The Medical Diagnostic Equipment Accessibility Standards Advisory Committe will hold a meeting on December 3-4, 2012 to discuss its February 9, 2012 proposed rule on medical diagnostic equipment accessibility standards.
CMS has announced that it is hosting monthly conference calls on ACA implementation efforts that impact doctors, nurses, hospitals and other health care providers. These calls will be held on the second Thursday of the month, and will review recent HHS announcements, focus on select topics, and provide an opportunity for public feedback.
The first call, which will include a discussion of Medicaid expansion, is scheduled for September 13 at 2 pm ET. To participate, dial 1-888-455-2963 and reference passcode 2954962. A recording of the call will be available for 30 days at 800-570-8799.
The Senate Health, Education, Labor and Pensions Committee held a field hearing in Connecticut on “Lyme Disease: A Comprehensive Approach to an Evolving Threat.” On September 11, 2012, the House Ways and Means Oversight Subcommittee is holding a hearing on the Internal Revenue Service’s implementation of various ACA tax provisions. Also on September 11, the House Small Business Healthcare Subcommittee is holding a hearing on "Medicare's Durable Medical Equipment Competitive Bidding Program: How Are Small Suppliers Faring?"
With all attention now focused on the campaign for control of Congress and the Presidency, it might be easy to forget that the 112th Congress is still in session and returns to work in September. When Congress does return, a number of important decisions affecting health care and energy policy, among other areas, remain to be considered. Added to this list of issues is the threat that the economy could fall back into a recession, or as some put it – fall off a "Fiscal Cliff" – should Congress fail to stop the tax hikes and spending cuts currently set to take effect January 2, 2013. All of this promises a busy agenda for the next few months, likely stretching into a Lame Duck Session of Congress after the November elections.
Sequestration and Tax Increases: A recipe for recession?
The biggest question is whether Congress will allow the automatic spending cut process it set in motion under the Budget Control Act (Public Law 112-35, “Act”), known as "sequestration," to proceed. This is just the latest in a series of recent steps under the Act to reduce the federal debt. The first step involved a spending cut of $900 million that only came after the threat of government shutdowns that resulted in the government's credit rating falling for the first time. The second step involved the so-called congressional "Super Committee," which was unable to find $1.2 trillion in additional spending cuts. Now those $1.2 trillion in spending cuts will begin to take effect automatically over the next 10 years, with the first installment of $109 billion taking effect January 2, 2013. It will be distributed equally between most defense and non-defense programs, with only a few spared the budget ax (including Social Security and Medicaid). Cuts to Medicare are limited to 2 percent a year. More specifics are expected soon as Congress has passed – and the President signed – the Sequestration Transparency Act of 2012, which requires the Obama Administration to report to Congress as to how it will administer the cuts (Public Law 112-155).
Next in importance is whether Congress will allow a series of tax cuts to expire at the end of the year, as currently scheduled. The expiring tax cuts include the reduction in income, capital gains, estate and gift taxes found in the “Bush Tax Cuts.” Other tax cuts set to expire include the recently enacted 2 percent Social Security payroll tax cut.
In addition, other fiscal measures will need to be decided before the end of the year, including whether to extend unemployment benefits for the long-term unemployed and whether to adjust Medicare’s rates so that physician payments are not cut (the so-called “doc fix”).
If Congress does nothing and allows all spending and tax measures to expire, the non-partisan Congressional Budget Office forecasts the United States economy will fall back into a recession as a result, “with real [Gross Domestic Product] declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013” (www.cbo.gov).
Would there be a 'Grand Compromise' and what could it include?
Already, posturing by both parties has begun, to avoid any jumping off that Fiscal Cliff. The posturing includes legislation passed in the House of Representatives that would shift cuts in defense spending to domestic programs (H.R. 5652, the Sequester Replacement Reconciliation Act of 2012). Posturing actions also include legislation passed in the Senate that would limit income tax cut reductions to households making $250,000 or less (S. 3412, the Middle Class Tax Cut Act).
Neither of these bills passed their respective chamber with bipartisan support. But the pressure to compromise will build as Congress gets closer to the edge of the Fiscal Cliff. We expect to see movement on the need to compromise likely, building to a resolution either during a Lame Duck session of Congress or when a new Congress convenes in January. Other spending measures likely to be caught up in this include:
The budget for Fiscal Year 2013 (“FY 13”). Progress on the 12 spending bills needed to fund the federal government for the next fiscal year has slowed to a stop. This outcome is due entirely to the broader sequestration debate. As a result, Senate Majority Leader Reid (D-NV) announced on July 31 a deal with Speaker of the House John Boehner (R-OH-8) on a six-month continuing resolution (“CR”) that will fund the government through May 31, 2013 (www.dpcc.senate.gov).
