Introduction

Within hours of taking office, President Donald Trump began taking steps towards repealing and replacing the Patient Protection and Affordable Care Act of 2010 and healthcare provisions of the Healthcare and Education Reconciliation Act of 2010 (collectively, the 'Affordable Care Act'). Trump issued a broad executive order on January 20 2017, instructing the Department of Health and Human Services (HHS) to ease regulatory requirements and penalties under the Affordable Care Act for insurers, individuals and other healthcare stakeholders, to the extent permitted by law. Now, with draft Affordable Care Act repeal and replace legislation under consideration by Congress, the clinical laboratory community should prepare for significant disruptions in the healthcare marketplace, even as it continues to grapple with major policy shifts set in motion in the final years of former President Barack Obama's administration.

Clinical labs faced a number of significant changes during Obama's second term. The implementation of the Molecular Diagnostic Services programme, followed by the enactment of the Protecting Access to Medicare Act of 2014, effectively completely revamped (and in certain cases substantially reduced) Medicare payments to laboratories. In addition, the HHS Office of Inspector General repeatedly exercised its enforcement authority with a focus on the practices of labs trying to compete in an overly competitive world – issuing a special fraud alert limiting many specimen collection and bioregistry fees, and aggressively pursuing labs for alleged Anti-kickback Statute, Stark Law and beneficiary inducement violations. Privacy laws and clinical research laws also placed restrictions and regulatory requirements on entities collecting, using and disclosing genetic and genomic data. Further, the implementation of the Affordable Care Act created a network of integrated exchanges and public and private accountable care organisations that left many laboratories out of network and, in some cases, neglected in terms of coverage and reimbursement.

Even with all of these changes and challenges, clinical lab tests continue to be an essential part of medical encounters, guiding 70% of medical decisions and providing clinicians with the critical information they need to diagnose, treat and prevent a myriad of illnesses and ailments worldwide.(1) Newer esoteric laboratories are developing novel genomic, proteomic, companion diagnostic and other complex tests using technological advances such as next-generation sequencing and algorithmic analysis that have the potential to add considerable value to medical treatment. While law, policy and reimbursement have in many ways lagged behind scientific advancement, there is continued innovation and investment in the lab industry.

Affordable Care Act

Trump's choices to lead both HHS and the Centres for Medicare & Medicaid Services (CMS) signal that he plans to make good on his promise to repeal and replace the Affordable Care Act and shake up Medicaid. For providers of clinical lab testing services, there is a lot at stake regarding coverage of laboratory services in the American Healthcare Act, the House Republican leadership's proposal to repeal and replace the Affordable Care Act. President Trump has also expressed his support for the American Healthcare Act, although Democrats have expressed strong opposition, and several moderate and conservative Republicans in both the House and the Senate have expressed significant reservations and concerns.

The American Healthcare Act's specific proposals remain in flux as lawmakers continue to negotiate. The most recent version of the legislation would eliminate the essential health benefits mandate for the Medicaid expansion population, which was enacted through the Affordable Care Act and implemented through HHS regulations. Lawmakers have also discussed allowing states to waive the essential health benefits requirement altogether, although formal legislative language has not been released publicly at this time. The Affordable Care Act's essential health benefits package guarantees coverage of laboratory services (among other categories of benefit) in certain health insurance plans. At present, it is unclear how the American Healthcare Act will affect applicable private and public plans. However, even in the absence of legislation, it is expected that HHS Secretary Price may address the essential health benefits requirements through regulatory action.

The most recent version of the American Healthcare Act does not include a provision to repeal the Affordable Care Act's requirement that non-grandfathered private health insurance plans provide coverage for certain preventive health services with zero cost-sharing. Under the Affordable Care Act and implementing regulations, these services include certain recommended laboratory services, including certain women's health preventive services. The American Healthcare Act does not appear to repeal the preventive services requirements because they do not directly affect the federal budget. In particular, Republicans in Congress plan to use a process called budget reconciliation to pass this repeal and replace legislation.

Reconciliation legislation requires only 51 votes to pass the Senate (traditional legislation that does not use the reconciliation process can typically be blocked in the Senate with a filibuster, which requires 60 votes to overcome – because Republicans currently hold 52 Senate seats, they do not have a filibuster-proof majority). The reconciliation process restricts the types of provision that can be included in the legislation to those that directly affect the federal budget, among other limitations. Thus, the bill does not propose to repeal the Affordable Care Act's preventive services requirements. However, Republican leaders are expected to pursue changes to these requirements through the regulatory process, and may eventually seek to repeal the requirements altogether through consensus replacement legislation, which would require at least eight Democratic votes and all Republican votes in the Senate to pass in the existing Congress. The prospects of passing such legislation remain uncertain, particularly with the need to garner bipartisan support.

The American Healthcare Act and other Republican-backed plans to repeal and replace the Affordable Care Act also seek to increase the use of high-deductible health plans supported by tax-free health savings accounts. For example, the most recent version of the American Healthcare Act would liberalise rules governing health savings accounts to allow individuals to pay for additional services with account funds and increase the allowable annual contribution to these tax-preferred accounts. However, increased cost sharing would likely decrease discretionary healthcare spending and may have negative implications for clinical labs, especially those offering specialised tests as opposed to more routine care. Medicare Part B does not currently require co-payments by beneficiaries, although policymakers occasionally question this exemption. Medicaid and private commercial payers typically require such co-payments, and the increased privatisation and cost shifting to consumers may adversely affect clinical labs by pricing their tests out of the reach of many consumers.

