Where Are We Now?

Five key committees are currently laboring on comprehensive reform in Congress. Jurisdiction over healthcare in the Senate is shared among two principal committees, the Health, Education, Labor and Pensions (HELP) Committee and the Senate Finance Committee, which also has taxing authority. On July 15, 2009, the Affordable Health Choices Act was approved by the Senate HELP Committee after consideration of some 500 amendments and a month-long markup process. For a discussion of the key features of this bill, please see the June 11, 2009, issue of the Health Law Update. A section-by-section summary of the Committee's bill that includes the adopted amendments is available online.

While the Senate Finance Committee's version of the Affordable Health Choices Act has yet to be released, a series of policy papers outlining options for reform were released by the Committee's Chair, Max Baucus (D-Mont.), earlier in the year. Please see the April 30, May 14 and May 28, 2009, issues of the Health Law Update. It is anticipated that the HELP and Finance Committee versions will be combined prior to consideration of the Affordable Health Choices Act by the full Senate.

Jurisdiction over healthcare in the House is shared among three primary committees: Energy and Commerce, Ways and Means, and Education and Labor. On July 14, 2009, House leaders introduced a single compromise measure (H.R. 3200) that is the product of the combined "Tri-Committee" effort. Last week, a modified version of H.R. 3200 was passed out of the Ways and Means and Education and Labor Committees. This week, the Energy and Commerce Committee postponed a scheduled markup of the House reform measure pending the results of ongoing negotiations with moderate Democrats on modifications to the bill.

The House Reform Bill -- Key Highlights

The following is an overview of key provisions currently in the House reform bill:

  1. Revenue Raisers -- Proposed Changes to the Tax Code

Makes various revisions to the Internal Revenue Code that are intended to significantly increase tax revenues over the next ten years in order to help fund healthcare reform. Some of these revisions are intended to work together with the other reform measures in H.R. 3200, both to encourage individuals to seek out acceptable health insurance for themselves and incentivize employers to offer reasonable healthcare plans to their employees (without unduly hurting small businesses). Other revisions are meant strictly to raise revenue, especially from high-income individuals. Despite the overall goal to increase tax revenues, Chairman Rangel's markup actually includes a provision meant to extend certain tax benefits to those that provide healthcare to some new categories of individuals. Please see the July 23, 2009, Baker Hostetler Executive Alert for an in-depth tax discussion of these proposed revenue-raising provisions.

  1. Coverage and Insurance Reforms

Health Insurance Exchange -- Establishes a fully operational, federally-administered "Health Insurance Exchange" by 2013 for facilitating the purchase of qualified health insurance plans by individuals, employer groups and CHIP enrollees.

Public Health Plan Option -- Creates a public insurance plan option with payment to providers and physicians at the Medicare rate during the initial three years of operation (physicians, including pediatricians, would be eligible for a five percent bonus payment for participating in both Medicare and the public plan) followed by a rate-setting system developed by the U.S. Department of Health and Human Services (HHS) imposed in the fourth year.

Medicaid Eligibility Expansion -- Expands Medicaid eligibility up to 133 percent of the federal poverty level (FPL) including 100 percent federally-financed coverage for qualifying non-disabled, childless adults and for newborns at birth.

Subsidies for Premiums and Cost Sharing -- Provides for a sliding scale subsidy for premiums and cost-sharing for individuals and families with incomes up to 400 percent FPL.

Standardized Benefits Package -- Establishes a standardized essential benefits package that includes prohibited cost-sharing for preventative benefits (e.g., well child and well baby care) and limits on annual out-of-pocket spending; provides for three plan levels or tiers (i.e., basic, enhanced or premium) that are tied to required cost-sharing levels as opposed to benefits covered; creates a fourth "premium plus" tier for plans offering non-covered benefits (e.g., vision or dental coverage for adults).

Insurance Market Reforms -- Provides for a number of insurance market reforms including the timely payment of claims, federal oversight of network adequacy standards, minimum medical loss ratios, standardized rules for coordination and subrogation of benefits, guaranteed issue and renewal, prohibition on exclusion for pre-existing conditions, fair marketing practices, grievance and appeals mechanisms and nondiscrimination in benefits including those addressed by the genetic nondiscrimination laws and parity in mental health and substance use disorder benefits.

Employer Mandate -- Imposes a "pay or play" mandate, where employers with annual payrolls above $250,000 would choose between providing employee coverage or contributing funds equal to eight percent of employees' wages.

Shared Responsibility Tax -- Imposes a 2.5 percent "shared responsibility" tax on adjusted gross income on individuals who forego "acceptable" insurance coverage.

