July 21, 2005

TO: Board of Directors

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

CC: Doug Henley
Todd Dicus
Rosi Sweeney

RE: Federal and State Legislative Update

On June 9, the House Appropriations Subcommittee on Labor/HHS/Education debated its spending bill. Virtually all Title VII Health Professions programs, including the Section 747 Primary Care Medicine and Dentistry Cluster, which contains family medicine training, received zero funding in the bill. This action was unprecedented at the House subcommittee level.

In the House bill, Community Health Centers would receive an increase of $100 million and Scholarships for Disadvantaged Students would have level funding of $47 million in the House bill. Title VII Nursing Programs were cut only slightly. The bill would provide AHRQ with $318 million, which is the current funding level.

On June 12, the House Appropriations Committee approved the FY 2006 spending bill and did not change any of the subcommittee’s appropriations levels: family medicine and primary care training, AHECs, and rural programs were all zeroed out. However, Reps. Henry Bonilla (R-TX), Allen Boyd (D-FL) and John Peterson (R-PA) spoke in opposition to the subcommittee’s zero allocation for Title VII’s Health Professions Grants. Most importantly, Rep. Ralph Regula (R-OH), Chairman of the House Appropriations Subcommittee, pledged to restore funding in conference.

On Friday, June 24, by a vote of 250-151, the House of Representatives approved H.R. 3101, the appropriations bill for the Departments of Labor, Health and Human Services, Education and Related Agencies. During debate on the bill, Rep. Cathy McMorris (R-WA) engaged in a colloquy on the record with Rep. Regula emphasizing the importance of these programs to Washington and urging him to address the funding shortfall in the conference committee.

On July 12, in a significant victory, the Senate Appropriations subcommittee provided $90 million for Section 747, which would be an increase from the $88.8 million the program receives currently. AHRQ would receive $323.7 million, up from the FY 2005 level of $318.7. In addition, the subcommittee’s bill would provide $20 million to AHRQ for comparative clinical effectiveness studies, an increase from the FY 2005 figure of $15 million.

On the previous day, June 11, the House Appropriations Committee released a statement claiming that the House bill had made “necessary tough choices” by eliminating 99 programs, for a total savings of $4.5 billion. The release went on to say that 57 programs within the Labor/HHS measure had been axed, for a total of $2.8 billion in savings. In addition, the statement said that “domestic discretionary spending is on track to be below last year’s levels, something that has not happened since the Reagan Administration.” The House leadership, anticipating the interpretation of their funding bill as unnecessarily harsh, wanted to send the message that the Senate was about to squander an opportunity to bring the federal deficit under control. This rhetoric puts the House leaders in the position of defending fiscal responsibility, and the question for the conference committee will be how much the House members want to defend that position.

On July 14, the full Senate Appropriations Committee marked up its bill and no significant changes to healthcare programs. The spending bill will now go to a conference committee, which will work out the differences between the two bills.

On June 30, Senators Chuck Grassley (R-IA), who chairs the Senate Finance Committee, and Max Baucus (D-MT), who is the senior Democrat on the committee, introduced the Medicare Value Purchasing Act (S. 1356). The bill outlines the process for the development, implementation, and updating of a quality measurement system. It would require physicians to report on their compliance with evidence-based standards that had been reviewed and approved by an independent agency. After two years of reporting, the bill would require physicians to meet standards or demonstrate progress toward meeting those standards to receive the value-based purchasing bonus.

This bill does not directly address the Medicare payment rate. Instead, the bill notes that the SGR is headed to a 4.3 percent decrease and continued declining numbers for the years to come. And it states that implementing a new value-based purchasing program will be difficult if the overall rate is declining.

The implementation requires HHS to contract with a non-profit organization to serve as an independent body to evaluate proposed quality measures. This body would be similar to the National Quality Forum (NQF). This body will evaluate performance measures as proposed by bodies like the Ambulatory Healthcare Quality Alliance (AQA) and recommend to the Secretary which ones to accept, amend or reject. The bill envisions this body to be operational before the value-based purchasing begins on January 1, 2006.

The system will be implemented in two phases. The first phase is a reporting one. Beginning as early as January 1, 2006, 2 percent of the Medicare payment to physicians would be withheld and physicians would be required to report on whether they have implemented specific performance measures. If the physician reports, then he or she is eligible for the withheld funds. During this phase, it does not matter if the physician reports that he or she has implemented the measure or not – it only requires reporting. This phase extends from 2006 through 2007.

