Lawmakers Reach Deal to End Government Shutdown, Raise Debt Ceiling

by Andrea M. Bergman, Karen S. Sealander, Erica Stocker and Eric Zimmerman

While the focus over the past 16 days has been on the shuttered government and the prospect of the United States defaulting on its debt obligations, there are subtexts that are relevant to the health care industry.  This On the Subject details five key health care takeaways.

Read the full article here.

Senate Finance Committee Leaders Release Comprehensive Report on Combating Waste, Fraud and Abuse in Medicare & Medicaid Programs

by Erica Stocker

On January 31, a group of six current and former members of the Senate Finance Committee—led by current Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT)—released a comprehensive report detailing recommendations on combating waste, fraud and abuse in the Medicare and Medicaid programs. The report is a compilation of recommendations received from more than 160 health care industry stakeholders following a solicitation of such information in May 2012, and also includes proposals from the group of Senate Finance leaders themselves.

Senators Baucus and Hatch were joined by Senators Tom Coburn (R-OK), Ron Wyden (D-OR), Chuck Grassley (R-IA) and Tom Carper (D-DE) in soliciting the recommendations and releasing the report. In the coming months, this group of six intend to work not only within the Finance Committee—which has jurisdiction over Medicare and Medicaid—but also with other relevant Senate Committees, the Centers for Medicare and Medicaid Services (CMS), other appropriate federal agencies and interested stakeholders.

Specifically, the bipartisan report focuses on five key themes: improper payments; beneficiary protection; audit burden; data management; and enforcement. Several changes of note—some of which are within CMS’ authority to make and will not require legislation—include:

  • Increasing state Medicaid anti-fraud program funding;
  • Making changes to payment policies that tend to lead to waste, fraud and abuse due to inconsistent pricing;
  • Requiring the Centers for Medicare and Medicaid Services (CMS) to use currently un-utilized statutory authorities, such as mandatory compliance programs;
  • Making operational changes with regard to CMS audit contractors, in order to promote efficiency and effectiveness;
  • Clarifying appropriate settings for care (inpatient vs. outpatient, for example); and
  • Creating a balance between Medicare contractor incentives for identifying overpayments versus penalties when findings are overturned through appeals to CMS.

Upon the report’s release, Chairman Baucus noted that the Committee had received nearly 2,000 pages of input from stakeholders. “Now we must take these ideas and put them to work and strengthen Medicare and Medicaid, ensuring the programs continue to care for those they serve,” Baucus stated.

The Finance Committee press release with a link to the full PDF report can be found here.

As these recommendations advance, we can assist clients in expressing any ideas or concerns to relevant legislators and policymakers.

New ACA Regulations Address Minimum Essential Coverage and Exemptions

by Anne W. Hance and Amy M. Gordon

The U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) released on January 30, 2013, two proposed rules and a final rule relating to the Affordable Care Act’s (ACA) requirement that individuals maintain “minimum essential coverage” (MEC) or be subject to a “shared responsibility” payment.

  • IRS Final Rule: The IRS issued final regulations in May 2012 addressing eligibility for the health insurance premium tax credit, which is available to certain low-income individuals purchasing a qualified health plan on a health insurance exchange.  The January 30, 2013 final rule supplements these regulations by finalizing the requirement that “affordability” of coverage available for the employee under an employer-sponsored group health plan is determined based on self-only coverage (and not family coverage).
  • IRS Proposed Rule: The proposed rule addresses (1) the obligation each taxpayer has to make a “shared responsibility payment” for himself, herself and any dependents who, for a calendar month, do not have MEC, and (2) exemptions to this payment obligation.  The limited exceptions for this payment obligation include individuals who lack access to affordable MEC.  The proposed rule addresses the difference in determining affordable MEC for an employee eligible for coverage under a group health plan (as described above) versus affordability for a “related individual.”  A “related individual” is one for whom an Internal Revenue Code Section 151 deduction can be claimed.
  • HHS Proposed Rule: The HHS proposed rule sets forth standards and processes by which a health insurance exchange will make eligibility determinations and grant exemptions from the shared responsibility payment.  This proposed rule also (1) identifies certain types of coverage deemed to be MEC , and (2) sets forth standards by which HHS may designate certain health benefits coverage as MEC. 

    For example, self-funded student health insurance coverage and Medicare Advantage Plans are proposed to be designated as MEC.  Additionally, sponsors of other types of coverage that meet designated criteria, such as providing consumer protections required by the Affordable Care Act, may apply to HHS for recognition as MEC.

Next Steps

Health insurance issuers will want to consider whether the various products they offer or administer will meet the MEC requirements set forth in HHS’s proposed rule, in order to respond to inquiries from customers, to meet notice requirements (including inserting model statements into existing plan documents, as applicable), and potentially to respond to exchanges making eligibility determinations.  If a product does not constitute MEC, issuers may want to consider whether to continue to offer the product in its current form or revise the coverage to meet the MEC requirements.

Sponsors of group health plans will need to consider the separate affordability standards for employees and for related individuals and the implications for group health plan participants, and either modify coverage to meet the MEC standards, or consider the consequences of the shared responsibility payment.

Proposed Changes to HSR Rules for Pharmaceutical Companies

by Jon B. Dubrow and Carla A. R. Hine

Today the Federal Trade Commission (FTC) announced proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules that will impact the types of transactions for which pharmaceutical companies will be required to file HSR notifications with the Department of Justice and FTC.  The proposed rulemaking is meant to clarify when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable acquisition of assets under the HSR Act.

Previously -- although never actually codified -- the FTC would determine whether the transfer of rights to a patent (usually in the form of a license) was a reportable event under the HSR Act by focusing on whether the licensor transferred the exclusive rights to "make, use and sell" under a patent.  The emphasis on the transfer of the exclusive right to manufacture would result in scenarios where parties would not be required to report the transfer of patent rights because although the licensor transferred the rights to commercialize the product, it retained the right to manufacture the product.

In an effort to place substance over form, the proposed rulemaking instead suggests an "all commercially significant rights" test, where a transfer of "the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area)" would constitute a potentially reportable acquisition of assets if the size-of-transaction and size-of-person (if applicable) thresholds are met, and no exemption is applicable.  The proposed rules further explain that all commercially significant rights are transferred even if the patent holder retains limited manufacturing rights to provide the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent.  Please note that this rule would only apply to patents within the pharmaceutical industry (as this is the industry in which these scenarios most often occur).

The text of the proposed rulemaking can be found here.  The FTC is accepting comments until October 25, 2012.

Congress, President Agree to Extend Expiring Medicare and Medicaid Payments

by Andrea M. Bergman, Teddy Eynon, Karen S. Sealander and Eric Zimmerman

On February 17, 2012, Congress approved the Middle Class Tax Relief and Job Creation Act of 2012, ending debate over the extension of payroll tax reductions, unemployment insurance benefits, and numerous Medicare and Medicaid payment provisions, most of which were set to expire at the end of February. This White Paper provides an overview of the most significant Medicare- and Medicaid-related provisions in the act.

To read the full article, click here

Congress, President Extend Endangered Medicare and Medicaid Programs

by Teddy Eynon, Karen S. Sealander and Eric Zimmerman

The Temporary Payroll Tax Cut Continuation Act of 2011 extends numerous expiring Medicare and Medicaid programs, thus sparing physicians, hospitals and other health care providers significant Medicare and Medicaid payment cuts.  This On the Subject provides an overview of the most significant Medicare- and Medicaid-related provisions in the Temporary Continuation Act.

To read the full article, please click here

House End of Year Package Would Cut Hospital Funding More than $17 billion

by Karen S. Sealander and Erika Stocker

As the clock ticks down on Congress’ 2011 session and lawmakers look to wrap up outstanding FY 2012 appropriations bills, leaders in both the House of Representatives and the Senate continue to look for a path forward on priority legislation to extend unemployment benefits, renew the expiring Social Security payroll tax cut and prevent a steep cut in Medicare physician reimbursements as part of a large year-end “extenders” package. 

House Republicans released their extenders package, HR 3630, late last week and are working to build support for the measure, with a vote expected early this week. This 369-page legislation would reduce Medicare payments to hospitals by more than $17 billion in order to finance other of the bill’s provisions. Highlights of the health-related provisions are set forth below and a more detailed summary of the health-related provisions can be found here

Should HR 3630 pass the House, it is expected to be soundly rejected in the Senate. Further, President Obama has already indicated his displeasure with certain of the bill’s provisions. As such, we believe that there are two options for an extenders package to make its way to the President’s desk for a signature: (1) House and Senate leaders will need to have an earnest negotiation to agree on a compromise that can pass muster in a Republican-led House, can garner 60 votes in the Democratically-controlled Senate and can avoid the veto pen of President Obama, or (2) the Senate will approve its own extenders package in the nature of a substitute to the House bill, which the House would have little choice but to accept.

Highlights of some of the health-related provisions are as follows:

Extenders and Other Changes

  • The bill heads off a 27.4 percent cut in Medicare physician payments, and provides that for CYs 2012 and 2013, physician payments would increase 1 percent in each year. The Congressional Budget Office (CBO) scores this provision as costing $38.9 billion over 10 years.
  • The bill would extend several expiring Medicare ambulance add-on payments, including a 2 percent adjustment for urban ground ambulance services, a 3 percent adjustment for rural ground ambulance services and the 22.6 percent increase for ambulance payments for trips originating in “super rural areas,” through December 31, 2012,. CBO scored this provision at $0.1 billion over 10 years.
  • The bill would extend with modifications a program that provides an exceptions process to outpatient therapy caps through December 31, 2013. CBO scored this provision at $1.7 billion over 10 years.
  • The bill would extend the physician fee schedule's work relative value units (RVU) geographic floor through December 31, 2012.  CBO scored this provision at $0.5 billion over 10 years.
  • The bill would re-open physician-hospital ownership restrictions imposed under the Affordable Care Act (ACA) to allow physician-owned hospitals that were under construction, but did not have Medicare provider numbers as of December 31, 2010, to open and operate and qualify for grandfather protection.  The bill also would make it significantly easier for hospitals that were grandfathered under the ACA provisions to expand capacity (presently, grandfathered hospitals are allowed to expand bed and OR capacity only if they meet very limited criteria). CBO scored this provision at $0.3 billion over 10 years.


 The bill utilizes a number of offsets, including several that come directly from hospital payments:

  • Reducing hospital outpatient prospective payment system (HOPPS) facility fee payments to hospitals for evaluation and management (E/M) services to be equal to the Medicare payment for the same service when furnished in a physician office. CBO estimates that this provision saves $6.8 billion over 10 years.
  • Reducing the reimbursement hospitals and other providers can receive for bad debts from 70 percent to 55 percent, phased in over 3 years.  CBO estimates that this provision saves $10.6 billion over 10 years. Of note, the President had proposed that the percentage be reduced to 25 percent.
  • Rebasing Medicaid disproportionate share hospital (DSH) payments.  CBO estimates that this provision saves $4.1 billion over 10 years.
  • Increase Medicare Part B and D premiums for high-income individuals by 15 percent, and increase the number of individuals considered to be high-income by lowering brackets from $85,000 for individuals to $80,000, and from $170,000 for couples to $160,000.  CBO estimates that this provision saves $31 billion over 10 years.
  • Reducing by $8 billion the Prevention and Public Health Fund created in the ACA.

Omitted Provisions

The bill is also noteworthy for what it does not include, including:

  • Sole community hospital and small rural hospital hold harmless or “TOPS” protections under the outpatient PPS, which will expire December 31, 2011.
  • Section 508 wage index reclassifications, which expired September 30, 2011.
  • Physician pathology technical component payments that allow independent laboratories to receive payments from Medicare for the technical component of pathology services performed for a hospital patient.
  • Reasonable cost payments for clinical laboratories in low density population areas, which expires July 2012.
  • The Medicare-dependent hospital designation program, which expires September 30, 2012.
  • Low-volume hospital payment adjustments, which expires September 30, 2012.

