ACTION
FROM THE COMMITTEE ON WAYS AND MEANS

Thomas Announces Committee Action on H.R. 2473, the “Medicare Prescription Drug and Modernization Act of 2003”

Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways and Means, today announced that on Tuesday, June 17, 2003, the Committee ordered favorably reported, H.R. 2473, the "Medicare Prescription Drug and Modernization Act of 2003," as amended, by a recorded vote of 25-15.

The bill would establish a new voluntary prescription drug benefit in Medicare that is available to all Medicare beneficiaries. The program would be administered by a new agency within the U.S. Department of Health and Human Services (HHS) called the Medicare Benefits Administration.

The coverage would be provided under a prescription drug plan (PDP), a Medicare Advantage (MA) or an Enhanced Fee-for-Service (EFFS) plan. Coverage is defined as either "standard coverage" or actuarially equivalent coverage, if approved by Medicare. For 2006, "standard coverage" would be a benefit with a $250 deductible, 80 percent coverage up to $2,000, and catastrophic protection after $3,500 in out-of-pocket spending. The catastrophic coverage would cover 100 percent of subsequent drug costs. Beneficiaries with incomes exceeding $60,000 or couples with incomes exceeding $120,000 would have higher catastrophic benefits.

There would be a 73 percent subsidy (including reinsurance subsidies for those with high costs). The Congressional Budget Office estimates that virtually all beneficiaries would enroll and the average premium would be $35. Employer and union sponsored plans would be able to qualify for a 28 percent subsidy for incurred costs between $250 and $5,000 for their retirees who are also Medicare beneficiaries, if they offer at least actuarially equivalent coverage.

Plans would be required to accept the participation of any willing pharmacy who accepts the terms and conditions of the plan. If a plan establishes a formulary, it would have to utilize a pharmaceutical and therapeutic committee comprised of primarily physicians or pharmacists. The formulary would have to include drugs within each therapeutic category and class of covered outpatient drugs. Beneficiaries would be entitled to an external appeal for both non-formulary drugs and non-preferred drugs on a tiered formulary.

To ensure medication compliance and avert drug-drug interactions, plans would have to have an effective drug utilization management program and medication therapy management program. In 2007, prescriptions would have to be transmitted electronically. Medicare would have to assure that all Medicare beneficiaries have the choice to enroll in at least two qualifying plans.

Assistance for low-income beneficiaries: Individuals with incomes up to 150 percent of poverty would be fully subsidized for their premiums and cost-sharing. For individuals between 135 percent and 150 percent of poverty, there would be a sliding scale premium subsidy.

Medicare would be made primary, and dual eligibles would be bought out of State Medicaid programs over a 15-year period. Individuals would be able to qualify for the low-income program at Social Security offices.

Medicare Advantage: The Medicare+Choice program would be renamed MA and payment reforms would commence in 2004. Plans below 100 percent of Fee-For-Service (FFS) would be brought up to 100 percent of FFS. All plans would receive payment updates equal to the national per capita growth in FFS.

In 2006, these payments would turn into benchmarks, around which plans would bid. Plans would then be paid what they bid. If they bid below the benchmark, the beneficiary would receive 75 percent of the difference between the bid and the benchmark and the government would retain 25 percent of the difference. If a plan bids above the benchmark, the beneficiary would pay the amount in excess of the benchmark. The benchmarks would grow at the same rate as FFS and they would be used for the EFFS program, as well. MA plans also would have to provide a prescription drug benefit and disease management programs.

Establishment of Enhanced Fee-For-Service: The Administrator would establish an EFFS program that would provide for regional, open network plans. Plans must cover the Medicare benefit package while providing for a single deductible and limitation on out-of-pocket expenses. The Administrator would establish at least 10 different regions and would accept no more than three EFFS plans per region. Plans would be required to serve the entire region.

The EFFS plans would bid around the same benchmarks as MA, but on a regional weighted average basis. Region-wide risk adjustments would be made to ensure that plans are appropriately paid based on the health risk of their enrollees.

The EFFS plans offering prescription drugs would be entitled to direct subsidies and reinsurance subsidies for the prescription drug benefit equal to prescription drug plans. Medigap plans that wrap EFFS plans would not be able to cover the deductible or 50 percent of the cost-sharing above the deductible.

Federal Employee Health Benefits Plan (FEHBP)-Style Competitive Reforms: Starting in 2010, certain areas would move to a more dynamic competitive structure. These areas would be required to have at least two EFFS plans to trigger an EFFS competitive region or two MA plans to trigger a MA competitive region. In addition, the private plan market share in the area would have to equal or exceed the national private plan market share. For example, if the national private plan market share were 15 percent, any area with less than a 15 percent private plan market share would not become a competitive area. However, if the national private plan market share were 20 percent, any area with a 20 percent private plan share or greater would become a competitive area. Areas would be defined as at least a Metropolitan Statistical Area; of significant population for MA; or an EFFS region for EFFS plans.

In calculating the weighted average benchmark, the Administrator would use the national FFS market share rather than the local market share. This would guarantee that FFS programs would maintain a disproportionate influence in establishing the benchmark. Likewise, the private plan component would equal the national market share of private plans, thereby decreasing private plans’ influence in establishing the weighted average benchmark. Unlike the MA and EFFS competition programs, these plans would then affect the benchmark.

