Rep. Hensarling Op-Ed: Democrat Medicare Bill Shortchanges Minorities

Over the last several weeks, I have heard from physicians rightly concerned that lawmakers had yet to pass legislation repealing a scheduled 10.6 percent reduction in their Medicare reimbursement rates. No doubt Congress should and will act soon, to preserve seniors’ access to physician care. This is critical for doctors, specifically primary care physicians, whom already face tremendously difficult challenges. But behind the scenes of the physician reimbursement debate lies an interesting paradox in the way Congressional Democrats protect wealthy seniors, while exposing large numbers of low-income beneficiaries whom the legislation purports to protect.

Nestled into the sprawling 278-page bill the House passed with limited debate are provisions that would expand eligibility for subsidy programs that aid low-income beneficiaries with Part B premium payments, deductibles, and co-insurance. Coupled with several proposals designed to increase outreach to low-income populations, the changes would cost hardworking Americans $7 billion over the next ten years.

Of course, budgetary rules require Congressional Democrats to pay for this expansion of the Medicare benefit. By listening to Senator Obama, you might assume that the likeliest culprit would be yet another tax on the wealthy. But that is far from it. The expanded subsidies for low-income individuals – as well as the physician reimbursement provisions and other related Medicare provisions – are paid for by cuts to Medicare Advantage plans that provide coverage to millions of seniors.

The paradox arrives in the discovery that Medicare Advantage plans disproportionately serve low-income and minority populations. Nearly half of all Medicare Advantage beneficiaries had incomes under $20,000; for Hispanic and African-American populations, that number rises to 70 percent. While policy-makers argue about “overpayments” to Medicare Advantage plans, many low-income seniors have come to appreciate – and rely on – the lower costs and increased benefits that these plans have provided. But as a result of the House-passed legislation, over 2 million seniors, including 1.8 million in private fee-for-service plans popular in rural areas with limited physician access, will lose their Medicare Advantage coverage.

To sum up: Congressional Democrats are cutting benefits for some low-income seniors – in order to extend benefits to other low-income seniors. All the while, proposals to increase Part D premiums for the wealthiest Medicare beneficiaries -think George Soros and Warren Buffett – languish in legislative purgatory.

There is a Machiavellian logic to Democrats’ apparent lack of appetite for Medicare means testing. If wealthier individuals become less dependent on the welfare state for their health benefits in retirement, political support for the popular program may wane. But when President Bush proposed to extend current means-testing of Part B premiums to the prescription drug plan as one way to alleviate Medicare’s funding woes, the New York Times considered this element of the President’s plan a “reasonable” proposal. If President Bush and the editorial board of the New York Times can both see the merits of this concept, there is little reason why Congress, in its infinite wisdom, should not see fit to include it in the Medicare bill.

Instead, the legislative product being considered constitutes, at best, an attempt at behavioral modification – forcing low-income beneficiaries away from plans run by “greedy” insurance companies – and at worst a perverse experiment in social Darwinism, pitting one group of vulnerable seniors against another in a competition for Medicare dollars. All this so Warren Buffett can avoid having his estimated $60 billion fortune decimated by paying an extra $2 per day for prescription drug coverage.

In March, the Medicare trustees issued their annual report, which noted that Medicare faces $86 trillion – yes, trillion – in unfunded obligations. The two best ways to stem this looming tide of debt are increased competition among private Medicare Advantage plans and proposals utilizing means-testing to dedicate scarce health care resources to the seniors who need them most. Yet the House bill undermines the former, while ignoring the latter.

While introducing Medicare legislation very similar to the bill the House passed, Senate Finance Committee Chairman Max Baucus decried efforts to “protect private insurance plans” that would “leave low-income beneficiaries behind,” arguing that his “balanced legislation” will prevent the latter while discouraging the former. I agree with Senator Baucus that his legislation is indeed balanced – it would ensure that a senior with $20,000 in income will continue to pay as much for prescription drugs as Ross Perot (or Senator Baucus himself). But in their ideological quest to undermine private insurance plans, Congressional Democrats are indeed leaving millions of beneficiaries on Medicare Advantage plans, many of them low-income, behind. Speaker Nancy Pelosi and House Democrats – Cutting coverage for beneficiaries while protecting billionaires.

This post was originally published at The Washington Times.

Legislative Bulletin: H.R. 6331, Medicare Improvements for Patients and Providers Act

Order of Business:  The Democratic House Leadership has indicated that the House will likely vote to override the President’s veto of H.R. 6331 today, July 15, 2008.  The vote on H.R. 6331 is to either sustain or override the President’s veto.  For additional information on the process in the House regarding vetoed bills, please see the “Process for a Vetoed Bill” section below.

Process for a Vetoed Bill:

  • The House and Senate pass an identical bill.
  • The President vetoes the bill and sends a veto message to the House.
  • The Speaker “lays a veto message before the House on the day it is received…When the message is laid before the House, the question on passage is considered as pending.”
  • Consideration of a vetoed bill (a privileged matter) generally takes precedence over other floor matters (it can interrupt other floor business), except in certain specific instances: a motion to adjourn, a question of privilege under the Constitution (such as a blue-slip resolution), and unfinished business with the previous question order (such as a bill with the previous question ordered to passage on the day before, but the House adjourned before voting on passage of the bill).
  • If the House does not wish to proceed immediately to reconsider the bill, three motions are in order:

1)     motions to lay on the table (if passed, a motion to take it from the table is in order at any time);

2)     motions to postpone consideration to a day certain (it becomes unfinished business on that day); or

3)     motion to refer to committee (a motion to discharge is highly privileged and in order at any time).

  • If none of the above three motions are offered, the House proceeds to debate the override question under the hour rule and then votes on the question of overriding the veto.
  • If the veto is sustained, the bill is referred to committee. Since the bill has been rejected (when the veto was sustained), a motion to take the bill from committee is not privileged.

The Vote on H.R. 6331—Sustaining the Presidential Veto:  When a vote is requested on a vetoed bill, the question is:  “Will the House, on reconsideration, pass the bill, the objections of the President to the contrary notwithstanding.”  Thus, it is as if the bill is up for normal consideration again, only the threshold for passage is now 2/3 of those votingIf a member opposes the bill and voted NO when it was originally considered and passed, then he would vote NO again (still opposing the bill, thereby voting to sustain the President’s veto).

Summary:  H.R. 6331 eliminates for six months a reduction in Medicare physician payments scheduled to take effect on June 30, 2008, freezing payment levels for the balance of 2008 and providing a 1.1% increase in fee schedule levels for 2009.  H.R. 6331 also reduces payments to and modifies the structure of privately-run Medicare Advantage fee-for-service (FFS) plans that have shown significant growth in recent years.

Medicare:  H.R. 6331 contains many provisions that would alter Titles XVIII (Medicare) and XIX (Medicaid) of the Social Security Act as follows:

Coverage of Preventive Services.  The bill would create a process for the Secretary of Health and Human Services to extend Medicare coverage to additional preventive services under Parts A and B, and would waive the deductible with respect to the initial physical exam provided upon a beneficiary’s enrollment in the Medicare program.  CBO scores this provision as costing $5.9 billion over eleven years.

Mental Health Parity.  The bill would reduce over five years the co-payment for outpatient psychiatric services to 20%, consistent with the co-payment rate for physician visits under Medicare Part B.  CBO scores this provision as costing $3 billion over eleven years.