Spending for the Patient Protection and Affordable Care Act. The “power of the purse” is one way, besides outright repeal, that Republicans can limit the effects of the Patient Protection and Affordable Care Act (Public Law 111-148). While the Senate Appropriations Committee has passed appropriations legislation that provides full funding for FY 13, the Sequester Replacement Reconciliation Act of 2012, passed in the House, would not.
Energy policy. Whether the federal government should be funding efforts that promote the development of renewable energy has been debated in the House of Representatives. On August 1, the House Energy and Commerce Committee passed legislation that would effectively end the Department of Energy’s loan guarantee program by prohibiting any new applications; other congressional reviews are ongoing. Beyond this prohibitory action, however, a number of tax credits are in place that also fund the development of renewable energy and are set to expire at the end of the fiscal year, unless renewed. Notably, the Senate Finance Committee passed a one-year “tax extenders” bill on August 2 and included only an extension in the wind energy tax credit in a package that included tax relief from the alternate minimum tax, as well an extension of the research and development tax credit given to businesses (www.finance.senate.gov).
The timing and elements of a final decision on all of these policy, spending and taxation issues will be essentially affected by who wins the White House and Congress in November. But the Federal Government must operate, so decisions must, and will, be made regarding these policy and budget issues. Careful monitoring of upcoming activities may suggest beneficial future strategies.
Please contact the Reed Smith Public Policy & Infrastructure practice, or the attorney with whom you regularly work, if you have any questions regarding this Client Alert.
The GAO has released a report summarizing actions that selected states have taken to date to prepare for the ACA’s Medicaid eligibility expansion provisions that go into effect January 1, 2014. The GAO found that the six states reviewed (CO, GA, IA, MN, NY, and VA) are taking some steps to prepare for the Medicaid expansion, including assessing eligibility changes and upgrading Medicaid information technology systems. States report a number of challenges, however, including insufficient federal guidance in a number of areas, including the use of Modified Adjusted Gross Income to determine an applicant’s eligibility under various scenarios. The GAO report also highlights the views of selected state officials on the fiscal implications of the Medicaid expansion on states’ budget planning.
HHS Final Rule on Accreditation Entities, Data Collection Requirements for ACA Qualified Health Plans
On June 20, 2012, HHS is publishing a final rule to implement the first phase of a process to recognize accrediting entities that will certify qualified health plans for participation in ACA Affordable Insurance Exchanges. In phase one, HHS is recognizing the National Committee for Quality Assurance and URAC as accrediting entities on an interim basis. In phase two, which will be implemented in future rulemaking, HHS intends to adopt a criteria-based review process. The rule also outlines the data on applicable plans that will be collected from certain issuers to support the definition of essential health benefits. HHS intends to establish additional rules on essential health benefit standards in the future.
Congressional panels have examined a number of health policy issues recently, including:
- ACA Hearings: The House Ways and Means Committee held a hearing on the implications of the Supreme Court's ruling that the individual mandate in the ACA is constitutional, particularly as it relates to Congress' taxing authority. The House Oversight and Government Reform Committee held separate hearings on the ACA’s impact on doctors and patients, and on job creators and the economy.
- Medicare Physician Payments: The Senate Finance Committee held a hearing on “Medicare Physician Payments: Perspectives from Physicians,” while the House Energy and Commerce Health Subcommittee examined “Using Innovation to Reform Medicare Physician Payment.” (http://energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=9692).
- Dual Eligibles: The Senate Aging Committee held a hearing on Medicare and Medicaid coordination for dual-eligibles.
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.
Massachusetts Loosens Drug/Device Manufacturer Gift Ban and Disclosure Law, Allows Certain Drug Coupons and Vouchers
As drug and device manufacturers continue to await final federal rules implementing the Affordable Care Act’s Physician Payment Sunshine Act (“Sunshine Act”) provisions, Massachusetts has relaxed its similar state law banning the provision by manufacturers of gifts to health care practitioners (HCPs) and requiring disclosure of payments and transfers of value to HCPs. The revisions are intended to loosen certain restrictions on providing meals and other expenses to HCPs, and relieve manufacturers of the duty to report to Massachusetts information that has been disclosed to federal agencies, such as data reported to CMS under the Sunshine Act. Massachusetts also will permit pharmaceutical manufacturers to offer drug coupons to Massachusetts residents if certain conditions are met. Additional information is available on Reed Smith’s Life Sciences Legal Update.
On July 10, 2012, the House Ways and Means Committee will hold a hearing on the implications of the Supreme Court's ruling that the individual mandate in the Affordable Care Act (ACA) is constitutional, particularly as it relates to Congress' authority to lay and collect new taxes. Also on July 10, the House Oversight and Government Reform Committee is holding separate hearings on the impact of the ACA on doctors and patients, and on job creators and the economy.
