Category: Reform

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Senate Unveils Changes to the Better Care Reconciliation Act of 2017: Significant Changes, but Uncertainty Remains

On July 13th, the Senate released the updated version of the Better Care Reconciliation Act (BCRA) of 2017. While the new version makes some significant changes to the original Senate proposal, the major components of the original bill remain intact.

Will the Changes Result in Additional Support?

Securing the required votes to pass the revised BCRA will be very difficult, with two GOP Senators, Rand Paul (R-KY) and Susan Collins (R-ME) announcing soon after its release they cannot even support beginning debate on the measure, a key procedural Senate vote. Senator Paul believes the bill doesn’t go far enough to repeal the Affordable Care Act (ACA) while Collins believes the Medicaid cuts are far too deep.  Four other Republican Senators have publicly said they remain undecided and many moderates in the Caucus have not announced their position.

Currently, Senate Republican Leader Mitch McConnell (R-KY) plans to begin the procedural process to allow debate on the bill as early as next week, following an anticipated Congressional Budget Office score Monday of the new language and the possible addition of an amendment by Senator Ted Cruz (R-TX).  In an effort to appease more conservative Senators, the Cruz amendment would allow non-ACA compliant plans to exist alongside ACA compliant plans in the exchanges. However, that causes angst for many moderates who are concerned about the potential loss of assurances such as coverage for pre-existing conditions.  Similar to the dynamic that unfolded in the House, moderates and conservatives in the Senate are deeply divided and appeasing one group tends to aggravate the other.

The following are highlights of the changes in the most recent version of the BCRA:

Changes to the Medicaid Provisions

  • Allows CMS to increase federal contributions to states above the limits imposed by per capita caps or Medicaid block grant amounts, if the state, or a location within the state, has a declared public health emergency.
  • Modifies requirements for Medicaid block grants to allow them to be applied to the Medicaid expansion population, and to prohibit states from using unspent block grant funds for non-Medicaid services.
  • Would retain an ACA requirement for states to cover children up to age 19 with incomes below 133% of the federal poverty level.
  • Allows states to receive relief from reductions in allowable disproportionate share hospital (DSH) payments during the following quarter in 2018 or 2019 if the state terminates its Medicaid expansion, and modifies the formula by which non-expansion states can receive additional DSH allocations.
  • Would allow seniors and the disabled to have Medicaid cover services provided during the three months prior to enrollment, as in current law.  Other Medicaid beneficiaries would be limited to retroactive coverage during the month of enrollment.
  • Would allow states to apply for an aggregate of up to $8 billion in additional federally funded payments for home and community based services (HCBS) providers through a demonstration project.  The 15 states with the lowest density are given priority in applying for these demonstration project funds.
  • Would expand federal support for services provided to members of an Indian tribe by enrolled Medicaid providers that are not Indian Health Services facilities.

Insurance-Related Changes

  • Consumers will be permitted to use HSA funds to pay health insurance premiums for the first time.  This will allow consumers to use pre-tax dollars to pay for health insurance, and could reduce the financial incentives that have long supported employer-provided health insurance coverage.
  • The so-called “Cruz Amendment” has been included in the revised BCRA.  This amendment would permit insurers to sell individual health insurance policies that do not comply with the market reforms in the ACA, so long as the insurer also sells an ACA-compliant policy in the same state.
    • The non-ACA-compliant policies would be exempt from a number of popular market reforms, including:
      • Actuarial value requirements
      • Essential health benefits coverage
      • Limits on out-of-pocket expenses
      • Community rating
      • Guaranteed issuance of policies
      • Prohibition of pre-existing condition exclusions
      • Limitations on coverage waiting periods
      • No-copay preventive care coverage
      • Medical Loss Ratio requirements
    • Coverage under a non-ACA-compliant policy does not constitute creditable coverage, so persons moving from non-compliant policies to ACA-compliant policies will be subject to a 6-month waiting period.
    • Non-ACA-compliant policies are not included in the ACA’s risk adjustment program (42 U.S.C. §18063).

Other Notable Items

  • Substance use disorder treatment and recovery service funding is increased from $2 billion for one year to approximately $5 billion per year from 2018 through 2026.
  • Purchasers in the individual market will be able to buy catastrophic/lower-premium plans and still be eligible for tax credits.
  • While most of the Affordable Care Act tax repeals remain, this version does not repeal the net investment income tax, additional Medicare tax, and the limit on insurance company deductions for executive compensation.

As we continue to monitor the Senate debate on the BCRA, we will provide updates on the status of the Senate repeal and replace efforts.

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Senate Releases Repeal and Replace Legislation on ACA: The Better Care Reconciliation Act of 2017

After weeks of secrecy, the Senate has released a discussion draft of legislation that is the counterpart of the American Health Care Act (AHCA) previously passed by the House.  The Senate legislation, entitled the Better Care Reconciliation Act of 2017 or BCRA, closely tracks the language in AHCA.

Foley Attorneys are continually monitoring and analyzing the impact of the bill and will provide additional coverage as changes are announced.  Below is a summary of the differences between the BCRA and AHCA.

