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The Senate Bill: Medicare And Much Else



November 21st, 2009

Editor’s Note: In the post below, Tim Jost looks at provisions of the Senate Democratic health reform bill dealing with Medicare, Medicaid and CHIP, and many other significant topics. In earlier posts, Jost took a first look at the Senate bill, provided a detailed look at several issues that arise under the bill’s insurance reforms, and discussed abortion coverage and the constitutionality of the individual mandate.

My first three posts have dealt with Title I of the Senate bill, which contains the insurance reform, mandate, and affordability subsidy provisions of the bill.  Title I is only the first of nine titles of the bill, however.  This post will present an overview of the remaining eight titles of the bill, which deal with Medicaid and CHIP; Medicare (focusing on quality and efficiency); prevention, wellness, and public health; the health care workforce; transparency and program integrity; improving access to innovative therapies; and the CLASS (community living assistance services and support) program.  The revenue provisions of the bill will not be examined. 

A vast undertaking. Three features of this legislation are immediately striking.  First, the undertaking is vast.  The 274 sections of these eight titles fill 1,678 pages of the 2074 page bill.  Some of these provisions offer small tweaks to existing programs while a number create demonstration projects, research programs, or commissions to study particular issues.  Other provisions, however,  create whole new programs, such as the CLASS Act program or the biosimilars pathway, or make revolutionary changes in existing programs, such as the Medicaid expansions. 

Many of these provisions are scored by CBO as having no cost consequences or as costing or saving a few hundred million dollars over ten years.  Some, however, have massive financial consequences.  The Medicaid expansions are predicted to cost $374 billion over ten years, while the reductions in annual updates to Medicare fee-for-service rates are scored at saving $192 billion and the changes to Medicare Advantage plan payments at saving $118 billion. 

In total, the bill hopes to save $436 billion from program cost reductions and raise $486 billion in revenues to help cover the cost of the coverage expansions.  Of course, the Medicare Modernization Act was also huge, and Congress rarely passes a budget reconciliation act that does not make a multitude of changes in the Medicare and Medicaid programs, but this is the mother of all budget reconciliation acts. 

Big differences between the House and Senate bills. Second, it is striking how different the Senate bill is from the House bill.  Only about a third of the sections in these eight titles have cognates in the House bill and many of these are worded differently.  Many of the provisions of the Senate bill are completely absent in the House bill, and visa versa.  The 350 pages of the House bill dealing with health services for Native Americans have no equivalent in the Senate bill.  The revenue provisions of the two bills are completely different.  Given the vast differences between the bills, it is difficult to see how fast-track “mini-conference” or “ping-pong” strategies recently discussed in Politico could possibly work. Conference negotiations reconciling the two bills are bound to be long and difficult.

Overhauling the health care system. A third prominent feature of the legislation is the earnestness of its attempts to revolutionize the health care system to improve the quality of health care, promote patient safety, reduce the cost of health care by encouraging more efficient delivery models and reduced utilization of unnecessary care, and support prevention and wellness.  This year’s health reform legislation has often been criticized for being health insurance reform rather than health care reform, and for not doing enough to control the cost of health care.  Those who offer these criticisms have obviously not read the bills or even tried to understand them.  As is true with the House bill, there are few ideas for health care restructuring that are not in the Senate bill, at least as demonstration or pilot programs. 

Accountable care organizations, payment bundling, gainsharing, several new pay-for-performance and quality reporting programs, patient-centered outcomes research, and shared-decision making initiatives are all included in the bill, as is a tax on higher-cost health plans and the creation of a new Independent Medicare Advisory Board that would be able to implement Medicare cost-saving proposals independently in years when Medicare cost growth was unsustainable unless Congress intervened. 

The CBO has scored many of these provisions as achieving only minor cost savings, but this is in part a problem of CBO’s difficulty in scoring innovative cost-saving programs.   Section 4402 of the bill, parenthetically, expresses the sense of the Senate that Congress should work with the CBO to develop better methodologies for scoring prevention and wellness programs.

So, what does the bill do?

Medicaid

If adopted, the legislation will introduce the most revolutionary changes in Medicaid in the program’s forty-three year history.  Medicaid was built on the model of the New Deal public welfare cash assistance programs and has always been a categorical program (covering the elderly, blind, disabled, and pregnant, and dependent children and their families), although Medicaid categories have become increasingly numerous and complex over time.  Under the Senate bill, the program would be extended as of 2014 to cover all poor Americans whose household income is below 133% of the federal poverty level (FPL).  If states want to expand coverage earlier, the could do so as early as January 1, 2011.  The Medicaid expansion would be less than that found in the House bill (which expands to 150% of FPL) and would go into effect a year later.

