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April 21, 2008

Washington Health Policy Week in Review Archive af37cce1-e0d5-458e-9863-159b175f5f23

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Administration Out of Bounds in Curbing Children's Health Plan Enrollment, GAO Says

By Drew Armstrong, CQ Staff

April 18, 2008 -- A new report by Congress's watchdog agency says the Bush administration overstepped its authority with a Aug. 17 letter meant to limit enrollment of children in the State Children's Health Insurance Program (SCHIP).

But Jeff Nelligan, a spokesman for the Centers for Medicare and Medicaid Services, said the Government Accountability Office (GAO) opinion would have no effect on the administration's position. "GAO's opinion does not change the department's conclusion that the [Aug. 17] letter is still in effect," Nelligan said via e-mail.

Congress last year twice passed bills to expand the SCHIP program to cover more children. But the measures (HR 976, HR 3963) were vetoed by President Bush and attempts at overrides failed.

According to the GAO legal opinion, issued Friday, the administration letter amounted to a "rule" because it was meant to implement or interpret law. As such, GAO said, it should have been put through the formal rule-making process, which includes submission to Congress and a public comment period. Since it was not, however, the GAO opinion argues that the letter is invalid.

The 2007 letter said if states wanted to expand eligibility for the SCHIP program to children in families with incomes more than 250 percent of the federal poverty level, they would have to prove that 95 percent of eligible children from families earning less than 200 percent of the poverty level were already enrolled in SCHIP or Medicaid. At the time, 17 states had expanded or were attempting to expand their SCHIP eligibility levels, and would have drawn on increased federal funds to do so.

Many states argued administration standards were impossible to meet, saying the 95 percent participation requirement was too high, since some children and families would not enroll or simply could not be located. But since then, CMS says, at least nine of the 17 states affected by the letter will eventually be in compliance with the requirements.

Sen. John D. Rockefeller IV, D-W.Va., who had asked for the GAO report, called on the administration to pull back the letter. "The directive is a bold-faced attempt to subvert the law and prevent states from implementing their plans to provide health insurance coverage to millions of uninsured children nationwide," Rockefeller said in a statement.

Other supporters of expanding SCHIP hailed the opinion, as well. "CHIP supporters knew that [the Centers for Medicare and Medicaid services] had overstepped its bounds by trying to tie states' hands when it came to covering kids in need, and now the GAO has issued a firm legal opinion saying the same," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.

Several states have sued the federal government to stop the implementation of the letter's requirements. Nelligan said CMS would not comment further on the GAO opinion, because of the lawsuits.

While the GAO opinion will not have a binding legal effect, an aide to Rockefeller said states could use it to bolster their case against the federal government in suing to stop its implementation. "The anticipation is that the states will now have a much stronger hand when they go to court," said the aide.

An aide to Baucus said the GAO opinion elevated the argument to a legal battle, not a political one. "Chairman Baucus expects CMS and this administration to recognize the significance of the GAO legal opinion and act accordingly," said the aide.

If the administration voluntarily pulls back the letter, it could resubmit the directive as a formal rule. Such a process would have much deeper precedent for enforcement. It could, however, lead to a battle with Congress, which could use legislative procedures to stop implementation. "Clearly, we're not at that stage yet," said the Rockefeller aide.

John Reichard contributed to this report.

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Bill to Block Cost-Cutting Medicaid Changes Advances Despite Veto Threat

By Drew Armstrong

April 17, 2008 -- A House panel's approval of a bill to block several cost-cutting administration Medicaid regulations has taken Congress one step closer to a veto showdown that Democrats might win.

The House Energy and Commerce Committee approved the bill (HR 5613) by a vote of 46–0. A manager's amendment by Chairman John D. Dingell, D-Mich., was approved by voice vote.

During a break in the markup, ranking Republican Joe L. Barton of Texas said he did not think Republicans would vote to sustain the veto threatened by the administration. "I don't think the veto threat was appropriate, and I don't think it will be successful if vetoed, because the votes simply aren't there," Barton said.

The wild card could be the Senate. There are likely enough votes in the upper chamber to pass the bill, but if Republicans stand firm they could sustain a Bush veto.

