Health Policy Report

July 17, 2017

The Week in Review

Health care continued to be at the forefront of discussions in Washington last week as Senate Republicans made further progress on the Better Care Reconciliation Act (BCRA) – their plan to repeal and replace the Affordable Care Act (ACA). Senate Majority Leader Mitch McConnell (R-KY) released an updated version of the legislation on Thursday, with a series of policy changes aimed at attracting Republican holdouts on both the moderate and conservative side of the spectrum. However, despite the changes, the future of the bill is still uncertain with two Republicans — Sens. Susan Collins (R-ME) and Rand Paul (R-KY) — already announcing their intent to vote against the motion to proceed to the bill on the Senate floor. A full breakdown of the major policy changes and where senators stand on the bill is included in our roundup below.

In floor action, the Senate confirmed Neomi Rao to head the Office of Information and Regulatory Affairs in a 54-41 vote on Monday largely along party lines. Wednesday, Idaho judge David Nye was unanimously confirmed as a U.S. District Judge, the first approval of a federal judge under the Trump Administration. Private Equity Executive William Hagerty was confirmed in an 86-12 vote to be President Trump’s ambassador to Japan. 

In the House, members passed H.R. 2810, the fiscal 2018 National Defense Authorization Act (NDAA) in a bipartisan 344-81 vote. The bill authorizes $696.5 billion to the Department of Defense, with a $631.6 billion base defense budget that well exceeds the President’s request of $603 billion. Most Democrats have objected to the spending hike without an equal jump in domestic discretionary spending, setting up a likely contentious spending fight this fall. The House also passed H.R. 23, The Gaining Responsibility on Water Act, which aims to address California’s water shortage problems. The bill passed 230-190 mostly along party lines as Democrats opposed the bill due to its alleged potential to endanger the environment and weaken California state officials from properly managing its resources. 

The Week Ahead

While Republican leadership had initially hoped to have a floor vote on the BCRA this week, emergency surgery for Sen. John McCain (R-AZ) over the weekend has forced Leader McConnell to delay floor consideration at least until the week of July 24. Sen. McCain’s surgery to remove a blood clot was successful, but he will stay in Arizona this week to recover. In his absence, the Senate is expected to continue clearing presidential nominees. First in the queue is the nomination of Patrick Shanahan to take the Pentagon’s chief administrative role as Deputy Secretary of Defense.

House floor action this week will feature five bills to be considered pursuant to a rule, including legislation addressing ozone energy standards and a reauthorization of the Federal Aviation Administration (FAA). The FAA bill would fund the agency beyond its current expiration date of Sep. 30 and make a series of policy changes. In similar fashion to last year’s reauthorization effort, this year’s bill (H.R. 2997) passed out of the House Transportation Committee on a party-line vote and will likely face stiff opposition from Democrats on the House floor.

In committee action, the House Energy and Commerce Oversight and Investigations Subcommittee holds a hearing on the 340B Drug Pricing Program. On Wednesday, the House Ways and Means Committee considers fraud, waste, and abuse in the Medicare program. And on Thursday, the House Small Business Committee looks at telehealth.

GOP Leadership Plots Narrow Path to Passage for Revised Senate Bill

The legislative text to the latest version of the Better Care Reconciliation Act (BCRA) was released last Thursday, and Republican leadership began to whip votes ahead of the legislation’s anticipated floor consideration this week, which has now been delayed due to emergency surgery for Sen. John McCain (R-AZ). Two Republican senators — Sens. Susan Collins (R-ME) and Rand Paul (R-KY) — have already announced that they will vote against a motion to proceed to the bill, meaning that a single additional Republican defection would be enough to prevent the legislation from moving forward.

The vote on the motion to proceed is likely to be the crucial test as most observers expect Majority Leader Mitch McConnell (R-KY) to be able to coerce and convince 50 Republicans to vote in favor at the end of the amendment process. Beyond Sens. Collins and Paul, the most likely defectors are Sens. Dean Heller (R-NV), Lisa Murkowski (R-AK), Shelley Moore Capito (R-WV), Rob Portman (R-OH), and Mike Lee (R-UT). Some have npted that while one more definitive defection could lead more than a dozen other senators to voice opposition to the bill — all are wary of becoming the deciding vote to sink the bill.

