2008 Health Care Forecast Conference2008 Health Care Forecast Conference

Prospects for Federal Health LegislationProspects for Federal Health Legislation

Irvine, California

February 21, 2008

Dean A. Rosen

Mehlman Vogel Castagnetti, Inc.

OverviewOverview

Health Care in the 110Health Care in the 110thth Congress Congress – Progress reportProgress report– What will happen in 2008? What won’t?What will happen in 2008? What won’t?

How will the 2008 elections influence the How will the 2008 elections influence the 110110thth Congress? Congress?

What do the debates in the current What do the debates in the current Congress portend for 2009 and BeyondCongress portend for 2009 and Beyond

110110thth Congress Health Care Congress Health Care ScorecardScorecard

Prescription Drug Prescription Drug User FeeUser Fee

Medical Device User Medical Device User FeeFee

Pediatric exclusivityPediatric exclusivity Drug safetyDrug safety Children’s HealthChildren’s Health Medicare physician Medicare physician

paymentpayment

Health information Health information technologytechnology

Patent reformPatent reform Prescription drug Prescription drug

importationimportation Follow-on biologicsFollow-on biologics Stem cell fundingStem cell funding Medicare Rx Medicare Rx

negotiationnegotiation OversightOversight

Medicare physician Medicare physician paymentpayment

Medicare Advantage Medicare Advantage cuts and marketing cuts and marketing reformsreforms

Medicare Part A & B Medicare Part A & B offsets and reformsoffsets and reforms

FMAP increaseFMAP increase Mental health parityMental health parity Genetic Genetic

nondiscriminationnondiscrimination

CompletedCompleted Potential/PendingPotential/Pending

FDA Amendments Act of 2007FDA Amendments Act of 2007

Reauthorizes, expands, and increases Reauthorizes, expands, and increases prescription Rx user fees for 5 yearsprescription Rx user fees for 5 years

Reauthorizes and expands medical device user Reauthorizes and expands medical device user fees for 5 years, while reducing application feesfees for 5 years, while reducing application fees

Expands FDA authority over advertising, post-Expands FDA authority over advertising, post-market surveillance, labelingmarket surveillance, labeling

Increases FDA food safety authority Increases FDA food safety authority Reauthorizes Best Pharmaceuticals for Children Reauthorizes Best Pharmaceuticals for Children

and Pediatric Research Equity Actsand Pediatric Research Equity Acts Establishes Reagan-Udall Foundation to speed Establishes Reagan-Udall Foundation to speed

R&D and improve safetyR&D and improve safety

My Forecast:My Forecast:What Will Happen During the What Will Happen During the

110110thth Congress’ Second Session? Congress’ Second Session?

Medicare Reform: Six-Month Medicare Reform: Six-Month MulliganMulligan

QuestionsQuestions

Will Congress act?Will Congress act?

Will Congress act by June Will Congress act by June 30?30?

Will the final result contain Will the final result contain policy changes?policy changes?

Will SGR be fixed, or just Will SGR be fixed, or just patched?patched?

Will MA payments be cut?Will MA payments be cut?

PredictionsPredictions

YesYes

LikelyLikely

ModestModest

Patched, and threadbarePatched, and threadbare

Modest to miniscule, Modest to miniscule, perhaps IME and some perhaps IME and some private FFS deemingprivate FFS deeming

Pay-Go May Be Most Significant 110Pay-Go May Be Most Significant 110thth Congress Reform Affecting Health PolicyCongress Reform Affecting Health Policy

Saturday, January 6, 2007

House Adopts Pay-as-You-Go RulesChanges Aim to Curb Deficit Spending, Shed Light on EarmarksBy Lori Montgomery, Washington Post Staff Writer

On its second day under Democratic management, the House yesterday overwhelmingly approved new rules aimed at reining in deficit spending and shedding more light on the murky world of special-interest projects known as earmarks.Under the new provisions, the House will for the first time in years be required to pay for any proposal to cut taxes or increase spending on the most expensive federal programs by raising taxes or cutting spending elsewhere. And lawmakers will be required to disclose the sponsors of earmarks, which are attached in virtual secrecy to legislation to direct money to favored interests or home-district projects.

