By John Reichard, CQ HealthBeat Editor

January 4, 2007 -- House Democrats are circulating a draft bill that would require the Health and Human Services (HHS) secretary to negotiate lower prices for drugs covered by the Medicare prescription drug benefit. Although the language requiring such negotiations sounds tough, analysts contacted Wednesday differed on whether it would actually lead to lower prices under the Medicare benefit. Democratic aides, however, insisted it would produce large savings.

A copy of the draft obtained by CQ HealthBeat states that "notwithstanding any other provision of law, the Secretary shall negotiate with pharmaceutical manufacturers the prices that may be charged for covered Part D drugs for Part D eligible individuals who are enrolled under a prescription drug plan or under an MA-PD plan." Part D is the section of the Medicare program that provides prescription drug benefits, whether through a prescription drug plan offered to beneficiaries in the traditional fee-for-service side of Medicare or through a Medicare Advantage Prescription Drug, or MA-PD, plan offered by a managed care plan in Medicare.

The draft also states that the requirement that the HHS secretary negotiate does not authorize that he or she "establish or require" a particular formulary. The draft also provides that existing prescription drug plans and MA-PDs can continue to operate formularies and are free to try to obtain bigger discounts than those negotiated by the HHS secretary.

It also would require the secretary to submit reports to Congress every six months on negotiations conducted to obtain lower prices and the discounts obtained through those negotiations.

Some analysts say that without a formulary or authority to charge different co-payments for drugs, the secretary won't have leverage to obtain discounts. Formularies can exclude drugs from coverage or provide coverage on less-favorable terms.

"The bill gives [Michael O.] Leavitt no new powers to negotiate drug prices," said Washington, D.C., health care consultant Alec Vachon, a former GOP staffer on the Senate Finance Committee. "It's straight out of 'Oliver Twist.' All Mike Leavitt can do is go to drug manufacturers and say, 'Please, Sir, may I have some more discounts?' If Pfizer says 'no,' what does he do then?"

It's widely expected that President Bush would veto legislation requiring HHS to negotiate drug prices, but Consumers Union lobbyist Bill Vaughan, formerly a Democratic staffer on the House Ways and Means Committee, doesn't rule out the possibility that the president would sign such a bill. "We are going to need massive savings in Medicare," he said. "The 75-year unfunded liability for the drug benefit is 10.4 trillion dollars."

When read the language of the draft in a telephone interview, Vaughan said he does not interpret the formulary language as precluding the HHS secretary from obtaining price breaks that plans would get if they charged lower co-pays or from publicizing a discount obtained through negotiations and telling beneficiaries what plan they could go to to get it. That would be an effective tactic for negotiating discounts and moving beneficiaries to the plans offering them, he said.

House Democratic aides said Thursday that the language would ensure large savings for Medicare beneficiaries and the Medicare program. Prescription drug plans could offer the discounts obtained by the secretary through their own formularies, the aides said. "We're not taking away the ability of PDPs to obtain better prices than those negotiated by the Secretary," one of the aides added. The lure of a market of some 40 million beneficiaries would be a powerful incentive to offer big price breaks, they said. Democrats plan to formally introduce the bill Friday. Changes in the draft are "unlikely," one of the aides said.

The House is scheduled to vote on the legislation Jan. 12.

By John Reichard, CQ HealthBeat Editor

January 2, 2007 -- Last year's lobbying blitz by doctors to avoid a 5 percent cut in 2007 Medicare payments managed to keep payments flat, but physicians now face a 10 percent cut in Medicare payments in 2008, according to a final scoring document released Dec. 28 by the Congressional Budget Office (CBO).

The tax, trade, and health care bill signed into law (PL 109-432) Dec. 20 by President Bush "specifies that payment rates will revert to the prior-law level in 2008," the CBO analysis noted. "Assuming that occurs, CBO estimates that payment rates for physician's services will be reduced by about 10 percent in 2008."

The legislation also provides for a "Physician Assistance and Quality Initiative Fund" that can be used to offset the 2008 cut. The fund places $1.35 billion under the control of the Department of Health and Human Services secretary for that purpose, but CBO did not say by how many percentage points the 2008 cut would be reduced if all of the funds are spent that year.

"Those funds will remain available until spent, but [the legislation] instructs the Secretary to obligate those funds for physicians' services furnished during calendar year 2008 to the maximum extent feasible," CBO noted. The law also requires the Medicare actuary to certify that the HHS secretary's plan for spending the funds will not result in expenditures that exceed the balance of the fund. CBO estimates that 90 percent of the fund will be spent in 2008 and the remaining funds in 2009.

