With a big assist from the 111th Congress, the Obama Administration has moved rapidly to effect a number of significant policy changes in healthcare. In the span of less than two weeks, the President has signed legislation to expand SCHIP coverage for children, accelerate the transition to a national electronic health network, and bolster insurance coverage for unemployed workers. Taken together, these bills provide for a large infusion of federal dollars into the healthcare system.

Expanding SCHIP Coverage for Children

Congress moved quickly in January to reauthorize the State Children's Health Insurance Program (SCHIP) by dusting off the failed 2007 attempts (passed and vetoed twice before) and passing a bill well before the rapidly approaching March 31, 2009, deadline. On February 4, 2009, President Obama signed the legislation, H.R. 2 -- the Children's Health Insurance Program Reauthorization Act (CHIPRA), extending SCHIP through September 30, 2013. The measure should sustain SCHIP's current enrollment of about seven million and expand coverage to an additional 4.1 million children by 2013. CHIPRA enables states to expand enrollments to include children with family incomes of up to 300 percent of the federal poverty level ($52,800 for a family of three) at the enhanced federal matching rate associated with the SCHIP program. Financing for the enhanced SCHIP program is funded through a 61-cent increase in the federal excise tax on tobacco, bringing the tax for a pack of cigarettes to one dollar. One of the more contentious provisions restored Medicaid coverage for otherwise eligible children and pregnant women who have been in the United States legally for five years or less. Another contentious provision, a ban on specialty hospitals owned by physicians, was stripped from the bill before its final passage.

In addition to the CHIPRA legislation, President Obama also issued an important memorandum relative to the SCHIP program directing the Secretary of Health and Human Services (HHS) to rescind the policy, commonly referred to as the "August 17 directive." This directive, issued in 2007, required that states enroll 95 percent of children from families with incomes below 200 percent of the federal poverty level before expanding coverage to those above 250 percent of the federal poverty level.

Stimulating Healthcare

On February 17, 2009, President Obama signed into law a $787 billion economic stimulus bill, H.R. 1 -- The American Recovery and Reinvestment Act, that provides for a myriad of funding, economic incentives and subsidies for health information technology, medical research, state Medicaid programs and extended COBRA coverage for unemployed workers. The new law's key healthcare provisions and funding allocations include the following:

Medicaid ($86.6 B). States will receive a 6.2 percent FMAP funding increase over 27 months retroactive to October 1, 2008, with one third of the temporary increase allocated to states experiencing large upswings in unemployment rates. To access the temporary FMAP increase, state Medicaid eligibility standards cannot be more restrictive than those in effect on July 1, 2008. Additionally, states will have to comply with Medicaid prompt pay requirements for hospitals and nursing homes. State Medicaid Disproportionate Share Hospital (DSH) Program allotments will receive a 2.5 percent increase in funding for FY 2009 and a 2.5 percent increase above the new FY 2009 DSH allotment in FY 2010. The new law extends the moratoria on the Medicaid regulations for targeted case management, provider taxes and school-based administration and transportation services through June 30, 2009. It also adds a moratorium on the Medicaid regulation for hospital outpatient services through the same period.

Extended COBRA Coverage ($24.7 B). Workers who are involuntarily terminated between September 1, 2008, and December 31, 2009, may be eligible for a 65 percent subsidy for COBRA health insurance premiums for up to nine months if their total annual income does not exceed $125,000 for individuals and $250,000 for families.

Health Information Technology (IT) ($19 B). As part of the overall effort to make U.S. health records electronic by 2014, H.R. 1 allocates $19 billion in grants and payment incentives under the Medicare and Medicaid programs to provider and physician users of health IT beginning FY 2011. The stimulus package also includes significant measures aimed at strengthening and extending privacy and security safeguards for personal health information. Most notably, business associates will be directly regulated under HIPAA and subject to the same civil and criminal penalties as covered entities.

National Institutes of Health (NIH) ($10 B). The $10 billion infusion, which represents a 34 percent increase in the NIH budget, allocates $8.5 billion for research grants and $1.5 billion for rebuilding and equipping agency facilities.

Comparative Effectiveness Research (CER) ($1.1 B).  The new law establishes the 15-member Federal Coordinating Council for CER for the purpose of fostering "optimum coordination of comparative effectiveness and related health services research conducted or supported by relevant federal departments and agencies, with the goal of reducing duplicative efforts and encouraging coordinated and complementary use of resources." To that end, the stimulus package allocates $400 million to the Secretary of HHS to accelerate the development and dissemination of CER. According to the Conference Report language, nothing in the CER section "shall be construed to permit the Council to mandate coverage, reimbursement, or other policies for any public or private payer" or for the recommendations of the Council to "be construed as mandates or clinical guidelines for payment, coverage, or treatment."

Other Provisions of Note. H.R. 1 imposes a moratorium on the Medicare Indirect Medical Education (IME) reduction for capital payments for teaching hospitals in FY 2009, provides $500 million for training health professionals, and raises the annual issuance limit with respect to bank-deductible bond financing for small issuers from $10 million to $30 million for 2009 and 2010.

What's Next?

It is unclear whether the legislative momentum of the first 30 days will be sustained in succeeding months, given Senator Daschle's withdrawal as White House Health Czar and nominee for Secretary of HHS. What appears clear, however, is that future focus will be on mitigating healthcare costs. On February 10, 2009, the Senate Budget Committee held a hearing to discuss key healthcare reform issues. In testimony before the committee, Douglas Elmendorf, Director of the Congressional Budget Office (CBO), stated that without changes in policy, the number of uninsured will rise to about 54 million in ten years. Bundling payments for hospital and post-acute care to improve coordination, reducing Medicare payments to hospitals with high readmission rates and incentivizing physicians and hospitals to better collaborate, were among the CBO's recommendations for payment reforms that could slow the growth of federal healthcare programs. Recognizing and responding to the many challenges, risks and opportunities raised by efforts to control healthcare costs and reform the healthcare system will require close and continuing attention as the legislative and regulatory responses to the administration's policy agenda develop.