A Democrat “Shakedown” to Fund Health “Reform”

Today’s article from Politico highlights attempts by Congressional Democrats to win concessions from hospitals and other health industry groups to finance a health care overhaul — tactics described by one lobbyist as “shaking people down” for savings.  These reports magnify the importance of reaching out to doctor and hospital groups in your districts, to let them know about the discussions in Washington, and encourage them to weigh in with their respective trade associations about the proposals being considered.

On a related note, you may find of interest President Obama’s comments during the PhRMA/AARP announcement on increasing drug coverage in the Medicare “doughnut hole” last week.  Specifically, the President stated that the PhRMA proposals constitute a commitment by industry “to reduce its draw on the health system by $80 billion over the next 10 years.”  For an industry that makes treatments that improve both quality and quantity of life for millions of Americans, some Members may find it highly presumptuous for the President to view an industry’s actions through the prism of “its draw on the health system” — a numbers-driven philosophy that, to the extent it permeates through the Administration, would increase the odds of cost-determined rationing of care to “reduce the draw” on health care spending.

Weekly Newsletter: June 29, 2009

Government-Run Health Care and Cancer Outcomes

Two stories in the past week from Great Britain provide an interesting backdrop to the Democrat-proposed creation of a government-run health plan to “compete” with private sector coverage.  In the first, a new report released found that up to 15,000 lives could be saved every year if patients in Britain’s National Health Service received the same type of quality care that patients in the United States obtain.  The report prompted complaints from patient advocates that senior citizens receive sub-standard care, as the government rations access to health services for older patients on cost grounds; one activist found it “appalling that people over 75 are not getting the care they need…it is scandalous that not everyone is getting” access to treatment.  In its coverage of the report, the BBC relayed the story of one 74-year old ovarian cancer patient, who according to her daughter had to travel to Iran in order to receive a proper diagnosis:

Mum started to have bleeding early in 2007.  She went to the [general practitioner], but they just took her off her [hormone replacement therapy] and sent her to a gynaecologist.  He said it was probably just stress.  It was only when she went back to visit family in Iran and saw a doctor there that she was diagnosed.  They did a scan and found a large lump in her fallopian tube.  When she came back to the UK, doctors found the cancer had spread to one of her lymph glands.  It was the size of a tennis ball.  She then had a six-week wait before having a hysterectomy and then chemo.  Her treatment was very good, but the diagnosis was abysmal.  If it had been found 18 months earlier, it could have been removed easily and she wouldn’t have needed a hysterectomy or chemo.”

Today the British Government plans to announce plans to give patients the “right” to see a cancer specialist within two weeks of diagnosis—a “right” that significant numbers of patients currently lack.  Coupled with the lack of tools to diagnose cancer promptly in the first instance, some Members may be concerned that the government-run health plan envisioned by many Democrats could lead to worse outcomes for patients—because, as senior Obama Administration official Sherry Glied has previously admitted, government-run health plans will end up under-funded.

A “Firm Pledge” Falls by the Wayside

During last year’s presidential campaign, then-Senator Barack Obama made very clear that he would not raise taxes on the middle class in order to pay for an expansion of government-run health care.  His most famous iteration of this promise came at a rally in Dover, New Hampshire, on September 12, 2008:

“I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

Yesterday, however, senior Administration advisor David Axelrod backtracked from the “firm pledge” made repeatedly during the campaign.  Given multiple opportunities to reiterate the campaign promise, Axelrod backtracked, saying merely that “there are a number of formulations and we’ll wait and see” whether a middle-class tax increase is one of them.

Some Members may be concerned by this message—but not altogether surprised, given the “flexibility” the President has already exhibited from his campaign positions in opposition to an individual mandate to purchase insurance and taxing health benefits.  In addition to questioning how raising taxes in the middle of a recession will help strengthen the economy, some Members may further question how tax increases will help slow the growth of health care costs—purportedly the Administration’s prime goal for any health reform legislation.

Democrats Finally Discover the “Crowd-Out” Phenomenon

For the better part of the past two weeks, Democrats in the Senate have been working to pare back the cost of their health care overhaul, after a Finance Committee discussion draft reportedly weighed in with a price tag of $1.6 trillion over ten years.  Much of the reason for the high spending came from subsidies to families making as much as $88,200—subsidies which, according to the Congressional Budget Office, would merely encourage these individuals to drop their current coverage and enroll in the government-run health insurance Exchange.  Senate Budget Committee Chairman Conrad was quoted in the New York Times as being “particularly concerned about the possibility that people who now have employer-provided coverage would drop it in favor of government-subsidized coverage, raising the cost to taxpayers.”

Some Members may not be surprised by this development, as many Members made the exact same point during debate over reauthorization of the State Children’s Health Insurance Program (SCHIP).  Just last October, officials in Hawaii abandoned their Keiki Care program to expand government-run health coverage to children, because as one official noted, “People who were already able to afford health care began to stop paying for it so they could get it for free” from the federal government.  Some Members may hope that, having finally discovered the “crowd-out” phenomenon and its significant impact on the federal budget, Democrats will shift course from their attempted expansions of government programs as one way to “reform” American health care.

Poorer Cancer Outcomes in Government-Run Systems

Wanted to pass along this article from the BBC about a new study of cancer treatment outcomes concluding that tens of thousands of individuals in Britain may be dying unnecessarily from cancer due to “delays in diagnosing cancer in the UK and poorer treatment after diagnosis” when compared to health care in the United States.  Patient advocate groups called for “giving older people fairer access to clinical trials and extending the upper age limits” where cancer screening services will be available for patients.

These disparities in treatment in the government-run National Health Service — where cancer treatments for older citizens are not widely adopted due to cost issues — are similar to those concerns raised by audience members at Wednesday night’s White House town hall.  In that forum, President Obama admitted he would opt-out of any government-imposed restrictions on health treatments when it came to HIS family — but individuals without the means to do so may have no such opportunity.

Democrats’ Government Takeover of Health Care Puts a Bureaucratic Wall Between You and Your Doctor

The 852 page discussion draft of health care legislation recently released by three House Committee Chairmen represents a sprawling government takeover of health care—placing new mandates and raising new taxes on businesses and individuals alike, while attempting to control costs largely through regulation.  The schematic attached shows the interactions of just some of the 48 government bureaucracies, programs, and offices created in the bill.  While the diagram may be as confusing as the bill is large, one theme runs throughout both:  Bureaucrats—not patients and doctors—will make the important health care decisions:

  • Bureaucrats can require your physician to stop seeing patients with private health insurance as a “condition of participation” in the government-run health plan.  (Section 225(a), p. 98)
  • Bureaucrats can enroll individuals solely in the government-run health plan.  (Section 205(b)(3), pp. 69-70)
  • Bureaucrats can revoke seniors’ choice of Medicare plans by rejecting “any or every bid” by any entity other than the government-run plan.  (Section 1175, p. 285)
  • Bureaucrats will regulate plans’ choice of doctor and hospital networks, and can reject your insurance plan if its participating doctor list is not “adequate.”  (Section 115, p. 21)
  • Bureaucrats on a new “Health Benefits Advisory Committee” will determine what health coverage you must purchase, and will tax you if you do not buy coverage that meets their diktats, whether you want (or need) that coverage or not—and whether you can afford that coverage or not.  (Section 123(b), pp. 28-30; Section 401, pp. 136-40)
  • Bureaucrats can fine small businesses who currently offer health coverage up to $500,000, for even inadvertent errors that result in workers receiving $1 less in employer contributions to that health coverage than the bureaucrat-mandated standards.  (Section 312(b), pp. 116-18; Section 321, pp. 119-27)
  • Bureaucrats running the government-run health plan can pay your doctors and hospitals as little as they want—and your physician has no right to appeal to the bureaucrats’ decision to any board or court for review.  (Section 223(f), pp. 96-97)

House Republicans are for health reform, but Democrats need to head back to the drawing board to develop a new approach—one that puts doctors and patients, not government bureaucrats, at the center of American health care.

Trillions in Spending, Billions for Babysitters?

“Nancy’s Nanny-State” Enshrined in Legislation

House Democrats on Friday released legislation that would create, expand, or extend 32 federal entitlement programs.  Below is background on just one of the new spending programs included in the bill.

  • Section 1704 of the bill would create new grants to States to “improve the well-being, health, and development of children” by establishing government programs for home visitation.  The bill would dedicate $1.75 billion in federal matching funds for the program’s first five years, with additional funds to be provided by States.
  • The bill lists several objectives for home visitation services to provide to parents, including “knowledge of age-appropriate child development…knowledge of realistic expectations of age-appropriate child behaviors; knowledge of health and wellness issues…skills to interact with their child to enhance age-appropriate development…[and] activities designed to help parents become full partners in the education of their children.”
  • The bill language implies that many States already provide funding for home visitation services, which could cause some Members to question why the federal government should be asked to provide billions of dollars more.
  • While the $1.75 billion in potential federal funding for babysitters is intended to improve child health and wellness, several alternative forms of spending could have a positive effect on each of America’s 21 million children under age 5 at a lower cost to the federal government:
    1. Spock’s Baby and Child Care ($252 million);
    2. Baby Einstein multi-pack DVD set ($966 million);
    3. Evening of free babysitting, based on the average cost of an experienced babysitter ($1.26 billion); or
    4. Graco baby stroller ($1.68 billion).
  • While the Democrat bill spends billions on visitation programs for children already born, it also delegates to a Health Benefits Advisory Council decisions about the components of mandated insurance coverage—which could imperil the lives of millions yet unborn by allowing a board of unelected bureaucrats to mandate that all Americans purchase coverage for abortion services, thereby increasing the number of abortions performed.