Marketing Restrictions on Private Plans.  The bill would impose restrictions with respect to the marketing tactics used by private Medicare Advantage and prescription drug plans.  The bill would eliminate unsolicited direct contact to beneficiaries, restrict the provision of gifts to nominal values, require annual training of agents and brokers licensed under state law, and impose related marketing restrictions.  No net cost.

Low-Income Programs.  H.R. 6331 would extend the Qualifying Individual program under Medicare and Medicaid for eighteen months, through December 2009, at a cost of $500 million.  The bill would also expand eligibility for enrollment in the low-income subsidy program by altering the asset test for the Medicare Savings Program, and engaging in further outreach to beneficiaries eligible for participation but not currently enrolled.  Other provisions in this section would codify current guidance eliminating the Part D late enrollment penalty for individuals eligible for low-income subsidies, and require the translation of the enrollment form into at least 10 languages other than English.  Total cost of these provisions is $7.7 billion over eleven years.

Hospital Provisions.  The bill includes several hospital-related provisions, including the extension of rural hospital flexibility program, new grants for the provision of mental health services to Iraq war veterans in rural areas, new grants to certain critical access hospitals, a re-adjustment of target payment amounts for sole community hospitals, a new demonstration program for integrating care in certain rural communities, and the reclassification of certain hospitals.  Total cost of these provisions according to CBO is $600 million over eleven years.

Physician Services.  The bill makes several adjustments to physician payment rates, including the following:

Conversion Factor:  The bill would extend the 0.5% update to the conversion factor for physician reimbursements, currently due to expire on June 30, 2008, through the end of calendar year 2008, effectively freezing payment levels for the balance of the year.  For 2009, the conversion factor will be 1.1%.  The bill also provides that the adjustments made for 2008 and 2009 will be disregarded for the purposes of computing the sustainable growth rate (SGR) conversion factor in 2010 and future years, which would necessitate a 21% reduction in reimbursement levels in 2010.

Quality Reporting:  H.R. 6331 would revise and extend existing quality reporting language to provide a 1.5% bonus payment in 2008, and 2.0% bonus payments in 2009 and 2010, to those physicians reporting selected quality data measurements.  Cost of both the quality reporting and conversion factor provisions is $6.4 billion over six years, and $4.5 billion over eleven.

Electronic Prescribing:  The bill provides bonus payments for physicians who participate in electronic prescribing and report relevant quality measures—2.0% in 2009 and 2010, 1.0% in 2011 and 2012, and 0.5% in 2013.  Physicians not participating in the electronic prescribing program will receive reimbursement reductions of 1% in 2012, 1.5% in 2013, and 2% in 2014 and thereafter.  Saves $1.4 billion over eleven years.

Other provisions:  With respect to physician services, the bill also revises a medical home demonstration project, extends the floor for Medicare work geographic adjustments under the physician fee schedule through December 2009, imposes accreditation requirements on the payment of diagnostic imaging services, and increases payment levels for teaching anesthesiologists.  H.R. 6331 also includes a requirement for the Secretary to report to Congress on the creation of a new system of value-based purchasing for physician services.  Total cost of $1.9 billion over eleven years.

Other Part B Adjustments.  The bill would make several other adjustments to the Part B program, among which are an extension through December 2009 of the exceptions process for Medicare therapy caps (costs $1.2 billion over eleven years), the inclusion of speech-language pathology services as a service for which providers can bill Medicare directly ($100 million cost), the establishment of cardiac and pulmonary rehabilitation programs ($500 million cost), a repeal of the transfer of ownership with respect to oxygen equipment, repeal of a competitive bidding demonstration project for clinical laboratory services coupled with other adjustments for lab services ($2 billion savings), increased payments for ambulance services ($100 million cost), payment clarification for clinical laboratory tests made at critical access hospitals ($300 million cost), and increased payment limits for federally qualified health centers treating Medicare patients ($100 million cost).

Kidney Disease and Dialysis Provisions.  H.R. 6331 makes several adjustments to the end-stage renal disease program, including new coverage for kidney disease education services, a 1% increase in dialysis reimbursement rates for 2009 and 2010, and a requirement that the Secretary develop a bundled rate payment system for renal dialysis by January 2011, to be phased in over four years, that includes payment for drugs and tests related to dialysis treatment for which Medicare currently reimburses providers separately.  Costs $1.5 billion over eleven years.

Delay of Durable Medical Equipment Competitive Bidding.  The legislation would terminate all Round 1 contracts for Medicare durable medical equipment made pursuant to the initial round of competitive bidding completed this spring, and would direct CMS to re-bid Round 1 at some point during 2009.  Future rounds of competitive bidding would also be delayed, with Round 2 taking place during 2011, and competitive bidding in rural areas and smaller metropolitan areas being delayed until 2015.  The approximately $3 billion cost of the delay would be paid for by an across-the-board reduction of 9.5% for all supplies scheduled to be subjected to competitive bidding.  In addition, the bill would require the CMS contractor to notify suppliers missing financial documentation related to their bids, extend disclosure and accreditation requirements to sub-contractors, and establish an ombudsman within CMS to respond to complaints from suppliers and individuals about the competitive bidding process.

Medicare Advantage Provisions.  H.R. 6331 would cut Medicare Advantage payments, primarily through two adjustments.  The first would phase out duplicate payments related to indirect medical education (IME) costs at teaching hospitals.  Currently, IME costs are incorporated into the benchmark which Medicare Advantage plans bid against, even though Medicare also makes IME payments to teaching hospitals in association with hospital stays for Medicare Advantage beneficiaries.  The Administration incorporated this proposal into its Fiscal Year 2009 budget submission to Congress.

The bill also would repeal “deeming” authority language for private fee-for-service plans within Medicare Advantage, which currently can reimburse providers at the traditional Medicare rate and “deem” these providers part of their network.  Instead, H.R. 6331 would require private fee-for-service plans to adopt physician networks in areas where at least two other types of coordinated care plans (e.g. Health Maintenance Organizations Preferred Provider Organizations, etc.) operate.

Preliminary data from CMS indicate that the provisions in H.R. 6331 would result in private fee-for-service plans losing their “deeming” authority in 96% of counties in which they currently operate, potentially resulting in loss of beneficiary access to a type of Medicare Advantage plan which has experienced significant growth in recent years.  The Congressional Budget Office confirms that the provision would reduce both Medicare outlays and enrollment in the Medicare Advantage program.  In a Statement of Administration Policy on the Senate bill (S. 3101) incorporating these provisions, the Office of Management and Budget opposed the changes as a “fundamental restructuring” of this segment of the Medicare Advantage program that would result in beneficiaries losing access to the enhanced benefits which Medicare Advantage plans provide.  The IME provision and the deeming language collectively cut Medicare Advantage by $12.5 billion over six years, and $47.5 billion over eleven years.

H.R. 6331 includes several other provisions relating to Medicare Advantage plans, including an extension of and revisions to plans for special needs individuals (costs $500 million over eleven years), garnishment of the remaining funds left in the Medicare Advantage stabilization fund (saves $1.8 billion over eleven years), and two studies by the Medicare Payment Advisory Commission (MedPAC) regarding Medicare Advantage quality data and payment formulae.

Pharmacy Provisions.  The bill makes changes to the Part D prescription drug program, most notably requiring “prompt payment” by drug plans to pharmacies for prescriptions within 14 days for electronic claims and 30 days for all other claims, at a cost of $700 million over eleven years.