The threat was delivered via a letter on Tuesday from Health and Human Services Secretary Michael O. Leavitt.

The bill, sponsored by Dingell, would block seven rules proposed by the administration. All are designed to cut back on federal Medicaid payments to the states, which the administration argues are using current rules to maximize payments.

On April 9, the panel's Health Subcommittee approved the bill by voice vote after Democrats agreed to add language clarifying that it would not prevent the administration from issuing other Medicaid regulations, and providing $25 million per year to fight fraud and abuse in the program.

But Leavitt wrote that the changes do not alter the administration's opposition.

House Republicans, meanwhile, have backed the measure, which would keep Medicaid dollars flowing to the states.

Grassley's Criticism
In the Senate, Charles E. Grassley, R-Iowa, took to the floor Wednesday to criticize Dingell's bill. "We ought to let them move forward instead of just delaying all of these Medicaid regulations all at once," Grassley said.

If Grassley can mobilize enough Republicans, he might be successful in at least backing up a veto of the bill. Dingell made no prediction about the outcome.

"I can't tell you what's going to happen in the Senate. The place is full of unexpected surprises," Dingell said. "I hope the president will take a look at the vote we're going to get on this matter and decide maybe a veto is unwise."

Barton had asked the administration not to send the veto threat letter. He was among 20 Republicans who voted to report the bill out of committee.

The administration proposed the rules last year in an attempt to prevent the states from engaging in certain practices, such as billing the program for transporting Medicaid-eligible children to school or helping patients find jobs or housing, as part of "case management."

With several of the regulations set to go into effect on May 25, Dingell said he wants to get the bill to the floor as quickly as possible. Because of the fast timetable, some members see the bill as an opportunity to attach amendments on slightly related concerns and issues. Dingell did his best to fend them off at the markup, offering to meet with members to discuss what changes might make it into the measure.

Dingell said later that he wants to keep the bill free of provisions that might imperil a veto-proof margin.

One amendment by Rep. Nathan Deal, R-Ga., would have raised the minimum Medicaid payments to pharmacists for dispensing drugs. It was defeated, 15–26.

Another, offered by Reps. Eliot L. Engel, D-N.Y., Hilda L. Solis, D-Calif., and Vito J. Fossella, R-N.Y., would preserve a Medicaid program that helps families look after particularly frail seniors during the day, rather than sending them to nursing homes. It was withdrawn, as was an amendment by Rep. Michael C. Burgess, R-Texas, that would stop an upcoming cut to Medicare physician payment rates.

Dingell's Tweaks
Dingell's manager's amendment made several changes. One would alter how a program to electronically verify the assets of Medicaid enrollees would be implemented, phasing in the program. The asset verification program would pay for the bill's $1.65 billion cost.

Governors say the administration's new Medicaid rules would unfairly shift costs for the services to the states, forcing them to either spend more money on Medicaid or eliminate services. The bill would postpone the regulations until April 2009, when a new president will be in office.

Medicaid is a joint state–federal program for the poor in which the federal government pays 57 percent of the costs—an estimated $204 billion in fiscal 2008. There has long been tension between states and the federal government over who should bear more of the burden for the program.

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From the CQ Newsroom: House Panel Starts to 'Lay the Groundwork' for Health Care Overhaul

By Alex Wayne

April 15, 2008 -- Uninsured and under-insured people by the millions are racking up huge medical bills or forgoing life-saving care in a broken health system, health experts said at a hearing Tuesday.

The hearing, by the Ways and Means Subcommittee on Health, was intended to "lay the groundwork" for an expected attempt next year to overhaul the health insurance system, said panel Chairman Pete Stark, D-Calif. Congress has not seriously discussed a broad health care overhaul since the ill-fated Clinton administration health plan of 1993.

"It's time to revisit it," Stark said.

Health care is an oft-mentioned topic on the presidential campaign trail this year. An estimated 47 Americans are uninsured, and millions more are under-insured, meaning that their coverage isn't sufficient to cover catastrophic problems like cancer. Both Democratic presidential candidates—Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York—have produced detailed health overhaul plans. Republican Sen. John McCain of Arizona has not produced his own detailed plan but says he will work to reduce health care costs.