While supporting the improved health of America’s young children, many Members may be concerned by the Democrat bill’s prodigious spending in a time of trillion-dollar deficits.  Moreover, at a time when press reports have already criticized Democrat attempts to expand the “nanny state,” Members may question how a further expansion of this big-government approach to health care—with the federal government literally paying for nannies to care for young children—will actually be effective.

Massachusetts Cuts Health Care Spending

In case you missed it, here is a very timely and compelling article from this morning’s Boston Globe regarding the impact of budget cuts on the Commonwealth’s reform program.  Dental coverage is being cut (potentially resulting in more tragedies like that which befell Deamonte Driver), and tens of thousands of individuals are being dis-enrolled from the Commonwealth Care program that subsidizes premiums.  These cuts were necessary because the Commonwealth (by its own admission) expanded coverage while not tackling cost growth, and relied upon unsustainable funding sources to expand entitlement programs.  A potential cautionary tale for Democrats seeking universal coverage this year…

Health “Reform’s” Long-Term Costs

Wanted to bring to your attention David Brooks’ column in this morning’s New York Times, where he criticizes the Democrat majority’s fiaxation on expanding health care coverage to the virtual exclusion of measures to control costs — “there is almost nothing that gets to the core of the problem.”  He adds that “health care reform is important, but it is not worth bankrupting the country over.”  It’s very interesting that a columnist favorably inclined to Obama and much of his agenda is now publicly opining that “if this process goes as it’s been going — with grand rhetoric and superficial cost containment – then we will be far better off killing this effort and starting over in a few years.”

On a related note, this morning’s Wall Street Journal has a column outlining concerns by state Governors that they will not be able to afford the cost of Medicaid expansions — which would be a significant increase in state fiscal obligations at a time when many states cannot afford the Medicaid populations they have now.  That article can be found here.

Executive Summary of House Democrats’ Discussion Draft: A Government Takeover of Health Care

On June 19, 2009, the Chairmen of the three House Committees with jurisdiction over health care legislation—Education and Labor Chairman George Miller (D-CA), Energy and Commerce Chairman Henry Waxman (D-CA), and Ways and Means Committee Chairman Charlie Rangel (D-NY)—introduced a joint “discussion draft” of health reform legislation. The Chairmen announced their intent to commence hearings in their respective Committees beginning June 23; mark-ups and floor action are likely for the July work period.

At 852 pages, the released discussion draft sets the tone for a Washington takeover of the health care system—one defined by federal regulation, mandates, myriad new programs, and higher federal spending. The bill would ensure the heavy hand of federal bureaucrats over the United States health care system, levying costly new taxes on individuals and businesses who do not comply. Many Members may question how additional federal mandates and bureaucratic diktats raising costs appreciably for all Americans would make health care more “affordable.” Members may also note that while the bill’s provisions could cost as much as $2 trillion, few provisions in the draft would finance this bureaucrat-run program.

Highlights of major provisions likely to cause Member concern include:

  • Creation of a government-run health plan that experts say could lead to as many as 120 million Americans losing their current coverage—a clear violation of any pledge to allow individuals to keep their current health plan;
  • Insurance regulations that would raise costs for nearly all Americans, particularly young Americans, and confine choice of plans to those approved by a board of bureaucrats;
  • New price controls on health insurance companies that provide perverse incentives to keep individuals sick rather than managing chronic disease, while impeding patient access to important services just because those services do not provide a direct clinical benefit;
  • Additional federal mandates that would significantly erode the flexibility currently provided to employers—and could result in firms dropping coverage;
  • Massive expansion of Medicaid—fully paid for by the federal government—to all individuals with incomes below 133 percent of the Federal Poverty Level ($29,326 for a family of four), replacing the existing private health coverage of millions of Americans with taxpayer-funded health care;
  • Language opening employers operating group health plans to State law remedies and private causes of action—subjecting employers to review by 50 different State court rulings, thereby raising costs and encouraging more employers to drop their current health plans;
  • Establishment of bureaucrat-run health Exchange that would de facto eliminate the private health insurance market outside the Exchange—and could evolve into a single-payer approach due to the Exchange’s ability to cannibalize existing employer plans;
  • Creation of a new government board, the “Health Benefits Advisory Council,” that would empower federal bureaucrats to impose new mandates—including a mandate to obtain and provide abortion coverage—on individuals and insurance carriers;
  • Taxation of individuals who do not purchase a level of health coverage that meets the diktats of a board of bureaucrats—including those who cannot afford the coverage options provided;
  • New, job-killing taxes on employers who cannot afford to provide their workers health insurance, which could result in as many as 4.7 million employees losing their jobs;
  • Penalties as high as $500,000 on employers who make honest mistakes when filing paperwork with the government health board—which would likely dissuade businesses from continuing to provide coverage, increasing the amount of health care provided through the bureaucrat-run Exchange;
  • “Low-income” health insurance subsidies to a family of four making up to $88,200;
  • Arbitrary and harmful cuts to popular Medicare Advantage plans that CBO estimates will result in more than 2 million seniors losing their current health coverage;
  • New taxes on companies who exercise their First Amendment rights to advertise products; and
  • Expanded price controls on pharmaceutical products that would discourage companies from producing life-saving breakthrough treatments.


A formal CBO score is not yet available. However, one of the bill’s central provisions—“low-income” subsidies for families making more than $88,000 per year—echoes the initial proposal prepared by Senate Finance Committee Chairman Baucus, which press coverage widely reported was estimated by CBO to cost $1.6 trillion over ten years. Coupled with a more generous Medicaid expansion and physician reimbursement provisions—which the Democrat majority reportedly does not intend to pay for—and the cost of the bill should easily exceed the $1 trillion estimate publicly cited by Ways and Means Committee Chairman Rangel—and likely could double that number.

Democrat Health “Reform” By the Numbers

After the Friday release of the House Democrat leadership’s health reform discussion draft, we have compiled a list of important numbers relevant to the legislation:

852—Pages in the bill

120 million—Number of individuals who could lose their current coverage as a result of the government-run plan reimbursing at Medicare rates created in the bill, according to non-partisan actuaries at the Lewin Group

4.7 million—Number of jobs that could be lost as a result of taxes on businesses that cannot afford to provide health insurance coverage, according to a model developed by Council of Economic Advisors Chair Christina Romer

$88,200—Definition of “low-income” family of four for purposes of health insurance subsidies

Trillions—New federal spending, which likely could exceed the $1.6 trillion reported price tag of Senate Finance Committee Chairman Baucus’ legislation

32—Entitlement programs the bill creates, expands, or extends

48—Additional offices, bureaus, commissions, programs, and bureaucracies the bill creates over and above the entitlement programs listed above

1,367—Uses of the word “shall,” representing new duties to be carried out by federal bureaucrats and mandates on individuals, businesses, and States

$10 billion—Minimum loss sustained by taxpayers every year due to Medicare fraud; the government-run health plan utilizes the same ineffective anti-fraud statutes and procedures that have kept Medicare on the Government Accountability Office’s list of high-risk programs for two decades

$1.75 billion—Mandatory spending on home visitation services that would educate parents on “skills to interact with their child”

Zero—Prohibitions on government programs like Medicare and Medicaid from using cost-effectiveness research to impose delays to or denials for access to life-saving treatments

2017—Year Medicare Hospital Insurance Trust Fund will be exhausted—a date unchanged by the legislation, which re-directs savings from Medicare to finance new entitlements for younger Americans

Legislative Bulletin: House Democrats’ Discussion Draft: A Government Takeover of Health Care

On June 19, 2009, the Chairmen of the three House Committees with jurisdiction over health care legislation—Education and Labor Chairman George Miller (D-CA), Energy and Commerce Chairman Henry Waxman (D-CA), and Ways and Means Committee Chairman Charlie Rangel (D-NY)—introduced a joint “discussion draft” of health reform legislation.  The Chairmen announced their intent to commence hearings in their respective Committees beginning June 23; mark-ups and floor action are likely for the July work period.

Summary: As released, the discussion draft contains three divisions and a total of 18 titles.  However, as previously noted, most of the provisions necessary to pay for the bill—including additional tax increases beyond the tax penalties included in the draft—have yet to be released.

