Health Policy Report

February 12, 2018

The Week in Review

A landmark week in Washington was punctuated by the passage of a massive bipartisan budget deal that funds the government until March 23, suspends the debt ceiling until 2019, raises strict budget caps by almost $300 billion over two years, and offers billions in funding for health care, defense, disaster relief, infrastructure, child care, and education.  The deal will serve to break a months-long stalemate over budgeting that has plagued the appropriations process, and could result in an omnibus finally being passed in March.

While some additional intrigue to the process was added when Sen. Rand Paul (R-KY) refused to expedite a key procedural vote ahead of the government funding deadline — leading to a very short government shutdown after midnight on Thursday — lawmakers worked into the early hours of Friday morning to approve the milestone budget deal, which was quickly signed by President Trump. The Senate voted (71-28) to pass the measure shortly before 2am ET on Friday, and the House voted (240-186) around 5:30am to send the bill to the president’s desk. The budget agreement — the result of an agreement brokered by Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY) — faced opposition from lawmakers in both parties, but the threat of a long-term shutdown fight ultimately proved to be enough of an incentive for moderates in both parties to support the deal.

Passage of the budget agreement also will see a laundry list of health care priorities enshrined into law.  The foundation of the package was a six-week continuing resolution (CR) that passed the House earlier last week, including reauthorization of several health care “extenders,” funding for community health centers (CHCs), delayed cuts to safety net hospitals, the CHRONIC Care Act, the Part B Improvement Act, and revisions to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Further, the deal reached in the Senate added $6 billion in funding to address opioid and mental health treatment, $4 billion for VA hospitals, and $2 billion in new funding for research at the National Institutes of Health (NIH). The Senate deal also extend funding for the Children’s Health Insurance Plan (CHIP) by an additional four years — a ten-year extension when combined with the six-year reauthorization secured last month. The agreement also repeals Medicare’s moribund Independent Payment Advisory Board (IPAB), while also making adjustments to the prescription drug “donut hole” that will require pharmaceutical companies to provide steeper discounts for seniors in the coverage gap. The health care implications of the budget deal are examined in more detail throughout this week’s update.

The Week Ahead

Congress is poised to begin a contentious immigration debate next week, as the Senate will begin consideration of the legislative vehicle (H.R. 2579) for bipartisan immigration reform. Majority Leader McConnell has signaled that the process will include an open debate and amendment process. In the House, Speaker Paul Ryan (R-WI) has stopped short of making such a guarantee, while also trying to reassure Minority Leader Nancy Pelosi (D-CA) and other Democrats that he is resolved to come up with a solution for so-called “Dreamers.” “If anyone doubts my intention to solve this problem and bring up a DACA and immigration reform bill, do not,” Speaker Ryan said Thursday. “We will bring a solution to the floor, one the president will sign."

Meanwhile, the House is expected to begin next week on a bill (H.R. 620) that would require the Department of Justice to develop a program to educate state and local governments and property owners on strategies for promoting access to public accommodations for persons with a disability. Two bills in the financial services realm are also in the queue for next week, including: (1) a bill (H.R. 3978) that would modify requirements related to mortgage disclosures; and (2) a bill (H.R. 3299) that would amend four existing statutes to require the rate of interest on certain loans remain unchanged after transfer of the loan.

Budget Deal Includes ‘Extenders,’ Health Center Funding, DSH Fix

The bipartisan budget deal last week included a slate of health care programs that expired towards the end of 2017, including a range of health care “extenders” that had been previously reauthorized alongside the now-defunct “doc fix.” When the Children’s Health Insurance Plan (CHIP) was separately reauthorized during last month’s government funding spectacle, advocates were left scrambling for a vehicle on which to attach their health care priorities. They found their solution in the budget agreement, which reauthorized all of the major health care extenders for either two years, five years, or permanently. Medicare’s therapy services pay cap and Special Needs Plans in Medicare Advantage were permanently reauthorized, while add-on payments for rural home health and ambulances received five-year extensions. The Maternal, Infant and Early Childhood Home Visiting (MIECHV) program also received a five-year extension, while Geographic Practice Cost Index (GPCI) floor and teaching health center graduate medical education (THC-GME) program were among those reauthorized for two years.

