Where Are We Now?

With the stormy town halls of August still fresh in their minds, lawmakers returned to Congress after a month-long recess and resumed their work on healthcare reform. In the House, the process of combining three versions of the Affordable Health Choices Act (H.R. 3200) into a single measure for a vote on the floor remains incomplete. While both the Ways and Means and Education and Labor Committees have formally approved H.R. 3200, the Energy and Commerce Committee is slated for a second markup of some 50 bill amendments that remain pending from July.

On the Senate side, the death of Sen. Edward Kennedy, Chairman of the Health, Education, Labor and Pensions (HELP) Committee, resulted in a reordering of the Committee's leadership from Sen. Chris Dodd (D-Conn.), who declined to assume the gavel, to Sen. Tom Harkin (D-Iowa). The HELP Committee approved its version of the Affordable Health Choices Act on July 15, 2009.

The Chair of the Senate Finance Committee, Max Baucus (D-Mont.), and the bipartisan group spearheading the Committee's negotiations on the reform bill - Kent Conrad (D-N.Dak.), Jeff Bingaman (D-N.Mex.), Ranking Member Chuck Grassley (R-Iowa), Olympia Snowe (R-Maine) and Mike Enzi (R-Wyo.) - continued their deliberations through August, culminating with the release of a draft Framework for Comprehensive Health Reform on September 8, 2009. The draft "Framework" outlines many of the policies discussed by the bipartisan negotiating group and described in previous policy concept papers. See the April 30, May 14 and May 28 issues of the Health Law Update.

As this issue of the Health Law Update went to press, Sen. Baucus released a 200+ page description of how the Senate Finance Committee's plan differs from current law in a document entitled "Chairman's Mark - America's Healthy Future Act of 2009" (Chairman's Mark). It is important to note that the Chairman's Mark is not the actual legislative text . The actual text of the Finance Committee's bill won't be released until the date of markup, now scheduled to occur the week of September 21. A cursory overview of the Chairman's Mark suggests a "fleshing out" of the provisions currently contained in the draft Framework, rather than a substantial overhaul.

The Senate Finance Committee's bill, which is expected to become the lead legislative vehicle on healthcare reform in both Houses, is anticipated to closely resemble the final bill.

Amidst the congressional health reform backdrop, President Obama came to Capitol Hill last week to outline his vision for reform, drawing on components from all of the bills.

Finally, it is important to remember that what follows below are proposed policies and, therefore, subject to the legislative process as the bills move through Congress.

Senate Finance Committee Draft Framework for Comprehensive Health Reform--Key Highlights

NOTE: Unless otherwise stated, the highlights discussed below are from Sen. Baucus' draft Framework for Comprehensive Health Reform:


The draft Framework is estimated by the Congressional Budget Office to cost $774 billion over ten years or roughly $126 billion less than the $1.04 trillion House Tri-Committee plan (H.R. 3200) and the Senate HELP Committee's bill ($1 trillion). Cost savings would be derived from a combination of reductions in spending under the Medicare and Medicaid programs (approximately $500 billion over ten years) and the following taxes and fees:

Excise Taxes, Reporting Requirements, Limits on Flex Savings Accounts - Imposes a 35 percent excise tax on insurance companies and administrators for health plans valued above $8,000 for singles and $21,000 for families, applied to the amount of the premium in excess of the threshold. Requires employers to disclose the value of each worker's coverage benefit on their annual Form W-2. Limits contributions to Flexible Savings Accounts (FSAs) to $2,000 per year.

Community Benefit and Nonprofit Hospitals - The Chairman's Mark imposes "new requirements" applicable to nonprofit hospitals. Specifically, each hospital facility would be required to conduct a community health needs assessment "at least once every three years" and adopt an implementation strategy to meet the community needs identified through the assessment. The Chairman's Mark further would require that a nonprofit hospital disclose, in its annual information report to the IRS (i.e., Form 990 and related schedules), the manner in which it is addressing the needs identified in the assessment and, if all identified needs are not addressed, the reasons why. It also (1) imposes a $50,000 penalty on a nonprofit hospital that fails to complete the required community needs assessment in an applicable three-year period; and (2) subjects a nonprofit hospital failing to disclose its plan for meeting the needs identified in the assessment to the existing penalty for an incomplete tax return.

