President Signs Government Funding Bill with Health Spending/Policy Provisions

On December 16, 2014, President Obama signed a $1.1 trillion spending bill that funds most government agencies through the end of the fiscal year on September 30, 2015 (funding for the Department of Homeland Security is funded through February 27, 2015). With regard to HHS funding, the bill, among other things: holds CMS funding at FY 2014 levels; provides no new funding for Affordable Care Act implementation and blocks the use of CMS program management funds to support risk corridor payments; provides emergency funding to address the Ebola crisis; increases National Institutes of Health funding by $150 million over FY 2014 levels; provides funds to FDA to investigate counterfeit drugs within the United States and internationally; and reduces funding for the Independent Payment Advisory Board (IPAB) by $10 million.  The explanatory statement also includes a number of health policy provisions. For instance, the report: expresses concerns about a CMS proposal to eliminate critical access hospital status for certain rural facilities; requests CMS to report on the impact of competitive bidding on treatment patterns of enteral nutrition patients residing in LTC facilities; directs CMS to review billing rules regarding implantable pain pump drugs; requests that CMS develop proposals to encourage short-cycle dispensing of outpatient prescription drugs in LTC facilities; directs CMS to educate providers on how to reduce Medicare claims errors, develop procedures to reduce the Office of Medicare Hearings and Appeals (OMHA) appeals backlog, and improve the appeals and audit processes; requests that CMS reconsider changes to payment for surgical procedures included in the annual Medicare physician fee schedule rule; and directs HRSA to work with covered entities under the 340B drug program “to better understand the way these entities support direct patient benefits from 340B discounted sales.”

SGR Reform/IPAB Connection - Will Medicare Physician Fee Schedule Fix Trigger IPAB Provider Cuts?

The Congressional Budget Office (CBO) has raised the specter that pending legislation to reform the Medicare physician fee schedule statutory update formula could increase the likelihood that the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) mechanism would be triggered – potentially resulting in as much as $0.6 billion in Medicare provider cuts during the 2015-2023 period. 

As previously reported, House and Senate panels are proceeding with plans to reform the unpopular “sustainable growth rate” (SGR) formula – the statutory provision that outlines how Medicare physician fee schedule rates are updated annually.  In recent years, the formula has called for deep cuts in Medicare rates – although Congress has routinely stepped in with temporary patches to avert the full application of the formula.  Most recently, the SGR contributed to a 20.1% cut in the Medicare physician fee schedule update for 2014 – but Congress approved the Bipartisan Budget Act of 2013 in December to replace that cut with a 0.5% increase for services provided only during the first three months of 2014.  The temporary patch is intended to give lawmakers time to finalize pending bipartisan proposals to permanently repeal the SGR policy and replace it with a period of stable payment followed by reimbursement linked to quality of care.

Congressional panels tasked with drafting the SGR legislation have not yet revealed how they intend to pay for the costs of their bills.  In the absence of such offsets, the CBO has estimated that the version of the legislation approved by the House Ways and Means Committee in December (H.R. 2810) would increase spending by about $121 billion over the 2014-2023 period, while the Senate Finance Committee package (S. 1871) would increase direct spending by $150.4 billion during that period.  According to the CBO, such spending increases would result in the IPAB mechanism being triggered.

By way of background, under the ACA, the IPAB is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based on inflation and growth in the economy, beginning in 2015.  IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions).  The IPAB is barred from submitting proposals that reduce Medicare payments prior to 2020 for providers that had reimbursement cuts under the ACA beyond a productivity adjustment (such as acute care hospitals, long-term care hospitals, inpatient rehabilitation facilities, and outpatient hospital services, among others), thereby potentially increasing the impact of the IPAB cuts on physicians and Medicare Advantage and Part D plan sponsors.  Note that none of the 15 members of the IPAB have actually been nominated yet, so the panel currently exists in name only (but failure to appoint a panel would not forestall the cuts – if IPAB does not submit a plan, the responsibility falls to the HHS Secretary).  

Last May, the CBO had projected that Medicare per-beneficiary spending would be below the IPAB triggers for fiscal years 2015 through 2023.  In budget estimates released last week, however, the CBO estimates that under the House SGR reform bill, the IPAB mechanism would be required to produce a $0.5 billion reduction in Medicare spending over the 2015-2023 period.  The Senate Finance SGR package would require even higher IPAB savings -- $0.6 billion over the same period. 

