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January 8, 2018

2018: New Year, Ongoing Health Policy Challenges

Happy New Year from Eyman Associates to our clients and friends. The holiday break has given us a chance to pause and reflect on the year just finished and the challenges ahead. We wanted to share a few of our thoughts on issues we know are of concern to you, as they are to us—from Medicaid to CHIP, from the 340B Drug Pricing Program to the future of the Affordable Care Act (ACA). On these and other issues, we will continue to partner with you in 2018 as we have in the past to fight to preserve and expand access and coverage, and to pursue innovation, transformation, and the ideal of a reformed delivery system providing high quality care to all.

Medicaid In the Spotlight

Medicaid received an unusual amount of attention in 2017, as Congress sought unsuccessfully to fundamentally change the program’s structure and limit expenditures through block grants or per capita caps. Meanwhile, with an acknowledged Medicaid expert taking the helm at the Centers for Medicare & Medicaid Services (CMS), the agency shifted course with a new set of policy priorities. Expect continued focus on Medicaid in 2018, including in the areas below.

  • Medicaid Financing Reform – We’re Not Out of the Woods Yet: Entitlement and Medicaid financing reform are not off the table for 2018. Although a surprising level of political support for Medicaid emerged in 2017, it is unclear whether momentum to preserve the program will continue into 2018 when reform efforts are uncoupled from efforts to repeal and replace the ACA. Per capita caps, and even more so block grants, would pose unprecedented challenges for providers, beneficiaries, and states alike; already low reimbursement rates would be locked in with no realistic possibility of future improvement and the number of uninsured would almost certainly increase. As we learned last year, the details matter, so keep a close eye on Medicaid reform legislation in 2018.
  • Managed Care – Opportunity in the Guise of Restriction: Providers have for years sought to preserve critical supplemental funding as Medicaid programs transitioned from fee-for-service to managed care. CMS policy in this area has historically been murky and inconsistently applied. The massive managed care rule issued near the end of the Obama administration sought to clarify and restrict the circumstances under which states can direct supplemental payments through managed care organizations to providers in managed care. Nonetheless, our experience with early CMS approvals of directed payment programs under the new rule indicate more flexibility and opportunity than once was anticipated, including for new delivery system reform and value-based payment efforts. We see this new authority as a real focus of preservation of and innovation in Medicaid support in 2018.
  • Medicaid Disproportionate Share Hospital (DSH) Payments Still Under Threat: Cuts to Medicaid DSH that were required under the ACA took effect in October 2017 after several Congressional delays. Although Congress appears inclined to postpone the DSH cuts yet again for another two years, it is unclear when this will occur. Each time it delays the cuts, Congress adds to their size in outer years, increasing their overall severity. Even with another postponement, a more permanent solution will eventually need to be reached to prevent substantial disruptions in access to care, but at what price and with what changes to the DSH program? In the interim, states are left to determine how to handle the cuts that have already taken effect for 2017—meaning more uncertainly for hospitals.Meanwhile, providers in a number of states have been mounting legal challenges to a CMS policy that lowers the hospital-specific limit on DSH payments. Providers racked up several legal victories in 2017, which prohibit CMS from recouping substantial amounts of DSH funding paid in past years in those states. But CMS countered by re-issuing the policy through formal rulemaking, and no decisions have yet been issued on the legitimacy of that new rule. The policy hits children’s hospitals particularly hard, and 2018 will be critical in determining the size of many hospitals’ DSH payments well into the future. (And that’s not even touching upon the myriad of other issues uncovered through CMS’ first rounds of recoupments related to independent DSH audits.)
  • Medicaid Waivers in a Time of Transition: With the new administration has come a new set of goals for Medicaid Section 1115 waivers. Whereas the Obama administration emphasized coverage expansion, stabilizing and strengthening the safety net, and health outcomes, the Trump administration is emphasizing personal engagement and responsibility, upward mobility, efficiency, and driving greater value for Medicaid. With CMS’ encouragement, states are seeking new enrollment restrictions for both the expansion and traditional Medicaid populations, the most coveted of which are work requirements. Expect a host of approvals in 2018, with litigation almost surely to follow.CMS has also been shifting policy related to waiver-based funding pools, including delivery system reform incentive payment (DSRIP) and uncompensated care (UC) pools, though to a lesser extent than might have been expected. No new DSRIP programs have been approved by the Trump administration, although a few were renewed in 2017. CMS seems to be adhering to the Obama administration policy that DSRIPs are time-limited and must be phased out. 2017 also witnessed renewals and extensions of a few existing UC pools, which CMS does not appear to be phasing out as once planned. And while the agency has abandoned the previous administration’s UC pool penalty for non-expansion states, and has allowed certain states to maintain or even increase funding levels for UC, it has continued a policy requiring states to transition their UC pools over time to fund only charity care with no Medicaid shortfall.One issue that we think has the potential to be a game-changer in Medicaid waiver policy is CMS’ new approach to “budget neutrality”—although it has to date only surfaced as a technical issue in a few states. This Obama-era policy (adopted, we assume, with enthusiastic backing from the Office of Management and Budget) requiring waivers to be budget neutral to the federal government gets way down into the weeds; but the upshot is that if CMS adheres strictly to the new approach, the amount of federal funding available through waivers would decrease drastically, jeopardizing the innovation and transformation that such waivers have historically promoted. We will be watching closely to see how the policy gets implemented in 2018.