Division A—Affordable Health Care Choices

This division would create a new entitlement—a government-run health plan causing as many as 120 million Americans to lose their current coverage—intended to provide all Americans with “affordable” health insurance.  The bill also imposes new mandates and regulations on individual and employer-sponsored health insurance, while raising taxes on businesses who do not offer coverage and individuals who do not purchase coverage meeting federal bureaucrats’ standards.  Details of the division include:

De Facto Abolition of Private Insurance Market:  The bill imposes new regulations on all health insurance offerings, with only limited exceptions.  Existing individual market policies could remain in effect—but only so long as the carrier “does not change any of its terms and conditions, including benefits and cost-sharing” once the bill takes effect.  This provision would prohibit these plans from adding new, innovative, and breakthrough treatments as covered benefits, putting these plans at a significant disadvantage to those operating under the government-run Exchange.  Some Members may be concerned that this provision would effectively prohibit individuals from keeping their current coverage, as few carriers would be able to abide by these restrictions without cancelling current enrollees’ plans.

Insurance purchased on the individual market after the bill’s effective date would not be considered “acceptable coverage” for purpose of compliance with federal mandates.  These plans would also be prohibited from enrolling new members, ensuring that their risk pools can only get sicker and older, increasing the cost of coverage under the plan.  Some Members may be concerned that this provision would constitute an effective abolition of the private market for health insurance, requiring all coverage to be purchased through the bureaucrat-run Exchange.

Employer coverage shall be considered exempt from the additional federal mandates, but only for a five year “grace period”—after which all the bill’s mandates shall apply.  Some Members may be concerned first that this provision, by applying new federal mandates and regulations to employer-sponsored coverage, would increase health costs for businesses and their workers, and second that, by tying the hands of businesses, this provision would have the effect of encouraging employers to drop existing coverage, leaving their employees to join the government-run health plan.

Insurance Restrictions:  The bill would require both insurance carriers and employer health plans to accept all applicants without conditions, regardless of the applicant’s health status.  The bill also does not clearly permit carriers from restricting guaranteed issue enrollment to certain open enrollment periods—meaning that individuals could be eligible to enroll immediately after suffering a major (and costly) adverse health event.

In addition, carriers could vary premiums solely based upon family structure, geography, and age; insurance companies could not vary premiums by age by more than 2 to 1 (i.e., charge older individuals more than twice younger applicants).  As surveys have indicated that average premiums for individuals aged 18-24 are nearly one-quarter the average premium paid by individuals aged 60-64, some Members may be concerned that the very narrow age variations would function as a significant transfer of wealth from younger to older Americans—and by raising premiums for young and healthy individuals, may discourage their purchase of insurance.  Some Members, noting that the bill does not permit premiums to vary based upon benefits provided—i.e. differing cost-sharing levels—may therefore question how the bill’s regulatory regime would provide any variation in health plan offerings.

The bill requires plans to comply with new standards ending “discrimination in health benefits or benefit structures” for applicable plans, “to the extent that such standards are not inconsistent with” existing law requirements under the Employee Retirement Income Security Act (ERISA) governing group health coverage.  Some Members may view these confusing—and apparently conflicting—provisions as an invitation for costly lawsuits regarding perceived discrimination that will do little to improve Americans’ health—and much to raise health costs.

The bill also requires health insurance plans to “meet such standards respecting provider networks as the Commissioner may establish”—which some Members may construe as allowing bureaucrats to regulate access to doctors and reject any (or all) private health insurance offering on the grounds that its network access is insufficient.  Conversely, the government-run plan is significantly advantaged because, unlike private plans, it would not be required to form provider networks.

Price Controls:  The bill requires plans spending less than 85 percent of their premium revenue on medical claims to offer refunds to enrollees.  Some Members may view this provision as a government-imposed price control, one that could be viewed as ignoring the advice of White House advisor Ezekiel Emanuel, who wrote that “some administrative [i.e. non-claims] costs are not only necessary but beneficial.”  Some Members may also be concerned that such price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong (and perverse) disincentive not to improve the health of their enrollees—as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.

Benefits Package:  The bill prohibits all qualified plans from imposing cost-sharing on preventive services, as well as annual or lifetime limits on benefits.  As more than half of all individuals currently enrolled in group health plans have some form of lifetime maximum on their benefits, some Members may be concerned that these additional mandates would increase costs and discourage the take-up for insurance.  Some Members may also be concerned that the bill’s provisions encouraging “only co-payments and not co-insurance,” by insulating individuals from the price of their health care, would raise overall health costs—exactly the opposite of the legislation’s supposed purpose.

Annual cost-sharing would be limited to $5,000 per individual or $10,000 per family, with limits indexed to general inflation (i.e. not medical inflation) annually.  Benefits must cover 70 percent of total health expenses regardless of the cost sharing.  Services mandated fall into ten categories: hospitalization; outpatient hospital and clinic services; physician services; durable medical equipment; prescription drugs; rehabilitative and habilitative services; mental health services; preventive services; maternity benefits; and well child care “for children under 21 years of age.”

Benefits Committee:  The bill establishes a new government health board called the “Health Benefits Advisory Committee,” chaired by the Surgeon General, to make recommendations on minimum federal benefit standards and cost-sharing levels.  Up to eight of the Committee’s maximum 26 members may be federal employees, and a further nine would be Presidential appointees.

Some Members may be concerned that the Committee would result in federal bureaucrats having undue influence on the definition of insurance for purposes of the individual mandate. Members may also be concerned that the Committee could evolve into the type of Federal Health Board envisioned by former Senator Tom Daschle, who conceived that such an entity could dictate requirements that private health plans reject certain clinically effective treatments on cost grounds. Finally, some Members may be concerned that the Committee could be used as a venue to require all Americans to obtain health insurance coverage of abortion procedures—a finding by unelected bureaucrats that would significantly increase the number of abortions performed nationwide.

Additional Requirements:  The bill would impose other requirements on insurance companies, including uniform marketing standards, grievance and appeals processes (both internal and external), transparency, and prompt claims payment—all of which would be subject to review by the new bureaucracy established through the Commissioner’s office.

New Bureaucracy:  The bill establishes a new government agency, the “Health Choices Administration,” governed by a Commissioner.  The Administration would be charged with governing the Exchange, enforcing plan standards, and distributing taxpayer-funded subsidies to purchase health insurance to anyone with incomes below four times the federal poverty level ($88,200 for a family of four).  The Commissioner would be empowered to impose the same sanctions—including civil monetary penalties, suspension of enrollment of individuals in the plan, and/or suspension of credit payments to plans—granted to the Centers for Medicare and Medicaid Services with respect to Medicare Advantage plans.  Some Members may be concerned that the bill’s provisions permitting federal bureaucrats to interfere in the enrollment of private individuals in ostensibly private health insurance plans confirms the over-arching nature of the government insurance takeover contemplated in the bill.

Pre-Emption:  The bill makes clear that its additional mandates and regulations “do not supersede any requirements” under existing law, “except insofar as such requirements prevent the application of a requirement” in the bill.  The bill also makes clear that existing State private rights of action would apply to plans as currently permitted under existing law.  Some Members may be concerned that these additional mandates, and the duplicative layers of regulation they create, would raise costs and encourage additional employers to drop their existing coverage offerings.

Creation of Exchange:  The bill creates within the federal government a nationwide Health Insurance Exchange.  Uninsured individuals would be eligible to purchase an Exchange plan, as would those whose existing employer coverage is deemed “insufficient” by the federal government.  Once deemed eligible to enroll in the Exchange, individuals would be permitted to remain in the Exchange until becoming Medicare-eligible—a provision that would likely result in a significant movement of individuals into the bureaucrat-run Exchange over time.

After the fifth year, employees in all businesses could enroll in Exchange plans, and employers would be required to pay an 8 percent payroll tax (described in detail below) to finance their employees’ Exchange policies—even if the firm offers coverage of its own.  Many Members may be concerned that these provisions could result in a “death spiral” for employer-based insurance—employers being left with older and sicker individuals while simultaneously paying taxes on other individuals to finance their Exchange coverage—that would lead to the effective death of privately provided insurance coverage and a de facto single-payer system through the bureaucrat-run Exchange.

Employers with 10 or fewer employees would be permitted to join the Exchange in its first year, with employers with 11-20 employees permitted to join in its second year.  Larger employers might be eligible to join in the third year, if permitted to do so by the Commissioner.  States may transition their Medicaid populations to the Exchange—with appropriate supplemental wrap-around coverage—after five years.

One or more States could establish their own Exchanges, provided that no more than one Exchange operates in any State.  However, the federal Commissioner would retain enforcement authority, and further could terminate the State Exchange at any time if the Commissioner determines the State “is no longer capable of carrying out such functions in accordance with the requirements of this subtitle.”

The bill creates an Office of the Inspector General for the Exchange to “protect the integrity of the Health Insurance Exchange”—however, such office “shall terminate five years after the date of the enactment of this Act,” opening the Exchange up to massive fraud and abuse.