Release of Part D Data.  The bill would permit the Secretary to utilize Part D claims data from private plans in order to improve the public health as the Secretary determines appropriate, and would further allow Congressional support agencies to obtain the data for oversight and monitoring purposes.  No net cost.

Medicare Improvement Fund.  H.R. 6331 would establish a Medicare Improvement Fund to allow the Secretary to make enhancements to Medicare Parts A and B, and appropriates funding from FY2014 through FY2017 to fund such efforts.  Costs $24.2 billion over eleven years.

Federal Payment Levy.  The bill would expand the federal payment levy—which provides for the recoupment of taxes owed the federal government by private contractors—to Medicare provider and supplier payments.  Saves $400 million over eleven years.

TMA and Title V Extension.  H.R. 6331 would extend for twelve months (until June 30, 2009), both the authorization for Title V programs (abstinence education programs), and the authorization for Transitional Medical Assistance (Medicaid benefits for low-income families transitioning from welfare to work).  TMA has historically been extended along with the Title V Abstinence Education Program.  Regarding the Title V grant program, in order for states to receive Title V block grant funds, states must use the funds exclusively for teaching abstinence.  In addition, in order to receive federal funds, a state must match every $4 in federal funds with $3 in state funds.  Costs $1 billion over eleven years.

Other Extensions.  The bill also adjusts the federal Medicaid matching rate for foster care and related services provided by the District of Columbia, and extends certain other provisions, including Medicaid Disproportionate Share Hospital (DSH) payments, TANF supplemental grants, and special diabetes grant programs.  Total cost of $1 billion over eleven years.

Additional Background on Senate Legislation:  H.R. 6331 closely resembles legislation (S. 3101) originally introduced by Senate Finance Committee Chairman Max Baucus (D-MT).  At least one circulating draft of H.R. 6331 includes “Sense of the Senate” language, despite the fact that the bill is ostensibly an original House measure.  On June 12, 2008, the Senate by a 54-39 vote failed to invoke cloture on a motion to proceed to consideration of S. 3101.

Despite sharing similar language, H.R. 6331 and S. 3101 differ in a few respects.  The House bill excludes cuts to reimbursement of oxygen supplies and power-driven wheelchairs included in the Senate version, instead incorporating the federal payment tax levy and other provisions to compensate for the lost budgetary savings.  In addition, H.R. 6331 includes legislation (H.R. 6252) introduced by Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) and Ranking Member Dave Camp (R-MI) to postpone competitive bidding of durable medical equipment.  Chairman Baucus had attempted to add these provisions to his Senate legislation, but was unable to persuade enough Senate Republicans to support cloture in order to allow him to do so, largely because Republicans objected to the Medicare Advantage cuts envisioned by his legislation.

Additional Background on Medicare Advantage:  The Medicare Modernization Act of 2003 made several changes to the bidding and payment structure for private Medicare Advantage plans to deliver health care to beneficiaries.  As currently constructed, plans receive capitated monthly payments that are subject to risk adjustment—so that plans caring for older, sicker beneficiaries receive higher payments than those with healthier populations.  In order to determine the capitated payment amount, plans submit annual bids to the Centers for Medicare and Medicaid Services (CMS).  The bids are compared against a benchmark established by a detailed formula—but the comparison against the benchmark does not directly allow plans to compete against each other, or against traditional Medicare, when CMS evaluates plan bids.

In the event a plan’s bid is below the annual benchmark, 75% of the savings is returned to the beneficiary in the form of lower cost-sharing (i.e. premiums, co-payments, etc.) or better benefits, with the remaining 25% returned to the federal government.  If a plan’s bid is above the benchmark, beneficiaries pay the full amount of any marginal costs above the benchmark threshold.

Most Medicare Advantage plans use rebates provided when bidding below the benchmark to cover additional services over and above those provided by traditional Medicare, and in so doing reduce beneficiaries’ exposure to out-of-pocket costs.  A Government Accountability Office (GAO) report released in February 2008 documented that in most cases, beneficiaries receive better benefits under Medicare Advantage than they would under traditional Medicare.  The GAO study found that beneficiary cost-sharing would be 42% of the amounts anticipated under traditional Medicare, with beneficiaries saving an average of $67 per month, or $804 annually.[1]  These savings to MA beneficiaries occurred because plans dedicated 89% of their rebates from low bids to reduced cost-sharing or lower premiums.  The remaining 11% of rebates were used to finance additional benefits, such as vision, dental, and hearing coverage, along with various health education, wellness, and preventive benefits.[2]  Due in part to the increased benefits which Medicare Advantage plans have provided, enrollment in MA plans is estimated to rise to 22.3% of all Medicare beneficiaries in 2008, up from 12.1% in 2004.[3]

Some independent studies have suggested that Medicare Advantage plans incur higher costs than the average annual cost of providing coverage through traditional Medicare, though estimates vary as to the disparity between the two forms of coverage.  However, to the extent that MA plans in fact receive payments in excess of the costs of traditional Medicare, this discrepancy remains inextricably linked to two features of the Medicare Advantage program—the increased benefits for beneficiaries, and the complexity of the MA plan bidding mechanism.  Because of the problems inherent in the statutory benchmark design, plans have little incentive to submit bids less than the cost of traditional Medicare, as plans that bid above the costs of traditional Medicare but below the benchmark receive the difference between traditional Medicare costs and the plan bid as an extra payment to the plan.[4]

Some conservatives would also argue that a discussion focused solely on Medicare Advantage “overpayments” ignores the significant benefits that MA plans provide to key underserved beneficiary populations.  Medicare Advantage plans have expanded access to coverage in rural areas.  Moreover, the disproportionate share of low-income and minority populations who have chosen the MA option suggests that the comprehensive benefits provided are well-suited to beneficiaries among vulnerable populations.  Data from the Medicare Current Beneficiary Survey demonstrate that almost half (49%) of Medicare Advantage beneficiaries have incomes less than $20,000, and that 70% of Hispanic and African-American Medicare Advantage enrollees had incomes below the $20,000 level.[5]

Additional Background on Medicare Physician Reimbursements:  Under current Medicare law, doctors providing health care services to Part B enrollees are compensated through a “fee-for-service” system, in which physician payments are distributed on a per-service basis, as determined by a fee schedule and an annual conversion factor (a formula dollar amount).  The fee schedule assigns “relative values” to each type of provided service.  Relative value reflects physicians’ work time and skill, average medical practice expenses, and geographical adjustments.  In order to determine the physician payment for a specific service, the conversion factor ($37.8975 in 2006) is multiplied by the relative value for that service.  For example, if a routine office visit is assigned a relative value of 2.1, then Medicare would provide the physician with a payment of $79.58 for that service.  ($37.8975 x 2.1)

Medicare law requires that the conversion factor be updated each year.  The formula used to determine the annual update takes into consideration the following factors:

  • Medicare economic index (MEI)–cost of providing medical care;
  • Sustainable Growth Rate (SGR)–target for aggregate growth in Medicare physician payments; and
  • Performance Adjustment–an adjustment ranging from -13% to +3%, to bring the MEI change in line with what is allowed under SGR, in order to restrain overall spending.

Every November, the Centers for Medicare and Medicaid Services (CMS) announces the statutory annual update to the conversion factor for the subsequent year. The new conversion factor is calculated by increasing or decreasing the previous year’s factor by the annual update.

