December 4, 2008

Federal Healthcare Policy: The Road Ahead

Holland & Knight Alert
Robert H. Bradner

The longest and perhaps most historic Presidential election in our nation’s history has now concluded. With a little more than six weeks until the inauguration of our 44th President, now is a good time to assess the road ahead on health care policy.

President-elect Obama was swept into office by a comfortable margin on November 4, and when he takes office on January 20 he will have the luxury of working with a large Democratic majority in Congress. With a few races still undecided, it is clear the Democrats will hold a commanding advantage in the House and at least 58 of 100 Senate seats. Majorities of this size – which have not been seen in recent years – significantly ease the path for a President and Congress of the same party to pass legislation over the objections of the minority party. Of course, this assumes they can reach internal agreement on their objectives and can marshal the political and fiscal resources necessary to achieve those goals. Congressional Democrats will need to navigate a variety of internal tensions, including that between the aspirations of their more liberal members to substantially expand the federal government’s role in addressing public health concerns and the growing ranks of more moderate Democrats who worry about the budgetary costs associated with such efforts.

While some observers have opined that many of Congress’ and the new President’s health care aspirations will be derailed as a consequence of the dismal economy (and its accompanying drain on the nation’s fiscal resources), there are strong reasons to think otherwise. First, the President-elect himself has made it crystal clear that he has no intention of abandoning health care reform as a result of the current economic tsunami and, moreover, that he views health care reform as essential to economic prosperity. Second, many of the items on the health care agenda simply cannot be ignored as they pertain to expiring provisions of law or offer opportunities to enact savings needed to offset other budgetary costs. Third, an opportunity such as this – where the President and the Congress are of the same party and legislative majorities are sufficient to pave the road for enactment of “game changing” legislation – is perhaps a once in a generation occurrence that many of the key legislative players have made clear they do not intend to miss. Thus, there is every reason to expect an exceptionally busy health care agenda over the next two years both in the halls of Congress and at the federal agencies.

Items on the Health Care Agenda
While health care is always an active federal policy area, the agenda now is particularly crowded. Some of the major items include the following:

  • SCHIP Expansion. One of the more bitter battles of the past two years involved attempts by the newly empowered Democratic Congress to enact a substantial expansion in the State Children’s Health Insurance Program (SCHIP) over the determined opposition of President Bush to significantly raising the income levels eligible for participation in the program. Congressional Democrats are now highly focused on efforts to enact legislation to expand the SCHIP program – which supports state-run programs that allow uninsured children (and sometimes whole families) that do not qualify for Medicaid to obtain coverage – to reach up to 250 percent of poverty.
  • Medicare. As yet another round of studies sound alarm bells about the long-term fiscal stability of Medicare, the list of program issues on Congress’ plate is long. Some of the top ones include the following:

  • Physician Payment Reform. The Sustainable Growth Rate (SGR) formula for paying doctors and other health professionals under Medicare – which essentially limits reimbursement increases to the growth in patient population and GDP and thereby cuts reimbursement when overall utilization rises – has repeatedly been “patched” by Congress to stave off large payment cuts. As a result, the formula is now hopelessly out of sync with current reimbursement levels. Congress will need to either patch the problem once again or junk the SGR entirely and replace it with a new approach. The budgetary bookkeeping costs associated with revamping the system are large, but congressional momentum seems to be moving in that direction.
  • Programs on the Chopping Block. In a congressional world ordered by the “pay-as-you-go” principle (for every expansion in entitlement spending there must be an equal and offsetting reduction), a number of programs are nervously aware of the risk to their budgets with good reason. Some of the big targets include the private insurance programs under the Medicare Advantage (Part C) program; home health care and home oxygen providers; diagnostic imaging services and durable medical equipment (DME). But it is also quite likely that the range of health care providers that will be looked to for contributions toward expanded benefits and fiscal sobriety could broaden substantially to include reductions in inflation updates for hospital inpatient and outpatient services, ambulatory care and a range of other services.
  • Rolling Back Private Sector Oriented Reforms. The Bush years saw the implementation of numerous innovative – and controversial – reforms to the Medicare program premised around greater private sector involvement and the harnessing of competitive forces as an alternative to administered price systems. In addition to the refinement of the Medicare Advantage program and its attempted expansion to include regional plans, there was the creation of the Medicare Outpatient Prescription Drug (Part D) program (premised on competitive tension between and among private insurers and pharmaceutical manufacturers) and the creation of competitive bidding initiatives involving Part B drugs and DME (currently on a legislatively decreed one-year hold). Competitive bidding has also been proposed for clinical labs. Many in the current congressional majority are not enamored of these reforms and there may be an attempt to roll them back. In addition to Medicare Advantage, the Part D program may be targeted for major changes aimed at administrative costs, moving dual eligibles into a government program, changes in drug rebate rules and mandating a federal role in price negotiations.
  • Modernization and Quality Improvement. One of the more interesting developments in Medicare policy over the past several years has been a focus on measuring and rewarding quality care and the push to bring the management of all health care into the computer age. The outgoing administration pushed a blizzard of efforts premised on tying payment to performance, including the physician quality reporting initiative (PQRI) for Part B and the Value Based Purchasing initiative for hospitals, and has even begun efforts to deny or limit reimbursement for avoidable complications or mistakes. Paralleling this has been an effort to modernize the practice of medicine through better use of information technology in the form of e-prescribing, decision support systems to avoid errors and guide care, and the creation and integration of electronic medical records. Substantial time and effort has been spent establishing various technical standards to facilitate “interoperability” and electronic prescribing under Medicare is moving forward. But major health information technology (HIT) legislation has repeatedly run aground in Congress for a variety of reasons, including privacy concerns, technical questions, budgetary impact, and disagreement over the correct combination of carrots and sticks to promote widespread adoption. These quality and HIT efforts overlap in interesting ways and the new Congress and President appear committed to maintaining momentum on both efforts. But the devil will be in the details as new chefs enter the policy-making kitchen and decide how best to move forward on the particulars.
  • Health Care Reform. The plan that President-elect Obama touted during his campaign is not a re-hash of the Clinton administration’s universal payer approach of 15 years ago; nor does it resemble the Bush/McCain approach that calls for abolishing the employer-based system and providing individual tax incentives to encourage private-sector options for all. Rather, it is perhaps best understood as a “gap filling” approach that seeks to leave most existing sources and forms of health insurance intact, while creating state-based programs and health exchanges to facilitate coverage for those who are uninsured. While real details are lacking, it seems to most closely resemble the health care reform project currently underway in Massachusetts.

