Are health reform fireworks nearing a crescendo?

Health Care Current | June 27, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Political fireworks of health reform may be nearing a crescendo

By Anne Phelps, principal, US Health Care Regulatory Leader, Deloitte & Touche LLP

After seven years of political fireworks over the Affordable Care Act (ACA), a vote on the Senate’s bill to repeal and replace key elements of the law could be the prelude to a grand finale – or at least a crescendo – this week. On June 22, the Senate released the Better Care Reconciliation Act of 2017, which Senate Majority Leader Mitch McConnell (R-KY) acknowledges is a draft still in progress. Whether a version of this bill soars to the White House, or fizzles on the floor of the Senate will likely depend upon the GOP leadership and its ability to unify the various factions of the party this week. If the bill fails to attract the 51 votes it needs to move forward, Congress will likely abandon efforts to repeal and replace the Affordable Care Act (ACA) and move on to other issues such as tax reform.

Here’s how I see this process playing out over the next few days, and what I see as some of the important elements of the Senate bill to watch:

The Senate bill is still undergoing changes – The release of the bill may not have been an opening salvo, but it is still not likely a final bill at this point. We could see some significant changes to the draft over the next day or two. But everything could all come to an abrupt end on Wednesday when the Senate is expected to hold a “motion-to-proceed” vote to determine if it has the votes to move to consideration of the bill. If the motion fails, then the repeal-and-replace effort may be effectively dead. If the motion passes, it will likely be a clear indication that the Senate has the votes, and it will move to debate to the Senate floor. A final vote on the bill would likely be held on Thursday or Friday this week.

We are likely to see a very close vote – The drive to secure the necessary 51 votes for the Senate to move forward could be a nail-biter, particularly if Vice President Pence is called upon to cast the tie-breaking vote. If the bill passes the Senate, it will then move back to the House. I’m hearing that the House would not have time to take it up until after the July 4 holiday. If the House passes the Senate bill, as is, it would go to the President for his signature.

Here’s what we know about the Senate bill at this point:

  • The Congressional Budget Office (CBO) score: The CBO released the score for the Senate legislation, estimating that – compared with current law – 22 million fewer people would have insurance coverage in 2026. This compares with the 23 million fewer people without coverage in the House bill. The Senate legislation would have a net decrease on the federal deficit of $321 billion over 10 years compared with $119 billion over 10 years in the House bill (see the June 6, 2017 Health Care Current).
  • Medicaid expansion would be phased out over five years: The glide-path for phasing out the ACA’s Medicaid expansion is longer under the Senate bill than the House version. The Senate bill calls for continued funding for Medicaid expansion states over the next two years. Funding for the expansion would then phase out funding over the next three years.
  • The tax credit would benefit the poor in non-expansion states: People with incomes ranging from zero to 350 percent of the federal poverty level (FPL) would qualify for federal premium assistance. Under the ACA, premium tax credits are available to people who earn between 100 percent and 400 percent of the FPL. Dropping the range down to zero could help to close the coverage gap for low-income people who live in states that opted not to expand Medicaid and that could bring more people into the insurance exchanges.
  • Federal tax credits would be linked to a bronze-like benchmark plan: Under the ACA, premium subsides are pegged to the second-lowest cost silver-tier plan in each state, with a 70 percent actuarial value. The Senate bill calls for a benchmark plan that would be more similar to a bronze-tier plan, with an actuarial value of 58 percent. In the eyes of the Senate Republicans, they are tying subsidies to a less expensive plan, and allowing more low-income individuals to have access to subsidy dollars. While premiums for the Senate benchmark plan would be more affordable, out-of-pocket costs could be substantially higher.
  • There would be a future for the state-run exchanges and Some Senate Republicans had hoped to make the premium assistance tax credits available to individuals whether they buy coverage inside or outside of a public insurance exchange. But under the bill, the only way to receive a federal tax credit will be through an exchange, which could breathe new life into them. Moreover, the Senate bill calls for Congress to appropriate funding for the ACA’s federal cost-sharing subsidies (CSRs) for two more years to help individuals with out-of-pocket costs. It also funds a two-year reinsurance program for health plans to help shore up the individual markets.