From 2002 to 2007, the statutory formula calculation resulted in a negative update, which would have reduced physician payments, but not overall physician spending. The negative updates occurred because Medicare spending on physician payments increased the previous year beyond what is allowed by SGR.  The SGR mechanism is designed to balance the previous year’s increase in physician spending with a decrease in the next year, in order to maintain the aggregate growth targets.  Thus, in light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  It is important to note that while imperfect, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, and to some extent it has worked, forcing offsets in some years and causing physician payment levels to be scrutinized annually as if they were discretionary spending.

Since 2003, Congress has chosen to override current law, providing doctors with increases each year, and level funding in 2006.  In 2007, Congress provided a 1.5% update bonus payment for physicians who report on quality of care measures; however, Congress also provided that the 2007 “fix” would be disregarded by CMS for the purpose of calculating the SGR for 2008, resulting in a higher projected cut next year.  The specific data for each year is outlined in the following table.

Year Statutory

Annual

Update (%)

Congressional “Fix” to the Update (%)*
2002 -5.4 -5.4**
2003 -4.4 +1.6
2004 -4.5 +1.5
2005 -3.3 +1.5
2006 -4.4 0
2007 -5.0 +1.5***
2008 -10.1§ 0.5 (proposed)

* The annual update that actually went into effect for that year.

** CMS made other adjustments, as provided by law, which resulted in a net update of – 4.8%; however, Congress did not act to override the -5.4% statutory update.

*** The full 1.5% increase was provided to physicians reporting quality of care measures; physicians not reporting quality of care received no net increase.

  • The Tax Relief and Health Care Act signed last year provided that 2007’s Congressional “fix” was to be disregarded for the purpose of calculating the SGR in 2008 and future years.

Because the Tax Relief and Health Care Act (P.L. 109-432), signed into law in December 2006, provided that 2007’s Congressional “fix” was to be disregarded for the purpose of calculating the SGR in 2008 and future years, the 10.1% negative annual update for 2008 will be restored once the December 2007 legislation expires on July 1, 2008, absent further Congressional action.  In addition, H.R. 6331 includes a similar provision noting that the “fix” proposed would be disregarded for the purpose of calculating the SGR in 2010 and future years, resulting in a projected 21% reduction in fee schedule levels in January 2010.

Additional Background on Durable Medical Equipment:  In addition to providing coverage for outpatient physician services, Medicare Part B also helps pay for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) needed by beneficiaries.  Currently, Medicare reimburses beneficiaries for supplies using a series of fee schedules, which are generally based on historical prices subject to annual updates or other adjustments.  Medicare finances 80% of the actual costs or the fee schedule amount, whichever less, with the beneficiary paying the difference.  The Centers for Medicare and Medicaid Services (CMS) estimates that about 10 million individuals—or about one-quarter of all beneficiaries—receive medical supplies under Part B in a given year, at a cost to Medicare of approximately $10 billion annually.[6]

In recent years, some conservatives have raised concerns that the prices on the Medicare fee schedule for DMEPOS were in excess of market prices.  In 2002, testimony by the Department of Health and Human Services Inspector General revealed that the prices paid by Medicare for 16 selected items of durable medical equipment were higher than prices paid by Medicaid, the Federal Employee Health Benefits (FEHB) plans, and consumers purchasing directly from retailers.  The Inspector General projected that using the lower prices by other payers for these 16 common items alone would have saved Medicare more than $100 million annually.[7]

In response to the above findings, Congress in the Medicare Modernization Act (MMA) of 2003 (P.L. 108-173) enacted cuts in the fee schedule levels for the 16 specific items studied by the Inspector General’s testimony, while creating a new competitive bidding process for DMEPOS suppliers in Section 302 of the law.  This nationwide program followed on the heels of three demonstration projects, authorized under the Balanced Budget Act of 1997, established during the period 1999-2002 in Florida and Texas.  The pilot programs demonstrated the ability of competitive bidding to reduce the costs of DMEPOS by an average 19.1%—saving the federal government $7.5 million, and $1.9 million in reduced beneficiary co-payments—while maintaining beneficiary access to required items.[8]

In addition to a program of competitive bidding for DMEPOS, the MMA also established a new accreditation process for suppliers designed to review suppliers’ financial records and other related documentation to establish their status as bona fide health equipment suppliers.  A November 2007 CMS estimate indicated that 10.3% of payments to medical equipment suppliers were improper—a rate of questionable payments more than double those of other Medicare providers.[9]  Coupled with the new competitive bidding program, the accreditation mechanism was intended to eliminate “fly-by-night” DMEPOS suppliers from operating within the Medicare program, and thus was included in the anti-fraud title of MMA.

In recent months, the competitive bidding program has come under criticism due both to procedural concerns as to how the bidding process was conducted—several of which CMS is working to address—and broader concerns as to whether the program will adversely affect beneficiary access to supplies and/or DMEPOS suppliers, particularly small businesses, whose bids were priced unsuccessfully.  Some conservatives may question the need to delay the competitive bidding process, particularly on the latter grounds.  CMS provided specific opportunities for small businesses to participate in the DMEPOS competitive bidding process, resulting in approximately half of firms who accepted winning bids having revenues of less than $3.5 million.  These small business opportunities occurred in the context of a market-oriented bidding mechanism that, when fully implemented, will save taxpayers approximately $1 billion annually—and will provide additional savings to Medicare beneficiaries in the form of reduced co-payments.  In addition, the accreditation mechanism established by Section 302 of MMA provides a quality check previously lacking for DMEPOS purchases and suppliers.

Cost to Taxpayers:  A Congressional Budget Office (CBO) score for H.R. 6331 was unavailable at press time.  However, a CBO estimate on a similar bill (S. 3101) introduced and considered in the Senate noted that that legislation would increase spending on physician and related services by $19.8 billion over six years and $62.8 billion over the 2008-2018 period.  These spending increases would be offset by spending cuts in other health spending, primarily Medicare Advantage plans.  Overall, S. 3101 was projected to reduce direct spending by $5 million over the six- and eleven-year budget windows.

Committee Action:  The bill was introduced on June 20, 2008, and referred to the Energy and Commerce and Ways and Means Committees, neither of which took official action on the legislation.  The House passed the bill under suspension of the rules on June 24, 2008 by a 355-59 vote, and the Senate passed the bill by voice vote after invoking cloture by a vote of 69-30 on July 9, 2008.

