By Mary Agnes Carey, CQ HealthBeat

January 10, 2007 -- Witnesses representing business, labor, and think tanks asked Congress on Wednesday for help with controlling health care costs and reducing the number of uninsured Americans.

"We don't have a problem, we have a crisis. And it's getting worse," Service Employees International Union President Andrew L. Stern told the Senate Health, Education, Labor and Pensions (HELP) Committee. "The solution is no longer a matter of policy—but politics."

Stern and other witnesses repeated well-known problems with the nation's health care system, such as rising costs, variations in quality, and a continued increase in the number of uninsured. Families worry over the cost of health care—and fear the economic chaos a loss of coverage could cause—and businesses say the cost of health care is hurting their ability to compete in the global marketplace.

Larry Burton, executive director of the Business Roundtable, an association of chief executive officers, said a comprehensive overhaul of the nation's health care system should include items such as greater focus on information technology, wellness initiatives, and consumer-directed health care.

Sen. Edward M. Kennedy, D-Mass., who will be chairman of the HELP panel in the 110th Congress, said Wednesday's session was one of several planned for the weeks ahead to give committee members a chance to talk with experts from fields under the panel's jurisdiction.

Kennedy said Congress must take action to give all Americans health care coverage by 2010, adding that a plan recently adopted by his home state could serve as an example of how partisan and ideological divisions could be resolved for the common good.

By the end of February, more than 100,000 Massachusetts residents who did not previously have health care coverage will be covered thanks to the plan, said John McDonough, executive director of Health Care for All, a Massachusetts group that supports the state's universal health care plan.

McDonough said the state's plan of shared responsibility—between government, individuals and employers—has helped make it successful.

Kennedy said it was critical for Congress to take action now to cover the nation's uninsured.

"The stakes couldn't be higher," he said. "Too many trends in health care are going in the wrong direction. Insurance coverage is down. Costs are up, and America is heading to the bottom of the league of major nations in important measures of the quality of care."

Witnesses urged lawmakers to act this year to reauthorize and fully fund the State Children's Health Insurance Program, which they said had proved to be a success in its first 10 years of implementation in providing health care coverage to millions of children who would not have it otherwise.

Other ideas advanced during the session included delinking the relationship between employers and health care coverage, giving employers flexibility to form purchasing pools to gain lower costs for insurance, giving consumers more information about the quality of care they receive, and comparing the effectiveness of the U.S. health care system to other nations.

"Other countries are achieving universal coverage, much lower spending per capita, and better health outcomes," Commonwealth Fund President Karen Davis said in prepared testimony.

By Drew Armstrong, CQ Staff

January 11, 2007 -- In front of experts from government and academia, Senate Finance Chairman Max Baucus said he would move away from House Democrats' plan to require the government to negotiate Medicare drug prices once the bill reached the Senate.

In a preview of how action in the Senate might unfold, Baucus, D-Mont., said at a Senate Finance Committee hearing that he would like to change the language in the current House bill (HR 4) that would "require" the government to negotiate drug prices. Instead, Baucus said he would simply remove the current prohibition on negotiations from existing law (PL 108-173).

That would be a step back from what House Democrats had been asking for, and give the administration far more leeway in deciding how to proceed.

Senators questioned whether the government would be able to achieve lower prices than those obtained by the private plans, which currently negotiate their own prices with drug makers and wholesalers.

A panel of witnesses cautioned the senators not to copy the Veterans Administration system as they attempt to devise a system for the government to negotiate Medicare drug prices.

"We can't kill the goose that lays the golden eggs, here," said Chairman Max Baucus, D-Mont.

The panel roundly rejected the idea that the government would want to copy the Department of Veterans Affairs (VA) system, which studies have shown achieve much lower prices than Medicare's private plans.

To nods from other panel members, Richard Frank a, health economist from Harvard University, explained that if the VA prices were used as a benchmark for Medicare, drug makers would likely raise VA prices for all drugs in order to preserve a higher benchmark.

The panel also agreed that parts of the Medicare drug benefit were working well, especially in cases where there were multiple drugs with similar purposes that plans could force to compete on price.

"The way you get low prices in the pharmaceutical market is to exclude drugs," said Fiona M. Scott Morton, a Yale economics professor. "You identify a few therapeutic substitutes and you hold an auction."

But in the case of single-source drugs still under patent protection, members of the panel said, private plans were having less success negotiating low prices.

"Competition only keeps prices down when there are competitors," said Frank.

Sens. Ron Wyden, D-Ore., and Olympia J. Snowe, R-Maine, have sponsored a bill (S 250) in the Senate to give the government more authority in negotiating prices for such single-source drugs.

