Health Policy Report

November 20, 2017

The Week in Review

Tax reform headlines dominated the week as both chambers took significant steps to advancing tax reform legislation. On Thursday, the Senate Finance Committee advanced the upper chamber’s legislation on a party-line vote after a contentious four-day markup.  That move came on the heels of the House approving its version of tax reform legislation on the chamber floor despite 13 Republican defections over the inclusion of a repeal of the state and local tax (SALT) deduction. Both versions include important provisions for the healthcare industry, which are broken down in detail below.

The financial services industry saw an interesting week with a shakeup of leadership at a pair of key regulatory industries. First, the Senate confirmed Joseph Otting to be Comptroller of the Currency on a 54-43 vote, triggering the resignation of controversial Acting Comptroller Keith Noreika, who has announced he will return to the private sector despite rumors that he may be a candidate for other regulatory posts.

In the second development, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray sent a notice to CFPB staff that he will be resigning by the end of the month. Cordray’s tenure was marked by partisan bickering given his active role in implementing regulations from the Dodd-Frank Act and his replacement will likely face a hotly contested confirmation battle in the Senate.

Other notable floor action this week included the passage of the conference report to the National Defense Authorization Act (NDAA) in both chambers, setting the Pentagon’s policy and budget for the 2018 fiscal year. The measure now goes to the White House to be signed into law, but it remains unclear how Congress plans to appropriate the Pentagon’s $700 billion budget given that it exceeds statutory budget caps.

Finally, last week saw developments for a few Senate lawmakers and potential lawmakers embroiled in scandal. The biggest headline came with the emergence of sexual assault allegations against Sen. Al Franken (D-MN), who has apologized and is now likely to face an investigation from the Senate Ethics Committee. In Alabama, the Republican nominee for Alabama’s open Senate seat, Roy Moore, continued to fend off accusations that he engaged in inappropriate relationships with teenage girls while serving as an Alabama District Attorney. Importantly, the state’s Republicans formally announced that they would keep backing Moore despite the alleged misconduct. Finally, the corruption case against Sen. Robert Menendez (D-NJ) ended in a mistrial after a New Jersey jury was unable to reach a unanimous verdict on whether the New Jersey senator improperly accepted gifts and provided favors on behalf of a friend and donor.

The Week Ahead

Both chambers will be out for the Thanksgiving holiday, but that may not preclude developments in the ongoing push from Republicans to overhaul the nation’s tax code. After reaching milestones in the House and Senate last week, expect Republican leadership to conduct more backroom negotiations to ensure that the package maintains enough support to be passed on the floor of both chambers. Although there are still a number of hurdles for the package to clear, Republicans are on pace to reach their goal of passing tax reform legislation before the end of the year.

The Senate is due to return on Monday, Nov. 27, with the House set to reconvene a day later on Tuesday, Nov. 28.

Health Care Implications in the Tax Reform Debate

Washington will have a week to catch its breath after a breakneck news cycle closed last Thursday with House passage of its version of tax reform, and the Senate Finance Committee finishing its markup of their tax proposal. The House passage was by a 227 to 205 margin with 13 Republican defections. Passage on the House floor is the last immediate step for lawmakers in the lower chamber, who will now wait on the Senate to attempt to pass their own tax reform package after Thanksgiving. The repeal of the Affordable Care Act’s (ACA’s) individual mandate is included in the Senate’s version of the bill, and would provide over $300 billion in savings due to millions fewer individuals receiving subsidized health insurance, according the Congressional Budget Office (CBO). Additionally, the GOP’s tax reform proposal could trigger a rarely-discussed provision in Congressional PAYGO rules that would require over $135 billion in annual cuts to mandatory spending, targeting health care programs including Medicare and ACA funding. Further, changes to medical expense deduction and orphan drug tax credit are both being considered, each of which would have notable consequences across health care industries.

Senate GOP leaders announced last week they plan to include repeal of the individual mandate in their version of the tax reform bill starting in 2019 — saving about $338 billion to help pay for other changes in the tax plan, but also intertwining their tax bill with the complicated politics of health care. The plan does have the support of House Speaker Paul Ryan (R-WI), and appears to have enough votes among House Republicans, so the individual mandate will likely live or die in the Senate.

The tax bill could also trigger $136 billion in automatic sequester cuts from mandatory spending in 2018 — including $25 billion in Medicare cuts in the first year — if Congress doesn’t find another way to offset its deficit increases, according a letter from the CBO to Congressman Steny Hoyer (D-MD). Because the tax bill would add an estimated $1.5 trillion to the deficit over a decade. Congressional “pay-as-you-go” rules, called PAYGO, would require that the Office of Management and Budget (OMB) to automatically cut mandatory spending. Under the so-called PAYGO sequestration rules, Medicare can only be cut by a maximum of four percent, however, which amounts to $25 billion in cuts.  These cuts would gradually increase over time. According to a report from the Committee for a Responsible Budget, the sequester would also zero out mandatory spending in the ACA except for Exchange subsidies and Medicaid expansion (ex. the ACA’s $5 billion risk adjustment program). Medicaid, Social Security, and other means-tested entitlements are exempt from the statutory PAYGO sequester.

While the House bill takes a hatchet to the orphan drug tax credit — eliminating the program entirely — the upper chamber approaches the program with a scalpel. The Senate’s bill would limit the orphan drug credit to 27.5 percent (instead of the current 50 percent rate) and introduce new reporting requirements. Additionally, the House bill would repeal the medical expense deduction, effective in 2018, which the Joint Committee on Taxation (JCT) estimates would save about $10 billion per year. The Senate bill, on the other hand, maintains the deduction.

