Health Policy Report

The Week in Review

Congressional lawmakers returned to Washington after a brief Thanksgiving recess. During the week, Congress made progress toward reauthorization of a series of key programs including the National Flood Insurance Program (NFIP) and Farm Bill. Regarding the NFIP, President Trump signed a short-term funding bill that extends the program until December 7, giving Congress more time to iron out a solution. With respect to the Farm Bill — which funds crop insurance, farm subsidies, and nutritional assistance — House and Senate Agriculture Committee Leadership have announced they reached an “agreement in principle” on the bill. Compromise language has yet to be released as lawmakers finalize legal and report language and await Congressional Budget Office (CBO) scores.

Additionally, House Ways and Means Chairman Kevin Brady (R-TX) released a 297-page package (H.R. 88) that seeks to address a host of issues some lawmakers are interested in tackling in the lame-duck session. Specifically, the bill includes provisions that would: (1) provide tax relief for disaster victims; (2) promote incentives for retirement savings; (3) extend a series of “tax extenders;” (4) offer new tax breaks for start-up businesses; (5) make technical fixes to the Tax Cuts and Jobs Act (TCJA); and (6) redesign the Internal Revenue Service (IRS). While Chairman Brady touted the bill’s bipartisan support in both chambers, a concrete outlook for the bill is unclear as lawmakers contend with the looming government funding showdown.

House Democrats voted 203-32 to make Minority Leader Nancy Pelosi (D-CA) their nominee for speaker for the 116^th Congress. Despite clearing the closed-door vote, Leader Pelosi will need to earn more votes for speaker on House floor in January to win the job with her party's support alone. Democrats also selected current Minority Whip Steny Hoyer (D-MD) to be the next Majority Leader and Rep. James Clyburn (D-SC) to serve as the party whip. Additionally, Rep. Hakeem Jeffries (D-NY) will serve as caucus chairman after defeating Rep. Barbara Lee (D-CA) in a close 123-113 vote.

In notable news from the Trump administration, President Trump joined Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Peña Nieto in Buenos Aires in signing the highly anticipated United States-Mexico-Canada-Agreement (USMCA) Friday morning. The wide-ranging agreement — which includes provisions for biologic drugs, intellectual property, agriculture, automotive, and labor — must now be ratified by the legislatures of each country. Congress is expected to consider the deal during the next Congress.

Meanwhile, there were a series of significant 2018 midterm election developments over the course of the week. Democrats T.J. Cox and Ben McAdams declared victory over incumbent Reps. David Valadao (R-CA) and Mia Love (R-UT) in California’s 21^st Congressional District and Utah’s fourth Congressional district respectively, giving Democrats a net gain of 40 seats. In North Carolina, state election officials are actively investigating allegations of fraud in the race for the ninth Congressional District, thus delaying the certification of results. The Associated Press has officially retracted its call for Republican nominee Mark Harris, and a new election could be ordered if the election officials find that the illicit activity manipulated the outcome of the race.

Elsewhere, Republican Sen. Cindy Hyde-Smith defeated Democrat Mike Espy in Mississippi's runoff to serve out the final two years of former Republican Sen. Thad Cochran's term. The outcome — which made Hyde-Smith the first woman elected to Congress from Mississippi — ended the 2018 Senate campaign slate, establishing a 53-47 GOP majority for the 116th Congress. 

The Week Ahead

President Trump has declared a national day of mourning for this Wednesday, when the state funeral for former President George H.W. Bush will take place. The 41st President of the United States passed away Friday at his home in Houston, Texas. President Bush will lie in state in the Capitol Rotunda beginning on Monday evening.

Congressional negotiators and White House officials are discussing a short-term funding bill budget bill that would delay a partial government shutdown while Washington prepares for the state funeral of former President Bush. Among the details still being ironed out is whether the short-term extension would push the funding deadline by one or two weeks, with the one-week extension being the most likely scenario. Funding for parts of the federal government is set to expire at midnight December 7, but Congress is deadlocked over Trump’s demand for $5 billion in funding for a wall along the U.S.-Mexico border.

