By Jane Norman, CQ HealthBeat Associate Editor

March 12, 2010 -- The health care overhaul could well be a bitter pill to swallow for members of Congress who support a popular remedy they've promised voters for years — giving Medicare the power to wheel and deal on prices for prescription drugs.

House Democrats' demand that the secretary of Health and Human Services be allowed to negotiate with drug companies as part of the overhaul ran head-long into an agreement the White House had struck with the pharmaceutical industry. Under that deal, drugmakers would agree to give Medicare breaks on drug prices, up to $80 billion, during the next 10 years. That would in turn help provide Medicare drug coverage in what is known as the "doughnut hole," a gap in which seniors must pay 100 percent of their drug costs. Drug companies weren't about to agree to the negotiating authority on top of the $80 billion.

Drug negotiation for Medicare's 40 million beneficiaries was in the House-passed health care bill (HR 3962), but removed during initial talks on a combined House-Senate measure. President Obama didn't mention it in his overhaul proposal.

Now advocates in the House want negotiation included as the overhaul nears its last frenzied days of action. If they fail there, they are expected to seek a standalone bill, especially if a comprehensive overhaul is defeated and lawmakers want narrower measures that could still symbolize progress on health care — and appeal to seniors at the polls.

Proponents of the bill, such as John Rother, executive vice president of policy and strategy for AARP, say significant savings could be obtained through negotiation.

Even if the overhaul is adopted, supporters argue that a standalone measure should be approved because it would be years before many of the larger bill's provisions take effect — and seniors need help with prescription drug costs sooner. AARP reported in October that prescription costs rose by 9.3 percent in one year, despite a 0.3 percent reduction in the Consumer Price Index.

A Ban on Negotiating
Ever since the Medicare prescription drug Part D law was enacted in 2003, its ban on bargaining authority has rankled Democrats. When the party took control of Congress in 2007, the House quickly approved bipartisan legislation to repeal the ban — though the bill died under threat of a presidential veto and amid opposition in the Senate.

Now, some question why it's been stripped from what's supposed to be their crowning achievement in health care. The lack of negotiating authority is a "huge deficiency" in the overhaul, said Rep. Peter Welch, the Vermont Democrat who's the chief sponsor of the primary stand-alone bill (HR 4752). It has more than 70 co-sponsors, including a Republican, Jo Ann Emerson of Missouri.

"There's no meritorious argument against it, only a political argument against it," said Welch, adding that it could affect his vote for the overhaul. "And that political argument, of course, is that the pharma companies will be 'upset,' and I'm not sure that's a sound basis for public policy."

However, there are other arguments — namely that it won't work. The Congressional Budget Office, analyzing a similar bill in 2007, told the House Ways and Means Committee that there would be a "negligible" effect on spending because the secretary wouldn't be able to negotiate prices across the broad range of drugs that are more favorable than those already obtained by drug plans under current law.

Yet Welch pointed to disparities between the price of drugs paid by the Veterans Administration, which does have negotiating authority, and prices paid by Medicare.

"We are the biggest purchaser of drugs, we the taxpayers, yet we pay retail when we buy wholesale," Welch said. "I mean, you can't make that up."

Ken Johnson, senior vice president at PhRMA, said negotiations between drugmakers and Part D plan sponsors generate significant savings. "What's more, many experts contend that the only way the government could effectively negotiate lower costs is to limit access," Johnson said.

Another skeptic is Dan Mendelson, a consultant who oversaw health budgets in the Clinton administration. CBO won't score the bill for savings, and Democrats aren't going to poke the drug industry in the eye, he said. Any plus? "It sounds good to consumers who are facing high drug costs," Mendelson said.

Public opinion is important, though, and polls have found broad support for negotiating authority. Vicki Gottlich, a lawyer for the Center for Medicare Advocacy, a nonprofit group that supports the legislation, said seniors frequently ask her about it.

Yet she's not optimistic about this year, but said she thinks lawmakers will be forced to continue to examine the burgeoning Medicare program for savings, especially as prescription drug prices continue to rise.

"I don't think it's going away," Gottlich said.

By Jane Norman, CQ HealthBeat Associate Editor

March 10, 2010 -- A New York health insurance company has been kicked out of the Medicare Part D prescription drug program after the government determined the insurer wasn't meeting Medicare requirements for beneficiaries. CMS officials said it is the first time a company has been terminated from the Part D program since its inception.

Fox Insurance Co., which was suspended from enrolling new members on Feb. 26, now has had its contract terminated, the Centers for Medicare and Medicaid Services announced on Tuesday. A CMS statement said that an onsite review of the company by federal officials found violations including imposition of unapproved prior authorization of prescriptions, a failure to meet the plan's appeals deadlines and a failure to comply with regulations requiring that enrollees be transitioned to new drugs at the beginning of the new plan year.