Stark says he supports including an individual mandate in any universal coverage plan.

"I don't see how it can be done without a mandate," he said. But he said he does not necessarily prefer Clinton's health plan—which includes a mandate—over Obama's, which does not.

Experts at Stark's hearing said Congress could start to nibble at the problem now by doing things like changing the way the nation pays for long-term care and allowing health workers to cross state lines to volunteer at free clinics.

Most people now pay for long-term care, whether at home or in nursing homes, in one of two ways: out of their own pockets, or by impoverishing themselves and qualifying for Medicaid, the health entitlement for the poor. While private long-term care insurance is available, it is costly and not widely used. Former Sen. Dave Durenberger, R-Minn (1977–1994), who was until recently a member of the Medicare Payment Advisory Commission, told the subcommittee that creating a combination public- and private-insurance program to cover long-term care would be a first step toward an "income security policy" for the nation.

He also said he did not believe states would be able to achieve universal health insurance coverage on their own without federal direction. Massachusetts is trying to implement a state-level universal coverage program, and other states—notably California—have discussed the idea.

Other experts told rending stories of uninsured and under-insured people struggling to pay health bills. Stephen Finan, associate director of policy for the American Cancer Society, told the subcommittee that the society "had to enter the broader national debate about access to care" because of repeated stories about cancer patients going broke fighting their disease, or forgoing treatment because they couldn't afford it.

"Please think about this for a moment: These are people who have stopped treatment for a deadly disease because they cannot afford to pay," he told the subcommittee.

The subcommittee also watched a "60 Minutes" segment about the Remote Area Medical (RAM) Volunteer Corp, which organizes free health clinics in rural areas, focusing on dental and vision care, that attract thousands of uninsured patients. RAM founder Stan Brock suggested that Congress should pass a law allowing health workers to volunteer their services outside their own states, and protect volunteers from "frivolous" malpractice lawsuits.

Tennessee, where RAM is based, has passed a state law allowing health workers from other states to volunteer there, Brock said.

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High Deductible Plans--Poor Fit for the Uninsured?

By John Reichard, CQ HealthBeat Editor

April 15, 2008 -- The high-deductible plans sold in conjunction with health savings accounts charge relatively low premiums, prompting some Republicans to pitch them as a good solution for the uninsured. But a study released Tuesday by the Kaiser Family Foundation says the uninsured often have too few assets to pay the costs of those high deductibles when illness strikes.

Even if the relatively low premiums charged for the plans are made even more attractive through federal subsidies, "many uninsured households do not have a sufficient financial cushion to absorb the potential out-of-pocket liability that can arise under these policies," said the authors of the study, Kaiser Family Foundation researchers Paul D. Jacobs and Gary Claxton.

"The study is flawed in a number of ways," commented Grace-Marie Turner. president of the Galen Institute, an Alexandria, Va.–based conservative think tank.

Health savings accounts, or HSAs, have won a strong following among Republicans because of their emphasis on promoting greater individual responsibility for financing health care costs and the incentives the accounts provide to make individuals more sensitive to the costs of care. If people are spending more of their own money for care, they'll be more sensitive to its price, HSA backers say. That in turn means providers will be more careful about what prices they charge, and that the health care market will function more like other markets do to keep costs down, they add.

Money that individuals or employers put into HSAs accumulate tax-free and can be withdrawn tax-free if used for medical purposes. Health plans sold in conjunction with the accounts have high deductibles—as high as several thousand dollars—to keep premiums lower and to make individuals more responsive to the costs of care.

The plans have proved attractive to some individual entrepreneurs and small business owners, among others, and their supporters say they'd be an attractive option for the low-income uninsured if their premium payments could be lowered through tax breaks. Both President Bush and former Massachusetts Gov. Mitt Romney have pitched proposals to subsidize premium costs, the study's authors noted.

But only one-third of households with at least two uninsured members had gross financial assets of at least $2,000, the smallest deductible available for a family health plan eligible to sold with HSAs in 2004, the study found.

