Weekly Washington Healthcare Update

August 17, 2012

Pardon Our Dust

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This Week:

1. Congress

House of Representatives

  • District Work Period


  • District Work Period

2. Administration

Health and Human Services (HHS)

Centers for Medicare and Medicaid Services (CMS)

3. State Activities

4. Regulations Open for Comment

5. Reports

Urban Institute/Robert Woods Johnson Foundation

6. Special Report

1. Congress

House of Representatives

District Work Period


District Work Period

2. Administration


Long-term Care Discussions

The controversy surrounding the Community Living Assistance Services and Supports (CLASS) Act looks as though it is far from over. Established as part of the Affordable Care Act (ACA), the CLASS Act is a long-term care insurance program originally scored as a money-saving provision. When HHS admitted it was running into fiscal difficulties implementing the program, it was re-scored and given a neutral score by the Congressional Budget Office. In response to rumors that HHS officials were rekindling talks with the American Academy of Actuaries, which had previously expressed doubts about the functionality of the program, Rep. Boustany (R-LA) and Sen. Thune (R-SD) sent a letter to HHS Secretary Sebelius seeking clarification on what has been labeled by some as a potentially mandatory “CLASS 2.0.” However, on Wednesday, Thomas Wildsmith, Vice President of the Health Practices Council at the American Academy of Actuaries, explained in a letter to Boustany and Thune that the Academy had unilaterally initiated discussions to explore viable long-term care financing options, thereby making good on a standing pledge to “provide consumers with robust financing options for long-term care services and supports.”

HHS/Pharmacies to Begin Medicare Public Education Initiative

HHS Secretary Kathleen Sebelius announced this week that her department would be teaming up with CVS Caremark, Walgreens, Thrifty White, Wal-Mart and Sam’s Club stores in Florida to inform seniors about changes to Medicare benefits made by the Affordable Care Act. Specifically, the initiative will focus on free preventative services made available under the health reform law, as well as decreased out-of-pocket expenses for some seniors’ prescription drug needs due to a gradual closing of the Medicare Part D “donut hole.” The move will likely add to the already politically charged atmosphere surrounding the future of Medicare, as it is shaping up to be a significant issue in the November elections.

Infectious Disease Grants Awarded

On Thursday, HHS Secretary Kathleen Sebelius announced awards of $48.8 million designed to bolster epidemiology, laboratory and health information systems in health departments in all 50 states, Puerto Rico, the Republic of Palau, the District of Columbia, New York City, Los Angeles County, Chicago, Philadelphia and Houston. Awardees will focus funds on a number of initiatives, including multi-facility infection prevention programs, electronic laboratory-based reporting plans and emerging infectious disease detection proposals.


Center for Consumer Information and Insurance Oversight (CCIIO) Issues State Partnership Exchange Blueprint

On Tuesday, CCIIO issued the final version of the exchange certification form for states. The document provides a framework in which states will submit their choice of exchange plan, including the types of documentation and testing requirements that will need to be submitted along with their signed letter of declaration from their respective governor. Among other requirements, states must certify that the state’s selected exchange format has the capacity to ensure that Qualified Health Plans (QHPs) meet actuarial value and essential health benefit standards in accordance with applicable regulations and guidance. Supporting documentation must also be included, in particular a summary of results of state-developed testing, results of state execution of HHS-developed test scenarios and a summary of independent verification of an applicable system of components.

Specifically, the blueprint outlines:

  • functions that will be performed by exchanges run by the states, or “state-based exchanges”;
  • functions performed by exchanges operated as partnerships between the federal government and states; and
  • functions that states can perform in “federally facilitated” exchanges that HHS will set up in states that do not operate either of the other two types of exchanges.