Exchange Benefit Standards:  The bill requires the Commissioner to establish benefit standards for Exchange plans—basic (covering 70 percent of expenses), enhanced (85 percent of expenses), premium (95 percent of expenses), and premium-plus (premium coverage plus additional benefits for an enumerated supplemental premium).  Cost-sharing may be permitted to vary by only 10 percent for each benefit category, such that a standard providing for a $20 co-payment would allow plans to define co-payments within a range of $18-22.  Some Members may be concerned that these onerous, bureaucrat-imposed standards would hinder the introduction of innovative models to improve enrollees’ health and wellness—and by insulating individuals from the cost of health services, could raise health care costs.

State Benefit Mandates:  State benefit mandates would continue to apply to plans offered through the Exchange—but only if the State agrees to reimburse the Exchange for the increase in low-income subsidies provided to individuals as a result of an increase in the basic premium rate attributable to the benefit mandates.  Some Members may note that Democrat Members repeatedly criticized Republicans for overriding State mandates during debate in previous Congresses on the introduction of Association Health Plans.

Requirements on Exchange Plans:  The bill requires plans offered in the Exchange to be State-licensed; plans shall also “contract with essential community providers, as provided for by the Commissioner” and “provide for culturally and linguistically appropriate services and communications.”  The bill gives the Commissioner the power to reduce out-of-network co-payments if the Commissioner determines a plan’s network is inadequate, turning the plan into a fragmented and archaic fee-for-service delivery model that does nothing to coordinate care.  The Commissioner also has authority to impose monetary sanctions, prohibit plans from enrolling new individuals, or terminate contracts.

Enrollment:  The bill requires the Commissioner to engage in outreach regarding enrollment, establish enrollment periods, and disseminate information about plan choices.  The Commissioner is required to develop an auto-enrollment process for subsidy-eligible individuals who do not choose a plan.  Some Members may note that nothing in the bill prohibits the Commissioner from auto-enrolling all individuals in the government-run plan—thus creating a single-payer system through bureaucratic fiat.

Newborns born in the United States who are “not otherwise covered under acceptable coverage” shall automatically be enrolled in Medicaid; SCHIP eligible children shall be enrolled through the Exchange.  The bill provides for Medicaid-eligible individuals to join the Exchange; beneficiaries failing to choose an Exchange plan will be enrolled in Medicaid.

Risk Pooling:  The bill requires the Commissioner to establish “a mechanism whereby there is an adjustment made of the premium amounts payable” to plans to reflect differing risk profiles in a manner that minimizes adverse selection—and leaves to the Commissioner to determine all of the details of this mechanism.

Trust Fund:  The bill creates a Trust Fund for the Exchange, and permits “such amounts as the Commissioner determines are necessary” to be transferred from the Trust Fund to finance the Exchange’s operations.  Payments would be received from taxes by individuals not complying with the individual mandate, employers failing to provide adequate health coverage, and general government appropriations.  Some Members may be concerned that this open-ended source of appropriations for the bureaucrat-run Exchange would by definition constitute unfair competition against employer-provided insurance.

Government-Run Health Plans:  The bill requires the Department of Health and Human Services to establish a “public health insurance option” that “shall only be made available through the Health Insurance Exchange.”  The bill States the plan shall comply with requirements related to other Exchange plans, and offer basic, enhanced, and premium plan options.  However, the bill does not limit the number of government-run plans nor does it give the Exchange the authority to reject, sanction, or terminate the government-run plan; therefore, some Members may be concerned that the bill’s headings regarding a “level playing field” belie the reality of the plain text.

The government-run plan would be empowered to collect individuals’ personal health information, posting a significant privacy risk to all Americans.  The government-run plan would have access to federal courts for enforcement actions—a significant advantage over private insurance plans, whose enrollees may sue in State courts.

The bill gives the government-run health plans unlimited taxpayer “start-up funds” from the Treasury, and requires the Secretary to establish premium rates that can fully finance the cost of benefits, administrative costs, and “an appropriate amount for a contingency margin” as developed by the Secretary.  Some Members may be concerned that this provision would allow a health plan CEO (i.e. the Secretary) to determine the plan’s own capital reserve requirements, which could be significantly less than those imposed on private insurance carriers under State law, and question why Democrats who criticized banks for maintaining insufficient reserves are now permitting a government-run health plan to do the exact same thing—unless their motive is to give the government-run health plan a built-in bias.

The bill provides that the government-run plan shall pay Medicare rates for at least its first three years of operation.  Physicians also participating in Medicare as well as the government-run plan shall receive a 5 percent bonus for its first three years; reimbursement rates for pharmaceuticals within the government-run plan would be “negotiated” by the Secretary—a provision which, with respect to Medicare Part D, the Congressional Budget Office has stated would not result in any appreciable savings when compared to negotiations undertaken by private health plans.

While the bill States that the Secretary “may utilize innovative payment mechanisms” to improve health outcomes and achieve other objectives, it also States that the Secretary must set payment rates “consistent with” provisions pointing to Medicare payment rates as the benchmark.  Given estimates from the Lewin Group that as many as 120 million individuals could lose access to their current coverage under a government-run plan—and that a government-run plan reimbursing at the rates contemplated by the legislation would actually result in a net $70 billion decrease in provider reimbursements, even after accounting for the newly insured—many Members may oppose any effort to include a government-run plan in any health reform legislation.

The bill requires the Secretary to “establish conditions of participation for health care providers” under the government-run plan—however it includes no guidance or conditions under which the Secretary must establish those conditions.  Many Members may be concerned that the bill would allow the Secretary to prohibit doctors from participating in other health plans as a condition of participation in the government-run plan—a way to co-opt existing provider networks and subvert private health coverage.

The bill prohibits providers from “balance billing,” noting that “the provider may not impose charges for such items or services…that exceed the charges that may be made for such services” under Medicare.  Some Members may be concerned that these provisions would therefore compel providers to accept Medicare-level reimbursements, which the Congressional Budget Office has noted are 20-30 percent below private health insurance payment levels.

Finally, the bill also applies Medicare anti-fraud provisions to the government-run plan.  Some Members, noting that Medicare has been placed on the Government Accountability Office’s high-risk list since 1990 due to fraud payments totaling more than $10 billion annually, may question whether these provisions will be sufficient to prevent similar massive amounts of fraud from the government-run plan.

“Low-Income” Subsidies:  The bill provides for “affordability credits” through the Exchange—and only through the Exchange, again putting employer health plans at a disadvantage.  Subsidies could be used only for basic plans in the first two years, and all plans thereafter.  In the first five years, individuals with employer-sponsored insurance (so long as the coverage meets minimum standards) could not accept subsidies; after the first year, individuals whose group premium costs would exceed 10 percent of adjusted gross income would then be eligible.

The bill provides that the Commissioner may authorize State Medicaid agencies to make determinations of eligibility for subsidies, and exempts the subsidy regime from the five-year waiting period on federal benefits established as part of the 1996 welfare reform law (P.L. 104-193).  Some Members may be concerned that, despite the bill’s purported prohibition on payments to immigrants not lawfully present, the first provision could enable State agencies—who have no financial incentive not to enroll undocumented workers in a federal subsidy program—to permit those unlawfully present to qualify for health care subsidies, and that the second would give individuals a strong incentive to emigrate to the United States in order to obtain free federal welfare benefits.

Premium subsidies provided would be linked to income levels on a sliding scale, such that individuals with incomes under 133 percent of the Federal Poverty Level (FPL, $29,327 for a family of four in 2009) would be expected to pay one percent of their income, while individuals with incomes at 400 percent FPL ($88,200 for a family of four) would be expected to pay ten percent of their income.  Subsidies would be capped at the average premium for the three lowest-cost basic plans.

The bill further provides for six tiers of cost-sharing subsidies, such that individuals with incomes under 133 percent FPL would pay no more than $250 per individual and $500 per family (amounts indexed annually to general inflation—not medical inflation) per year in cost-sharing, while individuals with incomes at 400 percent FPL would pay the statutory maximum cost-sharing of $5,000 per individual and $10,000 per family for basic coverage.  Cost-sharing amounts would also be reduced through subsidies, such that individuals with incomes under 133 percent FPL would cover 98 percent of expenses, while individuals with incomes at 400 percent FPL would have a basic plan covering 70 percent (the statutory minimum).  Some Members may be concerned that these rich benefit packages, in addition to raising subsidy costs for the federal government, will insulate plan participants from the effects of higher health spending, resulting in an increase in overall health costs—exactly the opposite of the bill’s intended purpose.

Income for determining subsidy levels would be verified through the Treasury Department and the Internal Revenue Service.  The bill provides for self-reporting of changes in income that could affect eligibility for benefits—provisions which some Members may be concerned could invite fraud by individuals seeking to claim additional benefits.

“Pay-or-Play” Mandate on Employers:  In order to meet acceptable coverage standards, the bill requires that employers offer coverage, and contribute to such coverage at least 72.5 percent of the cost of a basic individual policy—as defined by the bureaucrats on the Health Benefits Advisory Council—and at least 65 percent of the cost of a basic family policy, for full-time employees.  The bill further extends the employer mandate to part-time employees, with contribution levels to be determined by the Commissioner.

