Washington Healthcare Update

McGuireWoods LLP

This Week: Congress remains on recess…CMS released Final MACRA rule and 2017 Medicare Advantage Star Ratings…Zika and Mylan’s EpiPen still raise issues.

1. Congress


FDA Supports Expanded Authority Over Cosmetics

In an Oct. 5 letter to Senator Dianne Feinstein (D-CA), the Food and Drug Administration (FDA) says its current legal authority over cosmetics is limited and expressed appreciation for a Senate effort to increase the agency’s regulatory power over the cosmetic industry, including recall authority for such products.

Senator Feinstein along with Senator Susan Collins (R-ME) introduced the Personal Care Products Safety Act to protect consumers and streamline industry compliance by strengthening the FDA’s authority to regulate the ingredients in personal care products.

“The Administration recognizes the need to strengthen FDA’s regulatory program for cosmetics, and the President’s budget in the past few years has requested authority to require cosmetic firms to register their establishments and products with FDA and to pay a user fee,” FDA states. “We appreciate your leadership in sponsoring legislation to provide these authorities as well as others to address limitations in FDA’s ability to oversee the safety of cosmetic products.”

The agency explains that all reporting of adverse events by companies for cosmetic products is voluntary, unlike the case for other FDA-regulated products. FDA asserts the lack of reliable information makes it difficult to assess problems with cosmetics and can delay efforts to respond to the complaint.

A systematic review process called for by the Senate bill would allow FDA to restrict harmful ingredients under a more consumer-protective safety standard, the agency says. Under the legislation, FDA says it would be able to restrict the use of a cosmetic ingredient if there is not enough information to ensure there would not be harm.

FDA’s authority is additionally limited by the lack of legal requirements to make cosmetic companies report to the agency about their products and safety data, or the location of their manufacturing facilities. The president’s budget also requested mandatory registration and reporting, the agency says, which would allow FDA to know what cosmetics are on the market and what ingredients they include.

The agency also criticizes the industry-funded panel of medical and scientific experts, the Cosmetic Ingredient Review, that assesses the safety of cosmetic ingredients based on the data in the published literature and information that is voluntarily provided by the cosmetic industry.

FDA clarifies that it does not have the authority to require a recall of cosmetics that are in violation of the Food, Drug, and Cosmetic Act. Rather, the agency currently has to go through the Department of Justice to pursue seizure of adulterated or misbranded products and injunctions against firms that violate the law.

The Senate bill would require FDA to evaluate a minimum of five cosmetic ingredients per year for safety and appropriate use. The bill would also provide FDA recall authority for cosmetics; require adverse event reporting to the agency within 15 days; require annual manufacturer registration; direct FDA to issue guidance on good manufacturing practices for cosmetics; and authorize the agency to collect user fees from cosmetic manufacturers.

Senate Finance Democrats Release Report on Opioid Addiction and Treatment Shortfalls

On Oct. 10, Senate Finance Committee Democrats released a report on opioid addiction and treatment shortfalls in the United States. The authors criticize Republicans for blocking Democrat-sponsored amendments to provide CARA funding—one allocating the full $920 million requested, and one providing $600 million—as evidence of Republicans’ resistance to funding the program. Democrats also hold up what they view as the inadequacy of the $7.1 million in funding for CARA passed as part of the continuing resolution.

Medicaid policies are also put under the spotlight in the report. Democrats say access to residential care has been limited by an interpretation of the Medicaid Institutions for Mental Diseases (IMD) exclusion that prohibits the use of federal Medicaid matching funds for payments to residential treatment facilities.

The report asks for Congress to authorize the $920 million in mandatory funds proposed in President Obama’s budget request for the Substance Abuse and Mental Health Services Administration (SAMHSA). The $920 million would be used to fund two-year State Targeted Response Cooperative Agreements.

Under the agreements, states would be eligible for grants based on need and strength of strategies in addressing the opioid crisis, including: addressing barriers to treatment; training and approving treatment providers; supporting Medication-Assisted Treatment; eliminating costs of under- and uninsured patients; providing treatment and coverage for those leaving prison or other rehabilitative settings; enhancing prevention through evidence-based methods; supporting telehealth in rural areas; and integrating health IT to support identification of patients with opioid use disorders.