Obama Administration Asks Supreme Court to Take Up Health Reform Case

by J. Peter Rich and Webb Millsaps

The Obama Administration has asked the U.S. Supreme Court to consider the constitutionality of the individual mandate, a provision in the Affordable Care Act (ACA) that the Administration once referred to as the “linchpin” of the sweeping 2010 health reform law.   As we wrote previously, there are numerous challenges to the ACA that are in various stages of litigation, but the most significant case, Florida et al. v. United States Department of Health and Human Services et al. (Florida v. HHS), is the one that the Administration has petitioned the Supreme Court to review.

The challengers in Florida v. HHS, including 26 states, the National Federation of Independent Business and two individual citizens, originally were victorious in the U.S. District Court for the Northern District Court of Florida.  That decision by Judge Roger Vinson found that the individual mandate was unconstitutional and also found that the whole of the ACA must fail as a result because the individual mandate was not deemed severable from the rest of the law.  Judge Vinson’s decision was then upheld in part and reversed in part when the Eleventh Circuit Court of Appeals ruled August 12, 2011.  A three-judge panel of the Eleventh Circuit Court found, in a 2-1 decision, that the individual mandate is unconstitutional, but that it is severable from the remainder of the ACA and therefore that the rest of the health reform law should survive.

The Administration, which could have requested that the Eleventh Circuit re-hear the case en banc, filed their Petition for a Writ of Certiorari (the Petition) on September 27, 2011. By not pursuing the potential interim step of an en banc re-hearing the Administration has made it more likely that the Supreme Court will hear the case and make its ultimate ruling on the matter prior to the November 2012 election. Politically, this could be risky as some observers felt the Administration would not want to have a final decision by the Supreme Court come prior to the election. However, an en banc re-hearing would have carried some risk to the Administration since the Eleventh Circuit would have been free to fully affirm Judge Vinson’s original decision that if the individual mandate is unconstitutional then all of the ACA must be struck down.

The Petition argues that the Supreme Court should resolve the case because the decision by the Eleventh Circuit Court of Appeals “conflicts with a decision of the Sixth Circuit and involves a question of fundamental importance.” The Administration argues in the Petition that the decision by the Eleventh Circuit on the issue of the individual mandate is “fundamentally flawed and denies Congress the broad deference it is due in enacting laws to address the Nation’s most pressing economic problems and set tax policy.”

Eleventh Circuit Strikes the ACA's Individual Mandate as Unconstitutional, Setting Up a Circuit Split and Making Supreme Court Review More Likely

by Webb Millsaps and J. Peter Rich

In a 2-1 decision on August 12, 2011, the Eleventh Circuit Court of Appeals in Atlanta ruled that the individual mandate in the Affordable Care Act (the ACA) is unconstitutional. (See opinion.) In a reversal from the original federal district court decision on appeal, however, the circuit court found that the individual mandate was severable from the remainder of the ACA, and therefore concluded that the remaining parts of the ACA should stand.

By contrast, in the original district court opinion, Judge Roger Vinson, after noting that the individual mandate had been referred to as the “linchpin” of the ACA by the President and others, found that the whole of the ACA was not severable from the individual mandate, and that since the individual mandate was unconstitutional the entire ACA must be struck down.

While the Eleventh Circuit found that the “district court placed undue emphasis on the [ACA’s] lack of a severability clause,” it did acknowledge the closeness of the severability question, particularly with regard to two reforms under the ACA: guaranteed issue health insurance, 42 U.S.C. § 300gg-1 (effective January 1, 2014) and the prohibition on preexisting condition exclusions, id. § 300gg-3.

The Eleventh Circuit Court’s opinion is of significant interest to stakeholders for a variety of reasons. Importantly, this decision sets up a circuit split (the 6th Circuit in Atlanta previously upheld the constitutionality of the individual mandate in a 2-1 decision), which means that Supreme Court review is virtually inevitable. Further, this decision marks the first time that a judge appointed by a democrat ruled against the Obama Administration on the constitutionality of any aspect of the ACA. In addition, the Eleventh Circuit case has been regarded as perhaps the most significant legal challenge to the ACA, in part because the challengers include 26 states, as well as the National Federation of Independent Business. In related ACA legal action, the Fourth Circuit has yet to rule in two other pending challenges.

The Obama Administration has 90 days from August 12, 2011, to decide if it wishes to request an en banc re-hearing before the full Eleventh Circuit Court of Appeals or instead appeal the decision directly to the Supreme Court. The Administration’s decision will likely involve legal and political considerations. In an en banc re-hearing, there is a potential legal risk that the full Eleventh Circuit could affirm the unconstitutionality of the individual mandate, but reverse the panel on the severability issue. Alternatively, if the case moves more swiftly to the Supreme Court and the Court agrees to take up the ACA challenge in the term that begins in October 2011, then a decision would be expected no later than June 2012, a scant five months before the presidential election. From a political perspective, an en banc re-hearing could delay a final Supreme Court decision on health care reform until after the November 2012 election. However, even if requested by the Administration, an en banc re-hearing is not guaranteed because en banc re-hearings are disfavored under federal court rules and the Eleventh Circuit could only order an en banc re-hearing if a majority of all the eligible Eleventh Circuit Judges agree to hear it. 

Meanwhile, President Obama has expressed confidence that the ACA will be upheld and the Administration is continuing to press ahead with implementation of its provisions.

The Debt Deal: What's Next and How Will It Impact Your Business?

The deficit reduction deal will dominate the congressional and presidential agendas for the balance of 2011 and have a profound impact on the U.S. economy.  Join our panel of political and policy insiders at a webcast where they will evaluate whether the “super committee” can reach an agreement, and predict which sectors and programs will be most vulnerable to further spending cuts. 

 Some of the questions our panel will discuss include:

  • How will tax policy likely change?
  • How will the appropriation process change this year, and how will the budget-cutting process affect industries such as health care, agriculture, energy, defense and others?
  • How will the White House deal with this budget-cutting panel?

This webcast will provide the analysis and insight necessary to understand the events that will unfold behind closed doors and affect your business. Our panel will take questions and answer with specifics.

Wednesday, September 7, 2011
12:00 – 1:30 pm EDT

To register, please click here.

Supreme Court Receives New Request to Consider Constitutionality of Health Reform Law

by Webb Millsaps and J. Peter Rich

The Supreme Court of the United States received a new request today that it consider the question of whether the “individual mandate” under the Affordable Care Act (the ACA) is constitutional or not. The petition of certiorari was filed by the Thomas More Law Center, one of several plaintiffs challenging the ACA on constitutional grounds in various litigation now working through the federal courts. The filing today requesting Supreme Court review took less than a month after the Sixth Circuit Court of Appeals handed down a 2-1 decision that rejected the Thomas More Law Center’s challenge to the ACA and declared that the individual mandate was constitutional. After losing the Sixth Circuit decision before the three-judge panel, the Thomas More Law Center could have made a request that the Sixth Circuit rehear the case en banc, meaning that all of the Sixth Circuit judges (as many as 26 judges, depending on factors such as current vacancies) would rehear the case and issue a decision. En banc hearings are somewhat rare and are usually reserved for especially complex cases or ones of considerable public importance.

The July 27, 2011 filing is not the first time one of the litigants challenging the ACA has requested that the Supreme Court take up the matter. In April of this year, the Supreme Court refused a request from the State of Virginia that its challenge to the individual mandate and the ACA be heard by the high court on an accelerated basis. Virginia’s request was different in an important respect from the July 27 petition by the Thomas More Law Center because Virginia sought to leap frog the intermediate step of going before a U.S. Circuit Court of Appeals, preferring instead to ask for the extraordinary step of immediately proceeding to the Supreme Court. Accordingly, Virginia’s request represented a departure from the normal course of review and at the time no one was surprised that the Supreme Court preferred that the Virginia matter first be heard by the Fourth Circuit Court of Appeals.   It is also worth noting that Virginia’s request was different from the July 27 request by the Thomas More Legal Center in the sense that Virginia won in its original petition (at least in large part) because the original federal district court had sided with Virginia in its position that the individual mandate was unconstitutional, whereas the Thomas More Law Center has now lost before a federal district court and the Sixth Circuit. 

Throughout the legal battle, the Obama Administration has taken the position that the legal process should play out methodically and go through the appropriate stages of appeal. This may be a political preference and a legal strategy that the Administration views as beneficial to it. Regardless, the Supreme Court itself has a strong, historical preference that, absent extraordinary urgency, it only consider matters after a complete review has taken place in applicable lower courts. 

It is highly unlikely that the Supreme Court will consider taking up the challenges to the ACA until both the Fourth Circuit Court of Appeals and the Eleventh Circuit Court of Appeals have rendered decisions on the ACA cases currently before them. As we have stated previously, if either of those circuit courts strike down the individual mandate or, possibly even the ACA entirely, that would establish a circuit split given that the Sixth Circuit ruled in support of the individual mandate. And if there is a circuit split after decisions are rendered in the other pending cases, it is likely that the Supreme Court will take up the matter more quickly.  In that event, if the high court takes the case this fall, it will likely decide the constitutionality of health care reform just months before the 2012 election.

Split Decision: U.S. Appellate Court Finds Health Reform Law is Constitutional

by J. Peter Rich and Webb Millsaps

The Obama Administration enthusiastically embraced a legal victory yesterday when, in a 2-1 split decision, a federal appeals court panel upheld a lower federal court decision finding that the federal Health Reform Law is constitutional.  Some observers quickly seized on the fact that one of the two votes upholding the Health Reform Law was a conservative Republican judge, Jeffrey Sutton, who once clerked for Supreme Court Justice Antonin Scalia.  The third judge, a Reagan appointee, dissented on the substantive issue, arguing that the Health Reform Law is unconstitutional.

The core question remains an extremely close one.  The three judges on the panel were not unanimous and the opinion itself gives some further indications that the matter could go either way when it is finally decided by the Supreme Court.   For example, Judge Sutton, who concurred in part and wrote the majority opinion in part, indicated that his opinion is just one step in the process – at one point he essentially refers to the appeals court as a “middle management judge” and then later goes on to observe that he is “[m]indful that we at the court of appeals are not just fallible but utterly non-final in this case…” 

Whether today's decision has any ultimate impact will turn on its persuasive power and, in particular, whether the logic of the opinion is deemed compelling by the Supreme Court of the United States.  Even before this case approaches the high court, several additional steps will occur. First, the challengers could request the Sixth Circuit Court of Appeals to re-hear the case en banc, although information posted on the lead challenger’s website indicates that this option will not be pursued and that the challengers prefer that the case proceed directly to the Supreme Court.  In any event, the Sixth Circuit decision is just the first of the three appellate court reviews; two other federal appeals courts are currently considering similar challenges to the Health Reform Law.  In contrast to the Sixth Circuit’s decision in which the lower court had already found the Health Reform Law to be constitutional, the other two circuits, the Fourth and the Eleventh, would have to reverse lower courts that have previously rejected the Health Reform Law as being unconstitutional.   If either of those circuit courts decides the opposite way of today’s decision, the odds will increase that the Supreme Court will take up the matter more quickly.   If the high court takes the case this fall, it could decide the constitutionality of health care reform just months before the 2012 election.

2011 Budget Deal Includes Changes to PPACA

by Amy Gordon, Susan Nash and Maureen O'Brien

The 2011 budget agreement just passed by U.S. Congress on April 14, 2011, contains provisions that repeal and de-fund certain provisions of the Patient Protection and Affordable Care Act  (as amended by the Health Care and Education Reconciliation Act of 2010)   (PPACA).

Specifically, the “free choice voucher” program mandated under Section 10108 of  PPACA has been repealed.  The free choice voucher provision of PPACA required employers to provide vouchers for workers whose employer-provided health insurance premiums cost between 8 percent and 9.8 percent of the worker’s family income.  The vouchers could then have been used by the worker to purchase insurance in the private market or in the exchanges.

In addition, the 2011 budget agreement rescinds $2.2 billion of the $6 billion in start-up funding provided for the Consumer Operated and Oriented Plan program created under Section 1322 of PPACA and also rescinds $3.5 billion in performance bonus payments authorized in the 2009 State Children’s Health Insurance Program reauthorization.

