Conferees Reach Deal on Fund To Encourage PPO Participation in Medicare

Negotiators attempting to reconcile the House and Senate Medicare bills (HR 1 and S 1) have tentatively agreed on the creation of a $12 billion fund that would be used to increase payments to preferred provider organizations to encourage their participation in Medicare, the Wall Street Journal reports (Lueck, Wall Street Journal, 10/31). The fund was "not envisioned" in either the House or Senate Medicare bills, but both bills call for the federal government to "invite private health plans to compete to care for patients in different regions of the country, the Washington Post reports (Goldstein, Washington Post, 10/31). Some Republicans have said that allowing beneficiaries greater access to private health plans would help control Medicare spending. Under the negotiators' tentative agreement, the HHS secretary would determine when and where to administer payments from the fund to PPOs that are "wary of providing Medicare benefits" in certain regions of the country," according to the Journal. To address House Republicans' concerns that the department would have too much freedom to pay health plans as much as they seek, there would be limits on HHS' ability to increase payments. The creation of the fund, which would be financed by private plans after the federal government made an initial payment of $12 billion, stems from the government's experience with Medicare+Choice. Many private health plans have ended or scaled back their participation in that program, saying it is too expensive to pay providers in certain areas, particularly rural regions, to join their networks and that the formula the federal government uses to calculate payments is not "responsive to the private market," the Journal reports (Wall Street Journal, 10/31).

The tentative agreement on the fund represents a "success" for the Bush administration and conservative Republican lawmakers, who had pushed for stronger incentives to entice PPOs to participate in Medicare, the Post reports. It also reflects Republicans' "determination to tilt Medicare toward the private sector," according to the Post (Goldstein, Washington Post, 10/31). According to the Journal, Sen. Max Baucus (D-Mont.), a conference committee member, criticized the idea of a stabilization fund, saying Medicare should not provide more funds for beneficiaries' benefits "just because they choose a PPO instead of traditional Medicare" (Wall Street Journal, 10/31). The Post reports that questions still remain over how large the designated regions in which Medicare would compete with the private plans will be, as well as how much influence the government and the private plans will have on determining rates (Washington Post, 10/31).

Conferees on Thursday also addressed several other issues on Thursday, including provisions in the House and Senate Medicare bills that would ease restrictions on the purchase of medications from Canada and other countries. In meetings with HHS Secretary Tommy Thompson, negotiators "seriously" discussed the issue, as well as whether to give the FDA more money and authority to oversee the prescription drug market, the New York Times reports. Neither Thompson nor the Bush administration indicated that they have backed away from their opposition to allowing people in the United States to purchase medications from foreign nations, according to the Times. One option under consideration involves allowing imports from Canada for several years under close federal supervision "to ensure that the drugs meet federal standards," the Times reports. Lawmakers said they would provide the FDA with the resources it needs to monitor and regulate the flow of imported drugs, as well as subsidize the development of new technology to decrease the possibility of counterfeit medications.

The Times reports that negotiators did not discuss their ideas in detail, but their comments indicate that the "debate is shifting from the philosophical question of whether to allow more imports to the practical question of how to do so, in a way that minimizes the risks to public health" (Pear, New York Times, 10/31). On Wednesday, a bipartisan group of senators led by Sens. Byron Dorgan (D-N.D.), Debbie Stabenow (D-Mich.) and John McCain (R-Ariz.) introduced a new bill designed to pressure conferees to include language allowing reimportation in the final Medicare bill. The bill would allow pharmacists and wholesalers to purchase or reimport U.S.-made drugs from Canada and 24 other industrialized nations and is similar to a bill passed by the House. Unlike language included in the Senate Medicare bill, the new bill would not require the approval of the HHS secretary (California Healthline, 10/30). But several participants in the negotiations said that many lawmakers, citing safety concerns, seem "unwilling to accept any plan that did not give" the FDA "veto authority," the AP/Tallahassee Democrat reports.

Conferees continue to negotiate a House-passed provision that would allow the creation of tax-preferred health savings accounts for individuals, the AP/Democrat reports (Sherman, AP/Tallahassee Democrat, 10/31). Under the House bill, people enrolled in private health plans would be allowed to create two types of savings accounts accrue money tax-free to pay for some medical expenses, including medical treatment, medications and long-term care services or coverage. Under the provision, individuals with health insurance deductibles of at least $1,000 and families with deductibles of at least $2,000 could use health savings accounts, and individuals with $500 deductibles and families with $1,000 deductibles could use health savings security accounts. Conferees recently rejected the more expensive of the two accounts, the HSSAs, which would have cost an estimated $163 million (California Healthline, 10/28). Conferees continue to debate the less-expensive HSAs, which some senate Democrats oppose. Sen. John Breaux (D-La.) said, "I look at [the accounts] as a tax shelter that basically helps younger, healthier people." The issue remains very important to House Republicans, and Rep. Rob Portman (R-Ohio) said that the final Medicare bill could be jeopardized if it does not include health savings accounts, the AP/Democrat reports (AP/Tallahassee Democrat, 10/31).