Senate Judiciary Committee Chairman Questions Mylan Settlement Details

Sen. Chuck Grassley (R-IA), chairman of the Senate Judiciary Committee is requesting more information about the unreleased $465 million settlement between the Justice Department and Mylan over EpiPen Medicaid rebates. Grassley wants to know how much states are supposed to receive from Mylan’s reported settlement, and he wants to know when and how CMS warned Mylan that it misclassified EpiPen as a generic. Grassley questions whether the reported deal fairly treats states. Mylan may have failed to pay more than $700 million to state Medicaid programs over the past five years, he said, much more than the $465 million for which Mylan said the Justice Department settled.

Mylan announced the $465 million settlement on its website Oct. 7, but the Justice Department released no information. According to Mylan’s statement, the company admits no wrongdoing and is negotiating a so-called corporate integrity agreement with the HHS Inspector General Office. Also, the Securities and Exchange Commission seeks “communications with the CMS and documents concerning Mylan products sold and related to the Medicaid Drug Rebate Program,” according to an SEC filing.

Mylan says the settlement resolved all potential rebate liability claims by government agencies over the classification of EpiPen as a generic. Drugmakers pay 13 percent rebates on the average manufacturer price of generics in the Medicaid Drug Rebate Program. For brand and single-source drugs, companies pay a 23.1 percent rebate or the difference between average manufacturer price and a drug’s best price, increased by an additional rebate when a drug’s price rises faster than inflation. Those additional price concessions for brand drugs, which do not apply to generics, are important in the case of EpiPen because the product’s price has risen more than 400 percent since 2007. Also, Mylan has given significant discounts to state education programs. Mylan says its EpiPen4Schools program gave schools more than 700,000 free epinephrine auto-injectors since 2012. The SEC filing states that EpiPen will be categorized as a generic until next April.

2. Administration

CDC Announces Another Zika Zone Detected in Miami Area

On Oct. 13, the CDC announced it is working with Florida health officials to investigate at least five new cases of locally transmitted Zika virus infection in Miami-Dade County. Florida officials announced a new area of active Zika transmission, which is about one square mile. Three of the cases involve people who live there; the other two work or have visited there. State health officials say this new neighborhood and the previously identified section of Miami Beach are the only known areas of active transmission.

CDC recommends that pregnant women avoid travel to both of the active transmission areas.

HHS Finalizes the New Medicare Quality Payment Program

On Oct. 14, HHS finalized its policy implementing the Merit-based Incentive Payment System (MIPS) and the Advanced Alternative Payment Model (APM) incentive payment provisions in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), collectively referred to as the Quality Payment Program. The new Quality Payment Program will gradually transform Medicare payments for more than 600,000 clinicians across the country.

The final rule with comment period offers a fresh start for Medicare by centering payments around the care that is best for the patients, providing more options to clinicians for innovative care and payment approaches, and reducing administrative burden to give clinicians more time to spend with their patients, instead of on paperwork.

For more information, click here.

CMS Announces New Initiative to Increase Clinician Engagement

On Oct. 13, CMS announced a new initiative to improve the clinician experience with the Medicare program. This new long-term effort aims to reshape the physician experience by reviewing regulations and policies to minimize administrative tasks and seek other input to improve clinician satisfaction. The initiative will be led by senior physicians within CMS who will report to the Office of the Administrator.

Acting Administrator Andy Slavitt appointed Dr. Shantanu Agrawal to lead the development of the function and implementation, which will cover documentation requirements and existing physician interactions with CMS, among other aspects of provider experiences. To ensure CMS is hearing from physicians on the ground, each of the 10 CMS regional offices will oversee local meetings to take input from physician practices within the next six months and regular meetings thereafter. CMS will then release a report with targeted recommendations to the CMS Administrator in 2017. Three of CMS’s regional Chief Medical Officers—Dr. Barbara Connors in Philadelphia, Dr. Ashby Wolfe in San Francisco and Dr. Richard Wild in Atlanta—will serve as regional champions of the initiative.

The first action is the launch of an 18-month pilot program to reduce medical review for certain physicians while continuing to protect program integrity. Under the program, providers practicing within specified Advanced Alternative Payment Models (APMs) will be relieved of some scrutiny under certain medical review programs. CMS identified Advanced APMs as a potential opportunity for this pilot because participating clinicians share financial risk with the Medicare program. After the results of the pilot are analyzed, CMS will consider expansion along various dimensions including additional Advanced APMs, specialties and provider types.

For more information, click here.