Medicaid expansion

Republican proposals to repeal and replace the Affordable Care Act would also significantly affect the Affordable Care Act Medicaid expansion, which to date has been enacted in 31 states and the District of Columbia, and has realised an overall enrolment growth of approximately 26.5% since the first open enrolment period in October 2013. More than 2.5 million people in Republican-represented states have enrolled in Medicaid through expanded eligibility.(2) Before her recent confirmation to be CMS administrator, Seema Verma consulted on Medicaid expansion in Indiana and a number of other states. The Healthy Indiana Plan 2.0 that Verma designed parallels the 'consumer-driven' plans proposed by Republican leadership in a number of ways, particularly by centring on high-deductible health plans and health savings accounts. The Healthy Indiana Plan 2.0 mandates coverage of essential health benefits in line with existing requirements under the Affordable Care Act but, as mentioned above, the most recent version of the American Healthcare Act would repeal the essential health benefits requirement for the Medicaid expansion population starting in 2020.

The most recent version of the American Healthcare Act also calls for a full-scale repeal of the Affordable Care Act's Medicaid expansion, which is proving to be politically difficult even within the Republican party due to the number of states that have already expanded their Medicaid programmes under the Affordable Care Act. Specifically, the proposed legislation would eliminate a state's option to expand Medicaid eligibility and would also repeal the enhanced federal match rate for newly enrolled Medicaid expansion beneficiaries starting in 2020. In addition, the American Healthcare Act would transition the Medicaid programme from an entitlement to a capitation model starting in 2020, a fundamental change to the programme. Other possible changes to the Medicaid programme are under consideration and potentially could be incorporated into future legislation or amendments to the American Healthcare Act as it continues to move through Congress. State governors have been active in offering suggestions and critiques for the bill's Medicaid provisions. Price and Verma also have signalled possible regulatory changes regarding Medicaid going forward.

Opportunities

Despite the threat of cutbacks, opportunities exist for clinical laboratories to carve out a stake in the pool of funding and institutional support created by the 21st Century Cures Act recently enacted by Congress. In contrast to the Affordable Care Act, the Precision Medicine Initiative and the Cancer Moonshot initiative have received less public scrutiny from Trump. They have even received support from some of his key political appointees, including Price. Trump's focus on repealing the Affordable Care Act will likely take precedence over cutbacks on other health spending programmes, especially given the bipartisan nature of the 21st Century Cures Act, from which the Precision Medicine Initiative, the Cancer Moonshot initiative and the National Institutes of Health (NIH) will draw significant funding. Still, Trump has yet to nominate an individual to head the NIH (temporarily leaving Francis Collins in charge), which creates uncertainty regarding the future direction and priorities of the agency.

Reimbursement

Under the Protecting Access to Medicare Act of 2014, applicable laboratories were required to begin reporting certain private payer lab test prices and volumes to CMS during the January 1 to March 31 window. New Medicare payment rates derived from this reported 'market-based' data will take effect in January 2018. Under the CMS estimates, payments to clinical laboratories are generally expected to decrease as a result of the Protecting Access to Medicare Act, although reductions will be phased in over several years under transition provisions of the new law. CMS has offered no clear sense of, among other things, the number of applicable laboratories that exist (with particular uncertainty with respect to how many and which hospital laboratories will report), and CMS has indicated that it will not carefully police whether all laboratories that are required to report actually do so. Accordingly, the integrity of the resulting data that will set the initial market-based Medicare prices is somewhat unclear, as is the full impact of the new payment methodology on the industry (given that, historically, Medicare rates have driven Medicaid and private payer rates). On March 30 2017 CMS announced that it will exercise enforcement discretion until May 30 2017 with respect to the data reporting period for reporting "applicable information" under the new Protecting Access to Medicare Act requirements as well as the application of potential assessment of civil monetary penalties for failure to report such information. Trump has not yet indicated his intention to address the Protecting Access to Medicare Act.

Potential concerns

The HHS Office of Inspector General has been increasing its activity in the clinical laboratory area. It issued a special fraud alert in June 2014 restricting the payment of specimen collection and bioregistry fees to referring physicians and entering various high-profile settlements with laboratories for alleged violations of anti-kickback, reimbursement and civil monetary penalty laws. HHS has also focused on data sharing through, for example, the following methods:

  • a HHS rule promulgated under the Health Insurance Portability and Accountability Act of 1996 and the Clinical Laboratory Improvement Amendments of 1988 giving patients direct access to their laboratory test results;
  • the NIH Genomic Data-Sharing Policy requiring genomic data sharing when research involves federal funding; and
  • various proposed or final revisions to clinical research rules that require enhanced reporting of clinical research results.

In addition, the Food and Drug Administration (FDA) announced in November 2016 that it would not issue its long-awaited final guidance on the regulation of laboratory-developed tests during the Obama administration. However, on January 13 2017, in the final week of the Obama administration, the FDA issued a discussion paper on laboratory-developed tests that provided one possible approach to laboratory- developed test oversight. The FDA clarified that this proposal represented an effort to "advance the public discussion", even though it was not enforceable. As a result, the regulation of laboratory-developed tests remains in the purview of the Clinical Laboratory Improvement Amendments programme and applicable state laws. Trump has not expressed policy positions in these areas.

Comment

Clinical laboratories should closely watch legislative and regulatory actions in these key areas. Significant opportunities will exist for laboratories to affect policy as it develops.

For further information on this topic please contact Stephanie P Hales, Barbara Cammarata, Dora Hughes or Laura Cohen at Sidley Austin LLP by telephone (+1 202 736 8000) or email (shales@sidley.com, bcammarata@sidley.com, dhughes@sidley.com or laura.cohen@sidley.com). The Sidley Austin LLP website can be accessed at www.sidley.com.

Endnotes

(1) See Importance of Clinical Lab Testing Highlighted During Medical Lab Professionals Week, American Clinical Laboratory Association (April 17 2014).

(2) See Total Medicaid Enrollees - VIII Group Break Out Report (December 2015; updated December 2016).

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