Healthcare Policy Outlook with a Democratic-Controlled Senate

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Highlights

  • The victories by Democrats Raphael Warnock and Jon Ossoff in the Georgia runoff elections for the U.S. Senate mean that incoming majority leader Chuck Schumer (D-N.Y.) will preside over the narrowest possible majority in the Senate under which Vice President Kamala Harris would provide the tie-breaking vote.
  • The House and the Senate's narrow margins make it unlikely that broad sweeping proposals advanced by progressive Democrats but not supported by their more moderate colleagues will be able to pass. However, control of the Senate should significantly impact the prospects for President Biden's healthcare agenda.
  • This Holland & Knight alert provides an updated assessment of healthcare policy activities likely to see action in the new 117th Congress and the Biden Administration in the wake of the Georgia runoff elections and based on additional information coming out of the Biden-Harris team.

In November, Holland & Knight provided some initial analysis regarding healthcare policy activities likely to see action in the new 117th Congress and the Biden Administration. (See Holland & Knight's previous alert, "Healthcare Policy Update: Election Edition," Nov. 11, 2020.) This alert provides an updated assessment in the wake of the Georgia runoff elections for the U.S. Senate and based on additional information coming out of the Biden-Harris team.

Legislative Outlook

Overview

The victories by Democrats Raphael Warnock and Jon Ossoff in the Georgia elections mean that incoming majority leader Chuck Schumer (D-N.Y.) will preside over the narrowest possible majority in the U.S. Senate under which Vice President Kamala Harris would provide the tie-breaking vote. The outcome's fundamental significance is that Schumer can bring any matter to a vote in the chamber.1 Over the past two years, Senate Majority Leader Mitch McConnell (R-Ky.) regularly blocked legislation passed by the House from coming up for a vote. Now, the Biden Administration can be assured that its nominations for the executive branch and the judiciary will be considered once the relevant committees approve them. Under current Senate rules, only 51 votes are required to confirm nominees. Additionally, a wide variety of expected legislation on COVID-19, the economy, infrastructure, social and racial justice, climate change and healthcare will see floor time in the Senate.

However, the House and the Senate's narrow margins make it unlikely that broad sweeping proposals advanced by progressive Democrats but not supported by their more moderate colleagues will be able to pass. For most matters, the Senate still adheres to a 60-vote requirement to end debate. President-Elect Biden has made clear that he will seek to govern in a bipartisan manner, which would require compromise and presumably lead to more limited-scope legislation. Whether he will adhere to that approach or find willing GOP partners with whom to work remains to be seen. Meanwhile, many other " power-sharing" issues – such as committee ratios and minority party rights, remain to be sorted out.2

Significantly, the new president and congressional Democrats have another tool in their toolbox: "Budget Reconciliation" legislation. Under the 1974 Budget and Impoundment Control Act, if Congress adopts a budget resolution that directs congressional committees to make changes in revenues and/or direct spending, the bill is not subject to a 60-vote requirement to end debate. However, the law also provides that any extraneous matter – provisions that do not directly impact revenue or spending – can be stricken from the bill on a point of order. Thus, policy changes that are not directly related to spending and revenue cannot ride along. (See Holland & Knight's previous alert, "Senate Elections Make Budget Reconciliation a Potential Tool in 117th Congress," Jan. 7, 2021.)

It is expected that the first significant piece of legislation that the Biden Administration and Congress will tackle is a package of coronavirus response and economic recovery funding. Many of the COVID-related programs and funding extensions approved in the December 2020 omnibus bill will expire this spring and need to be further extended. To date, all pandemic response funding has been designated as "emergency" funding, which means that it does not have to be paid for by offsetting program cuts or new revenues. President Biden has indicated he would like to achieve a bipartisan agreement on this package. To do so will require navigating between the $1.9 trillion package that Biden proposed on Jan. 14 and those arguing that nowhere near that amount is necessary. The extent to which some GOP senators have an appetite for significant response funding will probably be the decisive factor. In addition to pandemic response funds, major healthcare items in Biden's package will include more funding (and perhaps more distribution rules) for the provider relief fund; addressing vaccine administration costs; and increasing to 12 percent the Federal Medicaid Assistance Percentages (FMAP) for the duration of the pandemic public health emergency to incentivize states that have not yet expanded under the Affordable Care Act (ACA).

