As House Republicans celebrate the AHCA, Senators begin to roll up their sleeves

Health Care Current | May 9, 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

As House Republicans celebrate the AHCA, Senators begin to roll up their sleeves

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

House Republicans were celebrating on May 4 after passing the American Health Care Act (AHCA), albeit by a narrow 217-213 margin. Republican lawmakers have been promising to repeal and replace the Affordable Care Act (ACA) since it was enacted seven years ago.

But on the other side of the Capitol building that afternoon, Republican senators were rolling up their sleeves. The Senate is a different chamber with different rules and philosophies that do not always align with those of their colleagues in the House. The fate and final contours of the AHCA are yet to be determined.

Within an hour of the House vote, Senate Finance Committee Chairman Orrin Hatch (R-Utah) issued the following statement on the passage of the AHCA:

“….As we work to fulfill our promise to our constituents to repeal and replace the law in the Senate, we will be guided by the important principles to address costs and give American families more choices. At the same time, we will be working to put together a package that reflects our members’ priorities with the explicit goal of getting 51 votes. Coupled with the constraints imposed by the budget reconciliation process, we must manage expectations and remain focused on the art of the doable as we move forward.”1

House Republicans used the budget reconciliation process for the AHCA, which allows the Senate to consider and pass the bill by a simple majority of 51 votes, rather than the 60 generally needed to bring legislation to a vote under Senate rules. It is unlikely that any Democrats will defect, which means Senate Republicans will need to stand together to meld a diverse set of policy views for their members, and stay within the confines of the budget rules. The reconciliation rules are strict and require that legislation be limited to issues tied to the federal budget deficit, taxes or the federal debt limit. The rules tie the Senate’s hands from making substantive policy changes they might otherwise like to pursue.

So what happens next?
Legislative consideration of the AHCA is not expected in the Senate until the Congressional Budget Office (CBO) releases its analysis of the bill’s impact on the federal budget deficit and health insurance coverage. On March 13, the CBO estimated that enacting the AHCA would reduce federal deficits by $337 billion over the coming decade and increase the number of people who are uninsured by 24 million in 2026 relative to current law.2  The updated CBO score, which will include recently added amendments to the House bill, is due out this week or next. The House version of the AHCA could give senators increased pause if the CBO determines the AHCA would cause premiums to increase further and would lead more people to go without health insurance.

After the CBO score is released, the Senate parliamentarian will sift through the legislation, line-by-line, and determine what can be included in the reconciliation bill and what needs to be removed according to the budget rules. For example, House provisions such as changes to the essential health benefits and pre-existing conditions will be examined to determine if they are “policy changes” or if they are allowable within the budget rules by having an effect on taxes or federal revenue.

After that process, the Senate Republicans will seek to draft a “substitute amendment” to the AHCA that can be brought to the Senate floor. While Senate Democrats are not expected to support the bill, they do have a critical role to play. The Democrats can state their case to the Parliamentarian that certain provisions violate Senate rules and should be removed. This could also lead to changes to the bill and wrenches in the Senate process.

If a revised version of the AHCA is passed by the Senate, the House and Senate may choose to go to a conference committee to work out their differences. But equally likely, and in order to speed the process along, the House may simply take up the AHCA as amended by the Senate and pass it on an up-or-down vote. The AHCA would then go to the president for signature into law.

I doubt we will know what is in or out of the bill until early June, and the earliest I expect a Senate amended AHCA could be ready for a vote would be just before the July 4 Congressional recess. If a vote does not happen then, the next backstop is the August recess. However, the Senate is likely motivated to move quickly because they are eager to move on to other issues this year such as the 2018 budget process, tax reform, and other major expiring health provisions.

What policy changes can we expect in the Senate?
Due to the budget rules by which the Senate must abide by, it is important to keep in mind that the AHCA is, in essence, a redistribution of federal dollars to provide coverage in the commercial insurance markets and through the Medicaid program, and that the final bill must reduce the federal deficit. The rules do not allow a complete rewrite or repeal of the ACA. I tend to think of the AHCA provisions in four major buckets: the federal premium assistance tax credits, Medicaid financing, funding for state pooling mechanisms, and the taxes and fees used to offset the federal spending and reduce the deficit. The Senate will have strong views on how the federal dollars should be dialed up or down to create what they believe is the most efficient way to expand coverage and lower premiums.

