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HCFA ADMINISTRATOR's DIFFICULT CHALLENGE: RECONCILE DEFICIT REDUCTION WITH HEALTH CARE REIMBURSEMENT: REP GRADISON FRONTRUNNER FOR HHS SECRETARY

Executive Summary

The job of administrator of HHS' Health Care Financing Administration shapes up as one of the most difficult and potentially unpleasant in the incoming Bush Administration. Whoever is appointed for the job will be have to reconcile the conflicting demands of deficit reduction with management of the huge health entitlement programs (Medicare and Medicaid) and the new catastrophic health coverage program enacted earlier this year. The current HCFA chief, William Roper, MD, while a possible holdover at HCFA, is also mentioned by the Washington rumor-mill as a logical choice for the number two job at HHS as undersecretary. After more than two years at HCFA, Roper is nearing the end of the normal tenure for one of the most demanding jobs at HHS. However, as undersecretary Roper would be in an ideal position to provide guidance to a new HCFA administrator while remaining one step removed from the day to day operational grind. Roper has also worked closely with the man most frequently mentioned as a leading candidate to become HHS Secretary, Ohio Republican Congressman Willis Gradison. Gradison already has a thorough knowledge of the federal health reimbursement system gained through his position as ranking GOP member of the House Ways and Means/Health Subcommittee, which has jurisdiction over Medicare. Gradison was also one of the principal architects of the catastrophic coverage law, and he is respected on both sides of the aisle as a thoughtful consensus builder. The big challenge at HCFA stems from the above-inflation rate of entitlement spending. Last year, for example, general inflation as measured by the Consumer Price Index was about 4.5%, while Medicare/Medicaid spending grew twice as fast. Bush domestic advisors are mindful, however, of the factors which push health costs above the general rate, and have indicated that there will be no attempt to cut health care spending to the inflation rate despite the President-elect's campaign proposal to hold overall government spending to the increase in the CPI. Bush campaign domestic policy advisor Deborah Steelman, noting the 9% growth in federal health spending last year, said at a recent press briefing that she would "expect that to continue. Medical cost inflation, increases in the number of beneficiaries, increases in technology and increases in costs associated with that, are such that you will never reduce these programs to the rate of CPI inflation." Steelman, a health care financing expert who represented the Pharmaceutical Manufacturers Association in the catastrophic law negotiations, is qualified for the HCFA job, but is more likely to take a spot on the domestic policy staff at the White House. Steelman indicated at the briefing, however, that Medicare and Medicaid would be subject to spending reductions. She said: "I think there is no question that there are ares in which we can make restraints that will benefit both the taxpayer and beneficiaries." That indicates that the cuts will most likely come at the expense of the traditional GOP constituencies in the business and professional sectors. For example, she identified physician payment reform as "obviously one of the issues on which the real experts are going to have to get down to work immediately." Another complication for the next HCFA administrator is the responsibility to set up a system for implementing the catastrophic law under tight deadlines. The law requires HCFA to begin Medicare Part A catastrophic benefits in 1989 and Part B services in 1990. By 1991, HCFA must have in place an infrastructure to manage the full outpatient drug benefit. Yet another big challenge will be to take a policy role in the looming issues of long-term care and coverage of low-income uninsured children and adults. Bush made the problem of the uninsured a campaign issue, sketching a plan to use the Medicaid system to extend coverage to uninsured infants and children, and to set up subsidized coverage for adults through a Medicaid "buy in."

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