340B Drug Discount Program: The Battle Continues

  • A renewed round of Congressional and agency scrutiny of the 340B Program in 2017 culminated in a disappointing court decision issued on the last business day of the year. A DC District Court judge threw out the hospital industry’s lawsuit challenging the deep cuts in Medicare outpatient reimbursement for drugs purchased through the 340B program. The judge did not rule on the merits of the hospitals’ arguments, though; the case was dismissed on technical grounds, as the judge decided that it cannot be heard in court until a claim has been filed and appealed with the agency. So, the legal battles over the policy will surely continue well into 2018. Congressional 340B advocates are working to hit pause on the policy for a year, with bipartisan support, but time is short as Congress continues to wrap up unfinished “year-end” activity.
  • Outside of the Medicare policy, program advocates are bracing for a challenging 2018, on both the legislative and administrative fronts. It has become clear that the Trump Administration is no friend to 340B, so the 340B game of whack-a-mole will likely continue throughout the year, in ways both expected and unexpected. The Office of Pharmacy Affairs (OPA) within HHS is grappling with how to enforce critical elements of the program (like the vagaries of the patient definition) given the judicially-enforced limits on its regulatory authority. With its sweeping “mega-guidance” first proposed in 2015 still in limbo, OPA is seeking to use its auditing and enrollment authorities to demonstrate its commitment to compliance. Meanwhile, Congress is expected to consider broader program issues in 2018, like transparency in the use of program savings and its “appropriate” size and scope.

A Lack of Urgency on CHIP

The original enactment of the Children’s Health Insurance Program (CHIP) in 1997 was a remarkable example of bipartisanship at its best, following on the heels of a failed attempt at health reform/universal coverage in 1994 and vetoed legislation to block grant the Medicaid program in 1995. The program continues to enjoy bipartisan support twenty years later, but Congress has been surprisingly lax in reauthorizing it this time around. Funding lapsed October 1, and it’s only through temporary funding patches provided by states, CMS and, more recently, Congress that no one has (yet) lost coverage.

A broad bipartisan, bicameral consensus emerged months ago on a reauthorization policy. It involves a 5-year extension and a phase-down of the 23% enhanced matching rate that had been provided in the ACA, and an extended requirement that states maintain pre-ACA eligibility criteria. To date, the problem had been finding a way to pay for it that does not ignite partisan passions, but the Congressional Budget Office helped solve that one last week by reducing its price tag from about $8 billion to $800 million. It turns out that the repeal of the individual mandate included in last year’s tax bill, and the resultant impact on the cost and extent of marketplace coverage, impacts the CHIP score. The cost of providing coverage through CHIP is now even more significantly lower than the cost of subsidized marketplace coverage that would be provided to children and their families if CHIP is not reauthorized, so the cost of the bill has dropped by 90 percent. With the last substantive obstacle removed, it is now up to Congress to make CHIP a legislative priority. Yet the protracted delay has left a toll on states and stakeholders, and may have set an unfortunate precedent for the future.

Affordable Care without the Mandate?

In 2018, the ACA is headed into uncharted territory that once seemed unthinkable (though recall that in 2008, candidate Obama argued that a mandate for individuals to purchase insurance was not necessary to achieve near-universal coverage). Though enrollment has been surprisingly robust for 2018, the repeal of the mandate was not signed into law until after open-enrollment ended, and some (many?) of those who signed up may choose not to pay their premiums without the mandate. Still, the ACA is demonstrating its resiliency. The loss of federal support for cost-sharing subsidies, the elimination of outreach funding, the premium hikes and Congress’ inability to adopt fixes to address them…none of these killed off the program as once expected.

Yet four full years into implementation (altered by a Supreme Court decision), the ACA, which was intended to expand coverage all across the nation, has led to more coverage disparities among states than ever. And those disparities are likely to increase in the coming year, with the federal government imposing obstacles to marketplace coverage that some states are inclined to embrace while others take steps to counteract. Combined with the ongoing refusal of some states to expand Medicaid, the result is disparate levels of uncompensated care among hospitals and other providers.

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So the challenges are ongoing, and if for no other reason than that, the work you all do remains critical. Let us know how we can help.

Happy New Year to all,
Barbara, Sarah, Eva and Ashelen