Conferees on Thursday "made little visible progress on major issues," but many said they are "close to accord on a host of topics," including physician payments and competitive bidding for durable medical equipment, CongressDaily/AM reports. Conferees reached a tentative agreement on eliminating a scheduled 4.5% cut in Medicare physician fees beginning Jan. 1; CongressDaily/AM reports that Congress in February had attempted to fix the physician payment problem by adding $54 billion over 10 years to the omnibus spending bill, but an increase in Medicare physician services in 2002 prompted another payment cut for next year (Rovner/Heil, CongressDaily/AM, 10/31). (See related story for more information on the scheduled Medicare physician payment cut.) House Speaker Rep. Dennis Hastert (R-Ill.) said, "I think we're very close" to a compromise on a final Medicare bill, but he added that "there are a couple of things that we haven't put to bed yet. I don't know how long it's going to take" (AP/Tallahassee Democrat, 10/31). Sen. Charles Grassley (R-Iowa) and Rep. Bill Thomas (R-Calif.) said that once a framework for a bill is agreed to and scored, "conferees likely would have to revisit it to adjust it to meet" the $400 billion over 10 year limit for the package, CongressDaily/AM reports. Grassley added that "almost anything would be on the table" for cutting to fit the $400 billion limit, except adjustments in Medicare provider payments (CongressDaily/AM, 10/31).

On Thursday, Rep. Charles Rangel (D-N.Y.) led a group of about a dozen House Democrats into the Medicare negotiating session in an "act of political theater scripted to dramatize opposition to legislation taking shape in negotiations dominated by Republicans," the AP/Long Island Newsday reports (Espo, AP/Long Island Newsday, 10/30). Three House Democrats technically are members of the conference committee, but they have said that Thomas, the committee's chair, has not permitted them to attend the daily negotiating sessions in his office, the Post reports (Goldstein, Washington Post, 10/31). The Democrats stayed for about 30 minutes. Rangel said, "Let us know what the problems are. Maybe we can talk to somebody." Following the action, Rangel told reporters, "I came there to say, 'Listen, we don't know what you're doing. How can we screw up anything worse than what we're reading in the papers?'" (CongressDaily/AM, 10/31). He protested the exclusion of most of the Democratic conferees from the negotiations, saying that Republicans had made it clear they only wanted to meet with "willing members" of the House (AP/Long Island Newsday, 10/30). Rep. Nancy Pelosi (D-Calif.) also criticized Republicans for not allowing Democrats into negotiations, adding that she "doubted Democrats would be able to support" a final bill, CongressDaily reports (Rovner/Heil, CongressDaily, 10/30).

If the proposed $400 billion Medicare drug benefit is enacted, it would result in a "windfall profit" of at least $139 billion over eight years for the pharmaceutical industry, according to a study released Friday, the Washington Post reports (Connolly, Washington Post, 10/31). The report, compiled by Alan Sager and Deborah Socolar, directors of the Health Reform Program at Boston University's School of Public Health, estimates that drug makers would see a 38% increase in profits as a result of the new drug benefit (Sager/Socolar, "61 Percent of Medicare's New Prescription Drug Subsidy is Windfall Profit to Drug Makers," 10/31). Sager said the drug industry's profits would result in part from the fact that the federal government would not negotiate price discounts on drugs for the "flood of new customers envisioned under the proposed legislation," the Post reports. He said that the Department of Veterans Affairs and other government agencies currently bargain with pharmaceutical companies for such discounts. The report concludes that "these unrestrained prices -- given the remarkably low real cost of producing the added volumes of pills that Medicare patients need -- will bestow enormous windfall profits on prescription drug makers." Joshua Cohen, a senior researcher at the Tufts Center for the Study of Drug Development, agreed that the drug companies could see a 20% to 30% increase in prescription drug volume, but he cautioned that under the new drug benefit, beneficiaries would not pay the full retail price. The Post notes that the Tufts center receives financial support from the drug industry. The report authors "should be ashamed of themselves," CMS Administrator Tom Scully, said, adding that drug companies could see "higher volume, but they will have lower margins." Rick Smith, vice president of Pharmaceutical Research and Manufacturers of America, said, "The study seems to be an effort to scuttle a very needed benefit for America's seniors." Spokespersons for PhRMA also said the analysis "failed to take into account" the fact that the legislation would rely on pharmacy benefit managers to negotiate lower prices on behalf of beneficiaries, the Post reports. But Sager said that the report does account for PBMs "in the form of the higher manufacturing costs," according to the Post (Washington Post, 10/31). The report is available online. Note: You will need Adobe Acrobat Reader to view the report.

WAMU's "Diane Rehm Show," a syndicated NPR program, on Thursday discussed the Medicare negotiations. Guests included Michael Franc, vice president for government relations at the Heritage Foundation, and Families USA Executive Director Ron Pollack (Rehm, "Diane Rehm Show," WAMU, 10/30). The full segment is available online in RealPlayer.