The deal also includes a two-year reauthorization for community health centers (CHCs), with more than $7 billion in funding made available in the bill. Funding for CHCs expired in September, but Congress struggled for months to craft a deal that would fund the centers, which serve 26 million low-income Americans.  Finally, the package averts cuts to disproportionate share hospitals (DSH) that had been implemented under the Affordable Care Act (ACA). The delay also provided continued financial support for the safety net hospitals, which may be particularly important in states that have not expanded their Medicaid program and thus have relatively higher rates of uncompensated care.

IPAB Repealed in Budget Agreement

Congress acted to repeal an unpopular Affordable Care Act (ACA) cost-cutting board before it could go into effect as part of the bipartisan budget deal passed. The Independent Payment Advisory Board (IPAB), which would have been responsible for identifying potential Medicare savings to Congress, was largely disliked by Republicans and Democrats alike for its ability to limit Congressional power over its recommendations. While Medicare spending has yet to hit the designated threshold that would have triggered the creation of the panel, the latest Medicare trustees report estimated that it may have been enacted as soon as 2021.

Drug makers and private Medicare plans may stand to benefit most from the repeal of IPAB, which removes the potential for automatic pay cuts to prescription drugs, Part D plans, and Medicare Advantage. Drug makers and plans would have been especially exposed to IPAB-driven pay cuts, as the Board would have been precluded from rationing care, increasing beneficiary spending, or cutting payments to hospitals or hospices. That left a big target on Medicare Advantage and Part D — both of which were specifically singled out in the law.

Pharma Industry Pans Reforms in Budget Deal

Part D ‘Donut Hole’

Drug companies were surprised to learn last week that the Senate budget deal included provisions that would shift billions of dollars in costs from Medicare Part D plans to pharmaceutical companies. Specifically, the bill increases the discounts drug companies pay to beneficiaries whose drug costs fall into the coverage gap, or “Part D donut hole,” to 70 percent from the current 50 percent level. The change would save the federal government about $10 billion over a decade, according to a Congressional Budget Office estimate, but would cost drug companies close to $40 billion over that period. The biggest winner under the policy appears to be Part D plan sponsors, who will see their liability cut to 5 percent of spending in the coverage gap — down from the 25 percent they were expected to pay beginning in 2020. PhRMA President Stephen Ubl blasted the provision, saying last week that the “proposal provides a massive bailout for insurance companies and undermines their incentive to reduce Part D costs.”

Medicaid Line Extensions

The budget agreement will also lead to drug companies paying deeper Medicaid rebates for so-called “line extensions” of certain single source drugs, like time-released formulations. Specifically, the bill clarifies that the rebate for line extensions of certain single source or innovator multiple source drugs is the greater of either the base rebate plus the additional rebate, or the base rebate plus the line extension rebate.

Biosimilar Related Provisions

Further, the budget agreement adopts a provision that could curb incentives for Medicare beneficiaries to select original biologics over less expensive biosimilars. Currently, makers of biosimilars may voluntarily offer discounts that match the reference biologic discounts, but those discounts don’t count toward beneficiaries’ out-of-pocket spending, which leaves patients in the Part D Donut Hole longer if they use biosimilars over brand biologics. That makes brand biologics, which have higher prices, the cheaper option for patients. So to avoid discouraging patients from choosing biosimilars, the new bill language requires that makers of biosimilars offer the same discounts provided by brand biologics. A separate provision that would have disadvantaged biosimilars by exempting them from additional “pass-through” payments was considered in a House-passed version of the spending bill, but was ultimately dropped before the budget deal was approved.

CREATES Act Not Included

While drug pricing advocates made an aggressive push to include the bipartisan CREATES Act into the bill, those efforts were ultimately unsuccessful after resistance from the branded pharmaceutical lobby and allied groups. The measure — backed by generic drug makers — would prevent branded drug companies from using certain delay tactics to prevent generic competitors from coming onto the market. 