Annual Fees - Beginning in 2010, imposes an annual fee, allocated by market share, on the following sectors:

  • Pharmaceutical manufacturing companies - $2.3 billion
  • Medical device manufacturers - $4 billion Health insurance - $6 billion Clinical laboratories (except for small businesses
  • Health insurance - $6 billion Clinical laboratories (except for small businesses) - $750 million  


According to preliminary estimates, approximately 94 percent of Americans would be covered by the draft Framework. By contrast, estimates are that both the House Tri-Committee plan (H.R. 3200) and the Senate HELP Committee's bill would cover approximately 97 percent of Americans.

Consumer Operated and Oriented Plan (CO-OP) -

Authorizes the creation of nonprofit, member-run health insurance companies to compete in the non-group and small group insurance markets. Authorizes federal loans to assist with start-up costs and federal grants to meet state solvency requirements.

Establishes criteria for the receipt of such federal grants and loans: (1) an organization may not be an existing organization that provides insurance as of July 16, 2009, and must not be an affiliate or successor of any such organization; (2) must not be sponsored by a state, county or local government or any government instrumentality; (3) it must be organized as a nonprofit, member corporation under state law; (4) must operate with a strong consumer focus; (5) profits must be used to lower premiums or improve health quality; (6) ethics and conflict of interest standards protecting against industry involvement and interference must govern the entity; (7) substantially all its activities must focus on offering health plans in the non-group and small group markets; and (8) governance of the organization must be subject to a majority vote of its members (i.e., beneficiaries).

Directs the Secretary of the U.S. Department of Health and Human Services (HHS) to award grants and loans based on the recommendations of a bipartisan advisory board comprised of the congressional leadership with priority given to statewide proposals, integrated care models and applications with significant private support.

Permits CO-OPs to enter into collective purchasing arrangements for services and items that increase administrative and other cost efficiencies, especially to facilitate start-up of the entities, including claims administration, administrative services, health information technology and actuarial services.

State Health Insurance Exchange and Ombudsman, Reporting Requirements - In 2010, establishes a state-administered exchange for facilitating comparison of health insurance plan benefits and premium costs; prohibits so-called "mini-medical" plans with limited benefits and low annual caps from being offered in the exchange; and mandates each state to establish an ombudsman office to act as a consumer advocate for those with individual or small group coverage. Beginning 2010, requires health plans to report the proportion of premium dollars that are spent on items other than medical care.

Insurance Market Reforms - Prohibits exclusions for pre-existing health conditions, limited benefit plans, lifetime limits and rescission of coverage for health plans in the non-group and small group markets. Provides for variance in health insurance premiums based on tobacco use, age, family composition and geographic differences only. Authorizes states to allow for the purchase of non-group health insurance across state lines through "health care choice compacts" starting in 2015.

Benefit Options - Creates four benefit categories: Bronze, Silver, Gold and Platinum, with the following actuarial values: Bronze (minimum creditable coverage) = 65 percent; Silver = 73 percent; Gold = 81 percent ; Platinum = 90 percent. Establishes a separate "young invincible" policy for young adults who desire less expensive catastrophic-only coverage with a requirement that preventive services be included and covered below the catastrophic amount. Requires health plans in the non-group and small group markets to offer Silver and Gold coverage categories, at a minimum. Generally eliminates cost-sharing for preventive services; ties out-of-pocket limits for all benefit categories to current health savings account (HSA) standards.