Seven years after enacting a Democratic health reform law, we might wind up with a Republican health reform law.

Congress has passed numerous bipartisan health care bills in the past, and will likely continue to do so in the future. However, the ability to settle on a bipartisan approach to the coverage debate in the US is elusive and likely to remain in a perpetual state of flux – no matter the outcome of the Senate vote.

If the Senate Republicans are successful this week, Democratic lawmakers will likely fight such a law just as fiercely at their Republican colleagues battled against the ACA. If Democrats regain control of Congress in the future, another version of a bill will likely surface.

If the Senate bill does not pass this week and this major effort to repeal the ACA fizzles, we can expect new battle lines to be drawn over what to do next with the ACA. We may see certain health care provisions addressed again in the upcoming debate around tax reform.

Next week, Fourth of July fireworks will paint the night skies in communities across the country for a day or two. But in Washington, DC, our political pyrotechnics might be perpetually on the horizon.


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In the News

Senate’s ACA repeal bill would end Medicaid expansion, cap Medicaid payments to states, and tie tax subsidies to income and age

As Anne Phelps notes in her My Take above, the Senate released a working draft of its long-awaited bill to repeal elements of the ACA. The Better Care Reconciliation Act of 2017 would take longer than the House’s American Health Care Act to phase out Medicaid expansion, and would limit federal Medicaid funding in future years. It would also include funding intended to stabilize the individual market in the short-term, including continuing to pay the cost-sharing subsidies for two years.

The draft may change over the week as the Senate debates the legislative text and any amendments. If the Senate passes this or a similar version, it would likely have to go back to the House for a vote or to conference committee to work out a compromise bill.

Comparison of the ACA to House and Senate repeal bills


Affordable Care Act

American Health Care Act

Better Care Reconciliation Act

Medicaid expansion

Federal government paid 100 percent of the cost of newly eligible members from 2014-2016. Beginning in 2017, federal match declines until reaching 90 percent by 2020

Ends the enhanced federal match for Medicaid expansion states after December 31, 2019

Ends the enhanced federal match for Medicaid expansion states after December 31, 2020

Traditional Medicaid population

Makes no changes to funding for the traditional Medicaid populations

Limits the federal contribution beginning in 2020 and offers states two financing options: Per capita caps or block grants

Limits state funding to a set amount per enrollee, with exceptions for certain populations; Allows states to add work requirements; Uses the Medical Consumer Price Index +1 percent to limit payments to states through 2025, then ties growth rate to the urban Consumer Price Index

Tax credits for individual coverage

Advance Premium Tax Credits are based primarily on income: 100 to 400 percent of federal poverty level (FPL); Available for products sold only on public insurance exchanges

Advanceable, refundable tax credits based primarily on age beginning 2020; Available for products sold in the non-group market

Individuals with incomes between 0 and 350 percent of the FPL qualify for subsidies; Ties payments to less generous plans; Increases the amount that people under certain age and income bands would have to pay before receiving help

Cost-sharing reductions

Cost-sharing reduction subsidies provided to low-income enrollees to reduce out-of-pocket costs

No federal cost-sharing subsidy program

Cost-sharing reduction payments would be made through December 31, 2019

Individual mandate

Requires individuals to purchase insurance or pay a tax penalty

Eliminates the individual mandate penalty; Includes a premium surcharge penalty on individuals who do not maintain continuous coverage

Eliminates the penalty for going without insurance; A last minute revision included a 6-month waiting period on enrollment if an individual goes without insurance for 6 days or more

Employer mandate

Requires employers of a certain size to offer health insurance or pay a penalty

Eliminates the penalty

Eliminates the penalty


3:1 age rating ratio for individual and small group markets

5:1 age rating ratio for individual and small group markets

5:1 age rating ratio for individual and small group markets

State waivers

Establishes Section 1332 State Innovation waivers to allow states to waive certain ACA provisions as long as the provisions do not increase the federal deficit or the uninsured rate and it provides comparable coverage

Allows states to apply for waivers to allow insurers to medically underwrite individuals who do not maintain continuous coverage; States can apply to modify ACA essential health benefit and actuarial value requirements

