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Washington Outlook

March 16, 2012

After much anticipation in Washington, House Budget Chairman Paul Ryan (R-WI) released the GOP's "Path to Prosperity" budget yesterday. The budget includes the version of premium support that was contained in the Ryan-Wyden plan released last year and will set the tone for the future budget debate, leading into what is likely to be a "lame duck" session. Meanwhile, House appropriators continue to hold hearings on the fiscal year 2013 budget, hearing testimony from administration officials including Department of Health and Human Services Secretary Kathleen Sebelius.

On the regulatory front, the Obama administration timed the release of several regulations providing details of insurance exchanges and the Medicaid expansion with the second anniversary of the healthcare overhaul law this month. The insurance exchanges are at the center of the constitutional challenges to the health law and will be the focus of the Supreme Court's deliberations, which will begin March 26 with oral arguments.

House Republicans introduce "Path to Prosperity" budget

House Budget Committee Chairman Paul Ryan on March 20 released his new budget blueprint, the "Path to Prosperity." While the premium support model included in the plan is based on his collaboration with Senator Ron Wyden (D-OR) last year with a modification of the cap on the Medicare growth rate, the blueprint echoes many of the themes from last year's proposal, including:

However, different from last year's resolution is the elimination of the pending defense reductions planned for 2013 per the Budget Control Act thresholds. To accomplish this, Ryan's budget gives reconciliation instructions to six House committees that would produce $18 billion of deficit reduction in the first year, $116 billion over the first five years, and $261 billion over ten years. The House committees' reconciliation ten-year savings numbers are as follows:

Overlapping committee jurisdictional reconciliation totals $69.9 billion, leaving them a net of $261 billion over the 2012 to 2022 window. So, while Ryan's blueprint suggests illustrative programmatic savings, "…Ultimately, the committees will be responsible for determining how to meet their reconciliation instructions. But savings could be achieved in the areas of making pensions for federal workers more like those for workers in the private sector, repealing recent expansions of the federal role in financial services, saving money in health care, means-testing entitlements, and reforming the medical liability system…"

Noting that the calculations do not represent a cost estimate for legislation or an analysis of the effects of any given policies, the Congressional Budget Office (CBO) released a report assessing how the specified paths in the Ryan plan would alter the trajectories of federal debt, revenues, spending, and economic output relative to the trajectories under other scenarios that CBO has analyzed previously.

The White House immediately released a statement criticizing the plan, which cuts the deficits in the president's own budget blueprint by half. "Instead of strengthening Medicare, the House budget would end Medicare as we know it, turning the guarantee of retirement security into a voucher that will shift higher and higher costs to seniors over time," said White House communications director Dan Pfeiffer. Senate Democrats are expected to issue an alternative appropriations proposal later today.

Bipartisan group of senators introduce unique device identification legislation

A bi-partisan group of senators on March 15 introduced the Ensuring Safe Medical Devices for Patients Act (S. 2193), a bill that will require the Food and Drug Administration (FDA) to release a rule on unique device identification (UDI) by the end of 2012 and implement a UDI system no later than a year after the final regulations are promulgated.

Sens. Jeff Merkley (D-OR), Chuck Grassley (R-IA), Michael Bennet (D-CO) and Herb Kohl (D-WI)—the sponsors of the bill—are planning to incorporate S. 2193 into a larger legislative package reauthorizing the FDA user fees, which is expected to be marked up by the Senate Health, Education, Labor and Pensions Committee later this spring.

Broad groups of stakeholders, including providers, patient safety groups and the consumers union, are supporters of the bill. Premier sent a letter in support of the bill and is mobilizing its members to urge their senators to co-sponsor or support this important legislation.

Currently, a proposed rule has been at the Office of Management and Budget since last July. This proposed rule was the response to the UDI provision in the Food and Drug Administration Amendments Act of 2007 (H.R. 3580), which became Public Law 110-85 and requires the Secretary of Health and Human Services to promulgate regulations establishing a UDI system for medical devices requiring the label of devices to bear a unique identifier. The law, however, did not provide a timeline for implementation, thus the need for congressional action.

UDI would be used to track implantable medical devices. Currently, there is no standardized way to quickly and reliably identify implanted devices. The legislation setting a timeline for UDI implementation is a response to the recent increase in the number of recalls and safety problems identified in medical devices, which include metal-on-metal hip implants.

HHS releases final rule governing insurance exchanges

The Department of Health and Human Services (HHS) released on March 12 the final rule establishing insurance exchanges that generally expands the flexibility granted to states in structuring their exchanges.