Letter From Twenty-One GOP Governors Emphasizes Uncertainty of ACA's Future While Also Seeking Targeted Modifications That Would Improve ACA

On February 7, 2011, Republican Governors sent a letter to Secretary of Health and Human Services (HHS), Kathleen Sebelius, emphasizing that the future of the Affordable Care Act (ACA) is uncertain and suggesting a short of list of “improvements” to ACA.   On January 31, 2011, a Florida court ruling in favor of twenty-six states found that ACA’s “individual mandate” (IM) and in turn the whole of ACA is unconstitutional.  The case will almost certainly reach and ultimately be decided by the U.S. Supreme Court. 

The Governors’ letter says that the States now “face the decision of whether to participate in [ACA] by operating state [insurance] exchanges, or to let the federal government take on that task,” even though the States cannot know at present whether ACA will be in force in 2014.  Although the IM does not take effect until 2014, the ACA requires states to establish insurance exchanges ready to operate January 1, 2014.  If a state does not set up its own insurance exchange, the Federal government must step in and set up an exchange in that state, which could occur in 2012 or earlier.  As a result, states cannot wait to see what happens with the litigation concerning the constitutional questions.  ACA provides that HHS can set up and operate an exchange in any state that “the Secretary determines on or before January 1, 2013” will not be able to meet the 2014 deadline for setting up its own exchange.

Although the Governors' express “grave concerns” about ACA and note their belief that it contains “constitutional infringements,” the letter nonetheless urges the following targeted ACA modifications:

  • Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
  • Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
  • Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts.
  • Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
  • Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
  • Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study should be conducted by a neutral third-party research organization approved by the signatory states.

Florida Federal Court Rules Health Reform Law Unconstitutional; Implementation Continues; Challenges Inevitably Headed for Supreme Court Resolution

On Monday, January 17, 2011, a U.S. District Court in Florida found the Patient Protection and Affordable Care Act (PPACA) to be unconstitutional, virtually assuring that the Supreme Court will resolve the question of PPACA’s constitutionality.  The opinion, written by Reagan appointee Judge Roger Vinson, states that the federal government does not have the constitutional authority to impose the “individual mandate” (IM) on citizens.  Vinson also concludes that the IM, found in Section 1501 of PPACA, is not severable from the rest of PPACA and that consequently PPACA is unconstitutional as a whole. 

On December 14, 2010, a federal judge in Virginia reached the same conclusion as the Florida federal court regarding the unconstitutionality of the IM. In that opinion, however, Judge Henry Hudson ruled that the IM was severable from PPACA’s other provisions, except for provisions which were “directly dependent” on the IM and which make specific reference to Section 1501 of PPACA.  Prior to the Virginia and Florida decisions striking down the IM, two other federal district court judges (a decision in Virginia and a decision in Michigan) had reached the opposite conclusion and determined that the federal government does, in fact, have the constitutional power to impose the IM.

The Florida opinion states that the case is “not really about the health care system at all,” but rather “principally about the federalist system” and the role of the federal government.  It is established that individual states generally have the authority to pass laws compelling people to purchase insurance (depending on state constitutional provisions), as is the case in Massachusetts. 

The federal government has a relatively short list of “enumerated powers” under the U.S. Constitution, many of which grant particularized authority under the Constitution for the federal government to enact laws in those specific areas (e.g. the power to coin money, establish an army and navy, establish a post office, or declare war).  As is the case with most federal laws, there is no specific, enumerated power authorizing Congress to enact the IM and so the authority for Congress to legitimately enact the IM only exists if the IM is deemed grounded in one of Congress’s broader constitutional powers, such as the power to tax and spend or to regulate interstate commerce.

All four federal courts that have issued an opinion to date have reached the conclusion that the IM is not a tax and therefore would not be constitutionally justified under the federal government’s taxation authority.  Both Judge Vinson in Florida and Judge Hudson in Virginia found that the IM could also not be justified under the commerce clause (i.e. the grant of authority to regulate interstate commerce). 

Noting that for the first century of the country’s history the commerce clause was “seldom invoked by Congress” as a basis for law-making authority, Judge Vinson writes that “everything changed in 1937” beginning with three significant new deal cases in which the Supreme Court took a more expansive view of the power granted to the federal government under the commerce clause.  Despite the generally expanded view of the commerce clause over the past 70 years, Vinson found that it would be “a radical departure from existing case law to hold that Congress can regulate inactivity [i.e. an individual’s decision to not purchase health insurance] under the commerce clause.”  In concluding that that the IM could not be severed from health reform as a whole, Judge Vinson noted that the IM is “indisputably necessary to [the health reform law’s] insurance market reforms, which are in turn, indisputably necessary to the purposes of the [health reform law].”

The Justice Department is expected to appeal the ruling.  Meanwhile, CMS and HHS will continue the process of promulgating regulations in keeping with the implementation timelines under PPACA.  Initial reaction from the states is mixed, with some states indicating they will proceed with implementation and other states indicating they plan to scale back or discontinue their implementation efforts.  Virginia’s Attorney General, Ken Cucinelli, issued a press release January 26, saying that at present “there is a great deal of uncertainty for states, individuals, and businesses” and expressing concern that “decisions are already being made and money is already being spent to comply with a law that may not be around two years from now.” 

In other court action, in late January, the Fourth Circuit Court of Appeals granted a motion to expedite a review of Judge Hudson’s decision and will likely schedule a hearing in May 2011, but Cuccinelli announced today, February 3, that Virginia will request that the Supreme Court take the case directly and skip the Circuit Court review entirely.  Cuccinelli said “we need this suit resolved as quickly as possible, for the good of our citizens and our economy.”  The issues of the constitutionality of the IM and whether or not the IM is severable from PPACA’s numerous other provisions will likely ultimately be settled by the Supreme Court. 

Meanwhile, on February 2,  the Senate defeated a procedural motion 47-51 on a Republican effort to repeal PPACA thus blocking Republican efforts led by Senate Minority Leader Mitch McConnell (R-KY) to repeal the health reform law.  It is clear that during the lead-up to the November 2012 elections, we will see continued efforts to thwart implementation of the health reform law. 

CMS Proposes Rule to Pay Hospitals For Delivering Quality Care to Inpatients

Today, January 13, 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would reward hospitals for providing safe and high quality patient care.  The proposed rule, required under Section 3001 of the Patient Protection and Affordable Care Act, would provide higher payments to hospitals that perform well on certain quality measures relating to both clinical process and patient experience of care.  The head of CMS, Donald Berwick, says the proposed rule would constitute “a huge leap forward in improving the quality and safety of America’s hospitals for both Medicare beneficiaries and all Americans.”

This program, known as the hospital inpatient value-based purchasing program, would apply to Medicare payments under the Inpatient Prospective Payment System (IPPS) for inpatient stays in more than 3,000 acute care hospitals beginning in FY 2013 and applicable to payments for discharges occurring on or after October 1, 2012.  The incentive payments to acute care hospitals would be based either on how well a hospital performs on certain quality measures or, alternatively, how much a hospital’s performance improves on certain quality measures from their performance during a baseline period.  The higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s value-based incentive payment for the fiscal year would be.

Since 2004, CMS has collected quality and patient experience data from acute care hospitals on a voluntary basis under the Hospital Inpatient Quality Reporting (IQR) Program.  The vast majority of hospitals now choose to participate in the IQR program in order to be eligible for the full annual percentage increase in reimbursements each year, as a result of legislation requiring Medicare to reduce the annual percentage increase for hospitals that did not participate in the reporting program.  Data regarding hospital performance can be found on the Hospital Compare website.

The hospital value-based purchasing program goes further than the IQR program by offering incentives to hospitals not just for reporting data, but also based on positive quality performance as demonstrated by the data.  According to Berwick, “Value-based purchasing repositions Medicare from an observer of nationwide hospital quality to a formidable force in shaping quality going forward.”

CMS will accept comments on the proposed rule until March 8, 2011, and will respond to them in a final rule to be issued next year. In commenting, stakeholders should reference file code CMS–3239–P.  Comments to CMS may be provided electronically here.  Alternatively, comments may be provided by mail, overnight delivery or by hand/courier at the addresses set forth in the proposed rule.

To read the CMS Fact Sheet on hospital inpatient value-based purchasing program, click here.

To read the hospital inpatient value-based purchasing program in the Federal Register, click here.

GOP Introduces Bill to Repeal Health Reform; Cabinet Letter To Congress Supports Health Care Law; CBO Estimates Cost of Repeal

On January 5, 2011, GOP Members of the House of Representatives introduced legislation entitled “Repealing the Job-Killing Health Care Law” (HR 2) and three cabinet Secretaries, including the Secretary of Health and Human Services (HHS), sent a letter to Members of Congress emphasizing the merits of the Affordable Care Act (ACA).  An HHS press release that accompanied the Secretaries’ letter stated that its purpose was to provide an “update on implementation” of ACA and discuss how ACA will “continue to give Americans more freedom in their health care choices” as the implementation of health reform unfolds during 2011. 

The legislation and the letter came as the 112th Congress convened with Republicans taking control of the House of Representatives.  The Secretaries’ letter acknowledges that the repeal of ACA has been “proposed by some,” but urges Congress to stay the course after considering all that ACA has “already done to improve the health and financial security” of many Americans.

Then, on January 6, 2011, the Congressional Budget Office (CBO) weighed in with its own letter to the House of Representatives about HR 2.  While the CBO letter states that the CBO has “not yet developed a detailed estimate of the budgetary impact of repealing” ACA, it nevertheless suggests that HR 2 would “probably increase federal budget deficits” over the eight year period from 2012–2019 by “a total of roughly $145 billion.”  According to the CBO letter, approximately $15 billion of that total represents the reduction brought about by the Medicare and Medicaid Extenders Act of 2010 (MMEA) in the estimated cost of subsidies to be provided through the insurance exchanges (see the McDermott White Paper on the MMEA).

Majority Leader Eric Cantor (R-VA), the sponsor of HR 2, stated earlier that in estimating the savings and costs of ACA the “CBO [only] did the job it was asked to do by the Democratic majority” at the time and that, as a result, the passage of health reform was “filled with budget gimmickry.”  The CBO letter acknowledges that “projections of [HR 2’s] budgetary impact are quite uncertain,” but that the CBO believes its estimates of the net budgetary effects “have a roughly equal chance of turning out to be too high or too low.”

The seven-page letter from the Cabinet Secretaries contains the following “highlights” from ACA and emphasizes some of the controversial as well as non-controversial provisions in the law:

  • State-based Insurance Exchanges.  These are to be operational in 2014 and according to the letter could potentially reduce premiums by 14 to 20 percent for currently insured individuals versus rates such individuals might otherwise pay for insurance. 
  • Medical Loss Ratio Rules For Insurance Companies.  Insurers are required to spend at least 80 to 85 percent of insurance premium dollars on health care and “quality improvement.”
  • Closed Donut Hole.  In 2010, nearly 3 million senior citizens received rebate checks of $250 each to help pay for prescription drugs.
  • Pre-Existing Conditions.  Children under age 19 cannot be denied insurance coverage due to a pre-existing condition.  Young adults up to age 26 are able to stay on their parents insurance.

To review the complete Secretaries’ letter, click here, and for the CBO letter, here.

Accountable Care Organizations: FTC, CMS, OIG Hosting Public Workshop on October 5, 2010

On October 5, 2010, the FTC, CMS and OIG will host a public workshop featuring a listening session on various legal issues related to ACOs, including antitrust, physician self-referral, anti-kickback and civil monetary penalty laws.  Registration for the workshop is currently closed, but the listening session is available to all.

Click here to view the full article.

President Obama Appoints Don Berwick to Lead CMS

On July 7, 2010, in a recess appointment, President Obama appointed Don Berwick, M.D., M.P.P., to lead the Centers for Medicare and Medicaid Services (CMS).  Dr. Berwick is a pediatrician, Harvard professor, and president and chief executive officer of the Institute for Healthcare Improvement.  As administrator of CMS, Dr. Berwick will play a pivotal role in the implementation of health reform legislation. 