Waivers available for states to modify ACA essential health benefit and actuarial value requirements, but removes requirement that the waiver maintain the current insured rate and provide comparable coverage; Waivers cannot increase the deficit

Stability funding

Created three premium stabilization programs: reinsurance, risk corridors, and risk adjustment

Provides $138 billion in federal funds, 2018-2026; Primary goal is to lower individual premium costs and stabilize health insurance markets

Includes $15 billion (2018 and 2019) and $10 billion (2020 and 2021) in reinsurance funds in the short term; In the long term, provides $62 billion for states to use for stabilizing individual markets

Tax provisions

Includes taxes on individuals with incomes above $200,000 ($250,000 for joint filers), investment income, health plans, branded prescription drugs, medical devices, and high-cost employer-sponsored plans

Repeals the taxes on investment income, health plans, branded prescription drugs, and medical devices; Delays taxes on high incomes and high-cost employer-sponsored plans

Repeals taxes on individuals with incomes above $200,000 ($250,000 for joint filers), investment income, health plans, branded prescription drugs, medical devices; Repeals the tax on high-cost employer-sponsored plans from 2020 through 2025

Sources: Deloitte Center for Health Solutions analysis of Public Law 111-148, Patient Protection and Affordable Care Act; American Health Care Act of 2017; and Better Care Reconciliation Act of 2017

CMS proposes to exclude more clinicians from MACRA, offers details on All-Payer Combination Model

Last week, the US Centers for Medicare and Medicaid Services (CMS) published a proposed rule to implement the 2018 performance year for the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Notably, CMS proposes to delay using for payment the cost measures under the Merit-Based Incentives Payment System (MIPS) an additional year, increase the low-volume threshold for clinicians, and implement virtual groups. CMS also outlines how it intends to implement the All-Payer Combination Option.

CMS proposes the following changes for the 2018 performance year, which determines payments for 2020:

  • Increasing the low-volume threshold: CMS would exempt more clinicians from MIPS by raising the low-volume threshold from $30,000 in Medicare Part B allowed charges to $90,000, and from 100 or fewer Medicare Part B patients to 200 or fewer. The number of clinicians exempt from MIPS would rise from 700,000 in 2017 to approximately 834,000 in 2018.
  • Creating the option for virtual groups: CMS will allow groups of no more than 10 MIPS-eligible clinicians to report as a virtual group in 2018. Groups may be formed based on a number of characteristics, including geographic areas or specialties. CMS is not limiting the number of virtual groups for the first year but expects 16 virtual groups in the 2018 performance year.
  • Delaying using cost measures for payment under MIPS an additional year: CMS had proposed having the cost measure category account for 10 percent of MIPS performance, but it now proposes delaying that by an additional year. The law requires this measure to be 30 percent of performance under MIPS by the third year. That would give clinicians a steep ramp from 2018 to 2019, instead of the gradual phase-in originally proposed. (See image below.)

CMS proposes allowing clinicians to qualify for the 5 percent bonus through the All-Payer Combination by participating in Other Payer Advanced Alternative Payment Models (APMs) starting in the 2019 performance year. Other payers include Medicaid, Medicare Advantage plans, Medicare-Medicaid plans, and Programs of All Inclusive Care for the Elderly (PACE) plans. Payers or providers in these arrangements can submit payment arrangement information to CMS to assess whether they meet program criteria.

Related: The Deloitte Center for Health Solutions and the Network for Excellence in Health Innovation (NEHI) convened 31 senior leaders from across the health care industry – health care providers, health plans, biopharmaceutical companies, and medical technology organizations – to discuss the implementation of MACRA. The findings from our cross-industry discussions suggest that many health care organizations are ready to come together and begin building a new foundation based on clinical delivery and payment models not constrained by fee-for-service (FFS) rules.

Health plans make final exchange participation decisions for 2018

June 21, 2017 was the deadline for health insurers to decide if they will sell plans for the 2018 coverage year in the 39 states using the federally run insurance exchange. While complete participation data is not yet available, Anthem, Inc., which operates Blue Cross and Blue Shield plans in 14 states, has decided to withdraw from the Ohio, Wisconsin and Indiana exchanges, and Oscar Health says it will expand products into five new states. Centene Corporation is expanding coverage into Indiana.

