Washington Healthcare Update

February 19, 2018

Pardon Our Dust

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This Week: President’s budget released and hearings begin … health care spending expected to rise … and the FDA releases guidance for neurological drug development.

1. Budget

  • The President’s Budget and Health Care
  • 2. Congress



    3. Administration

    1. Budget

    The President’s Budget and Health Care

    While the president’s budget is not likely to be acted upon by Congress, it does signal what the administration’s priorities are—as well as what policy initiatives they might push. 

    Repeal the Affordable Care Act: The administration’s budget includes a plan that is based upon the plan put forward by Sens. Lindsey Graham (R-SC) and Bill Cassidy (R-LA) last fall which relies on block grants for state-based programs. It also would have placed a per-person spending cap in Medicaid. The Graham-Cassidy plan was projected to save $215 billion in federal health spending over 10 years and would have led to 20 million fewer individuals’ having health insurance in 2026 than under the Affordable Care Act. The administration’s proposal creates deeper cuts for Medicaid by using the Consumer Price Index instead of the medical CPI for the block grants. In the president’s budget the result is a spending cut of $675 billion by 2028.  

    Ironically, the proposed HHS budget would spend $812 million in fiscal 2019 to fully fund the risk corridors, which has drawn criticism from conservative members of Congress. Some believe that this proposal likely reflects the costs of exempting the program from sequestration.

    Medicaid Cuts: The budget contains substantial Medicaid cuts including: 

    • Deny benefits to people who cannot prove their immigration status ($2.2 billion in cuts over 10 years)
    • Increase beneficiaries’ copayments for improper use of the emergency room ($1.3 billion in cuts over 10 years)
    • Allow asset testing, which adds up all the value of a person’s property and belongings, in addition to income as a test of Medicaid eligibility ($2 billion in cuts over 10 years)

    Overall, the budget reduces federal Medicaid spending by 22 percent.

    Drug Prices and Federal Programs: The budget contains several proposals on lowering drug prices. Some have been proposed before. However, there are a few new proposals. 

    Medicaid programs would be allowed to establish drug formularies. Massachusetts has a waiver pending before CMS to establish a formulary. However, Congress would need to act to permit such a change.  

    The budget proposes changes in Medicare Part D that include: 

    • Create an out-of-pocket maximum; above a certain threshold, seniors would not have to pay any more of their drug costs
    • Require private Medicare Part D plans to share the rebates they receive from manufacturers with beneficiaries
    • Give Medicare Part D plans more flexibility to set their formularies, which should give them more negotiating leverage with drug makers
    • Allow for certain drugs to be moved from Medicare Part B, where there is a set formula for drug payments, to Medicare Part D, where there are some negotiations between private Part D plans and drug companies
    • Move drugs from Part B to Part D
    • Create more expansive Part D formularies

    These proposals save approximately $6 billion.

    There are an additional $266 billion in Medicare cuts proposed though they are largely cuts in provider payments rather than cuts in eligibility or benefits.  

    The president’s budget also proposes $16 million in user fees to help the Health Resources and Services Administration administer the 340B drug discount program. The budget proposes to tie Part B payment for 340B drugs to charity care. Nonprofit hospitals and other facilities that purchase 340B drugs would pay the user fees under the proposal, which amount to 0.1 percent of each 340B drug purchase. User fees would more than double HRSA’s budget for the program.

    Opioids: The budget provides $10 billion for efforts to prevent opioid abuse and expand treatment, however there is not much detail in the budget.

    Reducing Key Parts of the Health Care Establishment: The budget would reduce the size of the Department of Health and Human Services and key programs, saying they are duplicative of other functions or programs of the government including:  

    • Agency for Healthcare Research and Quality, which is tasked with evaluating best health care practices
    • Community Services Block Grant, $700 million in annual grants for health care, food and workforce programs
    • Health care workforce programs, which help train medical students and fund their education, etc.