As part of the Senate deal to repeal the individual mandate in tax reform, there is a tentative agreement to hold a separate vote on the health care deal negotiated by Sens. Lamar Alexander (R-TN) and Patty Murray (R-WA), although significant challenges remain before the Alexander-Murray deal comes to a vote. Its fate is largely tied to that of the individual mandate, which is still in question in its own right. Also in question is whether House Republicans would bring Alexander-Murray up for a vote, even if it were to pass the Senate. Ultimately, the bill’s prospects would be stronger as part of a larger must-pass bill at the end of the year, rather than as a sidecar to the GOP’s tax overhaul.

Additional details on these policies are outlined in today’s RealClearHealth article from Thorn Run’s Shea McCarthy.

CMS’ MA-Part D Proposed Rule Addresses Drug Rebates, Opioids, ‘Any Willing Pharmacy’

The Centers for Medicare and Medicaid Services (CMS) has released a highly anticipated proposed rule addressing Contract Year (CY) 2019 Policy and Technical Changes for Medicare Advantage (MA) and Part D plans. CMS included an assortment of proposals affecting MA and Part D plans in CY 2019. While subregulatory changes and rate updates are effectuated through the annual Call Letter cycle (proposed in mid-February and finalized in early April), CMS periodically issues a policy and technical changes rule to address MA and Part D policies that require notice-and-comment rulemaking. The agency says some of the changes proposed last week address comments received in response to its spring 2017 Request for Information on MA and Part D.

Among the most controversial part of the rule is a request for information: CMS is soliciting feedback on whether it should require insurance plans to base what patients pay for drugs off the rebated price instead of the list price. While the policy would help reduce out-of-pocket costs for consumers, pharmacy benefit managers (PBMs) contend that the result will be higher premiums, since plans often use drug rebates to keep premiums down. Drugmakers also stand to benefit because lower out-of-pocket costs would mean fewer patients wind up in the Part D doughnut hole, where manufacturers must offer bigger discounts.

The regulation proposes lock-in policies for beneficiaries prescribed opioid medications in Part D, implementing a key part of the Comprehensive Addiction and Recovery Act (CARA). CMS also proposes greater flexibility on MA plan design through the elimination of ‘meaningful difference standards’ and a revised interpretation of the uniformity requirement that would allow cost-sharing and benefits to vary if beneficiaries meet medical criteria. Additionally, the agency addresses Part D’s “any willing pharmacy” requirements (which would let patients access drugs at whichever pharmacy they prefer), proposes that Part D plans be able to substitute new generics via mid-year formulary changes without notice, and proposes to treat biosimilars as generics for Part D’s low-income subsidy (LIS) and catastrophic cost-sharing. Comments on the proposed rule are due on January 16, 2018.

Hospital Groups Sue CMS Over 340B Drug Reimbursement Cuts

Three hospital groups, along with three health systems, have filed suit against the Department of Health and Human Services (HHS) regarding the CMS’ recent regulation that made substantial cuts to hospitals for 340B drugs.  The suit, brought by the American Hospital Association, Association of American Medical Colleges, America’s Essential Hospitals, Eastern Maine Healthcare Systems, Henry Ford Health System, and Fletcher Hospital Inc, challenged the changes made to the 340B program that were included in the calendar year 2018 hospital outpatient system (OPPS) and ambulatory surgical center (ASC) payment system final rule that CMS released earlier this month. The 340B provisions of the final rule, which included a 27 percent reduction in the reimbursement rate for hospitals for 340B drugs, are scheduled to take effect on January 1, 2018.

The lawsuit contends that while CMS has the statutory authority to “calculate” and “adjust” drug payment rates, it does not have statutory authority to reduce those rates by nearly 30 percent.  The complaint also states that the 340B provisions of the final rule “undermine the 340B Program by depriving eligible hospitals of critical resources Congress intended to provide those hospitals through 340B discounts.”  The groups also note that the cuts will undermine critical programs that provide health services to vulnerable and underserved populations.

The hospitals have asked the court to either strike the changes in payment methodology for 340B drugs from the final rule and direct CMS to use the methodology used in calendar year 2017 or issue a preliminary injunction suspending the effective date of the changes until the lawsuit is concluded.

Senate Health Panel Schedules First Confirmation Hearing for HHS Nominee Alex Azar

The Senate Health, Education, Labor, & Pensions (HELP) Committee has announced that hearings on the confirmation for Secretary of Health and Human Services (HHS) nominee Alex Azar will begin on Wednesday, November 29. Azar will be called before the HELP Health Subcommittee for the first of two confirmation hearings at the end of the month. He will also be expected to appear before the Senate Finance Committee, although Chairman Orrin Hatch (R-UT) has not yet scheduled a hearing.

In announcing the hearing, Chairman Lamar Alexander (R-TN) noted that he was “impressed” with Mr. Azar’s knowledge and experience, and thought he had the qualifications “to get results.” Mr. Azar has extensive experience in the pharmaceutical industry, having previously served as president of Lilly USA, an affiliate of Eli Lilly and Co., until stepping down from his role in January. Prior to his decade-long career at Eli Lilly, Mr. Azar served in top executive roles at HHS — including as HHS General Counsel and as Deputy Secretary — under then-President George W. Bush.