Employers must comply with the mandate by “paying” a tax of 8 percent of wages paid in lieu of “playing” by offering benefits that meet the criteria above.  In addition, beginning in the Exchange’s fifth year, employers whose workers choose to purchase coverage through the Exchange would be forced to pay the 8 percent tax to finance their workers’ Exchange policy—even if they provide coverage to their employees.  The bill notes that small businesses would be exempt from the payroll tax, but provides no details on the policy—as the section is noted in brackets.

The bill amends ERISA to require the Secretary of Labor to conduct regular plan audits and “conduct investigations” and audits “to discover non-compliance” with the mandate.  The bill provides a further penalty of $100 per employee per day for non-compliance with the “pay-or-play” mandate—subject only to a limit of $500,000 for unintentional failures on the part of the employer.

Some Members may be concerned that the bill would impose added costs on businesses with respect to both their payroll and administrative overhead.  Given that an economic model developed by Council of Economic Advisors Chair Christina Romer found that an employer mandate could result in the loss of 4.7 million jobs, some Members may oppose any effort to impose new taxes on businesses, particularly during a recession.  Some Members may find the small business exemption insufficient—no matter at what level it would be set—since the threshold level could always be modified in the future to finance shortfalls in the government-run plans, and result in negative effects at the margins (e.g. a restaurant owner with 10 employees not hiring an additional one if the new worker would eliminate his small business exemption and subject him to an 8 percent payroll tax).  Some Members may also be concerned that the bill’s mandates—coupled with a potential new $500,000 tax on small businesses for even unintentional deviations from federal bureaucratic diktats—would effectively encourage employers to drop their existing coverage due to fear of inadvertent penalties, resulting in more individuals losing access to their current plans and being forced into the government-run health plan.

Individual Mandate:  The bill places a tax on individuals who do not purchase “acceptable health care coverage,” as defined by the bureaucratic standards in the bill.  The tax would constitute two percent of adjusted gross income, up to the amount of the national average premium through the Exchange.  The tax would not apply to dependent filers, non-resident aliens, individuals resident outside the United States, and those exempted on religious grounds.  “Acceptable coverage” includes qualified Exchange plans, “grandfathered” individual and group health plans, Medicare and Medicaid plans, and military and veterans’ benefits.

Some Members may note that for individuals with incomes of under $100,000, the cost of complying with the mandate would be under $2,000—raising questions of how effective the mandate will be, as paying the tax would in many cases cost less than purchasing an insurance policy.  Despite, or perhaps because of, this fact, some Members may be concerned that the bill language does not include an affordability exemption from the mandate; thus, if the many benefit mandates imposed raise premiums so as to make coverage less affordable for many Americans, they will have no choice but to pay an additional tax as their “penalty” for not being able to afford coverage.  Therefore, some Members may agree with then-Senator Barack Obama, who in a February 2008 debate pointed out that in Massachusetts, the one State with an individual mandate, “there are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were.  They don’t have health insurance and they’re paying a fine.”  Thus this provision would not only violate then-Senator Obama’s opposition to an individual mandate to purchase insurance—it would also violate his pledge not to raise taxes on individuals making under $250,000.

Small Business Tax Credit:  The bill provides a health insurance tax credit for small businesses, equal to 50 percent of the cost of coverage for firms where the average employee compensation is less than $20,000, establishing a perverse incentive to keep wages low.  Firms with 10 or fewer employees are eligible for the full credit, which phases out entirely for firms with more than 25 workers.  Individuals with incomes of over $125,000 do not count for purposes of determining the credit amount.

Immediate Actions:  Within one year of its enactment, the bill requires the Secretary to establish standardized claims forms, operating rules for health care transactions, and other administrative simplifications—as well as instituting price controls on insurance companies.  Some Members may be concerned that these provisions further confirm the nature of the government takeover of health insurance under the bill—and further question whether any bureaucrat-led effort to simplify administration will prove effective.

Finally, the bill also instructs the Secretary to establish several new programs, including a reinsurance fund to cover a portion of employer-covered health costs for early retirees and a preventive care visit card designed to encourage the use of preventive services.  The draft notes that details of these additional programs—including their costs—are “to be specified later.”

Division B—Medicare and Medicaid Provisions

This division contains a significant expansion of Medicaid, fully paid for by the federal government, provisions to increase Medicare physician reimbursements without offsets, cuts to Medicare Advantage plans that would cause millions of seniors to lose their current plans, and other expansions of the Medicare and Medicaid programs.  Details of the division include:

Medicare Provisions

Part A Market Basket Updates:  The bill freezes skilled nursing facility and inpatient rehabilitation facility payment rates for 2010.  The bill also incorporates an Administration proposal to reduce market basket updates to reflect productivity gains made throughout the entire economy, effective in 2010.  The bill permits the Centers for Medicare and Medicaid Services (CMS) to recalibrate and adjust the case mix factor for skilled nursing facility payments, and revise the payment system for non-therapy ancillary services at same.  The bill requires a study of Medicare Disproportionate Share Hospital (DSH) payments’ effectiveness on reducing the number of uninsured individuals.

Physician Payment Provisions:  The bill provides for an increase in Medicare physician reimbursements for 2010 equal to the increase in medical inflation, and recalibrates the Sustainable Growth Rate (SGR) mechanism such that year 2009 physician expenditures shall be used as the new baseline for computing whether total physician payments exceed the SGR targets.  The bill also exempts physician-administered drugs from the SGR formula, and establishes two separate conversion factors—one for evaluation and management services, including primary care and preventive services, and one for all other services provided.  Thus evaluation and management services and all other specialist services will receive different annual payment rates, based on the growth of each service over time; the former will also receive a higher conversion factor under the bill—GDP growth plus two percent for evaluation and management services, as opposed to GDP growth plus one percent for all other services.

The bill provides for bonus payments of 5 percent for physicians participating in counties within the lowest 5 percent of total Medicare spending for 2011 and 2012, extends incentive payments under the Physician Quality Reporting Initiative through 2011 and 2012, and requires ambulatory surgical centers to submit cost and quality data to CMS.  The bill reduces market basket updates for dialysis providers and inpatient hospitals to reflect productivity gains in the overall economy, increases the presumed utilization of imaging equipment—so as to reduce overall payment levels for imaging services—and draws down existing funds in the Medicare Improvement Fund.

Hospital Re-Admissions:  The bill reduces payments to hospitals with higher-than-expected re-admission rates based on their overall case mix, excluding planned or unrelated re-admissions.  The provision could reduce overall hospital payments by no more than 1 percent in 2011 and 5 percent in 2014 and subsequent years.  Hospitals receiving more than $10 million in DSH funds annually would receive a 5 percent increase in their DSH payments to provide for transitional services for patients post-discharge.  The bill provides for payment reductions in up to 1 percent for post-acute care providers (i.e. skilled nursing facilities, inpatient rehabilitation facilities, home health agencies, and long-term care hospitals) in instances where beneficiaries were readmitted within 30 days after discharge.

Home Health:  The bill freezes home health agency payment rates in 2010, accelerates the implementation of case mix changes for 2011, so as to reduce the effect of “up-coding” or changes to classification codes, and requires CMS to re-base the entire prospective payment classification system by 2011—or reduce all home health payments by 5 percent.  The bill also reduces market basket updates for home health agencies to reflect productivity gains in the overall economy.

Physician-Owned Hospitals:  The bill would essentially eliminate these innovative facilities by imposing additional restrictions on so-called specialty hospitals by limiting the “whole hospital” exemption against physician self-referral.  Specifically, the bill would only extend the exemption to facilities with a Medicare reimbursement arrangement in place as of January 1, 2009, such that any new specialty hospital—including those currently under development or construction—would not be eligible for the self-referral exemption.  The bill would also place restrictions on the expansion of current specialty hospitals’ capacity, such that any existing specialty hospital would be unable to expand its facilities, except under limited circumstances.  Given the advances which physician-owned hospitals have made in increasing quality of care and decreasing patient infection rates, some Members may be concerned that these additional restrictions may impede the development of new innovations within the health care industry.

Medicare Advantage:  The bill reduces Medicare Advantage (MA) payment benchmarks to traditional Medicare fee-for-service levels over a three-year period.  Some Members may be concerned that this arbitrary adjustment will reduce access for millions of seniors to MA plans that have brought additional benefits—undermining Democrats’ pledge that if Americans like the coverage they have, they will be able to keep it under health reform.

Even though no other Medicare provider is paid on the basis of quality, the bill provides for a quality improvement adjustment for MA plans of up to 3 percent, along with an additional one percent increase for improved quality plans, based on re-admission rates, prevention quality, and other related measures.  Incentive payments will be available to the top quintile of plans, and the top quintile of most improved plans.  The bill also requires CMS to make annual adjustments to MA plan payments to reflect differences in coding patterns between MA plans and government-run Medicare.  The bill extends reasonable cost contract provisions through 2012, and limits CMS’ waiver authority for employer group MA plans unless 90 percent of enrollees reside in a county in which the MA organization offers an eligible plan.