Possible Conservative Concerns:  Numerous aspects of H.R. 6331 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Government Price Fixing.  By making alterations in physician and other Medicare fee schedules, H.R. 6331 would reinforce a system whereby Congress, by adjusting various reimbursement levels, permits the government, rather than the private marketplace, to set prices for medical goods and services.  Senate Finance Committee Chairman Max Baucus admitted some disquiet about this dynamic—and Congress’ lack of expertise to micro-manage the health care system—at a health care summit on June 16: “How in the world am I supposed to know what the proper reimbursement should be for a particular procedure?”[10]  Yet H.R. 6331, based on legislation Chairman Baucus himself introduced, would retain the current system of price-fixing—while repealing a competitive bidding demonstration project for clinical laboratory services and delaying a competitive bidding program designed to inject market forces into the purchase of durable medical equipment and supplies.
  • Budgetary Gimmick.  Because language in H.R. 6331 stipulates that the conversion factor adjustments in the bill shall not be considered when determining future years’ SGR rates, physician reimbursement rates will be reduced 21% in 2010—an action which, given past trends, many observers would consider highly unlikely.  Therefore, some conservatives may be concerned that this language is designed to mask the true cost of the physician reimbursement adjustments included in the bill, creating a budgetary gimmick that future Congresses will feel pressured to remedy.
  • Undermines Medicare Advantage.  H.R. 6331 includes several provisions designed to “reform” private fee-for-service plans operating within Medicare Advantage that would reduce their payments by $47.5 billion over eleven years, effectively ending their “deeming” authority, and requiring virtually all private fee-for-service plans to contract with health care providers.  Some conservatives may be concerned that these changes would undermine the effectiveness of the Medicare Advantage program, which has grown in popularity among seniors due to the benefit enhancements that private coverage can provide.
  • Creates New Medicare Fund.  The bill would establish a new Medicare Improvement Fund, which would receive $19.9 billion for the “enhancement” of traditional Medicare Parts A and B during Fiscal Years 2014-2017.  Some conservatives may consider this account a new “slush fund” that will be used to finance further expansions of government-run health programs, rather than to bolster Medicare’s precarious financial future.
  • Release of Part D Data.  H.R. 6331 would authorize the Secretary to utilize Part D claims data from private health plans for any use deemed by the Secretary as relating to the public health, and would further authorize Congressional support agencies to utilize the same data for oversight purposes.  Some conservatives may be concerned that these wide-ranging provisions could lead to the public release of private and proprietary information related to the claims and bidding practices of private health plans providing prescription drug coverage under Part D, and could be used to initiate “fishing expedition” investigations at the behest of Democrats philosophically opposed to having private entities provide coverage to Medicare beneficiaries.
  • Delays Competitive Bidding.  H.R. 6331 would delay the first round of competitive bidding for durable medical equipment, and would nullify contracts signed by CMS for the first round of bidding this spring.  Re-opening the bidding process could prejudice entities who won their bids earlier this year, while potentially reducing savings to the federal government by allowing suppliers to bid more strategically in a re-bid scenario.  Some conservatives may be concerned that the delay contemplated by H.R. 6331 would allow a new Administration to take steps undermining the competitive bidding program through the regulatory process, and/or allow a new Administration and a future Congress to make the “temporary” delay permanent and abolish competitive bidding outright.

Administration Position:  Although a formal Statement of Administration Policy (SAP) was unavailable at press time, reports indicate that the Administration opposes the legislation and will likely issue a veto threat on the bill.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would expand eligibility for participation in the Medicare Savings Program.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?: No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  An earmarks/revenue benefits statement required under House Rule XXI, Clause 9(a) was not available at press time.

Constitutional Authority:  A committee report citing constitutional authority is unavailable.

 

[1] Government Accountability Office, “Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs,” (Washington, Report GAO-08-359, February 2008), available online at http://www.gao.gov/new.items/d08359.pdf (accessed May 19, 2008), p. 23.

[2] Ibid., pp. 17-20.

[3] Department of Health and Human Services, “HHS Budget in Brief: Fiscal Year 2009,” available online at http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf (accessed May 19, 2008), p. 58.

[4] The Medicare Payment Advisory Commission (MedPAC) has alleged that the formula-driven benchmarks themselves exceed the cost of traditional Medicare.  See Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy (Washington, DC, March 2008), available online at http://www.medpac.gov/documents/Mar08_EntireReport.pdf (accessed May 9, 2008), Table 3-3, p. 247.

[5] America’s Health Insurance Plans, “Low Income and Minority Beneficiaries in Medicare Advantage Plans,” (Washington, DC, AHIP Center for Policy and Research, February 2007), available online at http://www.ahipresearch.org/PDFs/FullReportAHIPMALowIncomeandMinorityFeb2007.pdf (accessed May 19, 2008), p. 3.

[6] Cited in Government Accountability Office, “Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical,” (Washington, Report GAO-08-767T), available online at http://www.gao.gov/new.items/d08767t.pdf (accessed June 9, 2008), p. 3.

[7] Testimony of Janet Rehnquist, Inspector General of the Department of Health and Human Services, before Senate Appropriations Subcommittee on Labor, HHS, and Education, June 12, 2002 hearing, available online at http://www.oig.hhs.gov/testimony/docs/2002/020611fin.pdf (accessed June 16, 2008).

[8] Testimony of Thomas Hoerger, Senior Fellow, Research Triangle Institute International, before House Ways and Means Subcommittee on Health, May 6, 2008 hearing on Durable Medical Equipment Competitive Bidding, available online at http://waysandmeans.house.gov/hearings.asp?formmode=printfriendly&id=6906 (accessed June 9, 2008).

[9] Cited in Government Accountability Office, “Medicare Competitive Bidding,” pp. 10-11.

[10] Quoted in Anna Edney, “Bernanke: Health Care Reform Will Require Higher Spending,” CongressDailyPM June 16, 2008, available online at http://www.nationaljournal.com/congressdaily/cdp_20080616_8602.php (accessed June 16, 2008).

Durable Medical Equipment

Background:  In addition to providing coverage for outpatient physician services, Medicare Part B also helps pay for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) needed by beneficiaries.  Currently, Medicare reimburses beneficiaries for supplies using a series of fee schedules, which are generally based on historical prices subject to annual updates or other adjustments.  Medicare finances 80% of the actual costs or the fee schedule amount, whichever less, with the beneficiary paying the difference.  The Centers for Medicare and Medicaid Services (CMS) estimates that about 10 million individuals—or about one-quarter of all beneficiaries—receive medical supplies under Part B in a given year, at a cost to Medicare of approximately $10 billion annually.[1]

In recent years, some conservatives have raised concerns that the prices on the Medicare fee schedule for DMEPOS were in excess of market prices.  In 2002, testimony by the Department of Health and Human Services Inspector General revealed that the prices paid by Medicare for 16 selected items of durable medical equipment were higher than prices paid by Medicaid, the Federal Employee Health Benefits (FEHB) plans, and consumers purchasing directly from retailers.  The Inspector General projected that using the lower prices by other payers for these 16 common items alone would have saved Medicare more than $100 million annually.[2]

In response to the above findings, Congress in the Medicare Modernization Act (MMA) of 2003 (P.L. 108-173) enacted cuts in the fee schedule levels for the 16 specific items studied by the Inspector General’s testimony, while creating a new competitive bidding process for DMEPOS suppliers in Section 302 of the law.  This nationwide program followed on the heels of three demonstration projects, authorized under the Balanced Budget Act of 1997, established during the period 1999-2002 in Florida and Texas.  The pilot programs demonstrated the ability of competitive bidding to reduce the costs of DMEPOS by an average 19.1%—saving the federal government $7.5 million, and $1.9 million in reduced beneficiary co-payments—while maintaining beneficiary access to required items.[3]

In addition to a program of competitive bidding for DMEPOS, the MMA also established a new accreditation process for suppliers designed to review suppliers’ financial records and other related documentation to establish their status as bona fide health equipment suppliers.  A November 2007 CMS estimate indicated that 10.3% of payments to medical equipment suppliers were improper—a rate of questionable payments more than double those of other Medicare providers.[4]  Coupled with the new competitive bidding program, the accreditation mechanism was intended to eliminate “fly-by-night” DMEPOS suppliers from operating within the Medicare program, and thus was included in the anti-fraud title of MMA.