As has been widely reported, today the U.S. Supreme Court ruled that the Affordable Care Act’s (ACA) individual health insurance mandate does not violate the Constitution because it may be viewed as a permissible tax on individuals who do not obtain health insurance. The only provision of the law that the Court invalidated is a Medicaid provision that threatened states with the loss of existing Medicaid funding if they decline to comply with the ACA’s Medicaid coverage extension. By preserving the vast majority of the landmark health reform law, the Court avoided the policy chaos that would have resulted from striking down the ACA in its entirety. There is now legal certainty for state and federal governments, health care providers and suppliers, drug and device manufacturers, employers and individuals. As discussed below, the focus in Washington will return to continuing implementation of the law. Nevertheless, although the legal battle is over, the political fight will continue and likely reverberate through the coming Presidential and Congressional election campaigns.
In National Federation of Independent Business v. Sebelius, No. 11–393 (2012), Chief Justice Roberts, joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, crafted a direct and precedent-based decision that evokes the Chief Justice's statement at his confirmation hearing that his “job is to call balls and strikes, and not to pitch or bat.” Notably, at the end of Part III-C of the Court’s majority decision, the Chief Justice stated that upholding the individual mandate under the taxing power rather than the Commerce Clause eliminates regulatory options available to the federal government with respect to enforcing the mandate. Justice Kennedy, along with Justices Thomas and Alito, joined the dissent written by Justice Scalia, who would have invalidated the law in its entirety.
The ACA also sought to expand state Medicaid coverage by tying all federal Medicaid funding to that expansion. In other words, states would have lost all Medicaid funding if they did not implement an expansion of Medicaid. While the Court upheld the expansion of Medicaid, it declared that it must be the choice of the state to expand, and that the federal government may not threaten the loss of all Medicaid funding if a state opts not to expand.
The Supreme Court’s decision brings some legal certainty to the health care industry. The ACA contains a laundry-list of provisions unrelated to insurance reform, and repeal would have wrought havoc on several years of rulemaking and other activities – along with private-sector efforts to gear up for these policies. Examples include accountable care organizations (ACOs), new reimbursement policies on readmissions, provider/supplier screening, the Elder Justice Act, the Physician Payment Sunshine Act, and onerous fraud and abuse provisions. Now that the primary ACA legal challenge is resolved, one likely outcome is that the number of transactions in the provider space will accelerate as hospitals, health systems, and other participants look to consolidate market power and create economies of scale in the face of anticipated rate pressure from payors.
For drug and device manufacturers, the decision similarly establishes some certitude in the face of numerous federal taxes, price cuts, fees, and rebates. By way of background, pharmaceutical manufacturers bargained hard during the legislative process to avoid numerous potentially harmful proposed provisions such as the ability of Medicare to negotiate drug prices; in contrast, the ostensible rationale for the rebates on which the parties generally agreed was the greater number of covered consumers as a result of the legislation. Some estimates have put these mandated rebates and fees at between $80 billion to $105 billion over ten years. While these fees are seen as negatives by some analysts, the obvious counterpoint is that a new reform bill could have imposed even higher fees. Of course, device makers still are subject to the excise tax on certain FDA-approved devices, which will be imposed January 1, 2013. The industry is focused on repealing the tax, a task that poses a significant challenge given the loss of revenues that would result from a repeal.
Separately, the political rhetoric (and potential new legislation) are sure to continue. The predominantly Republican House has already scheduled for the week of July 9 an ACA repeal vote – which in turn Democratic Senator Harry Reid has already described as a “show vote.” Expect Republicans to continue efforts to selectively defund or repeal ACA provisions.
Now that the ACA mandate – and accompanying politically-popular insurance reforms -- are settled (at least in law), Congress can now turn to the other looming issue for the health industry: avoiding the sequestration (across-the-board cuts to defense and domestic spending -- including Medicare provider payments) that will be triggered in January 2013 under the Budget Control Act in the absence of Congressional action.
Reed Smith’s ACA Reporting
Reed Smith has been closely covering ACA developments, including enactment of the legislation and ongoing Administration implementation efforts. For instance, in April 2010, we provided an extensive analysis of the ACA, providing an overview of the provisions that expand access to insurance coverage, reduce health care spending (particularly in the Medicare program), expand federal fraud and abuse authorities and transparency requirements, and impose new taxes and fees on health industry sectors, among many other provisions. Reed Smith also released a series of in-depth analyses of the law, including alerts focusing on the law’s fraud and abuse/program integrity provisions, along with issues specifically impacting drug, device and biotech manufacturers and medical equipment suppliers and manufacturers. We continue to issue alerts on major implementing regulations, such as the Physician Payment Sunshine Act proposed rule, the Medicare Shared Savings Program/accountable care organization final rule, and a proposed rule to implement a 10-year "look back" period for the identification and return of Medicare overpayments. We also report on ongoing regulatory and subregulatory ACA developments on our Health Industry Washington Watch blog. Reed Smith's benefits group also has been monitoring and providing guidance on the ACA.
