Washington Healthcare Update

November 20, 2017

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This Week: Congress leaves for Thanksgiving recess … Senate passes tax bill that repeals ACA’s individual mandate … 340B program cuts subject of lawsuit and new legislation … CMS proposes changes in Part D and Medicare Advantage … And looking ahead the federal government runs out of funds Dec. 8.

Because of Thanksgiving, the next newsletter will be Dec. 4.

1. Congress



2. Administration

3. Reports

1. Congress


Bipartisan Bill to Stop 340B Program Cuts Introduced While Hospitals Sue to Stop Cuts

Reps. David McKinley (R-WV) and Mike Thompson (D-CA) introduced legislation to stop the Centers for Medicare and Medicaid Services (CMS) from cutting hospital reimbursement for 340B drugs in 2018. CMS cut reimbursement 27 percent for Part B drugs that hospitals buy through 340B. The policy is budget neutral, so the $1.6 billion in cuts will be distributed equally among hospitals for other services, including to hospitals that don’t qualify for 340B.

The American Hospital Association, America’s Essential Hospitals and Association of American Medical Colleges praised the bill, which was introduced days after the hospitals launched a lawsuit on Nov. 13 to stop the regulations from going into effect.

McKinley and Thompson spearheaded a letter in opposition to the cuts that was signed by 228 House members.

“I’m disappointed that CMS did not listen to hospitals, nor a majority of members in the House and Senate, and approved a rule that puts both hospitals and patients at risk,” said Thompson in a statement. “I will work with my colleagues on both sides of the aisle to stop this rule and ensure the 340B program can continue to serve low-income populations as Congress intended.”

Reps. Bill Johnson (R-OH), David Kustoff (R-TN), Joe Courtney (D-CT) and Kathy Castor (D-FL) immediately signed on to the bill.

In the hospitals lawsuit, hospitals are asking the federal district court to say the cuts are unlawful and impair 340B, and to order CMS to strike the policy and go back to the pay method used in the 2017 pay rule. Alternatively, the hospitals are asking the court to suspend the policy until the lawsuit is concluded.

CMS justified the reimbursement cuts by saying the new rates better match hospitals’ acquisition costs, but hospitals said CMS invoked authority to adjust pay rates based on a reimbursement option that does not take acquisition cost into account.

The hospitals also say the legal authority to calculate and adjust the hospitals’ pay rate for drugs doesn’t allow CMS to reduce the pay rate almost 30 percent, it only allows CMS to fine-tune the default rate to reflect changes to overhead and expenses.

The lawsuit says CMS exceeded its authority because the provision undermines 340B by depriving hospitals of resources Congress intended them to have.

Rep. Issa and IPR Legislation

In the wake of the controversy surrounding Allergan’s decision to lease its patents for Restasis to a Native American tribe, the head of the congressional subcommittee with jurisdiction over the inter partes review process is writing legislation aimed at reforming the process. Rep. Darrell Issa (R-CA) said at a hearing Nov. 7 that he envisions the upcoming legislation as a compromise meant to address what some branded firms see as unfair advantages built into the IPR process for potential competitors.

Experts were on diametrically opposed sides on the effects of the IPR process, particularly when it comes to its impact on the Hatch-Waxman system. While one expert argued the system allows generics to jump the gun in challenging patents before the times mandated in the generic pathway kick in, one generic-side lawyer said the process is vital to the Hatch-Waxman framework, and if schemes like Allergan’s continue it could put a wrench in traditional Hatch-Waxman litigation. Allergan announced in September that it sold all its Orange Book-listed patents for its eye-drop product Restasis to a Mohawk tribe to dodge pending challenges under the IPR system. On Sept. 22 the Mohawk tribe filed a motion to dismiss the pending patent challenges based on the sovereign immunity of the tribe.

Sen. Claire McCaskill (D-MO) has introduced legislation in the Senate to abrogate tribes of their sovereign immunity, but Issa, chairman of the House Judiciary subcommittee on courts, intellectual property and the internet, announced during a hearing that he would be writing legislation as well.

To view the hearing, click here.


Senate Finance Committee Passes Tax Bill That Includes Individual Mandate Repeal

The Finance Committee voted along party lines, 14-12, to forward tax legislation on to the full Senate. Approval came after four days of sometimes testy consideration, during which Republicans substantially revised the measure while voting down dozens of Democratic amendments.