Congressional negotiators finalizing the SGR package are expected to eventually identify their own spending offsets, which could impact spending on a potentially broader range of health care provider types, health plans, and drug manufacturers, but minimize the potential that the IPAB makes those decisions.  The question now – if SGR reform actually proceeds -- is whether it will be Congress or the IPAB panel that identifies the offsetting savings.  Either way, however, it appears that SGR reform could be a good news/bad news proposition, with long-overdue SGR reforms adopted, but at a currently-unknown price. 

CMS Actuary Determines No IPAB Cuts Needed in 2015

The ACA’s controversial Independent Payment Advisory Board (IPAB) is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based initially on inflation and then growth in the economy. IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). The ACA authorizes the IPAB’s first recommendations to be submitted by January 2014 for implementation in 2015 if the Medicare per capita target growth rate is exceeded. The CMS Office of the Actuary has just determined, however, that the Medicare spending target will not be triggered for 2015, and as a result IPAB savings proposals will not be needed for that year. Specifically, in an April 30, 2013 memo, the Actuary explained that because the projected 5-year Medicare per capita growth rate (1.15%) for the period of 2011 to 2015 does not exceed the Medicare per capita target growth rate (3.03%), there is no applicable savings target for 2015. Note that to date, no members have been appointed to the IPAB, and there have been repeated legislative attempts to repeal the IPAB provision (although the Obama Administration’s proposed FY 2014 budget would strengthen the IPAB by reducing the target rate of Medicare cost growth that triggers IPAB recommendations).

Obama Administration's Proposed FY 2014 Budget Includes $401 Billion in Health Program Savings

Today, the Obama Administration released its proposed federal budget for fiscal year 2014. As widely reported, the budget incorporates an offer the President made to Congress in December 2012 to achieve nearly $1.8 trillion in additional deficit reduction over the next 10 years, including $401 billion in health savings (the Administration observes that this level of cuts would “provide more than enough deficit reduction to replace the damaging cuts required by the Joint Committee sequestration”).

Virtually all provider types – and drug manufacturers – would be impacted by the budget provisions, if adopted as proposed. The budget proposal is certainly subject to change during the legislative process, particularly as the House and Senate leadership pursue alternative budget frameworks, and indeed, gridlock could prevent significant action on entitlement reform this year. Nevertheless, the proposals bear careful monitoring because they could eventually be included in any long-elusive “grand bargain” to reform the Medicare program and reduce the federal debt.

Highlights of the Administration’s Medicare and Medicaid proposals include the following:

Medicare Provider Payments

  • Reform the Medicare physician fee schedule/sustainable growth rate (SGR) formula to provide stable payments followed by payment linked to participation in an “accountable payment model.”
  • Reduce Medicare coverage of bad debts from 65% generally to 25% over three years starting in 2014.
  • Reduce Medicare indirect medical education add-on payments by $11 billion over 10 years.
  • Reduce payment for post-acute care services in several ways.
    • Reduce payment updates for inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), skilled nursing facilities (SNFs), and home health agencies (HHAs) by 1.1 percentage points, beginning in 2014 through 2023 (the update could not fall below 0%). This provision would save $79 billion over 10 years.
    • Adjust the standard for classifying a facility as an IRF (at least 75% of patient cases admitted to an IRF must meet one or more of 13 designated severity conditions), saving about $2.5 billion over 10 years.
    • Equalize IRF and SNF payments for three conditions involving hips and knees, pulmonary conditions, as well as other conditions selected by the Secretary, saving $2.0 billion over 10 years.
    • Reduce by up to 3% payments to SNFs with high rates of care-sensitive, preventable hospital readmissions, beginning in 2017, saving $2.2 billion over 10 years.
    • Implement bundled payments for post-acute care providers (LTCHs, IRFs, SNFs, and HHAs) beginning in 2018. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates based on patient characteristics and other factors would be set to produce a permanent and total cumulative adjustment of -2.85% by 2020. Beneficiary coinsurance would equal levels under current law. This provision would save $8.2 billion over 10 years.
  • Align Medicare payments to rural providers with the cost of care, saving $2 billion over 10 years.
  • Align Medicare payment for clinical laboratory services with private sector rates and encourage electronic reporting of laboratory results.