Implementation:  CMS previously announced that, pursuant to the Section 302 requirements, Round 1 of the DMEPOS competitive bidding process would begin on July 1, 2008 in ten Metropolitan Statistical Areas (MSAs): Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh, Riverside, and San Juan.  A further 70 MSAs will be included in the program in 2009, with more expected to be included in subsequent years.

The three-year bids for the first round of MSA sites were submitted in September 2007; CMS notified winning bidders, and accepted contracts from winning bidders, earlier this spring.  Based on the Round 1 bids, CMS has indicated that the Medicare program and beneficiaries will save an average of 26% in the 10 categories of DMEPOS open to competitive bidding—ranging from a 14% savings on negative pressure wound therapy pumps and supplies to 43% savings on mail-order diabetic supplies.  When fully implemented, CMS estimates that competitive bidding will save the Medicare program approximately $1 billion per year.

Concerns Raised:  The introduction of DMEPOS competitive bidding has not been without controversy, and concerns raised by suppliers and other interested parties have generally fallen into two categories.  Some suppliers have raised specific concerns about the way in which CMS’ contractor conducted the Round 1 bidding process.  Many of these concerns have focused on a lack of communication from the contractor to the suppliers, resulting in some suppliers’ bids being rejected for lack of proper financial documentation without the suppliers having an opportunity to provide further information or clarification.  CMS has indicated that approximately 16% of all bids submitted were rejected solely due to a failure to meet proper qualification criteria; by contrast, 61% of all bids submitted were priced outside the winning range.

In response to the concerns raised regarding qualification criteria, CMS has utilized a twin-stage process of review for Round 1 suppliers who raised protests about the way the contractor conducted the bid process.  Both the contractor and CMS have taken steps to re-examine the documentation submitted during the review process, and in some cases, CMS has allowed those suppliers with winning bids who failed to meet accreditation or related requirements due to a lack of communication from the contractor to participate in the Round 1 location areas.  In addition, CMS has extended the accreditation deadline for suppliers participating in Round 2 bidding, and will also seek input from the Program Oversight and Advisory Committee established under the MMA for ways to refine and improve the DMEPOS competitive bidding process for subsequent bidding rounds.

The second group of concerns are broader in scope, and go to the heart of the competitive bidding program itself.  Concerns in this line include the potential impact on suppliers, particularly small businesses, who were not successful on pricing grounds.  Some policy-makers have also questioned the lack of scrutiny given to subcontractors not subject to the same accreditation requirements as DMEPOS contractors.  Lastly, other groups have questioned whether competitive bidding will lead to the sale of lower quality supplies and equipment to beneficiaries, as well as whether beneficiaries will be able to obtain access to DMEPOS equipment in instances where the winning bidders in an MSA had not previously serviced the area in question.

Some conservatives may question the need to delay the competitive bidding process on these grounds.  CMS provided specific opportunities for small businesses to participate in the DMEPOS competitive bidding process, resulting in approximately half of firms who accepted winning bids having revenues of less than $3.5 million.  These small business opportunities occurred in the context of a market-oriented bidding mechanism that, when fully implemented, will save taxpayers approximately $1 billion annually—and will provide additional savings to Medicare beneficiaries in the form of reduced co-payments.  In addition, the accreditation mechanism established by Section 302 of MMA provides a quality check previously lacking for DMEPOS purchases and suppliers.

While transitioning to a new system can create logistical difficulties, the staged implementation process will ensure that beneficiaries in a limited number of areas—only one-quarter of whom receive DMEPOS supplies in a given year—will experience the transition to a competitively bid environment this year.  This phased-in approach stands in contrast to the January 1, 2006 implementation of the Medicare Part D prescription drug benefit, where tens of millions of beneficiaries received new coverage at a single point in time—with logistical obstacles, though significant, relatively minor on a percentage basis.

Legislative Status:  On June 12, 2008, House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) and Ranking Member Dave Camp (R-MI) introduced H.R. 6252, the Medicare DMEPOS Competitive Acquisition Reform Act.  The legislation would terminate all Round 1 contracts made pursuant to the round of competitive bidding completed this spring, and would direct CMS to re-bid Round 1 at some point during 2009.  Future rounds of competitive bidding would also be delayed, with Round 2 (featuring an additional 70 MSAs) taking place during 2011, and competitive bidding in rural areas and smaller MSAs being delayed until 2015.  The estimated $3 billion cost of the delay would be paid for by an across-the-board reduction of 9.5% for all DMEPOS scheduled to be subjected to competitive bidding.  In addition, the bill would require the CMS contractor to notify suppliers missing financial documentation related to their bids, extend disclosure and accreditation requirements to DMEPOS sub-contractors, and establish an ombudsman within CMS to respond to complaints from suppliers and individuals about the DMEPOS competitive bidding process.

While competitive bidding language was not included in the Medicare legislative package (S. 3101) on which the Senate failed to achieve cloture last week, Finance Committee Chairman Baucus and Ranking Member Grassley have discussed incorporating language delaying the competitive bidding process into their competing packages covering an adjustment to Medicare physician reimbursement levels.

Implications of Delay:  Despite the contracting problems that have led some contractors to raise legitimate process concerns about the implementation of the first bidding round, some conservatives may still be concerned about the implications of the proposed legislative delay, particularly if coupled with a mandate that CMS re-bid the first round of DMEPOS bidding.  Re-opening the bidding process could prejudice entities who won their bids earlier this year, while potentially reducing savings to the federal government by allowing suppliers to bid more strategically, having had experience with the winning range of bids during the initial round.

In addition, some conservatives may be concerned that a delay of more than a few months would result in a new Administration being charged with implementation of competitive bidding, which could allow for further opportunities to undermine the program through the regulatory process.  Chairman Stark has indicated his desire to abolish the competitive bidding program altogether, paid for by the across-the-board cut in DMEPOS reimbursement levels currently being contemplated—so it is entirely possible that a new Administration and a future Congress could decide to make the “temporary” delay permanent and abolish competitive bidding outright.

Conclusion:  The debate surrounding DMEPOS competitive bidding finds many medical suppliers—some with understandable concerns about a lack of communication from the bidding contractor, others merely disappointed in not achieving a winning price for their bid—seeking redress from Congress for a bidding mechanism Congress established with the intent of creating arm’s-length transactions between the agency purchasing goods (i.e. CMS) and private suppliers.  Yet the alternative to a competitive bidding system where markets set prices for DMEPOS involves arbitrary reductions to inherently arbitrary fee schedules enacted by policy-makers with little proficiency in the minutiae of the myriad health care services for which the federal government acts as a payer.  As Senate Finance Committee Chairman Baucus conceded at a health care summit: “How in the world am I supposed to know what the proper reimbursement should be for a particular procedure?”[5]

For this reason, some conservatives may object to Congress’ frequent attempts to litigate these types of disputes, and may view the controversy surrounding DMEPOS competitive bidding as emblematic of larger problems with the current entitlement system.  In the myriad debates which it is perpetually pressured to referee—from the sustainable growth mechanism (SGR) to reimbursement levels for hospitals and nursing homes to the levels of epogen provided to kidney dialysis patients—Congress’ firsthand expertise is as limited as its jurisdiction is absolute.  The end result has frequently been an imbalance of attention paid to various reimbursement “crises,” with only secondary consideration given to the longer-term health and solvency of the underlying entitlement programs (i.e. Medicare and Medicaid) in question.

