February 11, 2005

TO: Board of Directors

FR: Kevin J. Burke
Director, Division of Government Relations

CC: Doug Henley
Todd Dicus
Rosi Sweeney

RE: State and Federal Legislative Update (Week of February 7)

On Monday, February 7, the President delivered to Congress his budget proposal for FY 2006. To meet the administration’s commitments to reduce the federal deficit in half by 2009, while supporting military efforts abroad, revamping Social Security, and reducing revenues by extending tax cuts that are scheduled to expire, the budget proposes some significant fiscal reductions. As in the past, Title VII Health Professions programs would largely be eliminated, while funding for Community Health Centers would be increased. The budget for the Centers for Disease Control and Prevention would be cut by almost $500 million, and the Health Resources and Service Administration would be cut by nearly $850 million. Funding for the Agency for Healthcare Research and Quality would remain steady, while the budget would increase spending at NIH by only $196 million (or less than 1 percent). The administration proposes giving states more flexibility to cover optional categories of Medicaid patients as part of its plan to reduce the overall costs of the program by $60 billion over 10 years. Finally, the budget includes a 5.2 percent reduction in Medicare physician payments. For a more detailed description of the federal budget proposal, see the summary attached, which is also available on the Academy’s Federal Advocacy website.

Ways and Means Health Subcommittee held a hearing on February 11th that centered around the concept of pay-for-performance as well as the multiple flaws in the current sustainable growth rate (SGR) formula. Chairman Nancy Johnson opened the hearing with a bold statement saying that the SGE cannot be fixed; that it is in need of fundamental reform. If it is left in place physician payments will decrease by 30 percent over the next seven years while practice expenses will increase by 20 percent, a 50 percent swing. At the same time she mentioned that it is not right that we pay all physicians the same regardless of the quality of care they deliver. She said it is time for quality indicators for physician care like the ones implemented for hospitals last year.

Testimony was received from Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission (MedPAC) and Bruce Steinwald, Director of Health Care, Economic and Payment Issues of the Government Accountability Office (GAO), among others. Hackbarth reiterated the MedPAC recommendation for repeal of the SGR and outlined the commission’s support for pay-for-performance. Steinwald cited findings from a MMA-ordered GAO report entitled Considerations for Reforming the Sustainable Growth Rate System. He outlined three options and described their effects if implemented individually or in combination. The resultant period analyzed was 2006-2014. The three options included (1) Set allowable growth to GDP + 1 percent; (2) Reset spending base for SGR targets; and (3) Remove Part B drugs. If each of these options was implemented individually, there would still be 5-6 years of negative updates. However, if all three modifications were combined, there would be no negative updates through the period and the resultant cumulative increase in updates over the period would be 23 percent (avg of 2.55 per year). Mr Steinwald did not have a cost estimate for such a policy adjustment.

Both Steinwald and Hackbarth made the point that because multiple years of projected 5 percent fee cuts are incorporated in Medicare’s budget baseline, almost any change to the SGR system is likely to increase program spending above the baseline.

Steinwald testified that it is clear that CMS has the authority to remove physician-administered drugs from the SGR prospectively. He said it is not clear that the Agency could do it retrospectively. Hackbarth declined to take a position on removal of physician-administered drugs stating it was more a scoring than a policy issue and he preferred to keep MedPAC focused on policy.

Regarding pay-for-performance, there were numerous questions about how this might be accomplished and if measures currently exist in order to carry it out. Hackbarth replied that certain process measures exist that should foster a good start while work is done to develop and refine other necessary measures. But he stressed that the process should not wait for the full development of measures. In alter testimony, Dr. Thomas Lee, CEO, Partners Community HealthCare, Inc (Boston) described the Bridges to Excellence program which rather than using process measures imposes checkpoints on the physicians which have the effect of encouraging them to do the right thing and discouraging them from doing the unnecessary. For voluntarily participating in the program, a physician is paid a $50 per member (i.e., per individual patient) reward at the end of the year.

Throughout the hearing the central question surfaced repeatedly: Can CMS implement P4P without repealing SGR? The answer was quite consistent from a variety of respondents: Yes, that could be done, but it is not advisable. Whether it is repealed or not, something has to be done to SGR. The impending cuts cannot be ignored.

The Energy and Commerce Health Subcommittee held its’ first hearing of the 109th Congress under the new Subcommittee Chairman, Rep. Nathan Deal (R-GA) on Thursday, February 10. The hearing was titled, “Current Issues Related to Medical Liability Reform." The first panel was made up of James Bean, M.D., testifying on behalf of the Alliance of Specialty Medicine; and three family representatives testifying on behalf of themselves or family members. Two of these citizens testified in support of reforms because they or their family member had been harmed from the lack of previously available physicians. Two citizens testified against reforms that would limit damage awards or protect pharmaceutical and device manufacturers from lawsuits.

