House Releases Draft Healthcare Reform Bill

Today the three committees in the House of Representatives working on healthcare reform(Ways and Means, Energy and Commerce, and Education and Labor) jointly released an 852-page discussion draft for a healthcare reform bill. The main components of the bill are familiar, including insurance exchanges and individual and employer mandates for health insurance. It also includes a public plan, but requires that the public plan compete on a level playing field with private plans, and it is to be financed entirely through premiums.

There are several provisions that, while not entirely unexpected, will not be welcomed by the pharmaceutical industry. For example, starting in 2011, pharmaceutical companies will have to pay rebates on drug purchases by any dual-eligible beneficiaries and any other beneficiaries whose Medicare premiums are fully subsidized. Prior to the introduction of Part D, beneficiaries who were dually eligible for Medicaid and Medicare got their prescription drugs through their Medicaid benefit, under which pharmaceutical companies are required to pay rebates. When these beneficiaries were switched into the Medicare Part D drug benefit, pharmaceutical companies essentially reaped a windfall by no longer having to pay rebates on the drugs used by these beneficiaries. The provision in the House draft bill would eliminate that windfall. In addition, starting next year, the way the Medicaid rebate is calculated for reformulations of existing drugs would change, treating the reformulation the same is the original drug for purposes of calculating the required rebate, if that calculation results in a higher rebate. This provision may have the unintended consequence of discouraging development of value-added reformulations that would benefit patients. The draft bill also includes a sunshine provision on payments to physicians.

The Senate Finance Committee was also supposed to release its bill this week, but it apparently has been delayed by efforts to reduce the total cost of the bill.

Obama: “I need your help, doctors.”

In his speech at the annual meeting of the AMA yesterday, President Obama outlined his case for healthcare reform, including some basic ideas on where he would get the bulk of the money to pay for reforms. Most of what he had to say was relatively uncontroversial and unsurprising, but it still represented his most comprehensive speech on healthcare reform since taking office. One surprise is that he voiced implicit support for a proposal to expand the role—and authority—of MedPAC. Last month Senator Rockefeller introduced a bill that would convert MedPAC into an executive branch agency with the power to set payment rates in Medicare. Essentially, it appears to be a back-door method of establishing a Federal Health Board (Senator Rockefeller even stated that it would be modeled on the Federal Reserve Board)—taking payment decisions out of the hands of Congress and putting them in the hands of a board that supposedly would be immune from political pressure. Since Congress is not prone to willingly give up power, my guess is that this proposal is going nowhere.

Coincidentally, however, yesterday MedPAC released its annual report to Congress. It contains useful discussions of several important topics relating to payment reforms, including accountable care organizations, disease management demonstration programs in Medicare (a topic we are addressing in this week’s issue of our Shuho weekly report), and Medicare Advantage. One chapter also explores some of the issues MedPAC is considering for follow-on biologics.

Also yesterday, the CBO released an analysis of the bill Senator Kennedy introduced last week. The cost of the bill to the federal budget as calculated by the CBO—just above $1 trillion over ten years—does not come as a big surprise. What many commentators are focusing on, however, is that, even after spending over $1 trillion, the CBO projects that 37 million people—13% of the non-elderly—will remain uninsured. Partly this is because the version of the bill introduced last week lacked key provisions, such as a pay-or-play mandate on employers, an expansion of the Medicaid program, and the addition of a public plan, that are expected to be added later. These provisions will reduce the number of uninsured, but they may also add to the cost of the bill, if the cost of expanding Medicaid exceeds the net cost reductions associated with a pay-or-play employer mandate.

Just Don’t Call it “Comparative Effectiveness Research”

Two bills introduced in the Senate this week give further impetus to comparative effectiveness research, but both avoid the term “comparative effectiveness research” in the names of the entities they create to pursue the research. One, introduced by Senators Baucus and Conrad in the Senate Finance Committee, is solely devoted to the creation of a “Patient-Centered Outcomes Research Institute.” The other, the “Affordable Health Choices Act” introduced by Senator Kennedy in the Senate Health, Education, Labor and Pensions Committee, is a more complete version of draft healthcare reform legislation Senator Kennedy circulated at the end of last week, and it includes one short provision that would create a “Center for Health Outcomes Research and Evaluation” within the Agency for Healthcare Research and Quality (AHRQ).

Why the conspicuous absence of “comparative effectiveness research” in the names of these entities? Critics of the Obama administration’s effort to establish comprehensive healthcare reform legislation have tried to mobilize opposition by claiming it would use the results of comparative effectiveness research to dictate patient treatment regimens to doctors or provide insurance coverage in Medicare or other government health insurance programs only to “government-approved” treatment regimens.

