January 31, 2003

2002 National Health Care Legislative Update

Robert H. Bradner

At the beginning of the 107th Congress, several health care issues loomed large on the agenda.  In the end, however, relatively little was accomplished.  Action on health care issues was inhibited by the slow start to the new Administration, the change in Senate control six months after the elections, the September 11,2001, terrorist attacks that overwhelmed the domestic legislative agenda and altered the pre-existing political environment, and sharp partisan disputes.  In addition, the re-emergence of significant budget deficits and the installation of an Administration favoring restrained domestic spending and lower taxes has constrained the resources and political support for some health care initiatives.  Finally, certain agenda items that were expected to be resolved during a post-election, "lame duck" session fell by the wayside when that session proved unexpectedly short lived.   

I.         Significant Measures and Actions Adopted 

Several health care-related measures did make it into law during the 107th Congress; and the administration took several noteworthy actions.  Perhaps the most significant action was a comprehensive re-write of the Frist-Kennedy Act to provide authorization for bioterrorism preparedness and response activities, including preparedness grants to states and hospitals, a variety of education and training activities, and a massive expansion of existing medical stockpile, disaster response, research and vaccination activities.   In addition, Congress also enacted legislation to reauthorize the consolidated health centers program for another five years.  While a comprehensive re-write of the statute authorizing the Food & Drug Administration was put off, Congress did reauthorize the Prescription Drug User Fee Act (PDUFA),  a program providing for drug manufacturers to pay user fees to FDA to support improved review processes.   A similar law was enacted for medical device review. 

On the health insurance front, legislation providing for parity in the provision of mental health benefits by private health plans was again extended, and the Trade Act of 2002 created a tax-credit subsidy to cover 65% of the health insurance premiums for workers who lose their jobs due to trade policy. 

At the administrative level, HHS Secretary Thompson initiated an effort at Medicare administrative reform that included renaming the Health Care Financing Administration (HCFA) as the Centers for Medicare and Medicaid Services (CMS) and accelerating the review of onerous regulations and practices.  The Secretary's Advisory Committee on Regulatory Reform (SACRR) recently issued 250 recommended changes.   The President also directed the Food & Drug Administration to issue a proposed regulation that would  restrict the ability of prescription drug manufacturers to use certain techniques under the Hatch-Waxman Act to extend the length of the exclusivity period granted their products under applicable patent laws.   Finally, the Administration significantly revised the final medical information privacy regulations under the Health Insurance Portability Amendments Act of 1996 to relieve much of the burden imposed on providers and other covered entities by the original rules.

II.        Significant Measures not Enacted

The list of health care-related initiatives that did not make it into law is much more weighty and includes the following:

Patients Bill of Rights

Following Senator Jeffords' switch to the Democratic Party, the new Senate leadership quickly scheduled and passed this legislation.  The House later followed suit.  The two bills were similar in many respects, but differed on the key issue of how much recourse to the courts patients could obtain to enforce their rights and/or obtain damages.  Progress stalled when the President made clear that he would not accept the Senate version of the legislation and attention to the issue faded after the September 11 terrorist attacks.  

Outlook:  Once the "hot" issue, the Patients Bill of Rights has lost some of its luster on a crowded health care agenda, and, as a result of the change back to Republican control in the Senate.  Also, some evidence suggests that voters are now increasingly concerned about rising health care premium costs.  Nonetheless, the issue can be expected to re-emerge in the 108th Congress and, if supporters such as the American Medical Association are willing to give ground on the liability issue, a compromise bill could be enacted.

Medicare -- Prescription Drug Benefit, Provider "Givebacks," CMS/Contractor Reform

By Mid-2002, the House had passed its version of this legislation, which (as in the 106th Congress) relied on private health plans and Pharmacy Benefit Managers to administer a drug benefit that was means tested to cost about $300 billion over 10 years.   However, unlike prior versions of this legislation, the House bill did not propose significant privatizing reforms of the existing fee-for-service Medicare program.   Appended to the House bill was a $30 billion package of provisions to alleviate reimbursement cuts scheduled for various Medicare providers as a consequence of the 1997 Balanced Budget Act, and a package of provisions designed to reform the administrative practices of the Center for Medicare and Medicaid Services (CMS) and Medicare contractors. 

Democrats on the Senate Finance Committee drafted a more generous benefit (around $500 billion), but lacked the votes to report the bill out of Committee.  After much delay, the Senate debated a series of drug benefit proposals as amendments to an unrelated generic drug bill, but because the Senate never adopted a budget resolution, a super-majority of 60 votes was required to pass any proposal.  The surprising result of this situation was that neither the Democratic proposal nor a proposal similar to the House bill was ever passed by the Senate. 