Additional provisions contained within the current language of the House reform bill include:

  1. Delivery System Reforms

DHS Payment Reductions -- Requires HHS to report to Congress by January 1, 2016, on the continuing role of Medicare and Medicaid disproportionate share hospital (DSH) payments as health reform is implemented; starting in FY 2017, directs HHS to adjust Medicare DSH payments to the empirically justified level plus an adjustment reflecting uncompensated care costs if the uninsured rate drops more than eight percentage points.

Directs HHS to reduce $10 billion in Medicaid DSH payments to states ($1.5B in FY 2017, $2.5B in FY 2018 and $6B in FY 2019) using a methodology that focuses on the uninsured rate in each state and the amount of uncompensated care provided by hospitals.

Reductions for Preventable Readmissions -- Reduces payment for all Medicare discharges to inpatient prospective payment hospitals (IPPS) with high readmission rates for three conditions (heart attack, heart failure and pneumonia) beginning FY 2012; reduces payment under an interim readmissions policy to post-acute providers (skilled nursing facilities (SNFs) inpatient rehabilitation facilities (IRFs), home health agencies (HHAs) and long-term care hospitals (LTCHs)) for cases readmitted to an IPPS hospital or a critical access hospital (CAH) within 30 days of initial discharge for FY 2012 through FY 2014; requires the Secretary of HHS to implement a readmissions payment system for post-acute providers on or after FY 2015; and directs the Secretary of HHS to report to Congress on how physicians can be incorporated into the readmissions policy within one year after enactment of health reform.

Physician-Owned Hospitals -- Eliminates the whole hospital and rural provider exceptions for physician-owned hospitals under the Stark Law; grandfathers physician-owned hospitals with a Medicare provider agreement as of January 1, 2009, although the legislation would prohibit increases in physician ownership percentages and provides substantial restrictions on a hospital's ability to add operating or procedure rooms and beds; subjects grandfathered hospitals to significant reporting and disclosure requirements, including a requirement to disclose to patients in writing if the hospital does not have 24/7 on-premises physician coverage.

Physician Payment -- Repeals the sustainable growth rate (SGR) formula used to calculate yearly updates to the Medicare physician fee schedule; eliminates all of the deficits accumulated under the SGR; replaces the SGR with a "target growth rate" formula tied to the gross domestic product (GDP) that omits items and services not paid under the physician fee schedule (e.g., lab tests and prescription drugs); allows for an annual growth rate for primary and preventative care at GDP plus two percent and GDP plus one percent for most other services; averts a 21 percent payment reduction for physician services slated for January 2010; encourages physicians to form Accountable Care Organizations.

Requires that state Medicaid programs reimburse for primary care services furnished by physicians and other practitioners at no less than 80 percent of Medicare rates in 2010, 90 percent in 2011 and 100 percent in 2012 and beyond; provides that the federal government will pay 100 percent of the incremental costs attributable to this requirement.

Graduate Medical Education (GME) -- Provides for the redistribution of a hospital's unused residency training positions for the training of primary care physicians; allows for the redistribution of medical residency slots from a hospital that has closed to other hospitals in the same state; allows time spent by residents who train in a non-provider setting to be counted toward indirect medical education (IME) and GME if the hospital incurs the costs of the stipends and fringe benefits; establishes a demonstration project whereby approved teaching health centers may become a primary care training program and receive GME and the GME of its contracting hospitals for such residents; modifies current law to allow hospitals to count resident time spent in didactic conferences toward IME costs in hospital settings and toward GME costs in non-hospital settings.

Clarifies that state Medicaid programs may receive federal matching payments for GME costs and directs the Secretary of HHS to implement specific program goals for the use of such funds based on workforce needs; these provisions would be effective upon enactment.

Disclosing Financial Relationships -- Requires all manufacturers of drugs and devices to report their financial relationships with health entities, including physicians, pharmacies, hospitals and other organizations.

Medicare Provider Updates -- Incorporates a "productivity adjustment" (i.e., the ten-year moving average of changes in annual non-farm economy-wide productivity) into the market basket (MB) update for IPPS hospitals, SNFs, IRFs, psychiatric hospitals and hospice care beginning in 2010.

Imposes a two percent reduction for hospitals that do not report quality data in FY 2010 through 2014; increases this to a 25 percent reduction in FY 2015 and beyond; imposes a 25 percent reduction for hospitals that are not "meaningful users" of electronic health records (EHRs) in FY 2015; increases this to a 50 percent reduction in FY 2016 and a 75 percent reduction in FY 2017 and beyond.

Establishes a floor for the MB update for IPPS hospitals so that the combination of the productivity adjustment and adjustments for quality reporting or "meaningful use" of EHRs cannot cause the MB update to go below zero.

