By John Reichard and Jane Norman, CQ HealthBeat

February 14, 2011 – The centerpiece of the Obama administration's fiscal 2012 budget proposal is the prevention of Medicare payment cuts to physicians, and it proposes an increase in funding for the National Institutes of Health by $745 million at a time when Republicans want to slash federal programs across the board.

The budget was good news doctors and biomedical researchers as well as for hospitals, which avoided direct Medicare cuts—contrary to speculation that their payment updates would be trimmed beyond the levels in the health care overhaul law. But it was bad news for programs that train doctors in children's medical hospitals; the White House proposed zeroing-out funding for those accounts.

The budget also would reduce funding for certain programs at the Centers for Disease Control and Prevention, and to some degree, draw money from a preventive-care trust fund created by the health care overhaul law (PL 111-148, PL 111-152). Public health advocates envisioned the fund as going entirely to pay for new programs, not to plug budget holes in existing CDC programs.

The Obama budget would take the physician payment issue off the table through the 2012 elections while preserving funding for the health care overhaul, the president's signature legislative accomplishment.

The budget says preventing cuts in 2012 and 2013 to physician payments would cost $62 billion over 10 years. About half of that total would be offset through "program integrity" provisions—targeting fraud, waste, and abuse. The remainder of the money would come partly from $10.5 billion in other Medicaid cuts and $13 billion from lower payments to pharmaceutical companies.

President Obama said in remarks at a Baltimore school that the budget proposal includes "savings to make sure doctors don't see their reimbursements slashed" and to ensure that they remain in the Medicare system.

The president's focus on doctor payments follows a House Ways and Means Committee hearing last week in which Republicans repeatedly raised concerns about physicians leaving the Medicare program. The GOP is raising the issue as millions of baby boomers begin entering the program. The Medicare Payment Advisory Commission has said that doctor participation in the program remains stable.

Republicans have talked about using provisions that fund the health care overhaul law to instead fund a permanent overhaul for the controversial "Sustained Growth Rate" (SGR) Medicare doctor payment formula, which sets physicians up for years of big payment cuts.

Obama has said he is committed to permanently fixing the payment formula, but it appears that his budget proposal only offers proposals to pay for two years of forestalling payment cuts. The budget document puts the 10-year cost of "SGR relief"—continuing to review the formula from 2014 to 2021—at $315 billion.

The budget document says the budget proposes to continue current payment levels for physicians and offset the costs with "specific health savings, and assumes sustainable growth rate relief in future years with fully offset, consistent with recent congressional action."

The proposal adds: "The administration is committed to working with the Congress to achieve permanent, fiscally responsible reform and to give physicians incentives to improve quality and efficiency, while providing them with predictable payments for the care they furnish to Medicare beneficiaries."

Finding Offsets
The "pay-fors" involved in the doc fix are many, and some are relatively small. Some $32 billion comes from expanding program integrity authority at the Centers for Medicare and Medicaid Services, including $18 billion of reductions in the Medicaid provider tax threshold starting in 2015. Another $6.2 billion would come from recovering erroneous payments made to insurers in the Medicare Advantage program. And $3.4 billion would come from tracking "high prescribers and utilizers of prescription drugs in Medicaid."

Another big category of pay-fors for the doc fix relates to pharmaceuticals. Of the $13 billion to be saved in this category, $8.8 billion would come from prohibiting brand and generic drug companies from delaying the introduction of generic drugs and $2.3 billion from "modifying the length of exclusivity to facilitate faster development of generic biologics." Another $1.7 billion would come from streamlining "pharmacy benefit contracting in the Federal Employees Health Benefit Program."

John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), wasn't happy with the budget proposals when it came to prescription drugs. "PhRMA is disappointed that the president's budget proposal would diminish crucial incentives for future U.S. medical innovations," Castellani said in a statement.

In reality, changing the exclusivity period for biotech drugs from 12 years to 7 years and ending "pay for delay" deals in which brand name companies pay generic drug makers to delay introduction of their products after receiving FDA marketing approval will be difficult to get through Congress.

Another category of savings—"other Medicaid savings"—includes realizing $6.4 billion from trimming Medicaid durable medical equipment payments and $4 billion from "rebasing" payments to "disproportionate share hospitals—"DSH" facilities that treat unusually large numbers of poor patients. Hospitals slammed Medicaid cuts in the budget proposal, suggesting they would threaten the most vulnerable patients.

