting Medicaid, which is financed jointly by the federal government and the states. If Congress and the president now make additional cuts, hospitals say, they will close some services and increase charges to patients with private insurance.

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Hospital executives from around the country plan to visit Capitol Hill next week to deliver this message: “Cutting Medicare and Medicaid payments to hospitals will hurt the ones we love, especially the most vulnerable — children, seniors, the poor and disabled.”

Mr. Minnix, the lobbyist for nonprofit nursing homes, said: “The issue is not money. The issue is the effects on people, vulnerable people.”

The American Medical Association and AARP, the lobby for older Americans, have joined hospitals and nursing homes in fighting other proposals that would limit federal spending as a percentage of the gross domestic product. Members of Congress of both parties have introduced bills that would automatically cut spending across the board if such limits were about to be breached.

While details have yet to be decided, lawmakers and administration officials said they were seriously considering these proposals:

  • Gradually eliminate Medicare payments to hospitals for bad debts that result when beneficiaries fail to pay deductibles and co-payments. Medicare reimburses hospitals for 70 percent of such debts after the hospitals make reasonable efforts to collect the unpaid amounts.
  • Reduce Medicare payments to teaching hospitals for the costs of training doctors, caring for sicker patients and providing specialized services like trauma care and organ transplants. Medicare spends $9.5 billion a year for its share of those costs.
  • Reduce the federal share of payments to health care providers treating low-income people under Medicaid and the Children’s Health Insurance Program. The administration wants to establish a single “blended rate” for each state. The federal government now reimburses states at different rates for different groups of people and different services in the two programs.

Representative Henry A. Waxman of California, the senior Democrat on the Energy and Commerce Committee and an architect of Medicaid, said he was “very concerned” that this proposal would reduce the federal contribution to Medicaid and shift costs to states.

This story, "Medicare and Medicaid could lose billions in budget talks," originally appeared in The New York Times.

Copyright © 2013 The New York Times

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