Manatt on Health: August 2017

by Manatt, Phelps & Phillips, LLP
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In This Issue

  • Next Steps on Healthcare Reform
  • Proposed Changes to Medicare Part B 340B Drug Reimbursement
  • CMS Proposes Formula for Medicaid DSH Allotment Reductions

Next Steps on Healthcare Reform

By Chiquita Brooks-LaSure, Managing Director | Allison B. Orris, Counsel | Ariel Levin, Manager

Though President Trump has continued to call for action on repeal and replace in the wake of the Senate’s failed vote at the end of July, congressional Republicans have been fairly muted about possible next steps, a sign of conflicting views of whether it is time to move on to other priorities and smaller fixes to stabilize the Affordable Care Act (ACA) or continue the push for repeal and replace. Now that both the House and Senate have left for August recess, advancing healthcare legislation will wait until September. With congressional action and repeal of the ACA paused at least for now, attention has shifted to how the Administration will administer the law going forward.

Regardless of the path repeal and replace takes next, there are a number of healthcare issues that will need to be addressed in the coming months. Below is a recap of the most pressing issues that Congress and the Administration will need to tackle.

CSR Funding Decisions. President Trump continues to threaten termination of cost-sharing reduction (CSR) payments, but pushback is growing from both Congress and states as more states find the rate impact of the projected elimination of CSRs to be in the 10-20% range. In addition, the President’s authority to unilaterally terminate CSRs has been circumscribed but not eliminated by an August 1 decision by the D.C. Court of Appeals. The decision comes from the three-judge panel reviewing the CSR matter and allows 17 state attorneys general to intervene in the case on behalf of the state interest in continuing the CSRs. Because of this ruling, the President could still carry out his threat, but no longer could claim that he is simply following a court order and would certainly face legal challenges to such action. What remains unclear is how quickly the courts or Congress might react to a presidential decision to end the payments, and how insurers and others would respond in the meantime.

CHIP Reauthorization. The September 30 deadline for reauthorizing federal funding for the Children’s Health Insurance Program (CHIP) is fast approaching. Although CHIP generally enjoys bipartisan support, the reauthorization has been delayed amid repeal and replace discussions and hearings are not scheduled to begin until Congress returns in September. Though many will likely advocate for a “clean” CHIP extension, the highly charged political environment in the wake of the past few weeks’ events could make that complicated. CHIP funding extension will likely come down to the wire in September, with significant debate about whether to maintain current enhanced funding levels, how long to reauthorize funding and whether the CHIP bill will be used to address other aspects of healthcare reform.

FY 2018 Budget. While attention has been focused on the Senate’s repeal and replace efforts, the House Budget Committee considered and passed its FY 2018 budget resolution, which could be voted on by the full House in early September. The Senate Budget Committee has not yet approved its budget. Passing a joint congressional budget resolution is the first step in the annual budget process, which sets spending targets for the upcoming fiscal year. The House Budget Committee proposal includes $5.8 trillion in non-defense budget cuts through 2027; of that amount, $1.5 trillion is based on the Committee’s assumption that the House Republican repeal and replace legislation would be enacted, along with savings from the Medicaid work requirement proposed in the budget. The House budget also includes two sets of reconciliation instructions: (1) budget-neutral reconciliation instructions to facilitate consideration of tax reform legislation and (2) reconciliation instructions to achieve at least $203 billion in mandatory savings and reforms from a range of committees.

Tax Reform. Although it is assumed that the House and Senate will agree to tax reconciliation instructions in the FY 2018 budget resolution, most experts believe moving forward on the FY 2018 budget effectively shuts down the 2017 health reconciliation instructions. Notably, the House FY 2018 budget includes reconciliation instructions for deficit-neutral tax reform; this may be more difficult to achieve if taxes in the ACA remain in place.