Newly eligible recipients will not necessarily receive the same benefits as traditional Medicaid recipients, as the states can limit coverage to “benchmark” coverage as they can now for certain categories under the Deficit Reduction Act.  Benchmark coverage must cover at least all essential benefits available through the Exchange.  Asset tests would no longer apply in Medicaid after 2013 except for the elderly and disabled and for long term care services.  Medicaid eligibility for non-elderly and non-disabled would after 2013 be determined based on modified gross income without current income or expense disregards, which means that for many persons the actual increase in the eligibility ceiling will be much less than it would appear at first glance because more income would be counted.

The federal government will cover 100% of the cost of expanded coverage from 2014 to 2106.  For 2017 and 2018 the level of  additional federal assistance (FMAP) a state would receive would depend on whether the state had already covered some non-elderly, non-pregnant individuals.  After 2019, all states would receive a  FMAP increase of 32.3 percentage points for the expansion populations, up to a total of 95% FMAP.  States would be required to maintain CHIP eligibility levels through 2019,  but FMAP for CHIP would also increase for FY 2014 through 2019 by 23 percentage points, subject to a 100% cap. 

The bill would cover a number of new Medicaid benefits, including freestanding birth center services, community-based attendant services and supports to disabled beneficiaries who would otherwise need institutional care, expanded home and community-based services, expanded prevention services, tobacco cessation services for pregnant recipients (the House bill would cover tobacco cessation for all recipients), and health homes for recipients with chronic conditions.  Prescription drug rebates would increase, but disproportionate share hospital payments to the states would decrease as the rate of uninsurance dropped because of implementation of other insurance reforms.

Medicare

The Senate bill contains over 500 pages of changes in the Medicare program. Some of these provisions would reduce Medicare payments, including reductions in payments for home health, disproportionate share hospitals, advanced imaging services, and, above all Medicare Advantage plans (which would transition to a payment system based on competitive bids by 2015 at a savings over 10 years of $118 billion).  Productivity adjustments in market basket updates and additional reductions in market basket updates would save Medicare another $150 billion over 10 years.  Freezing the income threshold at which higher income Medicare beneficiaries pay increased Part B premiums at 2010 levels through 2019 for would bring in another $25 billion. The vast majority of the Medicare provisions, however, are directed at improving the quality, effectiveness, and in some instances, benefits of the Medicare program.

The Medicare title of the bill begins with a number of pay-for-performance and quality initiatives that have no exact equivalent in the House bill.  These include value-based purchasing programs for hospitals and physicians and payment penalties for hospital-acquired conditions.  The bill also requires HHS to establish and update annually a national strategy for health care quality measurement and improvement.  The Senate bill establishes accountable care organization and hospital readmission reduction programs, a national pilot program for payment bundling, and a demonstration program for chronically-ill beneficiaries to receive home-based primary care.  The bill also includes a host of payment extensions and improvements, including several for rural areas, but it includes only a one year 0.5 percent positive update for physician payment (in place of the 21 point reduction that was otherwise scheduled), leaving for another bill the inevitable sustainable growth rate fix. 

Although the bill cuts Medicare Advantage payments, it provides performance bonuses for Medicare Advantage plan care coordination and management and for quality achievements. It prohibits Medicare Advantage plans from charging beneficiaries higher cost sharing for specific services than is allowed in the fee-for-service program and requires plans that offer extra benefits to give priority to cost-sharing reductions and wellness and preventive care services over benefits not covered by Medicare.  HHS is given authority after 2011 to refuse to offer Medicare Advantage and prescription drug plans that significantly increase beneficiary cost sharing or decrease benefits.  For traditional Medicare beneficiaries, the bill removes cost-sharing obligations from most preventive services, including an annual wellness visit and personalized prevention plan.  The bill would also require Medigap policies C and F, two of the most popular offerings, to include nominal cost-sharing to reduce use of Part B services.