    FDA: Should the president’s budget increase for FDA get ratified, FDA would spend the extra $400 million on:

    • Creating Centers of Excellence for compounding and digital health,
    • Researching continuous manufacturing,
    • Standing up third-party certification of medical device quality,
    • Advancing near-real-time evaluation of real-world evidence,
    • Expanding the digital health precertification program,
    • Conducting natural history studies for rare disease, and
    • Creating new internal agency systems for knowledge management and generic drug submission.

    2. Congress


    Ways and Means Committee Holds Hearing on Budget 

    On Feb. 14, HHS Secretary Alex Azar testified before the House Ways and Means Committee concerning the president’s budget. Democratic members of the committee attacked HHS Secretary Alex Azar for the administration’s nearly $2 trillion in proposed budget cuts to Medicare and Medicaid, while Republicans promoted increased funding to fight opioid addiction and cuts to regulations. The lawmakers also discussed predictive modeling, the ban on new doctor-owned hospitals, telehealth, durable medical equipment reimbursement, biosimilars and Idaho’s plan to allow exchange plans that violate federal insurance rules.

    The hearing was Azar’s first appearance before Congress as HHS secretary.

    The secretary also defended the administration’s proposal to use bids to determine pay rates for durable medical equipment in rural parts of the country. Rep. Adrian Smith (R-NE) said the proposal worries him and asked if CMS is prepared to sufficiently pay the higher cost of delivering medical equipment in rural areas. Azar promised to make the program work in rural areas and said he supports paying equipment suppliers what they bid, instead of paying the median price, which can cause problems when the median price is lower than prices that suppliers bid.

    To view the hearing, click here.

    The House Energy and Commerce Committee also held a hearing on Feb. 15 with Secretary Azaar as the sole witness.  

    At the hearing HHS Secretary Alex Azar seemed to open the door to expanding federal gun violence research. Azar said that a provision passed two decades ago limiting the CDC’s work on gun violence only prevents it from taking an advocacy position—not from doing research.

    The CDC’s ability to study gun violence has been limited by a 1996 amendment that prevented the agency from collecting data to advocate for gun control. President Barack Obama signed an order in 2013 directing the CDC to resume its research, but its work has remained limited.

    “My understanding is that the rider does not in any way impede our ability to conduct our research mission,” he said. “We’re in the science business and the evidence-generating business, and so I will have our agency certainly working in this field, as they do across the broad spectrum of disease control and prevention.”

    Azar committed to encouraging the study of gun violence within the department, when pressed by Rep. Kathy Castor (D-FL).

    To view the Energy and Commerce hearing, click here.


    Azar Goes Before Senate Finance Hearing

    Senate Finance Committee held a hearing on the president’s health care budget on Feb. 15. At the hearing—as in others—Azar was asked about the governor of Idaho’s permitting plans to be sold that are not compliant with the Affordable Care Act. 

    Secretary Alex Azar agreed to look into the legality of Idaho’s plan to significantly change the Affordable Care Act’s marketplace after Democratic lawmakers pushed the secretary on the issue. While Azar said he did not want to take enforcement action before officially receiving notice of Blue Cross of Idaho’s non-ACA compliant plans, he pledged to closely monitor the situation and report back to the Finance Committee in 30 days.

    Azar’s comments came one day after he was questioned by Rep. Sander Levin (D-MI) about the issue at the Ways and Means budget hearing, and Azar signaled there has been little HHS oversight of the state’s policy, since the state had not made a request. But Democrats continued to press the question in the HHS budget hearings.

    During the Senate Finance hearing, ranking Democrat Ron Wyden (OR) asked Azar if he would approve Blue Cross of Idaho’s recently announced (Feb. 14) five new state-based plan options in response to GOP Gov. Butch Otter’s controversial executive order. Wyden noted that numerous health care experts and organizations say this move would be a violation of federal law and puts the company at risk of federal penalties. He encouraged Azar to crack down on such activity and requested Azar to report back to the committee in 10 days with a plan.

    Wyden and Azar eventually agreed to a 30-day time frame for the secretary to get back to the Finance Committee about his plans to deal with Idaho’s marketplaces. In contrast, Idaho Sen. Mike Crapo (R) defended Blue Cross Idaho’s move and the governor’s executive order, arguing that the plan deviations allowed for state autonomy and consumer choice.