As we watch these developments over the course of 2017, it becomes clear that the legislative process does not always align well with the need for stakeholders to make decisions. Despite the uncertainty around the fate and final version of the AHCA, states and health plans are moving ahead with decisions around their participation, rates and enrollment processes for the 2018 plan year.

One major unresolved issue for the remainder of the 2017 plan year (as well as 2018) is the fate of the federal cost-sharing reductions (CSRs) under the ACA – subsidies that are paid directly to insurance carriers for decreasing out-of-pocket expenses for low-income exchange enrollees. The funding for these subsidies has been in the courts since 2014 when House Republicans filed a lawsuit against the Obama administration, contending the subsidies were unlawful because Congress has never appropriated the funding. The issue may be resolved by the courts, or by Congress if it steps in to appropriate the funds. Late last month, the White House signaled that it would let CSRs continue (see the May 2, 2017 Health Care Current) for a period of time. The Court is expected to resume consideration of the case this month. The next time Congress will consider a federal appropriations bill will be in September as they enter a new fiscal year. I expect this issue to be in play for the next several months for health plans and patients.

Thus, as we enter the Senate debate, I understand the need to manage all of our expectations for this year in health care. The “art of the doable” means the Senate is about to enter a very delicate political, procedural, and policy journey.


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In the News

Summary of the House-passed American Health Care Act HR 1628

The AHCA addresses four main topics:

  • The taxes imposed by the ACA
  • The health insurance market
    • The amount and distribution of the subsidies for coverage in the individual market
    • Broader insurance requirements that also affect group insurance coverage
  • Funding to states for high-cost populations
  • Medicaid financing
    • Rollback of federal support for Medicaid expansion
    • Introduction of caps on per capita spending in the broad Medicaid population

Affordable Care Act taxes
The AHCA includes approximately $575 billion in tax cuts that affect the health care industry and many high-income individuals. Some of the taxes that have the greatest impact on federal revenue are:

  • Cadillac tax: Delays the 40 percent tax on high-cost health plans until 2025 (-$48.7 billion)
  • Over-the-counter medications: Repeals the prohibition of using health savings account (HSA) funds for these medications (-$5.5 billion)
  • Medical device tax: Repeals the 2.3 percent tax on medical devices (-$19.6 billion)
  • Medicare income tax: Repeals the 0.9 percent tax on earned income of $200,000/$250,000 (-$117.3 billion)
  • Prescription drug tax: Repeals the tax on branded prescription drugs (-$24.8 billion)
  • Health insurer tax: Repeals the tax on health plans (-$144.7 billion)

The health insurance market
First, the legislation would change the amounts and distribution of financial assistance people receive for the purchase of health coverage. Many enrollees would likely see lower financial assistance under the AHCA. Second, the bill removes many of the conditions set by the ACA for using tax credits to purchase coverage. Together, these changes are projected to result in lower premiums for younger individuals and higher premiums for older individuals.

Insurance provisions: Affordable Care Act vs. American Health Care Act

Although most of these policies are directed at the individual market, it also would eliminate the penalties on employers for not offering coverage. In addition, the policy that would allow states to request a waiver of the definition of essential benefits would also affect what requirements for offerings in the large group market.

Funding to states for high-cost populations
The legislation would include $138 billion over 10 years for a number of approaches to address the costs for people with high health care costs. The legislation would set up a Patient and State Stability Fund for states for purposes like subsidizing premiums. If states did not apply for the funds, they would go towards reinsurance for health plans. State matching would be required starting in 2020. Within that fund, money would be available for maternity coverage and newborn care and prevention, treatment, or recovery support services for mental or substance use disorders, for states that let insurers charge higher premiums to high-cost individuals with a gap in coverage for individuals to help pay premiums or other out-of-pocket costs, and an individual risk sharing program.

The legislation would change both the ACA expansion part of the program – where 31 states chose to expand coverage under the ACA – and the part of the Medicaid program that was in place before the ACA. States could choose to have funding in the form of a block grant and could not expand Medicaid after March 1, 2017, unless through a waiver process. Other Medicaid provisions would affect the ACA-related benefit requirements, DSH payments, and the eligibility determination process.

Changes to federal funding for the expansion population
Under AHCA, individuals who were newly eligible for Medicaid under the ACA’s Medicaid expansion provisions before 2020 could continue on the program and the federal government would continue to pay 90 percent match. However, starting in 2020 any new enrollees (including people whose coverage had lapsed) in Medicaid expansion states would get the state’s regular match rate from the federal government. In addition, no states could expand their populations after March 1, 2017.