A final category of pay-fors consists of "other Medicare proposals." These include savings of $3.2 billion from dedicating penalties for not adopting electronic health records to the Medicare program and $2.2 billion from efficiencies relating to contracting with Quality Improvement Organizations or "QIOs," the entities responsible for improving quality of care in Medicare.

HHS Budget Rises
The budget proposal requests $79.9 billion in discretionary budget authority for the Department of Health and Human Services, which is slightly above the actual 2010 funding level, budget documents say. That level in 2011 is projected to be $79.8 billion.

Budget documents say the request "supports administration priorities such as implementation of the Affordable Care Act, biomedical research and Head Start." Savings would come from proposed reductions in community services block grants and home energy assistance, which are provided through HHS.

The budget proposal points out "significant deficit reduction" results—$230 billion over the next decade, from passage of the health care law. And it says that the budget proposal supports new consumer protections in the law such as review of premium increases and expanded coverage for Americans with preexisting conditions.

Likely to draw opposition from advocacy groups are consolidations and eliminations of public health programs such as graduate medical education programs at children's hospitals.

The request includes $2.7 billion in budget authority and $4.4 billion in total program resources for the Food and Drug Administration, which will help cover the costs of the food safety law (PL 111-353).

Funding for the NIH would total $32 billion, compared to a total of $31.2 billion in fiscal 2010.

At the NIH, implementation of the National Center for Advancing Translational Sciences and the Cures Acceleration Network, will "increase its focus on bridging the translational divide between basic science and therapeutic applications," the budget proposal says.

The administration also seeks $765 million for advanced development of next-generation medical countermeasures against chemical, biological, radiological and nuclear threats and $655 million to ensure that medical countermeasures continue to be available from the Strategic National Stockpile during a public health emergency.

Discretionary HIV/AIDS prevention and treatment activities throughout the department would receive $3.5 billion. Included in that is $22 million for the Enhanced Comprehensive HIV Prevention program for the metropolitan areas most affected by the epidemic.

In addition, the budget proposes limiting state financing practices beginning in 2015 as recommended by a national fiscal commission, and providing $581 million to carry out activities to reduce payment error rates and ramp up criminal enforcement for all three programs.

The administration in its proposal creates a new Comprehensive Chronic Disease Prevention Program that will organize research on chronic diseases such heart disease, stroke, diabetes, cancer and arthritis.

CDC Funding Shuffle
The proposal would trim funding for the Centers for Disease Control and prevention from $6.5 billion to $5.9 billion. However, some of the funding from the $1 billion Preventive and Public Health Fund created by the health law would go to CDC programs.

"It's difficult to quantify" how much money from the trust fund would go under the proposal to plug holes in existing CDC programs, said Rich Hamburg, deputy director for Trust for America's Health, which lobbies for public health funding. "There are definitely cuts" in the CDC budget, Hamburg said. "And the cuts would be bigger if not for the preventive fund."

TFAH officials said that overall there would be an increase in chronic disease prevention programs because of the prevention fund money, but at the same time the budget would cut funding in core CDC programs.

"The cuts to public health emergency preparedness are particularly troubling," said TFAH Executive Director Jeff Levi. "These cuts could decimate the progress that has been made in the last decade, after September 11, 2001 and the anthrax attacks to better prepare the country for potential disease outbreaks and bioterrorism events. We'd be leaving Americans unnecessarily vulnerable to diseases, disasters, and bioterrorism."

The budget would trim $72 million from Public Health Emergency Preparedness grants and $35 million from Academic Centers for Public Health Preparedness and Advance Practice Centers, TFAH said. In addition, $46 million would be cut from the Hospital Preparedness Program.

Of the $1 billion in the preventive fund, $752 million would go to the CDC, but some of that would be new CDC funding. For example, $221 million would go for Community Transformation Grants, which are much praised by TFAH and would allow local communities flexibility to work in a coordinated way with multiple players at the local level to identify their own public health needs and allot dollars accordingly.

By John Reichard, CQ HealthBeat Editor

February 18, 2011 – Judging from the small number of states that have filed requests for waivers from the controversial medical loss ratio regulation issued under the health care law, one might think the rule won't disrupt insurance markets as much as some analysts have predicted.