Brenda J. Tranchida, director of the Program Compliance and Oversight Group at CMS, said in a letter to Fox that "CMS is imposing these intermediate sanctions immediately because it has determined that Fox's conduct poses a serious threat to the health and safety of Medicare beneficiaries." The letter was sent to Kary Shankar, CEO and senior official for contracting at Fox.

More than 123,000 beneficiaries were enrolled in Fox plans in Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Louisiana, Maryland, Missouri, North Carolina, New Jersey, New York, Nevada, Ohio, Pennsylvania, South Carolina, Texas and West Virginia.

Jonathan Blum, acting director of the Center for Drug and Health Plan Choices at CMS, said those enrolled in Fox will be sent letters explaining how they can continue to receive their prescriptions. Beginning Wednesday, beneficiaries will receive their prescriptions through LI-NET, which is run by Medicare and administered by Humana. Those enrolled in Fox plans will be able to choose a new plan through May 1 and those who don't choose a new plan will be enrolled by Medicare.

A Fox spokesman, Jules Abraham, said that Fox is working closely with attorneys and with CMS to "resolve the situation as soon as possible." Abraham said Fox anticipates mounting an appeal of the contract termination.

By John Reichard, CQ HealthBeat Editor

March 12, 2010 -- It may not spark spinoffs of the popular reality TV show "Dog the Bounty Hunter," but the Obama administration this week announced an expanded effort to fight fraud by paying contractors a percentage of improper federal payments.

The program builds on the "RAC" (Recovery Audit Contractor) program that once sparked complaints on Capitol Hill about the way contractors were going after provider claims, but the Centers for Medicare and Medicaid Services has made changes in the program since it began. It has gone from being a demonstration program in three states to going national last October.

President Obama said in a speech Wednesday in St. Charles, Mo., that the federal government makes an estimated $100 billion in improper payments and called for a far wider effort to audit payments.

Obama signed a presidential memorandum Wednesday that directs all federal departments and agencies to increase their use of "payment recapture audits," which "offer specialized private auditors financial incentives to root out improper payments, and have been demonstrated through pilot programs to be highly effective," the White House said in a news release.

In 2009, improper payments totaled $98 billion, with $54 billion stemming from Medicare and Medicaid, according to the release.

The program run by Medicare in California, New York and Texas from 2005 to 2008 recaptured $900 million for taxpayers, the announcement noted.

Obama said in his speech that "through this effort, we expect to more than double the amounts we would've otherwise recovered — a couple of billion dollars over the next few years."

The president also announced his support for a bipartisan measure (HR 3393, S 1508) that would expand the ability of government agencies to fund these specialized audits with recaptured payments. The ability to use those funds now is limited, the White House said.

Although a national program to use the technique in the traditional Medicare program was launched last fall, it's still at a stage where providers are being educated about the program and actual audits haven't begun. As part of this week's announcement, "the administration is pushing for faster deployment of audits of the Medicare claims," a CMS spokesman said.

In July 2008, leading House Democrats called on government auditors to review the RAC program. Lawmakers raised concern about the qualifications of those identifying faulty claims and whether claims reviews were inconsistent with Medicare policies. CMS said it learned lessons including hiring an independent contractor to review the determinations of RAC contractors, requiring reach RAC to hire a medical director and educating providers about the RAC program and appropriate billing.

By Edward Epstein, CQ Staff

March 12, 2010 -- Speaker Nancy Pelosi has outlined provisions of a health care "corrections" bill that she hopes the House will pass next week, setting the stage for final congressional action on Democrats' health overhaul.

Pelosi said Friday that the measure — drafted to make changes to the Senate-passed health bill (HR 3590) — will do away with controversial provisions such as the "Cornhusker kickback," which would have given only Nebraska financial relief on Medicaid costs.

It also will speed up the closing of a gap in Medicare's prescription drug benefit, she said. Medicare stops contributing to the cost of seniors' medicines after they have spent $2,830 a year, and does not resume cost-sharing until expenditures hit $4,550.

The new bill, to be considered under budget reconciliation rules, would limit the so-called tax on "Cadillac health care plans" in ways Pelosi did not specify and instead raise another tax she did not identify.

Labor unions, a key Democratic constituency, had bitterly opposed the new tax on health care policies since their members tend to have the most generous employer-paid insurance coverage.

The changes to the Senate bill largely follow the outline issued by President Obama on Feb. 22 as he encouraged Congress to finish work on the stalled health overhaul. On Friday, the White House increased pressure on Congress to act quickly by announcing that Obama will delay his scheduled departure for a trip to Indonesia and Australia from March 18 to March 21.