Prescription Drug Provisions

  • Reduce payment for physician-administered Medicare Part B drugs from 106% of average sales price to 103% of average sales price. Manufacturers would be required to provide a specified rebate in certain instances as determined by the Secretary “to preserve access to care.”
  • Provide Medicaid-level drug rebates for brand name and generic drugs provided to beneficiaries who receive Part D low-income subsidies, saving $123 billion over 10 years.
  • Close the Medicare Part D donut hole by 2015, rather than 2020, by increasing manufacturer discounts to from 50% to 75% beginning in plan year 2015.
  • Lower Medicaid drug costs by clarifying the definition of brand drugs, excluding authorized generic drugs from average manufacturer price calculations for determining manufacturer rebate obligations for brand drugs, making a technical correction to the Affordable Care Act (ACA) alternative rebate for new drug formulations, and calculating Medicaid federal upper limits based only on generic drug prices. These proposals are projected to save $8.8 billion over 10 years. 
  • Encourage the use of generic drugs by Part D low-income subsidy beneficiaries by modifying copayments, saving approximately $7 billion over 10 years. 
  • Improve program integrity for Medicaid drug coverage by directing states to track high prescribers and utilizers of Medicaid prescription drugs; requiring manufacturers to make full restitution to states for any covered drug improperly reported by the manufacturer on the Medicaid drug coverage list; allowing more regular audits and surveys of manufacturers to ensure compliance with Medicaid drug rebate agreement requirements; requiring drugs to be electronically listed with the FDA to receive Medicaid coverage; and expanding penalties for reporting false information for the calculation of Medicaid rebates. 
  • Increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into “pay for delay” agreements and modifying the length of exclusivity on brand name biologics.

Program Integrity/Efficiency Provisions

  • Provide $640 million in combined mandatory and discretionary program integrity funding to implement activities that reduce payment error rates, prevent fraud and abuse, target high-risk services and supplies, and enhance civil and criminal enforcement for Medicare, Medicaid, and CHIP. 
  • Authorize civil monetary penalties or other intermediate sanctions for providers who do not update enrollment records and permit exclusion of individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs. 
  • Expand authority to investigate and prosecute allegations of abuse or neglect of Medicaid beneficiaries in additional health care settings.
  • Exclude radiation therapy, therapy services, and advanced imaging from the in-office ancillary services exception to the prohibition against physician self-referrals (Stark law), except in cases where a practice meets certain accountability standards, as defined by the Secretary.
  • Require prior authorization of advance imaging services.
  • Require prepayment review or prior authorization for power mobility devices.
  • Allow the Secretary to create a system to validate practitioners’ orders for certain high-risk items and services.

Other Medicare Provisions

  • Revise beneficiary cost-sharing requirements, including increased income-related premiums under Parts B and D, a new home health copayment, and increased premiums for beneficiaries with Medigap policies with particularly low cost-sharing requirements.
  • Increase the minimum Medicare Advantage (MA) coding intensity adjustment (which decreases MA plan payments to reflect differences in coding practices between Medicare fee-for-service and MA) and align employer group waiver plan payments with MA bids, saving $19 billion over 10 years. 
  • Strengthen the Independent Payment Advisory Board (IPAB) by reducing the target rate of Medicare cost growth from gross domestic product plus one percentage point to plus 0.5 percentage point.
  • Expand the availability of Medicare data released to physicians and other providers for performance improvement, fraud prevention, value-added analysis, and other purposes.

Medicaid Provisions

  • Base Medicaid rates for durable medical equipment on Medicare rates to save $4.5 billion over 10 years.
  • Align Medicaid Disproportionate Share Hospital (DSH) payments with expected levels of uncompensated care to save $3.6 billion over 10 years. 
  • Affirm Medicaid’s position as a payer of last resort when another entity is legally liable to pay claims.

A 131-page Department of Health and Human Services (HHS) “Budget in Brief” summary discusses these provisions in greater detail, and also addresses other HHS agency budget proposals and discusses HHS’s implementation of private health insurance protections and programs under the ACA.

House Appropriations Panel Votes to Defund ACA, AHRQ

On July 18, 2012, the House Appropriations Subcommittee on Labor, Health and Human Services, and Education approved legislation funding federal programs in its jurisdiction. Among other things, the bill would block funding to implement the ACA (except for select provisions) and cut funding for various government entities established by the ACA, including the Center for Medicare & Medicaid Innovation, the Center for Consumer Information and Insurance Oversight, the Independent Payment Advisory Board, the Patient-Centered Outcomes Research Trust Fund, and the Prevention and Public Health Fund. Also notably, the bill would terminate the Agency for Healthcare Research and Quality, effective October 1, 2012, and set spending rates for other federal health programs.  Note that the version of the legislation approved by the Senate Appropriations Committee in June includes funding for ACA implementation. The differences in the House and Senate appropriations bills are unlikely to be resolved until a probable lame duck session of Congress after the November elections.