But it would be a mistake to draw that conclusion simply based on the number of state waiver filings, a number of analysts say. And, they say, the true impact of the rule may not be clear until after the 2012 elections.

The regulation, which took effect in January, requires that insurers in the individual and small group markets pay out at least 80 percent of their premium revenues for medical care this year. In the case of large groups, the standard is 85 percent. Insurers that miss the mark must pay rebates to consumers starting in 2012.

But in issuing the rule, Department of Health and Human Services officials acknowledged that some insurers in the individual market may need more time to get their "MLRs" in compliance. And the department is accepting waiver requests from insurance commissioners who fear the standard will be too disruptive in their states.

This week, Kentucky joined Maine, Nevada, and New Hampshire in seeking a waiver from the regulation. "The proposed adjustment would create a three-year transition period during which the MLR standard remains at Kentucky's present 65 percent for 2011 and increases by 5 percent each year reaching 80 percent in 2014," Kentucky Insurance Commissioner Sharon P. Clark said in a Feb. 16 letter to HHS Secretary Kathleen Sebelius.

Families USA Executive Director Ron Pollack said that the relatively small number of waiver requests is a good sign. "It's too early to say how many states might ultimately request waivers," said Pollack, whose group has been fighting for a health overhaul for many years. "But the fact that there's been a relatively small number of states that have made these requests so far shows that the ultimate standard that is put in place should not be disruptive and that it will work in a practical way."

However, insurance industry consultant Robert Laszewski said "it's way too soon" to know how much market disruption there will be because of the rule. "I think it's very possible that we will have some carriers leaving the market as the year goes on," he said. The Jan. 1 start of the rule did not leave insurers much time to analyze whether they could stay viable under the standards of the regulation, he said.

But Laszewski added that ultimately the market impact of the rule won't be know until the U.S. Supreme Court rules on the constitutionality of the law and until after the 2012 elections. Only then will it be clear whether the rule is a matter of settled law, he said. Laszewski predicted that plans hurting on the bottom line from the rule will hold on and pay rebates if they have too in order to learn what the high court and voters in the 2012 election have to say before making a decision to quit a particular state's market.

Robert Zirkelbach, press secretary for America's Health Insurance Plans, also cautioned against drawing conclusions about market impact based on the small number of state waiver requests. He said that there is no deadline for state waiver filings and noted that insurance commissioners themselves have warned about the potential for significant market disruption from the MLR rule.

A managed care company executive who requested anonymity said insurers "are fighting battles on so many fronts." As a result, they are still sorting out how well they can operate under the rule. They also have many continuing questions about how to classify expenses under the rule, the executive said.

Timothy Jost, a Washington and Lee University law professor, predicted that there will be a number of additional states filing waiver applications. Jost noted that filing a waiver is "a pretty rigorous process." Only Maine so far has actually completed the waiver application process to the satisfaction of HHS, Jost added, with the other three facing HHS requests for additional data.

Jost also avoided drawing any conclusions about the market impact of the rule based on the number of state waiver filings. But Jost, a supporter of the health law, said he sees other indications that the rule won't be as disruptive as some analysts have predicted. Jost says he follows the insurance industry trade press and the stories he sees suggest that insurers are taking steps to adapt to the rule. And large publicly traded insurers continue to report good profits and to draw favorable reviews from Wall Street analysts, he says.

By Jane Norman, CQ HealthBeat Associate Editor

February 15, 2011 – Medicare and Medicaid's top fraud buster told a Senate panel that cuts in current year spending proposed by House Republicans would imperil the government's ability to reduce fraud, waste, and abuse in the public health programs.

Peter Budetti, director of the Center for Program Integrity at the Centers for Medicare and Medicaid Services, said that a spending reduction would be a "major impediment" for the agency. New initiatives could not be started and planned enhancements to data systems could not go forward, he said. It would force the government to fall back to a "pay and chase" mode rather than trying to prevent fraud in the first place, he said.

Senators at the Labor-HHS-Education subcommittee hearing also were intrigued by the idea of creating secure, tamper-free ID cards that could be used by Medicare beneficiaries similar to those now used by members of the military.