Setting per capita caps on the federal Medicaid contribution
Starting in 2020, the AHCA would limit the federal contribution to state Medicaid programs on a per enrollee (or per capita) basis. This means that if states keep per capita spending below the cap, their regular federal match rate would apply. However if spending per person were to exceed the cap – which is increased based on the growth in medical prices – the federal government would recoup spending that exceeded the cap by lowering payments the following year. States also could choose to receive federal funds through a block grant instead of through per capita caps.

Trillion-dollar 2017 fiscal package secures funding for key health care initiatives

Last week, Congress approved a $1.07 trillion spending package to keep the government funded through September 2017. Since October, Congress has used a continuing resolution to authorize government spending, the latest of which expired at midnight May 5.

Lawmakers and health care industry experts noted that the agreement was bipartisan and it included the following science and health-related provisions:

  • $2.8 billion additional funding for the US Department of Health and Human Services (HHS) for the remainder of the year, bringing the department’s total fiscal year 2017 (FY17) budget to $73.5 billion
  • $4 billion for the Centers for Medicare and Medicaid Services (CMS), the same as FY16
  • $801 million in emergency funding to address opioid abuse and addiction, including full funding of the treatment programs authorized by the Comprehensive Addiction and Recovery Act (see the July 19, 2016 Health Care Current). This is a $150 million increase from the previous budget and funds programs from the Centers for Disease Control and Prevention (CDC), the Substance Abuse and Mental Health Services Administration (SAMHSA), and the Health Resources and Services Administration (HRSA)
  • $2 billion increase in spending for the National Institutes of Health (NIH) over the next five months, including $476 million for the National Cancer Institute, and $100 million in additional funding for research initiatives on the brain, Alzheimer’s disease, and precision medicine

Notably, the omnibus spending package does not include appropriations for cost-sharing reduction payments for low-income enrollees in public exchange health plans (see the May 2, 2017 Health Care Current).

The budget also eliminates funding for the Independent Payment Advisory Board (IPAB). The IPAB, called for by the ACA, was designed to recommend payment cuts to Medicare when growth in Medicare spending exceeded a target set in law. The 2016 Medicare Trustee’s report stated (see the June 28, 2016 Health Care Current) that it expects spending to exceed the target, triggering the process, in 2017. Note that if there is no IPAB, the HSS will still have to develop payment cuts.

Quality of care under Medicaid is comparable to private insurance

The quality of care that Medicaid beneficiaries receive is on par with care quality reported by those with private health insurance, and better than the quality of care reported by the uninsured, according to the Commonwealth Fund’s 2016 Biennial Health Insurance Survey. The survey asked participants to rate their access and quality of care. Researchers surveyed adults, ages 19-64. Private coverage included both employer-sponsored insurance and individual coverage.

Medicaid beneficiaries rated their quality of care higher than did the privately insured and the uninsured. However, a higher percentage of people with private coverage reported getting same-day appointments (53 vs. 45 percent).

Medicaid beneficiaries reported receiving preventive services at the same rate as the privately insured, for the most part. However, survey results indicate that privately insured respondents were more likely to receive cholesterol checks than were respondents with Medicaid coverage (83 vs. 74 percent).

The survey also indicated that Medicaid beneficiaries faced fewer challenges with affording health care-related costs than did the privately insured or uninsured. Those with private insurance, for example, were more than twice as likely to skip a recommended test, treatment or follow-up visit because of costs (17 vs. 7 percent).

(Source: Gunja et al., “How Medicaid enrollees fare compared with privately insured and uninsured adults,” Commonwealth Fund, April 2017)


Move to block Anthem-Cigna merger is upheld in Federal Court of Appeals

On April 28, the US Federal Court of Appeals ruled against Anthem, Inc.’s proposed acquisition of Cigna Corp., upholding the DC District Court’s February ruling (see the February 14, 2017 Health Care Current). The ruling was prompted by Anthem and Cigna’s appeal following the District Court’s ruling in favor of the US Department of Justice (DOJ). The acquisition was valued at an estimated $54 billion.

According to the DOJ, the merger would substantially reduce health plan offerings in the 14 states where Anthem and Cigna are in direct competition. The firms argued that while the merger might decrease some competition, the anticompetitive effect would be outweighed by new efficiencies. However, the Federal Court of Appeals determined the savings would not be significant enough to offset the potential harm to the markets, and upheld the lower court’s decision.