The bill imposes requirements on MA plans to offer cost-sharing no greater than that provided in government-run Medicare, and imposes price controls on MA plans, limiting their ability to offer innovative benefit packages.  Specifically, the bill requires MA plans to report their ratio of total medical expenses to overall costs (i.e. a medical loss ratio), requires plans with a medical loss ratio of less than 85 percent to offer rebates to beneficiaries, prohibits plans with a medical loss ratio below 85 percent for three consecutive years from enrolling new beneficiaries, and exclude plans with a medical loss ratio below 85 percent for five consecutive years.  Particularly as the Government Accountability Office noted in a report on this issue that “there is no definitive standard for what a medical loss ratio should be,” some Members may be concerned about this attempt by federal bureaucrats to impose arbitrary price controls on private companies.  Again, this policy would encourage plans to keep seniors sick, rather than manage their chronic disease.

The bill also gives the Secretary blanket authority to reject “any or every bid by an MA organization.”  Some Members may be concerned that this provision gives federal bureaucrats the power to eliminate the MA program entirely—by rejecting all plan bids for nothing more than the arbitrary reason than that an Administration wishes to force the 10 million beneficiaries enrolled in MA back into government-run Medicare against their will.

Part D Provisions:  The bill extends price controls, via Medicaid drug rebates, to all Medicare beneficiaries receiving a full low-income subsidy.  This provision would constitute a broader expansion of the Medicaid rebate than its application solely to existing individuals dually eligible for Medicare and Medicaid, as approximately 9 million beneficiaries with incomes under 135 percent of poverty are eligible for the full low-income subsidy.  Some Members may be concerned that expanding prescription drug price controls into the only part of Medicare that consistently comes in under budget would constitute the further intrusion of government into the health care marketplace, and do so in a way that harms the introduction of new breakthrough drugs and treatments.  Some Members may also note that CBO has previously stated that an expansion of the Medicaid drug rebate to Medicare would result in drug companies raising private-sector prices—potentially resulting in higher prices for many Americans.

The bill slowly phases in prescription drug coverage in the Medicare Part D “doughnut hole,” by increasing the initial coverage limit and decreasing the annual out-of-pocket maximum; the transition phases in starting in 2011, but would only be 55 percent complete in 2019 (i.e. ten years from now).  Some Members may believe this provision constitutes a budgetary gimmick designed to mask the full cost of filling in the doughnut hole by extending such costs well outside the ten-year budgetary window.

The bill would expand current law protections against formulary changes by permitting beneficiaries to change plans whenever a plan is “materially changed…to reduce the coverage…of the drug.”  Thus the bill would now allow beneficiaries to switch Part D plans whenever a plan changes its formulary that would result in higher cost-sharing requirements.  Some Members may be concerned that this provision—which essentially prohibits plans from adjusting their formularies to reflect new generic drugs coming on the market mid-year—would result in higher administrative costs and lack of stability for plans.

Other Provisions:  The bill extends certain hospital re-classifications for two years, as well as a two-year extension of certain ambulance provisions and the therapy caps exceptions process.  The bill also expands the Medicare entitlement to include coverage of immunosuppressive drugs for end-stage renal disease patients no longer eligible for Medicare benefits due to a kidney transplant, and expands the definition of physician services to include consultations regarding end-of-life decision-making.

Expansion of Subsidy Programs:  The bill expands the asset test definition for the low-income subsidy program under Part D, and increase the maximum amount of assets permissible to $17,000 for an individual and $34,000 for couples.  Some Members, noting that the asset tests were already expanded and simplified in legislation enacted last year (P.L. 110-275), may question the need for a further expansion of federal welfare benefits in the form of low-income subsidies.

The bill applies the low-income subsidy asset tests to the Medicare Savings Program, and eliminates all cost-sharing for dual eligible beneficiaries receiving home and community-based services who would otherwise be institutionalized in a nursing home.  The bill also permits individuals to self-certify their asset eligibility for low-income subsidy programs, to remain automatically eligible to remain in such programs, and to obtain reimbursement from plans for cost-sharing retroactive to the date of purported eligibility for subsidies—provisions that could serve as an invitation for fraudulent activity.

The bill eliminates current law random assignment of dual eligible beneficiaries in Part D plans, requiring CMS to develop “an intelligent assignment process…to maximize the access of such individual to necessary prescription drugs while minimizing costs to such individual and the program.”  Some Members may question precisely how bureaucrats at CMS will be able to ascertain the best plan choice for individual seniors.

Language Services:  The bill requires a study by CMS regarding language communication and “ways that Medicare should develop payment systems for language services,” and authorizes a demonstration project of at least 24 grants of no more than $500,000 to providers to expand language communication and interpretation services.  As the Medicare Part A Trust Fund is scheduled to be exhausted in 2017, some Members may question the wisdom of these expenditures given the program’s financial difficulties.

Part B Premium Hold-Harmless:  The bill modifies the hold-harmless provision with respect to Part B premium determinations.  Under current law, the annual increase in the Part B premium cannot exceed the annual cost-of-living adjustment (COLA) provided through Social Security.  In years where there is no Social Security COLA—expected to be the case for the years 2010 through 2012—the total increase in Part B spending must be paid for by three groups: 1) new Medicare enrollees (who by definition are not subject to hold-harmless provisions); 2) high-income individuals subject to increased premiums under the Part B means test; and 3) State Medicaid programs paying on behalf of their dual eligible beneficiaries.  The bill provides that for 2010 only, these three categories of beneficiaries would have to pay the increase in Part B premiums—but would not have their premiums doubly increased to offset the premium increases other beneficiaries would have paid but for application of the hold-harmless provision.

Accountable Care Organizations:  The bill establishes a pilot program to create accountable care organizations (ACOs) designed to improve coordination of care and improve system efficiencies.  ACOs would include a group of physicians, including a sufficient number of primary care physicians, and could also include hospitals.  ACOs would be eligible to receive a portion (as determined by CMS) of the savings from a reduction in projected spending under Parts A and B (and, as CMS may determine, Part D) for beneficiaries enrolled in the ACO.  ACOs would also be permitted to receive their payments on a partially-captitated basis, as determined by CMS.  The Secretary may make the pilot program permanent, provided that the CMS Chief Actuary certifies that the program would reduce Medicare spending.

Medical Home Pilot:  The bill would establish a pilot program to provide medical home services for beneficiaries—with such medical home “providing first contact, continuous, and comprehensive care to such beneficiary.”  Specifically, the bill provides for monthly payments for medical home services provided to sicker-than-average Medicare beneficiaries (i.e. those above the 50th percentile), as well as payments for community-based medical home services provided to beneficiaries with multiple chronic illnesses.  The bill provides a total of $1.7 billion in additional funding for payments under the pilot programs.  The Secretary may make the pilot programs permanent, provided that the CMS Chief Actuary certifies that the permanent program would reduce estimated Medicare spending.

Primary Care Provisions:  The bill provides a 5 percent increase in primary care reimbursements beginning in 2011, and a 10 percent increase for primary care physicians practicing in underserved areas.  These increases would be in addition to the overall physician reimbursement changes outlined above.

Prevention and Mental Health:  The bill eliminates co-payments and cost-sharing for certain preventive services.  While supporting the encouragement of preventive care, some Members may question whether a blanket waiver of all cost-sharing for a list of services would encourage necessary or superfluous consumption of these treatments.  The bill also expands the list of Medicare covered services to include marriage, family therapist, and mental health counselor services.  Some Members may be concerned that this provision could well result in non-Medicare beneficiaries (i.e. spouses and family members under age 65) receiving free mental health services from the federal government.

Comparative Effectiveness Research:  The legislation includes language regarding the comparative effectiveness of various medical services and treatment options.  The bill would establish another government center for comparative effectiveness research to gauge the effectiveness of medical treatments, a commission of federal bureaucrats and others to set priorities, and a trust fund in the U.S. Treasury to support the research.  The trust fund’s research would be financed by transfers from the cash-strapped Medicare Trust Funds, along with new taxes on insurance plans imposed on a per capita basis.  While the bill includes a prohibition on the Center using its research to mandate treatment options, some Members may be concerned that the bill includes no prohibition on other agencies (i.e. the Centers for Medicare and Medicaid Services) using comparative effectiveness research—including cost-effectiveness research—to make coverage and/or reimbursement decisions, which could lead to government rationing of life-saving drugs, therapies, and treatments.

Nursing Home Provisions:  The bill includes nearly 100 pages of requirements and regulations with respect to nursing facilities (reimbursed through Medicaid) and skilled nursing facilities (reimbursed through Medicare) providing nursing home care, including requirements for the public disclosure of entities exercising operational and functional control of nursing facilities, as well as those who “provide management or administrative services…or accounting or financial services to the facility”—provisions which some Members may view as overly broad and likely to increase administrative costs without providing meaningful disclosure.