Unlike the House bill, which requires the government to negotiate prices for all drugs, the Wyden bill would require price negotiations only in cases of unique drugs without competitors, or when the drug was developed with substantial government funding.

By Drew Armstrong, CQ Staff

January 12, 2007 -- Democrats delivered on another campaign promise Friday when the House easily passed a bill that would require the administration to negotiate Medicare drug prices.

The vote was 255–170, with two dozen Republicans supporting the measure (HR 4).

In the Speaker's Lobby after the vote, bill sponsor John D. Dingell, D-Mich., hugged and gave a small peck on the cheek to Missouri Republican Jo Ann Emerson, a prominent voice on the GOP side in support of the legislation. "You are a pleasure to work with," Dingell told her.

Hugs and kisses might be harder to come by in the Senate, where the bill awaits a much tougher path. It also faces a veto from President Bush.

The measure would alter the Medicare Part D drug benefit (PL 108-173) by requiring the secretary of Health and Human Services (HHS) to negotiate prescription drug prices. It also would bar the government from setting up a formulary or restricting access to drugs as a way of leveraging lower prices.

The 2003 law bars the government from getting involved in the negotiations by private plans that run the programs.

Opponents fired every rhetorical arrow they had in their quiver, arguing that the bill was a path to price controls, would restrict access to many drugs or simply wouldn't do anything to lower prices.

Rep. Joe L. Barton, R-Texas, called the bill a political exercise, and hoped that the Democrats' early legislative drive would sputter.

"In all likelihood it'll never come out of the Senate, so this is as far as it's going to get . . . which will be a nice, benign death."

Rep. Ron Lewis, R-Ky., summoned the specter of then first lady Hillary Rodham Clinton's failed health plan in the early 1990s as he said, "this bill is nothing but a veiled attempt at national health care."

Waving a copy of the Congressional Record, Kenny Hulshof, R-Mo., reminded Democrats that many of their ranks had voted for the original drug benefit law (PL 108-173) when it passed in 2003.

"You just can't find it in yourselves to say we got one right," he yelled across the aisle, to applause.

Pete Stark, D-Calif., quickly fired back at the former state prosecutor.

"I'd like to remind my colleague from Missouri that at least in California we require law students to read well enough to understand that the bills they wave in the air are different from the bill that we're considering today," Stark said.

Dingell made an effort to refute Republican objections to the bill as debate closed.

Citing a Congressional Budget Office report indicating that the bill would not reduce drug prices, Dingell said, "the reason is, because they know full well that this secretary probably won't negotiate on their behalf."

Dingell then promised that Democrats would hold the administration accountable if it did not lower prices. "We will give [the secretary] and the others in the administration the oversight they have lacked for six years."

Several Democrats cited the low prices obtained by the Department of Veterans Affairs (VA) as evidence that the government could indeed win lower prices than private plans negotiating on their own.

Most, however, have backed away from replicating the VA system for Medicare beneficiaries because of worries about angering voters by restricting drug access. The VA is empowered to walk away from drug price negotiations in cases where they think the price of a drug is too high, which sometimes results in leaving beneficiaries with generic or older brand drugs.

Republicans took their only shot at changing the bill with a motion to recommit that would have forbidden drug access restrictions, especially for cancer, AIDS, mental health, and neurological drugs. It also would have forbidden the negotiations to cause any increase in drug prices, for the Medicare plans or for the system run by the VA.

The motion failed, 196–229.

Mike Teitelbaum contributed to this story.

By John Reichard, CQ HealthBeat Editor

January 9, 2007 -- The Medicare Payment Advisory Commission (MedPac) is preparing to file a report with Congress in March that would chart two alternative paths to fixing the flawed Medicare mechanism for paying doctors—one of which would entail setting expenditure targets encompassing all providers, not just limiting the expenditure target to physicians, which is the case under the current system.

The other "pathway" expected to be included in the report would entail repealing the current expenditure target known as the sustainable growth rate formula, or the SGR. Known as "Pathway One," that approach also would involve "developing and adopting new approaches for improving the value" of Medicare spending.

But the commission appears divided on whether the SGR should be repealed altogether. The mechanism provides for payment cuts the following year to recoup spending amounts above the expenditure target. Although it has teed doctors up for many consecutive years of payment cuts, the SGR is not without at least some value, two MedPAC commissioners said Tuesday. They both are former directors of the Congressional Budget Office, Douglas Holtz-Eakin and Robert Reischauer.