The Biden Administration is still in the process of determining the details, packaging and sequencing of other elements of its agenda that also includes a large "infrastructure" package; climate change funding; investments to address social and racial disparities; housing affordability; and healthcare. All of this will need to be reflected in Biden's budget proposal to Congress, ordinarily delivered in February. As the new administration is still staffing up, it is likely that a budget outline (skinny budget) will be produced in February with a full detailed budget proposal following later. Meanwhile, the House and Senate Budget Committees will begin working on their budget resolutions and the critical budget reconciliation instructions discussed above.

Among other difficult issues will be the question of new revenues. It was envisioned that much of the Biden agenda would be financed by clawing back the corporate tax cuts in the Tax Cuts and Jobs Act as well as raising the tax rates on capital gains and those making over $400,000. The appetite for taking these steps amid a pandemic-induced slump is unclear. Additionally, the caps on appropriated spending that were originally negotiated by former Republican House Speaker John Boehner and former President Barack Obama have expired. Therefore, decisions will need to be made on new appropriations "toplines" for security and non-security spending. How these levels are set have an impact on funding for numerous healthcare programs, including National Institutes of Health (NIH) research, the Centers for Disease Control and Prevention (CDC), non-COVID public health programs, Community Health Centers (CHCs), the Ryan White HIV/AIDS Program, and behavioral health and substance abuse block grants, among many others.3

Healthcare Legislation

Narrow Democratic control of the Senate should significantly impact the prospects for President Biden's healthcare agenda outside of the COVID-19 and appropriations matters discussed above. That agenda is anchored around improving and shoring up the ACA. This would include a revamp of the premium tax credit structure that subsidizes the purchase of exchange plans and phases out at 400 percent of the federal poverty level (FPL). President Biden would like to revise these credits and extend them up to 600 percent of the FPL. Congress could also address the individual mandate by increasing the penalty ahead of the California v. Texas decision, a case pending before the U.S. Supreme Court that deals with the constitutionality of the ACA.

The new president would also like to create a "public option" – essentially an insurance plan administered by the Centers for Medicare & Medicaid Services (CMS) that could be sold on the exchanges and used to cover low-income adults in non-Medicaid expansion states. Finally, he has proposed (without a great deal of detail) allowing individuals to buy into the Medicare program after reaching age 60. The tax credit changes could ride on a budget reconciliation bill, but the other two proposals probably could not, which makes their prospects much lower.

Social and racial health equity will also be a significant focus area. Providing enhanced resources, access assistance and coverage to communities of color will be front and center in the 117th Congress. This was already a subject of great interest but has become even more so as the pandemic has laid bare the stark disparities in the healthcare system. Vice President Harris has taken an interest in this subject and was the author of legislation in the Senate to address maternal mortality disparities. House Ways and Means Committee Chair Richard Neal (D-Mass.) has indicated that addressing health equity is his top priority. His committee recently released a legislative framework for how they will address health and economic inequity in the United States. Expect there to be a decent prospect for bipartisan cooperation on at least some of this agenda.

Other major items that could see action include further mitigation of the Medicare Physician Fee Schedule (MPFS) cuts to procedural services; a variety of other changes to Medicaid and Medicare (including supplemental payment programs); changes to the 340B program in response to some manufacturers not recognizing contract pharmacies as covered entities; significant drug pricing reforms, including Medicare negotiation and Part D inflation-based rebates; and legislation to expand the use of telehealth post-pandemic as well as increase broadband access.

Finally, a Democratic-controlled Senate also has implications for Trump-era regulations and guidance. Under the Congressional Review Act (CRA), Congress has the authority to overturn federal agencies' rules by a simple majority vote in both chambers, which cannot be filibustered. The CRA allows Congress to review the last 60 days of regulations issued during the previous Congress – roughly from late August 2020. The definitive date is pending a formal opinion issued by the House and Senate Parliamentarians.

Administrative Outlook

It will take some time for the Biden Administration to staff up entirely, but there is no question that there will be several "Day One" actions announced and that an array of Executive Orders and regulations will be issued in the first six months.4 Generally speaking, those actions will fall into one of three categories: 1) undoing actions taken by the Trump Administration5, 2) implementing recently passed laws and 3) implementing Biden Administration priorities. Notable items include:

  • Immigration. Many immigration policies are likely to be reversed that indirectly affect healthcare providers, including the " public charge" rule, ending Deferred Action for Childhood Arrivals (DACA) and undoing changes to H1-B visas.
  • Affordable Care Act. The short-term plans and association health plans created by the Trump Administration as a workaround from essential benefits requirements are likely to be repealed. Support for navigators, advertising, and extended and special enrollment seasons should likely increase.
  • Medicaid. Trump Administration waiver policies on work rules and lump-sum programs (block grants) are likely to be reversed. Similarly, states will likely not be allowed to exclude entities that counsel and refer for abortion from their programs. It also seems very likely that Medicaid policies regarding waiver approvals and other issues will once again consider whether a state has declined to expand its program to cover low-income adults. New rules will also be needed to implement the congressional directive to change the calculation of third-party payments to determine the hospital-specific Disproportionate Share Hospital (DSH) cap and the new reporting requirements on supplemental payments.
  • Medicare. Regulations that cut reimbursement for Part B drugs obtained via the 340B program by 22.5 percent are likely to be pulled back. The Biden Administration may also revisit the Medicare uncompensated care program's use of cost report worksheet S-10 data that only considers charity care and bad debt in allocating funds. Less certain is how the new administration will handle two new drug pricing regulations that address rebates given to pharmacy benefit managers (PBMs) and the utilization of a calculation based on drug prices in other developed nations (known as the Most Favored Nation Rule) to make payments for Part B drugs. Notably, a 14-day temporary restraining order (TRO) was issued in December 2020 on the Most Favored Nation Rule on the basis that the U.S. Department of Health and Human Services (HHS) violated procedural requirements under the Administrative Procedure Act (APA).
  • Antitrust. It is anticipated that the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) will be more aggressive in scrutinizing consolidation and mergers. While antitrust enforcement is not statutorily within the Secretary of Health and Human Services purview, HHS Secretary nominee Xavier Becerra will still have an important role to play. Becerra has made battling healthcare consolidation a signature issue since he took office as California Attorney General in 2017.
  • Healthcare Innovation. Anticipate a change in emphasis at the Center for Medicare and Medicaid Innovation (CMMI) regarding the pilots and demonstrations advanced by the new administration. The Trump Administration focused heavily on risk-based models with a focus on achieving savings. A Biden Administration might soften the Trump Administration's speed to transition and emphasis on risk-bearing, and instead focus on increasing participation in value-based models. One unknown is whether the new administration will pause, alter or abandon any ongoing models in 2021. A lot of those decisions will depend on who is selected for key roles, including the CMS Administrator and the Director of CMMI.
  • Price Transparency. It is not expected that the Biden Administration will repeal the hospital price transparency requirements that went into effect on Jan. 1, 2021. However, it might be open to making changes to these requirements and delaying their effective date.
  • Retrospective Review of Rules. The regulation sunsetting Medicare regulations, which requires assessing HHS regulations every 10 years to determine whether they are subject to review under the Regulatory Flexibility Act (RFA), will likely be repealed.
  • 340B. Pharmaceutical manufacturers are currently challenging an HHS advisory opinion that they must provide discounted drugs delivered through contract pharmacies. The Biden Administration will need to administer (and perhaps tweak) the newly created arbitration process for covered entities and manufacturers to contest their differences. Additionally, they could start leveling civil monetary penalties against manufacturers.6
  • Surprise Billing. The No Surprises Actincluded in the Consolidated Appropriations Act at the end of 2020 will lead to several thorny implementation issues that will need to be tackled by the Biden Administration. This includes creating an arbitration process, determining geographic areas in which rates will be determined and dovetailing state laws with the new federal requirements.
  • Information Blocking. Although the enforcement of civil monetary penalty (CMP) rules has still not been finalized, impacted trade associations have asked that the effective date of the information blocking rules be further delayed beyond April 2021 until more detailed guidance is provided.
  • Title X. The cutoff of funds to entities that counsel or refer for abortion services will be reversed.

Notes

1 The Georgia results were certified on Jan. 19, 2021, with Warnock and Ossoff set to be sworn in on Jan. 20, shortly after Biden's inauguration.

2 The chamber has seen an even divide only three times before in history: 1881, 1953 and 2001. In 2001, Republican and Democratic leaders – led by Sens. Trent Lott (R-Miss.) and Tom Daschle (D-South Dakota) – negotiated a power-sharing agreement that provided for equal membership on committees, equal budgets for committee Republicans and Democrats, and the ability of both leaders to advance legislation out of committees that are deadlocked.

3 There continues to be talk of possibly reinstating earmarks in the appropriations process, but no official steps to implement this change have been taken. In a narrowly (and as of this writing, bitterly) divided Congress, this appears to be a tall order.

4 Although an Executive Order can be reversed with the stroke of a pen, regulations generally are repealed or modified by going through a new process of issuing a draft proposal, soliciting comments that are carefully reviewed and issuing a final rule.

5 It should be noted that some of these actions may be struck down by the courts as part of ongoing litigation challenges, which would obviate the need for the new administration to address them.

6 As discussed above, this issue is expected to end up back in the lap of Congress.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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