Senate Finance Committee Republicans released on Nov. 14 an updated version of their tax reform plan, which includes language repealing the ACA’s individual mandate in 2019, infuriating Democrats. Removing the requirement for most Americans to have insurance allows Republicans to say they’ve fulfilled their campaign pledge to roll back the Affordable Care Act, as well as added a revenue source to help pay for tax cuts. Repealing the individual mandate would generate $338 billion over a decade.

Senate leaders aim to take up the bill—which would cut both business and individual taxes while killing Obamacare’s individual mandate requiring health insurance—after Thanksgiving. 

2. Administration

Alex Azar Nominated for HHS Secretary

The White House has nominated Alex Azar for secretary of HHS, touting his advocacy for generic drug competition as evidence that he will, as President Donald Trump promised, rein in high drug prices.

Azar, an HHS veteran and former executive at Lilly, has in the past attempted to shift blame for high drug prices from drug companies to other entities in the drug supply chain, including payers.

The Senate HELP Committee has scheduled its confirmation hearing on Alex Azar’s nomination for HHS secretary for Nov. 29. The HELP Committee hearing will be the first of two confirmation hearings for Azar, who was nominated in the wake of Tom Price’s resignation over a private jet scandal. The Finance Committee, which has jurisdiction over the nomination, has not yet scheduled a hearing but is expected to do so in an attempt to have the nominee confirmed by the end of the year.

Centers for Medicare and Medicaid Services (CMS) New Medicare Card Provider Omnbudsman Announced

Dr. Eugene Freund will be serving as CMS’s provider ombudsman for the new Medicare card. The ombudsman will ensure that CMS hears and understands implementation problems experienced by clinicians, hospitals, suppliers and other providers. To reach the ombudsman contact NMCProviderQuestions@cms.hhs.gov.

Part D Proposed Rule for 2019 Released

CMS released proposed 2019 regulations for the Medicare Advantage and Medicare Part D prescription drug programs on Nov. 16. The 713-page rule implements changes that were part of the Comprehensive Addiction and Recovery Act and the 21st Century Cures Act.

Several of the changes to Medicare Part D, CMS says, should ensure beneficiaries have access to more affordable drugs. The changes would not directly affect the underlying prices drug companies charge for medicines.

Also, buried in hundreds of pages is a request for public comment on how to share the rebates and discounts that are negotiated by manufacturers, pharmacists and insurers. Insurers and pharmacy benefit managers, or PBMs, administer Medicare’s Part D drug program and negotiate behind-the-scenes fees and discounts that are often hidden from public view.

Requests for comments are open until Jan. 16.

Among the changes included in the proposed parts of the proposed rule are:

  • Allowing enrollees to buy drugs at the pharmacy they prefer, by revising participation rules to motivate more local pharmacies to participate in the program.
  • Lowering drug costs by allowing for midyear changes to prescription drug formularies when a generic becomes available.
  • Treating lower-cost drugs called biosimilars the same as generics when determining how much they cost out of pocket.

Another proposed change would let patients’ access drugs at whichever pharmacy they prefer. CMS says this would promote greater local pharmacy participation and preserve beneficiary access to delivery options. However, CMS is proposing to require certain patients at risk of opioid abuse to obtain their opioids from selected prescribers or pharmacies to try to combat abuse.

For Medicare Advantage plans, CMS is proposing loosening the rules in order to expand options. 

Currently, insurers must show their plans are “substantially different” from others they offer in the market in terms of premiums, cost-sharing and benefits. In the proposed rule, CMS wants to end that requirement. “This proposal aims to improve competition, innovation, available benefit offerings, and provide beneficiaries with affordable plans that are tailored for their unique health care needs and financial situation,” the proposed rule states.

CMS notes that it will continue to prohibit plans that mislead beneficiaries and that it will maintain the authority to review plans that fail to attract a significant number of enrollees.

The agency is also loosening rules around communicating with Medicare beneficiaries, allowing plans to send more materials electronically. The agency notes that insurers have complained about the expense of mailing paper documents to their customers. Medicare beneficiaries would still have the right to request written materials if preferred.

Another significant proposed change: allowing insurers to count fraud-detection activities in meeting medical-loss ratio requirements, which limit insurers’ administrative spending.

To read the proposed rule, click here.

CMS Sends Funds to States for CHIP

CMS has provided nine states and the District of Columbia with about $600 million to keep their Children’s Health Insurance Programs running since Congress failed to pass a funding extension.

CMS distributed the money in October and November, with some states getting funding for the first time this month and others getting an additional cash infusion, according to the agency. Those getting funding for the first time this month included Utah ($13.8 million), Pennsylvania ($8.4 million), Massachusetts ($50.7 million) and Florida ($63.7 million). Arizona, California, Minnesota, Oregon and Washington state received funds from CMS last month.