"Pathway Two" posits that if there isn't agreement that the SGR should be repealed, expenditure targets should be widened to include outlays for all types of providers. Including a wide range of providers would create incentives for them to coordinate to keep down the costs of care, supporters of a wider cap reason. The problem with the current cap on doctor spending is that it leads doctors to enter into ventures with other types of providers to boost levels of care provided to Medicare patients to excessive, inefficient levels, some of MedPAC's commissioners said Tuesday.

MedPAC Chairman Glenn Hackbarth said he sees "broad agreement" on the commission that if a target were retained it should be applied to all providers, not just doctors. He also sees wide support on the panel for another component of Pathway Two, setting expenditure targets on a geographic basis to reflect the fact that some regions of the country are associated with much higher levels of per capita spending on Medicare patients without any improvements in quality—in fact quality appears to be lower in higher spending areas, according to some researchers.

Pathway Two includes other components that are tantamount to a transformation of the U.S. health system to spur doctors, hospitals, and other providers to work together to provide more coordinated care. The vision involves combining providers into accountable health systems that would be rated on the quality and efficiency of their care and eventually paying them accordingly.

Payment incentives are a key to the vision of a transformed system. Commissioner Nancy M. Kane said capitated payment needs to be a central feature of a transformed system. Capitation refers to a system of payment in which a fixed sum of money is paid to providers to deliver a particular type of care, with providers liable for the added costs if treatment exceeds the capitated amount or free to keep the profits if they can provide care more cheaply. "At the federal level, we should be thinking about how we can get back to a capitated environment," she said.

Talk of widespread adoption of capitation was rampant in the mid-1990s, but faded amid the public backlash against managed care.

Commissioners cautioned that whatever path Congress takes to overhauling physician care, a substantial investment of new resources in the Centers for Medicare and Medicaid Services will be essential to establishing a new system. But MedPAC is not prepared to advise Congress which of the two paths to take. Commissioner Sheila Burke said she and her colleagues lack the details "to understand how to go on one path or the other."

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 9, 2007 -- A third of states have taken steps to cover more of their uninsured residents but a new federal law may be undercutting some of those efforts, according to a study released Tuesday by the Kaiser Commission on Medicaid and the Uninsured.

The sixth annual review of eligibility rules, enrollment and renewal procedures, and cost-sharing practices for Medicaid and the State Children's Health Insurance Program (SCHIP) found that one-third of states increased access to health coverage through both Medicaid and SCHIP. Hawaii, Illinois, and Massachusetts undertook significant expansions while several other states focused on more incremental expansions for children, parents, and pregnant women, according to the report, which was compiled by the Center on Budget and Policy Priorities and the Kaiser Commission. The review of programs between July 2005 and July 2006 covered all 50 states and the District of Columbia.

For the first time in four years, no state cut income eligibility requirements in Medicaid or SCHIP, but some states used other measures to restrict eligibility. South Carolina imposed asset tests; Florida instituted a waiting period during which children must be uninsured before they can apply for coverage; and Utah reinstated its SCHIP freeze, the only state in 2006 to do so, according to the report.

Regulations issued as part of the implementation of a federal law signed in early 2006 may be complicating states' efforts to enroll more uninsured in Medicaid and SCHIP, researchers found.

A provision of the budget-savings law (PL 109-171) requires U.S. citizens applying for Medicaid or seeking to renew their Medicaid coverage to present proof of their citizenship and identity. "This new federal requirement restricts state flexibility to establish simple and efficient procedures and appears to be compromising efforts to cover eligible individuals," the report concludes.

A growing number of states are reporting enrollment declines and large backlogs of applications since the requirement took effect in July 2006, according to Donna Cohen Ross, one of the report's authors, who spoke at a news conference.

Cindi Jones, chief deputy director of the Virginia Department of Medical Assistance Services, said the documentation requirements, imposed by the Centers for Medicare and Medicaid Services (CMS), are an unnecessary complication for states and beneficiaries.

"If there are hurdles in their way, many families give up" and do not return—if they return at all—until their children get sick. Since the new documentation requirement went into effect, the number of children covered by Virginia's Medicaid program has dropped by 12,000," she said.

CMS spokesman Jeff Nelligan said, "We believe we have given the states the tools they need to both implement the law and provide sufficient flexibility to assist individuals in establishing their citizenship. We continue to monitor state implementation and are not aware of any data that shows there are significant barriers to enrollment." If states are experiencing difficulties, they should report them to CMS, Nelligan said.

While the budget-savings law also gave states new power to impose cost-sharing on Medicaid beneficiaries, Kentucky was the only state to do so in 2006 and also imposed cost-sharing on as part of its SCHIP program as well.