Changes to the ACA Insurance Markets and Subsidies

Like the AHCA, the BCRA would make several immediate or near term changes to the health insurance markets originally established by the ACA including:

  • Reduction in Tax Penalties. The tax penalties associated with the employer and individual mandates will be reduced to $0 effective January 1, 2016, essentially repealing the employer and individual mandates with retroactive effect.
  • Reforms for Age and Pre-existing Conditions Remain. Several major market reforms implemented by the ACA are retained, including the ability for children to remain on their parents’ coverage until age 26, the requirement that individual health insurance be guaranteed issue and guaranteed renewable, and the prohibition on pre-existing condition exclusions.
  • Application for Waivers. States may apply for certain waivers of ACA market reforms, including the requirement that health insurance provide coverage of ten “Essential Health Benefits” (EHBs), requirements for credentialing plans on the health insurance marketplaces (exchanges), and limits on deductibles or cost sharing for exchange plans. BCRA would direct the federal government to approve state applications for such modifications, unless the alternative proposal would increase the federal deficit.
  • Increase of Premiums for Older Enrollees. Allowing states to increase premiums for older enrollees up to five times more than younger enrollees, increased from ACA’s maximum ratio of 3 to 1. Unlike the AHCA, the BCRA does not permit waivers of the ACA’s prohibition on determining premium amounts based on an individual’s health status.
  • Addition of a Six-month Waiting Period. Under the updated draft of the BCRA released on June 26, 2017, insurers in the individual market may impose a six-month waiting period on any individual who cannot demonstrate 12 months of continuous coverage. Under the AHCA, health insurance companies in the individual market would assess a 30% premium surcharge if an applicant has gone longer than 63 days without continuous health insurance coverage during a 12-month lookback period.
  • Cost-sharing reduction (CSR) Changes. CSR payment provisions in the ACA are repealed effective starting in 2020. However, the BCRA appropriates funds to make CSR payments through December 31, 2019. The AHCA did not appropriate any funds for CSR payments.

Additional Insurance Market Reforms

Like the AHCA, the BCRA would promote greater use of alternative approaches by states or by individuals to manage insurance costs, including use of high-risk pools and health savings accounts (HSAs).

  • Expanded Tax Benefits Associated with HSAs. Effective January 1, 2018, the BCRA would expand the tax benefits associated with HSAs, and allow consumers to contribute substantially more pre-tax money to an HSA regardless of whether they have individual or employer-sponsored health coverage.  HSA contributions would be allowed up to the limits on out-of-pocket expenses permitted for high deductible health plans (for 2018, $6,650 for self-only coverage and $13,300 for family coverage) (same as the AHCA).
  • Changes in Flexible Spending Account Contributions. Effective January 1, 2018, ACA’s limit on the amount an employee may contribute to a health flexible spending account (health FSA) per year (for 2017, $2,600) would be repealed (same as the AHCA but the BCRA’s effective date is a year later).
  • Ability to Purchase Over-the-counter Medications using FSA or HSA. Effective January 1, 2017, employees would again be able use health FSA and HSA funds to purchase over-the-counter medications without a prescription, as was the case before ACA was adopted (same as AHCA).
  • Changes to the Effective Date of the Cadillac Tax. While many of the taxes included in the ACA would be repealed, the BCRA retains but delays the “Cadillac Tax” until 2026 (same as the AHCA).  The Cadillac Tax is a 40% excise tax on high-cost health coverage provided by employers.

Significant Modifications to the Medicaid Program

The BCRA’s most significant impact may be felt on the Medicaid program, which would be slated for substantial reductions in funding along with new authority for states to modify the scope of their programs.

Incentives to Roll-Back the ACA’s Medicaid Expansion. BCRA would provide significant financial incentives for states to reverse or roll back the expansion of Medicaid under the ACA to cover low-income adults who do not have dependents or serious disabilities.

  • Reduction in Federal Financial Support for the Expansion. The Senate bill would gradually reduce the level of enhanced federal funding available for the expansion population each year until 2023, when funding would be available at a state’s normal Medicaid matching rate.  The reductions are certain to create enormous budgetary problems for states that expanded Medicaid, potentially forcing modifications or reductions in benefits or the roll-back of the expanded coverage.  The Senate bill also prevents states that elect to expand Medicaid on or after March 1, 2017 from receiving the enhanced funding.
  • Disparate Treatment of Expansion and Non-expansion States.  Medicaid expansion states would also face scheduled reductions in their disproportionate share hospital (DSH) payments, while BCRA would remove the reductions for non-expansion states.  In addition, non-expansion states would have their DSH allotments increased between 2020 and 2024 if the state has a per capita DSH allotment below the national average. These increases would not apply to expansion states.
  • New Authority for $2 Billion in Funds for Non-expansion States.  Similar to the House legislation, BCRA would create new authority for $2 billion in funds for non-expansion states that can be used to increase Medicaid payments to providers up to the provider’s uncompensated costs of treating Medicaid and uninsured patients.  A state would be disqualified from these payments if it elects to expand Medicaid coverage.

Changes to Limit Federal Support for Medicaid beginning in 2020.  BRCA also makes significant changes to the financial structure of the Medicaid program that are unrelated to the ACA’s Medicaid expansion.