    The Obama plan would make no changes to Medicare, veterans’ health benefits, military and dependent care through CHAMPUS, Medicaid and employer-provided health benefits for workers or retirees. It would, however, create a program designed to provide an insurance option for the estimated 40 million Americans covered by none of the aforementioned public or private health insurance options. The states would be tasked with establishing health insurance programs for this uninsured population that would be required to provide relatively general coverage – equivalent to that provided by Blue Cross/Blue Shield standard plans. To pay for this, small employers that do not provide health care for their workers would be required to contribute and taxpayer-financed subsidies would be provided to others. The program would not mandate that uninsured individuals enroll in these programs, but it would contain a mandate for the coverage of children.
    Like any major health care reform blueprint, the Obama plan presents a host of unanswered questions regarding how it might play out in the real word. These include whether private health insurance companies would find it attractive to participate in the state programs or whether those programs would devolve into state-run insurance options (perhaps akin to Medicaid or the way SCHIP works in practice in many states). Another thorny issue is whether such a program would deal forthrightly with the systemic costs posed by undocumented immigrants or continue the more politically convenient practice of ignoring this population. Perhaps the most fundamental unanswered question is what the real cost would be and whether that cost would rise dramatically in future years.
    And, while some may view such a reform plan as a radical expansion of governmental involvement in health care, others (including many in key positions of power on Capitol Hill) consider it to fall far short of a “true” health care reform approach that melds the patchwork of current coverage systems into a more synergistic whole and addresses in a more comprehensive manner the need to manage the costs of chronic illness, the high costs of care that occur near the end of life, the provision of more holistic coverage, the broader sharing of cost burdens and a host of other big picture issues.
  • All the Rest. As if the foregoing agenda weren’t daunting enough, it omits a myriad of policy matters that are likely to see attention. A non-exhaustive list would at a minimum include the following:

    • ongoing disputes over the scope of Stark and anti-kickback exceptions/safe harbors
    • a continued focus on conflicts of interest in the health care industry
    • the community service obligations of nonprofit providers
    • reauthorization of the Ryan White HIV/AIDS Modernization Act
    • the future of funding for biomedical research
    • the direction forward for an FDA that has struggled to balance the need for expeditious drug and device approval against safety concerns
    • major problems in the food safety system
    • the creation of a major federal commitment to comparative effectiveness research
    • the adoption of “medical home” care models for various public programs
    • the implementation of state-based patient safety efforts
    • revisiting federal privacy rules
    • a complex and challenging array of issues related to Medicaid, including its financial viability, how to engender reform, how the new administration will treat a variety of state waivers and financing schemes, and how to increase federal matching support in a time of strain for state budgets

Next Steps on the Road?

At this juncture, it is difficult to predict with any confidence as to exactly how the health care agenda will play out over the next few years. But the first and most basic question is how large a bite will Congress and the President take in the next year? The “low hanging fruit” would be a simple SCHIP expansion bill that allows the new President and his allies in Congress to take credit for bringing health care to more poor children and their families coupled with some “pay for” Medicare cuts to providers chosen from the target list referenced above.

But as a politically attractive SCHIP bill moves through the process, it will inevitably attract many additional and unrelated policy provisions, as varied interests attempt to hitch a ride on the train that is leaving the station. As a result, there is a strong possibility that the SCHIP bill will gain bulk and breadth and could very well evolve into a major piece of health care legislation for 2009. Indeed, it is not completely out of the question that the bill could morph further into a vehicle for all, or substantial parts, of the new President’s health care reform agenda. After all, much of the President’s gap-filling approach could be accomplished through expansions and tweaks to existing programs. But as such a bill becomes more ambitious, it will also become heavier and harder to move. Thus many in Congress are counseling to break the health care agenda into a more manageable near term bill while moving towards a global reform bill next year.

While the legislative and procedural details remain to be worked out, one thing is clear: it will be a busy time in the health policy arena, with legislation of long lasting consequence likely to see action both this year and next.

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