Sen. Mark Kirk, R-Ill., taking part in his first-ever hearing of the subcommittee, displayed one of the new ID cards issued by the Defense Department and said that they are being used by some 20 million members of the military and, to date, none have been connected to fraudulent use.

The hearing focused on fighting waste and fraud in Medicare and Medicaid, a perennial topic but one that Democratic Sen. Tom Harkin of Iowa, chairman of the subcommittee, said has never been more urgent. Spending on these programs is rising and the nation faces record deficits, Harkin said. President Obama in his 2012 fiscal year budget proposed $581 million in discretionary funds to fight health care fraud and waste.

In fiscal 2009, the subcommittee appropriated $198 million in discretionary funds for fraud prevention and enforcement and that rose to $311 million in 2010, said Harkin. If Congress had passed the omnibus spending bill, it would have risen to $471 million, he said.

"Unfortunately, House Republicans seem determined to undermine these efforts," said Harkin, and a continuing resolution for current-year spending proposed by the GOP would reduce the $471 million omnibus spending level by $160 million.

"That is penny-wise, pound-foolish budgeting," said Harkin, because cutting down on waste and fraud is said by government officials to return $7 to the government for every $1 spent.

In proposing their cuts, Republicans have said it's necessary for the government to pare back spending and it has to begin with the current year.

Budetti said the increased funding has been essential, including paying for regional fraud summits and new computer programs that can help identify complex Medicare fraud schemes. The agency also relies on senior patrols made up of beneficiaries who help identify fraud in their communities.

"Eliminating the problem requires a long-term, sustained commitment," he said.

Tony West, assistant attorney general in the civil division of the Justice Department, said that DOJ recognizes the urgency of fighting health care fraud not just because it wastes money but because it harms the programs' integrity. He said that since January 2009, the civil division, working with HHS, has recovered more than $8.5 billion in health care fraud cases, more than in any other two-year period.

But senators wondered if more accurate identification of beneficiaries might help even more. Kirk, holding up one of the military ID cards, said the Medicare card is outdated. The military "common access" cards, which Kirk said cost about $8 each, include a head shot photo, signature, computer chip and bar codes. "To my knowledge DoD has yet to find a counterfeit version of this," said Kirk. The cost of producing such cards might be offset by the benefits in reducing fraud, he said.

Budetti said CMS is open to the idea and has begun exploring it. "We are in the process of looking into exactly what you just mentioned. Over the years this has been looked at," said Budetti. "The emphasis, in my opinion, has been largely on the costs of switching over. I think it is time, as you mentioned, that we also look at what the payoff would be of doing exactly that and decide whether that is a good investment." He said the Center for Program Integrity recently launched a limited pilot study on the benefits of using card reading technology.

Kirk said that if the government already has 20 million of such cards in use for the military, it should be possible to extend the program to the more than 40 million Medicare beneficiaries. The subcommittee could fund a project on such cards or direct CMS to look into the idea, he said.

Harkin appeared interested, and pointed out Medicare cards are not even used much now other than to supply a provider with an ID number. Budetti said "this would not be a simple overnight change or an inexpensive one" but "it's definitely worth thinking about."

By John Reichard, CQ HealthBeat Editor

February 17, 2011 – Analysts say a number of states might have the right to pull the plug on some Medicaid coverage to cope with budget woes, after the Department of Health and Human Services (HHS) clarified this week that Arizona could drop 250,000 childless adults from its rolls.

A letter from HHS Secretary Kathleen Sebelius assured Arizona officials that they could drop those recipients without violating the "maintenance of effort" requirement in the health care overhaul.

But determining how many additional people might lose coverage—and in which states—is no simple matter, analysts say. Some states that could end coverage might not be inclined to do so.

The Feb. 15 letter from Sebelius to Arizona Republican Gov. Jan Brewer lists a number of steps federal officials have approved to help Arizona cope with rising Medicaid costs, including dropping dental coverage, podiatrist services, various types of lung, pancreas, kidney, and heart transplants, and limiting hospice and outpatient occupational therapy services. Those types of care are considered optional under Medicaid law.

Sebelius also noted a request by Brewer that the HHS secretary use a specific type of authority to waive compliance with Medicaid rules—Section 1115 demonstration authority—to also set aside the maintenance of effort requirement in the law (PL 111-148, PL 111-152). The "MOE" bars states from reducing eligibility for Medicaid prior to 2014, when everyone with incomes up to 133 percent of the federal poverty level will qualify for the program.