According to a statement from Anthem, the firm is evaluating options to move forward. As outlined in the terms of the merger proposal, Anthem is responsible for a $1.85 billion break-up fee if the merger fails.

ONC releases nationwide health IT interoperability standards

The Office of the National Coordinator for Health IT (ONC) released a framework to measure health information technology (health IT) implementation and progress on nationwide health IT interoperability. ONC hopes that the framework will help stakeholders identify specific barriers that need to be addressed to achieve nationwide health IT interoperability and meet the needs of the end-users (e.g. providers).

ONC’s approach to measuring interoperability standards considers implementation into a health IT product and utilization by the end user.

ONC is accepting public comments on these standards and how to best engage key stakeholders in implementation by July 31, 2017.

High-price and low-price physician practices do not differ significantly on care quality or efficiency

On most measures, higher priced physician’s services were not higher quality or more efficient, according to a new study published in Health Affairs.

Researchers used Consumer Assessment of Healthcare Providers and Systems (CAHPS) data for Medicare beneficiaries who visited provider practices that also saw commercial patients to classify practices as being either high- or low- price. The authors then examined the relationship between the practice’s commercial prices and the quality outcomes as measured by the survey.

High-price practices received, on average, $84.45 for a primary care office visit, while low-price practices received an average of $62.06 per visit, a 36 percent price difference. However, beneficiaries in high-price practices did not report significantly better experiences in:

  • The overall rating of their visit
  • Timely access to care
  • Interactions with their primary care physician
  • The use of many preventive services, including mammography and diabetes management services
  • Acute care services and hospitalizations

The only significant differences in care included the wait time for a previously scheduled appointment to begin (patients at high-price practices were more likely to be seen within 15 minutes of their appointment time), and the use of vaccines (high-price practice patients were more likely to receive influenza and pneumococcal vaccinations). Patients in high-cost practices were also more likely to report favorably on care coordination measures.

(Source: Eric T. Roberts, Ateev Mehrotra, and J. Michael McWilliams, “High-Price and Low-Price Physician Practices Do Not Differ Significantly on Care Quality or Efficiency,” Health Affairs, May 2017)

17 percent of Iowa’s Medicaid beneficiaries completed ‘healthy activities’

As a part of the state’s alternative Medicaid expansion, Iowa launched the Healthy Behaviors Program to encourage Medicaid enrollees to complete a series of healthy activities in exchange for waiving monthly premiums. A report published in Health Affairs found that less than 17 percent of enrollees completed the activities, in large part due to a lack of awareness of the program.

Beginning 2014, Iowa expanded Medicaid to newly eligible populations through two programs:

  • The Wellness Plan: Coverage for adults aged 19-64 with incomes up to 100 percent of the federal poverty level (FPL)
  • Marketplace Choice: Premium support to purchase coverage on the ACA exchange for adults aged 19-64 with incomes between 101 and 138 percent of the FPL

Beneficiaries in both programs were encouraged to participate in the Healthy Behaviors program which included:

  • A wellness exam and health risk assessment
  • A $25 per beneficiary incentive for providers to help patients complete their health risk assessment, and a $10 per beneficiary incentive for ACOs that had half of their populations complete a wellness exam
  • Incentives for beneficiaries to conduct healthy activities (i.e. gym memberships and purchasing healthy foods)
  • A $5 premium requirement for those with incomes above 51 percent of the FPL or $10 premium requirement for those with incomes between 101 and 138 percent of the FPL who did not complete a wellness exam and health risk assessment in the first 12 months of coverage

While certain additional provisions – such as incentives for health behaviors (i.e. gym memberships and purchasing healthy foods) have not yet been implemented, the study looked at how well providers and beneficiaries understood and used the program.

Members had to complete both the wellness exam and the health risk assessment to avoid paying a monthly premium (for those above 51 percent of the FPL) the following year. The researchers said a lack of awareness of the program and understanding of the rules likely resulted in low participation.

As more states look for ways to reform Medicaid, lessons learned from states such as Iowa show that beneficiary education and outreach to explain these provisions can be critically important.

(Source: Natoshia M. Askelson,, Brad Wright, Suzanne Bentler, Elizabeth T. Momany, and Peter Damiano, “Iowa’s Medicaid Expansion Promoted Healthy Behaviors But Was Challenging To Implement And Attracted Few Participants,” Health Affairs, May 2017)

States pass legislation to address drug pricing

Drug pricing continues to be an issue of interest for lawmakers at the state and national level. This year, state legislators introduced more than 80 bills to address drug pricing issues. However, as legislative sessions around the country come to a close, only a few states have passed drug pricing legislation. According to the National Academy for State Health Policy, which tracks state legislative action, legislatures in Maryland, Montana, and New York have approved bills addressing drug prices.