CMS Releases 2017 Medicare Star Ratings

According to CMS, nearly 70 percent of Medicare Advantage enrollees will be in plans that receive at least four stars for quality in 2017.

Just over half of private Medicare customers signed up for plans that received at least four stars in 2014. But the new figure decreased slightly from this year, when just over 70 percent of the 17 million-plus Medicare Advantage customers enrolled in the high-quality plans.

Medicare Advantage plans that receive at least four stars for quality are eligible for bonus payments, while those that consistently receive less than three stars can be eliminated from the program. Just two plans—operated by Tenet Healthcare Corporation and Health Care Service Corporation—are in danger of having their contracts terminated at the end of 2017 for poor performance, according to CMS.

There has been similar improvement in quality ratings for prescription drug plans. Just over 40 percent of Medicare beneficiaries who enroll in stand-alone prescription drug plans are expected to be in plans with at least four stars next year. This is up from just 9 percent who were enrolled in such high-performing plans in 2014.

There are expected to be 18.5 million individuals enrolled in private Medicare plans next year, representing about one-third of all beneficiaries. Medicare open enrollment starts on Oct. 15 and runs through Dec. 7.

For more information, click here.

3. State Activities

Massachusetts: Health Care Spending Was Worse Than Initially Reported

Health care spending in Massachusetts last year was worse than initially reported. The state’s health care spending increased 4.1 percent for last year, up from the 3.9 percent that was initially reported. This is also more than the 3.6 percent growth target set by a 2012 cost containment law. Massachusetts revised the rate after Harvard Pilgrim Health Care found errors in reporting it had earlier submitted that omitted $117 million in spending. The new figures suggest the state has not made much improvement in controlling health spending. Massachusetts spent $57.4 billion on health care in 2015 and has one of the highest medical costs in the country.

Minnesota: House Republicans Propose Response to Premium Increases

Minnesota House Republicans are proposing a new plan to respond to individual market premium increases for 2017 that will range from 50 to 67 percent on average. State lawmakers say they should use roughly $35 million that is left over from Minnesota’s high-risk pool to insulate consumers from the rate hikes, and they argue that the tax currently funding the state-based exchange should be cut by half, saving $22 million over three years.

Nebraska: Federal Officials Approve Plan to Manage Medicaid Services

Federal officials have approved a plan to expand Medicaid managed care in Nebraska. Under Heritage Health, starting in 2017 almost all Medicaid and CHIP enrollees will receive behavioral health, physical health and pharmacy services under a statewide managed care program. Nebraska awarded contracts to three insurers as part of the initiative: United Healthcare, Centene and WellCare. Nursing home and other long-term care will not be included in the program.

New York: Health Department Proposes Medicaid Coverage for Transgender Youths

The New York State Health Department issued a proposed rule that would allow Medicaid to cover youth transgender health treatment. Under the proposal, Medicaid would cover hormone therapy for minors with gender dysphoria. Last year, New York began covering hormone treatments for adults. However, Medicaid coverage for those treatments is currently prohibited for minors.

Washington: CMS Agrees to Five-Year Waiver to Reform Care Delivery in Medicaid

CMS and Washington state have agreed to a new five-year waiver to reform care delivery in Medicaid. According to the state, the 1115 demonstration will allow for up to $1.5 billion in federal funding over the five-year period, most of which will be provided through a Delivery System Reform Incentive Payment program. The waiver’s three main initiatives seek to change the Medicaid delivery system through an existing community health collaboration, expand care options for beneficiaries receiving long-term services and supports, and address housing and employment needs for vulnerable populations. CMS sent a letter to the state announcing the agreement but details are still being finalized.

4. Regulations Open for Comment

IRS, Treasury Release Proposed Rule on QHP Benchmarks

The IRS and Treasury Department, in a proposed rule released July 6, proposed to alter how qualified health plan (QHP) benchmarks are determined so that they account for the costs of pediatric dental benefits. If finalized, the rule would go into effect for the 2019 plan year.

Although pediatric dental care is one of the 10 “essential health benefits” that plans are required to cover under the Affordable Care Act (ACA), several plans do not include such coverage, and consumers instead buy stand-alone dental products. Meanwhile, the marketplace determines the amount of tax credits a family can receive to cover the cost of coverage based on the second-cheapest silver-level plan.