Bush Administration Budget Bush Administration Budget PrioritiesPriorities

Inpatient hospital update $64.0b 36.0%

Outpatient hospital update $6.1b 3.4%

Hospital bad debt $8.5b 4.8%

Inpatient rehab update $4.8b 2.7%

Home health update $11.0b 6.2%

SNF update & base payment $18.7b 10.5%

Eliminate Part B indexing $2.6b 1.5%

Establish Part D income-relating $3.2b 1.8%

Bush Administration FY2009 Budget Proposals

-60

-50

-40

-30

-20

-10

0

10

20

30Parts B & D Beneficiary

Improvements

Physician Payment Increase

-$50.284%

Medicare Advantage Reductions

$15.944%

$20.156%

-$5.710%Part A

Reductions

-$1.02%

Other Part B

Reductions

Other Parts A & BReductions

-$2.74%

Democrats’ Have Different ViewDemocrats’ Have Different ViewF

ive

Ye

ar S

pend

ing/

Sav

ings

(bi

llion

s)

MVC Analysis of CBO Data

Medicare Winners and Losers in House CHAMP Act

Quality Improvement: A Mixed OutlookQuality Improvement: A Mixed Outlook

Expand Medicare pay-for-performance/reportingExpand Medicare pay-for-performance/reporting– House and Senate leaders have different viewsHouse and Senate leaders have different views– Small Medicare package = limited reformsSmall Medicare package = limited reforms

Comparative effectivenessComparative effectiveness– Growing support but cost and lack of viable Growing support but cost and lack of viable

legislative vehicle could be barrierslegislative vehicle could be barriers

Health information technologyHealth information technology– Senate bill awaits floor actionSenate bill awaits floor action– House will begin moving through committeeHouse will begin moving through committee– Privacy concerns and physician opposition to Privacy concerns and physician opposition to

Medicare claims data release pose stumbling blocks Medicare claims data release pose stumbling blocks in election yearin election year

Health Care Access and Coverage: Health Care Access and Coverage: As SCHIP Shows, Prospects Dim in 2008As SCHIP Shows, Prospects Dim in 2008

Tax reform Tax reform – Repeal employment-based exclusionRepeal employment-based exclusion– Standard deduction and/or creditStandard deduction and/or credit

SCHIP expansion, Medicare buy-in, other SCHIP expansion, Medicare buy-in, other government program expansionsgovernment program expansions

Community health centers reauthorizationCommunity health centers reauthorization

Health Insurance Regulation/Beneficiary Health Insurance Regulation/Beneficiary Protections: Industry & Business Support Could Protections: Industry & Business Support Could

Pave Way to Passage Pave Way to Passage

Mental health parityMental health parity– Closer to passage than anytime in decadeCloser to passage than anytime in decade– But House will have to right-sizeBut House will have to right-size

Genetic nondiscriminationGenetic nondiscrimination– Looks likely in 2008Looks likely in 2008

Medicare marketing restrictionsMedicare marketing restrictions– Likely if Medicare billLikely if Medicare bill

Long-term care insurance marketingLong-term care insurance marketing– More scrutiny likely, but issue not yet ripeMore scrutiny likely, but issue not yet ripe

Prescription Drugs: Some Threats Prescription Drugs: Some Threats RemainRemain

Medicare Rx negotiationMedicare Rx negotiation– Can’t pass SenateCan’t pass Senate

Prescription drug importationPrescription drug importation– Could be attached to any number of Could be attached to any number of

appropriations bills, but faces veto threat appropriations bills, but faces veto threat

Transparency/Physician disclosureTransparency/Physician disclosure– Could be part of Medicare SGR packageCould be part of Medicare SGR package

Patent reform Patent reform – Final bill will be more to Rx industry’s likingFinal bill will be more to Rx industry’s liking

Follow-on biologicsFollow-on biologics– Waxman and others holding out for better Waxman and others holding out for better

deal? deal?

Oversight & Investigations: Oversight & Investigations: No Legislation Necessary! No Legislation Necessary!

Health plans and Rx/biotech industry continue to make inviting targets

2008 Elections’ Influence on Congress

Public Opinion

Economy Now Most Important Issue in Economy Now Most Important Issue in Choosing President… But Health Care Choosing President… But Health Care

Remains in Top ThreeRemains in Top Three

Iraq

Economy

Health Care

Source: January 14, 2008 ABC Washington Post Poll

Voters See Health Care As Leading Voters See Health Care As Leading Economic IssueEconomic Issue

Source: January 14, 2008 ABC Washington Post Poll

Health Care Much More Important to Democratic Health Care Much More Important to Democratic VotersVoters

0% 10% 20% 30% 40%

GOP

Independents

Democrats

All

Washington Post/ABC News Poll, November 1, 2007

Percent saying health care most or second-most important issue

Which ONE of the following health care issues would you most like to hear the Presidential candidates talk about?