CMS Releases Risk Corridor Data

CMS on Nov. 13 released issuer-level data on money owed to issuers and vice versa for the Affordable Care Act’s risk-corridor program that ended in 2016, revealing that the agency is still working to pay issuers back from the program’s massive shortfall.

“Because 2015 benefit year collections were insufficient to pay 2014 benefit year payment balances in full, HHS will use 2016 benefit year risk corridors collections to make additional payments toward 2014 benefit year payment balances,” the agency says. CMS does not include totals.

Several smaller insurance plans, in addition to a number of the ACA’s health co-ops, pointed to the risk corridor program’s shortcomings as a key reason for their failures. A number of issuers have sued the administration either on their own or as part of a larger class action case.

The risk corridor program was designed to protect issuers from underpricing or overpricing products in the initial years of the new exchange market. Issuers earning more than 3 percent of expected margins were required to pay into a pool, while those who lost more than 3 percent would get payments. Congress did not envision the program as budget neutral, but later made sure it would be by blocking CMS from using program management funds to fill any budget shortfall.

Unfortunately for issuers, far more plans lost money than earned too much, which created a huge shortfall. In 2015, CMS announced it would only be able to pay 12.6 percent of the funding requested, or about $262 million out of $2.87 billion. CMS pledged to make issuers whole by using money collected in subsequent years to pay issuers back, but the losses continue to outweigh the earnings.

In 2014, the Obama administration paid out just 12.6 percent of the $2.9 billion claimed by insurers. For 2015, all payments once again went toward making good on those unpaid 2014 claims. That will be the case in 2016, as well.

The risk corridors program expired after three years. More than a dozen insurers have sued the federal government in the Court of Federal Claims seeking billions of dollars. Judges have split on whether those claims have merit. That means the issue will likely be decided by an appellate court. Lawsuits filed by Land of Lincoln Health and Moda Health will be heard by the same three-judge appellate panel.

FDA Releases Regenerative Medicine Guidance

The FDA on Nov. 16 released a series of guidance documents for how it will oversee the development of regenerative medicine products, a growing industry that’s shown increasing promise but also faces mounting scrutiny from drug regulators.

Regenerative medicine includes human cells, tissues, and cellular- and tissue-based products like stem-cell treatments or gene therapies. FDA’s authority over some of these treatments has been murky over the years, leading in some cases to the proliferation of unapproved dangerous products that have harmed patients.

The new FDA documents provide clarity on which treatments must get agency approval before marketing and describe FDA’s policy for targeting harmful treatments. The agency said it hopes to strike a balance of speeding promising treatments to market while protecting patients from products that pose significant risks.

Two final guidance documents will help companies determine whether their products are regulated as drugs, devices or biological products or whether they are exempt from FDA’s premarket review.

The first guidance clarifies when cell- and tissue-based products can be exempted from FDA review, if they are removed from and implanted into the same individual within the same procedure and remain in their original form. The second guidance explains when cells or tissues that do undergo significant manufacturing or are no longer intended to perform the same function require FDA approval.

To view the press release, click here.

3. Reports

Congressional Budget Office Finds Medicare Advantage Upcoding Rising

According to the CBO, Medicare Advantage plans upcode beneficiaries, making them appear sicker, and the effect of MA enrollment on risk scores rose from a 5 percent increase compared to fee-for-service in 2009 to an 8.3 percent increase in 2012.

CBO says its findings are in line with other studies, which show that health conditions for MA enrollees are more thoroughly documented than for traditional Medicare beneficiaries. Medicare pays MA plans more for sicker patients so when MA beneficiaries have higher risk scores than identical beneficiaries in fee-for-service Medicare, it raises concerns that Medicare is overpaying MA plans.

CBO compared the growth in risk scores of Medicare beneficiaries who switch from fee-for-service to MA to those who remained in fee-for-service.

To read the report, click here.

If you have any questions, contact the following individuals atMcGuireWoods Consulting:

StephanieKennan, Senior Vice President
Anne Starke, Research Associate

Founded in 1998,McGuireWoods Consulting LLC(MWC) is a full-service public affairs firm offering infrastructure andeconomic development, strategic communications & grassroots, and governmentrelations services. McGuireWoods Consulting is a subsidiary of theMcGuireWoods LLPlaw firm and has been named in The National Law Journal’s special annualreport, “The Influence 50,” for the past several years. In the most recentreport, McGuireWoods Consulting was ranked 15th of the 1,900 governmentrelations firms in Washington, D.C.

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