However, as the proposed rule said, “because qualified health plans that do not offer pediatric dental benefits tend to be cheaper than qualified health plans that cover all ten essential health benefits, the second lowest-cost silver plan (and therefore the premium tax credit) for taxpayers purchasing coverage through a Marketplace in which stand-alone dental plans are offered is likely to not account for the cost of obtaining pediatric dental coverage.”

Treasury and IRS added that the existing rules “frustrate” the goal of making all essential health benefits affordable to those receiving premium tax credits, so the administration wants to update its interpretation to ensure all 10 services are addressed.

“Consistent with this interpretation, the proposed regulations provide that for taxable years beginning after December 31, 2018, if an Exchange offers one or more silver-level qualified health plans that do not cover pediatric dental benefits, the applicable benchmark plan is determined by ranking (1) the premiums for the silver-level qualified health plans that include pediatric dental benefits offered by the Exchange and (2) the aggregate of the premiums for the silver-level qualified health plans offered by the Exchange that do not include pediatric dental benefits plus the portion of the premium allocable to pediatric dental benefits for stand-alone dental plans offered by the Exchange,” the proposal said.

The rule aims to create the ranking by adding the premium for the lowest-cost silver plan that does not include a pediatric dental benefit to the premium for the cheapest stand-alone dental plan, and the premium for the second-cheapest silver plan without pediatric dental benefits to that of the second-lowest stand-alone dental plan. The second-cheapest amount from this combined ranking would be the taxpayer’s applicable benchmark plan premium, the rule said.

HHS Proposes Updates to Title X Rules

On Sept. 2, HHS proposed to preclude Title X grant recipients from using criteria in their selection of family planning providers that are unrelated to the ability to deliver services effectively.

Since 2011, 13 states have attempted to restrict participation by family planning providers in Title X based on factors unrelated to their ability to provide services. The Title X program provides funding for certain family planning services, including STD screening and treatment, but funding is not used to pay for abortions. Although Planned Parenthood is not mentioned by name in the proposed rule, it has often been the subject of defunding actions by states and Congress.

In the proposed rule, HHS said the effects already felt by the restrictions in many states justify the department’s rulemaking. HHS said grant recipients that do not provide services directly would also be required to follow the updated standards when choosing subrecipients.

HHS also proposed that a tiered structure governing how funds are distributed would not be allowed unless it can be proven that a provider in a top tier delivers Title X services more effectively than a lower-tier provider. According to the Guttmacher Institute, a research organization that supports reproductive rights, four states have a priority system for distributing family planning funds, which often disadvantages family planning centers.

CMS Proposes Changes to Risk Adjustment in 2018 Marketplace Rules

On Aug. 29, CMS issued the proposed annual Notice of Benefit and Payment Parameters for 2018, which outlines additional steps to strengthen the Health Insurance Marketplace. CMS is issuing this rule earlier in the calendar year in order to provide more certainty to the Marketplace as it continues to mature.

Beginning in 2017, the proposed policies will take steps to strengthen the risk adjustment program. First, the rule proposes updates beginning in 2017 to better reflect the risk associated with enrollees who are not enrolled for a full 12 months. Second, beginning in 2018, the rule proposes to use prescription drug utilization data to improve the predictive ability of CMS’s risk adjustment models. Third, also beginning in 2018, the rule proposes to establish transfers that will help to better spread the risk of high-cost enrollees, a change that would improve the risk-sharing benefits of the program.

In addition to the improvements to risk adjustment, the proposed rule contains other provisions to improve the Marketplace consumer experience and strengthen the individual and small group markets as a whole. The proposed rule would give consumers additional tools for assessing the networks of competing plans; broaden availability of this year’s new standardized plan options by accommodating state cost-sharing rules; and create consumer protections for consumers enrolling through the direct enrollment channel. The proposed rule would also create multiple child age bands that address instances in which consumers could face large premium changes after turning age 21; amend the guaranteed renewability regulations to provide additional flexibility for issuers to remain in an insurance market in certain situations; and codify several special enrollment periods that are already available to consumers in order to ensure the rules are clear and to limit abuse. It also seeks information on a number of suggestions offered by issuers, consumers, providers and others on further improving the risk pool, such as additional changes to special enrollment period policies or outreach; clarifying coordination of benefit rules between Medicare, Medicaid and the Marketplace; and providing greater certainty on the amount of user fee revenue spent on education and outreach.

To see the proposed rule, click here.