States that want to establish an exchange — or enter into a partnership with the federal government — must file applications with HHS by Nov. 16. HHS must approve the applications, or give conditional approval, by Jan. 1, 2013. Exchanges are scheduled to be operational Jan. 1, 2014. Initially, exchanges will be open to those in the individual and small group insurance markets, and states will be able to set the size of the small group market at either “1 to 50” or “1 to 100” employees, until 2016. In 2016, exchanges must allow employers with up to 100 employees to participate. In 2017, states are authorized to make health coverage under the exchange available to those employer groups with more than 100 employees.

2,211 Hospitals to be Penalized for Excessive Readmissions

Medicare payments to more than 2,000 hospitals will be reduced beginning in October because too many Medicare patients were readmitted too soon. Under the hospital Readmissions Reduction program, established by the Affordable Care Act, hospitals with excess readmissions will see their Medicare payments reduced. A total of 278 hospitals will receive the maximum penalty possible — a 1 percent reduction across the board in Medicare payments. The smallest penalties are one-hundredth of a percent, which 50 hospitals will receive. Next year the maximum penalty will increase to 2 percent. These penalties have sparked a discussion about whether or not the penalties are applied more heavily to those hospitals that disproportionately care for a more poor or underserved populations who have few resources once home. HHS has provided grants to community organizations and others aimed to assist individuals in lower-income or underserved areas.

3. State Activities

HHS Discusses Exchange Implementation With States

As many states continue to explore their options with regard to establishing health insurance exchanges pursuant to the ACA, some with an eye on the November elections, Michael Hash, director of HHS’s Office of Health Reform and acting director of the CCIIO, informed stakeholders at a meeting this week that cooperation from states would be necessary in order for the federal government to effectively run exchanges in states that choose not to do so themselves. “We want the expertise, those resources that states have historically had in their roles regulating the private insurance marketplace,” Hash said. “We don’t want to duplicate, replace what states are clearly anxious to do.”

4. Regulations Open for Comment

HHS Releases Electronic Funds Transfer (EFT) Rule

HHS released an interim final rule with comment period offering guidance on the operation of electronic health care transactions under HIPAA. The rule implements portions of Sec. 1104 of the Affordable Care Act (ACA), and it is expected to save $9 billion over the next 10 years “by reducing inefficient manual administrative processes for physician practices, hospitals, and health plans,” HHS said. Comments on the rule, which is scheduled to be published in the Aug. 10 Federal Register, are due Oct. 9.

FDA Proposes Unique Device Identifier (UDI) Rule

The FDA will accept comments on the proposed rule to implement a Unique Device Identifier system for medical devices distributed in the United States. Comments on the proposed rule will be accepted either electronically or written until Nov. 7, 2012. 

CMS Proposes Policy and Payment Changes for OPPS and ASC Payment System

CMS will accept comments on the proposed rule until Sept. 4, 2012. A final rule is expected by Nov. 1, 2012. For more information on the CY 2013 proposals for the OPPS and the ASC payment system, please visit the Office of the Federal Register website.

CMS Issues Medicare Physician Fee Schedule Proposed Rule

CMS will accept comments on the proposed rule until Sept. 4, 2012. A final rule is expected by Nov. 1, 2012. For more information, please visit the Office of the Federal Register website.

CMS Proposes Changes to Medicare Home Health PPS for CY 2013

CMS will accept comments on the proposed rule until Sept. 4, 2012. The rule was published on July 13, 2012, in the Federal Register.

CMS Proposes Policy and Payment Rate Changes for End-Stage Renal Disease Facilities in 2013

CMS will accept comments on the proposed rule until Aug. 31, 2012. To read the proposed rule, please visit the Office of the Federal Register website.

5. Reports

Urban Institute/Robert Woods Johnson Foundation

Medicaid Expansion Would Help Childless Adults

A study conducted by the Urban Institute, in conjunction with the Robert Woods Johnson Foundation, found that of the approximately 15.1 million individuals who could receive Medicaid as a result of states opting to expand the program to cover all individuals up to 138 percent of the federal poverty line (FPL), nearly 80 percent are adults not living with a dependant child. Currently, many states are making calculations as to whether or not to comply with a provision in the 2010 health law providing for Medicaid expansion. In June, the U. S. Supreme Court ruled that withholding existing Medicaid funding from states choosing not to implement the expansion was unconstitutional, making the expansion essentially optional for states.