Some conservatives may believe that the lesson from these past and current controversies is that Congress has a poor track record in adjudicating provider-related disputes.  Many may find a better solution in a premium support mechanism that would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  In addition to ensuring long-term fiscal stability by confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, a premium support mechanism would result in reimbursement decisions being made by private insurance carriers, obviating the need for Congress to micro-manage provider payment levels.  Such a solution would provide a meaningful reform to the underlying problems that have erupted most recently in the DMEPOS competitive bidding controversy, by saving providers from the whims of Congress—and saving Congress from itself.

 

[1] Cited in Government Accountability Office, “Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical,” (Washington, Report GAO-08-767T), available online at http://www.gao.gov/new.items/d08767t.pdf (accessed June 9, 2008), p. 3.

[2] Testimony of Janet Rehnquist, Inspector General of the Department of Health and Human Services, before Senate Appropriations Subcommittee on Labor, HHS, and Education, June 12, 2002 hearing, available online at http://www.oig.hhs.gov/testimony/docs/2002/020611fin.pdf (accessed June 16, 2008).

[3] Testimony of Thomas Hoerger, Senior Fellow, Research Triangle Institute International, before House Ways and Means Subcommittee on Health, May 6, 2008 hearing on Durable Medical Equipment Competitive Bidding, available online at http://waysandmeans.house.gov/hearings.asp?formmode=printfriendly&id=6906 (accessed June 9, 2008).

[4] Cited in Government Accountability Office, “Medicare Competitive Bidding,” pp. 10-11.

[5] Quoted in Anna Edney, “Bernanke: Health Care Reform Will Require Higher Spending,” CongressDailyPM June 16, 2008, available online at http://www.nationaljournal.com/congressdaily/cdp_20080616_8602.php (accessed June 16, 2008).

Comparative Effectiveness Research

Background:  The debate about the growth of health care costs has in recent years begun to focus on disparities in health spending and treatment.  A recent Congressional Budget Office study demonstrated that regional spending on health care varies widely, yet improved care cannot be assumed by higher levels of expenditures.

Amidst rapidly growing health spending and inconsistent levels of care, policy-makers have begun to discuss the development of a research institute to study the comparative effectiveness of medical treatment programs, either by synthesizing and analyzing existing medical data or by conducting firsthand clinical trials to gauge treatments’ efficacy.  Advocates believe that such a center, by generating comprehensive data about the clinical and cost-effectiveness of courses of action for various diseases, could reduce health care cost growth by targeting patients with the most effective treatments and discouraging the use of costly but unproven medical techniques and methods.  While many stakeholders agree that such research should be undertaken, there is less agreement on the composition and funding of the entity that would be empowered to research clinical effectiveness options.

Legislative History:  Last July, the House passed—but the Senate has not considered—health legislation that included the creation of a comparative effectiveness institute.  Section 904 of the Children’s Health and Medicare Protection (CHAMP) Act (H.R. 3162) would create a “Center for Comparative Effectiveness Research” within the Department of Health and Human Services’ Agency for Healthcare Research and Quality (AHRQ).  The center would be tasked with researching “outcomes, effectiveness, and appropriateness of health care services and procedures in order to identify the manner in which diseases, disorders, and other health conditions can most effectively and appropriately be prevented, diagnosed, treated, and managed clinically.”

The Center would be financed through the establishment of a Health Care Comparative Effectiveness Research Trust Fund within the U.S. Treasury.  The Fund would receive transfers from the Medicare Trust Funds to finance the research program for fiscal years 2008-2010.  Beginning in fiscal year 2011, funding would continue to flow from the Medicare Trust Funds, but it would be supplemented by a new tax on healthcare insurance policies.  The tax would be imposed on most health insurance policies (except for workers’ compensation, tort liabilities, property, credit insurance, or Medicare supplemental coverage) at a per capita amount needed to generate $375 million annually, in conjunction with resources from the Medicare Trust Funds.  The Secretary of the HHS would determine the “fair share” per capita amount, but the bill’s provisions are expected to generate at least $2 billion over ten years.  While H.R. 3162 states that insurance carriers (or the sponsors of self-insured policies) will pay this new tax, it does not (and cannot) account for the fact that this tax will likely be passed along to consumers, raising premium costs and potentially increasing the number of Americans who cannot afford private health insurance.

H.R. 3162 would also draw down substantial funds from the Medicare Trust Funds over time, $300 million over the first three fiscal years and up to $90 million each fiscal year thereafter.  Medicare Part A (hospital services) is financed by payroll taxes, and according to the nonpartisan Medicare Trustees, it is scheduled for bankruptcy in 2019—thus committing its resources for additional research will further expedite its bankruptcy.  In addition, Medicare Part B (supplementary services) is financed in part from beneficiary premiums that rise as the cost of the program rises—thus tapping these funds for research amounts to a tax on every senior enrolled in Medicare Part B.

Future Outlook:  Because provisions unrelated to comparative effectiveness make action on the CHAMP Act unlikely in the Senate, lawmakers and various stakeholder groups continue to engage in discussions about the way to create a research institute.  Senate Finance Committee Chairman Max Baucus (D-MT) and Budget Committee Chairman Kent Conrad (D-ND) have discussed introducing stand-alone legislation on this topic; news reports indicate that their bill would fund a comparative effectiveness research institute solely from federal coffers, while House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) believes that a premium tax should help to fund the institute, so that private insurance carriers would have a financial stake in its work product.

With the current Medicare physician payment “fix” scheduled to expire June 30, and lawmakers on both sides of the aisle promising legislative action to address physician reimbursements, it is entirely possible that some form of comparative effectiveness center could be established as part of such legislation.

Implications of Comparative Effectiveness:  Apart from the concerns some conservatives may have regarding any new federal taxes to finance a comparative effectiveness institute, the research undertaken by such a center could well have significant repercussions for the role of the federal government in health care.  Any research undertaken would likely have an impact on the number and types of services covered by Medicare and Medicaid, as well as the treatment options and techniques utilized by physicians desiring reimbursement.  Congressional Budget Office Director Peter Orszag recently admitted that “the big kick” in savings associated with comparative effectiveness research would stem from insurers—and likely the federal government—implementing “changes in financial incentives tied to the research.”[1]  Although the CHAMP Act did not include provisions altering reimbursement levels to reflect comparative effectiveness research, or empowering the ostensibly non-partisan institute to do the same, such legislative measures would be a likely outcome from creation of an effectiveness center.

In addition, examples of comparative effectiveness institutes established overseas have raised concerns about whether such an approach would lead to delays in obtaining care and/or rationing of services.  In the United Kingdom, Sarah Anderson, an ophthalmologist working in Britain’s National Health Service (NHS), recently published an article criticizing the NHS for inhibiting access to care for her critically ill father.  Her father’s kidney tumor could be treated by a new drug—but while the pharmaceutical has been approved for use in Europe for two years, Britain’s National Institute for Clinical Effectiveness (NICE) will not complete its assessment of the drug’s usefulness until January.  Until then, local NHS branches can refuse to provide the drug, leaving Anderson’s family to pay for their father’s treatment on their own, or face the inevitable consequences that will follow if he cannot obtain it.  Anderson’s ultimate verdict on her family’s dilemma is a sobering one: “If Dad should lose his life to cancer, it would be devastating—but to lose his life to bureaucracy would be far, far worse.”