We would be pleased to answer any questions you have on the implications of today’s ruling or any of the other ACA implementation developments.
On June 26, 2012, the Internal Revenue Service (IRS) published proposed regulations implementing ACA requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for certain care provided to individuals eligible for financial assistance, and billing and collections. Note that the proposed regulations do not address the ACA’s community health needs assessment (CHNA) requirements; the IRS intends to issue additional proposed regulations that respond to public comments on the Agency’s earlier guidance on the CHNA provisions. The IRS will accept comments on the proposed regulations until September 24, 2012.
HHS announced on June 21, 2012 that health insurers will pay a total of $1.1 billion in rebates this summer under the ACA’s MLR provision. Under this provision, insurers were required to spend at least 80% of total premium dollars collected on medical care and quality improvement in 2011 or pay rebates to their customers by August 1, 2012. Rebates will be provided to consumers either through: a rebate check in the mail; reimbursement to the credit card or debit card used to pay the premium; or a reduction in future premiums (with special rules for rebates associated with employer-provided policies).
On June 5, 2012, the Department of Health and Human Services (HHS) published a proposed rule that would implement the first phase of a process to recognize accrediting entities that will certify qualified health plans for participation in ACA Affordable Insurance Exchanges. In phase one, HHS proposes to recognize the National Committee for Quality Assurance and URAC as accrediting entities on an interim basis. In phase two, which would be implemented in future rulemaking, HHS intends to adopt a criteria-based review process. The proposed rule also outlines the data on applicable plans that would be collected from certain issuers to support the definition of essential health benefits. HHS notes that it intends to “pursue comprehensive rulemaking on essential health benefits in the future.” Comments on the proposed rule will be accepted until July 5, 2012.
Through the Advance Payment Accountable Care Organization (ACO) initiative, CMS is testing the extent to which pre-paying a portion of future shared saving could increase participation in CMS’s Medicare Shared Savings Program (MSSP). While CMS previously announced that applications would only be accepted for April 1, 2012 and July 1, 2012 start dates, CMS now plans accept applications beginning August 1, 2012 for an additional round of Advance Payment ACOs that would begin on January 1, 2013.
Yesterday the House approved by a vote of 270-146 legislation to repeal the ACA’s controversial 2.3% excise tax on the sale price of certain medical devices, which is scheduled to apply to sales after December 31, 2012. The repeal provision is included in H.R. 436, the Health Care Cost Reduction Act of 2012, which also would: repeal ACA provisions that disqualify expenses for over-the-counter medicine under certain health savings arrangements; allow employees with health flexible savings arrangements funded through salary deductions to “cash out” any remaining balance at year-end (up to $500), and treat such funds as taxable compensation; and require individuals who receive ACA health insurance exchange subsidies to which they are not entitled to repay the full amount of overpayments. The bill now moves to the Senate, where its fate is uncertain, particularly since the Administration has threatened to veto the bill. According to the Administration, the medical device industry will benefit from expanded health insurance coverage under the ACA, and a repeal would “fund tax breaks for industry by raising taxes on middle-class and low-income families.”
On May 31, the House Ways and Means Committee will mark up H.R. 436, the Protect Medical Innovation Act of 2011, which would repeal the ACA’s 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012. House Majority Leader Eric Cantor announced May 25, 2012 that the full House could vote on H.R. 436 as early as the week of June 4, 2012. In addition to the device tax bill, the Ways and Means Committee will consider:
- H.R. 5842, which would repeal ACA provisions that disqualify expenses for over-the-counter medicine under health savings accounts (HSAs), Archer medical savings accounts, health flexible spending arrangements (FSAs), and health reimbursement arrangements;
- H.R. 1004, which would allow allowing any funds remaining in a medical FSA at the end of a plan year to be distributed to the employee; and
- H.R. 5858, which would change the tax treatment of HSA distributions for certain early retirees.
Recent hearings on health policy issues include:
- Senate Health, Education, Labor and Pensions Committee hearings on HIV/AIDS drug costs, health care delivery reforms, and federal laws to ensure patients’ access to care and privacy.
- A Senate Finance Committee hearing on “Progress in Health Care Delivery: Innovations from the Field.”
- A House Judiciary Subcommittee on Intellectual Property and Competition hearing on health care consolidation and competition after the ACA.
- A House Veterans’ Affairs Committee hearing on the Veterans Affairs Department’s prosthetics purchasing policy.
Coming up, the House Education and the Workforce Health Subcommittee is holding a hearing May 31 on “Barrier to Lower Health Care Costs for Workers and Employers.” In addition, on June 6, the House Veterans’ Affairs Committee has scheduled a hearing entitled “Through the Looking Glass: Return to PPV (Pharmaceutical Prime Vendor program).”