Total

Total

Total

Republican

Republican

Republican

Democrat

Democrat

Democrat

Independent

Independent

Independent

Democrats More Focused on Coverage, GOP Democrats More Focused on Coverage, GOP Focused on CostFocused on Cost

But Voters Understand They Go Hand in HandBut Voters Understand They Go Hand in Hand

Kaiser Family Foundation, October 2007

The Candidates’ Proposals

Health Reform Plan ComparisonsHealth Reform Plan ComparisonsCandidate Coverage Subsidies Insurance Market

StructureGovernment Programs

Employer Impact Quality Savings/Offsets Costs

Hillary Clinton

Universal coverage via individual mandate

Refundable tax credits for low and middle income people (income level undefined). Small business tax credit.Retiree health tax credit.

Individuals could keep current coverage or choose menu of private options, including one Medicare-style plan. Insurers cannot deny coverage based on preex, health status, race and other factors.Insurers must cover preventive benefits.

Expands Medicare to offer coverage option in new insurance pool.Expands Medicaid and SCHIP eligibility.Reduces payments to Medicare Advantage plans.

Requires large employers to provide coverage or contribute to cost.Small business tax credit.Retiree health tax credit.

Expand chronic care.$300 million grants for nurse training and retention.$3 billion health IT grants.Federal “best practices institute to compare treatments.Federal quality payments.Consumer education funding.

Repeal Bush tax cuts for upper income. Improves government program quality.Cap employer tax exclusion for workers with incomes over $250k.Expand Rx generics and allows follow-on biologics.Limit DTC and regulate ties between physicians and manufacturers.Allow Medicare Rx negotiation.Reduce Medicare Advantage payments.

$110 billion a year.

Health Reform Plan ComparisonsHealth Reform Plan ComparisonsCandidate Coverage Subsidies Insurance Market

StructureGovernment Programs

Employer Impact Quality Savings/Offsets Costs

Barack Obama

Universal by 2012, with mandate for parents to buy children’s coverage

Federal subsidies for low income people to buy private insurance or public program coverage

National health insurance pool for employers and individuals, modeled on FEHBP. Insurers cannot deny coverage based on preex or health status.Benefit package similar to FEHBP, with prevention, maternity, mental health and other coverage mandated.

Expands Medicaid and SCHIP eligibility.

Requires employers to provide coverage, contribute to private coverage, or contribute a percentage of payroll toward public plan. Some small business exempted.Federal government would reimburse employers or catastrophic costs.

Require provider reporting on costs, quality, errors, disparities.Require disease management.Pay for performance and dissemination of best practices.$10 billion per year for health IT.Independent comparative effectiveness institute.

Allow Bush tax cuts to expire for those earning over $250k.Limit malpractice insurance premiums charged to doctors.Allow Rx importation.Expand generic Rx.Allow Medicare Rx negotiation.Reduce Medicare Advantage payments.

$50-60 billion a year.

Health Reform Plan ComparisonsHealth Reform Plan ComparisonsCandidate Coverage Subsidies Insurance Market

StructureGovernment Programs

Employer Impact

Quality Savings/Offsets Costs

John McCain Tax incentives for individuals to buy coverage

Replace employer tax exclusion with $2,500 tax credit for individuals and $5,000 for couples to buy private insurance.Replace existing employer exclusion.

Allow people to buy insurance licensed out-of-state. Expand HSAs.Allow individuals to get insurance through associations and other organizations.

Veterans can use VA funds to get care from private providers.Change government program reimbursement to reward performance, coordination, prevention, and quality.

No mandates. Eliminates employer tax exclusion.Allows small business and self-employed to get association coverage.

National health IT standards. Government programs would reimburse on outcomes, coordinated care, and prevention.Require providers to make public information on outcomes, quality, and costs.Expand innovative delivery models.

End frivolous malpractice lawsuits and excessive damages.Protect doctors who follow clinical guidelines and safety protocols from lawsuits.Government program reimbursement based on quality and prevention.Expand generic Rx.Allow Rx importation.

No estimate. Implies no new net spending.

Key TakeawaysKey Takeaways

DemocratsDemocrats

Relatively Relatively specific specific plansplans Primary goal Primary goal increasing increasing

coveragecoverage Rely on government Rely on government

programs and employersprograms and employers Increase insurance Increase insurance

regulation regulation Pharma, device, insurance Pharma, device, insurance

industry industry scrutinyscrutiny No real tort reformNo real tort reform Keen attention to Keen attention to interest interest

groupsgroups (e.g., nurses, unions, (e.g., nurses, unions, business)business)

RepublicansRepublicans

GeneralGeneral proposals proposals Primary goal Primary goal reducing costreducing cost

Rely on increased Rely on increased competition in individual competition in individual insurance marketinsurance market