Then on January 1, 2008, the performance phase would begin. For this year, one percent of the Medicare payment would be withheld to create a “performance pool.” Every year thereafter, the amount withheld would be increased by a quarter percent until it reaches 2 percent.

The Academy expressed “grave concerns” over the provisions of the bill, since it did not attempt to remedy the flawed formula in the Medicare physician payment system that will produce negative payment rates for the next several years, unless Congress acts to change the formula. The Academy insisted that without fixing the formula, a pay-for-performance system could not work. It will be increasingly impossible for small and medium sized practices to afford the technology necessary to track and report their progress in meeting standards.

Meanwhile, in the House Ways and Means Health Subcommittee chair, Rep. Nancy Johnson, R-Conn., is drafting a bill that would repeal the Sustainable Growth Rate (SGR) as a means of calculating Medicare physician payments. In its place, the bill would establish a payment based on the annual index of medical inflation, the Medicare Economic Index (MEI). The goal is to have the payment match the MEI, but budget constraints (especially if CMS continues to refuse to remove the past costs of physician administered drugs from the calculation) may lead Congress (or CMS) to set a given year’s payment rate at MEI minus a percentage. The sponsor intends to offer a provision to guarantee that no physician would receive less than he or she did the year before. From a Congressional point of view, this allows the annual debate on payment rates to proceed along budget issues alone, without complicating the discussion how to evaluate and treat utilization of medical procedures. This is the same approach that Congress takes with payments to hospitals.

The bill then introduces a “value-based purchasing” system by reducing payments to physicians that do not report on structural, quality and efficiency measures. This “pay for reporting” system will be for non-controversial and generally accepted evidence-based measures and will be in place for two years.

During that time, the bill requires the Centers for Medicare and Medicaid Services (CMS) to work with the physician community to develop quality and efficiency measures that will be reviewed and endorsed by an independent body like the National Quality Forum (NQF). These measures should be derived from currently provided information (like claims data or CPT2 codes) if possible. The physician-based reports will not be public for the first two years, but after 2008 they will be made public. The rating reports will be made at the level supplied, so that if a group practice reports their data, then the public report will be at the group level. Physicians will be able to appeal their rating before it is made public.

In the current draft of this bill, payment for the first two years will be based on whether the physician has reported compliance data. If the report is made, then the physician will receive 2 percent withheld from the beginning of the year. After the initial reporting period, the percentage withheld (and the figure has yet to be determined) will be based on whether the physician has achieved the performance measures or made progress in achieving them. It is expected that Rep. Johnson will introduce her bill next week, just prior to the August recess.

On Thursday, July 21, the House Ways and Means Health Subcommittee held a hearing on this topic of reforming physician payments under Medicare by moving to a pay-for-performance system. AAFP has worked subcommittee chair Rep. Johnson and her staff as the language for her anticipated legislation has been developed. During the hearing, Rep. Johnson once again called for the repeal of the SGR and in an exchange with witness Dr. Mark McClellan, CMS administrator, was able to get him to agree that pay-for-performance could not be implemented in the context of declining physician reimbursement.

On Wednesday, July 20, the Senate Health, Education, Labor and Pensions Committee amended and approved the Wired for Health Care Quality Act (S. 1355). The bill would authorize HHS, in conjunction with the Departments of Defense, Veterans’ Affairs and Commerce, to establish industry standards for interoperability in the health information technology field. It also would allow HHS to develop a grant program for physician practices and not-for-profit hospitals to purchase and improve health information technology systems.

This bill is considered a part of the Medicare Value Purchasing Act (S. 1356) that is being considered by the Senate Finance Committee.

On Wednesday, July 20, the House Energy and Commerce Committee approved the Patient Safety and Quality Improvement Act (H.R. 3205). The bill seeks to encourage reporting of medical errors and reduce avoidable mistakes. It would establish a legal framework for health care providers to voluntarily report errors to patient safety organizations run by states, localities and private entities. This information would be shielded from use in medical malpractice suits. The Senate HELP Committee has approved a similar bill.