The president's use of his recess appointment power obviates the traditional U.S. Senate confirmation process, which would have included a confirmation hearing at the U.S. Senate Committee on Finance (Finance Committee), at which legislators could ask questions of the nominee, and, if the Finance Committee reported the nomination, a subsequent Senate floor vote which would have provided all Senators an opportunity to discuss the nominees' record and vote for or against his confirmation.  The recess appointment avoids what would likely have been an extremely partisan and drawn out confirmation battle.  Indeed, congressional Republicans—with an eye toward the rapidly approaching November 2010 congressional elections—seemed bent on using the Berwick confirmation process as a referendum on health reform legislation.  While the recess appointment effectively installs Dr. Berwick at CMS without Senate confirmation, a recess appointment lasts only as long as the current Congress, which extends through 2011.  This means that, in order to serve beyond 2011, Dr. Berwick would need Senate confirmation in 2012, or another recess appointment. 

To learn more about Dr. Berwick's background and extensive experience, see McDermott's previous blog post.

Concern about the recess appointment was not confined to the Republican side of the aisle.  Both Senator Max Baucus (D-MT), chairman of the Finance Committee, and Senator Charles Grassley (R-IA), the ranking Republican on the Finance Committee, expressed dismay.  Senator Baucus said he was “troubled that, rather than going through the standard nomination process, Dr. Berwick was recess appointed.  Senate confirmation of presidential appointees is an essential process prescribed by the Constitution that serves as a check on executive power….by ensuring that crucial questions are asked of the nominee – and answered.”  Senator Grassley protested the recess appointment as well, saying, “The administration has taken advantage of the fact that there's no check on its power, with one-party control of Congress and the White House.”  He continued, “This recess appointment follows a pattern.  Health care legislation was written behind closed doors.  Broad new regulations have been written within the bureaucracy and issued without any public comment period.  It really flies in the face of the President's pledge to have the most transparent administration ever.” 

Despite the controversy regarding the appointment, Dr. Berwick does enjoy support from past CMS administrators, including those appointed by both Democratic and Republican administrations.  He also receives support from numerous providers and other organizations, and he has a long history of working to improve both the quality and efficiency of health care—one of the principal aims of health reform legislation. 

Implementation of FY 2011 Hospital Payment Provisions

Health care providers should review the Proposed Rule on hospital payment policies posted by the Centers for Medicare and Medicaid Services (CMS) and consider submitting comments on the effects of the suggested provisions.

Click here to view the full article. 

Comparative Effectiveness Research

The recently enacted Patient Protection and Affordable Care Act built on federal efforts to support and direct research comparing patient treatments.  Drug manufacturers, diagnostics companies, medical device manufacturers and health services providers should carefully monitor and selectively engage in the formal and informal processes that will shape the development of the Patient Centered Outcomes Research Institute, conduct of research and communication of research findings.  

Click here to view the full article.

Navigating the Principal "Immediate" Health Insurance Reforms

Among the more popular reforms included in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, are the “immediate health insurance reforms.”  These provisions, which affect group health plans and insurers offering group or individual health insurance, become effective for plan years beginning on or after September 23, 2010.  This summary addresses the principal immediate health insurance reforms, namely expansion of dependent coverage, prohibition on excluding children based on pre-existing conditions, coverage of preventive health services, limitations on rescission practices, and regulation of annual and lifetime limits on essential health benefits.

Click here to view the full article.

Congress Creates Independent Payment Advisory Board: Are Medicare Solvency Decisions Finally on the Way?

As part of the health care reform legislation, and in an effort to help restrain growth in Medicare expenditures, Congress has created the Independent Payment Advisory Board, which has the authority to develop proposals that will become law if Congress fails to enact alternative proposals. 

Click here to read the full article. 

ACOs and Developments in Coordinated Care Delivery, Shared Savings and Bundled Payments

The recently enacted Patient Protection and Affordable Care Act has generated significant interest in a new form of integrated delivery system known as an accountable care organization (ACO).  The Act specifically creates a separate ACO demonstration project within the Medicare Program, and provides for the implementation of several other coordinated care demonstration programs and the creation of a new entity within the Centers for Medicare and Medicaid Services that has the authority to test proposed methods of coordinated care delivery.  All health systems, community hospitals and physician groups should swiftly consider and carefully analyze forming or otherwise participating in an ACO or similar organization in order to respond effectively to the emerging changes in U.S. health care flowing from the new federal health care reform law and related initiatives sponsored by commercial payors.

Click here to read the full article.

Legislation Requires Development of Standards and Protocols for Electronic Enrollment, and Eligibility Notification and Verification

On March 23, 2010, President Obama signed into law H.R. 3590, the Patient Protection and Affordable Care Act (the Act).  This sweeping health reform legislation requires the U.S. Department of Health & Human Services to develop interoperable and secure standards and protocols to facilitate the enrollment of individuals in federal and state health and human services programs, and authorizes grants to state and local governments to promote the implementation of health information technology to facilitate enrollment in the programs.  All stakeholders affected by the federal government’s development of standards and protocols under the Act should closely monitor and, where possible, provide input on their development. 

Click here to read full article.

Substantial Fraud and Abuse and Program Integrity Measures Enacted

President Obama recently signed into law the much-anticipated health care reform legislation.  This legislation includes significant fraud-fighting and program integrity initiatives, including transparency requirements for pharmaceutical and medical device manufacturers, and amendments to federal enforcement tools, such as the anti-kickback statute, False Claims Act and the physician self-referral law.  Providers and industry will need to consider increased rigor in their compliance programs in order to fully integrate and account for the many complex and interrelated health care fraud and abuse reform initiatives under the health care reform legislation.

Click here to read full white paper.

Health Care Reform Will Reward Efficient Hospitals

The Facts

Recently enacted health reform legislation will establish reimbursement incentives to reward highly efficient hospitals.  Under the new law, $400 million has been made available, over fiscal years 2011 and 2012, for hospitals located in counties in the lowest quartile of age-, sex- and race-adjusted Medicare Part A and B spending.

In fiscal years 2011 and 2012, a qualifying hospital will receive, in addition to its regular Medicare reimbursement, a portion of the $400 million based on the ratio of the hospital’s fiscal year 2009 reimbursement relative to total reimbursement in 2009 for all qualifying hospitals.

According to a review of available Medicare databases, hospitals most likely to benefit will be those located in counties in southern, northwestern or midwestern states that are more sparsely populated and that have a lower number of chronically ill enrollees, including Kentucky, Montana, Wisconsin, Nebraska, Colorado and Arkansas.

What’s at Stake

This reimbursement incentive is one of many changes intended to incentivize quality and efficiency over quantity.  Although non-qualifying hospitals will not be penalized, this section of the legislation clearly incentivizes greater efficiency and shows a commitment by the U.S. Congress and the Centers for Medicare & Medicaid Services (CMS) to consider new methods of hospital reimbursement.

Steps to Consider

Although CMS will have to create new databases to implement this provision, hospitals can make some early rough predictions about whether they may be located in a qualifying county by consulting the Dartmouth Atlas of Health Care and data available on the CMS website.

Health Care Reform Legislation Affects Ambulatory Surgery Centers

The massive health care reform legislation enacted on March 23, 2010, (and subsequently amended on March 30, 2010) includes only a few changes directly affecting Medicare-certified ambulatory surgery centers (ASCs), but these changes will affect Medicare reimbursements in the near-term and may portend even greater reimbursement changes in the future.  ASCs should carefully review the legislation to determine how their businesses will be affected.

Click here to read full article.

President to Nominate Don Berwick to Head CMS

The Facts

President Obama is reportedly poised to nominate Don Berwick, M.D., M.P.P., to head the Centers for Medicare & Medicaid Services (CMS).  Since 2006, when Dr. Mark McClellan left, CMS has been without a permanent administrator. 

Berwick is the current president and CEO of the Institute for Healthcare Improvement, a Cambridge, Massachusetts, organization that seeks to improve health care by "building the will for change, cultivating promising concepts for improving patient care, and helping health care systems put those ideas into action."  In its work, the institute seeks to "accelerate the measurable and continual progress of health care systems."  For more information about the institute, visit  Berwick is also a clinical professor of pediatrics at Harvard Medical School and a professor of health care policy at the Harvard School of Public Health.  Berwick served as vice-chair of the U.S. Preventive Services Task Force, and chair of the National Advisory Council of the Agency for Healthcare Research and Quality.  He also served two terms on the Institute of Medicine’s governing council.

Berwick would have the difficult job of managing and improving Medicare, Medicaid and the Children's Health Insurance Program, while simultaneously implementing much of the recently enacted health reform legislation.  While Medicare currently covers 46 million Americans, Medicaid currently covers 43.5 million Americans and is slated to expand to cover an additional 16 million individuals through expanded eligibility in health reform legislation.  However, in light of Berwick’s vast experience in the area of health quality improvement, he seems well-positioned to lead CMS as the agency positions itself to increasingly focus on paying for value as opposed to volume.

What’s at Stake

As the new head of the largest medical payer in the nation, Berwick’s leadership and decisions would significantly affect almost everyone in the health care sector.  With the enactment of health reform legislation, implementation is the primary focus of the Obama administration.  Berwick would have a vital role in determining how this reform is rolled out and ensuring that this reform meets U.S. Department of Health and Human Services Secretary Kathleen Sebelius’s goal of HHS becoming “the face of competent government — the face of a help desk that can really respond to personal issues and questions.”

Steps to Consider

The post of CMS administrator requires U.S. Senate confirmation, a process that may reignite the deep political and philosophical divisions about the newly passed health reform legislation.  Thus, all in the health care sector should monitor the nomination and Senate confirmation process.

Revenue Raisers in Health Reform

The Facts

President Obama signed historic health reform legislation on March 23, 2010, P.L. 111-148.  A week later, the president signed a package of amendments to health reform, the Health Care and Education Reconciliation Act of 2010, H.R. 4872.  Following are highlights of the most significant revenue raisers organized by the year in which they will begin under health reform legislation, as amended by the reconciliation package.


  • Imposes a 10 percent excise tax on individuals using tanning services
  • Adds provision to disqualify unprocessed fuels, including so-called black liquor, from the section 40(b) cellulosic biofuel credit starting in 2010
  • Codifies the economic substance doctrine and imposes penalties for transactions that lack economic substance


  • Imposes non-deductible annual flat fees on pharmaceutical manufacturers and importers based upon relative market share
  • Conforms the definition of qualified medical expenses for health savings, health flexible spending accounts and health reimbursement arrangements to the definition used for the itemized deduction
  • Increases the penalty for distributions from health savings accounts prior to age 65 not used for qualified medical expenses from 10 to 20 percent


  • Imposes a 2.3 percent excise tax on sales of most medical devices by manufacturers, producers or importers
  • Requires information reporting for businesses that pay corporate providers of property and services any amount more than $600  


  • Increases the Medicare payroll tax from 1.45 percent to 2.35 percent for individuals with wages of more than $200,000 and $250,000 for joint filers
  • Imposes a new 3.8 percent tax on investment income referred to as “unearned income” for individuals with wages of more than $200,000 and $250,000 for joint filers
  • Imposes non-deductible annual flat fees on health insurance providers and clinical labs based upon relative market share
  • Limits the amount of contributions to health flexible spending accounts to $2,500 per year
  • Eliminates the deduction for the Medicare Part D subsidy for employers who maintain prescription drug plans for eligible retirees
  • Increases the floor for deductible medical expenses from 7.5 percent of adjusted gross income to 10 percent
  • Caps the amount of deductible executive compensation for health insurance companies at $500,000


  • Increases the estimated corporate tax payments for firms owing at least $1 billion in payments due in July, August and September 2014 by 15.75 percentage points


  • Imposes a 40 percent excise tax on insurance companies and plan administrators for health insurance plans above the threshold of $10,200 for individual coverage and $27,500 for family coverage

What’s at Stake

  • Individuals earning over $200,000 and $250,000 for joint filers will pay a higher payroll tax and an excise tax on investment income.
  • Insurance coverage limits may be reduced to avoid the 40 percent excise tax. 
  • The costs of pharmaceutical drugs, insurance lab work and medical testing fees could increase as a result of the new fees imposed on these companies.
  • Transactions must satisfy the economic substance doctrine to avoid the imposition of penalties. 