House Majority Leader Steny H. Hoyer, D-Md., told members Friday to be prepared for votes next weekend.

To finish its work on health care legislation, the House must pass the Senate bill as well as the new measure, which is intended to address concerns of various blocs of House members.

House Democrats plan to take the package to the Budget Committee on Monday, a step required under House procedures. The Rules Committee could receive the bill as early as March 17, which would clear the way for a House vote as early as March 18.

Liberal groups are lobbying Congress to include a public insurance option in the final package. It's an idea long championed by Pelosi. It was included when the House passed its health bill (HR 3962) last November but didn't make it into the Senate bill.

That measure needed 60 votes for passage, but the "corrections" bill will be considered under different circumstances. Budget reconciliation rules require only a simple majority for passage, so supporters of a public option see an opportunity to put such a provision in the corrections bill.

Pelosi said it won't happen because the proposal does not appear to have the necessary support in the Senate, even though it would need 50 votes instead of 60 this time.

"I'm quite sad the public option isn't in there," she said. "It isn't in there because they don't have the votes to have it in there or they would have had in there."

"What we will have in the reconciliation is package is something that's been agree upon, House and Senate, that we can pass. I'm not having the Senate, which didn't have a public option, put that on the House.

On the House floor Friday, GOP Whip Eric Cantor, R-Va., pressed Hoyer for a commitment that the reconciliation bill will be available to members and on-line for at least 72 hours before the House votes.

Hoyer wouldn't be that specific. "We hope to have as much notice of that piece of legislation as possible," he said.

But he noted that the Senate bill, which will remain largely unchanged, has been available since December.

Senate Minority Leader Mitch McConnell, R-Ky., charged that Democrats were "twisting themselves into pretzels" trying to pass a health care overhaul that, he said, is unpopular with the public.

"What we have here is Democrats versus their own constituents," McConnell, R-Ky., told reporters during a Friday conference call.

Asked if Democrat would be able to complete work on comprehensive health care legislation before Congress takes a two-week break beginning March 26, McConnell responded, "No one knows."

"We're waiting to see if House Democrats are willing to stiff the public and pass this bill," McConnell added.

By Rebecca Adams, CQ Staff

March 10, 2010 -- Democratic leaders are down to "five to 10 substantive issues" on health care overhaul legislation, and most of them involve the measure's price tag, House Ways and Means Chairman Sander M. Levin said Wednesday.

Levin said House Democrats are waiting for Congressional Budget Office (CBO) cost estimates of some potential provisions in a budget reconciliation bill that would make agreed-upon changes to Senate-passed health care legislation (HR 3590).

The CBO scores will help members decide whether they need to revise provisions that would pay for the more generous subsidies and other expansions their proposal would offer. "Clearly we're looking at the Medicare tax," Levin, D-Mich., said. "Would that need to be increased? Depends on what the score is."

President Obama's Feb. 22 blueprint called for raising the Medicare payroll tax on individuals who earn more than $200,000 or married couples with incomes above $250,000. It would increase the tax on earned income, such as salaries, by 0.9 percent and add a tax of 2.9 percent on unearned income such as interest, dividends and capital gains.

But that tax may need to increase further if lawmakers adjust other parts of the legislation in ways that prove more costly than anticipated. Levin and others have sought to increase the federal subsidies that would make health care coverage more affordable to individuals without employer-provided insurance.

House leaders are also considering changes involving "responsibility," he said, apparently referring to provisions that would fine employers who refuse to provide health coverage if their workers then get federal subsidies to buy insurance on their own, as well as to mandates requiring individuals to buy insurance or face fines.

Some lawmakers are concerned that some of the offsets slated to pay for health care are being recycled from legislation intended to create jobs. One example is a provision that would save money by changing the Medicare improvement fund, an account created in 2008 that allows the Department of Health and Human Services to increase hospital and outpatient Medicare benefits. Another duplicative offset would prevent "black liquor," a byproduct of the paper manufacturing process, from being eligible for the cellulosic biofuels producer tax credit.

Democratic leaders involved in health care talks said that they hoped to get CBO estimates in time for a meeting Wednesday night of key players from both chambers.

House Speaker Nancy J. Pelosi, D-Calif., said in a brief interview that she did not know when the CBO estimates would be ready, noting that it is an independent agency.

When asked who she was meeting with Wednesday, Pelosi smiled and said, "Everyone."

Pelosi later said that lawmakers were focusing on items that CBO won't have to score. "We are meeting on an ongoing basis to discuss non-CBO issues," she said. Presumably, that list would include the thorny matter of abortion language that could prompt a small but vital group of Democrats to bolt if their demands are not met.

Pelosi said the CBO scores are coming along. "Much of it is being resolved because we need a solution. We have no more time to do it. The time is here," Pelosi said.