  • Hard Caps on Federal Medicaid Funding through a Per Capita Calculation.  The formula for this calculation closely follows the approach in the House legislation.  However, the Senate version utilizes a different inflation adjuster beginning in 2025 that, if implemented, would limit the growth in federal Medicaid expenditures (on a per capita basis) to the general consumer price index for urban consumers. In recent years, Medicaid expenditures have risen much faster than this inflation measure. The per capita caps would apply beginning in 2020.
  • Budget Neutral Adjustments to the Per Capita Caps for Low- and High-Cost States.  New authority to adjust the per capita caps for specific enrollment categories for states that are 25% above or below the  mean per capita cap for all states.  Under this provision, states that spend more on a per capita basis for a specific enrollment category (e.g., for Medicaid-enrolled children, or seniors, or the disabled) would have their per capita caps reduced, and states that pay less than the mean would have their per capita cap increased. This authority does not apply to low-density states.
  • Reduction to the Per Capita Cap for New York State.  BCRA includes the language previously included in the House legislation that would reduce the per capita cap for New York state, unless New York state stops requiring local governments (other than New York City) to contribute to the Medicaid program.
  • New Authority for States to Apply for and Receive Federal Block Grants.  New authority for states, beginning with fiscal year 2020, to receive federal block grants for the operation of approved “Medicaid flexibility programs” for qualifying Medicaid beneficiaries.  The legislation provides that the Medicaid flexibility programs would not be available for children, seniors, the disabled, or individuals in the expansion population, meaning interested states would apply them to low-income adults with dependent children. The Medicaid flexibility programs would be in lieu of the operation of the state’s normal Medicaid benefit, and would allow the state to modify conditions of eligibility, benefit package, and cost sharing.  The amount of the block grant would be based on the per capita cap amount otherwise available to the state.  States would be required to meet a maintenance of effort requirement that is lower than what they would otherwise need to expend to draw down the same amount of Medicaid funds.
  • Phases Down the Cap on Health Care Provider Taxes.  BCRA would phase down provider taxes that will be considered permissible without meeting alternate, more burdensome criteria from 6% to 5%, beginning in 2021.  As a result of these changes, the provider taxes or fees in many states that help support Medicaid payments to hospitals and other providers may need to be reduced or modified.

Restrictions on Medicaid Eligibility.  BCRA also implements new oversight and restrictions on beneficiaries accessing Medicaid coverage.

  • Ability to Condition Medicaid Coverage on Satisfaction of a Work Requirement. States would be allowed to condition Medicaid coverage on the beneficiary’s satisfaction of a work requirement, which would be defined by federal law.  This requirement could not be applied against pregnant, disabled, elderly, or minor (under age 19) beneficiaries, or against individuals who is the only parent or caretaker in the family of a child with disabilities or under age 6.
  • Option to Require Re-enrollment for Expansion Enrollees.  States would have the option to require individuals in the Medicaid expansion population to re-enroll at least every 6 months to maintain their coverage.
  • Limits on Retroactive Medicaid Coverage.  Current law requires Medicaid programs to cover services provided to an individual within the 3 months prior to the completed application.  BCRA would reduce this to one month, effective October 1, 2017.
  • Sunset Hospital Presumptive Eligibility. Hospital authority to make presumptive eligibility determinations will end January 1, 2020.

Medicaid Benefit Changes. New limitations or options for state Medicaid coverage.

  • Access to Essential Health Benefits.  BCRA removes the requirement for Medicaid expansion beneficiaries to receive a package including EHBs.  The inclusion of this requirement in the ACA led to a significant expansion of Medicaid mental health and substance abuse disorder treatment services.
  • Limited Exception to Medicaid IMD Exclusion.  Medicaid currently does not cover services for adults who are residents in an institution for mental diseases (“IMD”).  The BCRA would expand state’s options to cover adult psychiatric hospital services, regardless of whether the IMD designation applies, when an individual has a stay of up to 30 consecutive days (and up to 90 days in a calendar year).  State would not be eligible to cover these services if the state reduces the number of licensed beds at psychiatric hospitals owned, operated, or contracted by the state, or reduces the non-Medicaid funding expended by the state and political subdivisions for inpatient and outpatient psychiatric treatment.

Other Notable Changes

  • Medicare Program Remains Intact – Like the AHCA, the Senate bill does not seek changes to the benefits or coverage under the Medicare program, although it does remove taxes imposed by the ACA that help finance the Medicare trust fund.
  • Substance Use Grants – An additional $2 billion would be available as grants for states to support substance use disorder treatment and recovery support services for individuals with mental or substance use disorders.
  • Additional Funding to Federally Qualified Health Centers– An additional $422 million in funding will be provided to Federally Qualified Health Centers through the Community Health Center Fund in 2017.
  • Planned Parenthood Funding – The BCRA would prevent any Medicaid, CHIP, and certain federal block grant payments from being made to Planned Parenthood for one year.

The Question Remains as to Whether the BCRA Will Pass the Senate

Yesterday, the Congressional Budget Office (CBO) released its estimate that 22 million people will lose coverage by 2026 if the Senate bill were to become law. The CBO also projected the measure would reduce the deficit by $321 billion between 2017 and 2026, roughly $200 billion more savings than in the House’s AHCA.

Senate Republican Leader Mitch McConnell (R-KY) intends to bring the bill to the Senate floor for a vote later this week under a process known as reconciliation, which means the measure can move forward with only 51 votes.  Should he be successful, the House could pass the Senate bill at the end of the week and send the measure to President Trump for his signature.  However, thus far five Republican Senators have stated they oppose the bill as currently written:  conservative Senators Rand Paul (R-KY), Mike Lee (R-UT), Ted Cruz (R-TX) and Ron Johnson (R-WI) and moderate Senator Dean Heller (D-NV).  Several other Senators have expressed concerns over a multitude of issues with the bill, including the 22 million individuals that are projected to lose coverage, lack of funding for Planned Parenthood for one year, and the lack of sufficient time to review and understand the likely impacts of the legislation.  McConnell can only lose votes from two Senators or the measure will fail.  Democrats have repeated their willingness to work with the Republicans to improve upon the Affordable Care Act, but oppose the BCRA or the “repeal and replace” bill in its current state.