Steps to Consider

  • Affected entities should carefully evaluate the impact of the proposed new taxes and fees.  
  • Individuals will want to consider planning for the new taxes on “unearned income.”

New Requirements for Tax-Exempt Hospitals

The Facts

The Patient Protection and Affordable Care Act (Pub. L. No. 111-148) includes four primary adjustments to the federal income tax exemption requirements for nonprofit hospitals.  Under the act, tax-exempt hospitals must take the following actions:

  • Conduct a community health needs analysis at least once every three years, soliciting input from the communities that they serve
  • Make widely available their financial assistance policies, which must specify eligibility criteria and, for discounted care, how they determine amounts that are billed to patients
  • Notify patients of financial assistance policies through “reasonable efforts” before initiating various collection actions or reporting accounts to a credit rating agency
  • Restrict charges of uninsured, indigent patients to those amounts generally charged to insured patients

The act imposes penalties on hospitals that fail to timely conduct their community health needs assessments.  Under the act, the Internal Revenue Service must review the exempt status of hospitals every three years.  In addition, the act requires the U.S. Department of the Treasury, in consultation with the U.S. Department of Health and Human Services (HHS), to prepare an annual report for the U.S. Congress on charity care, bad debt expenses, certain unreimbursed costs and costs incurred for community benefit activities.  In five years, Treasury and HHS must also provide Congress with a report on community benefit-related trends.

What’s at Stake

In light of a recent Illinois Supreme Court decision denying property tax exemption to a nonprofit hospital, these new standards contribute to the ongoing dialogue with respect to whether and to what extent nonprofit hospitals are distinguishable from for-profit hospitals and deserve federal income tax exemption.  These provisions can be viewed as requirements that will differentiate tax-exempt hospitals and improve transparency of how they fulfill their charitable, patient-care missions.

Steps to Consider

Tax-exempt hospitals should quickly consider how to comply with the act’s new requirements for federal income tax exemption.  While most of the act’s provisions have postponed effective dates, the tax-exempt specific requirements for hospitals will be effective very soon, perhaps as soon as tax years beginning April 1, 2010.

Enacted Health Care Legislation: Effect on Employers

The Facts

The Patient Protection and Affordable Care Act was enacted on March 23, 2010, and the Health Care and Education Affordability Reconciliation Act is expected to be enacted shortly.  This health care legislation contains provisions that will strongly impact employers.  These provisions include the requirement that employers with 50 or more employees offer qualifying health coverage or pay a penalty of $2,000 per uncovered employee, elimination of the Medicare Part D subsidy tax exemption and imposition of a 40 percent excise tax on health coverage that exceeds certain thresholds.  In addition, the legislation limits health care reimbursement account contributions to $2,500 per year and no longer allows over-the-counter drugs to be reimbursed through health reimbursement accounts or health savings accounts unless prescribed by a physician. 

The legislation also requires group health plans that cover dependent children to extend coverage to such dependents until age 26.  Beginning in 2014, this coverage must be extended regardless of whether the dependent has access to other employer-provided coverage.  Further, group health plans can no longer impose lifetime or restrictive annual limits on plan benefits or impose pre-existing condition exclusions on children under age 19, and no pre-existing condition exclusions are allowed beginning in 2014.

What’s at Stake

These provisions will cost employers monetarily and increase employers’ administrative burdens.  Employers have many more compliance issues to monitor as a result of this legislation.  Failing to comply with these requirements could result in additional expenses by way of substantial penalties. 

These provisions also have the potential to decrease employer-provided benefits.  For example, employers will find it much more expensive to provide retiree benefits without the prescription drug coverage subsidy tax exemption and active medical benefits, with the threat of a 40 percent excise tax on health coverage beyond the stated threshold and with the new restrictions on plan terms, such as no lifetime limits or pre-existing condition exclusions.  This extra cost may serve as a deterrent to providing some benefits.   

Steps to Consider

  • Take steps to ensure all requirements are met to avoid penalties. 
  • Review effective dates for requirements pertaining to benefits and take action as necessary.
  • Evaluate the impact of future requirements on benefits and take preemptive action.
  • Modify open enrollment materials, summary plan descriptions and plan documents as necessary.

Click here to read a full news alert.

President Begins Final Push Toward Passing Health Reform

The Facts

After months of heated debate and an unprecedented all-day White House health reform summit on February 25, 2010, President Obama has begun the final push toward passage of comprehensive health reform.  Current negotiations involving Senate Democratic leader Harry Reid and House Speaker Nancy Pelosi are focused on the president’s proposal, which is largely based on the bill approved by the Senate on December 24, 2009, but which also reflects compromises reached between Senate and House Democrats.

On March 2, 2010, the president submitted a letter to congressional leaders indicating that he is open to further examining the following four issues raised by Republicans during the summit:

  • Engaging medical professionals to conduct undercover investigations of health care providers to combat fraud, waste and abuse within federal reimbursement programs
  • Establishing “health courts” to resolve medical malpractice claims
  • Encouraging the use by individuals of high-deductible health plans
  • Increasing physician reimbursement—in response to expanding Medicaid to cover more people—in a fiscally responsible manner. 

Click here for the letter.

And, on March 3, 2010, just a little under a year after his initial speech announcing his intent to overhaul the health care system, President Obama made it clear during his 20-minute speech that he intends to utilize the reconciliation process, resulting in an up-or-down vote on a merged measure.  Click here for the speech transcript.  The president also made it clear that he expects Democrats to support this strategy, regardless of their re-election prospects and concerns.

What’s at Stake

Succeeding with this strategy, however, will not be easy.  Not only will Speaker Pelosi have difficulty rounding up the necessary votes in the House, but Senate Republicans may attempt to forestall the process by offering a myriad of amendments.  However, if the president and bipartisan negotiations are successful, a health reform plan may be enacted by early April 2010. 

Steps to Consider

All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and should continue to closely monitor the progress of the health reform debate.

President's Summit Returns Health Reform to Center Stage

The Facts

After seven hours of extraordinary political theater at the White House health care summit on February 25, 2010, President Obama is no closer to winning Republican support for his reform plan. Click here for summit transcripts. Indeed, Republicans claim a majority of the public opposes the Democrats’ health overhaul plan and have called for “starting from scratch.” Although the summit was unsuccessful in resolving the bipartisan split, it effectively restored health reform to center stage, and Democrats are forging ahead with new vigor. 

Because the January election of Senator Scott Brown (R-MA) deprived Democrats of a filibuster-proof super-majority in the Senate, Democrats are expected to use an expedited budget reconciliation process to move reform legislation. While the precise details will be determined by both parliamentary requirements and political considerations, it is expected that the House—once assured that specific changes are forthcoming—will approve the Senate-passed health reform bill (HR 3590). The Senate will then pass a “side-car” health reform bill through the reconciliation process, which requires only a simple 51-vote majority. This “side-car” will make changes to HR 3590 designed to be responsive to the concerns of House Democrats. These changes will likely include increased subsidies to assist lower income Americans to purchase health insurance and changes to minimize the impact of the “Cadillac tax” on high-cost insurance plans. The House would also approve the reconciliation bill. The president would then need to sign into law both the Senate-passed health reform bill and the reconciliation bill that amends it. 

What’s at Stake

The president and congressional leaders do not currently have the Democratic votes needed to pass health reform legislation without any Republican support, but the campaign to find those votes is in full swing. If the votes are secured, massive health overhaul could be enacted in the near-term. 

Steps to Consider

The president will likely issue revisions to his reform plan, which may reflect incorporation of some Republican ideas. Despite this, no Republican support is expected. All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and continue to monitor the progress of the health reform debate.

President Unveils Health Reform Proposal

The Facts

In preparation for the bipartisan White House health care summit on February 25, 2010, President Obama unveiled on February 22 his own health care reform proposal. The president's plan largely tracks the health reform bill passed by the Senate in December 2009. The proposal, estimated to cost $950 billion over 10 years, would cover an additional 31 million people and is intended to serve as a springboard for bipartisan discussion at the summit. It is unlikely, however, that the proposal will draw bipartisan support given that the proposal appears to have been crafted to attract additional support from liberal Democratic members of the House of Representatives. Already, the early read from the Congressional Progressive Caucus is positive. The president and Democratic leaders are hopeful that this new proposal, along with the high-profile White House summit and recently announced double-digit premium increases by some insurers, will help produce health reform legislation soon. 

Like the December Senate bill, the president’s proposal does not include a public option or the more restrictive abortion language passed by the House. Some key differences made to provisions in the Senate bill include the following:

  • Delaying enactment of the "Cadillac" tax on high-cost insurance plans to 2018
  • Including strengthened measures to address Medicare fraud, abuse and waste
  • Eliminating the “cornhusker kickback” that would have directed extra Medicaid monies solely to Nebraska, and instead increasing the federal share of Medicaid costs for newly eligible beneficiaries in all states
  • Providing additional tax credits to certain U.S. residents to purchase insurance
  • Eliminating the Medicare prescription drug benefit “doughnut hole” by 2020
  • Extending the 2.9 percent Medicare payroll income tax to unearned income for couples earning more than $250,000
  • Including a provision that would give the HHS Secretary—in conjunction with a Health Insurance Rate Authority board—the power to review and determine whether proposed insurance rate increases are “reasonable and justifiable”

What’s at Stake

If the current gridlock over health care reform cannot be resolved in a bipartisan manner, Democrats will likely attempt to use the budget reconciliation process, which requires only a simple majority vote in the Senate, to pass health reform legislation.

Steps to Consider

All in the health sector, including health care consumers, should evaluate the president’s proposal and continue to monitor the progress of the health reform debate.

Health Insurance Exchanges - National Versus State-Level Marketplace

The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

President and Congressional Leaders Reaffirm Commitment to Health Reform

The Facts

Although Senate Democrats recently lost their filibuster-proof supermajority, President Obama reiterated in his January 27, 2010, State of the Union address that he is intent on achieving health reform this year. The president exhorted Congress not to “run for the hills,” and invited Congress to instead “come together and finish the job for the American people.” In an effort to encourage Republicans and Democrats to work together, the president invited congressional leaders to a bipartisan, half-day summit on health reform on February 25, 2010. Click here for the president’s invitation letter and invitation list.

House Speaker Nancy Pelosi proclaimed: “You go through the gate. If the gate’s closed, you go over the fence. If the fence is too high, we’ll pole-vault in. If that doesn’t work, we’ll parachute in. But we’re going to get health care reform passed for the American people.” Senate Majority Leader Harry Reid’s spokesman underscored these sentiments, stating: "We remain confident we will pass health reform this year.”

Whether comprehensive legislation, piecemeal legislation or no health reform legislation is passed this year will affect not only the health sector and health care consumers, but also the mid-term elections this November.

What’s at Stake

Given the comprehensive nature of health reform legislation, every aspect of health care is at stake.

Steps to Consider

Providers, plans, pharmaceutical manufacturers, device makers, and all in the health sector or affected by the health sector, including health care consumers, should continue to carefully monitor the progress of the health reform debate and evaluate the impact of the various proposals. 

Continuing Capitol Hill Debate on Medicare Advantage Proposals

The Facts

Medicare Advantage (MA) Program changes, among other Medicare-related provisions, have appeared in drafts of jobs legislation under development on Capitol Hill. Select proposals include the following:

  • The formula for calculating the CY 2011 national per capita MA growth rate, for purposes of updating CY 2011 benchmarks, would be amended to provide a 0 percent update to the physician fee schedule conversion factor.
  • The Centers for Medicare and Medicaid Services (CMS) would be authorized to extend to Direct Contract MA Organizations CMS’s waiver of service area requirements available to local coordinated care plans offering 800-Series MA Plans with Members residing outside of the service area
  • Special Needs Plans serving dual eligible individuals where the sponsoring MA Organization does not have a contract with the applicable state Medicaid agency, as required under § 1859(f)(3)(D) of the Social Security Act, would be permitted to operate through CY 2011, although the service areas of such plans would not be eligible for expansion.

Senate Majority Leader Harry Reid (D-NV), however, elected to move forward with draft legislation that excludes all health-related provisions. These proposed MA Program changes, among other health-related proposals, may be included in this bill, or another piece of legislation, later this month.