The law also provides that doctors who report data on certain measures of the quality of the care they provide from July through December 2007 will be paid an added 1.5 percent for those services in the form of a lump sum amount to be paid in 2008. CBO estimates that about $300 million will be paid out under this provision and that those payments will go to doctors who account for about two-thirds of Medicare spending for doctor care.

The American Medical Association declined comment on the CBO analysis but referred to a Dec. 9 statement by AMA Board Chairman Cecil Wilson issued when Congress approved the legislation. Wilson said that had a 5 percent cut occurred, "nearly half of physicians told the AMA the cut would force them to limit the number of new Medicare patients into their practice."

Even taking the fund into account, the projected 2008 cut is likely to be considerably larger than 5 percent. "The time is long overdue to devise a sound financing system for the Medicare program so we can avoid this annual struggle to preserve seniors' access to care," Wilson said.

CBO's final scoring estimates that Medicare spending will rise $500 million in 2007–2008 for a separate doctor payment provision that sets a floor on geographic adjustments for labor costs. A provision increasing Medicare payments to dialysis facilities 1.6 percent starting April 1 will increase Medicare spending $400 million in 2007–2011 and $1.1 billion over the 2007–2016 period.

A provision allowing exceptions to a $1,780 cap on annual spending for therapy services if medically necessary will increase Medicare spending $400 million in 2007, the CBO document estimated. The provision extends the exceptions process by one year.

Part B of Medicare, which deals with care outside of inpatient hospital departments, has covered the cost of administering a vaccine when the cost of the vaccine itself is covered by that part of the program. But the cost of administering vaccines covered by Part D of Medicare, the new drug benefit, has not been covered. An example of the latter is Merck's new vaccine to prevent shingles. The new law requires Part B to cover the cost of administering those vaccines in 2007 and requires Part D plans themselves to pick up those costs starting in 2008.The 10-year cost of the provision is estimated to be $800 million.

The new legislation also allows HHS to contract with private parties called "recovery audit contractors" to spot incorrect Medicare payments to providers. CBO estimates that payments to these contractors and associated management costs will total $4.4 billion over the period 2007–2016. Gross savings from these audits would be four times these amounts and could exceed $17 billion over 10 years, CBO said. But the office said it is not permitted to formally score these amounts as savings for the purpose of totaling up the overall cost of the legislation.

CBO said new limits on the use of a $10 billion stabilization fund to attract regional managed care plans to Medicare will reduce spending by $6.5 billion over 10 years.

Tax breaks for new provisions to encourage health savings accounts will reduce federal revenues by $1 billion over 10 years. The provisions allow taxpayers starting an HSA partway through a year to contribute up to the full annual limit. They also permit employees to open an HSA by making a one-time transfer from a flexible spending account. And they repeal the limit on contributions to HSAs equal to the annual deductible under a high-deductible insurance policy.

The analysis also estimates that extending for six months a requirement that states provide Medicaid coverage to certain people coming off welfare will add $348 million to federal Medicaid spending in 2007–2011, while new limits on the use by states of provider taxes to obtain more federal Medicaid funds will reduce federal Medicaid spending by $260 million in 2008–2011.

By Martin Kady II, CQ Staff

January 3, 2007 -- Although new presidents often enjoy a 100-day honeymoon with Congress, incoming House Speaker Nancy Pelosi would gladly settle for 100 hours to get the new Congress off to a strong start.

But the California Democrat, who will usher in new a Democratic majority, is unlikely to get even that.

House Republicans are already assailing her agenda and operating style, despite the fact that Pelosi won't be formally elected Speaker until after the House convenes Thursday.

Outgoing Homeland Security Chairman Peter T. King, R-N.Y., says Pelosi is backpedaling on promises to implement every remaining recommendation of the independent Sept. 11 commission.

Rep. Tom Price, R-Ga., says Pelosi is breaking a promise of open rules and fair treatment of the minority. Her aides say she never promised open rules for the first-100-hours agenda.

Incoming Minority Leader John A. Boehner, R-Ohio, is warning that Republicans will fight her move to raise the minimum wage if it's not packaged with tax breaks for small businesses.

"The honeymoon has probably gone by the wayside," Price said.

If the Republican complaints were not enough, Pelosi faces another, more significant obstacle to her ambitious agenda: the Senate. Democrats will begin the 110th Congress with a 51–49 operating edge in the Senate, far short of the 60 votes needed to overcome filibusters and pass legislation.

Furthermore, Democratic Sen. Tim Johnson of South Dakota remains hospitalized following brain surgery for a hemorrhage that occurred Dec. 13. If he should die or resign during the new Congress, control of the Senate would almost certainly shift back to the Republicans.

Then there is President Bush. He may be a lame duck, but he is still commander in chief. No matter how much Democrats rail against his conduct of the Iraq war or how many oversight hearings they conduct, he will continue to dictate strategy there.