House Approves IPAB Repeal/Medical Liability Reform Legislation

On March 22, 2012, the House approved by a 223-181 vote H.R. 5, the “Protecting Access to Healthcare Act," which would repeal the ACA’s controversial Independent Payment Advisory Board (IPAB), paid for with medical liability reforms.  IPAB is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based initially on inflation and then growth in the economy. Under the ACA, IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). With regard to medical liability reforms, H.R. 5 would, among other things, cap non-economic damages at $250,000; set limits on punitive damages (including a bar on punitive damages for products that comply with FDA standards in certain cases); establish time limits for the commencement of a health care lawsuit (generally three years after injury or one year after discovery of injury); and limit attorney contingency fees. As approved by the House, the legislation also would extend medical liability coverage to on-call and emergency room physicians who provide emergency medical service to patients covered by the Emergency Medical Treatment and Labor Act, and it would repeals the limited exemption to federal antitrust laws with respect to the business of health insurance. Note that the White House has expressed its opposition to the legislation.
 

Two House Panels Approve IPAB Repeal Legislation

The House Energy and Commerce and Ways and Means Committees have approved H.R. 452, the Medicare Decisions Accountability Act of 2011, which would repeal the ACA’s controversial Independent Payment Advisory Board (IPAB). IPAB is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based initially on inflation and then growth in the economy. IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). The legislation now awaits consideration by the full House. Note that Congressional Budget Office (CBO) estimates that repealing the IPAB would increase Medicare spending by $3.1 billion over the 2013-2022 period. While the CBO warns that its estimate is “extremely uncertain because it is not clear whether the mechanism for spending reductions under the IPAB authority will be triggered under current law over the next 10 years,” the cost associated with legislation could complicate repeal efforts. The White House has yet to name any members (which require Senate approval) to the Board.

Congressional Health Policy Hearings & Markups

The Senate Finance Committee held a hearing on the President’s proposed HHS budget for FY 2013. The House Ways and Means Committee is holding a hearing on the HHS budget proposal on February 28; the budget also will be the focus of a House Energy and Commerce Committee hearing on March 1, 2012. Also looking ahead, the following health policy hearings and markups have been scheduled: 

July Congressional Health Policy Hearings/Markups

A number of Congressional panels have held hearings on health policy issues this month, and more are scheduled, including the following:

  • The House Energy and Commerce Committee has held hearings on: reauthorization of the Prescription Drug User Fee Act (PDUFA); the ACA’s Independent Payment Advisory Board (IPAB), which is charged with helping to contain Medicare costs; and legislation addressing children's hospital graduate medical education (GME) costs (H.R. 1852) and autism research (H.R. 2005). On July 20, the panel will hold a hearing on “FDA Medical Device Regulation: Impact on American Patients, Innovation and Jobs." On July 21, the Committee will hold a legislative hearing to review H.R. 1254, the Synthetic Drug Control Act, H.R. 2405, a bill to reauthorize certain provisions of the Public Health Services Act and the Federal Food, Drug, and Cosmetic Act relating to public health preparedness and countermeasure development; and draft legislation entitled the Enhancing Disease Coordination Activities Act.  
  • The House Budget Committee held hearings on the IPAB and the sustainability of the Medicare program.
  • The House Oversight and Government Reform Committee held a hearing on "Fulfilling A Legal Duty: Triggering A Medicare Plan From The Administration." 
  • The Senate Finance Committee held a hearing on Governors’ Perspectives on Medicaid.” 
  • The Senate Homeland Security and Governmental Affairs Committee held a hearing entitled "Harnessing Technology and Innovation to Cut Waste and Curb Fraud in Federal Health Programs." 
  • On July 21, the Senate Special Committee on Aging will hold a hearing on reducing Medicare drug costs.
  • On July 21, the Senate Judiciary Committee is scheduled to vote on S. 27, the Preserve Access to Affordable Generics Act.
  • On August 3, 2011, the Senate Health, Education, Labor and Pensions Committee is scheduled to vote on S. 958, the Children's Hospital GME Support Reauthorization Act, and S.1094, the Combating Autism Reauthorization Act. 

Congressional Hearings on Health Policy Issues

Recent Congressional health policy hearings have included: a House Ways and Means Health Subcommittee hearing on the Medicare program’s financial status; a Senate Finance Committee hearing on Health Care Entitlements: The Road Forward"; a House Energy and Commerce Committee hearings examining the Medicare/Medicaid dual eligible population and the Medicare Secondary Payer program; and a Senate Homeland Security and Governmental Affairs Committee hearing entitled “Transforming Lives Through Diabetes Research.” Looking ahead, on July 13 the Energy and Commerce Health Subcommittee is holding a hearing entitled “IPAB: The Controversial Consequences for Medicare and Seniors.” Under the ACA, the new Independent Payment Advisory Board (IPAB) is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a target. IPAB's proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). 