6. Special Report

Sequestration: Background and Major Health Implications

Unless Congress acts, before Jan. 1, 2013, many government programs will be subject to spending cuts under a “sequester.”

I. Background

“Sequestration” refers to a process through which fiscal goals are achieved through automatic spending cuts, including canceling new budget spending authority, unobligated balances and direct spending. Sequestration was first used as a spending reduction tool in 1985 when Congress passed the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA). It was also used in the 1990s.

In 2011, Congress passed the Budget Control Act (BCA), which created the Special Committee on Deficit Reduction (also known as the “Super committee”). BCA also included sequestration as a fall back enforcement mechanism to ensure spending reductions in the event that the Committee was unable to meet its target reductions.

Specifically, the law established $2.1 trillion as the goal for deficit reduction. These savings were to be achieved through a combination of spending caps on discretionary spending, accounting for $0.9 trillion, and other deficit reduction efforts of $1.2 trillion (spending cuts or tax increases) to be decided by the new Joint Select Committee on Deficit Reduction. As an incentive for the Joint Select Committee to succeed, the BCA provided for sequestration should the committee fail to achieve the targeted level of savings.

In fact, the Joint Select Committee was not able to reach agreements on how to reduce the deficit. As a result, on Jan. 2, 2013, the first year of sequestration will take effect, automatically reducing federal spending by a total of $109 billion.

Sequestration, as applied by the BCA, largely applies across all federal programs, though certain programs are explicitly exempt from the cuts, and others are governed by special rules. Beyond these unique exceptions, it is unclear to what extent individual programs and other government activities will be impacted by the sequester cuts. The Office of Management and Budget (OMB) will factor heavily into the process.

To that end, under the terms of the recently enacted Sequestration Transparency Act (P.L. 112-155), the President will issue a report before Sept. 6 illustrating which federal spending accounts, discretionary and mandatory, defense and nondefense, will be sequestered, and the percentage reduction that must be applied in order to achieve the required savings.

Though details are not yet known about what the impact of sequestration on those programs fully exposed to spending reductions will be, the law clearly defines what programs are statutorily exempt from the cuts, as well as the extent to which certain programs that are insulated from sequestration will be affected. For example, many programs that assist vulnerable populations are exempt from the sequester. This exemption includes programs such as Social Security, Medicaid, the Children’s Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP).

II. Select Program Impact


The BCA limited Medicare spending reductions to 2 percent. In comparison, under the sequestration authorized in 1985, Medicare spending reductions were limited to 4 percent. The CBO projects the sequester will decrease Medicare spending by about $100 billion between 2013 and 2022. However, in arriving at this score, CBO assumes current law spending provisions will remain in effect, namely the repeatedly averted cuts Medicare spending called for under the Sustainable Growth Rate (SGR) and cuts to be made by the not-yet-operational Independent Payment Advisory Board (IPAB).

For Medicare Parts A and B, the spending reductions ordered by sequestration would come in the form of reduced reimbursements to hospitals, physicians and other providers, as opposed to changes in benefit structure. However, both CBO and the Centers for Medicare and Medicaid (CMS) Actuary have warned that excessively reducing reimbursement could jeopardize access for some beneficiaries because providers may opt to leave the program. In the case of Parts C and D (Medicare Advantage and Medicare’s prescription drug benefit), the reductions would be made to the monthly payments paid to private plans administering these respective parts of the program.

In addition, specific aspects of Medicare are exempt from any sequestration cuts. These include subsidies for low-income individuals’ Part D prescription drug premiums, Part D catastrophic subsidies that individuals receive as their out-of-pocket expenses exceed the “donut hole” threshold, and Qualified Individual (QI) premiums.


