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Washington Outlook

September 30, 2011

While approving a stop-gap measure that keeps the government running until next Tuesday, House appropriators this week targeted healthcare overhaul law elements in a bill that would extend current federal spending until October 4. Pushing in the opposite direction, the Obama administration yesterday asked the Supreme Court to take up an appeals court ruling that a key element of the law is unconstitutional. A ruling could come sometime in the summer of 2012.

In its continuing effort to work on solutions to a problem that is plaguing its member hospitals and the patients they serve, Premier testified last week at a House committee hearing on drug shortages. The issue is gaining the attention of lawmakers and is front and center for the Food and Drug Administration, which has held a series of public forums and webinars focused on addressing the problem.

Weighing in on several other federal healthcare policy issues, Premier advocated in letters to government agencies for the immediate release of a proposed rule implementing a national mandatory identification system for medical devices and for flexibility in IRS regulations relating to new requirements on nonprofit hospitals to produce a community needs assessment. 

Stop-gap measure keeps government funded; proposed appropriations bill would void healthcare reform funding

The House on Thursday approved without fanfare a temporary measure that will keep the government funded until October 4, at which point House lawmakers will vote on a Senate-passed stop-gap measure that expires in mid-November. With no fiscal year (FY) 2012 budget bill in place, the Senate passed its version of both these bills earlier this week.

Meanwhile, the House Appropriations Committee on Thursday released legislation funding the Departments of Labor and Health and Human Services (HHS) for FY 2012 that would prohibit funds from being used to implement healthcare reform until the court challenges are settled and would rescind $8.6 billion in funding for the law. Overall, the bill would provide $153 billion for the agencies’ programs, which meets the discretionary spending targets set by the August debt-ceiling deal. For HHS, It would provide $70.2 billion in discretionary spending, $200 million less than last year’s bill and $2.8 billion less than Obama requested.

Among other reform-related cuts, the bill would block $15 million dedicated to financing the Independent Payment Advisory Board and rescind funding for the Center for Consumer Information and Insurance Oversight, the agency overseeing the law’s implementation relating to insurance exchanges. In addition, the measures would cut $1 billion from the Prevention and Public Health Fund.

While Democrats are lamenting the cuts in the bills, conservative Republicans have voiced concern that the spending levels are still too high.

Lawmakers and stakeholders petition deficit reduction panel

While Congress wrestles with the annual appropriations issues, deliberations by the bicameral deficit reduction panel, created by the August debt limit deal (PL 112-25), are in full swing.  Members of the Joint Select Committee on Deficit Reduction held two hearings in September examining the history and drivers of the nation’s debt, revenue options to bring down the deficit and reforming the tax code.

Healthcare provider groups’ concerns over potential cuts mounted as the president’s proposal, released on September 19, called for $320 billion in reductions to Medicare and Medicaid.  Specific hits to hospitals include reducing payments for bad debt, indirect graduate medical education and for certain rural hospitals. The White House also recommends that the federal Medicaid matching rate be converted into a single “blended rate” for states. Under the proposal, the federal medical assistance percentage (FMAP) would be replaced with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.

The committee is receiving an abundance of advice from both lawmakers in Congress and outside stakeholders, who are petitioning the panel to adopt their recommendations on how to reduce spending while protecting their constituencies. Congressional committees have until October 14 to submit recommendations to the Joint Select Committee on Deficit Reduction.  The forthcoming recommendations will mean that the panel will be dealing with conflicting advice on how to move forward. 

Health groups, in particular, have weighed in with letters advising the deficit committee and Premier will soon be submitting its recommendations on how to achieve savings without further cutting payments for hospital care.

In the context of the ongoing budgetary issues and concern for the growing federal deficit, the House Ways and Means Health Subcommittee held a hearing to examine certain expiring Medicare provider payment provisions.  In testimony, Richard Umbdenstock, president and CEO of the American Hospital Association, among others, testified as to the importance of certain expiring Medicare payment policies – such as those concerning the work geographic practice cost index and the section 508 program and how critical those “extenders” are in ensuring that payment rates to providers are indeed appropriate and that Medicare beneficiary access is maintained, if not enhanced. 

Premier testifies at House Energy and Commerce Committee hearing on drug shortages

Premier Chief Operating Officer Mike Alkire testified on September 23 before the House Energy and Commerce Health Subcommittee during a hearing examining the recent increase in drug shortages. Alkire shared with the panel two analyses conducted by Premier that show the scope of the drug shortage problem and its effect on patient safety and costs. Alkire also offered several recommendations to Congress and the Food and Drug Administration (FDA) to address the problem.

The panel heard testimony and raised questions focusing on the causes and impact of drug shortages, the emerging gray market for drugs in shortages, and the steps the government, providers and industry are taking to prevent and respond to the growing problem.