Arizona has a Section 1115 waiver under which it covers 244,000 childless adults in its Medicaid program.

"I do want to make you aware that the MOE provision in the Affordable Care Act does not require Arizona to renew its demonstration as is, beyond its expiration date of Sept. 30, 2011,'' Sebelius said in the letter. "Waivers are time-limited commitments—both for a state and for HHS—and neither the [health care law] nor Medicaid law or regulations prior to its enactment require a state to renew a demonstration beyond its expiration."

Thus Arizona can drop 244,000 people as of that date, and HHS isn't setting a precedent that it is waiving the MOE requirement under the health law.

That also means other states with waivers for expanded coverage that expire before 2014 could also end Medicaid benefits for the populations covered, including tens of thousands of additional childless adults or parents of children in Medicaid.

States covering those populations under waivers include Wisconsin, Maine, Indiana, New York and Vermont, said Judith Solomon, co-director of health policy at the Center for Budget and Policy Priories. But it's difficult to determine which states have waivers that expire before 2014, says Solomon, adding that she has asked CMS to compile a list.

"I would expect that between now and 2014 there would be waivers that expire," but "whether there is any on the horizon I don't know," said Solomon.

"There's very few that are in the same position as Arizona that are expiring and want to cut people off," said Joan Alker, co-executive director of the Center for Children and Families at Georgetown University.

Connecticut and the District of Columbia have extended Medicaid coverage to childless adults. But they did so under a provision of the health care law that permitted them to do so, not through a waiver, Alker noted.

Alker notes that Indiana and Wisconsin both have waivers that expire before 2014. Both states have outspoken Republican governors who want to trim Medicaid costs. Alker said Indiana's waiver expires in 2012 and Wisconsin's doesn't run out until late 2013, just before Medicaid eligibility must be expanded under the health law.

Other states such as New York have expanded Medicaid to cover childless adults but might not be inclined to drop them from the Medicaid program, Alker said.

By John Reichard, CQ HealthBeat Editor

February 16, 2011 – A "thoughtful and aggressive" policy to turn research findings into improved medical treatment will be critical if the nation is going to get better value for its health care dollar, according to a new paper from a broad array of health system stakeholders.

And the Patient-Centered Outcomes Research Institute (PCORI)—created by the health care law to oversee "comparative effectiveness research"—should become a "highly visible champion" for disseminating that research, says the paper from NEHI, formerly the New England Healthcare Institute.

NEHI members include AARP, the Advanced Medical Technology Association (AdvaMed), Wellpoint, the Pharmaceutical Research and Manufacturers of America (PhRMA), and the American Cancer Society-New England.

Research identifying superior methods of treatment may take years, if not decades, to bring major change to the practice of medicine. Slow adoption has remained a problem even as research on "evidence-based medicine" has grown steadily in recent years.

Now with the health care law (Pl 111-148, PL 111-152) pumping hundreds of millions of dollars into comparative effectiveness research in hopes of helping to control the growth of health care spending, "dissemination" is a growing preoccupation of mediresearchers under the gun to demonstrate a payoff from the big flow of money into their field.

"PCORI is well positioned to seize a public role in comparative effectiveness research dissemination in a way that other organizations, including the Agency for Healthcare Research and Quality, are not," the NEHI paper says.

The Agency for Healthcare Research and Quality (AHRQ) is a federal agency that conducts extensive research into various aspects of health care delivery. The agency has a major program to disseminate the findings of comparative effectiveness research but tends to adopt a low profile in that regard because of past controversies raised by medical groups disadvantaged by its conclusions.

AHRQ has come under fire over the years for promulgating "cookbook" medicine despite its strategy of simply making research findings available to the public, including insurers and provider groups.

NEHI says that "as a line agency of the government, AHRQ is less well positioned to claim a highly visible public role in promoting comparative effectiveness research dissemination when the very legitimacy of the new CER program is still disputed by opponents."

Critics of the health care law have charged that the research will be used to ration care. Defenders say it will help patients and doctors make joint decisions on the best treatments for the particular condition involved.