Insurance Insurance deregulationderegulation Price and quality Price and quality

transparencytransparency– But McCain agrees with Ds on But McCain agrees with Ds on

importation and genericsimportation and generics

Tort reformTort reform Attention to Attention to ideologyideology

A Look Ahead:

Lessons Learned from the 110th Congress

SCHIP and Medicare Debates Highlight SCHIP and Medicare Debates Highlight Political Fault Lines, Competing Policy Political Fault Lines, Competing Policy

VisionsVisions Political parties polarized on coverage Political parties polarized on coverage – SCHIP debate proxy war for looming larger battlesSCHIP debate proxy war for looming larger battles– Significant differences on role of private and public sectorSignificant differences on role of private and public sector

More consensus on quality, costMore consensus on quality, cost– Health IT, prevention, chronic care, aligning payment incentives in Health IT, prevention, chronic care, aligning payment incentives in

public programs, etc.public programs, etc.

Pay-go poses significant challenges for would-be reformersPay-go poses significant challenges for would-be reformers– There is no free lunchThere is no free lunch– Lack of consensus on where to cutLack of consensus on where to cut– Even more controversy over whether to raise taxesEven more controversy over whether to raise taxes

Health reform debate in the 111Health reform debate in the 111thth Congress will also be Congress will also be about taxes, spending and entitlements about taxes, spending and entitlements

Makeup of Congress mattersMakeup of Congress matters

Federal Health Program Expenditures Are

Growing Piece of Entitlement Spending Pie

Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018, January 2008

Other$36622%

Social Security$64639%

Medicare$41125%

Medicaid & SCHIP$23114%

Health Care Total$64239%

Beginning 2008, President Must Beginning 2008, President Must Submit Proposal to Reduce Medicare Submit Proposal to Reduce Medicare

SpendingSpending

$408$438

$476$513

$553 $594$640 $688

$741$799

$863

$0

$200

$400

$600

$800

$1,000

Exp

en

dit

ure

s (b

illio

ns)

Fiscal Year

2007 Medicare Trustees Report; expenditures are not net of premiums

2006 and 2007 Medicare Trustees

Issue Funding Warning

2008President must submit first proposal to reduce

Medicare general revenue funding

2010Tax Cuts Expire

Republicans Defending 22 Seats (with 6 Republicans Defending 22 Seats (with 6 Retirements) While Democrats Defending Retirements) While Democrats Defending

1212

Republicans Defending 22 Seats (with 6 Republicans Defending 22 Seats (with 6 Retirements) While Democrats Defending Retirements) While Democrats Defending

1212

Barrasso

Lott

• Tom Allen, METom Allen, ME• Darlene Hooley, ORDarlene Hooley, OR• Mike McNulty, NYMike McNulty, NY• Marty Meehan, MAMarty Meehan, MA• Mark Udall, COMark Udall, CO• Tom Udall, COTom Udall, CO• Albert Wynn, MDAlbert Wynn, MD

• Richard Baker, LARichard Baker, LA• Barbara Cubin, WYBarbara Cubin, WY• Tom Davis, VATom Davis, VA• John Doolittle, CAJohn Doolittle, CA• Terry Everett, ALTerry Everett, AL• Mike Ferguson, NJMike Ferguson, NJ• Wayne Gilchrest, MDWayne Gilchrest, MD• Dennis Hastert, ILDennis Hastert, IL• Dave Hobson, OHDave Hobson, OH• Kenny Hulshof, MOKenny Hulshof, MO• Duncan Hunter, CADuncan Hunter, CA• Bobby Jindal, LABobby Jindal, LA• Ray LaHood, ILRay LaHood, IL• Ron Lewis, ILRon Lewis, IL• Jim McCrery, LAJim McCrery, LA• Steve Pearce, NMSteve Pearce, NM• John Peterson, PAJohn Peterson, PA• Chip Pickering, MSChip Pickering, MS• Deborah Pryce, OHDeborah Pryce, OH• Jim Ramstad, MNJim Ramstad, MN• Ralph Regula, OHRalph Regula, OH• Rick Renzi, AZRick Renzi, AZ• Jim Saxton, NJJim Saxton, NJ• John Shadegg, AZJohn Shadegg, AZ• Tom Tancredo, COTom Tancredo, CO• James Walsh, NYJames Walsh, NY• Dave Weldon, FLDave Weldon, FL• Jerry Weller, ILJerry Weller, IL• Roger Wicker, MSRoger Wicker, MS• Heather Wilson, NMHeather Wilson, NM

* As of February 19, 2008

7 30

House of Representatives RetirementsHouse of Representatives Retirements