What’s at Stake

The proposal to modify the national per capita MA growth rate would neutralize the cut in the Medicare physician fee schedule that is statutorily required to be incorporated into MA Plan benchmarks.

Steps to Consider

MA Organizations should continue to monitor and analyze proposed changes to CY 2011 benchmarks as CY 2011 MA Plan bid submissions are developed in advance of the Monday, June 7, 2010 bid submission deadline.

Accountable Care Organizations: These Are Not PHOs Version 2.0

The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs).  ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time.  ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals.  In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients.  Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

  • Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed. 
  • Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
  • Establish appropriate committees to explore and evaluate adoption of clinical best practices.
  • Bolster capabilities to capture and report on quality measures.
  • Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
  • Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

Senate Majority Leader Reid Unveils Democrats' Health Reform Plan

The Facts

On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act.  The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July.  Set forth below are some of the bill’s principal provisions. 

  • Requires most legal residents to obtain health insurance or pay a penalty of $95 in 2014, $350 in 2015 and $750 in 2016
  • Imposes a $750 per employee penalty on firms with more than 50 workers that do not offer coverage if any of the firm’s employees obtain subsidized coverage through the new health insurance exchange 
  • Requires coverage of prevention and wellness benefits and exempts these benefits from deductibles and other cost-sharing requirements
  • Implements insurance market reforms including disallowing lifetime and annual limits and prohibiting preexisting condition exclusions
  • Substantially reduces the growth of Medicare payment rates for many services (as compared to growth rates under current law)
  • Creates a new independent Medicare advisory board, which could recommend payment reductions
  • Seeks to promote the quality and efficiency of health care by linking payment to better quality outcomes
  • Imposes a 40 percent excise tax on employer-sponsored health insurance with annual premiums above $8,500 for single coverage and $23,000 for family coverage 
  • Imposes annual flat fees of $2.3 billion on the pharmaceutical manufacturing sector, $2 billion on the medical device manufacturing sector and $6.7 billion on the health insurance sector
  • Imposes a 5 percent excise tax on voluntary cosmetic surgical and medical procedures
  • Increases the Medicare payroll tax rate from 1.45 percent to 1.95 percent on individuals earning over $200,000 and couples earning more than $250,000
  • Sets up health insurance exchanges through which approximately 25 million people are estimated to purchase health insurance coverage
  • Creates a new public plan – the Community Health Insurance Option (states could opt out, and the government would negotiate payment rates with providers)

What’s at Stake

Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.

Steps to Consider

  • Carefully evaluate the impact of the provisions. 
  • Assess the cost of compliance with the new provisions. 
  • Examine ongoing business decisions in light of the direction health reform is taking.
  • Consider working to impact the shape of health reform legislation.

Medicare Advantage Plan Payments Remain a Target for Cuts

The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

Senate Finance Committee Health Reform Plan Contains Revenue Raisers that are Vastly Different from House Health Reform Package

The Facts
The health care reform plan put forth September 16, 2009, by Senator Max Baucus (D-MT), Chair of the Senate Finance Committee, contains revenue raising proposals, along with savings from Medicare and Medicaid, that together would finance the expected $774 billion cost of reform over 10 years. Following are highlights of the revenue raising provisions in the Baucus plan: 

  • Impose an excise tax of 35 percent on insurance companies and plan administrators for health insurance plans above the threshold of $8,000 for individual coverage and $21,000 for family coverage, to raise $214.9 billion over 10 years.
  • Limit the amount of contributions to health flexible spending accounts to $2,000 per year, to raise $16.5 billion over 10 years.
  • Eliminate the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees, to raise $4 billion over 10 years.
  • Conform the definition of qualified medical expenses for health savings, health flexible spending accounts and health reimbursement arrangements to the definition used for the itemized deduction, to raise $5.4 billion over 10 years.
  • Increase the penalty for distributions from health savings accounts prior to age 65 not used for qualified medical expenses from 10 to 20 percent raises $1.3 billion over 10 years.
  • Require information reporting for businesses that pay corporate providers of property and services any amount over $600, raises $17.1 billion over 10 years.  
  • Impose non-deductible annual flat fees on pharmaceutical manufacturers and importers, health insurance providers, clinical labs and medical device manufacturers based upon relative market share, to raise $93.2 billion over 10 years.

What’s at Stake

  • Insurance coverage limits may be reduced to avoid the 35 percent excise tax. 
  • The costs of pharmaceutical drugs, insurance lab work and medical testing fees could increase as a result of any new fees imposed on these companies. 

Steps to Consider

  • Affected entities should carefully evaluate the impact of the proposed new taxes and fees. 
  • In addition to the revenue raisers included in the Chairman’s mark, additional revenue raisers will likely be offered during Finance Committee consideration of the legislation as any amendments offered must included offsets to pay for the cost of the amendment. 
  • The financing mechanisms selected by the Finance Committee merit serious review. The mechanism contained in the House health reform bill (an income tax surcharge on families with incomes above $350,000 and individuals with incomes about $280,000) will likely be significantly scaled back, giving more prominence to the Finance Committee’s proposals. 

Senate Finance Committee Health Reform Bill Would Restrict Physician Ownership of Hospitals Less Than House Counterpart

The Facts

Among the many changes that would be wrought by the health system reform bill introduced today by Senator Baucus is a proposal having little to do with health system reform, but nonetheless drawing significant attention from hospitals and physicians alike. Under the Senate bill, a physician would be prohibited from referring Medicare beneficiaries to a hospital in which he or she has an ownership interest. Hospitals that have physician ownership and a Medicare provider agreement by November 1, 2009, would be grandfathered, subject to significant restrictions that would prohibit most qualifying hospitals from expanding operating room and bed capacity.

The Senate restriction differs from its House counterpart in at least two key respects. First, to qualify for grandfather protection, a hospital must have physician ownership and a Medicare provider agreement in place by November 1, 2009, rather than January 1, 2009, as is the case in the House bill. Second, there may be some additional latitude on the growth restrictions. While the proposal would severely limit a hospital’s ability to expand its bed inventory, the limit on bed capacity for the first time references “licensed” beds, rather than simply beds. In the absence of this clarification, prior iterations of this restriction have generally been understood to mean beds as defined by Medicare under 42 C.F.R. § 412.105(b), which is often different from and less than a hospital’s licensed bed count. 

What’s at Stake

Hundreds of physician-owned hospitals and planned physician-hospital ventures would be affected by these provisions. Existing physician-owned hospitals that have complained about restrictions on growth may see some opportunity in this revised language.

Steps to Consider

Physician-owned hospitals should examine the language carefully to gauge the impact of the proposed changes, and those that would struggle under growth restrictions should examine whether a threshold based on licensed beds provides any relief. Physician-owned hospitals might explore increasing licensed bed capacity before the legislation is enacted.

Fraud and Abuse Provisions in the Baucus Health Reform Framework

The Facts

Senate Finance Committee Chairman Max Baucus (D-MT) put forth his much-anticipated Framework for Comprehensive Health Reform on September 8, 2009. The Framework outlines a plan for consideration by the Finance Committee’s “Gang of Six” bipartisan negotiators and includes policies that reflect the work of the committee throughout the summer. In addition to other areas of health reform, the Framework includes policies specific to both “transparency and program integrity” and “fraud, waste and abuse”:

  • New enrollment process for providers and suppliers, including an application fee
  • Data matching and data sharing across federal health care programs
  • Increased civil monetary penalties
  • Increased authority to suspend payment during credible investigations of fraud
  • New procedures to disclose and repay overpayments
  • Limitations on physician-owned hospitals
  • Requirements for drug, device and biologic manufacturers to report any payments or transfers of value, with limited exceptions, made to a physician or teaching hospital
  • Requirements for drug manufacturers and authorized drug distributors to report the type and amount of drug samples requested and distributed to practitioners 

Additional details about these provisions will be contained in the Chairman’s Mark of the bill, which will be made available prior to committee markup, which is expected later this month. Importantly, similar provisions are contained in the House health reform bill, America’s Affordable Health Choices Act of 2009. The Senate Health, Education, Labor and Pensions Committee (HELP) bill also includes provisions related to fraud and abuse enforcement.

What’s at Stake

Each health reform proposal to date includes provisions designed to prevent or deter fraud and abuse. Furthermore, reducing the rising cost of health care is a goal shared by lawmakers on both sides of the aisle, and reduction in fraud, waste and abuse is generally viewed as an area of significant savings. The health sector should expect that increased fraud and abuse scrutiny and enforcement will be included in any health reform package passed by Congress.

Steps to Consider

Evaluate the impact of fraud and abuse proposals in pending legislation. Assess how current compliance programs, policies and procedures will need to be updated to address requirements common to health reform proposals.

Health Care Reform: Pathway for Biosimilars

The Facts 

The U.S. House Energy and Commerce Committee's health reform legislation, HR 3200, includes a provision to enable the U.S. Food and Drug Administration (FDA) approval of biological products as biosimilars under the Section 351 of the Public Health Service Act. By a vote of 47-11, the Committee adopted the Eshoo-Inslee-Barton amendment that, among other things, would protect original approval data for a minimum period of 12 years. Termed “data exclusivity,” it prevents potential competitors from relying on the innovator’s intellectual property, such as clinical trials supporting the safety and efficacy of the innovator product, to support FDA approval of a biosimilar product. 

What’s at Stake

The biosimilar language in HR 3200 is not identical to that agreed to in the health reform bill approved by the Senate HELP Committee. Consequently, there is an opening for additional changes to the provisions related to biosimilars during the House/Senate conference should health reform legislation containing these provisions be passed in both chambers. Stakeholders continue to advocate for changes related to the data exclusivity provisions, which are favored by the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America but opposed by the generics industry and AARP, which believe shorter exclusivity and more liberal patent protections are necessary to speed lower cost biologicals to patients.

Steps to Consider

Consider selected outreach to Congress or supporting your trade organization's efforts to advocate for more favorable accommodations in the ultimate legislative package. Determine the implications and corresponding business and legal risks from current legislative proposals. Identify steps to take prior to enactment of legislation to best position products going forward, including the following: 

  • Reimbursement approaches
  • Product nomenclature, marketing and labeling
  • Issues related to “similar” or "interchangeable" products, including antitrust, intellectual property protection and potential litigation strategies
  • Regulatory strategies for pipeline products

Final House Committee Approves Health Reform Legislation

The Facts

On July 31, 2009, the House Energy and Commerce Committee approved HR 3200, the America’s Affordable Health Choices Act, by a 31-28 vote. Five Democrats joined all committee Republicans in voting against the measure. Passage followed lengthy negotiations with Democrats on the committee, first with fiscally conservative “Blue Dog” Democrats and then with liberal Democrats in the Congressional Progressive Caucus. Modifications to the underlying bill include the following:

  • Requirements that a new public health insurance option must use a formulary and must negotiate payment rates with providers rather than setting rates at 5 percent above Medicare payment levels
  • A requirement that insurers selling plans in the new health insurance exchange obtain government approval for premium increases exceeding 150 percent of the annual medical inflation increase
  • A provision allowing the Secretary of Health and Human Services to negotiate drug prices with pharmaceutical companies under the Part D prescription drug benefit
  • A provision allowing 12 years of market exclusivity for new brand name biologic drugs
  • An increase in the small businesses exemption from “pay or play” requirements (the new penalties will be phased in, beginning at 2 percent for businesses with annual payrolls of $500,000 to $585,000, rising gradually to 8 percent for businesses with payrolls over $750,000)
  • An expansion of the accountable care organization pilot program to include Medicaid

What’s at Stake

All three House committees with jurisdiction have now approved systemic health reform legislation. The three work products will be merged, and House floor action will occur after the congressional recess, which ends September 7, 2009. This means that systemic health reform is moving forward, although the Energy and Commerce Committee experience demonstrated that the fractious Democratic Caucus in the House has not yet coalesced around a shared vision for health reform legislation. 

Steps to Consider

Examine the legislation approved by the three House committees and the Senate HELP Committee, and assess the impact on your operation. Consider attending your legislators’ home state town hall meetings on health reform during the recess. Continually evaluate ongoing business decisions in light of the direction health reform is taking.