The bill requires facilities to have compliance and ethics programs in operation that meet standards set in federal regulations, as well as specific parameters laid out in the bill.  The bill requires facilities to “use due care not to delegate substantial discretionary authority to individuals whom the organization knew, or should have known through the exercise of due diligence, had a propensity to engage in criminal, civil, and administrative violations”—broad requirements which some Members may view as potentially extending liability to an entire organization for one individual’s misdeeds.

The bill requires CMS to implement a quality assurance and performance improvement program for facilities, requires facilities to submit plans to meet best practice standards under such program, and calls for a GAO study examining the extent to which large multi-facility nursing home chains are under-capitalized and whether such conditions, if present, adversely impact care provided.

The bill creates a standardized complaint form for facilities, and imposes requirements on States to maintain complaint processes that employees, patients, and patients’ friends and family members are not retaliated against for lodging a complaint.  The bill extends federal whistleblower protections to any current or former employee of a facility regarding good faith complaints made about that facility, and permits victims of discrimination to pursue action against the facility in United States district court.  The bill permits successful whistleblower plaintiffs to receive damages as well as “reasonable attorney and expert witness fees,” and prohibits any contractual arrangement from waiving or infringing upon whistleblowers’ rights.  Some Members may be concerned that these provisions would constitute an invitation to lawsuits against nursing home facilities, the cost of which could significantly hinder the facility’s ability to provide quality patient care.

The bill modifies existing penalty provisions to allow fines—imposed by CMS in the case of skilled nursing facilities and States in the case of nursing facilities—of up to $100,000, in instances where facilities’ deficiencies are “found to be a direct proximate cause of death of a resident,” and up to $3,050 per day for “any other deficiency” found not to cause “actual harm or immediate jeopardy.”  Penalties for incidental, first-time infractions may be reduced if the facility self-reports the infraction and takes remedial action within ten days.  The bill notes that “some portion of” the penalties collected “may be used to support activities that benefit residents.”

The bill establishes a two-year pilot program to create a national monitor to oversee “large intrastate chains of skilled nursing facilities and nursing facilities” that apply to participate in the program, requires facilities to provide at least 60 days’ notice prior to their closure, and adds dementia management and resident abuse to the list of required training courses for nurses aides working in relevant facilities.

Quality Improvement:  The bill establishes a new program of national priorities for quality improvement, and directs the Agency for Healthcare Research and Quality to help develop a series of quality measures that can assess patient care and outcomes.

Disclosure of Physician Relationships:  The bill imposes new reporting requirements on drug and device manufacturers and distributors to disclose their financial relationships with physicians and other health care providers.  Specifically, manufacturers and distributors would be required to disclose the details behind any “transfer of value directly, indirectly, or through an agent,” with some limited exceptions.  A “transfer of value” includes any drug sample, gift, travel, honoraria, educational funding or consulting fees, stocks, or other ownership interest.  The bill establishes a new federal standard without regard to State laws—allowing States to exceed the federal standard.

The bill authorizes penalties of between $1,000 and $10,000 for each instance of non-reporting, up to a maximum fine of $150,000; knowing violations of non-reporting carry penalties of between $10,000 and $100,000 for each instance, up to a maximum find of the greater of $1,000,000 or 0.1 percent of total annual revenues—which for large companies could significantly exceed $1 million.  Some Members may be concerned at the significant penalties imposed for even incidental and unintentional non-compliance with the rigorous disclosure protocols established in the bill—and further question whether this disclosure would provide meaningful information to patients.

The bill further permits State Attorneys General to bring actions pursuant to this section upon notifying the Secretary about a specific case.  Some Members may be concerned that this provision will result in additional lawsuits, which, coupled with the millions of dollars in potential fines above, will further raise costs for manufacturers and discourage the development and diffusion of life-saving breakthroughs.

Tax Increase on Pharmaceutical Companies:  The bill prohibits drug and medical device companies from deducting as a regular business expense “any expenditure relating to the advertising, promoting, or marketing (in any medium) of any covered drug, device, or medical supply” if the business has any penalty imposed on it with respect to the relationship transparency disclosures referenced above.  Some Members may be concerned by the prospect of imposing taxes on companies who exercise their First Amendment rights to advertise legal and approved products, notwithstanding any penalties imposed for violations, however slight, of the disclosure regime.

Graduate Medical Education (GME):  The bill provides for the re-distribution of unused GME training slots, beginning in 2011, to hospitals, provided that no hospital shall receive more than 20 additional positions, and that all re-distributed residency positions be directed towards primary care.  The bill permits activities in non-provider settings to count towards GME resident time, including participation in scholarly conferences and other educational activities.

Anti-Fraud Provisions:  The bill increases penalties imposed on plans offering coverage through MA, Medicaid, or Part D related to knowing mis-representation of facts “in any application to participate or enroll” in federal programs.  The bill also makes eligible for penalties the knowing submission of false claims data, a failure to grant timely access to inspector general audits or investigations, submission of claims when an individual is excluded from program participation.  The bill provisions state that MA or Part D plans providing false information to CMS can be fined three times the amount of the revenues obtained as a result of such mis-representation.

The bill permits the Secretary to impose additional screening and oversight requirements—including a moratorium on the enrollment of new providers—in the case of significant risk of fraudulent activity, and requires providers to disclose in applications for enrollment or renewed enrollment current or previous affiliations with providers suspended or excluded from the programs in question.  The bill requires providers to adopt waste, fraud, and abuse compliance programs, subject to a $50,000 fine for non-compliance, and reduces from 36 months to 12 months the maximum lookback period for providers to submit Medicare claims.

The bill requires physicians ordering durable medical equipment (DME) or home health services to be participating physicians within the Medicare program, and requires providers to maintain and provide access to written documentation for DME and home health requests and referrals.  Home health services will require a face-to-face encounter with a provider prior to a physician certification of eligibility.  The bill also extends the Inspector General’s subpoena authority, and requires individuals to return overpayments within 60 days of said overpayment coming to light, subject to civil penalties.  Finally, the bill grants the Inspector General access to all Medicare and Medicaid claims databases, including MA and Part D contract information, and consolidates two existing data banks of information.

Other Provisions:  The bill would repeal provisions in the Medicare Modernization Act requiring expedited procedures for the President to submit, and Congress to consider, “trigger” legislation remedying Medicare’s funding shortfalls, as well as provisions regarding a Medicare premium support demonstration project scheduled to start in 2010.  At a time when the Medicare Part A Trust Fund is scheduled to be exhausted in 2017, some Members may be concerned that these changes would eliminate provisions designed to have Congress take action to remedy Medicare’s looming fiscal crisis and one possible solution (i.e. premium support).

The bill extends an existing gainsharing demonstration project, and provides for new grants to States to support home visitation programs for families with children and families expecting children.  The visitation program would be similar to the capped allotment funding mechanism used in SCHIP; federal funding would total $1.75 billion in the first five years, and State allotments would be determined on the basis of each State’s relative proportion of children in families below 200 percent FPL.  The federal government would provide matching reimbursement rate, starting at 85 percent in 2010 before falling to 75 percent in 2012.  At a time when existing entitlements are fiscally unsustainable, some Members may question the wisdom of establishing yet another federal entitlement—this one a new home visitation program to teach parents “skills to interact with their child.”

Medicaid and SCHIP Provisions

Medicaid ExpansionThe bill expands Medicaid to all individuals—including non-disabled, childless adults not currently eligible for benefits—with incomes below 133 percent FPL ($29,326 for a family of four).  New populations made eligible for Medicaid benefits under this provision would have their benefits fully financed by the federal government—an unprecedented change in the shared responsibility structure of the Medicaid program.

Many Members may be concerned by both the cost and scope of this unprecedented expansion of Medicaid to millions more Americans.  Some Members may believe the 100 percent federal match would provide a strong disincentive for States to take appropriate action to control costs, as well as fraud and abuse, in their Medicaid programs.  Members may also note that a plurality of individuals (44 percent) with incomes between one and two times the poverty level have private health insurance; expanding Medicaid to 133 percent FPL would provide a strong incentive for these individuals or their employers to drop their current coverage so they can instead enroll in the government-run plan.  Moreover, given Medicaid’s history of poor beneficiary access to care, some Members may believe that Medicaid itself needs fundamental reform—and beneficiaries need the choice of access to quality private coverage rather than a government-run plan.

Medicaid/Exchange Interactions:  The bill requires States to accept and enroll individuals documented by the Exchange as having incomes under 133 percent FPL, and requires States to finance their portion of wrap-around benefits (at existing federal matching rates) for Medicaid beneficiaries enrolled in Exchange plans.  However, States with above-average reductions in the number of uninsured shall have their matching percentage reduced by half.  The bill also excludes any payments related to erroneous eligibility determinations for Exchange plans from States’ Medicaid error rates—which some Members may be concerned could encourage States to enroll beneficiaries not eligible for benefits.

The bill imposes maintenance of effort requirements on States, prohibiting the voters or elected leaders of a State from reducing eligibility levels in the State’s Medicaid and SCHIP programs after the bill’s enactment.  The bill also requires a study of Medicaid Disproportionate Share Hospital (DSH) payments’ effectiveness on reducing the number of uninsured individuals.