Subcommittee Chairman Joe Pitts (R-PA) noted that so far this year, the FDA has continued to see an increasing number of shortages, especially those involving older sterile injectable drugs. Pitts suggested that these shortages have involved cancer drugs, anesthetics used for patients undergoing surgery, as well as drugs needed for emergency medicine and electrolytes needed for patients on IV feeding. 

Alkire shared with the subcommittee an analysis undertaken by Premier that found that more than 240 drugs were either in short supply or completely unavailable in 2010; over 400 generic equivalents were back-ordered for more than five days; and many of the drugs noted as back orders in 2010 have remained unavailable or in short supply in 2011. Premier’s study also found that 89 percent of hospitals experienced shortages that had the potential to cause a medication safety issue or an error in patient care. Alkire added that Premier has determined that the average markup being offered to hospitals by “gray market vendors” is 650 percent and many others were far higher. In fact, the highest markup was more than 4,500 percent, according to Premier’s analysis.

“In this crisis we hope people would do everything they can to help patients get the drugs they need,” said Alkire. “Instead, we have seen “gray market” vendors taking advantage of the problem, offering to sell shortage products at exorbitant prices.”

Premier’s testimony can be found on the Energy and Commerce Health Subcommittee hearing website

The chief witness, Howard Koh, assistant secretary of health with the Department of Health and Human Services (HHS) reported on the steps HHS and the FDA are taking to find solutions to drug shortages, highlighting that FDA prevented 99 shortages in 2011. Koh responded to questions from the subcommittee members on why drug shortages have increased in recent years, how long it takes for FDA to approve a new ingredient supplier or a new manufacturing site, whether this delay has any implications on the availability of needed drugs and if this process is expedited in cases of drugs that are experiencing shortages.  

Witnesses suggested to lawmakers a number of regulatory or legislative changes that could help alleviate the problem including: increased notification to FDA of impending drug shortages; new user fees that would provide FDA with the resources needed to improve approval times; and more flexibility in the Drug Enforcement Administration quotas that currently limit manufacturing for controlled substances.

Premier reinforced its message on the urgency of dealing with the problem during a September 27 FDA public workshop. Bryant Mangum, Premier’s vice president of pharmacy, provided an overview of Premier’s analysis on drug shortages and suggested possible solutions moving forward. The industry panel in which Premier participated, which also consisted of drug manufacturers, focused on the causes of the delays—touching on manufacturing issues, FDA’s pace on reviewing items needed for products in shortage and the generic drug user fee which is expected to be enacted into law to help speed up the FDA review process. In responding to questions about the gray market and how it functions, consensus emerged among the panelists that more should be done to put an end to this practice.

Patient safety coalition urges OMB to release proposed rule on unique device identification

A broad-based coalition of provider, research, quality and patient advocacy groups this week urged the Office of Management and Budget (OMB) to release a proposed rule to create a national identification system for medical devices. In a September 19 letter to OMB Director Jacob Lew, the Advancing Patient Safety (APS) Coalition, of which Premier is a member, underscored the safety risks and costs associated with the lack of an effective way to track medical devices.

“It is imperative that OMB work expeditiously to release the proposed UDI rule, as the rule is critical to patient safety improvement initiatives and medical error reduction,” wrote the groups. “Unlike other products on the market in America, there is no uniform identification system for medical devices. The resulting ad hoc approach results in increased clinical risks to patients and an estimated $16 billion in costs annually due to inefficiencies in the medical products supply chain.”

In 2007, Congress passed the Food and Drug Administration Amendments Act (Public Law 110-85), which required the Secretary of Health and Human Services to promulgate regulations establishing a unique device identification (UDI) system for medical devices. The law, however, did not provide a timeline for implementation and, while the FDA has sent a proposed rule to the OMB for clearance, OMB has not yet released it.

The groups cite the dangers of further delaying the implementation of a UDI system, such as implanting a defective, counterfeit, or recalled product, inability to track the recipient of a faulty product (recalls) and inability to track adverse events appropriately.

Premier presses IRS for flexibility for nonprofit hospitals in complying with new community needs assessment

Nonprofit hospitals must be allowed the flexibility to manage, measure, meet and report identified community health needs as part of the new requirements imposed by the healthcare reform law, Premier said. In comments to the Internal Revenue Service (IRS) in response to its notice and request for comments on the community health needs assessment (CHNA), Premier offered support for the overarching goals of the proposal to increase transparency in community health needs assessments and community benefit planning and outlined its recommendations for carrying out the new CHNA requirements.

The Affordable Care Act (ACA) requires nonprofit hospitals to document billing and collection practices as well as conduct a CHNA. ACA requires that beginning with taxable years after March 23, 2012, a hospital must conduct a CHNA every three years and adopt an implementation strategy to address identified needs in order to continue to be treated as a 501(c)(3) tax-exempt organization.

“Simply stated, a one-size-fits-all approach with stringent and narrow requirements will not work for hospitals and their communities since they have diverse geographic and population health issues,” wrote Blair Childs, Premier’s senior vice president of public affairs. “Therefore, we urge the IRS to fully carry out the intent of Congress when implementing this important requirement in regulations and through sub-regulatory guidance by adopting broad and flexible requirements that are applicable to all.”