The SCHIP program is up for reauthorization in 2007 and the amount of federal funding provided "will be critical" to determining if those who now have coverage will keep it and how many more states can expand coverage in the future.

Sustaining Medicaid funding levels also is important, the report notes, since most children who qualify for publicly financed health coverage are covered by Medicaid.

By John Reichard, CQ HealthBeat Editor

January 9, 2007 -- A sharp drop in the growth of prescription drug spending helped keep the rise in overall U.S. health care spending down to 6.9 percent in 2005, federal economists said Monday. That was the lowest rate of increase since 1999 and marked the third consecutive year in which the rate of increase in health care spending declined, researchers said in an analysis published Tuesday in the journal Health Affairs.

But the figures hardly suggest that concerns over rising health care costs are likely to ease. Health care spending consumed an even bigger share of the gross domestic product in 2005—6 percent compared with 15.9 percent in 2004. And per capita health care spending in 2005 averaged $6,697 per person, a figure far higher than that of other industrialized nations, and one that is likely to increase significantly in coming years with the graying of America.

Nevertheless, the latest analysis of health care spending data by economists at the Centers for Medicare and Medicaid Services (CMS) was remarkable, particularly in so far as prescription drug spending was concerned.

That type of outlay grew just 5.8 percent in 2005, down from 8.6 percent in 2004 and 18.2 percent in 1999. The 5.8 percent figure was the lowest rate of increase since 1994 and was the main reason for the 2005 slowdown in overall care spending growth, CMS economist Aaron Catlin told a press briefing Monday. A sharp deceleration in Medicaid drug spending, rising use of generic drugs, and greater use of "tiered" copayments charging higher out-of-pocket costs for more costly drugs were key reasons for the drug spending slowdown, CMS economists said.

The study noted that health care spending often lags economic cycles. When a recession occurs, health care spending doesn't decline in growth right away, and helps temper the recession, the economists said. But as the effects of the recession affect health care institutions as well as the general economy, the rate of health care spending growth begins to cool, they noted.

As a result, rates of health care spending growth and economic growth recently converged, as they often do after recessions. But whether the modest pace of growth will endure is unclear. While it persisted in the mid-1990s after a recession, it's unclear whether it will do so this time, researchers said.

That health care spending growth in 2005 barely outpaced overall economic growth "might be an encouraging sign for the individuals, businesses, and governments that finance health care," the researchers wrote in Health Affairs. "However, it is unclear whether this phenomenon is temporary or indicative of a long-term trend. In the near future, the health economy will continue to be influenced by the emergence of new technology, the aging of the population, changing utilization patterns, and a variety of other factors," they added.

Karen Davis, president of The Commonwealth Fund, said, "While this may seem like good news, any celebration is premature. The U.S. still spends a staggering $6,697 per person per year on health care, more than twice what other industrialized countries spend. And even the slower spending growth of 6.9 percent continues to outpace inflation and growth in wages for the average worker in the United States."

Separately, CMS announced Monday that projected spending on the Medicare prescription drug benefit in Part D of the Medicare program is now 30 percent lower than was originally estimated when the benefit was created in 2003. In part, the lower projections reflected the lower patterns of spending cost growth found in 2005 data.

But CMS said the largest reason for the smaller projection announced Monday was competition among drug plans and significantly lower Part D bids. The latest 10-year projection is $113 billion lower than that issued last summer by federal budgeters. "Of the $113 billion reduction, $96 billion is a direct result of competition and significantly lower Part D bids," CMS said in a press release Monday.

While drug spending growth appears to be cooling, hospital spending grew 7.9 percent in 2005, the average annual rate of growth in that sector in the 2001–2005 period. Spending in the home health sector grew fastest, at a rate of 11.1 percent.

Medicare spending grew 9.3 percent to $342 billion in 2005, while Medicaid outlays rose just 7.2 percent, the fourth straight year in which spending growth slowed in that program. Cost controls for prescription drugs were a particularly strong factor in holding down Medicaid spending increases, analysts said. Because of aggressive cost control, Medicaid drug spending grew just 2.8 percent in 2005, compared with 11.6 percent in 2004.

Premiums charged by insurance plans in the private sector rose 6.6 percent in 2005, down from an increase of 7.9 percent in 2004. The employer share of spending on private health insurance was 74.4 percent, with employees paying the remaining 25.6 percent.

The study found that "rather than increasing employees' share of insurance premiums, employers continue to seek cost savings by increasing the use of coinsurance, adding deductibles and eliminating coverage for specific treatments or prescription drugs." Researchers also reported that the share of household personal income devoted to health care grew from 5.4 percent in 2001 to 6.0 percent in 2005.