As previously mentioned, the Medicaid program and the Children’s Health Insurance Program (CHIP) are exempt from spending reductions and spending caps.

Veterans Affairs (VA) Programs

All programs administered by the Department of Veterans Affairs are exempt from sequestration. Interestingly, though, while all VA programs are explicitly exempt under Section 255 of the BCA, Section 256 outlines special sequestration rules for VA medical care similar to those governing Medicare spending sequestration. The apparent discrepancy was clarified by OMB in an April 2012 letter advising that “all programs administered by the VA, including Veterans’ Medical Care, are exempt from sequestration under Section 255(b).”

Affordable Care Act (ACA) Programs

The ACA, which became law in March 2010, provided for significant changes to the private health insurance market, such as establishing minimum coverage standards and requiring that most U.S. citizens possess such coverage, among other provisions. While some of the activities provided for under the law are funded through annual discretionary appropriations, including several new grant programs, others, such as tax credits for small businesses to help offset employee health insurance costs, receive mandatory funding. The BCA exempts from sequestration many mandatory spending programs related to the ACA. At the same time, discretionary spending under the ACA will be subject to both across-the-board sequestration cuts as well as annual discretionary spending caps established under the budget law.

For example, mandatory spending for a provision in the ACA allowing states to expand their Medicaid programs to include all individuals earning up to 133 percent of the federal poverty level (FPL) would not be subject to sequestration because Medicaid is explicitly exempt from cuts. Mandated funding within the ACA for health insurance subsidies for individuals earning between 133 percent to 400 percent of FPL will likely also be exempt from sequestration. Combined, these two initiatives comprise nearly $1.37 trillion of health reform’s $1.5 trillion in coverage expansion funding. However, funding amounting to roughly $100 billion to assist individuals with out-of-pocket medical costs, and an additional $20 billion in tax credits to help small businesses afford coverage for their employees, would likely be subject to sequestration.

Funds authorized by ACA but subject to Congress’s annual appropriations process, would be subject to the sequester because they are “discretionary” funding and will come under spending caps established by BCA for appropriated funds. CBO estimates that these provisions, if fully funded, would cost roughly $100 billion over the period FY2012-FY2021, though it’s unlikely any new discretionary spending program established by the ACA will receive funding. These programs account for $15 billion in authorized funding. However, to date, none have received annual appropriations since the law’s inception in March 2010.

III. Conclusion

Politically, the implications of the looming sequester are profound. How to deal with the $109 billion in spending cuts that will begin on Jan. 1, 2013, represents a significant political gauntlet that both parties will have to navigate, if for no other reason than having been established through a bipartisan agreement. Congress does seem to be on track to avoid intermingling annual discretionary appropriations with sequester-related negotiations, because a Continuing Resolution (CR) to fund the government through the first six months of the next fiscal year is expected to be approved when Members return to Washington next month. However, further complicating matters related to sequestration are the virtually simultaneous deadlines for addressing matters such as the expiring Bush-era tax cuts, the need to address Sustainable Growth Rate reductions in Medicare physician reimbursement and extending a temporary Alternative Minimum Tax (AMT) patch. That said, with Washington fixated on the November elections, it’s expected that the next two months will produce little the way of substantive solutions.

If you have any questions, please contact Stephanie Kennan, Senior Vice President, or Brian Looser, Assistant Vice President, at McGuireWoods Consulting.

Founded in 1998, McGuireWoods Consulting LLC (MWC) is a full-service public affairs firm offering state and federal government relations, national/multistate strategies, infrastructure and economic development, strategic communications and grassroots issue management services. McGuireWoods Consulting is a subsidiary of the McGuireWoods LLP law firm and in 2010 was ranked in the Top 20 of The National Law Journal‘s “The Influence 50,” an annual report of the top public affairs firms in Washington, D.C.

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