House Energy and Commerce Bill Would Authorize Government Part D Price Negotiation

The Facts

Health reform legislation approved by the House Energy and Commerce Committee on July 31, 2009, includes an amendment to strike the so-called Part D “non-interference” clause, which prohibits the Secretary of the U.S. Department of Health and Human Services (the Secretary) from interfering with negotiations between pharmaceutical manufacturers, pharmacies and Part D Plan Sponsors.  Click here for an overview of the underlying legislation.

The amendment would authorize the Secretary to directly negotiate with pharmaceutical manufacturers the pricesincluding discounts, rebates and other price concessions that may be charged to Part D Plan Sponsors for covered Part D drugs. The negotiated prices would apply beginning in CY 2011, and would not prevent Part D Plan Sponsors from obtaining further reductions or discounts.

What’s at Stake

Inclusion of this amendment renews debate on the role of competition within the Medicare prescription drug benefit, and whether the federal government or private health plans are better suited to achieve greater reductions on prescription drug costs for Medicare beneficiaries (and taxpayers).  That this concept is part of health reform legislation also is noteworthy for potentially signaling a first step towards federal price setting for pharmaceuticals.

Steps to Consider

Part D Plan Sponsors, pharmacies and pharmaceutical manufacturers alike should closely watch reconciliation of the Energy and Commerce Committee’s bill with the bills adopted by the two other House committees of jurisdiction to see the fate of this clause. Whether the Senate Finance Committee includes such a provision in its draft legislation also will be significant. 

House and Senate Will Not Vote on Health Reform Until September at the Earliest

The Facts

Neither the House nor the Senate will pass health reform legislation before adjourning for the summer recess.  Despite a breakthrough deal yesterday with fiscally conservative Democrats that allowed the House Energy and Commerce Committee to resume markup of its health reform bill on July 30, 2009, health reform legislation will not be considered on the House floor until September, at the earliest, according to House leadership.  Meanwhile, Senate Majority Leader Harry Reid (D-NV) announced July 23, 2009, that health reform legislation also will not be considered on the Senate floor until after the summer recess.  The Senate delay is intended to give a bipartisan group of Senate Finance Committee members additional time to negotiate a bipartisan health reform proposal.  Finance Committee Chairman Max Baucus (D-MT) announced July 29, 2009, that the group of six Finance Committee senators working behind closed doors are nearing an agreement.  Chairman Baucus hopes for a near-term agreement from the bipartisan talks, which could allow for a public committee markup of the agreement the week of August 3, 2009, the final week the Senate is scheduled to be in session prior to recess.

What’s at Stake

Passage of systemic health reform, which is expected to make sweeping changes to the health sector, is at stake.  While the president had earlier pressed for passage by the House and Senate before the August congressional recess, the president's rhetoric has recently recalibrated and now both he and congressional leaders speak of passing health system reform by the end of the year.  However, these delays will make completion of health reform legislation this year a challenge.  An enormous amount of work remains before a bill can be ready for the president's signature, and there now will be a short amount of time in which to complete that work.

Steps to Consider

Watch for the emerging Finance Committee bipartisan agreement and evaluate how its concepts would affect your operation.  Contrast the impact of the bill approved by the Senate HELP Committee and House committees and the expected Finance bipartisan agreement.  Assess the impact of the bills working their way through the House.

House Proposes Significant Tax Increases to Pay for Health Care Reform

The Facts

Health care reform legislation introduced in the House, the America's Affordable Health Choices Act of 2009, provides key details on financing health system reform. Significant revenue-raising proposals include the following:

  • A surcharge on high-income individuals of 1 percent on adjusted gross income between $350,000 and $500,000 (married filing a joint return), a 1.5 percent surcharge on incomes between $500,000 and $1 million, and a 5.4 percent surcharge on income in excess of $1 million, to raise $543.9 billion over 10 years
  • Corporate and international tax proposals that have narrow application or were widely expected by the business community, or both, including a further delay in the application of worldwide interest allocation rules relevant to U.S.-based multinationals for foreign tax credit purposes, denial of treaty benefits for groups parented by non-treaty country entities, and the long-anticipated codification of the economic substance doctrine applicable to a wide range of taxpayers, to raise $37.2 billion over 10 years

What's at Stake

As the House and Senate seek to pay for health system reform, it is expected that one-third to one-half of the cost of reform will be paid for through increased revenue from the tax code. Certain companies and high-income individuals may see significant increases in their tax liability. The Senate Finance Committee is considering a range of revenue-raising options. If the Senate selects different revenue-raising provisions, then the House and Senate will have to reconcile their differences in Conference, which could make passage of a bill more difficult.

Steps to Consider

  • Watch the Senate Finance Committee, which is working to craft its own revenue raising proposals for health reform. It is expected that the Senate will turn to revenue-raising provisions not included in the House bill.  
  • Small businesses should pay close attention to the surcharge proposal because many small businesses report profits on individual tax returns. Some members of the House are clamoring for changes to the surtax prior to House floor action. 
  • Thus far, tax writers have indicated that the more controversial corporate and international revenue-raising provisions in the president’s budget will not be considered as part of health care reform, but companies should monitor the situation. 

Health Care Reform Bill Continues to Focus on Fraud and Abuse

The Facts

On July 14, 2009, the chairmen of three House Committees with jurisdiction over health policy introduced the America’s Affordable Health Choices Act of 2009. The fraud and abuse provisions from the first House bill remain with some changes to strengthen penalties or make technical corrections. The bill also includes several new provisions and provides for $100 million additional annual funding of the Health Care Fraud and Abuse Control Fund.

Changes or technical corrections to existing provisions include the following:

  • Authorization for the Secretary to disenroll certain providers of services or suppliers for failing to establish a compliance program with required core elements
  • Clarification that a provider's repayment of an overpayment does not limit the provider's potential exposure to other governmental actions such as interest, fines, civil or criminal sanctions it if is later determined that the overpayment was related to fraud by the provider or supplier or by provider or suppliers employees or agents
  • Expansion of the requirement for physician face-to-face encounters with patients prior to certifying eligibility for home health services to also mandate this requirement prior to ordering durable medical equipment or any other service if the Secretary determines it would reduce the risk of fraud waste and abuse 

New provisions include the following:

  • Language addressing the period and effect of the Office of Inspector General exclusion authority
  • A requirement for billing agents and clearinghouses to register with the Secretary
  • Amendments to conform the Civil Monetary Penalties law to the recent False Claims Act amendments

What’s at Stake?

The health care reform fraud and abuse provisions have a wide reach and touch on nearly every aspect of providing health care—from enrolling as a provider to payment for services. Strict enforcement and penalty provisions will raise the compliance bar to new heights.

Steps to Consider

Consider how current compliance programs, policies and procedures, including those for repaying overpayments, will need to be modified to manage proactively the government’s increased focus on fraud and abuse.

House Democrats Issue Revised Health Care Reform Bill

Democrats in the U.S. House of Representatives issued on July 14, 2009, a revised health care reform bill: America’s Affordable Health Choices Act of 2009

A whopping 1,018 pages long, the draft legislation addresses many of the key topics relating to health care reform, including the following:

  • Medicare and Medicaid reforms
  • Creation of health insurance exchanges in local service area, all of which would include a public plan option
  • Provisions to promote preventive and wellness services
  • Measures to improve efforts to combat fraud, waste and abuse

The revised bill also includes new provisions, such as a proposed tax on self-insured health plans, to fund the proposed health care reform.

Click here for a description of the legislation, released in conjunction with the bill.

Click here for a section-by-section summary of the bill.

Click here for a document comparing this July 14, 2009, bill to the initial draft bill issued by House Democrats on June 17, 2009.  Click here for a summary of top-line changes between the June 17, 2009, and July 14, 2009, versions of the legislation.

Click here for additional information about the proposed legislation, including descriptive documents released in connection with the bill, that is available on the House Committee on Energy and Commerce website.

Click here for a timeline in which the proposed legislation would be implemented.

Click here for the Congressional Budget Office's preliminary analysis of the legislation's cost.


Senate Finance Eyeing Health Benefit Tax Changes

The Facts
In May 2009, the leadership of the Senate Finance Committee announced a set of options for financing a mammoth health care reform proposal, including capping the exclusion from income for health insurance, reducing the tax benefits of flexible spending accounts and health savings accounts, and limiting the definition of qualified medical expenses. Under current tax laws, employer contributions towards health insurance and health care for active and retired employees are excluded from an individual’s income and employment taxes. The Senate Finance Committee proposals would limit these tax exclusions in several important ways:

  • Place a cap on the income tax exclusion for employer provided health insurance based on various indices, with some proposals phased out for taxpayers with high adjusted gross incomes (AGI)
  • Repeal the Code Section 213 deduction for medical expenses in excess of 7.5 percent of AGI
  • Eliminate the exclusion from income and employment taxes for contributions made through health flexible spending accounts and health reimbursement arrangements

What’s at Stake
The Congress’ Joint Committee on Taxation estimated that as stand-alone proposals, each of the proposals would result in a reduction in the number of people receiving employer sponsored health insurance in the range of 10 to 12 million people based on a full repeal of the tax exclusions, and in the range of one million people if the tax exclusions for health insurance were to be capped. Of course, the outcome could be different if the tax proposals were included as part of a comprehensive reform of the health care system. 

Steps to Consider
Employers should analyze the impact of these proposals on the group health plans they sponsor for employees. Employers should also consider analyzing the effect of these proposed tax changes on additional employee income and employment taxes. 


House Democrats' Health Reform Bill Proposes Significant Fraud and Abuse Reform

The Facts
The first draft of the House Democrats’ health care reform legislation published June 19, 2009, portends the government’s continued focus on Medicare program integrity, fraud and abuse reform, and transparency in industry-physician relationships. The bill includes several provisions that propose to enhance existing program penalties for fraud and abuse. Further, the bill explicitly provides that existing authority relating to program integrity and the authority to prevent and prosecute fraud, waste and abuse will apply equally to the public health insurance option. Other provisions of the bill propose to strengthen significantly compliance requirements for Medicare program participation.

Proposals for increasing existing penalties include enhanced penalties for:

  • False statements on provider or supplier enrollment applications
  • Submission of false Medicare, Medicaid or CHIP claims
  • Delay of Inspector General investigations
  • Exclusion of individuals from program participation
  • Obstruction of program audits

Proposals aimed at enhancing program and provider protections include:

  • Requiring providers and suppliers to adopt compliance programs that contain certain “core elements” established by the Secretary
  • Requiring physicians to provide documentation on referrals to programs at high risk of waste and abuse, such as durable medical equipment or home health services
  • Requiring repayments of known Medicare and Medicaid overpayments within a specified time period and making the failure to repay a false claim
  • Increasing access to databases and information necessary to identify fraud, waste and abuse
  • Proposing a more robust version of the Physician Payments Sunshine Act (S.301)

What’s at Stake
The provisions in the proposed bill underscore the federal government’s objective to fund some of the cost of health care reform through increased program penalties, reducing fraud, waste and abuse and enhancing payment protections. Physicians, providers and suppliers may see increased enforcement activities bolstered by greater scrutiny of program activities.

Steps to Consider

  • Review and assess current compliance programs and procedures to ensure accuracy of claims data
  • Consider whether existing policies and procedures for responding to government investigations should be modified or updated in light of the potential for increased government enforcement activity
  • Evaluate the additional investment of time and resources to meet the proposed physician payment transparency requirements

House Reform Legislation Would Modify Medicare Advantage Benchmarks and Impose New Administrative Cost Standards for MAOs

The Facts
Among the proposals set out in the draft health reform legislation introduced by Democrats from three key committees of the U.S. House of Representatives are provisions to significantly modify the Medicare Advantage (MA) Program, including:

  • Benchmarks and Payment Rates: Beginning in 2011, the benchmark upon which MA Plan payment rates are calculated would be modified to reflect average per capita costs under traditional Medicare fee-for-service for the applicable service area. This would affect MA Plan payment rates as well as the potential scope of supplemental benefits MA Plans would offer.