5. Reports

GAO Releases Report on Aligning Health Quality Measures

On Oct. 13, GAO released a report on the hurdles to measuring and rewarding quality health care. GAO found that while HHS is working to better align its health care quality measures across programs and private payers, it needs to set key priorities for those efforts and develop more meaningful measures. More specifically, GAO recommends that HHS 1) prioritize its development of electronic quality measures and related data elements for the core measures it and private payers have agreed to use, and 2) comprehensively plan, including setting timelines for, its efforts to develop more meaningful quality measures.

To see the report, click here.

Kaiser Report Finds Medicaid Spending Growth Slowed Down in 2016

According to a Kaiser Family Foundation Survey released Oct. 13, spending under the Medicaid program grew much more slowly in fiscal year 2016 as the initial effects of the ACA’s coverage expansion began to wear off. Total Medicaid spending by the federal and state governments grew at a rate of 10.5 percent in fiscal year 2015 as Obamacare led to a surge in enrollment. In fiscal year 2016, spending growth declined to under 6 percent. Officials project that fiscal year 2017 spending will grow even more slowly, at a rate of 4.5 percent.

In future years, researchers wrote, trends in Medicaid are more likely to be influenced by the economy, cost pressures from rising prescription drug prices and state policies, rather than Obamacare coverage expansion. However, the cost burden of Medicaid coverage is shifting toward the states because of the ACA requirement they pick up 5 percent of expansion costs starting in 2017.

Though total Medicaid spending growth is on the decline, states’ spending on the program is projected to climb by 4.4 percent on average in fiscal year 2017, up from 2.9 percent the previous year.

Thirty-one states and the District of Columbia have expanded their programs to cover people with incomes up to 138 percent of the federal poverty level, as called for under the Affordable Care Act. Expansion states eventually have to cover 10 percent of the costs. Many states—Arizona, Arkansas, Colorado, Illinois, Indiana, Louisiana, New Hampshire and Ohio—are relying on provider taxes to cover all or parts of their share.

The survey also examined how states are using Medicaid managed care, managing prescription drug costs, addressing opioid abuse and implementing delivery system reforms.

To see the survey, click here.

Report Looks at Trends in Hospital Inpatient Drug Costs

According to an industry-funded report, hospital spending on drugs for inpatients increased by more than 23 percent from 2013 to 2015, and more than 90 percent of hospitals said price increases are straining their budgets. The report, commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals, found that hospitals’ drug spending far exceeded the 9.9 percent growth in retail pharmacy spending over the same time.

American Hospital Association CEO Rick Pollack and Federation of American Hospitals CEO Chip Kahn called on drug companies to restrain the price increases and highlighted proposals to boost pricing transparency and improve generic competition.

The report looked at responses from more than 700 hospitals. It also examined data from two group-purchasing organizations on 28 drugs chosen either because they had huge price increases or they were high-spending products for hospitals.

Most of those drugs were older off-patent products routinely used at hospitals, as opposed to costly new cancer treatments, for instance, which are typically administered to outpatients. About half of the 28 had no active generic competition, giving the drugmakers an effective monopoly.

To see the report, click here.

Deloitte Releases Report Examining Consumer Priorities in Health Care

Deloitte recently released its 2016 survey examining consumer priorities in health care. The survey of about 1,800 people found that the importance of relationships with health care providers remains the top priority for consumers. Moreover, respondents generally said they did not use or understand health care digital tools that were available to them. “Given the investment in digital resources and the experiences consumers are having with digital capabilities outside of health care, it might seem like digital tools are an essential part of individual health care management (scheduling, billing, disease management, etc.). We found that this isn’t necessarily the case today,” Deloitte wrote in an accompanying analysis.

Study Shows How Soda Companies Fund National Health Groups

A study examining how the Coca-Cola Company and PepsiCo have tried to block efforts to reduce soda consumption finds that they lobbied against 29 public health bills from 2011 to 2015 and financially sponsored 96 national health organizations, many of which are tasked with fighting the country’s obesity epidemic. The entities include trade associations like the American Medical Association, the American Diabetes Association and the American Academy of Pediatrics, but also government agencies like HHS, the NIH and the CDC. “It is recommended that organizations find alternative sources of revenue in order to stop indirectly and inadvertently increasing soda consumption and causing substantial harm to Americans,” the authors from Boston University write.

To see the study, click here.

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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