Negotiations are underway as Senator McConnell tries to secure of the votes in order to move the bill this week.  He has significant flexibility to negotiate on Medicaid, funding to combat opioids, and other aspects of the measure because the $321 billion in projected savings far exceeds the amount required.  Senators are scheduled to be in their home states next week for the July 4th recess.  If the measure does not pass before they leave Washington, D.C., history tells us the path could become even more difficult once they return.  President Trump has reportedly contacted many Senators to hear their concerns and Vice President Pence, who is expected to expected to deliver the 51st vote to get the bill over the finish line, is scheduled to attend today’s regularly scheduled meeting of the Senate Republicans.

We will continue to monitor the Senate Legislation and will provide updates on any changes that happen in an effort to gain support of the existing bill.

Senate Vote Delayed

Editors note: This section was added at 2:30pm CDT on Tuesday, June 27th.

Senator McConnell announced this afternoon (Tuesday, June 27th) the Senate will not vote on BCRA this week, due to concerns raised by multiple Republican Senators who want more time to understand the bill’s impact on their respective states.  The earliest the Senate could take up the bill is the week of July 10th, following a scheduled recess the previous week.  The Senate is in session for three weeks during the month of July and then adjourns for five weeks beginning July 31st.  If the bill has not passed before the August recess its prospects are greatly diminished.

We expect negotiations to continue as McConnell works to address Senators’ concerns and secure the votes necessary for passage.

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Senate Sets Timeline to Take up Repeal and Replace Legislation on ACA

With Congress returning to Washington, D.C. from its Memorial Day work period, Senators are focusing heavily on the timeline and details of legislation that would significantly alter the Affordable Care Act (ACA). Over the last week, many senior Senators have expressed skepticism regarding whether they can pass a bill, but Senate Republican Leader Mitch McConnell (R-KY) has laid out an aggressive timeline. Specifically, he would like the chamber to vote on a bill before the July 4th recess and use the rest of July to reconcile the House and Senate versions, leading to a final vote before the August recess. Congressional Republicans are eager to move beyond health care in order to take up tax reform and FY2018 federal government funding.

The Great Medicaid Expansion Divide

Senate Republicans are in agreement that their bill will be significantly different from what the House passed earlier this year, but that is where consensus ends. The main sticking point is how to appease Senators on both sides of the expansion – states that expanded and those that did not – in order to cobble together 50 votes (with Vice President Pence delivering the 51st). Those that did expand their Medicaid population don’t want to see their expansion population lose coverage, and those that did not expand, believe they are entitled to an additional financial benefit so they are not at a disadvantage as compared to the expansion states.

Achieving the required savings under reconciliation, while appeasing both factions, is proving extremely difficult. At this point, Democrats are not expected to vote for any Senate bill that significantly modifies the ACA so Republicans must rely entirely on their own Conference. Senators are also concerned about the alarming number of Americans projected to lose coverage under the House passed bill, and are developing a plan that would provide more generous tax subsidies for purchasing coverage. At this point, there is very little interest in including changes to the Essential Health Benefits package as was done in the House bill.

Still Awaiting the House-Passed Bill

In an interesting twist, the Senate parliamentarian is still in the process of reviewing the House-passed bill to make sure it does not violate Senate rules. Therefore, the legislative vehicle has still not officially been delivered to the Senate from the House. A ruling is expected this week.

Stay tuned for further updates as we eagerly await the first draft of the Senate bill, which could come as early as this week.

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Republican Health Care Bill Moves Forward to the Senate

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In a surprising reversal, last week the U.S. House of Representatives passed legislation that would significantly modify the Affordable Care Act. The legislation, known as the American Health Care Act (the “AHCA”, H.R. 1628), passed on Thursday with a 217-213 party line vote.  After cancelling an expected vote on AHCA in March, the House Republicans developed additional amendments to the AHCA which ultimately led enough House Republicans to support the bill.

While the AHCA would not fully repeal the Affordable Care Act, it does make significant changes to the insurance markets developed under the Affordable Care Act, and also includes numerous tax provisions and significant modifications to the Medicaid program. A summary of the initial AHCA legislation from early March is available here. The version of the legislation approved by the House of Representatives last week also includes key amendments that were introduced to help secure the votes to move the bill forward:

Amendments that Impact the Insurance Markets

  • Beginning January 1, 2018, would allow states to waive the ACA’s “community rating” (or medical underwriting) prohibitions, thereby permitting insurance companies to charge higher premiums for more complex health conditions.
  • Beginning January 1, 2020, would allow states to modify the ACA’s essential health benefits for plans offered in the state on the individual or group market, allowing such plans to offer more limited benefits, and potentially allowing all plans (including employer-sponsored insurance) to impose lifetime caps on benefits that are not essential health benefits.
  • Modifies the AHCA’s required premium increases for individuals who do not maintain continuous health insurance coverage (defined as all but 63 days in the last twelve months) to allow plans to instead consider the health status of such individuals when setting premiums for one year, but only if the state establishes a high-risk pool or other program to stabilize individual health market insurance premiums.
  • Additional funding for the Patient and State Stability Fund, including $8 billion per year from 2018 to 2023 to states who have applied for and been granted a waiver from the ACA’s community rating requirements. These funds must be used to provide assistance to reduce premiums or other out-of-pocket costs to individuals that:
    • reside in states with an approved waiver,
    • have a pre-existing condition,
    • are uninsured due to not maintaining continuous coverage, and
    • have purchased health care in the individual market.

Medicaid Amendments

  • New option for states to be paid a block grant for adult beneficiaries with dependents and child beneficiaries. The block grant would allow states to draw down the federal block grant funds at an enhanced rate, and would allow the state increased flexibility to reduce eligibility standards, benefits, and other Medicaid requirements.
  • New options for states to condition availability of Medicaid beneficiaries on satisfaction of a work requirement.
  • In addition to phasing out the enhanced federal matching funds for the Medicaid expansion for all states beginning in 2020, would include language prohibiting states that elect to expand after January 1, 2017 from receiving the enhanced matching funds.