Health plans have cited the increasingly uncertain market as a reason for withdrawing from the exchange market. Though the administration has paid cost sharing reduction subsidies (CSRs) for June, it has refrained from committing to making future payments. Under the Senate’s ACA repeal bill, CSRs would be funded through 2019.

According to Kaiser Family Foundation, more than 40 counties in Ohio and Missouri are at risk of having no plans sold through the exchange.

Some states are trying to reduce cost sharing in insurance coverage

Cost-sharing has continued to increase as high-deductible health plans (HDHPs) have become more common. A recent Urban Institute brief explored how six states (California, Connecticut, Massachusetts, New York, Oregon, and Vermont) and the District of Columbia have worked to lower cost-sharing for certain health care services through standardized plan designs in the insurance markets they regulate – the individual and small group markets.

Standardized benefit plans cover certain services before patients reach their deductibles with low-to-moderate copayment amounts. Examples of these services are doctor’s visits for non-preventive care, specialty care, mental health and substance abuse, urgent care, and prescription drugs. New York’s standardized benefit plan calls for low copayments before the deductible for prescription drugs. The District of Columbia’s standardized plan design applies only to the individual market.

Though states implemented standardized plan designs to make it easier for consumers to compare plans, they realized benefit design could also reduce cost sharing. During the qualitative interviews, exchange officials, state regulators, health plan representatives, and consumer advocates recommended that other states:

Related: Many employers have embraced HDHPs accompanied with health savings accounts (HSAs). Deloitte’s recent analysis explores the state of HSAs in the employer, Medicaid, and individual markets to identify key trends and examine their effects on consumers. Many consumers need education and tools to utilize HSAs properly. Ideally, enrollees can become educated consumers of health care services when they are exposed to their costs.

(Source: Ahn and Corlette, “State efforts to lower cost-sharing barriers to health care for the privately insured,” Urban Institute, June 15, 2017)

FDA announces new strategy to regulate digital health tools

On June 15, 2017 US Food and Drug Administration (FDA) Commissioner Scott Gottlieb announced the agency’s new plan for regulating digital health tools and technologies. The Digital Health Innovation Plan will modernize the agency’s policies governing medical products, apps, and software, allowing innovators to develop and market products that will improve both population and patient health.

Gottlieb stated that the agency must provide additional guidance on criteria that exempt health-related technologies from FDA regulation and committed to providing guidance for innovators and manufacturers on the agency’s position on more complex product offerings. Gottlieb’s blog post says there are an estimated 165,000 health-related apps, including mobile apps to track fitness or software to support clinical decisions (e.g., blood glucose trackers for individuals with diabetes that can identify trends) in the Apple Inc. or Android marketplaces. Some digital health technologies pose low risk to patients (e.g., clinical administrative support software or lifestyle apps that encourage healthy choices) and therefore fall outside of the scope of FDA regulation (see the Deloitte analysis 21st Century Cures and life sciences innovation).

Gottlieb also announced a pilot program to test ways to streamline the regulation of digital health products. The program will allow third-party certification programs for lower-risk products without a pre-market review and will use a separate FDA program for higher-risk products that will streamline the pre-market review process. The pilot will also have a specific pathway for regulating software as a medical device (SaMD). This pilot program will rely on the post-market collection of real world evidence (RWE) which could speed access to innovative technologies for patients and providers.

Related: The FDA released draft guidance and requested input on communications between the agency and product sponsors for generic drug applications (abbreviated new drug applications, or ANDAs) eligible for priority review. ANDAs are granted priority review when there is:

  • No other approved generic version of the reference drug available
  • A drug shortage or expected future shortage
  • A public health emergency
  • A special review program (e.g., the previous administration’s Emergency Plan for AIDS Relief)

The guidance specifically requests that drug sponsors submit their manufacturing facility information two-to-three months before submitting an ANDA to allow the agency time to determine whether it needs supplemental inspections of manufacturing facilities. These communications must also include the sponsor’s intention to file for priority review status, and identify which criteria the drug meets to allow for priority review.