The study, posted Tuesday on the Web site of the policy journal Health Affairs, found a persistently large asset gap between uninsured and insured families, even at lower income levels. In looking at people with incomes below 300 percent of the federal poverty level, the Kaiser researchers found that those with health coverage had median assets of $800 while those without coverage averaged $300.

The authors conceded that having coverage would greatly reduce the out-of-pocket financial exposure of families compared with staying uninsured. But paying the premiums involved may not seem like a wise use of limited funds to a family that would still face unaffordable medical bills if it purchased the high-deductible plans, the researchers said.

"Looking only at the size of the deductible distorts the full picture," said Turner. "If people have the choice of spending $8,000 for a comprehensive plan or $3,000 for a high-deductible plan, the premium savings need to be factored in when considering their full out-of-pocket costs."

She added that "the authors acknowledge that many employers help to fund the HSA ... in order to offset the deductible, reducing their employees' out-of-pocket exposure."

"People may decide to purchase a higher-deductible health insurance policy in order to buy a policy they can afford," Turner said. "They generally will not face the full deductible every year. But in the event of an illness or accident, they would have insurance coverage to protect them so they would not face medical bills that could run into the tens or even hundreds of thousands of dollars and could quickly bankrupt them. That is what insurance is for.

"Those with low incomes likely will need additional help in paying routine bills," she added, "but putting both problems in the same basket distorts the policy question and discourages people from fully considering all of their options."

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Medicare Tightens Link Between Hospital Payment and Quality

By John Reichard, CQ HealthBeat Editor

April 14, 2008 – The Centers for Medicare and Medicaid Services (CMS) announced a proposed regulation Monday that steps up demands on hospitals for data on the quality of their inpatient care and stiffens financial penalties for facilities found to be sloppy in their treatment practices.

"Medicare can and should take the lead in encouraging hospitals to improve the safety and quality of care and make better practices a routine part of the care they provide, not just to people with Medicare, but to every patient they treat," said acting CMS Administrator Kerry Weems in a news release announcing the regulation.

The provisions on quality of care are part of a proposal that would in effect boost fiscal 2009 inpatient payment rates by 2.3 percent for many facilities starting Oct. 1, the start of the fiscal year.

The proposal presumes a 3 percent increase in fiscal 2009 in the "market basket" of goods and services used to set payments. However, the proposal subtracts 0.9 of a percentage point because of assumed mistakes hospitals will make—in their favor—in classifying patients for payment purposes in a new system meant to tie payment more closely to the severity of a patient's illness or injury.

That leaves the proposed increase at 2.1 percentage points; other technical adjustments boost the increase to 2.3 percentage points. However, if a hospital fails to report data on 30 different quality measures in fiscal 2008, the fiscal 2009 increase drops by 2 percentage points. Thus the 2.3 percent hike would turn into an 0.3 percent hike. Few hospitals will fail to report the quality data, however.

The new proposal ups the ante for fiscal 2010. To get the full inflation update that year, hospitals would have to report data on 73 measures, a total the hospital industry says is unreasonable. Failure to report on all measures would mean a loss of 2 percentage points in any payment hike.

Among the proposed new quality measures are those assessing the degree to which a facility readmits patients, viewed by policy analysts as a sign of substandard care. The Medicare Payment Advisory Commission (MedPAC) recommended last week that facilities with relatively high readmission rates get lower payments. The proposal announced Monday would tie payment not to actual readmission rates, but to reporting data on those rates. Thus, those with relatively high rates would be off the hook for fiscal 2009 anyway.

The proposal also affects payments for patients who get infections or suffer from other medical conditions acquired in the hospital. Hospitals currently get paid for treating those conditions for which their substandard care is to blame. But starting Oct. 1, that won't be true for eight conditions, such as bedsores and objects left in the patient's body after surgery. CMS is proposing to add nine more such conditions, including surgical site infections and "extreme blood sugar derangement."

Don May, vice president of policy at the American Hospital Association, said "the additional 43 measures goes way beyond a reasonable increase for 2010." A number of those measures haven't been vetted by the standard consensus-building process used to implement previous measures, he said. May added that CMS may not be equipped to handle all of the data involved. He added that AHA has many questions about how the agency would go about assessing relatively high readmission rates were it to eventually follow the MedPAC recommendation.