State Waivers. With repeal and replace stalled in Congress for the time being, states are expected to ramp up development of proposals to test new program approaches in Medicaid and stabilize their individual markets. We expect an increase in both 1115 (Medicaid) and 1332 (individual market) waivers in the coming months. In particular, state policy makers will be closely watching and waiting for the Administration’s actions on Medicaid waiver proposals from Arkansas, Indiana, Kentucky, Maine, Massachusetts and Wisconsin, and 1332 waiver proposals from Minnesota, Oklahoma, Maine and Oregon.

Proposed Changes to Medicare Part B 340B Drug Reimbursement

By Annemarie V. Wouters, Senior Advisor | Helen R. Pfister, Partner

Under the Hospital Outpatient Prospective Payment System (HOPPS) Proposed Rule for CY 2018 that was released on July 13, 2017, the Centers for Medicare & Medicaid Services (CMS) is proposing to reduce Medicare Part B reimbursement for most separately payable drugs that are purchased by hospitals under the prescription drug discount program established under Section 340B of the federal Public Health Service Act (the 340B program) from average sales price (ASP) plus six percent to ASP minus 22.5 percent. Drugs with pass-through status (which by statute have special payment requirements) and vaccines (which are excluded from the 340B program) would be excluded from this proposal. The amount of the proposed reduction is based on a 2015 report by the Medicare Payment Advisory Commission (MedPAC), which estimated that, on average, hospitals that participate in the 340B program receive a minimum discount of 22.5 percent of ASP for drugs paid for under the HOPPS.

CMS is proposing that the savings generated as a result of this payment reduction be budget neutral; that is, that such savings be re-distributed to increase payment amounts for other Part B services. In order to enable CMS to identify which drugs are acquired through the 340B program under HOPPS, CMS is proposing to establish a modifier, effective January 1, 2018, that hospitals would be required to use when submitting claims for separately payable drugs that were not acquired under the 340B program.

CMS is soliciting comments on several aspects of this proposal, such as: (i) whether the 22.5 percent discount is the appropriate discount; (ii) whether there should be a phase-in period for implementing this provision; (iii) whether to apply budget neutrality broadly or to specific services or entities; and (iv) whether exceptions should be granted for certain types of drugs and/or certain types of entities.

CMS is also considering a longer term approach which, instead of applying an average payment discount to all 340B drugs, would set a payment rate based on acquisition costs for 340B drugs. Since CMS does not have information on the actual acquisition costs for 340B drugs, CMS is soliciting comments on whether 340B hospitals should be required to report their acquisition costs in addition to charges for each drug on the Medicare claim.

Comments on the HOPPS proposed rule are due September 11, 2017 no later than 5 p.m. EST.

CMS Proposes Formula for Medicaid DSH Allotment Reductions

By Adam Finkelstein, Counsel | April Grady, Director

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to implement annual state Medicaid disproportionate share hospital (DSH) allotment reductions beginning in FY 2018.

The proposed rule describes CMS’s methodology for apportioning among states cuts to their federal allotments for payments to hospitals that serve a large number of low-income individuals. The Affordable Care Act (ACA) mandated that these reductions begin in FY 2014. But subsequent legislation increased their size and delayed them to FY 2018.

CMS is mostly proposing to allocate the reductions among states using the methodology it had originally established in 2013 for FY 2014 and 2015 reductions. In general, that approach favors states with low DSH expenditures relative to total Medicaid expenditures in the state, states with a high percentage of uninsured individuals, and states that direct DSH payments to hospitals with high Medicaid volume and high levels of uncompensated care.

The proposed rule does contain some changes to the 2013 approach. Notably, when allocating reductions among states, CMS is proposing to give relatively more weight to the number of uninsured individuals in a state. This should favor states that did not expand Medicaid under the ACA and consequentially have higher rates of uninsurance. Further, CMS is proposing that no state will have its DSH payments fully eliminated. Instead, CMS is proposing to cap an individual state’s DSH reductions at 90 percent.

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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