Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

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.

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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.

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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.

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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.

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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. 

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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.

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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.

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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.

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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.

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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. 

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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.

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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.

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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

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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.

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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 prices—including 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. 

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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.

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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. 

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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.

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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.

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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. 

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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