June Congressional Hearings on Health Policy Issues

Earlier this month, the House Oversight and Government Reform Health Care Subcommittee held a hearing on "Pathway to FDA Medical Device Approval: Is There a Better Way?"; the House Small Business Healthcare Subcommittee reviewed Health IT Barriers for Small Medical Practices"; and the House Energy and Commerce Oversight and Investigations Subcommittee held a hearing on HHS regulatory reform. The Energy and Commerce Health Subcommittee also examined the ACA’s “Effects on Maintaining Health Coverage and Jobs: A Review of the Health Care Law's Regulatory Burden"; this hearing “reconvenes” on June 15.  Also coming up,  In addition, a House Judiciary Subcommittee on Crime hearing on June 14 will focus on the Foreign Corrupt Practices Act.  On June 22, the House Ways and Means Health Subcommittee will hold a hearing on the Medicare program’s financial status.  Looking ahead to next month, on July 13 the Energy and Commerce Health Subcommittee is holding a hearing entitled “IPAB: The Controversial Consequences for Medicare and Seniors.”  Under the ACA, the new Independent Payment Advisory Board (IPAB) is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a target. IPAB's proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). 

President Obama Outlines Plans for Deficit Reduction/Entitlement Reform

On April 13, 2011, President Obama delivered a speech outlining his plan for reducing the federal budget deficit by $4 trillion within 12 years, in part through Medicare and Medicaid reforms. Specifically, the President is calling for $480 billion in Medicare and Medicaid cuts by 2023 and at least an additional $1 trillion in cuts over the subsequent decade. One mechanism the President proposes to control Medicare spending is directing the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) to hold Medicare cost growth per beneficiary to the gross domestic product per capita plus 0.5 percent (rather than 1.0 percent under the ACA) beginning in 2018. If spending growth exceeds the target, the IPAB's proposals go into effect automatically unless Congress enacts alternative legislation to achieve required savings. The President proposes additional budget enforcement measures to ensure savings targets are met. The President also calls for $200 billion in cuts in Medicare prescription drug spending (including by "leveraging Medicare’s purchasing power," speeding the availability of generic biologics, and prohibiting brand-name companies from entering into “pay for delay” agreements with generic companies). With regard to Medicaid, the plan calls for savings of at least $100 billion over 10 years. According to the summary, the President’s plan would replace the current federal matching formulas with a single matching rate that rewards states for efficiency and automatically increases if a recession increases enrollment and associated state costs. Additional Medicare and Medicaid "accountability" proposals include, among others: restricting states’ use of provider taxes to lower their state spending without providing additional health services; recovering "erroneous" payments from Medicare Advantage plans; capping Medicaid payments for durable medical equipment (DME); and implementing Medicaid management of high prescribers and users of prescription drugs, among other things.  President Obama also announced that he has asked Majority Leader Reid, Speaker Boehner, Minority Leader Pelosi and Minority Leader McConnell to each designate four members to participate in bipartisan, bicameral negotiations led by the Vice President, beginning in early May to develop a legislative framework for comprehensive deficit reduction.

President Obama’s deficit reduction proposal comes at a time when the House of Representatives is considering a budget proposal for FY 2012 (H. Con. Res. 34) drafted by House Budget Chairman Paul Ryan (R-WI) that calls for $6.2 trillion in spending cuts over the next 10 years, although estimates of savings vary (see http://budget.house.gov/fy2012budget/). Among other things, the budget resolution includes significant structural reforms of the Medicare and Medicaid program and repeal of the ACA. With regard to Medicare, the plan would convert the Medicare program to a premium support model for individuals becoming eligible for Medicare beginning in 2022. Under this policy, traditional Medicare eventually would be replaced with a system whereby beneficiaries would choose among competing health plans meeting coverage standards (similar to current Medicare Part C plans), and a premium-support payment would be made to the plan, subsidizing its cost, with increased assistance provided to lower-income beneficiaries and those with greater health risks. The resolution also would convert federal Medicaid spending into a block grant program. In addition, the measure generally calls for repeal of the ACA, although presumably such efforts would focus on ACA insurance-related provisions rather than, for example, the extensive Medicare provider reimbursement or fraud enforcement provisions. The House Budget Committee approved the measure on a party-line vote, and it is scheduled to be considered by the full House this week. Note that the budget resolution simply provides the spending and revenue instructions for the Congressional committees; enacting legislation would need to be adopted to implement any of the proposed policy changes. Democratic leaders have widely criticized the Ryan plan. Nevertheless, particularly in light of today’s proposal by the President, it appears increasingly likely that some form of entitlement reform may advance this year.

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