Some conservatives may find these overseas examples of the delays resulting from a publicly-run comparative effectiveness institute a cautionary tale for those who would establish a similar institute under the aegis of the federal government.  Conservatives may not only believe that such an approach would put bureaucrats, and not doctors and patients, at the center of medical policy, but would also result in the types of costly delays and care rationing that put lives at stake.

Conclusion:  While the goals of a comparative effectiveness institute are certainly commendable in an era of rapidly rising health spending, some conservatives may be concerned at both the means of financing an institute and its impact on the federal role in health care.  Although an institute voluntarily created and funded by private insurance or other groups could be useful, a public-private entity financed by premium taxes may only encourage lawmakers to enact additional legislative measures designed to micro-manage the doctor-patient relationship and expand an already considerable bureaucracy within the Centers for Medicare and Medicaid Services.  In short, some conservatives may be concerned that comparative effectiveness research done by the public sector could become a euphemism for government-rationed health care.

If the federal government wishes to slow the growth of Medicare spending, some conservatives might find a better solution in comprehensive Medicare reform that transforms the current program into a system similar to that under the Federal Employee Health Benefits Program (FEHBP), whereby beneficiaries would receive a defined contribution from Medicare to select a health plan of their own choosing.  These health plans could employ the results of comparative effectiveness research in their reimbursement policies, and consumers could use those criteria—as well as any “Consumer Reports”-type publications released by private entities—in evaluating both a health plan to purchase and treatment options for a particular medical condition.

 

[1] Quoted in Fawn Johnson, “Bills Pushed to Gauge Effectiveness of Medical Treatments,” CongressDaily 17 March 2008, available online at http://nationaljournal.com/pubs/congressdaily/dj080317.htm#5 (accessed March 18, 2008).

Medicare Funding Warning

Background:  Enactment of a prescription drug benefit as part of Medicare proved controversial to certain segments of the conservative community.  While President Bush and a Republican Congress campaigned in 2000 and 2002 on a promise to extend prescription drug coverage to American seniors, some conservatives retained concerns about a significant expansion of government-financed entitlement spending, even though the benefit itself would be delivered through the private sector.  While conservatives generally admired proposals such as Health Savings Accounts (HSAs) and other similar innovations designed to control the growth of health care spending, the size of the prescription drug benefit ultimately enacted—$400 billion in spending over ten years, and nearly $8 trillion in unfunded liabilities over 75 years—prompted calls for more comprehensive reforms to Medicare than those included in the Medicare Modernization Act (MMA).

At the behest of the Republican Study Committee, the funding warning mechanism was included as one device to help alleviate conservatives’ concerns about Medicare’s long-term solvency and ensure that Medicare’s claims on general budgetary revenues would not overwhelm either other federal budgetary priorities or the national debt.  By providing “fast-track” procedures for considering bills to improve the program’s solvency, the Medicare trigger also provides conservatives with another opportunity to examine more fundamental reforms to the way seniors’ health care is financed and delivered.

Funding Warning Defined:  Section 801 of the Medicare Modernization Act provides that a funding warning will be issued if two consecutive annual reports by the Medicare trustees determine that general revenue Medicare spending—that is, Medicare spending not financed by payroll taxes, or by beneficiary premiums and co-payments—will exceed 45% of total Medicare outlays for the current fiscal year, or any of the following six fiscal years.  The April 2006 trustees report noted that Medicare outlays minus dedicated revenues were expected to exceed 45% of total outlays in 2012, and the April 2007 report concluded that Medicare outlays minus dedicated revenues are expected to exceed 45% of total outlays in 2013.  Thus, two consecutive trustees reports have indicated that Medicare will be deriving excess revenues from the general fund within the next seven years—triggering the expedited procedures provided as part of MMA.

Democrats have argued that the 45% measure for excess general revenue Medicare spending is “an artificial and misleading measure of Medicare’s fiscal health,” and Section 902 of the Children’s Health and Medicare Protection Act (H.R. 3162)—considered and passed by the House in July—would have repealed the excess funding warning mechanism entirely.[1]  However, the Medicare trustees report indicates that the percentage of Medicare spending taken from general revenues—which to date has never exceeded 45%—“is projected to continue growing throughout the 75-year period, reaching 63% of total outlays in 2031 and 73% in 2081.”[2]  With trustees noting that the Medicare trust funds require an additional $40.9 trillion in funding over the next 75 years to meet current obligations, most conservatives would argue that repealing the trigger provisions—which all Republicans on the House Ways and Means Committee opposed in mark-up last year—would not represent sound fiscal policy.[3]

Expedited Procedures:  Sections 802 through 804 of MMA describe the expedited procedures by which the President and Congress will address the Medicare funding warning triggered by the April 2007 trustees report.  The process outlined in the statute includes the following steps:

  • Within 15 days of submitting his next budget to Congress, the President will also propose legislation to respond to the warning.  As the President’s Fiscal Year 2009 budget is expected to be released on February 4, 2008, the Medicare legislation should be received by the end of February.
  • Party leaders in both the House and Senate will introduce the President’s legislation within three legislative days of its submission, and the legislation shall be referred to the relevant Committees (Ways and Means and Energy and Commerce in the House, Finance in the Senate).
  • Committees in both the House and Senate shall report Medicare funding legislation to the floor of each chamber by June 30; if they do not, the relevant Committees may be discharged from consideration under special procedures.
  • In the House, one-fifth of the membership (87 Members) can move to discharge the President’s Medicare funding legislation, or any other legislation that remedies the Medicare funding warning, after July 30.  In the event that the motion to discharge is successful, the Medicare funding legislation shall be considered by the full House within three legislative days under procedures established in statute.
  • In the Senate, any Senator may move to discharge Medicare funding legislation after June 30, and such a motion will be considered under strict time limits precluding a filibuster.

In general, these special procedures seek to ensure that Members in both chambers have the opportunity for an up-or-down vote on whether or not Congress should consider legislation to remedy Medicare’s funding deficiencies.

Conclusion: The Medicare funding warning issued by the trustees last year provides an opportunity to re-assess the program’s structure and finance.  While competition among drug companies has ensured that expenditures for the MMA’s prescription drug benefit remain below the bill’s original estimates, introduction of pharmaceutical coverage has dramatically increased the overall growth of health care costs within the Medicare program, leading to the trustees’ funding warning.  The confluence of these two events should prompt Congress to consider the ways in which competition could be used to reduce the growth of overall Medicare costs, similar to the way in which the market for pharmaceutical coverage reduced the estimated cost of the Part D prescription drug benefit.

It remains to be seen whether the Administration will propose legislation that would constitute fundamental reform—either a mechanism to adjust benefits automatically in the case of funding shortfalls, or to inject greater competition into Medicare through a premium support program that would level the playing field between traditional Medicare and private insurance coverage.  Regardless, the Medicare funding warning being triggered this year affords Congress an opportunity to re-think and re-consider some of the drawbacks of the original MMA and put forth constructive alternatives to ensure Medicare’s long-term fiscal stability.

[1] House Report 110-284, p. 249.

[2] “2007 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds,” available at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2007.pdf (accessed January 20, 2008), p. 37.

[3] Ibid., pp. 190-91; House Report 110-284, p 278.