    Azar agreed with Crapo, noting that the rising cost of premiums has led states to explore all options.

    “I think what we are seeing here is a cry for help,” Azar said. “It’s saying that where we are right now with our individual market because of the structure we have is not serving enough of our citizens. There are too many Americans who simply cannot afford the insurance packages we have in our program because of the way the statute is designed and the way it has been implemented.”

    Finance and Judiciary Chairs Ask IRS About Oversight of Nonprofit Hospitals

    On Feb. 15, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Chairman Chuck Grassley (R-IA) sent Acting IRS Commissioner David Kautter a letter today asking, among other things, how the IRS reviews information hospitals submit on their charitable giving and what guidance the IRS has given hospitals on their obligation to aid their communities. The senators cite reports from Politico to raise questions about whether the hospitals are fulfilling their requirements as a nonprofit.

    “Given the importance of these institutions to their communities, and the forgone federal revenue associated with their tax-exempt status, it is important that both Congress and the IRS conduct oversight to ensure their activities are in line with the benefits they enjoy under the Internal Revenue Code,” the senators wrote.

    These issues have been longstanding ones for Grassley who has since 2005 been reviewing the charitable giving of the nation’s nonprofit hospitals.

    3. Administration

    FDA Issues Guidance Concerning Clinical Trials for Neurological Diseases

    On Feb 15, the FDA released five guidance documents to assist pharmaceutical companies conducting clinical trials of drugs for neurological diseases. 

    The guidances include an Alzheimer’s document that outlines approaches companies can take to get drugs approved for patients in the earliest phases of the disease. They include studying patients who do not yet have any functional impairment or clinically detectable abnormality.

    FDA also issued final guidance on Duchenne muscular dystrophy. The document was part of a first-time effort in which a patient group submitted its own proposed guidance to FDA and the agency worked with that to form its own advice.

    The three other guidances released were a draft guidance concerning developing ALS drugs, guidance for migraine treatment and one concerning drugs for partial onset seizures in children. 

    To read more, click here.

    CMS Office of the Actuary Says Health Spending Will Increase

    U.S. health care spending will rise faster in the coming years after a period of historically low growth following the recession, according to a new federal report.

    Spending is projected to grow from 4.3 percent in 2016 to 5.3 percent this year and 5.7 percent by 2021, the CMS Actuary Office said. The United States is on track to spend about one in every five dollars on health care in 2026, or $5.7 trillion. That would be up from $3.3 trillion in 2016.

    Aging baby boomers will cause Medicare spending to increase by almost 8 percent a year by the end of the decade, and a general increase in prices will spur spending. A stronger economy—and the inflation and wage increases that come with it—will cause health spending to grow an average of 1 percent faster than the general economy between now and 2026.

    Between 2009 and 2012, health spending grew between 3.6 percent and 3.8 percent each year, far below historic trends, as the nation climbed out of a recession. Still, the coming uptick in health spending is expected to lag far behind the explosive spending growth of the late 1990s and early 2000s.

    Among other efforts in Washington to rein in health spending, the Affordable Care Act encouraged the formation of accountable care organizations, rewarding groups of doctors and hospitals for efficient care. The 2015 MACRA law reforming Medicare reimbursement was supposed to spur payment models to limit costs and hold doctors accountable for spending. Providing nearly $35 billion to expand the use of electronic health records was supposed to reduce duplicative care and hold down costs.

    Spending on private insurance is expected to drop from 5.6 percent in 2017 to 4.1 percent in 2020, largely due to the proliferation of high-deductible plans that require patients to pay more toward their care. The repeal of Obamacare’s individual mandate for insurance coverage will only slightly reduce spending, the CMS office projects.

    Medicaid spending is projected to top out at a 6.9 percent growth rate in 2018 and average around 6.1 percent after 2021 as beneficiaries age and become more expensive to care for.

    To view the Office of the Actuary’s report, click here.

    An article about the study is also being published by Health Affairs and is available 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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