During his first term in office, President Ronald Reagan’s budget director (David Stockman) tried to justify major tax cuts with an economic policy called “The Trickle Down Theory.” Stockman has subsequently disavowed his own theory. “Trickle Down” suggested that significant tax cuts would stimulate the economy as people spent their newfound largess on consumer goods. History shows why Stockman abandoned the concept.

Meanwhile, the Secretary of the Department of Health and Human Services, Mike Leavitt, speaking at a meeting of the National Conference of State Legislatures in April said, “Home care is radically more cost effective than institutional care.” This echoed remarks from his first official speech as Secretary in January. In that speech, he compared the Medicaid programs in New Hampshire and Vermont. “Vermont has a highly developed home and community based health care system. New Hampshire continues to rely on institutional care. In Vermont, 85% of the Medicaid population over 65 still lives at home. In New Hampshire, only half can live at home. And Vermont spends less than half as much per elderly person on Medicaid as New Hampshire, freeing up money that can serve more people.” These are pretty dramatic words coming from the new HHS Secretary.

The Congressional Budget Office (CBO) reported that this country spent more than $200 billion in 2004 on long-term care for the elderly. The same study reports that a year in a nursing home can cost $70,000, while just 10 hours of home care per week would cost just over $9,000 annually.

Long-term care costs hit the Medicaid program the hardest, according to CBO. Medicaid already pays for the care of more than half of all elderly nursing home residents. This constitutes one third of all Medicaid spending.

These facts provide the foundation for arguments against state and federal efforts to reduce spending on home care and the HME services needed to achieve successful outcomes. Stock-

man’s post trickle-down outlook illustrates what happens when federal funds are cut. Reduced federal spending inevitably “trickles down” to the states, which, unlike the federal government, must balance their budgets each year.

Medicaid has always been an “iffy” proposition for the HME services industry. The industry finds itself competing against large, well-funded health care interests for its share of a shrinking Medicaid pie. In addition to Secretary Leavitt’s comments, President Bush has even spoken about the need to emphasize home-based health care as part of the solution to the funding crisis facing health care in America. Despite all this apparent federal support for home-based health care, Medicaid programs continue to shrink HME funding one way or another.

Rehabilitation providers have felt this reality for years. Now they are sharing the pain with the rest of the industry.

For example, the Missouri House and Senate have voted to change HME funding to an annual appropriations process. This requires the Missouri House and Senate to allocate specific dollar amounts for specific HME items each year. So far, Missouri would fund wheelchairs and power wheelchairs, but no seating systems or batteries for the power wheelchairs. Missouri plans to pay for drugs used with nebulizers, but not the nebulizers. Hospital beds, canes, crutches, walkers, and many other HME items will no longer be funded as of July 1, 2005. Can this be the wave of the Medicaid future? The “cherry on the Show-Me State’s sundae” is that Governor Blunt recently announced his intention to opt out of the Medicaid program in its entirety by 2007.

Ohio, on the other hand, is taking a different approach. At press time, Governor Taft proposed eliminating coverage for ostomy/incontinence supplies and repairs for mobility devices—and extending the period between replacing HME purchased under the Medicaid program. The Ohio legislature is not satisfied with the depth of these cuts. Currently under consideration is an across-the-board reduction in the Medicaid fee schedule of between 20% and 30%.

The amazing thing in both these cases is that long-term care facilities are escaping unscathed. For a litany of valid reasons, the HME services industry has focused most of its lobbying efforts on Washington and what is happening to the Medicare system. But the war being waged against the industry is now being fought on multiple fronts. Providers and manufacturers alike need people on the ground in every state capitol, while not letting down its guard in Washington.

The industry is no longer engaged in a struggle to preserve reasonable profits. The stakes are much higher. Between Medicare and Medicaid, the industry is fighting for survival.

Cara C. Bachenheimer, JD, is vice president of government relations for Invacare Corp, Elyria, Ohio. David T. Williams is a consultant for political and legislative strategy.