The agency is accepting public comment through September 2017.

Senate Appropriations Committee holds hearings on NIH, FDA funding

Last week, the Senate Appropriations Committee held hearings to discuss the budget requests for fiscal year 2018 (FY18) of both the FDA and the National Institutes of Health (NIH).

During FDA Commissioner Scott Gottlieb’s testimony, senators raised concerns that the administration’s proposed budget for the FDA would significantly cut the agency’s appropriated funding and would double the user fees paid by the life sciences industry (see the June 6, 2017 Health Care Current). Both Gottlieb and lawmakers noted that the user-fee packages were already negotiated with industry, and must be legislatively reauthorized by September, leaving little time to renegotiate.

Lawmakers discussed:

  • The opioid epidemic: Several lawmakers raised concerns that a limited FDA budget would hinder the agency’s effectiveness in addressing the opioid epidemic. According to Gottlieb, the FDA will encourage the development of medically-assisted therapies, provide prescriber education, review opioid indicated uses, and work to ensure that only patients with proper indications receive opioids.
  • The hiring freeze: While Gottlieb announced that the hiring freeze was lifted from his agency earlier this month, lawmakers raised concerns that the current budget proposals would not allow the FDA to fill its estimated 1,000 vacancies.
  • Risk evaluation and mitigation strategies (REMS): Lawmakers raised concerns about the recent price increases for off-patent prescription drugs, which in total cost consumers an estimated $5.4 billion in 2014. Gottlieb said the REMS system can be misused, blocking generic product manufacturers from accessing samples of the reference product (which may take 1,500 – 3000 doses of the product during a generic development). Gottlieb urged lawmakers to work on legislation to limit the potential for abuse of the REMS system.
  • Drug importation: According to Gottlieb, the main barrier to importing prescription drugs from Canada is inadequate regulatory architecture.

NIH Director Francis Collins, and several Institute Directors represented the NIH during the Appropriations hearing. The budget proposal would decrease NIH funding by 22 percent, or an estimated $7.5 billion (see the March 21, 2017 Health Care Current). According to lawmakers, proposed budget cuts could eliminate 90,000 NIH funded jobs nationwide.

Lawmakers discussed:

  • AHRQ becoming part of NIH: The budget proposes putting the Agency for Healthcare Research and Quality (AHRQ) into the NIH. According to Collins, AHRQ research often complements NIH research and they are not duplicative. He stated that the NIH prepared to consolidate AHRQ under its umbrella, either as a new research institute or by distributing AHRQ’s research portfolio among the existing NIH institutes.
  • Capped indirect costs: Roughly 28 percent of total NIH grant funding is used for “indirect costs” which includes rent, utilities, and upkeep on research facilities, administrative and operations staff, and other “indirect” costs necessary for medical research. Lawmakers expressed concern that the budget proposed capping indirect funding at 10 percent of NIH grant funding in the budget. Director Collins said that one way to meet this goal would be to reduce the administrative rules the NIH requires grantees to follow, and noted concerns that this could potentially affect human or animal subject safety.

Opioid-related emergency department visits nearly doubled to 1.27 million

Since 2005, opioid related emergency department (ED) visits have increased 99 percent, according to data released by the AHRQ released last week.

The report shows that patients treated in the hospital for opioid-related issues tended to be young adults of both sexes. The data show the rate of opioid-related ED visits was highest among those 25–44 years of age. While the rate of opioid-related inpatient stays increased faster for females than for males from 2005-2013, by 2014, the latest year data are available, the rate was nearly the same.

Some states have much higher incidences of opioid-related ED visits. Maryland ranked the highest in the country for the highest rate of ED visits related to opioids and Massachusetts has consistently ranked as having among the highest rates of opioid-related inpatient hospital stays. Opioid-related ED visits were found to be the lowest in Arkansas and Iowa.

Related: The FDA announced June 20, 2017 that it will hold a two-day public workshop in early July to discuss the regulatory challenges it faces in assessing the real-world, post-market effects of abuse-deterrent opioids. Topics will include how to capture product-specific exposure data not currently available through clinical trials.