In addition, Bush wields the most powerful of all legislative weapons: the veto. During the first six years of his presidency, when Republicans controlled one or both chambers of Congress, Bush vetoed only one bill, a measure relaxing limits he had imposed on federally funded embryonic stem cell research. He is unlikely to be so restrained with Democrats in charge.

Democrats have nowhere near the two-thirds majority of both chambers needed to override a presidential veto, so they will have to decide fairly quickly whether they want to enact laws or make political points. That calculation may shift as the 2008 election draws closer.

The First Steps
Democrats will start the 110th Congress with relatively easy stuff—pressing lobbying and ethics changes this week, and going on to other priorities, such as passing some of the Sept. 11 commission recommendations and raising the minimum wage over two years by $2.10 an hour next week.

After that, they will move on to a more substantive agenda that includes crafting a budget resolution and attempting to repeal certain tax cuts. But first, they will have to pass a continuing appropriations resolution to fund the government through the end of fiscal 2007. The resolution, usually a temporary legislative solution to appropriations gridlock, is more complex this January because Democrats will be trying to figure out how to disburse $7 billion saved from member earmarks.

Senate Comity
In the Senate, incoming Majority Leader Harry Reid of Nevada can expect a generally strong working relationship with incoming Minority Leader Mitch McConnell, R-Ky., who has signaled that he is ready to work more closely with Democrats than did outgoing GOP leader Bill Frist of Tennessee. Both Reid and McConnell are four-term Senate veterans steeped in the institution's often arcane traditions. They prefer collaboration to confrontation, all other things being equal.

The two leaders have scheduled an unusual closed-door session in the Old Senate Chamber on Jan. 4 to give members a chance to assemble as a group in private.

After newly elected senators are sworn in on Thursday, Democrats will hold a one-day policy retreat Jan. 5.

On Jan. 8, Reid plans to bring to the floor a lobbying and ethics overhaul measure the Senate passed last year, but it will be heavily amended on the floor, with debate led by incoming Rules Chairwoman Dianne Feinstein, D-Calif.

House Democrats will adopt their ethics and lobbying proposals as part of the chamber's rules package for the 110th Congress.

The debate over the proposals, which follows a year of corruption scandals that centered on disgraced lobbyist Jack Abramoff, will give Democrats in both chambers a chance to tout their clean government agenda. Democrats have proposed tighter limits on lobbyist-funded travel, enhanced lobbying disclosure requirements, an end to the practice of secret holds, and disclosure of the sponsors of earmarks. They are divided over whether to create an outside ethics commission, but that proposal will likely be debated as an amendment to the Senate bill.

The Senate's lobbying and ethics bill is likely to be one of the few truly bipartisan legislative packages to advance in the early weeks of the new Congress.

By mid-January, the Senate will be wrestling with the minimum wage bill. Republicans have already said they will not permit it to pass without some kind of small-business tax and regulatory breaks. Those will require intensive negotiations, and Finance Committee members are already considering possible "sweeteners."

In late January, Senate Democrats plan to debate a bill that would rewrite the 2003 Medicare prescription drug bill to allow the government to negotiate bulk prices, an idea that Republicans and Bush have opposed consistently.

Budget Battle Looms
In early February, Bush will unveil his fiscal 2008 budget, and the momentum of the new Congress will undoubtedly slow with the complicated process of passing a new budget resolution. Democrats want to force the White House to include Iraq war costs in the annual budget, and appropriators are intent on attaching more conditions to war spending in the coming fiscal year.

Republicans failed to get a final budget resolution adopted last year, and Democrats aim to prove that they can do better.

"We need a budget process, and we know what works," said incoming House Budget Chairman John M. Spratt Jr., D-S.C. "We need a five- to 10-year budget framework. We need to reimpose some kind of cap on discretionary spending. And we need to reinstate the [pay-as-you-go] rule applicable to entitlement increases, as well as the tax cuts."

It won't be easy. The new Democratic majorities in both the House and Senate include a mix of liberals and fiscal conservatives who may not agree on budgetary priorities.

While budget resolutions are immune to filibusters in the Senate, mustering even a simple majority for one will be an especially formidable challenge.

By Matthew Spieler, CQ Staff

January 5, 2007 -- The Government Accountability Office (GAO) has released a report on the challenges facing the Federal Long Term Care Insurance Program as the demand for nursing home care increases.

"As the elderly population continues to grow, particularly with the aging of the baby boom generation, the increasing demand for long-term care services will likely strain federal and state resource," the report, which was published Dec. 29, states.

The prospect of a burgeoning demand for long-term care moved the federal government to offer such a benefit to some of its employees beginning in 2002. On Oct. 15, 2001, an estimated 19 million employees were eligible for the benefit. In September 2006, roughly 214,000 employees had enrolled in the program.

