July 6, 2009 – As the debate over how to best implement healthcare reform heated up in late June, it was becoming increasingly clear to stakeholders in the safety-net world that whatever the final legislation may look like, it could have a profound impact on providers and manufacturers that serve low-income and uninsured patients.
Here’s a snapshot of some of the measures outlined by lawmakers and by President Obama that would directly affect participants in the 340B drug discount program – for better or worse. (See p. 1 story about legislation focused specifically on 340B reform.)
Increasing the Medicaid Rebate Percentage
To help pay for the overhaul of the nation’s healthcare system, the legislation released June 19 by three House committees ( the so-called Tri Committee) proposed raising the flat rebate that drug manufacturers pay Medicaid for branded drugs. Under this proposal, the rebate fee would rise from the current 15.1 percent of the average manufacturer price (AMP) to 22.1 percent.
The Congressional Budget Office estimated earlier this year that by raising the minimum rebate one percentage-point higher, to 23.1 percent of AMP, the government would save $7.2 billion between 2010 and 2019. (See Monitor Feb. 2009.)
Higher rebates would reduce drug costs for Medicaid, a fiscally challenged program that’s growing nearly 8 percent annually. They would also benefit healthcare providers participating in the 340B program because 340B uses essentially the same formula as Medicaid does to set its discounts. Many 340B outpatient pharmacies that struggle to serve a growing number of indigent and uninsured patents would welcome such price breaks.
PhRMA, a trade organization representing the nation’s largest manufacturers of branded drugs and which opposed higher rebates just a few months ago, declined to comment on the latest rebate proposal. There are reports that the industry may have signed off on the idea to stave off other, more draconian measures considered under healthcare reform—such as allowing the government to negotiate prices under the Medicare Part D program.
Extending Medicaid Rebates to Managed Care Drugs
The House Tri-Committee bill also contains language that mirrors a bill sponsored by Rep. Bart Stupak (D-Mich.) and Sen. Jeff Bingaman (D-N.M.), the so-called “Medicaid Drug Rebate Equalization Act.” It would allow states to collect rebates from manufacturers on drugs provided to patients in Medicaid managed care plans. The legislation explicitly exempts 340B drugs from the class of managed care drugs that are subject to rebates.
Proponents of the legislation hope it will halt a trend of state Medicaid programs carving their pharmacy benefits out of managed care in order to collect manufacturer rebates for drugs dispensed under fee-for-service rules.
A 2008 study by the Lewin Group, a consulting firm, estimated that the federal government could save $7.1 billion and states $5.5 billion over a five-year period if drug manufacturers pay rebates equal to those paid under fee-for-service. The study was commissioned by the Association of Community Affiliated Plans (ACAP), an organization representing non-profit managed-care plans in the Medicaid program that has pushed for the Stupak-Bingaman bill.
ACAP called the Tri-Committee bill “a great step,” but cautioned that the fight is far from over. “We will work hard for inclusion of this legislation in Congress’s final healthcare reform package,” the organization pledged.
Rebates for Dual Eligibles Back on the Table
The president has identified Medicare Part D as a target for healthcare savings. “For example, drug reimbursement could be reduced for beneficiaries dually eligible for Medicare and Medicaid,” says the latest White House Medicare Fact Sheet. “The Administration is working with the Congress to develop the most appropriate policy to achieve these savings.”
When the Part D drug benefit program was created in 2006, coverage for low-income Medicare patients also eligible for Medicaid was shifted to Medicare in an effort to cut costs. The expectation at the time was that private insurers would be able to obtain larger rebates from drug makers than they obtained under Medicaid.
The savings never materialized, however. In fact, research shows that prescription drugs cost up to 30 percent more under Medicare Part D than they do under Medicaid. A 2008 report by the U.S. House Committee on Oversight and Government Reform, chaired by Rep. Henry Waxman, D-Calif., estimated that drug makers brought home $3.7 billion more from Medicare Part D insurers than they would have received if the dually eligible patients had obtained the drugs through Medicaid. (See Monitor Aug. 2008.)