Benefit Standards - Requires health plans in only the non-group and small group markets to include the following benefits: preventive and primary care, physician services, outpatient services, emergency services, hospitalization, day surgery and related anesthesia, diagnostic imaging/screenings (including x-rays), maternity and newborn care, pediatric services (including dental and vision), medical/surgical care, prescription drugs, radiation and chemotherapy and mental health and substance abuse services that meet minimum standards set by federal and state laws. Requires employers to provide first dollar coverage for prevention services.

Individual Mandate - Imposes a mandate on all U.S. citizens and legal residents to purchase health insurance or to have health coverage from an employer, through a public program (i.e., Medicare, Medicaid, or CHIP), or through some other source that meets the minimum creditable coverage standard beginning in 2013. For taxpayers between 100-300 percent federal poverty level (FPL), the penalty for failing to obtain health coverage would be $750 per year with a maximum penalty per family of $1500. For taxpayers with incomes above 300 percent FPL, the penalty would be $950 per year with a maximum penalty per family of $3800. Permits an exemption from the penalty if the lowest cost premium available exceeds 10 percent of an individual's income.

Employer Responsibility - "Employers would not be required to offer health insurance coverage." However, companies that do not provide coverage and have 50+ full-time employees would be required to pay a fee (assessed according to a formula and subject to a capped amount) for every employee who receives a tax credit for insurance through an exchange.

Requires employers with 200 or more employees to automatically enroll workers into health insurance plans offered by the employer. Generally, workers offered employer-sponsored coverage would be ineligible for an insurance tax credit. However, an employee who is offered "unaffordable coverage" by their employer (currently defined in this section of the proposal as 13 percent of an employee's income) could be eligible for the tax credit. A Medicaid-eligible individual may choose to leave the employer's coverage and enroll in Medicaid.

Tax Credits

Healthcare Affordability - Provides for sliding scale tax credits for individuals and families (who are U.S. citizens and legal residents) between 134-300 percent FPL beginning in 2013 and between 100-133 percent FPL beginning in 2014. The credits would be based on the percent of income the cost of the premium represents, rising from three percent of income for those at 100 percent FPL to 13 percent of income for those at 300 percent FPL.

Small Business - Provides for tax credits for tax years 2011 and 2012 for companies with less than 25 employees and average wages below $40,000.

Medicaid Expansion and Enrollment

Increases Medicaid income eligibility levels for parents to 133 percent FPL and children, six years and older, to 133 percent FPL, effective January 1, 2014. Creates a new eligibility category for childless (non-elderly) adults at or below 133 percent FPL with less generous benefits. Authorizes childless adults between 100-133 percent FPL to choose between Medicaid and subsidized coverage through an exchange. Requires state Medicaid programs to operate a website that coordinates with state exchange websites to ensure that individuals are able to enroll in a plan offered through the exchange or the state's Medicaid program. Also requires that states must ensure that all children of parents who choose coverage through the exchange would continue to receive the benefits, including Early Periodic Screening, Diagnosis and Treatment (EPSDT), to which they are entitled under Medicaid.

Eliminates income disregards and directs that income be measured based on modified adjusted gross income (MAGI) effective January 2014 for all Medicaid population groups except those groups eligible for Medicaid through another program (e.g., foster children, SSI recipients, etc.).

Requires states to provide premium assistance to any Medicaid beneficiary who is offered employer-sponsored insurance, "if it is cost-effective for the state to do so." Imposes a "maintenance of effort" provision on the states through 2013 (the expected date when the state-based exchanges become fully operational).

Provides for additional federal financial assistance to the states. Those states that currently do not cover the newly eligible population will receive more assistance initially than those states that currently cover at least some childless adults. Directs that by 2019, all states will receive the same level of additional assistance for covering newly eligible Medicaid beneficiaries.

Allows hospitals to make presumptive eligibility determinations on the basis of preliminary information under Medicaid.

Children's Health Insurance Program (CHIP)

Authorizes CHIP beneficiaries to enroll in exchange plans beginning 2013 and directs states to provide supplementary benefits (CHIP-wrap) including EPSDT benefits. Establishes a federal floor for CHIP income for children and pregnant women at 250 FPL with income eligibility determined using MAGI; eliminates income disregards. Requires that states continue to be reimbursed for CHIP at the enhanced Federal Medical Assistance Percentage (FMAP) rate.