Maryland: HB 631 would prohibit so called ‘price gouging’ by authorizing the Attorney General and Circuit Courts to penalize the manufacturers of essential off-patent or generic drugs for excessive price increases. The governor has not yet signed the bill (see the April 18, 2017 Health Care Current).

Montana: The legislature approved a joint resolution to establish an interagency committee to study drug pricing and spending trends, and to make recommendations about drug spending by September 2018. Additionally, the Governor signed HB 276, which made Montana the fourth state to allow pharmacies to decline to sell a drug if they are reimbursed less than the cost of the drug. It also implements greater transparency requirements of pharmacy benefit managers (PBMs).

New York: In its budget extension, New York became the first state to limit prescription drug-cost growth in Medicaid. The bill creates a drug utilization board to assess drug prices. If drug manufacturers increase prices over a certain threshold, the board may require manufacturers to pay rebates to the state (see the April 18, 2017 Health Care Current).

Other states also had movement on drug pricing. The New Mexico legislature approved a bill that would have directed the Legislative Finance Committee to research the costs of prescription drug and pharmacy benefits to certain state agencies and make recommendations for cost reductions. However, it was vetoed by the governor. Additionally, Utah considered legislation to explore the feasibility of a prescription drug importation program, and California considered legislation that would have required manufacturers to disclose to both private and public purchases in advance of increasing a drug’s price.

At the federal level, HHS Secretary Tom Price is hosting a series of meetings on drug pricing and costs. Last week, the secretary met with several advocacy groups to gather input on better access and affordability to prescription drugs.

Breaking Boundaries

Virtual reality is transforming medical education

Medical education is transforming thanks to medical and nursing schools adopting innovations to prepare new clinicians for emerging models of care. In today’s rapidly changing health care system, physicians and care teams require new capabilities to best practice medicine and serve their patients. They must understand value-based payment models, how to operate in a patient-centered system – rather than one centered on the physician – and learn to incorporate new technologies into the practice of medicine.

Virtual reality (VR) is an example of an innovation that medical and nursing schools are adopting. Take surgery, for example. Training future surgeons is expensive, and trainees have limited time and space to witness surgeries to learn techniques first hand. VR can help future surgeons around the world witness best practices.

Residents at Ohio University are able to enhance their emergency training skills through use of a VR trauma bay. This immersive experience lets them walk around a virtual emergency room and view various medical scenarios. Each scenario is created through the use of multiple 360-degree cameras with audio recordings of patients during real-life encounters (which were recorded with their consent). At Stanford University, medical students and residents can put on VR goggles and see inside an infant’s beating heart to explore congenital heart defects. Stanford has prototypes that show the ventricular septal defect and one other type, with a goal of having 25 to 30 of the most common heart defects available for students to explore through VR in the coming months. The long-term goal is to add models for adult heart diseases, and lung and brain diseases.

Students also learn empathy for their patients by using VR to experience what their patients are experiencing. At the University of New England, young students can see what it is like to be a much older patient, with hearing and vision loss. Through VR technology from Embodied Labs, students can sit at a computer, put on a headset, and see the world like a 74-year-old African American male patient with advanced macular degeneration and high-frequency hearing loss. The students experience the family celebrating his birthday, but he cannot see family members without tilting his head to look around the large dark spots at the center of his vision. The birthday singing sounds muffled, and when he tries to speak to the physician, he gets complicated medical information shared with him in a business-like manner. Students who have gone through the scenario say it captures the frustration and helplessness of being in this man’s shoes. In one study, 94 percent of the students reported having increased empathy after the experiment; 92 percent said they had a greater knowledge of macular degeneration; and 90 percent said they had a greater understanding of hearing loss.

Analysis: Deloitte Global estimated that 2016 marked the first billion-dollar year for VR. With multiple applications in the long term for both consumers and industries, the biggest source of sales is in the consumer market, for video games. But analysts expect the health care segment to grow rapidly in the coming years. As with many technologies, the notion of virtual reality is decades old, but its commercial realization has been subject to the sometimes slow pace of technological progress. Screen and processor technology have only recently improved in terms of price and performance such that VR is commercially viable. In the future, VR could be integrated with technology advances such as artificial intelligence, advanced bio-sensors, and increased computing power.

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