Edward Epstein contributed to this story.

By Jane Norman, CQ HealthBeat Associate Editor

March 10, 2010 -- Health and Human Services Secretary Kathleen Sebelius, at a health insurance industry meeting on Wednesday, pressed insurers to "give up some short-term profits" for the good of the country and assist congressional Democrats struggling to move toward votes on a health care overhaul measure.

Sebelius, President Obama and other administration officials seeking to build public support for the overhaul have repeatedly attacked the health insurance industry for proposed double-digit premium increases in the individual market, such as a 39 percent hike proposed by Anthem Blue Cross Blue Shield for its California customers. Insurers defend the premium increases as the product of skyrocketing medical costs they can't control, and they've strongly objected to what they contend is a vilification of their business.

At the policy conference organized by America's Health Insurance Plans (AHIP), a main industry group, Sebelius defended the attacks and said it's up to insurers to begin to shoulder responsibility for changing the system. "I am certainly not here to vilify hard-working employees of insurance companies across the country or blame insurance companies for all the problems in our health insurance system," she said.

But she laid out two paths for insurers: They can support the status quo, which she said is unsustainable, or align with Democrats to change the system. Families and business owners must have more control over what happens with their insurance, she said.

"So there's a choice on the table. You continue the opposition to reform," said Sebelius. "If you do and reform fails . . . by next March, when you're meeting again, premiums will take even a bigger bite out of Americans' wages, your market will shrink even further, more Americans will lose their employer-sponsored insurance and we will have a situation where the market is unsustainable."

Small businesses will be forced to cancel coverage or not hire new employees, parents of children with pre-existing conditions will be shut out of the market or terrified of losing their jobs, and Americans will continue to dread opening their premium statements, said Sebelius.

"That strategy may work in the short run," said Sebelius, citing a recent Goldman Sachs investor call in which it was advised that insurance companies' rate increases can compensate for lost business even if the customer pool shrinks. "But that works only for a while. That kind of short-term strategy won't work in the long run."

Sebelius said the other choice is for insurers to begin calling for Democrats' comprehensive overhaul to be adopted. "Instead of spending energy attacking the parts of the proposal that you don't like, come to the table strengthening the parts that are there, that you talked about from the beginning are essential to comprehensive reform," she said.

"The second choice really may give up some short-term profits, but we also, working together, could create a sustainable health insurance market where Americans will still be able to buy coverage," she said. "It's better for the American people, I think it's better for the insurance industry and it's certainly better for our health care system."

But Karen Ignagni, president and CEO of AHIP, told reporters after the speech that insurance companies on average saw a 3.2 percent profit in 2009. "Insurance companies must be solvent to pay claims," she said, and "we have to have a discussion much broader" than insurance industry profits.

AHIP this week also launched a TV ad campaign shifting the blame to doctors and hospitals for health care spending increases. The ad has a pie chart showing "the health care cost pie" that says health insurance company costs are just 4 percent of all costs.

Sebelius' remarks came as Democrats on the Hill attempt to put together a strategy in which they can cast votes on an overhaul bill yet this month prior to a recess scheduled to begin March 26. Discussions continue on how to do that using a two-part strategy in which the House would approve the Senate-passed overhaul bill and both chambers separately would adopt a "corrections" bill making changes in the Senate bill.

Sebelius read from letters she said she's received from Americans faced with premium increases and said the better long-term business model for the industry is a stable market rather than ever-increasing premiums. "It's not too late to work on this issue together," she said. "Work with us to pass reform that will prevent Americans from seeing their coverage dropped when they're sick and need it most."

Also, Sebelius said she wanted to repeat a request she made in a meeting with five insurance company executives last week that additional transparency be provided when rate increase proposals are filed, and that insurers disclose the health cost trends and justifications behind the proposals.

Ignagni said the group has proposed dramatic changes in the system and is fully committed to cost containment, though she said other sectors of the health industry have to step up as well. "Our members are very concerned about insurance premiums and the trajectory, especially in the individual market," she said in introducing Sebelius.

But at a press conference following Sebelius' speech, Ignagni would not commit AHIP to backing overhaul legislation, though she said insurers will present additional ideas for cutting costs. She did express support for the increased transparency and said insurers are working with the National Association of Insurance Commissioners for a template that could be used across the states for consistent reporting of proposals.

Industry officials at the beginning of the debate over health care in 2009 proposed a series of changes in the health care system that they said would improve access, and Ignagni said AHIP remains committed to those ideas. But she also said that "we have to move beyond the politics of vilification" and work on fixing the overhaul to address insurers' concerns about the impact on the system, such as the need to ensure that as many people as possible purchase insurance, thereby spreading out risk.