The bill makes a number of changes in the Part D outpatient drug program, which resemble changes in the House bill but are not as generous.  The Senate bill would require drug manufacturers to provide a 50% discount for brand-name drugs and biologics purchased in the donut hole after July 1, 2010, but would not allow beneficiaries to count the discount against the out-of-pocket limit, as would the House bill.  The bill reduces the donut hole by increasing the initial coverage limit by $500 for 2010, but only for 2010, as compared to the House bill, which takes an immediate $500 bite out of the donut hole, and then proceeds to eliminate it by 2019. 

A signature feature of the Senate bill is the creation of a new 15-member independent Medicare Advisory Board  composed of health care, health policy, and health economics experts as well as representatives of employers, third-party payors, consumers, and the elderly appointed by the President that is responsible for presenting Congress with proposals for reducing excess Medicare cost growth.  In years when Medicare costs are projected to exceed a target rate, the Board will be required to make a proposal to reduce cost growth, which will go into effect unless Congress, following expedited procedures develops an alternative proposal.  The Board’s proposals cannot ration care; raise taxes or Part B premiums; change Medicare benefit, eligibility, or cost-sharing standards; or reduce payments for providers whose payments have already been reduced by the market-basket adjustments, which will limit the Board largely to reducing Part C or Part D expenditures.  The CBO scored the Board as saving $23.4 billion over 10 years.

Prevention, Wellness, Public Health, and Workforce Initiatives

The Senate bill contains a host of prevention, wellness, and public health initiatives that create or expand various task forces and create a variety of  education and grant programs. Like the House bill, the Senate bill requires chain restaurants with more than 20 locations and vending machines to disclose calorie content on their menu boards or on a poster next to the vending machine and chain restaurants to make additional nutritional information available on request. The bill requires employers with more than 50 employees to provide break time and a place for breastfeeding mothers to express milk.  It also funds a demonstration project for addressing childhood obesity.

Like the House bill, the legislation contains a number of programs for supporting the healthcare workforce, focusing on primary care professionals; nursing students; public and allied health professionals; pediatric subspecialists; general, pediatric, and public health dentistry; and disadvantaged students who commit to work in underserved areas.  The bill also provides for a 10% payment bonus for 5 years beginning in 2011 for primary care practitioners and general surgeons practicing in underserved areas. 

Transparency and Program Integrity

No health care reform bill would be complete without a host of new program integrity requirements and remedies, and the Senate bill contains over 200 pages of them.  Among these are a number of provisions to address conflict of interest issues.  The legislation would prohibit new physician-owned hospitals from participating in Medicare after February 1, 2010.  It would require drug, device, biological, and medical supply manufacturers to report most transfers of value to physicians, physician medical or group practices, or teaching hospitals or physician ownership or investment interests.  With some exceptions, the information will generally be available in a searchable public database.  The requirements preempt duplicative state laws, but not state laws beyond the scope of the federal law. The law further requires physicians who refer patients for ancillary services within their group practices to inform the patients that they can also receive the services from other physicians.  The bill also requires drug companies to disclose to HHS information regarding distribution of drug samples and pharmaceutical benefit managers to disclose to HHS specific information about their practices.  Finally, charitable hospitals would face new requirements, including periodic community needs assessments. 

Comparative Effectiveness Research, Malpractice, Access to Innovative Therapies, and the CLASS program.

The Senate bill establishes a private, nonprofit entity to identify priorities and provide for the conduct of comparative effectiveness research (CER), renamed  “patient-centered outcomes research.” and sunsets the Federal Coordinating Council created by the ARRA for CER.  The section contains extensive protections intended to assure that CER findings are not used to discriminate against the elderly or discourage individuals from choosing health care treatments based on their values as to a tradeoff between extending life and risking disability.  The program is specifically prohibited from using a dollars-per-quality adjusted life year approach as a threshold for determining if a type of health care is effective or recommended or for determining coverage, reimbursement, or an incentive program. 

The legislation expresses a sense of the Senate that someone should do something about malpractice reform.

The bill creates a pathway for approving biosimilars (generic biologics) similar to the House provisions.  A new biosimilar could not be approved until 12 years after the original product was first approved. The bill further provides a market exclusivity period of one year for the first biosimilar before a second biosimilar could be approved. 

Finally, the bill would establish Senator Kennedy’s signature national voluntary insurance program for purchasing community living assistance services and supports. The program is supposed to be self-funded and actuarially sound and would provide cash benefits of not less than $50 a day to a plan member who develops specific functional limitations.

The Senate bill will undoubtedly be amended further as the it progresses through the Senate and will change even further in conference.  Stay tuned for further developments.

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