Both bills take pains to ensure that comparative effectiveness research results will not constrain coverage or treatment options. The bill by Senators Baucus and Conrad states that research findings “shall not include practice guidelines, coverage recommendations, or policy recommendations” and that neither the reports nor research findings of the Institute “shall be construed as mandates, guidelines, or recommendations for payment, coverage, or treatment.” Similarly, Senator Kennedy’s bill states that “Center reports and recommendations shall not be construed as mandates for payment, coverage, or treatment.”

Despite these similarities, however, the two bills are quite different. Senator Kennedy’s Center mainly appears to be an extension of what the AHRQ is already doing, and no specific budget or funding mechanism is mentioned in the bill. By contrast, the bill by Senators Baucus and Conrad creates a new non-profit entity that would be governed by a board appointed by the Comptroller General composed of a broad spectrum of stakeholders, including representatives from drug and device manufacturers. In addition to annual appropriations of $150 million, the Institute would be funded by a surcharge of $2 per person to be paid by all public and private insurance plans based on their number of covered lives, resulting in an annual budget of roughly $750 million. Moreover, up to 20% of this amount can be used to fund organizations that currently perform comparative effectiveness research, such as the Cochrane Collaboration. With such a significant budget, the Institute could certainly fund a lot of comparative effectiveness research, including large-scale comparative clinical trials.

The Devil is in the Details

The broad outlines of this year’s healthcare reform legislation are now in focus. It looks like it will include an individual mandate;

• Massachusetts-style insurance exchanges, with subsidies to low-income beneficiaries who are not eligible for Medicaid
• an obligation for employers to either offer insurance to their employees or pay a per-employee annual penalty, with exclusions for small employers
• possibly a watered-down public plan that would compete with private plans in the exchange; modest expansions of Medicaid and SCHIP
• modified benchmark formulas for Medicare Advantage plans to reduce federal subsidies
• expansion of pay-for-performance programs and bundled payments in Medicare
• incentives for primary care physicians to provide care coordination in Medicare
• pilot programs for alternative reimbursement systems for Accountable Care Organizations in Medicare.

In addition to these reforms of federal programs, in the pharmaceutical field there is likely to be an add-on for follow-on biologics, and there may even be legislation that would prohibit “reverse payments” in patent infringement settlement agreements between brand and generic drug manufacturers.

Of course, I could be wrong. Over the past seven months, my track record as a healthcare reform prognosticator is not exactly stellar, changing with each shift in the winds. In the immediate aftermath of last November’s election, as Tom Daschle’s name was being mentioned as a possible pick for HHS Secretary, I believed that Daschle’s idea of creating a Federal Health Board was not likely to be part of any Obama administration proposal for healthcare reform. Weeks later, when Daschle had been nominated as HHS Secretary and Director of the White House Office of Health Reform, and Jeanne Lambrew, Daschle’s co-author on Critical: What We Can Do About the Health-Care Crisis, was nominated as Deputy Director of the White House Office of Health Reform, I changed my mind, deciding that their book would serve as a blueprint for proposed reforms, with a prominent role for a Federal Health Board. Weeks after that, when Daschle withdrew his nomination, I changed my mind again, deciding that the whole process was in a state of disarray. Before long, however, signs of progress—and consensus-building—began to emerge, pivoting in particular around Senator Baucus and Senator Kennedy.

These days, the only one talking about a Federal Health Board idea is the always-lovable Senator Charles Grassley, and he wants it known that he is against the idea (as noted in this interview article last week in the new and wonderful Kaiser Health News site).

Even if the broad outlines of healthcare legislation are more or less set, however, the details matter, too. At the end of last week, Senator Kennedy’s office released what was described as a “draft of a draft” of healthcare reform legislation, the American Health Choices Act. This 170-page document, however, really focuses on just two aspects of healthcare reform: 1) the creation of insurance exchanges, here called “gateways,” with an individual mandate and employer “play or pay” provisions; and 2) the creation of a new and voluntary insurance program, the Community Living Assistance Services and Supports Act (CLASS Act), which would provide assistance to individuals who become incapacitated and need to either be placed in an assisted living facility or need the help of a visiting nurse in their home.

One of the most divisive issues in the healthcare reform debate is whether a public plan would be created to compete with private plans in health insurance exchanges. The draft language for the American Health Choices Act makes passing reference to an “affordable access plan” that would be created by the HHS Secretary and that would reimburse providers at Medicare rates plus 10%. No further details on this public plan are offered. We will also have to wait to find out how Senator Kennedy intends to raise revenues in order to make his plan budget neutral. While there is broad public support for healthcare reform, it is exactly these types of details that could mobilize opposition to specific proposals for reform.