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Tax Bill Spurs Health Savings Account Battle

By Richard Rubin, CQ Staff

April 14, 2008 -- The House's routine April 15 tax bill (HR 5719) has become the setting for a fight over health savings accounts.

Democrats, seeking a revenue-raising offset and pointing to HSA money spent at escort services and casinos, want to require individuals to prove that their tax-free withdrawals from the accounts are being used for medical purposes. Such reporting tends to improve tax compliance, and non-medical expenditures are taxed.

Republicans and companies that benefit from the accounts are fighting back, arguing against a rush to judgment and warning about the consequences for the roughly 7 million people with HSAs.

The White House issued a veto threat late Monday, singling out the provision among its reasons.

Even the company that brought potential non-medical spending to the Ways and Means Committee's attention declared its opposition to the bill April 11.

"The committee bill just goes too far too fast at this point," said Robert Patricelli, CEO of Evolution Benefits, based in Avon, Conn. "Our data may indeed have started all of this, but it was intended to be something to mitigate a risk to the program, which, frankly, we still see."

Evolution's opposition was merely an effort to contain the blowback from the company's business partners, said Dan Perrin, president of the HSA Coalition, a group that includes doctors, dentists, banks, and insurance companies. It is preparing for more intense lobbying.

"The HSA community is like a wagon train that's used to circling its wagons," Perrin said. "And that's something we do pretty well, and I would be shocked if every single person with an HSA didn't know about this sometime in the next six weeks."

Health savings accounts are a tax-advantaged option available to people who have a high-deductible health insurance plan. HSA users can set aside tax-deductible money and invest it, then pay no taxes if they use the money for medical purposes.

Users of flexible spending arrangements (FSAs), which are similar to HSAs, are already familiar with having to prove they used the money for health reasons. Evolution Benefits has a patent on point-of-sale technology that rejects FSA cards if individuals use them for non-medical items.

But FSAs and HSAs are different and should be treated differently, industry officials argue. The flexible arrangements are owned by employers, and any unused money goes to the employer. HSAs, in contrast, belong to the taxpayer, and unused money remains in the account.

Requiring Proof
The provision in question would require substantiation or proof that distributions from HSAs after Dec. 31, 2010, are made for medical reasons. Non-medical withdrawals are permitted, but, as under current law, they are taxed as income and assessed a 10 percent penalty.

The Joint Committee on Taxation estimates that the provision would raise $308 million over 10 years, in part because more people would pay the penalty and in part because fewer people would use HSAs to defer or avoid taxes.

It's unclear how often HSA owners use their money for non-medical purposes without paying the 10 percent penalty. During last week's committee markup, Treasury benefits tax counsel Tom Reeder testified that 8.4 percent of HSA owners listed at least some of their distributions as taxable income.

Patricelli said Evolution's internal data show that 23 percent of HSA transactions and 12 percent of HSA funds are spent at non-medical providers. But that doesn't mean they are spent on non-medical purchases. Grocery stores often have pharmacies, for example, and gasoline purchases for travel to the doctor's office are medical expenses.

In a bill markup last week, Republican Paul D. Ryan of Wisconsin offered an amendment to strike the HSA provision. It failed, 15–24, with Jon Porter, R-Nev., joining all Democrats who were present on the "no" side.

A statement of administration policy from the White House Office of Management and Budget said the reporting requirement was "unnecessary for efficient tax administration, inconsistent with the flexibility purposely afforded HSAs at their inception, and could undermine efforts by employers, individuals, and insurers to reduce health care costs and improve health outcomes by empowering consumers to take greater control of health care decision-making."

The veto threat also took aim at another contentious provision in the bill, which would prohibit the IRS from using private debt collectors to pursue tax delinquents. Democrats and the union representing IRS employees criticized the program, pointing to declining revenue estimates and suggesting that additional IRS employees would generate more money.

Republicans emphasized the safeguards in the program and noted that IRS officials use the program to go after accounts they would not otherwise pursue.

"Terminating this program would result in a loss of $578 million in revenue over the next ten years, according to Congress' Joint Committee on Taxation," the administration statement said.

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