June 26 (Bloomberg) -- The U.S. Senate failed in a vote to take up a measure that would halt a July 1 cut in Medicare fees to doctors when Republicans opposed a provision to pay for it by reducing payments to health insurers instead.

The vote, 58-40, was short of the three-fifths required on cloture, a procedural move limiting debate to 30 additional hours. Unless other action is taken, the Democratic majority's failure to force a vote on the legislation means that doctors' reimbursements under Medicare, the U.S. health-care program for the elderly and disabled, will drop by 10 percent next week.

Republicans and Democrats agreed they needed to stop the cut in physician payments, required under a complex formula Congress set a decade ago to hold down spending. They disagreed about how to pay for it, with Democrats seeking deeper reductions in reimbursements to UnitedHealth Group Inc., WellPoint Inc., and other private insurers that provide benefits through a program called Medicare Advantage.

``What's happening with this legislation tonight is detrimental to the health-care delivery system,'' Senate Majority Leader Harry Reid, a Nevada Democrat, said on the floor after the vote. ``There are no winners.''

Insurance companies are paid on average 13 percent more under Medicare Advantage than the government pays to provide services directly. While Democrats say insurers get excess profit from the program, Republicans counter that the companies give seniors added care that would be endangered by reimbursement cuts.

Republican Response

The Democratic plan ``would cause 2 million seniors to lose the extra benefits they currently get in their Medicare Advantage plans,'' said Senate Minority Leader Mitch McConnell, a Kentucky Republican, during debate.

Following the vote, McConnell proposed delaying the physicians' fee cut for 30 days, giving the Senate time to seek a bipartisan agreement. The Democrats' failed measure would have covered physician payments for 18 months, including a 1.1 percent increase in 2009.

A short-term ``fix'' is not a solution, Reid said, rejecting the Republican proposal. He said House Democratic leaders had already made clear they wouldn't consider any measure except the one the Senate failed to act on.

``Republicans in the Senate tonight rejected a modest and overwhelmingly bipartisan compromise on Medicare,'' Representative Pete Stark, a California Democrat, said in an e- mailed statement after the vote. ``There are an awful lot of angry Medicare beneficiaries and providers in this country right now -- all because Senate Republicans insisted on protecting the insurance industry.''

AMA, AARP

The measure passed by the House and rejected by the Senate was supported by the American Medical Association, the U.S. doctor's group based in Chicago; AARP, the Washington-based association for Americans ages 50 and over; and dozens of other health groups, according to a list posted on the House Ways and Means Committee's Web Site.

Failure to pass the measure in the Senate also means that Medicare's new competitive bidding program for medical equipment, such as wheelchairs and walkers, will take effect as planned July 1 even though it is opposed by lawmakers of both parties.

The program, which is supposed to begin next week in 10 metropolitan areas, would replace a system in which suppliers are paid set fees. Medicare has said that bidding would reduce prices by an average of 26 percent and projects that when fully implemented, the new system could save $1 billion annually. Medicare spent $8.6 billion on durable medical equipment in fiscal year 2007, ended last September.

Equipment Suppliers

Suppliers who weren't picked in an initial round of bidding have called the process unfair and warned that patients will suffer disrupted service.

``Stopping or slowing the competitive bidding program for durable medical equipment will only mean that Medicare beneficiaries will lose or delay their chance of saving money when they buy or rent their medical equipment and supplies from fully accredited suppliers,'' said Jeff Nelligan, a Medicare spokesman, before the Senate vote.

In debate before the procedural vote, Senate Republicans said it didn't make sense to pass a measure the Bush administration has threatened to veto. President George W. Bush's advisers have said they would recommend a veto for any legislation cutting payments to the private insurance plans.

Teaching Hospitals

The legislation would have reduced payments to Medicare Advantage by removing money linked to the extra cost of treating patients at teaching hospitals. Hospitals already receive separate payments to cover this and that wouldn't have changed, according to the measure.

So-called private fee-for-service plans in Medicare Advantage also would have been required to contract in advance with providers to treat the plan's enrollees.

About $12.5 billion over five years would have been saved though these two changes, according to an analysis by the Congressional Budget Office.

Senator Charles Grassley of Iowa, the ranking Republican on the Senate Finance committee, had introduced his own legislation that would have reduced payments to Medicare Advantage plans for the teaching hospitals' costs, using the money to pay Medicare doctors' fees.

To contact the reporter on this story: Aliza Marcus in Washington at amarcus8@bloomberg.net

Last Updated: June 26, 2008 22:59 EDT