Looking Forward

Now that the House has passed the AHCA attention turns to the U.S. Senate. Early Senate reactions indicate they will take some time to decide the best path forward and will write their own bill, rather than work off of the House bill.  While the House and Senate Republicans were working closely together on legislative language when the earlier version of the AHCA was released, that effort was abandoned in recent weeks once the House began to include changes to the ACA’s essential health benefits package and provisions related to coverage for people with pre-existing conditions. Those provisions have been met with opposition from some Republican Senators and are unlikely to be included in a Senate bill, in part because they do not have a federal budgetary impact, which is required when moving a bill under the chamber’s reconciliation rules. Moreover, Republican Senators have publicly stated their opposition to the AHCA’s changes to the Medicaid program and repealing funding for Planned Parenthood. To complicate matters further, Congress loses the ability to use the FY17 reconciliation vehicle once they pass a conferenced FY18 budget resolution. Just this week they have turned their attention to the FY18 budget so the clock is ticking.

Last week’s vote puts many House Republicans in districts which were won by Secretary Clinton on the hot seat for their re-election in 2018.  The dynamic is eerily similar to what occurred in 2009 and 2010 when Democrats passed the Affordable Care Act.

Stay tuned for further updates as we watch the Senate to see what happens to the AHCA and to the ACA.

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Key Takeaways From FHA’s Health Law Summit

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Foley recently co-hosted the Florida Hospital Association’s (FHA) 2017 Health Law Summit, which brought together more than 40 in-house attorneys and compliance officers from FHA member hospitals to discuss the current state and future direction of the health care industry.

Amid so much economic and political uncertainty, we are diligent about keeping our fingers on the pulse of the macro trends impacting providers operating in the U.S. health system. While we know you’ve been paying close attention to these developments as well, following is a brief recap that encapsulates the key takeaways from event speakers and other health care practitioners in attendance.

Telehealth and Destination Medicine

Florida has rapidly become a hotspot for the burgeoning area of destination medicine, and hospitals must account for the movement, lest they lose valuable revenue and patients to specialty competitors. While current laws and regulations are complex, there are avenues to create compliant offerings, including telehealth and online second opinion programs.

Health Care Privacy and Cybersecurity

Managing relationships with vendors, especially those who handle protected health information, is key. Best practices include conducting due diligence and negotiating appropriate contractual protection.

Labor and Employment Law

Laws affecting the workplace are in a state of flux, but changes are on the horizon under the new administration, which is generally viewed as being pro-employer. Hospital executives are eager to see how the DOL will be steered on issues such as overtime, worker safety and collective bargaining, to name a few.

False Claims Act Investigations and Enforcement

Civil Investigative Demands (CID) served by the government must be treated differently than other kinds of subpoenas or demands, and misperceived responses can have an adverse impact. In-house counsel who receive CIDs must have an escalation plan that addresses potential high-risk or high-likelihood scenarios, including investigations, litigation, settlements, liability, damages, insurance and disclosures.

Update on Stark Law and Anti-Kickback Statute

Government enforcement of such violations is expanding at a rapid rate, particularly in Florida. There were several notable public settlements in the state last year, as well as changes made to 11th Circuit case law, so it’s important for in-house counsel to stay abreast of these developments.

Boards and Hospital Governance and Compliance

The Department of Justice is increasingly holding individual leaders responsible for the stewardship of their hospitals. Educating hospital boards is vital to effective compliance, especially related to financial arrangements and quality of care.

 

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House Committees Reveal Draft of Bill to Modify and Repeal Portions of the Affordable Care Act

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On Monday, two House committees with oversight over health care and taxation, Energy and Commerce and Ways and Means, released draft reconciliation bills designed to repeal and alter significant portions of the Patient Protection and Affordable Care Act (PPACA).  These long-awaited draft bills, collectively entitled the American Health Care Act (AHCA), would make significant modifications to the health insurance markets and to the operation of state Medicaid programs, and would also repeal or delay several taxes imposed by PPACA.

Energy and Commerce and Ways and Means are holding mark-ups of the legislation simultaneously today, with a House Budget Committee mark-up anticipated next week.  Then the bill will go to the House floor for a vote of the full chamber.  Despite Speaker Paul Ryan’s (R-WI) confidence the bill will move swiftly through the House, significant opposition among the House Republican Conference remains.  The so called Freedom Caucus Members have expressed strong opposition to the tax credit and Medicaid expansion provisions in the current legislation and prefer the measure Congress passed previously, which was vetoed by President Obama.  Moreover, the Congressional Budget Office (CBO) has not yet released the cost of the bill or the estimated number of Americans who will be covered under the AHCA, further adding to the frustration within the Republican Conference.

In the Senate, Majority Leader Mitch McConnell (R-KY) has echoed similar sentiments as Ryan, saying he hopes to bring a bill to the Senate floor before Congress recesses for two weeks in mid-April.   Under the reconciliation process used to bring the AHCA forward, the Senate can only lose two Republican votes in order to pass the measure, and deep divisions among the GOP remain.  Some Senators are aligned with the concerns expressed by the House Freedom Caucus Members, while others oppose the proposed Medicaid changes or the prohibition of federal funds for Planned Parenthood.  President Trump has voiced support for the AHCA and will likely need to use the power of his office to get it across the finish line.  Following passage of the AHCA, Republicans plan to issue additional changes to PPACA through Executive Order and additional legislation.  Democrats in both the House and the Senate are expected to oppose the measure.