Prescription Drugs

Medicare - Requires manufacturers to provide a 50 percent discount off the negotiated price for brand-name drugs covered on plan formularies when beneficiaries enter the coverage gap (i.e., donut hole) beginning 2010.

Medicaid - Requires that prescription drugs become a mandatory Medicaid benefit.

Disease Prevention and Wellness

Medicare - Removes cost sharing for preventive services recommended by the U.S. Preventive Services Task Force (USPSTF).

Medicaid - Incentivizes states to provide all recommended preventative services and immunizations and to remove cost-sharing for those services by increasing the federal share of a state's FMAP by one percentage point. Requires Medicaid coverage for tobacco cessation services for pregnant women without cost-sharing. Authorizes $100 million in state grants for programs that target and provide incentives to Medicaid enrollees for improving risk factors in their health status (e.g., blood pressure, cholesterol, obesity, tobacco use, diabetes and depression).


Value-Based Purchasing - Establishes value-based purchasing for hospitals beginning in 2011, where a percentage of hospital payment would be tied to hospital performance on quality measures related to common and high-cost conditions, such as cardiac, surgical and pneumonia care. Requires all eligible health professionals to participate in the Physician Quality Reporting Initiative (PQRI) program by 2011. Establishes payment incentives for physicians to appropriately order high-cost imaging services.

Healthcare Quality - Requires the Secretary of HHS to implement quality measure reporting programs for long-term care hospitals, inpatient rehabilitation facilities, PPS-exempt cancer hospitals and hospice providers in 2011. Directs the Secretary of HHS to develop a national quality strategy and to establish an interagency working group on healthcare quality.

Accountable Care Organizations - Directs that groups of providers who work together to improve the quality of care they deliver to Medicare beneficiaries would be able to keep half of the savings they achieve for the Medicare program over a three-year period.

Hospital Acquired Infections - Imposes a penalty on hospitals with high acquired infection rates (top 25th percentile) for certain high-cost and common conditions (that are undefined) beginning 2011.

Avoidable Hospital Readmissions - Imposes a 20 percent reduction on payments to hospitals with high (preventable) readmission rates beginning 2011.

Payment Bundling

Medicare - Directs the Secretary of HHS to develop a voluntary pilot program that encourages doctors, hospitals and post-acute care providers to increase collaboration and improve coordination of patient care and to allow them to share in the savings.

Medicaid - Establishes a demonstration project to evaluate the use of bundled payments for acute and post-acute care and/or concurrent physician services in up to eight states.

Disproportionate Share Hospital (DSH) Payments

Medicare - Reduces DSH payments to reflect lower uncompensated care costs relative to increases in the number of insured beginning 2015.

Medicaid - Reduces a state's DSH allotment by 50 percent once the number of uninsured in the state is reduced 50 percent; directs that further DSH allotment reductions correspond with a state's declining uninsured rate.

Physician Payment - Eliminates the scheduled 21 percent reduction in Medicare physician payment rates in 2010 and replaces it with a 0.5 percent increase. According to the Chairman's Mark, "The conversion factor for 2011 and subsequent years would be computed as if the increase in 2010 had never applied." Provides a 10 percent Medicare bonus for five years for primary care practitioners as well as general surgeons practicing in a health professional shortage area. Offsets half of the cost of the bonuses "through an across-the-board reduction in all other services of approximately 0.5 percent."

Imaging Use-Rate Assumption - Increases the utilization rate for calculating the payment for advanced imaging equipment from 50 percent to 65 percent for 2010 through 2013 and 75 percent beginning in 2014. The Chairman's Mark also increases the technical component payment reduction for sequential imaging services on contiguous body parts during the same visit from 25 percent to 50 percent.

Graduate Medical Education (GME) - Increases GME training positions for primary care through a slot re-distribution program for currently unused training slots.

