Deal Reached on Medicare Prescription Drug Benefit
November 18, 2003
Republican leaders in the U.S. House and Senate announced on November 15, 2003, that a deal has been reached on legislation that would establish a Medicare prescription drug benefit and revamp many aspects of the federal health insurance program for the elderly. The deal clears the way for consideration by the full House and Senate, which may occur as early as this week.
The House and Senate each approved different versions of the Medicare legislation in late June. A committee of 17 Representatives and Senators appointed to reconcile the differences between the two measures labored throughout the summer and fall to produce a single unified piece of legislation. The negotiation process was often contentious and occasionally in jeopardy of collapsing, as Republicans and Democrats, and Republicans in the House and Senate, squared-off on a handful of politically divisive issues.
Much of the detail is still unknown and will remain unclear until the six-page agreement summary provided by House and Senate leaders on November 15, 2003, is reduced to an anticipated 1,100 pages of legislative language.
Most significantly, the bill would, for the first time, make prescription drugs widely available to all program beneficiaries who choose to enroll in the optional prescription benefit. Under the plan, beneficiaries who pay a $35 monthly premium would receive federal assistance with expenditures on pharmaceuticals once they meet an annual $275 deductible. Specifically, the Medicare program would pay 75 percent of the cost of prescription drugs between $276 and $2,200. Beneficiaries would be responsible for 100 percent of expenditures after that, but the federal government then would pick up 95 percent of expenditures once total out-of-pocket expenditures exceed $3,600. Although not yet clear, the bill likely will define "out-of-pocket expenditures" as payments made for drug costs by the beneficiary, or on behalf of the beneficiary through the low-income assistance program, by Medicaid or a state pharmaceutical assistance program or by a third-party insurer or other payment arrangement and not simply as the total costs of drugs for the beneficiary for the year. The Medicare program would subsidize premiums and cost-sharing for low-income individuals.
The legislation also would revamp the way beneficiaries receive health insurance by establishing new insurance delivery models. Specifically, beneficiaries could choose to enroll in the traditional Medicare fee-for-service program and separately purchase a prescription drug plan, an Enhanced Fee-For-Service plan (which would integrate the prescription drug benefit with all other Medicare benefits available through either a fee-for-service plan or preferred provider organization plan) or a Medicare Advantage plan that would combine the prescription drug benefit with a health maintenance organization-type plan. Beginning in 2006, private Enhanced Fee-For-Service and Medicare Advantage plans would bid for the opportunity to enroll beneficiaries. Plans that bid below an established benchmark would receive a portion of the difference between the bid and the benchmark; beneficiaries also would receive a portion and, thereby, be encouraged through lower premiums to enroll in private plan options. Beginning in 2010, a six-year demonstration project would be established in six metropolitan areas around the United States where all plans, including the government-sponsored traditional fee-for-service option, would submit bids. Premiums for all plans would be determined by the bid amounts, so beneficiaries could find themselves paying considerably more to remain in the government-sponsored traditional fee-for-service option. The government would ensure that at least one prescription drug plan and one integrated plan, or at least two prescription drug plans, are available in each region of the United States by subsidizing risk.
The package is expected to include a number of provisions intended to encourage employers who currently offer retiree health benefits, including prescription drug coverage, to continue these benefits for retirees in Medicare. For example, Medicare would contribute 28 percent toward the cost of drugs for costs between $250 and $5,000 for retirees in actuarially equivalent employer-sponsored plans. Additionally, employers could offer premium assistance to beneficiaries to enroll in Medicare prescription drug and integrated health plans. Employers also would be permitted to negotiate discounted premiums from integrated plans.
In addition to the changes described above, the bill also includes changes affecting payments for virtually all provider types. Hospitals in rural and small metropolitan areas would receive payment increases in several forms, including increased standardized amounts, wage indices and disproportionate share hospital payment adjustments used for purposes of reimbursement under the inpatient prospective payment system. Physicians would avoid an expected 4.5 percent reduction in payments and, instead, receive a guaranteed 1.5 percent inflation adjustment to fee schedule rates for 2004 and 2005. Durable medical equipment rates would be frozen for fiscal years 2004 through 2006, and, beginning in 2007, be paid subject to a competitive bidding program. Drugs presently covered under the Medicare program would be paid based on average wholesale prices minus 15 percent in 2004, average sales price plus an additional percentage in 2005 and on a competitive bid basis beginning in 2006.
Additionally, the bill establishes several new Medicare benefits, including an initial physical upon eligibility for Medicare and screening services for diabetes and cardiovascular disease. However, the bill also would, for the first time, incorporate means-testing into Part B of the program. This will require beneficiaries with income over $80,000 to begin paying larger monthly premiums for the benefit.
The deal announced this past weekend now must be approved by the House and Senate and sent to President Bush for his signature, but uncertainty remains whether enough members in the two chambers will support the measure. When the House approved the bill in June 2003, it did so by a vote of 216 to 215, largely along party lines. Republican leaders had to strain to find the one vote margin necessary to secure passage. While some Democrats may join Republicans in support of the bill, the Republicans may again face difficulty securing support from fiscal conservatives distressed about the $400 billion cost of the measure and the prospect of creating a new entitlement program. In the Senate, the margin of support last June was much wider--76 to 21. But the compromise announced this week has veered decidedly away from the Senate-approved version in favor of the House-approved version in many of the most contentious areas, which could cost support from many Senate Democrats and moderate Republicans. Fiscally conservative Senate Republicans also may vote against the bill, making the outcome in the upper chamber unclear. Further clouding the picture are competing advocacy campaigns. Several influential trade associations and advocacy groups, including the American Hospital Association, American Medical Association, National Association of Manufacturers and the American Association of Retired Persons have endorsed the bill. However, others, including unions like AFL-CIO, have come out against the measure.
This bill, if approved, would bring about the most sweeping changes to the federal health insurance program for the elderly since it was created nearly 40 years ago. Providers, physicians, payors, manufacturers, suppliers, employers and beneficiaries all will be profoundly affected by these changes. McDermott, Will & Emery will be providing a more comprehensive summary and analysis piece as soon as the legislation is approved and details of the bill become known. MWE will continue to provide updates on various aspects of this comprehensive legislation.
MWE's Washington, D.C. health and government affairs practices were and continue to be actively engaged in lobbying a number of the issues encompassed in the bill and can answer client questions about it. Please consult your regular MWE lawyer or any of the lawyers listed above if you have questions about any of the provisions discussed within.