Foley attorneys are analyzing the impact of changes included in the AHCA, and over the next few weeks will be publishing more detailed analyses explaining the context and potential implications of the changes for the health care industry.  Some of the big-picture items notable for their inclusion or absence in the AHCA are identified below.

Changes to the ACA Insurance Markets and Subsidies

The AHCA would make several immediate or near term changes to the health insurance markets established by PPACA.

  • The tax penalties associated with the employer and individual mandates will be reduced to $0 effective January 1, 2016, essentially repealing the employer and individual mandates with retroactive effect.
  • In 2018 and 2019, modifications to the premium tax credits (commonly referred to as subsidies) available under PPACA would take effect. These modifications would adjust the amount of premium tax credits available for the purchase of individual health insurance based on both income and age.  Additionally, in 2018 and 2019, premium tax credits would be available for individuals who purchase catastrophic coverage and individuals who purchase off-Exchange individual health insurance. In 2020, a new premium tax credit system would take effect.  Under this new system, tax credits would vary based only on age, but would phase out above an income threshold.

PPACA

Transition Period (2018 and 2019)

2020 and Beyond

Amount of Premium Tax Credit

Lesser of actual premium paid by taxpayer or premium for second-lowest silver plan, adjusted by income.

Lesser of actual premium paid by taxpayer or premium for second-lowest silver plan, adjusted by age and income.

Fixed dollar amounts, set by a schedule.  Tax credit amounts increase from $2,000 for people under 30 to $4,000 for people over 60.  The credits phase out for higher-income taxpayers (above $75,000 single/$150,000 joint)

Availability of the Premium Tax Credit

On-Exchange purchases only; no catastrophic coverage.

On and off-Exchange purchases, including catastrophic coverage.

All individual major medical insurance, including catastrophic coverage.

  • The AHCA would not rescind or modify many of the major insurance market reforms implemented by PPACA, including the ability for children to remain on their parents’ coverage until age 26, the requirement that individual health insurance be guaranteed issue and guaranteed renewable, the prohibition on pre-existing condition exclusions, and the requirement that health insurance provide coverage of ten “Essential Health Benefits” (EHBs).
  • The AHCA removes requirements that individual health plans satisfy actuarial value requirements to be identified as a particular metal level (e.g., bronze, silver or gold). The AHCA does not provide an alternative method for identifying the metal level of a particular plan.
  • Effective for special enrollments in 2018 and open enrollment for 2019 and later years, health insurance companies in the individual and small group market would assess a 30% premium surcharge if an applicant has gone longer than 63 days without continuous health insurance coverage during a 12-month lookback period.  This surcharge applies regardless of the applicant’s health status.

Additional Insurance Market Reforms

The AHCA also would promote greater use of alternative approaches by states or by individuals to manage insurance costs, including use of high-risk pools and health savings accounts (“HSAs”).

  • The AHCA will create a new Patient and State Stability Fund, which will provide $100 billion between 2018 and 2026 to mitigate the cost of individual health insurance and stabilize state markets.  States will be given the flexibility to use these funds to establish or strengthen high-risk pool mechanisms, provide additional subsidies for individual health insurance, make payments to insurers for insureds who incur more than $50,000 in claims during any single year, promote participation in the individual/small group health insurance marketplace, promote preventive care and other public health services, or to defray out-of-pocket costs incurred by covered individuals.
  • Effective January 1, 2018, the AHCA would expand the tax benefits associated with HSAs, and allow consumers to contribute substantially more pre-tax money to an HSA regardless of whether they have individual or employer-sponsored health coverage.  HSA contributions would be allowed up to the limits on out-of-pocket expenses permitted for high deductible health plans (for 2017, $6,550 for self-only coverage and $13,100 for family coverage).
  • Effective January 1, 2018, PPACA’s limit on the amount an employee may contribute to a health flexible spending account (health FSA) per year (for 2017, $2,600) would be repealed, and employees would again be able use health FSA funds to purchase over-the-counter medications without a prescription, as was the case before PPACA was adopted.
  • While many of the taxes included in PPACA would be repealed, the AHCA retains but delays the “Cadillac Tax” until 2025.  The Cadillac Tax is a 40% excise tax on high-cost health coverage provided by employers.

Modifications to the Medicaid Program

The AHCA proposes significant modifications to the financing and eligibility for Medicaid programs, including new incentives designed to reduce states expanding Medicaid coverage as envisioned by PPACA, new limits on federal matching of state Medicaid expenditures, and increased oversight and limitations on Medicaid eligibility.

  • The AHCA would allow states, at their option, to continue PPACA’s Medicaid expansion, but would reduce federal matching funds for the expansion beginning January 1, 2020. Expenditures for services for individuals enrolled before January 1, 2020 would be separately identified and continue to be matched at PPACA’s enhanced rate if the individual does not have a gap in Medicaid coverage.
  • Scheduled reductions in Medicaid disproportionate share hospital (“DSH”) payments would be reversed beginning with 2020; cuts would remain as scheduled for 2018 and 2019. These reductions in DSH payments would not be applied against providers in states that did not expand their Medicaid program.
  • New authority for states to make up to $2 billion per year in increased Medicaid payments, consisting entirely or almost entirely of federal funds, to Medicaid providers in states that did not expand the Medicaid program under PPACA.
  • New “per capita cap” formula would, beginning October 2019, penalize states whose aggregate Medicaid expenditure exceed a pre-determined per-capita target.
  • Multiple revisions to increase oversight of Medicaid eligibility requirements, including:
    • Requirement to revalidate Medicaid eligibility every 6 months.
    • Removal of the ability to cover services provided to a Medicaid beneficiaries during the three months prior to the submission of an application
    • Changes to limit the availability of federal financial participation for individuals who have attested to being citizens or nationals prior to the submission of verifying documentation
    • Termination of certain presumptive eligibility options as of January 1, 2020
    • Requirements for states to consider lottery winnings in Medicaid eligibility
  • Removes requirement for Medicaid expansion beneficiaries to receive a package including “essential health benefits,” which includes requirements for access to coverage for mental health and substance abuse disorder treatment services.