Workforce Advisory Committee - Establishes a Workforce Advisory Committee comprised of external stakeholders tasked with working with HHS and other relevant federal agencies to develop and implement a national workforce strategy.

Physician Assistants - Permits physician assistants to order post-acute care services; recognizes physician assistants as attending physicians to serve hospice patients.

Independent Commission; CMS Center; CE Institute

Establishes a Medicare Commission (MC) with the authority to independently decide Medicare reimbursement policy subject to congressional oversight (i.e., Congress would have the opportunity to amend or pass an alternative policy but, if it did not, the MC proposal would be implemented by HHS). Authorizes $10 billion in funding for an Innovation Center at the Centers for Medicare and Medicaid Services (CMS) to test new provider payment models. Creates a nonprofit institute to set a research agenda and provide for the conduct of comparative effectiveness (CE) research subject to safeguards from using the research to ration care through any federal program.

Transparency and Program Integrity

Published List of Hospital Charges - Requires hospitals to list standard charges for all services and Medicare DRGs beginning in 2010. Additional provisions contained in the Chairman's Mark include requirements for the adoption and implementation of financial assistance policies, limitation on charges and collection processes.

Physician-Owned Hospitals - The Chairman's Mark eliminates the Stark Law exceptions for physician ownership in all hospitals, rural or otherwise. Physician-owned hospitals meeting certain requirements would be grandfathered - i.e., exempt from the referral prohibition. The requirements include the existence of a Medicare provider agreement in operation on November 1, 2009, certain reporting and disclosure requirements and specific requirements to ensure bona fide investments and proportional returns, including a prohibition on an increase in the percentage of physician ownership after the date of enactment of the law. Grandfathered hospitals also would be prohibited from increasing the number of operating rooms, procedure rooms or beds, subject to very limited exceptions. Finally, the hospital will be required to disclose to patients, prior to admission, if a physician is not available on the hospital premises during all hours.

Reporting of Physician Ownership or Investment Interests - Requires drug, device and biologic manufacturers to report any payments or transfers of value, with limited exceptions, made to a physician or teaching hospital.

Prescription Drug Sample Transparency - Requires drug manufacturers and authorized drug distributors to report to the Secretary of HHS on the type and amount of drug samples requested by and distributed to practitioners, along with the practitioners' names, addresses, professional designations and signatures. The reported information would not be publicly available.

Fraud, Waste And Abuse - New policies aimed at reducing fraud, waste and abuse in Medicare and Medicaid include (1) a new enrollment process for providers and suppliers, including an application fee; (2) data-matching and data-sharing across federal healthcare programs; (3) increased civil monetary penalties; (4) increased authority to suspend payment during creditable investigations of fraud; and (5) new procedures to disclose and repay overpayments.

President Obama Outlines His Vision

In a prime time address before a joint session of Congress last week, President Obama outlined his vision for healthcare reform calling on lawmakers to send him a bill. Building on the President's eight principles for "transforming and modernizing" America's healthcare system, the White House released a bullet point outline of policy concepts called "The Obama Plan ." Core elements central to the President's plan are greater stability and security for the insured, affordable choices for the uninsured and reining in healthcare costs. The bullet points comprising The Obama Plan appear to draw concepts from both the House and Senate bills, as well as the Senate Finance Committee's draft Framework for Comprehensive Health Reform and the Chairman's Mark.

So What's Next?

The President reconfirmed his intention to push Congress for comprehensive health reform this year. Unanswered questions include how lawmakers will reconcile the differing versions of the House Affordable Choices Act with the Senate bills and the President's plan, whether Congress will split the reform measure into two or more bills and whether a procedural option - known as "reconciliation" - will be employed to both limit debate and pass the parts of the bill that lack broad support with a simple majority in the Senate.

Amidst the political fray, the challenge for providers will be in following the multitude of provisions affecting the industry, informing Congress of potential unintended consequences, while readying/preparing for the major changes likely to come.