Preventive Services:  The bill requires Medicaid to cover certain preventive services, as well as recommended vaccines, and eliminates cost-sharing for same.  The bill also permits Medicaid coverage of tobacco cessation programs, as well as optional coverage of nurse home visitation services, with the latter being reimbursed at an enhanced matching rate.  While supporting the use of preventive services, some Members may be concerned that the broad waiver of cost-sharing requirements could result in beneficiaries over-consuming services not directly beneficial to their health needs.

Family Planning Services:  The bill includes several provisions related to family planning services.  Specifically, the bill would amend the definition of a “benchmark State Medicaid plan” to require family planning services for individuals with incomes up to the highest Medicaid income threshold in each State.  The bill also permits States to establish “presumptive eligibility” programs for family planning services, which would allow Medicaid-eligible entities—including Planned Parenthood clinics—temporarily to enroll individuals in the Medicaid program for up to 61 days and places no limit on the number of times an individual can be presumptively enrolled by the same entity.  Under this provision, a person could be repeatedly presumptively enrolled in the Medicaid program for years without ever having to document that the individual is actually qualified to receive taxpayer-funded Medicaid benefits.

Some Members may be concerned that these changes would, by altering the definition of a benchmark plan, undermine the flexibility that Republicans established in the Deficit Reduction Act to allow States to determine the design of their Medicaid plans, and would expand the federal government’s role in financing family planning services.  Some Members may also be concerned that the presumptive eligibility provisions would enable wealthy individuals or undocumented aliens to obtain free family planning services—and potentially other health care benefits—financed by the federal government, based solely on a presumption of possible eligibility by Planned Parenthood or other clinics.

Access to Services:  The bill requires States to provide Medicaid reimbursement for services provided through school-based health clinics, and increases reimbursements to Medicaid primary care providers so that all such providers would be paid at Medicare rates by 2012—with the cost of such increased reimbursements fully paid for by the federal government.  Beginning in 2013, the full cost of all Medicaid primary care reimbursements would be fully paid for by the federal government—which many Members could be concerned would lead to skyrocketing federal costs, as States would have a strong financial incentive to shift more and more health care bills towards primary care services fully paid for by federal taxpayers.  The bill requires the Secretary to establish a medical home pilot program for Medicaid, similar to the Medicare program described above, and provides $1.2 billion to finance additional federal costs over the five-year period of the project.

The bill gives States the option to cover “ambulatory services that are offered at a freestanding birth center,” defined as any non-hospital location “where childbirth is planned to occur away from the pregnant woman’s residence,” as well as certain low-income HIV positive individuals at an enhanced federal match.  The bill extends for two additional years the Transitional Medical Assistance (TMA) program that provides Medicaid benefits for low-income families transitioning from welfare to work.  Traditionally, the TMA provisions have been coupled with an extension of Title V abstinence education funding during the passage of health care bills.  However, the Title V funds were excluded from the bill language, and will expire on July 1, 2009 absent further action.  Some Members may be concerned at the removal of the Title V abstinence education funding and the potential end of this program.

The bill provides an enhanced federal match of up to 90 percent for State spending on new electronic eligibility system, which must access eligibility databases for other federal programs, including Head Start, food stamps, SCHIP, and the federal school lunch program.  Some Members may be concerned that these provisions could result in undocumented aliens and other unqualified individuals receiving access to taxpayer-funded Medicaid benefits.

Pharmacy Provisions:  With respect to payments to pharmacists, the bill changes the federal upper reimbursement limit from 250 percent of the average manufacturer price (AMP) of the lowest therapeutic equivalent to 130 percent of the volume-weighted AMPs of all therapeutic equivalents.  Manufacturers would be required to provide additional rebates for new formulations (e.g. extended-release versions) of existing drugs.  The bill also increases the minimum Medicaid rebate for single-source (i.e. patented drugs) from 15.1 percent to 22.1 percent, and—for the first time—applies the rebate to drugs purchased by Medicaid managed care organizations, which already have the ability to negotiate lower prices.  Some Members may be concerned that this language, by increasing the Medicaid rebate nearly 50 percent and extending the scope of its price controls, represents a further intrusion of government into the marketplace—and one that could result in loss of access to potentially life-saving treatments, by reducing companies’ incentive to develop new products.

Other Provisions:  The bill provides circumstances under which States can submit reimbursement claims for graduate medical education—a service that has never before been recognized as subject to reimbursement under the original Medicaid statute.  The bill also grants CMS the authority to reject payment for certain “never events” resulting from medical errors and other “health care acquired conditions.”  The bill requires providers to adopt waste, fraud, and abuse programs, and makes permanent the Qualifying Individual program, which provides assistance through Medicaid for low-income seniors in paying their Medicare premiums.  Some Members may be concerned that the bill also regulates medical loss ratios for Medicaid managed care organizations—adding a government-imposed price control, and one that the Government Accountability Office has admitted is entirely arbitrary.

Division C—Public Health

This division of the bill would purportedly improve public health and wellness through a variety of federal programs and increased spending.  While supporting the goal of better health and wellness for all Americans, some Members may be concerned by the bill’s apparent approach that additional federal spending ipso facto will improve individuals’ health.  Details of the division include:

New Mandatory Spending:  The bill appropriates $33.7 billion in new mandatory spending for a “Public Health Investment Fund,” of which $15.2 billion is dedicated to a “Prevention and Wellness Trust.”  This increase in mandatory spending over five fiscal years is intended to fund programs established in the bill, as well as other programs in the Public Health Service Act.

Community Health Centers:  The bill authorizes an additional $12 billion from the Public Health Investment Fund for grants to community health centers—funding over and above the significant increase provided in the $13.3 billion, five-year reauthorization that passed just last year (P.L. 110-355).  Some Members may be concerned by the significant increase in authorization levels given the federal government’s expected deficit of nearly $2 trillion this year.

Workforce Provisions:  The bill would increase maximum loan repayment levels for participants in the National Health Service Corps from $35,000 to $50,000 per year, further adjusted for inflation, and authorizes an additional $1.5 billion in appropriations for loan repayments.  The bill also creates a new program for primary care in addition to the existing National Health Service Corps, which would fund tax-free scholarships of up to half the annual cost of tuition in exchange for each year of service by an individual in an underserved area; a loan forgiveness program would further subsidize tuition costs.

The bill would award grants to hospitals and other entities to plan, develop, or operate training programs and provide financial assistance to students with respect to certain medical specialties, including primary care physicians and dentistry, and increase student loan limits for nursing students and faculty.  The bill further would award grants to health professions schools for the training of, and/or financial assistance to, public health professionals and graduate medical residents in preventive medicine specialties.  The bill would make certain modifications to existing programs for diversity centers, and increase loan repayment limits for such programs by $10,000 per year.  The bill amends provisions relating to grants for cultural and linguistic competence training, and authorizes new grants for interdisciplinary training designed to reduce health disparities.

The bill would establish a Public Health Workforce Corps with its own scholarship program to address workforce shortages.  The scholarship program would include up to four years of tuition and fees, as well as a $1,269 monthly stipend during the academic year.  The Corps would have a further loan forgiveness program for individuals who commit to at least two years of service, providing up to $35,000 annually in loan forgiveness to participants.

The bill would authorize grants administered by the Secretary of Labor “to create a career ladder to nursing” for “a health care entity that is jointly administered by a health care employer and a labor union” in order to fund “paid leave time and continued health coverage to incumbent workers to allow their participation” in various training programs, or “contributions to a joint labor-management training fund which administers the program involved.”  Some Members may be concerned that this provision would enable labor unions to receive federal grant funds in order to train their members.

Finally, the bill would create an Advisory Committee on Health Workforce Evaluation and Analysis, as well as a National Center for Health Workforce Analysis.  Some Members may question the necessity and wisdom of establishing new bureaucracies to attempt to analyze and manage the health workforce.

Expanded Price Controls:  The bill expands participation in the 340B program, which reduces the price paid for outpatient pharmaceuticals purchased by certain entities.  Specifically, the bill expands the program to children’s hospitals, critical access hospitals, rural referral centers, and sole community hospitals, while also extending the price control mechanism to inpatient drugs used by such hospitals and facilities.  Some Members may be concerned that this language, by extending the scope of price controls on pharmaceutical products, represents a further intrusion of government into the marketplace—and one that could result in loss of access to potentially life-saving treatments, by reducing companies’ incentive to develop new products.

Cost: A formal CBO score is not yet available.  However, one of the bill’s central provisions—“low-income” subsidies for families making more than $88,000 per year—echoes the initial proposal prepared by Senate Finance Committee Chairman Baucus, which press coverage widely reported was estimated by CBO to cost $1.6 trillion over ten years.  Coupled with a more generous Medicaid expansion and physician reimbursement provisions—which the Democrat majority reportedly does not intend to pay for—and the cost of the bill should easily exceed the $1 trillion estimate publicly cited by Ways and Means Committee Chairman Rangel—and likely could double that number.