Premier urged IRS to broadly define a “hospital facility” and to take a flexible approach in requiring documentation of a CHNA and how and when a CHNA is conducted. Premier also asked that discretion be given to hospitals to determine what people represent the broad interests of the community from which they must take into account input. In its comments, Premier agreed with IRS that a CHNA should be considered made “widely available to the public” if it the written report of the CHNA findings is posted on the hospitals facility’s or hospital organization’s website. However, rather than requiring nonprofit hospitals to have an implementation strategy that addresses each of the community health needs identified through a CHNA as IRS proposes, Premier asked that hospitals be allowed to list three to eight community health needs, which is more practical given hospitals’ limited resources. 

CMS issues final rule on Medicaid RACs

The Centers for Medicare & Medicaid Services (CMS) has issued its final regulation for Medicaid Recovery Audit Contractors (RACs) amidst White House focus on eradicating fraud and abuse generally.  The final rule provides guidance to states related to federal/state funding of state start-up, operation and maintenance costs of Medicaid RACs and the payment methodology for state payments to Medicaid RACs. This rule also directs states to assure that adequate appeal processes are in place for providers to dispute adverse determinations made by Medicaid RACs. Lastly, the rule directs states to coordinate with other contractors and entities auditing Medicaid providers and with state and federal law enforcement agencies. These final regulations are effective on January 1, 2012. 

Following the release of the rule, the American Hospital Association expressed concerns that CMS did not pick up on some of the lessons learned from the Medicare RACs program, but also voiced support for modifications CMS made to improve the program, including:

House passes legislation to fund graduate medical education at children’s hospitals

A bill to reauthorize funding for the Children’s Graduate Medical Education Program (CHGME) program passed the House on September 20 after working its way through the Energy and Commerce Committee with wide bipartisan support. The Children’s Hospital GME Support Reauthorization Act of 2011 would continue funding the program for five years at current levels ($330 million).

Premier has urged lawmakers to pass the bill, saying the program is “critically important to children’s hospitals, particularly at a time when hospitals face cuts to Medicare and Medicaid funding.”

A companion bill (S. 958), introduced by Senator Robert Casey, Jr. (D-PA), was reported out of the Senate Health, Education, Labor, and Pensions Committee on September 12 and is now awaiting Senate floor consideration.

While the Obama administration had requested zeroing out funding for the program, both the House and Senate versions of the fiscal year 2012 appropriations bills that have been proposed provide funding for CHGME.

MedPAC’s offers offsets for preliminary SGR fix proposal

As expected, the Medicare Payment Advisory Commission (MedPAC) released on September 19 a draft list of savings proposals for the purpose of assisting Congress in offsetting the budgetary cost associated with repeal the Medicare Sustainable Growth Rate (SGR) used to determine Medicare payments for physicians. On September 15, MedPAC met to discuss options for reforming the SGR and focused around a $200 billion/10-year proposal that calls for fee schedule rates to be frozen for primary care physicians while all other services would be cut by 5.9 percent annually for the first three years followed by a freeze.

To offset the cost of averting a 30 percent cut in Medicare physician payments that will occur in 2012 without congressional intervention, the initial plan put forward by MedPAC would excise roughly $230 billion from other areas of Medicare. As noted by MedPAC, the items on the list are preliminary and this subject to change pending further discussion by MedPAC. MedPAC intends to finalize its recommendations on replacing the SGR and how to pay for it at next month’s meeting, which is scheduled for October 6-7.

Specifically, the offsets are divided into two “tiers” with Tier 1 reflecting proposals that have been previously recommended by MedPAC but have not yet been implemented and Tier II containing proposals put forward by outside groups such as the Department of Health and Human Services Office of Inspector General and the Congressional Budget Office, as well as MedPAC staff analysis.

Specific to hospitals, MedPAC suggests achieving $14 billion in savings by limiting the hospital update to 1 percent for fiscal year (FY) 2012 and $10 billion in savings by paying evaluation & management visits in hospital outpatient departments at physician fee schedule rates. Among other options on MedPAC’s preliminary list is a 0 percent update in FY 2012 for inpatient rehabilitation facilities, long-term care hospitals and home health services and raising the compliance threshold for inpatient rehabilitation facilities to 75 percent.

Both MedPAC’s proposal to reform the SGR and the potential list of offsets has drawn considerable ire from provider groups, including the American Medical Association and the Alliance of Specialty Medicine. President Obama’s deficit reduction proposal released earlier this month recommends doing away with the SGR formula, but did not contain a way to pay for it. Additionally, the Joint Select Committee on Deficit Reduction may opt to use the offsets identified by MedPAC to reach their $1.2 trillion savings target.

Weekly legislative and regulatory round-up

The round-up for the week of September 30, 2011 is available here.

The round-up for the week of September 23, 2011 is available here.