The updated text tentatively includes Sen. Ted Cruz’s (R-TX) amendment to allow plans that do not comply with the Affordable Care Act (ACA) if issuers “sufficiently” offer ACA-compliant plans. It also includes select Medicaid changes, such as authorizing the inclusion of Medicaid expansion population in block grants at state option and modifications to the Disproportionate Share Hospital (DSH) calculation. In an effort to court moderates, the new bill would keep ACA taxes on high earners, add $70 billion in market stabilization funding, and provide an additional $45 billion in funding for opioid treatment and recovery.

A Congressional Budget Office (CBO) score on the bill’s changes aside from the Cruz amendment is expected to be released early this week (although rumors have swirled that this may be delayed) and could be the next watershed moment in determining the BCRA’s ultimate fate. Needing a score in order to comply with budget reconciliation requirements, Republicans have floated the idea of turning to the Trump administration — namely the Department of Health and Human Services (HHS) and the White House Office of Management and Budget (OMB) — to submit the necessary analysis rather than the nonpartisan CBO. While unusual, the controversial move would be more likely to conform to Republicans’ anticipated timeframe and present a rosier view of the bill’s cost and coverage implications than the CBO’s estimate. It is unclear how Sen. McCain’s surgery will affect Republican leadership’s decisions on whether to pursue an alternative legislative analysis to the CBO.

Senators Graham, Cassidy Float Alternative Repeal & Replace Approach

Concurrent with the arrival of an updated draft of the Better Care Reconciliation Act (BCRA) Thursday, Sens. Lindsey Graham (R-SC) and Bill Cassidy (R-LA) released a plan that presents an alternative approach to the “repeal and replacement” of the Affordable Care Act (ACA). The Republican Senators have indicated that the plan is not intended to compete with Senate Majority Leader Mitch McConnell’s bill, and will be offered as an amendment to the BCRA this week.

A release from Sen. Graham highlights key aspects of the proposal, under which the Affordable Care Act (ACA) taxes on net investment income, additional Medicare tax for high earners, and remuneration tax on health insurer executive compensation would remain in place, as in the revised BCRA; the medical device tax is eliminated; and the federal dollars currently raised through those taxes and spent on ACA health insurance subsidies – an estimated $110 billion in 2016 – would be block-granted to the states. Block granted funds would be restricted to healthcare spending only, and could be distributed by the states in the form of tax credits, subsidies, health savings account premiums, or other means at states’ discretion. Additionally, The ACA individual mandate and employer mandates would be repealed under Senate reconciliation rules, and ACA requirements covering pre-existing conditions would be retained.

Sens. Graham and Cassidy may also be positioning the proposal as a “back-up plan” in the event that BCRA fails to attain 50 votes. However, some of the more contentious provisions of the Senate’s current bill relate to the deep cuts and capping of the Medicaid program, and it’s unclear how the alternative plan, were it to stand alone, would differ in its approach to Medicaid. The release states that “Federal Medicaid funding to the states will continue to grow in a sustainable manner, adjusted for inflation.”

Medicare Trustees' Report says Insolvency Projected by 2029

Thursday, the Medicare Trustees released their annual report finding that the Affordable Care Act’s Independent Payment Advisory Board (IPAB) will not be trigged for 2017. The Centers for Medicare and Medicaid Services (CMS) Chief Actuary issued a determination confirming that there is no IPAB trigger for 2017. Additionally, the Trustees project Medicare insolvency by 2029, one year beyond last year’s estimate of 2028. The Congressional Budget Office in January 2016 estimated the program would be solvent only until 2026.