The 644-page final rule implements a provision of the Affordable Care Act (ACA) requiring the establishment of exchanges with standards for qualified health plans (QHPs) serving the individual and small group market by 2014.  The rule incorporates provisions originally published as two proposed rules—the July 15, 2011 rule titled "Establishment of Exchanges and Qualified Health Plans" and the August 17, 2011 rule titled "Exchange Functions in the Individual Market: Eligibility Determinations and Exchange Standards for Employers." Some of the provisions of the rule are designated "interim final" with a 45 day comment period.  Separately, CMS released regulations on March 16 establishing standards relating to reinsurance, risk corridors and risk adjustment to ensure that insurers do not have incentives to cover only healthy individuals.

A detailed summary of the final exchange rule is available to Premier members on the Premier Public Affairs website. 

The final rule allows states to set up an exchange either as a non-profit entity established by the state, as an independent public agency, or as part of an existing state agency. Additionally, states can join with other states in operating an exchange, or have multiple exchanges that cover distinct areas within the state.

In comments on the proposed rule for establishing insurance exchanges, Premier expressed support for the Centers for Medicare & Medicaid Services (CMS)'s general policy direction, while at the same time offered suggestions for ensuring that the policy meets the coverage and care needs of hospitals' communities. See Premier's Flash Update for details on the areas that Premier covered in its comments and the finalized provisions related to those areas.

Medicaid expansion detailed in final rule

The Centers for Medicare & Medicaid Services on March 19 released a final rule that governs the Medicaid expansion mandated by the Affordable Care Act (ACA).

ACA extended Medicaid eligibility to individuals aged 19 to 64 with incomes up to 133 percent of the federal poverty level.  The rule simplifies the application procedures and coordination between state Medicaid agencies and the new state insurance exchanges, according to CMS. In addition, the rule seeks to streamline the application process by instructing states to rely on electronic procedures to verify and renew eligibility.  In response to comments, CMS is providing increased flexibility in how states conduct eligibility determinations, allowing them to let the state exchange make eligibility determinations or make an initial determination and then forward applications to the state Medicaid agency for final determination.  

Under ACA, states are provided with 100 percent federal funding for newly eligible Medicaid enrollees from 2014 through 2016, which phases down to a 90 percent matching rate by 2020. CMS said it will release the new federal medical assistance percentage (FMAP) in a separate final rule.

The Medicaid eligibility rule is scheduled for publication in the March 23 Federal Register.

House set to vote on IPAB repeal

On March 8, the House Ways and Means Committee voted to repeal the healthcare reform law's Medicare Independent Payment Advisory Board (IPAB), which followed a March 6 vote by the House Energy and Commerce Committee approving legislation to repeal IPAB.  The IPAB repeal bill, the Medicare Decisions Accountability Act of 2012 (H.R. 452), introduced by Phil Roe (R-TN), initially gained bi-partisan support with 20 Democrats co-sponsoring the measure.  Last week, House Republicans attached the language of this bill to a medical liability reform bill, the Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2011 (H.R. 5), introduced by Phil Gingrey (R-GA), Lamar Smith (R-TX), and David Scott (D-GA) to offset the cost of repealing IPAB.  According to a recent Congressional Budget Office (CBO) report, repealing IPAB would cost $3.1 billion. However, the medical liability bill, estimated by CBO to save $57 billion over 10 years, would more than offset the cost of repealing IPAB.

Premier joined a group of associations representing hospitals, healthcare providers, insurers and patients in signing onto a letter of support for the HEALTH Act of 2011.  According to the letter, "This legislation adopts reforms which have been thoroughly tested in the states and which have proven successful in improving the medical liability climate in those states."  The HEALTH Act of 2011 addresses medical liability reform by capping punitive damages in healthcare liability lawsuits at $250,000.

Combining the bills has met with resistance from House Democrats, who generally oppose medical liability reform. According to Representative Barney Frank (D-MA), tying the bills together is "a way to destroy the chances of bipartisanship. Almost all the Democrats won't vote for it." The House will be considering six amendments to the bill, including several that would remove or limit the medical liability language. Although there is Democratic opposition to combining the bill, the Republican-controlled House is expected to vote on and pass the bill as early as March 21. However, lack of support from the White House as well as Senate Democrats indicates that the combined bill will not survive a Senate vote.. 

MedPAC issues report recommending payment cuts to outpatient E&M services

The Medicare Payment Advisory Commission (MedPAC) sent its annual March report to Congress last week which incorporates payment update recommendations that the commission approved in January, including a recommendation to reduce Medicare payments for outpatient  evaluation and management (E&M) services. 

