Health Policy Report

November 27, 2017

The Week in Review

Both chambers of Congress were in recess for the Thanksgiving holiday. The most notable development in the absence of floor action was the formal release of legislative text detailing the Senate tax reform plan, which will likely appear on the Senate floor this week.

The Week Ahead

Last week’s much-needed break comes ahead of an anticipated legislative frenzy for the remainder of the calendar year. Republicans are racing to finish their tax reform push and the legislative calendar will be complicated by the expiration of government funding on Dec. 8. Given that Democratic votes will be needed for any funding package, expect for the minority party to seek concessions on issues such as the protection of the Deferred Action for Childhood Arrivals (DACA) program. Currently, Congress is slated to be in session only 12 days for the remainder of 2017, but that could change if Congressional leaders want more time to finish their legislative projects.

This week, the Senate is expected to take up the upper chamber’s version of tax reform legislation as lawmakers return from the Thanksgiving break. President Trump is planning on visiting the Senate on Tuesday to rally lawmakers around the legislation as Republicans steam towards their goal of passing the bill by the end of the calendar year.

Floor action in the Senate will start with additional judicial confirmations. Two votes are scheduled for today, namely a final confirmation vote on the nomination of Dabney Freidrich to be a U.S. District Judge and a cloture vote on the nomination of Gregory Katsas for the same position.

After advancing tax reform legislation before the break, House lawmakers are set to return from Thanksgiving break on Tuesday. At the top of the agenda is a bill (H.R. 3017) that would reform the government’s treatment of brownfields – a formal term for property that has been contaminated by hazardous waste – and reauthorize the Environmental Protection Agency’s (EPA) Brownfields Program. House lawmakers also will consider a bill (H.R. 1699) related to manufactured housing policies.

CBO: Tax Reform Could Trigger Sequestration, Including Medicare and ACA Cuts

The GOP tax bill could trigger $136 billion in automatic sequester cuts from mandatory spending in 2018 — including $25 billion in Medicare cuts — unless Congress finds another way to offset its deficit increases, according to analysis from the Congressional Budget Office (CBO). 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, will require the Office of Management and Budget (OMB) to cut mandatory spending automatically. Under the law, Medicare can only be cut by a maximum of 4 percent under sequestration rules, 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, with the exception of Exchange subsidies and Medicaid expansion — that includes approximately $5 billion in cuts to the ACA’s risk adjustment programs.  Other mandatory programs subject to a full sequester (or 100 percent cut) include agricultural subsidies, student loans, and the Social Services Block Grant. Medicaid, Social Security, and other means-tested entitlements are exempt from the statutory PAYGO sequester.

If tax reform passes, Congress will be compelled to act before the end of the year to waive the PAYGO rules and stop the sequester. This legislation would ‘wipe the PAYGO scorecard clean’ to remove the deficit increase so that no sequester is triggered. However, doing so would require 60 votes in the Senate. It is possible the bill would clear that hurdle if Democrats support it to prevent potentially draconian sequester cuts or if it were attached to must-pass legislation, but as of today it appears unlikely that Democrats would allow themselves to become complicit in implementing the all-GOP tax bill. But that’s what Congress did in the late 1990s and early 2000s when it passed legislation increasing the deficit, most notably the Bush tax cuts in 2001. “Senate Republicans will seek to waive application of those cuts, which has been done in the past for major legislation like this,” a Senate GOP aide recently said. “It will then be up to the Democrats to join us in preventing those cuts.”

Providers, insurers, industry stakeholders, and Medicare beneficiaries are all contemplating the potential impact of a 4 percent across-the-board cut to the Medicare program, however. If implemented, the sequester would apply directly to fee for service (FFS) claims, durable medical equipment (DME), prosthetics, orthotics, and supplies. For Medicare Advantage (MA) and Part D payments, CMS would be forced to cut each of its monthly contractual payments to plans. Low-income subsidies and additional subsidies for beneficiaries whose spending exceeds catastrophic levels in Part D are exempt from sequestration, however. Additionally, zeroing out the ACA’s risk adjustment program would cripple insurers. As a result, concerns about patient access to coverage would be heightened.

HHS Secretary Nominee Made Millions as Pharma Executive, Financial Records Show

Alex Azar, President Trump’s pick for Secretary of the Department of Health and Human Services (HHS), reportedly made millions as the president of the U.S. division of Eli Lilly and Co., which some critics have highlighted as ironic given the President Trump’s sometimes harsh rhetoric over pharmaceutical manufacturer profitability. Newly filed financial disclosure forms from the Office of Government Ethics revealed that Mr. Azar has a net worth of at least $8.7 million, and made nearly $2 million in his last year as an executive with Eli Lilly. The documents only date back to the previous 12 months, and revealed the company also paid him a $1.6 million severance package.

President Trump recently confirmed mounting speculation regarding his intent to nominate former pharmaceutical executive, Alex Azar, to serve as the next Secretary of HHS in a tweet. Mr. Azar will succeed former Secretary Tom Price, who resigned in late September amid criticism for his use of taxpayer dollars to fund chartered flights. Mr. Azar has extensive experience in the pharmaceutical industry, having previously served as president of Lilly USA 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. The Senate Health, Education, Labor, & Pensions (HELP) Committee announced that hearings on the confirmation for Secretary of Health and Human Services (HHS) nominee Alex Azar will begin this week, on Wednesday, November 29.