When it became clear that the Senate could not adopt a prescription drug bill, a bipartisan proposal to provide about $40 billion in provider relief coupled with regulatory reforms was drafted by the leaders of the Senate Finance Committee.  The Administration, however, deemed this package too expensive and largely unnecessary, and consideration of the measure was blocked in the Senate.  Very late in the session, the House passed a bill that would have provided potential relief to physicians from impending Medicare payment cuts, but the Senate declined to consider the bill (not wishing to consider relief for one provider group apart from the others) and it, too, died.

Outlook:  Immediately after the election, the President called for enactment of a prescription drug bill and the change in Senate control makes it more likely that the House and Senate can pass similar bills that are less generous than the Democratic version and that rely on private entities to administer the benefit.  The American Association of Retired Positions (AARP) has preliminarily indicated a willingness to move toward the GOP position if the Republicans will reciprocate.  As for the Medicare provider "givebacks" issue, the failure to enact any relief was a bitter defeat for many providers and there is a concerted push underway to obtain some relief through appropriations legislation that is presently being considered in the Senate.   As of this writing, a modest proposal to freeze physician payments and provide relief for rural hospitals appears to have a good chance of being enacted by March.

Medical Liability (Malpractice) Reform

In the House, a bill to legislate tort reforms that would apply in state courts (limiting punitive and non-economic damages, reforming joint liability, allowing testimony on collateral payment sources, imposing statutes of limitations, providing for periodic payment of awards, limiting contingent fees, and protecting certain patient safety reported information from discovery) was passed during 2002.  The bill was never taken up in the Senate, but the issue was considered when Senator Mitch McConnell offered a smaller package of medical malpractice reforms as an amendment to an unrelated bill.  The amendment was decisively defeated. 

Outlook: With the Senate, House and White House all under GOP control, there is renewed talk that tort reform legislation will received priority consideration.  It is likely that a medical liability bill will be passed in the House and receive consideration in the Senate.   However, this is an issue that will be bitterly contested.  It is possible such legislation could be combined with legislation addressing the problem of medical errors (discussed below).

Medical Errors Legislation

Congressional interest in this topic spiked following the release of the Institute of Medicine (IOM) report on medical errors in March 2000.  Both the House Energy & Commerce and Ways & Means Committees reported similar medical errors bills – providing for a variety of grants to help providers with the cost of implementing systems to avoid medical errors (e.g. decision support IT, computerized prescribing), authorizing expanded research by the Agency for Health Research and Quality (AHRQ), and creating systems for the confidential reporting of errors information to centralized state patient safety databases or to other Patient Safety Organizations (PSOs).  In the Senate, however, agreement on a bipartisan bill drafted by Senators Frist and Kennedy fell apart over objections by the trial bar to the confidentiality provisions.   Near the end of the 107th Congress, it appeared that a compromise bill might emerge, but the truncated, lame-duck session left no time for this legislation to be resolved. 

Outlook:  This legislation came close to enactment in the 107th Congress and seems a prime candidate for enactment during the 108th.

Medicaid and S-CHIP

Legislation to relieve the strain on state Medicaid budgets by increasing the Federal Medicaid Assistance Percentage (FMAP) was proposed and considered in several contexts during the 107th Congress (e.g., as part of an economic stimulus package following the September 11 terrorist attacks, and as part of the Senate Medicare givebacks package (discussed above)) but the proposal was opposed by the Administration, never acted upon by the House, and not adopted.  Also, legislation that would allow the states to retain excess grant funds originally provided to set up Children's Health Insurance Plans (CHIPs) for use to serve other uninsured populations was not enacted. 

Outlook:  Chances for a federal bailout of struggling state Medicaid programs are diminishing over time, but it is still possible that an FMAP increase could be considered as part of an "Economic Stimulus" package that Congress will consider in the spring if the economy is still lagging.  


While the federal budget process is often messy, in 2002 it suffered a "meltdown" that is unprecedented in modern history.  The Senate could not pass a budget resolution, House Republicans could not reach internal agreement on how to handle the spending bills, and the Congress adjourned with all 11 domestic spending bills left un-enacted and the government operating on temporary funding authority.  The first order of business in January was therefore an attempt to resolve the fiscal year 2003 funding bills almost one-quarter of the way through the new fiscal year.   Prior to the election, there was a significant divide between the relatively generous level of funding proposed by the Senate for health care programs and activities and the more constrained levels proposed by the President (the President's budget has a four-percent overall increase in health care spending, but many programs are proposed for cutbacks or elimination to finance larger increases for other programs such as biomedical research).  Now it is generally settled that the appropriators will reduce funding to approximately the President's level and the scramble is on to find dollars in other areas that can be channeled into health care spending. 

Outlook:   An effort is now underway to resolve the ugly fiscal year 2003 funding process before March, with the most likely outcome that minimal increases will be provided for discretionary health activities unrelated to bioterrorism, medical research and a handful of other issues.  Looking ahead, the President will likely propose restrained funding increases for fiscal year 2004 and the needs of the War on Terrorism, deficit pressures and desire for more economic stimulus tax cuts will further constrain available resources.

For more information, contact Robert Bradner, toll free, at 1.888.688.8500.

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