Specifically, MedPAC is recommending that payment rates for E&M services provided in hospital outpatient departments be reduced so that total payment rates for these visits are the same whether the service is provided in an outpatient department or a physician office. The report recommends that the policy be phased in over three years and include a stop loss of 2 percent of Medicare payments for hospitals with a disproportionate share patient percentage at or above the median.  MedPAC also recommends HHS conduct a survey by January 2015 to determine if these recommendations hamper access to ambulatory physician E&M services.  House Republicans included a similar payment provision in their year-end payroll tax package to pay for a two-year physician payment fix, but the final version passed by Congress did not contain these provisions.

"We are extremely concerned about the impact this proposal will have on all hospitals, but especially those that serve as a safety net for vulnerable Medicare beneficiaries, as well as integrated health systems and academic medical centers," said Blair Childs, Senior Vice President of Public Affairs. "If adopted, this recommendation will significantly stall movement toward health system integration and coordination of care, which represent the main approach for reducing costs and improving quality without harming access for patients."

Overall, MedPAC recommends a 1 percent update in 2013 for hospital inpatient and outpatient services, beginning a gradual recovery of documentation and coding "overpayments," which occurred between 2010 and 2012. 

The report also includes MedPAC's assessment of the sustainable growth rate (SGR) system for physician payment.  The report reprints the commission's October 2011 letter to the Congress in which it recommended repealing the SGR and replacing it with specified updates that would no longer be based on an expenditure-control formula.  The SGR replacement path laid out by MedPAC would freeze payments for primary care for 10 years and for all other services would cut payments by 5.9 percent for three years, followed by a freeze.

The entire report, as well as a fact sheet summarizing key features of the report and a press release, is available at

MedPAC deliberates on rural health, post-acute bundling and dual eligibles

The Medicare Payment Advisory Commission (MedPAC) also met this month to continue deliberations on issues that will be addressed in later reports, zeroing in on Medicare payments to rural providers, bundling post-acute care services and care coordination for beneficiaries who are eligible for both Medicare and Medicaid, among other issues.

According to staff, payments are adequate across most rural sectors and for hospitals Medicare margins are healthier in rural areas, thanks to a series of payment policies implemented over the last decade. Staff also reiterated some of the more nuanced differences when examining for example, Medicare service use, on a regional level, as opposed to based on the distinction between urban and rural providers, noting that these differences tend to be more profound when examined on a geographic/regional basis as opposed to urban/rural.  While staff noted that the quality of care for skilled nursing facilities, home health agencies and outpatient dialysis facilities is similar, they concluded that hospital quality is more mixed. Based on MedPAC's analysis, readmissions are roughly equal between urban and rural areas while process measures and mortality rates tend to be worse in rural areas—a dynamic that is only partially explained by volume.

Commissioners rallied around the idea that post-actue care (PAC) bundling was an improvement over fee-for-service, but also did view bundling as the solution to decrease healthcare costs.  All commissioners seemed to agree that global payment through an accountable care organization model was the best route to healthcare reform and restructuring in the industry. Commissioners Bruce Stuart and Peter Butler among others lamented at how much variation existed among beneficiaries who needed PAC services and how difficult it was to properly risk adjust for these variations. Chairman Glenn Hackbarth summed up the discussion that there was no "buyer's remorse" about PAC bundled models, but MedPAC was less sure it was a solution to what ails the healthcare system.

On the discussion of dually-eligible beneficiaries, commissioners raised concerns about states moving large blocks of duals into managed care organizations without determining whether they can manage complex patients or whether there is adequate clinical infrastructure in place. Hackbarth said he is troubled by suggestions that some states want to enroll duals in plans automatically – particularly if beneficiaries are unable to drop plans that they believe do not meet their needs. Commissioner Bob Berenson, echoing Hackbarth's concerns, said "passive enrollment" is particularly problematic if plans have little experience managing duals and were chosen primarily to trim state Medicaid spending. The comments come as states are submitting proposals for demonstrations that would test a capitated model that features a three-way contract between CMS, a state and a health plan with negotiated rates designed to save both Medicare and Medicaid dollars, as well as a managed fee-for-service model. MedPAC said it isn't clear how many of the 38 states that filed letters of intent on the demonstrations ultimately will participate.

Slides used during the MedPAC presentation, as well as a transcript of the meeting, are posted at  

Weekly legislative and regulatory round-up

The round-up for the week of March 16, 2012 is available here.

The round-up for the week of March 2, 2012 is available here.