The report singled out a fixed profit structure in which the corporate partners that administer the federal program receive a guaranteed profit payment. "Carriers" in the private sector have no such guarantee. The profit payment structure includes three different payments for risks undertaken by the administrators. The report notes that "in contrast to the federal program, profits realized by carriers offering other long-term care insurance plans generally are not based on explicit profit structures [but rather] realize profits or losses according to the experience of the programs they insure."

In response, the Office of Personnel Management (OPM) said it plans to revisit the profit structure as it renegotiates a contract for the federal program.

Robert Laszewski, president of Health Policy and Strategy Associates, said he would not characterize the guaranteed payments as an unusual profit scheme, but described them as "an enticement to enter" into the contract. Laszewski said a more significant problem with the long-term care insurance program is that it "doesn't work for lower-income people."

The federal program also pays out considerably less money in claims than the corporate partners running the program originally projected it would, according to the report. The companies that formed a joint venture to run the program are John Hancock Life Insurance and Metropolitan Life Insurance.

With respect to lower claims revenues, the GAO recommends that OPM "analyze the claims experience and assumptions affecting premiums to inform forthcoming contract negotiations for the administration of the federal program."

By John Reichard, CQ HealthBeat Editor

January 5, 2007 -- While House Democrats already have developed specific bill language that would empower the Department of Health and Human Services secretary to negotiate directly with drugmakers, their Senate counterparts are moving more slowly on the issue of prices paid by Medicare for prescription drugs. And they aren't committed to taking the approach followed by their House colleagues.

House Democrats introduced their bill (HR 4) Jan. 5 and were expected to vote on the measure Jan. 12. But Senate Finance Committee Chairman Max Baucus, D-Mont., announced Friday that his focus next week on the issue will be on studying the issue, not voting on it.

Baucus plans to hold a Jan. 11 hearing that will include testimony from various academics and the Government Accountability Office on the issue of direct negotiating authority. He wants to conduct a careful study of how secretarial negotiating authority would work, said spokeswoman Carol Guthrie. On tap to testify are economists from Harvard and Yale and health policy scholars from Johns Hopkins University and the Heritage Foundation.

Senate Majority Leader Harry Reid, D-Nev., has introduced S 3 on the Medicare drug pricing issue, but the measure is simply described as a bill that would "provide for fair prescription drug prices for Medicare beneficiaries." Guthrie said the measure is more of a "sense of the Senate" proposal and it doesn't get into the mechanics of pricing negotiations. Guthrie offered no details on a Democratic timetable for more specific legislation, emphasizing Baucus' commitment to carefully studying the issue.

House Energy and Commerce Committee Chairman John D. Dingell, D-Mich., and House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., announced that they have more than 190 co-sponsors for the House version (HR 4), including Missouri Republican Jo Ann Emerson. "I am proud that this legislation is coming to the House floor for consideration and urge its passage," Emerson said in a press release.

Democrats said AARP, the AFL-CIO, Consumers Union, Families USA, and the National Committee to Preserve Social Security and Medicare support HR 4.

The Bush administration, meanwhile, began gearing up to counter the legislation, which would provide the HHS secretary with direct negotiating authority. It issued a "Part D Medicare Prescription Drug Benefit Fact Sheet" chock-full of statistics about the availability of plans, low premiums, and savings under the current system.

It said direct negotiating authority for the HHS secretary "requires limiting access to some drugs, while promoting others in exchange for price discounts. A 'Medicare formulary' would thus limit access to some drugs in order to offer a preferred position to others," CMS said. "By allowing individual plans to negotiate with drug companies directly and offering beneficiaries the choice of plan that best meets their needs, the Medicare prescription drug program balances the goals of meaningful price discounts and access to a wide variety of drugs," the CMS document said. House Democrats say their bill would obtain large savings without a government formulary or new restrictions on access to pharmaceuticals.

By CQ Staff

January 4, 2007 -- Physician compensation based on quality measures has increased slightly, but incentives tied to productivity remain the top form of reimbursement, according to a study released Thursday by the Center for Studying Health System Change.

The study, which based its findings on the group's Community Tracking Study Physician Survey, examined data from 1996 to 2005. According to the findings, compensation based on quality measures increased from 17.6 percent of physicians in 2000–2001 to 20.2 percent in 2004–2005. In a statement, HSC called the increase "small but statistically significant." However, the survey found that reimbursement tied to physician productivity has consistently ranked as a common incentive for 70 percent of physicians in a non-solo practice since 1996–1997.

The study's authors conclude that until policy makers make changes to complement current pay-for-performance efforts, physicians will continue to be reimbursed by the fee-for-service model, "an incentive that has uncertain implications for quality of care but which likely increases the cost of care by encouraging the provision of more services to patients."