As expected, the House Tri-Committee bill therefore requires drug manufacturers to provide rebates for drugs used by dual eligibles. The rebates must be at least as large as Medicaid rebates for the same drugs, the proposed legislation says.
Such a change would be of keen interest to hospitals, health clinics and other facilities covered by the 340B program. Under federal duplicate discount rules, many states require such facilities to bill Medicaid at no more than acquisition cost, plus a dispensing fee, or to adjust their billing practices in other ways. So any move to impose Medicaid pricing for drugs sold to such patients would translate into lost revenue for already financially pressured providers.
Cutting Federal Subsidies for DSH Hospitals
An estimated 46 million people in the United States – 15 percent of the population – lack health insurance today. As their ranks swell, these uninsured individuals increasingly rely on disproportionate-share, or DSH, hospitals as a last resort for care.
So the hospital community was alarmed when President Obama said in his June 14 radio address that Medicare and Medicaid payments made to such hospitals to offset the cost of serving the uninsured can be reduced by $106 billion over the next decade. The cuts would come as more people get health insurance coverage and fewer rely on charity care, he said.
It’s unclear how DSH cuts would affect 340B program eligibility. With fewer uninsured patients to serve, hospitals may no longer be able to meet the current 11.75-percent DSH adjustment requirement, which measures the Medicaid and low-income Medicare payor mix of a hospital’s inpatient population. On the other hand, both House and Senate health reform bills call for an expansion of the Medicaid program, which could boost that inpatient population for the hospitals.
According to a fact sheet released by the White House, DSH payments would be reduced through a “new mandatory mechanism” that would cut funding to the hospitals by 75 percent between 2013 and 2019.
But the House Tri-Committee heard the outcry from hospital organizations and excluded DSH cuts from its proposed legislation released June 19.
Patricia Gabow, chief executive of Denver Health, a 340B hospital in Colorado, thanked lawmakers for drafting a bill that preserves DSH payments “into the foreseeable future” when she testified before a House health subcommittee a few days later.
“We strongly support the approach to both Medicare and Medicaid DSH outlined in the draft bill – rejecting arbitrary predetermined cuts in DSH and establishing a thoughtful process by which the DSH programs can be restructured once health reform is fully implemented,” she said. And “only after hospital losses on both the uninsured and Medicaid populations are substantially reduced.”
Whether DSH payments will be targeted in the final healthcare bill later this summer remains to be seen. But three hospital groups – the American Hospital Association, the Federation of American Hospitals and the Catholic Health Association – have included such cuts in their offer to contribute billions toward universal coverage, according to media reports published July 7. In an agreement reached with White House officials, the organizations pledged between $150 billion and $160 billion toward health reform, the reports said.
Federal spending on Medicare and Medicare DSH payments will be $18.9 billion this fiscal year, according to estimates by the Congressional Budget Office.
Community Health Centers on a Roll
If there was ever a darling in the contentious healthcare debate, it’s got to be the nation’s community health centers. Earlier this year, the American Recovery and Reinvestment Act provided $2 billion to expand services at the centers, and in May, the government provided an additional $81.7 million in non-stimulus funding to increase the medical capacity at 54 centers.
“The recovery act grants and the funding we have released are key investments that will help deliver care to millions of Americans,” said Health and Human Services Secretary Kathleen Sebelius when releasing the latest pot of money.
Rhode Island Sen. Jack Reed sees an even bigger role for the nation’s health centers: Why not make them the cornerstone of a government-sponsored health insurance plan? Reed, a member of the Senate Health, Education, Labor & Pensions committee, reportedly got fellow committee member Chris Dodd of Connecticut, the committee leader, interested in the idea. “This proposal is a good way to bridge the divide on the public option, which so far has been a stumbling block in achieving a bipartisan bill,” Reed said.
Under his plan, the U.S. Department of Health and Human Services would provide initial grants or loans to health centers that form so-called Community Health Plans in direct competition against private insurers. The model already exists in nine states, including Rhode Island, where such plans report administrative costs of 8.7 percent, well below what private insurers spend.