The Trustees note that in 2016, Medicare covered 56.8 million people, and 32 percent of beneficiaries chose to enroll in Medicare Advantage, which they expect to rise to 34 percent next year and be about 36 percent in 2026. Medicare expenditures totaled $679 billion, with future expenditures slated to “increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall,” they caution. For example, Medicare expenditures represented 3.6 percent of GDP in 2016 and will rise to 5.6 percent by 2041 under current law — mostly reflecting growth in beneficiaries — and 5.9 percent in 2091. The Trustees say “growth in health care cost per beneficiary [becomes] the larger factor later in the valuation period, particularly for Part D costs, which are not affected by legislated price reductions.”

The board, called a “death panel” by some ACA opponents, has never had to be formed. There hasn't been the need, and some say, the willingness to expend the political capital. With midterm elections coming and possible fallout likely if Republicans repeal the ACA, this is one less possible political headache to worry about. Also of note, 2029 is 12 years longer than projected estimates before the Affordable Care Act become law.

Medicare Rule Would Overhaul Outpatient Payments

The Centers for Medicare and Medicaid Services (CMS) released the calendar year (CY) 2018 Medicare Physician Fee Schedule (MPFS) proposed rule Thursday. The proposed rule updates rates and policies applicable to Medicare physicians and other professionals under Medicare Part B as of Jan. 1, 2018. One of the primary changes would scale back what's known as the 340B drug program, which allows hospitals to buy outpatient drugs at cheaper rates. The policy would hurt hospitals by requiring them to pay more for outpatient drugs. Another proposed policy would allow lucrative knee replacement surgeries to take place in outpatient departments and surgery centers instead of exclusively in a hospital.

The wide-ranging proposed rule addresses reimbursement to off-campus departments under section 603 of the Bipartisan Budget Act of 2015, telehealth, and a range of other issues. It seeks comments on biosimilar coding, E/M guidelines, emergency department visit valuations, PAMA lab rate implementation, and more. Specifically, Medicare would raise average payment rates to outpatient facilities by 1.75%, ambulatory surgery centers by 1.9% and physicians by 0.31%. Physician payments were changed under separate Medicare legislation in 2015. Payments would be slashed by 50% for hospital outpatient departments that aren't housed on the same campus as the hospital, and America's Essential Hospitals, the trade group for safety net hospitals, blasted the rules as "deeply damaging policies that would harm vulnerable patients." Additionally, CMS wants to expand a diabetes program by tying physician payments to how much weight their diabetic patients lose. Catering to the telehealth industry, Medicare would also pay for five new services (such as health risk screenings) if they are performed by video, telephone or other virtual means. Comments on the rule are due September 11, 2017.

Draft FY 18 Labor-HHS Spending Bill Released, Including $1.1B Increase for NIH

The House Appropriations Committee has released its draft fiscal year (FY) 2018 funding bill for the Departments of Labor, Health and Human Services, and Education (Labor-HHS bill). The draft measure – which includes $156 billion in discretionary funding – is roughly $5 billion below the FY 2017 enacted level. The legislation includes $77.6 billion for HHS, and although that is $542 million below last year's level, it's $14.5 billion more than the president's request. The spending bill would increase funding to the National Institutes of Health, while cutting funds for family planning, teacher training programs, and the Special Olympics.

According to the Committee press release, the $5 billion proposed reduction in spending is reflective of cuts to “lower-priority programs, while targeting investments in medical research, public health, biodefense, and important activities that help boost job growth.” The largest of the nondefense spending bills, the measure rejects numerous proposals from the Trump administration such as allowing federal funds to pay for students to attend private schools and cutting funding for the NIH, which would see a $1.1 billion increase next year, bringing its budget to around $35 billion. The bill would provide $3.5 billion for CMS administrative expenses, which is $219 million less than the agency receives this year and $137 million less than the president requested for next year. Additionally, The House bill would block HHS from using funding for Obamacare. The bill specifically calls for barring CMS from supporting navigators or collecting fees, presumably including the 3.5 percent user fee from health plans in the FFM, which is a major source of funding for exchange administration. According to CMS budget documents, the agency expects to collect $1.2 billion in fees in 2018. The bill was advanced to the full committee along a party-line vote, 9-6, and is expected to have a full committee markup on July 19.