Freezes the MB update at FY 2009 levels for SNFs and IRFs for the last three quarters of FY 2010; eliminates the MB update for HHAs in CY 2010; reduces payments to HHAs by an additional 5.5 percent in FY 2011 if payments are not rebased by the Secretary of HHS prior to this time.

Directs the Institutes of Medicine (IOM) to report on the validity and effects of the geographic adjusters used for physician and hospital payments and to make recommendations for improvements; allocates $8 billion to HHS for implementing this provision.

Bundled Payment for Post-Acute Care -- Requires the Secretary of HHS to submit a detailed plan to Congress on how to implement post-acute bundled payments for each episode of medical care within three years of enactment of health reform.

Medical Home -- Permits pilot programs in Medicare that reward primary care physicians, nurse practitioners and physician assistants who provide comprehensive and coordinated care for high-need patients under an independent, patient-centered or community-based "medical home" model certified by the Secretary of HHS.

Establishes a five-year pilot program to test the medical home concept with high-need Medicaid beneficiaries, including medically fragile children and high-risk pregnant women; the federal government would match costs of community care workers at 90 percent for the first two years and 75 percent for the next three years up to a total of $1.2 billion.

Accountable Care Organizations (ACO) -- Permits comprehensive ACO pilot projects in Medicare that reward physician groups working with hospitals and other providers of care that provide high-quality, low-cost care over a sustained period; allows for incentive payments to ACOs that exceed performance targets and experimentation with regard to partial capitation and other payment models.

Comparative Effectiveness Research -- Creates a Center for Comparative Effectiveness Research within the Agency for Healthcare Quality and Research (AHQR) to conduct, support and synthesize comparative effectiveness research; establishes a 17-member public/private stakeholder "Comparative Effectiveness Research Commission" to oversee the Center and to determine national priorities for research; invests $2.9 billion in comparative effectiveness research.

Quality Improvement -- Directs the Secretary of HHS to establish national priorities for quality improvement, develop improved measures of healthcare quality and provide for multi-stakeholder pre-ruling input into the selection of quality measures; creates the Center for Quality Improvement in AHQR for purposes of identifying best practices, developing new practices and disseminating successful models around the country; establishes a national medical device registry linked with patient safety outcomes data to facilitate analysis of post-market device safety and effectiveness; creates the Assistant Secretary for Health Information to provide for ongoing monitoring and reporting on critical population data.

Prevention and Wellness -- Establishes a Prevention and Wellness Trust that will allocate $35 billion in federal funding for creating prevention task forces and providing grants for community prevention and wellness research and services; requires the Secretary of HHS to formulate and submit a national prevention and wellness plan to Congress within one year of enactment.

Healthcare-Associated Infections -- Requires hospitals and ambulatory surgical centers to report healthcare-associated infections to the Centers for Disease Control and Prevention.

Expands the Medicare policy of denying payment for certain healthcare-associated infections to the Medicaid program.

Program Integrity Measures -- Please refer to the June 25, 2009, issue of the Health Law Update for a full discussion of the new and "enhanced" program integrity measures aimed at curbing fraud and abuse in the Medicare program.

MedicareAdvantage (MA) -- Reduces MA benchmarks to fee-for-service levels over three years, reaching equality of payment rates in 2013; creates an incentive system to increase payment to high-quality plans to be phased in between 2011 and 2013.

Medicare Part D -- Eliminates the Part D donut hole beginning with a $500 reduction in 2011 and completing the phase-out by 2023.

Medicaid and CHIP Maintenance of Effort -- Imposes "maintenance of effort" (MOE) requirements on states for CHIP and Medicaid that prohibit states from falling below their CHIP or Medicaid eligibility standards as of June 16, 2009. With respect to CHIP, MOE would end with the opening of the Health Insurance Exchange in 2013 or on a later date determined by the federal government.

CHIP Coverage -- Requires stand-alone CHIP programs to provide 12-months continuous eligibility for all enrollees with incomes below 200 percent FPL effective January 1, 2010.

Section 340B Drug Program -- Expands eligibility for section 340B drug discounts to freestanding children's hospitals, CAHs, Medicare-dependent hospitals, sole community hospitals and rural referral centers, among others, effective July 1, 2010; requires participating hospitals to credit state Medicaid programs with savings resulting from the 340B discounts.

  1. Work Force Issues

Key changes include funding for existing scholarship, loan repayment and training grant programs aimed at strengthening the need for primary care nursing and public health professionals; expanding the National Health Services Corps to address workforce shortages in high-need areas; expanding education, practice and retention programs for nurses; enhancing the development of advanced practice nurses; strengthening existing programs aimed at promoting diversity in the health workforce; and authorizing interdisciplinary grants and community-based training.