White House Economic Advisers Release Drug Pricing Proposals

The White House Council of Economic Advisers has released a white paper addressing prescription drug prices, detailing the administration’s plans to “reduce the price Americans pay for biopharmaceutical products” and “rais[e] innovation incentives for products in the future.” The 30-page proposal has significant implications for stakeholder across the health care spectrum, as it offers wide-ranging policy changes impacting Medicare drug reimbursement (both Part B and D), Medicaid drug rebates, pharmacy benefit managers (PBMs), biosimilar competition, the 340B program, and more.

While some of the proposed reforms could be enacted through guidance or rulemaking, many of the more controversial policy changes would require congressional action. As the Trump administration pushes on Congress to move on drug pricing reforms, stakeholders are likely to apply significant pressure to lawmakers to tread lightly on changes that could significantly disrupt their businesses. Meanwhile, look for formal rulemaking from the administration later this year (including the CMS Innovation Center) to serve as the catalyst for drug pricing reforms.

TRP’s full analysis of the White House’s drug pricing proposals is available here. The White House is expected to release their budget proposal to Congress later today, which could include several of the ideas outlined in the white paper.

Physician-Backed MACRA Changes Enacted in Budget Deal

A variety of technical corrections to the Medicare Access and CHIP Reauthorization Act (MACRA) were included in the budget deal, such as excluding the cost of Part B drugs from the calculation of doctor pay, delaying the use of cost measures in doctor performance scores, giving CMS three more years to transition to the performance threshold, and letting the Physician-Focused Payment Model Technical Advisory Committee (PTAC) weigh in earlier on pay models that providers design. These provisions were included after months of intensive lobbying by physician advocate groups. Specifically, doctors lobbied Congress to exclude the cost of drugs they administer from the calculation of their Merit-Based Incentive Payment System (MIPS) scores due to concern that expensive specialty therapies do not always have consistent coverage in reimbursement. Hearing the concerns of physicians, lawmakers included language to eliminate Part B drug costs from MIPS scores, as well as eliminating physician-improvement from the cost performance category the next three years of MIPS.  CMS would be granted flexibility in determining the weight of the cost performance category between 10 percent and 30 for three years as well.

Physicians argued that basing pay adjustments on the cost of therapies was a departure from previous CMS policy. Although in the past CMS has counted Part B drugs in the calculation and comparison of physician costs under the Value-Based Modifier (VM), none of the MIPS legacy programs, including Meaningful Use (MU), Physician Quality Reporting System (PQRS) and value modifier, base pay adjustments on drug costs. Those three Medicare value-based pay programs are being collapsed into MIPS. The American Medical Association has pushed CMS for years to remove Part B drugs from MIPS Value Modifier scores, and declared the policy would force many physicians to refer patients to hospital outpatient departments, where Medicare and beneficiaries pay more.

CHRONIC Care Act and Medicare Part B Improvement Act Included in Budget Agreement

Telehealth advocates lauded the inclusion of the CHRONIC Care Act as one of the most important advancements for telehealth, as telemedicine growth has been hindered by limited reimbursement, licensing, and regulation barriers. The bipartisan CHRONIC Care Act (S.870) was previously reintroduced in the 115th Congress by Sens. Orrin Hatch (R-UT), Ron Wyden (D-OR), Johnny Isakson (R-GA), and Mark Warner (D-VA). The legislation included provisions sought by the senators to streamline care coordination, improve disease management, and reduce Medicare costs. The Act makes changes to traditional Medicare, as well as Medicare Advantage (MA) plans. These new policies will allow MA plans to include telehealth coverage beginning in 2020, and expands reimbursement for dialysis patients and telestroke services. Additionally, the legislation includes a measure that would amend language in the HITECH Act to prevent Meaningful Use requirements from becoming more stringent over time.

Also included in the budget agreement was the House-passed Medicare Part B Improvement Act (H.R. 3178), which will create temporary transition service and education Medicare payments for home infusion beginning in 2019, as well as allow dialysis providers to seek outside accreditation from outside organizations in order to bill Medicare for end-stage renal disease services. The legislation also codifies CMS's recent changes to Stark law regulations relating to when leases are in violation of the Stark laws and when signatures will be required to document the terms of legal arrangements.