An area that triggers FEHPB-style competition would phase in from an MA-EFFS benchmark to a weighted average benchmark (including the FFS cost). The phase-in would occur over a 5-year period and would also apply to premium changes for FFS beneficiaries. If a plan were to bid below the benchmark, beneficiaries would save 75 percent of the difference and the government would save 25 percent. If a plan bid above the benchmark, the beneficiaries would pay the excess. Payments and premiums would be adjusted for health and geographic factors.

Medicare Secondary Payor: This provision would prohibit workers’ compensation or auto insurance companies from escaping payments owed to Medicare for medical expenses.

Durable Medical Equipment Competitive Bidding: The Secretary would be required to implement competitive bidding for certain durable medical equipment, medical supplies and off-the-shelf orthotics. Rural areas would be able to be exempted and certain items that would not result in savings could be exempted. Beneficiary access to at least two suppliers and multiple winners would be required.

Average Wholesale Price Reform: The Secretary would increase the practice expense reimbursement to physicians that prescribe currently covered drugs based on survey data submitted by physician specialty groups. This would be done with new money, in order to prevent an adverse change in practice expenses to other physician groups.

Each year, physicians would select which reimbursement methodology they want, either Average Sales Price (ASP) or a new competitive bidding structure.

Under the competitive bidding process, Medicare would no longer pay physicians for drugs. Medicare would competitively bid with pharmacy contractors for the prices of drugs, and would guarantee the availability of at least two contractors available in each region. Or physicians would be able to choose to be reimbursed for drug products at ASP, which is an average of all final sales prices in the United States, net of rebates, discounts or chargebacks.

The bill also would:

Phase-in of Federal Rate for Hospitals in Puerto Rico to 75/25: This provision would phase-in the Federal rate for hospitals in Puerto Rico to a 75 percent national and 25 percent local rate over 3 years.

Revision of Acute Care Hospital Payment Updates: For FY 2003, the hospital update factor would be market basket -0.4 percent, resulting in an average increase of 3.1 percent for each year.

Wage index reclassification reform: This provision would permit hospitals to apply for an adjustment in their payments, based on the commuting pattern of their employees to adjoining Metropolitan Statistical Areas.

Skilled Nursing Facility (SNF) Services: This provision would increase the Resource Utilization Group payment for a SNF resident with acquired immune deficiency syndrome (AIDS).

Coverage of Hospice Consultation Services: This provision would allow hospice physicians to advise critically ill patients about the hospice program.

Physicians: This provision would provide for physicians to receive a 1.5 percent payment increase for 2004 and 2005, rather than the scheduled 4.2 percent cut in 2004, and smaller cut in 2005. The provision also would apply a 10-year rolling average for Gross Domestic Product to minimize oscillation.

Preventive Benefits: Proposed improvements to preventive benefits would include:

Hospital Outpatient Department Reform: This provision would allow the Secretary to establish a corridor of payments for covered outpatient drugs through a ceiling at 95-percent AWP and a transition from: 83 percent to 71 percent for sole source drugs over 3 years; 81.5 percent to 68 percent for multiple source over 3 years; and 46 percent for generic drugs.

Payment for Ambulance Services: This provision would slow the financial losses for regions that are hurt by the ambulance fee schedule. The provision also would increase mileage payments by 25 percent for ground ambulance trips above 50 miles.

Renal Dialysis Services: This provision would increase the composite rate 1.6 percent for renal dialysis facility services furnished in 2004.

1-Year Extension of Moratorium on Therapy Caps: This provision would suspend application of the $1,500 therapy caps for an additional year through 2004.

Ambulatory Surgical Centers: This provision would give ambulatory surgical centers a Consumer Price Index -2 percent for 2004-2008.

Waive the Part B Late Enrollment Penalty to Certain Military Retirees: This provision would waive the late enrollment penalty for military retirees, 65 and older, who enroll in the TRICARE for Life program.

Index the Part B Deductible: This provision would index the Part B deductible to reduce the cost to Medicare. The Part B deductible has not been raised since 1991.

Update in Home Health Services: Updates would be set at market basket - 0.4 percent for 3 years.

Establishment of Home Health Co-payment: This provision would establish a home health co-payment of 1.5 percent (or no more than $40) for each 60-day episode of care. Low-income beneficiaries and those receiving five or fewer home health visits in an episode of care would be excluded from the co-payment.

Extension of Update Limitation on High Cost Programs: Hospitals with per resident amounts above 140 percent of the geographically adjusted national average amount in FY 2001 or FY 2002 would be frozen at that amount for 10 years.

Improvements in National and Local Coverage Determination Process: This provision would set realistic timeframes for national coverage and coding decisions.

Extension of Certain Physician Pathology Services Under Medicare: Medicare would make direct payments for the technical component of pathology services.

Modifications to Medicare Payment Advisory Commission (MedPAC): MedPAC would be required to examine the budget consequences of its recommendations and consider the efficiency of services, as well as collect more current data on hospitals.

Regulatory Reduction and Contracting Reform: This title consists of the provision of H.R. 810, the "Medicare Regulatory and Contracting Reform Act of 2003," which was reported out of the committee this Spring, with minor modifications.

Chronic Care Management Programs: This provision would provide chronic care management programs in traditional FFS and MA EFFS.

Medicare Benefits Administrator: This provision would create MBA as an agency established within HHS with the task of managing Part C (MA EFFS) and Part D (PDP) of Medicare. The MBA would be able to hire qualified private-sector employees or public sector employees and negotiate contracts.

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