Other Notable Changes

  • The AHCA does not seek changes to the benefits or coverage under the Medicare program, although it does remove taxes imposed by PPACA that help finance the Medicare trust fund.
  • An additional $422 million in funding will be provided to Federally Qualified Health Centers through the Community Health Center Fund in 2017.
  • The AHCA would prevent any Medicaid, CHIP, and certain federal block grant payments from being made to Planned Parenthood for one year.

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Rand Corporation Issues Report on U.S. Blood System

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“A robust, sustainable blood system is a crucial component of every health care system.”  That is how Rand Corporation’s recently issued comprehensive report entitled “Toward a Sustainable Blood Supply in the United States” (the “Report”) begins.  Issued as a result of research sponsored by the U.S. Department of Health and Human Services (“HHS”), the Report explores the challenges faced by the U.S. blood system and offers policy alternatives designed to ensure that such system remains sustainable.

The Report describes in detail the component parts and coordinated activities of the multiple stakeholders in the blood system, including the following: (1) voluntary donors of blood and its components; (2) nonprofit blood centers that collect, test, process, store, and distribute blood; (3) suppliers of equipment, goods, and services to blood centers; (4) hospitals and other providers who utilize blood in patient care delivery; (5) government and commercial payers who pay the hospitals and other providers for health care services involving blood; and (5) the government oversight and regulatory agencies (the Food and Drug Administration, the Centers for Disease Control and Prevention, the U.S. Biovigilance Network and the National Institutes of Health).

The Report identifies a number of challenges the blood system is facing.  It points out that there has been a marked decrease in demand for blood in the last 10 years resulting largely from changes in clinical practice and the increased focus by hospitals on cost control and blood management programs.  Provider consolidations have also resulted in stronger bargaining power for providers, which has decreased the prices paid for blood.  At the same time, new pathogens, such as the Zika virus, (which has limited  the ability of some to donate blood in certain areas thereby reducing collections) and technological innovation necessary to test for the presence of pathogens in blood have added costs to the processing and testing of blood.  Having sufficient blood available in times of emergencies or other significant disruptions is also an area of concern.  These various challenges have meant that the financial status of blood centers has reached the point where many lose money on blood operations and all are facing pressure on their margins.

The Report further explores the current payment system for blood.  The blood centers’ activities in collecting, testing, storing and distributing blood are reimbursed indirectly.  It generally is the hospital that is reimbursed for its use of blood on patients as part of the diagnostic related group (“DRG”) or through commercial payments from managed care plans.  Payments are intended to cover the cost the hospital incurs in acquiring and using blood.  The blood centers generally are not paid directly by payors and the negotiations between hospitals and blood centers may or may not reimburse blood centers fairly for the costs incurred by the blood centers.  The Report discusses alternative methods to reimburse blood centers.  Among the alternatives discussed are:

  • a DRG pass-through specifically for blood;
  • direct payment to blood centers (as opposed to hospitals and providers);
  • a supplemental payment for blood technology either made to hospitals or directly to blood centers;
  • federal grants to support the blood supply (for such things as ensuring capacity for emergencies or for developing tests for new pathogens); and
  • a disproportionate blood share model similar to the Medicare or Medicaid DSH program.

Despite the challenges discussed in the Report, the Report concludes that the U.S. blood system currently operates effectively and efficiently.  The pressures facing the blood system, however, create risks for future sustainability.  The Report explores an alternative whereby the U.S. government plays a more active role to ensure sustainability in addressing these pressures. To do so, the Report suggests that the U.S. government could (1) collect data and monitor the system; (2) adjust  how blood use is reimbursed; and/or (3) pay directly for certain technologies or features to help ensure surge capacity or pay for certain pathogen specific tests.

Finally, the Report provides seven recommendations to HHS:

i. Collect data on blood use and financial arrangements.

ii. Develop and disseminate a vision of appropriate levels of surge capacity and emergency response plans.

iii. Pay blood centers for maintaining surge capacity.

iv. Build relationships with brokers and other entities to form a blood “safety net.”

v. Build and implement a value framework for technology.

vi. Pay directly for new technologies where there is no private business case for adoption.

vii. Implement emergency use authorization and contingency planning for key supplies and inputs.

* * *

The Report provides a comprehensive analysis of the U.S. blood system. As the Report states, “a robust sustainable blood system is a crucial component to every healthcare system.”  While the system functions well currently, there are growing pressures on the system.  The Report is valuable in that it proactively identifies the challenges the system faces and provides steps that should be considered to ensure long-term sustainability and avoid a future crisis.

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Obamacare in the Cross Hairs — but Procedural Hurdles Loom

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President-elect Trump and congressional Republicans have promised to “repeal and replace” the Affordable Care Act (ACA), but there is deep division regarding which provisions will be rescinded and around the details of the replacement and the length of any transition period.