Additionally, the Commission on Combating Drug Addiction and the Opioid Crisis met for the first time last week. The group expressed concern over potential cuts to opioid-related programs under the ACA. The discussion draft of the Senate ACA repeal bill proposes $2 billion to help states address opioid abuse in 2018. That is far less than the $15 billion, ten-year funding proposal under the House version.


SCOTUS will to take up whether the Patent and Trademark Office can invalidate patents

Earlier this month, the US Supreme Court agreed to take up a case questioning the validity and scope of the Patent and Trademark Office’s (PTO) authority to invalidate existing patents. The decision could impact industries – such as life sciences and medical technology companies – that have high research and development costs and rely on extended periods of patent protection to recover expenses.

According to precedent, patents create property rights which cannot be revoked by the government. However, in 2011, Congress passed the America Invents Act, which allows an appeal board within the PTO, the Patent Trial and Appeal Board (PTAB), to review and potentially invalidate an existing patent, known as inter partes review (IPR).

IPR is initiated when a party – usually an entity seeking to use technology that would potentially infringe on an existing patent – requests that the Board review and reconsider the existing patent. PTAB can invalidate a patent by deciding that the technology is either not novel or is obvious. According to the case now before the court, the PTAB’S authority to invalidate a patent violates existing patent holder’s 7th Amendment Constitutional right to a trial by jury. However, industry stakeholders have raised concerns that requiring a trial by jury may add undue economic burden to an entity wishing to challenge a patent.

While, on average, 53 percent of all patented technologies face IPR challenges, this is somewhat less common for pharmaceuticals and biologics and they are more likely than other patents to lose protection. Only 44 percent of FDA-approved pharmaceuticals and 41 percent of approved biologics are challenged through IPR. Of these challenges, over 50 percent of drug patents, and 37.5 percent of biologic patents, preserve their protections through the IPR process, compared to 19 percent of all technology patents.

(Source: Corinne E. Atton, April M. Breyer, “Drug Patents May Fare Better Than Other Technologies in IPR Proceedings,” Biologics HQ, June 12, 2017)

Breaking Boundaries

Drones may be able to cut EMT response time and save cardiac arrest patients

Researchers in Sweden are testing the feasibility of having drones carry automated external defibrillators (AEDs) to patients in cardiac arrest to reduce the time it takes to get the person to an AED. When a person goes into cardiac arrest, he or she needs the first potentially lifesaving shock from an AED as soon as possible: no longer than three minutes is ideal.

During more than 18 test flights in 2016, drones equipped with a global positioning system (GPS), a high-definition camera, and autopilot software delivered AEDs to a rural area where someone had gone into cardiac arrest. The median time from dispatch to drone launch was three seconds (compared to three minutes for the Emergency Medical Service (EMS) to get on the road), and it took a total of five minutes from dispatch for the AED-equipped drone to meet the patient. When compared to historical data of EMS trips, the drone arrived more quickly in all cases, with a median reduction in response time of 16 minutes and 39 seconds. The study shows great potential for use of drones to transport AEDs, though further testing is needed and improvements in technology could further reduce time.

More than 350,000 cardiac arrests happen in the US outside of hospitals every year, according to the American Heart Association — and a person has about a 10 percent chance of surviving. Airports, fitness centers, and large public venues have AEDs on walls so that individuals do not have to rely on EMTs. Drones could greatly increase public access to AEDs.

Analysis: As described in the Deloitte Center for Health Solutions’ paper, Will patients and caregivers embrace technology-enabled health care? Findings from the Deloitte 2016 Survey of US Health Care Consumers, within the next several decades, many researchers hope to introduce drones capable of assisting older individuals with health risks who want to stay in their homes as long as possible. Some potential applications include household cleaning, retrieving medication from another room, and other tasks that could reduce the risk of falls in older adults who live alone. Although drones hold great promise for health care, monitoring, and medical product transport, care applications remain mostly hypothetical. The Deloitte 2016 Survey of US Health Care Consumers assessed consumer interest in using drones in various future scenarios. Forty percent of consumers surveyed were interested in using drones to help with self-care, including medication assistance, for a chronic disease.

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