    The legislation would provide up to 1% increases in the applicable benchmark for “high quality” MA Plans. Such “high quality” MA Plans would be identified based upon HEDIS data and consumer (CAHPS) surveys until the Secretary establishes a new metric to assess the quality of care available through MA Plans.

    The Secretary’s authority to implement coding intensity adjustments in the determination of MA Plan payment rates also would become permanent.
  • Administrative Costs: The Centers for Medicare and Medicaid Services (CMS) would be required to publish annually MA Plans’ medical loss ratios (MLRs), risk-adjusted per enrollee payment and average risk score.

    CMS also would be required to audit MA Organizations’ (MAOs) administrative costs to assess MAOs’ compliance with the applicable requirements of the Federal Acquisition Regulations that apply to other government contractors.

The House bill also would mandate that CMS create an office or program designed to improve the coordination of benefits for dual-eligible beneficiaries, modify components of the Medicare Part D Program, and enhance the Secretary’s and CMS’s authority sanction MAOs and Part D Plan Sponsors that engage in (or contract with an individual or entity that engages in) prohibited marketing activities, among other activities.

What’s at Stake
As part of the reform process, the Democratic majority within the U.S. House of Representatives appears determined to make quality of care offered to MA enrollees a focus through increased performance reporting and corresponding payment adjustments. Additional obligations – including public reporting of MLRs and compliance with the FAR administrative cost requirements – will increase MAOs’ costs to participate in the Program.

Steps to Consider
In addition to monitoring the potential downward adjustments to the MA benchmarks, MAOs should consider the potential implications associated with the proposed requirements, such as:

  • Competitive position in light of enhanced public reporting
  • Costs of complying with new reporting requirements
  • Potential risks of non-compliance with marketing and administrative cost provisions

Key Tax Provisions of House Democrats' Draft Health Care Bill

The Facts
On June 19, 2009, Democrats from three key House committees released a draft health reform bill that sheds light on plans to use the Internal Revenue Code to incentivize individuals to obtain, and employers to provide, adequate health care. The bill, however, leaves out details on the major sources of revenue needed to finance the health care expansion. Key tax provisions in the bill to date include:

  • Imposing 2 percent tax on the income of individuals without “acceptable coverage,” with tax limited to national average premium
  • Providing limited exceptions to 2 percent tax on individuals (e.g., nonresident aliens, religious conscience)
  • Requiring providers of acceptable coverage to provide annual information reports to the IRS describing the names and types of coverage of each covered individual and other information that the IRS requires
  • Imposing excise tax on employers that elect to help satisfy the health coverage participation requirement but that later fail to meet the requirement
  • Imposing excise tax equal to 8 percent of wages paid on employers that elect not to help satisfy the health coverage participation requirement
  • Providing 50 percent tax credit for employee health coverage expenses of small businesses providing employee coverage, with phaseouts for average employee compensation (greater than $20,000) and employee headcount (more than 10)
  • Authorizing IRS disclosure of taxpayer information to determine whether individuals are eligible for affordability credits

What’s at Stake
With a promise by President Obama and key members of Congress to fully fund health care reform, which is anticipated to cost $1 to 2 trillion or more over 10 years, progress will require filling in the details on the revenue-raising provisions. Approximately half of the money needed to pay for health care reform is expected to come from changes in the tax law.

Steps to Consider

  • Stay tuned for revenue-raising tax proposals, which may include significant amendments to the international tax rules
  • Continue to monitor any additional guidance on required information reporting by employers to show they meet the health coverage participation requirements

House Democratic Health Reform Bill Provides Only Preview of Provider Payment Changes

The Facts
On June 19, 2009, House Democrats unveiled their first draft of health care reform legislation. Despite exceeding 850 pages, the draft bill is still a work-in-progress. Many of the anticipated Medicare program payment reductions and revisions are absent from this draft, but providers should not draw too much comfort from that. President Obama has called for more than $600 billion in savings from Medicare, and those savings will be required to pay for the massive overhaul. Providers should still expect significant savings provisions to be added later.

In the meantime, the bill still includes considerable change, including:

  • Annual Medicare payment updates for virtually every facility type, including all hospitals and post-acute care providers, would be reduced by a productivity adjustment factor. Given that hospital market baskets are expected to be between 2.0 and 2.5 percent in FY 2010, the actual update for providers, if this change were to be enacted, could be only slightly above zero.
  • Medicare payment for post-acute services would be revamped and coordinated across settings.
  • Medicare payments for imaging services would be reduced.
  • Hospitals would be penalized for excess readmissions.
  • Ambulatory Surgery Centers would for the first time submit cost reports and quality data.

What’s at Stake
The proposed bill foreshadows a new reimbursement paradigm that focuses on accountability for quality, cost savings, coordinated care, and increased scrutiny to preclude conflicts of interest and other skewed incentives. Health care service providers will face new systems, obligations and incentives that will dramatically alter how providers furnish services and interact with Medicare and its beneficiaries.

Steps to Consider

  • Examine current approaches to patient care and consider internal and external steps necessary to manage the impending shift from traditional fee-for-service payments to payments based on quality measurements and care coordination.
  • Explore relationships with management companies or other partners who can improve overall quality and reduce cost.
  • Consider new relationships with physicians to invest doctors in quality outcomes.

President Obama Urges Congress to Complete Health Care Reform by October

The Facts
President Obama is driving an extremely ambitious effort to achieve comprehensive health reform by October 2009.  House and Senate leaders are responding with an aggressive timeline for developing legislation to be on the president’s desk this fall.

Heeding lessons learned from the failed Clinton health reform efforts, the president has until now resisted imposing his views directly on Congress.  Now visibly engaged, the president enunciated his policy preferences in a June 2, 2009, letter to Congress:

  • A public health insurance option
  • A health insurance exchange
  • Allowing individuals to keep their current coverage
  • Promoting best practices to improve health quality
  • Paying for the full cost of health reform (estimated at $1.2 – $1.5 trillion) through a combination of reducing Medicare and Medicaid spending and raising revenue

The president also indicated a willingness to consider individual and employer mandates as well as an enhanced role for the Medicare Payment Advisory Commission.  Click here for a copy of the president’s letter.

Senate Finance Committee senior Republican Charles Grassley (R-IA) and eight of his nine Republican colleagues on the Finance Committee (all but Senator Olympia Snowe of Maine) responded with a joint letter to the president on June 5, 2009, that notes concern with the president’s expression of support for a public plan because a public plan is “one of the more divisive issues in the health care reform debate.”  Click here for a copy of the senators’ letter.  Clearly, as legislators move from options to concrete legislative proposals, it will be increasingly difficult to keep Republicans at the table in the Senate. 

Click here for the tentative timeline for achievement of health reform. 

What’s at Stake
Congress and the president are determined to overhaul the nation’s health care delivery system. Every aspect of the health sector will be affected. 

Steps to Consider
Providers, insurers, employers, drug and device makers, and every other entity in the health sector should closely examine the legislative proposals, assess their impact, and develop a course of action to maximize the positive impact of health system reform and minimize the negative impact.

Kennedy Health Care Bill: Potential Health Reform Implications

The Facts
This week Senator Edward Kennedy (D-MA), chairman of one of two Senate Committees with responsibility for advancing a health care reform proposal, released the first comprehensive draft of health care reform legislation, the Affordable Health Choices Act.  Note that final decisions on such critical issues as a public plan and an employer coverage mandate are described in the bill merely as “policy under discussion.”  Below are selected highlights of the draft: 

  • Creates state-based insurance exchanges called “American Health Benefit Gateways”
  • Requires insurers to report expenditures to the government, which could trigger mandatory rebates to plan members
  • Stipulates that insurance premiums may only vary based on family structure, community rating, the actuarial value of the benefit and age 
  • Prohibits pre-existing conditions exclusions
  • Requires guaranteed availability and renewability of coverage
  • Prohibits lifetime or annual limits on coverage
  • Mandates individual coverage, with certain exceptions
  • Significantly expands Medicaid

What’s at Stake
Senator Kennedy’s decision to table inclusion of a public plan and employer mandate reflects his effort to leave ground for forging a compromise with Republicans.  However, Senate Republicans continue to vociferously object to the public plan, and many other elements of the Kennedy proposal.  President Obama, sensing the rocky debut of the first health reform bill, summoned Senate leaders June 10, 2009, to the White House, where he reiterated his insistence that a bipartisan bill be achieved this year and made clear his flexibility on all aspects of the legislation.

Steps to Consider
Evaluate how reform proposals may require changes in the operations of your organization, and consider working with policy makers and key stakeholders to shape the ultimate outcome of health reform.

Principal Components of House Health Reform Legislation Unveiled

The Facts
House Democrats released the broad parameters of their comprehensive health reform bill June 8, 2009.  The three House committees with jurisdiction over health reform plan to work from this common framework to develop a systemic reform proposal.  Click here for a health reform timeline.  Below are highlights of the plan: 

  • Protects current coverage and preserves choice of doctors, hospitals and plans
  • Creates a new national health insurance plan
  • Creates a national health insurance exchange and allows for regional or state exchanges
  • Initiates delivery system reforms, such as accountable care organizations, to incentivize quality and restrain health spending growth
  • Imposes individual coverage requirement and employer “pay or play”
  • Prohibits insurers from excluding pre-existing conditions and forbids rating based on gender, health status or occupation, and limits premium variation based on age 
  • Reforms Medicare’s sustainable growth rate formula for physician payment
  • Eliminates perceived overpayments to Medicare Advantage Plans

What’s at Stake
Reporting out a House bill by the August recess is at stake. While the House Democrats have united the three key House committees in producing this common framework, considerable dissension within the Democratic party remains.  A core area of disagreement is whether to include a public plan.  Pressure to achieve reform this year is considerable, as the Democrats do not want to risk spilling into next year’s congressional cycle.

Steps to Consider
Providers should assess the impact of a public plan option and expanded coverage, among other proposals.  Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans, review the concept of the insurance exchange and assess the business impact of the proposed new insurance market reforms.  Insurers that act as Medicare Advantage Plans should monitor proposals to reduce payments.  Both providers and insurers should assess the potential impact of accountable care organizations.  Finally, employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.

Senate Finance Committee Releases Second Health Reform Policy Paper

The Facts
On May 11, 2009, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) released the second of three health reform options papers.  The options seek to expand health insurance coverage to the nation’s 46 million uninsured through insurance market reform, a new public health insurance plan, expansion of public programs, insurance coverage mandates on both employers and individuals, and new premium subsidies and tax credits.

A Health Insurance Exchange would facilitate the purchase of coverage through a web portal on the internet.  Initially, only individuals and “micro-groups” would be able to purchase insurance through the exchange. 

Plan options would include:

  • Medicare Like Program – Operated by the U.S. Department of Health and Human Services and offered through the exchange 
  • TPA Administration – Public plan administered through regional third-party administrators (TPAs) 
  • State-Run Public Plan – Flexible state plans that may allow individuals to purchase coverage available to state employees

Individuals ages 55 though 64 who do not have employer-sponsored insurance or Medicaid coverage could enroll in Medicare and pay a premium. Medicaid eligibility would be standardized, with parents, children and pregnant women with income below 150 percent of the Federal Poverty Level ($33,000 a year for a family of four) eligible for coverage. 

Individuals would have a “fair share” responsibility to purchase health care coverage, with certain exemptions.  Employers must offer qualified coverage to full-time employees or provide coverage that is the actuarial equivalent to the lowest coverage option.  Employers with total annual payroll of less than $250,0000 would be exempt.

Premium subsidies would be available on a sliding scale for individuals with incomes under 400 percent of the Federal Poverty Level.  These subsidies would take the form of a tax credit used to purchase health coverage through the exchange.  Tax credits would be available for small businesses with less than 25 workers and average employee earnings of $40,000.

What’s at Stake
The Finance Committee is proposing transformative changes to the health care sector in order to expand health insurance coverage to all Americans. The requirements on individuals to purchase coverage and the obligations of employers to provide coverage are key along with the creation of the exchange.

Steps to Consider

  • Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans.
  • Insurers should also examine the concept of the exchange and assess the business impact of the proposed new rating rules and benefit structure.
  • Employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.