"As an independent nonprofit organization PCORI can operate at arm's length from government agencies and government policies. Its board of governors includes multiple interests (patients, providers, manufacturers, payers and others) and includes several with expertise in the health and health care of minority groups and small patient populations," the NEHI paper says. "Thus, PCORI is positioned to become a trusted authority on comparative effectiveness research."

NEHI emphasizes that an "expansive view" must be taken of dissemination. "New research findings rarely leap from a journal article straight into clinical practice," the paper says. "Intermediary groups" such as medical societies "typically play an enormous role in translating medical evidence and taking a position on how it should be utilized in the form of medical guidelines," it adds. PCORI should build "diverse partnerships" to spread findings, including with national medical societies and patient groups.

Dissemination considerations should also influence how PCORI shapes the design of studies. "The choice of research end points or reported outcomes may make a great difference in whether the findings prove relevant to patients," NEHI says. Typically studies look at whether patients survive, for how long, and how well, but other considerations also influence whether findings affect clinical practice. Thus studies showing how fast patients can return to work after a particular treatment or whether they will be able to care for children are also important.

The paper also says PCORI should strive to "reinforce public understanding" of comparative effectiveness research and link it to major health conditions that affect broad cross sections of the population.

PCORI's attempts to elevate its profile may spur criticism that the government is trying to meddle in health care. The institute is targeted for elimination under legislation introduced by Rep. Thaddeus McCotter, R-Mich.

But NEHI Executive Director Valerie Fleishman emphasized in an interview that PCORI "was purposefully set up not as a government agency" but as an independent group. None of its board members are affiliated with the government, she said. That arms-length relationship puts it in a strong position to allay concerns about excessive government involvement in medicine, she said.

By Dena Bunis, CQ HealthBeat Managing Editor

February 16, 2011 – Seven states that Department of Health and Human Services (HHS) officials say are leading the way in designing the information technology needed to run the health insurance exchanges created by the health overhaul law will share $241 million in "early innovator" grants.

"These states are leading the way on building a better health insurance marketplace, one that allows individuals and small-business owners to pool their purchasing power to negotiate lower rates,'' HHS officials said in a statement announcing the grants.

The states getting the grants are Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin and a consortium of New England states. The idea is for these states to use the grant money to create exchange IT models that can be adopted and tailored by other states. All of the states labeled as early innovators have committed to ensuring that whatever technology they develop can be reused and transferred to other exchanges.

"Everyone wins," Centers for Medicare and Medicaid Administrator Donald Berwick said in a statement. "This grant program means that states don't have to waste money reinventing the wheel, and consumers get the best of the best."

HHS officials say a "sophisticated, consumer-friendly IT infrastructure" will be key to the success of the exchanges which, according to the health law (PL 111-148, PL 111-152) must be up and running in 2014. States have the option of creating their own exchanges or deferring to the federal government to run them.

The state agencies receiving the grants and the amounts include: Kansas Insurance Department, $31.5 million; Maryland Department of Health and Mental Hygiene, $6.2 million; University of Massachusetts Medical School for the New England consortium, $35.6 million; New York Department of Health, $27.4 million; Oklahoma Health Care Authority, $54.6 million; Oregon Health Authority, $48.1 million, and the Wisconsin Department of Health Services, $37.8 million.

The money for these seven states are getting is substantially more than the $1 million planning grants states received at the beginning of the implementation process.

"This is one of the more costly aspects of setting up an exchange,'' Paul Dioguardi, HHS director of intergovernmental affairs, said during a conference call with reporters. Dioguardi said they want these IT systems for the exchanges to be "first class" and when the work is complete there will be seven off-the-shelf systems that other states can use without having to spend the kind of development money that these grants will fund.

The announcement of the grants is being made even as Republican lawmakers in the House are trying to pare down federal spending for this year. But the money for these grants was authorized and made part of mandatory appropriations so are not subject to any congressional actions now being taken on federal spending.

Governors in three of the states that received the awards–Kansas, Wisconsin, and Oklahoma–signed on to a recent letter from GOP governors to Sebelius calling on HHS to be more flexible in a number of areas of implementation of the health law, including exchanges and Medicaid maintenance of effort.

Dioguardi said funding these approaches in these different states is an example of HHS being flexible when it comes to the development of the exchanges.