Also testifying were James Hurley representing the American Academy of Actuaries; Sidney Wolfe, M.D., representing Public Citizen; Robert Hunter representing the Consumer Federation of America; Sara Rosenbaum, J.D., Chair, Department of Health Policy testifying against H.R. 5; Sherman Joyce, President, representing the American Tort Reform Association.

Senators John Ensign (R-NV) and Judd Gregg (R-NH) introduced the Help Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of 2005. It contains the same provisions as bills of the same name in the last Congress with the exception that protections for pharmaceutical and device manufacturers have been dropped out of this version. This is in response to the withdrawal of Vioxx from the market. On February 2, Rep. Chris Cox (R-CA) introduced the HEALTH Act (H.R. 534) in the House, although language was not made available to the Government Printing Office until this week.

Senators Gordon Smith (R-OR) and Jeff Bingaman (D-NM) introduced the Bipartisan Commission on Medicaid Act (S. 338). The purpose of this 23-member commission would be to undertake a comprehensive analysis of the Medicaid program before any changes are made to it. Specifically, the bill would authorize the commission to review improvement of service delivery and quality in the most cost-effective way.

On February 9, the Senate HELP Committee passed S 306, the Genetic Non-Discrimination Act. S 306 was introduced by Sen. Olympia Snowe (R-ME) and would prohibit discrimination on the basis of genetic information with respect to health insurance and employment. While the legislation passed the Senate during the last Congress, and was supported by the administration, it made no progress in the House of Representatives.

On February 10, the House Committee on Government Reform held a hearing entitled, “The Perplexing Shift from Shortage to Supply: Managing This Season’s Flu Shot Supply and Preparing for the Future.” Key witnesses were Julie Gerberding, MD, Director of the CDC, and Jesse Goodman, MD, Director of the Center for Biologics Evaluation and Research at the FDA. The hearing was a follow-up to several that were held in November 2004 to determine why undetected manufacturing problems produced a shortage of flu vaccine.

In short, Drs. Gerberding and Goodman assured Members of the Committee that they had learned from the problem at the Chiron plant and were working to ensure that it did not happen again. During the question and answer period, however, Democrats decried what they thought was the initial unwillingness of the FDA to take responsibility for the shortage situation, and Rep. Henry Waxman (D-CA) announced he would be introducing legislation to more comprehensively deal with the flu vaccine system.

On a somewhat unrelated note, Rep. Gil Gutknecht (R-MN) brought in his longstanding support for importation by asking Dr. Goodman about the safety of moving vaccines across borders. While Dr. Goodman assured him this was safe, he was not completely drawn in by the obviously implication of the question (since the FDA officially opposes importation) and recounted a number of steps that would need to be taken to safely bring drugs into the US.

The Georgia House voted 86-85 to reject an amendment that with no limits on jury awards for patients killed or catastrophically injured by physician negligence and then approved a bill capping non-economic damage awards at $350,000 or up to $1.05 million if multiple defendants are found liable. The legislation went immediately to the Senate which failed by one vote to adopt the House bill. Lawmakers from both the Senate and the House said Thursday they are confident a compromise will be reached.

The Kansas Chapter provided testimony in opposition to an expansion of nurse practitioner prescribing authority. The legislation removed nurse practitioners from the mid-level provider definition and would allow advance registered nurse practitioners to register directly with the DEA to prescribe controlled substances.

House Bill 393 dealing with medical liability and general tort reform was introduced and heard within one week. The Missouri Academy provided testimony in support of the bill on 2/9 and the bill was out of Judiciary and on to the Rules committee by that evening. Included in the bill is a hard non-economic damage cap of $250,000 as called for by Gov. Blunt in his State of the State address.

Democrats introduced six health care bills this week to take aim at the increasing costs of care in the state. SB329 and SB505 would expand the Oregon Prescription Drug Program; SB501 creates a Health Insurance Review Board before which insurance companies would have justify rate increases; SB502 creates a Health Services Cost Review Board to regulate hospital rates; SB503 requiring hospitals to obtain a "certificate of need" from before beginning new construction or remodeling; and SB504 requires hospitals to establish financial assistance programs for low- and moderate-income Oregonians.

Gov. Rendell’s proposed budget, Medicaid patients will face new limits on drugs, hospital admissions, and doctor visits. Medicaid recipient would receive six pharmaceutical prescriptions a month, be allowed only two hospital admissions a year, and 18 doctor visits, including the annual physical, eye checkups, foot exams and ongoing care.