It’s day three of the Baucus hearings and there’s still no shortage of interesting developments in the health-care sausage making. This morning the Senate Finance Committee rejected an amendment by Sen. Bill Nelson (D., Fla.) to extract an extra $106 billion from Pharma by forcing drug manufacturers to provide larger rebates on prescriptions for low-income senior citizens.

Republicans rejected the amendment, which isn’t surprising — what is surprising is so did three Democrats. Of the three Democrats opposed, two were senators from New Jersey and Delaware, both states that have huge pharmaceutical industries. But the third ‘no’ vote was Senate Finance Committee Chair Max Baucus (D., Mont.) himself. Senator Baucus was directly involved in putting together the supposedly secret deal where the White House bought the pharmaceutical industry’s support for health-care reform in exchange for limiting the amount of money they would be expected to cough up to pay for the reforms to $80 billion. (Questionable though it may be, the deal is something of an open secret — Geraghty has video of Sen. Tom Carper (D., Del.) openly discussing it in yesterday’s hearing.) Had Senator Nelson’s amendment passed, that would have been the end of the deal. Obviously, the liberal Democratic base thinks that Big Pharma should be on the hook as much as possible but the last thing Democrats need right now is to incur the wrath of the pharmaceutical industry that has been uncharacteristically docile in the health care debate since the White House deal was struck.

Aside from the Nelson amendment, much of the debate in today’s hearings has centered around what to do with Medicare Advantage (a.k.a Medicare Part C) — the wildly popular program that allows seniors to receive medicare benefits through private insurance plans rather than the typical fee-for-service arrangement in Medicare. Sen. Orinn Hatch (R., Utah) had an amendment shot down that would have restored $106 billion in cuts to Medicare Advantage. There was also an angry exhange between Sen. Baucus and Sen. Jon Kyl (R., Ariz.) over an amendment that would have put the brakes on implementing the proposed health reforms if a million or more seniors were shown to lose benefits under the Democrats’ plan.

Now the reason why Democrats want those cuts is fairly straightforward. It’s about cost-containment. Medicare Advantage plans typically cost the government 114 percent of the typical fee-for-service Medicare enrollee. The problem is that people really like Medicare Advantage — really like it. In the last six years, the number of Medicare recipients enrolled in a Medicare Advantage program has nearly doubled. In 2003 there were 5.3 million Americans enrolled in Medicare Advantage. As of March, there were 10.2 million Americans enrolled, or about 22 percent of all Medicare enrollees.

There are nine states where the number of Medicare Advantage enrollees as a percentage of Medicare recipients exceeds 30 percent — it’s 35 percent in California, 37 percent in New York and a whopping 42 percent in Oregon.

Moreover, the popularity of Medicare Advantage has a lot to say about the problems of Medicare as it currently stands. The reason why Medicare Advantage has become so popular is that many Medicare Advantage plans offer services Medicare doesn’t. Further, because of Medicare’s poor reimbursement rates, the number of doctors accepting Medicare is rapidly declining. (This is on top of the fact that there are significant doctor shortages nationwide, even before we get into the subset of those that accept Medicare.) A report last year from the Medicare Payment Advisory Commission found that 29 percent of Medicare enrollees had trouble finding a doctor who would take them — a figure that was up 24 percent from the year before. Obviously, more doctors are willing to take a private Medicare Advantage plan than the straight government-mandated fee-for-service. For this reason, enrollment in Medicare Advantage is significantly higher in urban and rural areas where it’s harder to find a doctor. Indeed, that was a point Sen. Mike Crapo (R., Id.) made in defending the program in today’s hearing.

It’s true the cost of Medicare Advantage is pretty indefensible. However, stripping $106 billion out of the program without addressing doctor shortages presents its own problems. Medicare’s terrible reimbursement rates are the reason people wanted the program; that Medicare Advantage ultimately cost more was a feature not a bug. More money was going to doctors through the program, so more Medicare recipients people got health care. If the Democratic health reform proposals don’t succeed in driving down the cost of medical services and producing significantly higher profits for doctors — and there’s little reason to think they will — gutting Medicare Advantage could make it a lot harder than it already is for a large percentage of Medicare recipients to receive health care. More cynically, if seniors become dissatisfied or concerned about what Democrats are doing to Medicare, that presents political opportunities for Republicans down the road. That’s provided they can find a message that resonates with concerned seniors, coupled with a fiscally sound policy addressing Medicare’s structural problems that doesn’t just throw more money at the problem. It won’t be easy.