Last week the U.S. House and U.S. Senate took the first steps toward achieving repeal by passing a budget resolution with reconciliation instructions related to ACA repeal. The reconciliation process allows the Senate to bypass a filibuster and pass legislation with a simple majority. However, only budget-impacted provisions of the ACA can be repealed this way. Further, this year’s budget resolution stipulates that changes must save $1 billion over a ten-year period to be enacted through reconciliation.   While the budget resolution calls for committees to develop language to achieve this by January 27, it may take much longer given the complexity around repeal and replace.

The policy stakes are extremely high, not only because millions of Americans stand to lose coverage if the exchanges and Medicaid expansion are eliminated with no replacement, but also because developing a newly designed system which will inevitably pit health care stakeholders against one another creates significant political ramifications.

While the situation remains fluid, there are a few issues we are watching in the first few weeks of a Trump presidency.

Rolling Back Regulations

Congressional Republicans can also use the appropriations process to de-fund certain parts of the ACA, and President-elect Trump may modify portions of the law by Executive Order. This would jeopardize regulatory actions taken by President Obama, including pilot programs created by the ACA and developed within the Center for Medicare and Medicaid Innovation, which Republicans have accused of exceeding its authority. Other health-related regulations, particularly those finalized in the weeks following the election, may also be on the chopping block.

Carryover of ACA Provisions

While the GOP targets what it believes to be the ACA’s most onerous provisions, many popular insurance reforms — including the prohibition on denials of coverage for pre-existing conditions — are likely to survive. President-elect Trump has voiced support for maintaining some of these so-called insurance reforms, but some Republicans argue that their elimination would give insurers more flexibility in setting prices. Keeping those requirements intact without a coverage mandate would cause severe market disruption.

HHS Confirmation

Mr. Trump’s pick of Representative Tom Price (R-GA) faced severe scrutiny during a courtesy hearing before the Senate Health, Education, Labor and Pensions Committee on January 18. He must clear the Senate Finance Committee, which he will face on January 24, before proceeding to a vote on the Senate floor to secure his confirmation.

Rep. Lamar Alexander (R-TN), chairman of the Senath Health, Education, Labor and Pensions Committee, indicated the Senate  wouldn’t officially confirm Price until mid to late February, so it is unlikely there will be significant legislative movement until March.

Other “Must Pass” Health Care Legislation

While there is a strong impetus to address the ACA, it is not the only game in town. Key health priorities include reauthorizing the Children’s Health Insurance Program (CHIP), set to expire this year. CHIP enjoys bi-partisan support and no one wants to risk getting caught in the political blowback if it is allowed to lapse. While CHIP was not part of the ACA, its reauthorization could get tied up with ACA-related measures, either attached as amendments or following in subsequent bills.

Uncertainty Surrounding Drug Prices

Contrary to what Wall Street and the pharmaceutical industry believed would happen in the wake of the presidential election, President-elect Trump said last week that drug companies were “getting away with murder,” and that the United States — the largest buyer of drugs in the world — doesn’t “bid properly, and we’re going to save billions of dollars.”

The statements roiled markets and stand in stark contrast to the historical position of his party, which has been a reliable ally of the pharmaceutical industry. We will be watching closely to see how he and majority leadership will reconcile their views on drug pricing, if at all.

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Hawai’i Receives Approval for the First State Innovation (Section 1332) Waiver

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The federal Department of Health and Human Services and Department of Treasury (the Departments) agreed that certain small employer health insurance coverage provisions of the Affordable Care Act (ACA) would be waived for the state of Hawai’i, beginning with January 1, 2017. The waiver was authorized pursuant to Section 1332 of the ACA, which allows states to apply for a State Innovation Waiver.

Hawai’i’s waiver is the first of its kind.

Section 1332 State Innovation Waivers offer states flexibility to waive key insurance coverage provisions of the ACA, including the requirement for individuals and employers to maintain insurance coverage for themselves or their employees (the individual and employer mandates), requirements related to the scope of available benefits provided through insurance (essential health benefits), requirements for creation of a marketplace for purchasing health insurance coverage (exchanges), requirements for the credentialing of health plans offered through the exchanges (QHPs), and limits on deductibles and cost sharing for QHPs. State Innovation Waivers also allow states to request waivers of cost sharing reductions and tax credits available for individuals and businesses pursuant to the ACA; the amount of these reductions and tax credits are available to the state for the operation of a replacement program.

Under its approved application, Hawai’i will cease operation of the Small Business Health Options Program (SHOP) required by the ACA effective January 1, 2017, for a 5 year period which may be extended. Instead, Hawai’i will operate the business insurance program, known as “Prepaid,” that has been in place since 1974. Under Hawai’s Prepaid Health Care Act, employers are required to provide insurance to employees that meet requirements established by state law. To receive approval from the Departments for the waiver, and as a condition of receiving federal funds, Hawai’i demonstrated that its program met or exceeded the scope of coverage that would have been available under the ACA, provided coverage and cost sharing protection that are at least as affordable as available under the ACA, and provided coverage to at least as many residents as under the ACA. Hawai’i will receive quarterly payments from the federal government for the operation of this program, equal to the estimated amount of tax credits that would have been provided to small employers in Hawai’i pursuant to the SHOP program.

The awarding of the section 1332 waiver to Hawai’i represents the first State Innovation Waiver to modify requirements of the ACA. Section 1332 was developed as part of the ACA to allow states, such as Hawai’i, to maintain coverage programs that predated the ACA or to allow states to experiment with coverage programs that are more robust or that differ from the form required by the ACA. Currently, at least 9 states have enacted laws authorizing state officials to analyze or submit an application for a section 1332 waiver. As discussions about the ACA are taken up by the new Congress and new administration, section 1332 waivers will continue to influence how states and stakeholders evaluate their options.

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