House Passes FDA User Fee Bill by Voice Vote

The House passed the Food and Drug Administration Reauthorization Act of 2017 (FDARA) (H.R. 2430) by voice vote — a bipartisan bill to reauthorize, for five years, the user fees that help pay for the FDA’s oversight of drugs and medical devices. The relatively swift passage of the bill is attributable to efforts from both parties to resist more divisive measures, such as President Trump’s proposal to require the industry pay the full cost of medical product reviews. The bill now heads to the Senate, which is not expected to act until lawmakers reach a conclusion on their legislation to address the Affordable Care Act. Senate HELP Committee Chairman Lamar Alexander said last Tuesday that Republican leaders still plan to vote on the FDA package before the end of the August recess — the start of which has been delayed for two weeks. The House version passed today is “virtually identical” to the bill already approved by the HELP Committee, Sen. Alexander said.

The user fee programs account for about half of FDA’s yearly budget. If they are not renewed by Aug. 1, FDA will have to notify thousands of employees about the prospect of layoffs. The new five-year agreement runs from fiscal 2018 to 2022 and enables FDA’s prescription drug program to collect nearly $880 million in user fees from the industry next year. In addition, FDA would take in $494 million in generic drug fees, $183 million in medical device fees and $45 million in biosimilar fees. Besides reauthorizing the user fee programs, the bill contains a number of new directives for the FDA, including provisions requiring speedier reviews of some generic drugs and changes in how the agency will conduct medical device inspections. FDA will also be directed to work on expanding clinical trial criteria so more patients can be eligible for experimental medicines. The bill is expected to cut the time it takes the agency to approve new treatments.

Earlier last week, the House added more than a dozen new sections to the bill ahead of the floor vote, including sections aimed at curbing abuse of the orphan drug designation and policies designed to speed generic drug approvals. Most of the new elements of the House bill were added to align the chamber's legislation with the version passed out of the Senate HELP Committee. The House bill added a new title focused on pediatric drugs and devices that would allow the FDA require adult cancer drugs that share a common target with a pediatric cancer to be studied in children starting in 2020. Other new elements of the bill clarify when pediatric information can be left off a drug's label to speed access to generic medicines, and new sections mandating that FDA review generic drug applications within eight months if the brand drug patents have expired and the treatment has three or fewer approved competitors on the market.

Several sections of the bill were removed ahead of the vote, including provisions altering the notification requirements for FDA related to laboratory developed tests, requiring FDA to issue guidance on how to demonstrate bioequivalence to a reference drug to facilitate generic development, a section on information technology contracting, and legislation crafted by industry and FDA to create an over-the-counter monograph.

House Democrats Release Plan to Stabilize ACA Exchanges

Wednesday, a group of 10 House Democrats released a plan intended to improve the Affordable Care Act (ACA) by stabilizing the individual market. The plan, released by the House Democrats’ Affordable and Accessible Health Care Task Force, comes as speculation intensifies around whether Congress will pursue a bipartisan approach to stabilizing the ACA’s Exchange market should the GOP “repeal and replace” effort fall short in the Senate.

Among its key components, the plan would: (1) create an annual $15 billion reinsurance fund, (2) continue funding the ACA’s cost-sharing subsidies to insurers; (3) support enrollment advertising, (4) allow a Medicare “buy-in” option; (5) expand the ACA’s subsidies — based on age, geography, and income — to make them more affordable; and (6) expand the availability of catastrophic health plans for younger enrollees.

Additionally, the proposal suggests aligning the ACA’s open enrollment period with tax season. The plan also discusses drawing bidding areas in the individual marketplace to include a balanced pool of enrollees to improve competition in rural areas, as well as expanding use of the Basic Health Program to streamline coverage between Medicaid and the individual private insurance market. The proposal also calls for federal guidance on section 1333 of the ACA allowing states to enter into Health Care Choice Compacts, which allow insurers to sell across state lines in participating states.