Sen. Conrad Burns (R-MT) introduced the Health Care Access Improvement Act (S. 824). The legislation would provide a tax credit of $1,000 per month to primary health care providers who established practices in designated health professional shortage areas (HPSAs). The program would be available to physicians, physician assistants, and nurse practitioners.

To qualify, a health professional would need to provide substantially all of his or her primary health services full time in a federally designated HPSA. Individuals could receive the tax credit for 60 months (5 years). Individuals receiving scholarships or loan repayment from the National Health Service Corps (NHSC) or Indian Health Service (IHS) will not be eligible for the tax credit. Additionally, individuals who had defaulted on their obligations to the NHSC or IHS would be ineligible. AAFP has sent a letter of support and is working with the Burns office to garner Senate support for the measure.

AAFP has sent a letter in support of a House bill introduced by Rep. Jim Gibbons (R-NV). This legislation would give a one-time, $20,000 tax credit (that could be spread over several years) for physicians who provided services in rural areas (as determined in accordance with Rural Urban Commuting Areas or RUCAs). AAFP participated in a coalition that included the National Rural Health Association and the Marshfield (Wisconsin) Clinic and provided input to the congressman’s office as the bill was in development. A press event was held by Congressman Gibbons’ office in Nevada during the Independence Day recess. GR staff notified the Nevada Academy of Family Physicians in an attempt to have a representative present at the press event announcing the introduction of the bill.

On July 8, the Secretary of Health and Human Services, Michael O. Leavitt, announced the formation of a commission to advise the government on how to make $10 billion in immediate cuts to the Medicaid program. The commission, headed by former Tennessee governor Don Sundquist (R) and former Maine governor Angus King (I), will report to the Secretary by September 1. Then the Commission will consider long-term reforms. Congressional Democrats, the nation’s governors, Senate Majority Leader Frist (R-TN) and House Ways and Means Committee Chairman Barton (R-TX) have all declined to nominate representatives to the commission.

On Wednesday, July 20, the House Energy and Commerce Committee approved the National All Schedules Prescription Electronic Reporting Act (H.R. 1132). The bill would set up a uniform system for prescription data so that physicians and pharmacists could flag harm drug interactions or abuses. It also would give grants to states to establish or improve electronic monitoring systems that would help alert law enforcement officials and health care providers of drug addicts’ attempts to abuse prescription drugs. The Senate Health, Education, Labor and Pensions Committee has approved a similar bill (S. 518).

Only three states, Massachusetts, North Carolina and Oregon remain in regular session.

The National Governors Association held its 2005 Annual Meeting last week in Des Moines, Iowa, with health care issues high on the agenda. With almost 30 governors in attendance, the NGA continued to gain support within the group for its Medicaid reform proposal. The proposal—unveiled to Congress in June in testimony by Governors Mark Warner (D-VA) and Mike Huckabee (R-AR) before the House Energy and Commerce Committee and Senate Finance Committee—has three key features:

The governors also discussed their role in the implementation of the Medicare Modernization Act, particularly the “clawback” provision for under the Part D prescription drug benefit. Under the clawback, states are required to remit payments to the federal government for estimated savings the state will incur by no longer providing pharmaceuticals for seniors covered under the new benefit. However, many states find fault with the formula for determining payments—as well as have a fundamental opposition to sending state money to Washington—and are resisting making payments. Notably, to date, Governor Rick Perry (R-TX) vetoed the portion of the state’s budget that would send an estimated $443 million payment to the federal treasury. Meanwhile, Governor John Lynch (D-NH) has directed that his state’s payment—approximately $43 million over two years—be put on hold pending court ruling on the clawback’s legality. Additional governors indicated they are discussing similar steps with their attorneys general and noted a willingness to challenge the provision en bloc, as was done when states settled with the tobacco industry.

Iowa and Kentucky are dealing with issues concerning expansion of scope of practice for physician assistants. In Iowa PAs are seeking to prescribe Schedule II drugs and the designation of primary care provider under the Medicaid program which would be independent of physicians. They also have sought administrative rules that would have allowed them to deliver babies without supervision if approved by their supervising physician. Another expansion strategy in Iowa is collaborative practice with a physician assistant outside of the physician’s specialty, i.e., an orthopedist supervising a physician assistant specializing in family medicine. In Kentucky, the issue is independent practice and ability to direct bill.