On the floor, Congressional lawmakers are expected to clear the short-term funding resolution as soon as an agreement has been reached. Lawmakers are also expected to vote on the conference report for the Farm Bill once legislative text has been finalized. The Senate will return to Washington today and consider the nomination of Bernard McNamee to be a Member of the Federal Energy Regulatory Commission (FERC). House members will resume legislative business on Tuesday, and have queued up 10 bills under suspension of the rules

CMS Releases Part D and MA Drug Pricing Proposals

The Centers for Medicare and Medicaid Services (CMS) released a new proposed rule on prescription drug pricing in Medicare Part D and Medicare Advantage (MA) on Monday. The proposal tracks closely with policy changes outlined the Trump administration’s drug pricing ‘blueprint,’ with a focus on providing Medicare plans with levers that will increase their negotiating power to secure additional price concessions from drug manufacturers.

Most notably, the proposal would provide new exceptions to Medicare’s “six protected classes” policy, including allowing Part D plans to exclude new formulations of existing sole-source drugs (ex. an extended-release version of an existing drug) from their formularies. CMS estimates that the proposal would save $1.8 billion over 10 years. Additionally, the proposal would: (1) provide physicians with real-time estimates of drug prices and alternatives; (2) codify guidance that allows MA plans to use step therapy for Part B drugs; (3) require the Part D Explanation of Benefits to include new drug pricing information; and (4) implement new laws banning pharmacy “gag clauses.” 

Meanwhile, CMS continues to seek feedback on their proposal around point-of-sale rebates, which they say could be implemented as soon as 2020. Specifically, the proposal is focused on the definition of “negotiated prices” of drugs — a figure that is used to calculate a beneficiary’s out-of-pocket costs. CMS is also considering adding a definition of “price concession” — a term previously undefined in Part D statute or regulation — to include all forms of discounts and direct or indirect subsidies or rebates that serve to reduce the costs incurred under Part D plans by Part D sponsors. 

Administration Unveils Four Model State Innovation Waivers

Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma announced four new section 1332 state innovation waiver concepts designed to strengthen state and local government authority to shape their health insurance markets. The Administrator stated in her keynote address at the States and Nation Policy Summit of the American Legislative Exchange Council (ALEC) that it was a mistake to federalize so much of health care policy under the Affordable Care Act (ACA), and that the new concepts are “designed to illustrate how states can waive certain ACA provisions under section 1332 of the law and develop alternatives to the ACA’s otherwise one-size-fits-all approach.” The new waiver concepts build on the recently issued CMS guidance on section 1332 waivers — now rebranded as State Relief and Empowerment Waivers.

At various points, both Republican and Democrat-led states have expressed interest in potential health insurance Exchange changes they could pursue using section 1332 authority and have sought more detail from CMS around permissible concepts. With the new concepts in hand, this may provide more states with the certainty needed to invest in assessing their options and developing state-tailored proposals. The scope of the options available may present new opportunities for stakeholders to inform and shape future waiver submissions.

Administrator Verma explained that states could chose to use the waiver concepts alone, in conjunction with other waiver concepts, or in combination with other innovative state proposals to restructure “some of the most restrictive ACA requirements.” The CMS Administrator clarified that the ACA’s pre-existing conditions protections could not be waived under the new concepts. One new concept using an account-based approach was heighted by Administrator Verma as the best potential pathway to addressing “various structural problems” within the ACA. States could use 1332 waivers to create a new account-based program to help subsidize health care expenses and would allow state governments to provide a cash contribution which could be utilized for premiums and out-of-pocket expenses. Other waiver concepts included the option to design state-specific premium assistance programs; the ability to adjust plan options and premium subsidy qualifications; and the flexibility to employ risk stabilization strategies.

HHS Sets January Implementation for Long-Delayed 340B Rule

The Department of Health and Human Services (HHS) issued a final rule on the 340B Drug Pricing Program, finalizing an effective date change announced a month ago for the ceiling price rule to be implemented beginning January 1, 2019, instead of July 1, 2019. HHS has delayed the effective date of the rule five times, leading the American Hospital Association and several other medical trade groups to sue the agency in September to force it to publish the delayed regulations. The pharmaceutical industry has opposed the rule, noting that the program needed stricter patient definition, eligibility requirements, and oversight.

The rule will penalize drug manufacturers for “knowingly and intentionally” charging a participating provider more than the ceiling price for a covered outpatient drug, and outlines how ceiling prices are to be calculated. Additionally, the rule also establishes a “penny pricing policy” for drugs when the price of a drug rises faster than the rate of inflation. HHS explains in their notice that that the finalization of the 340B rule "will not interfere with the development of additional drug pricing policies for Medicare, Medicaid, or the 340B program"— an indication that the agency is unlikely to pursue additional regulatory action on 340B. 

FDA Seeks to Overhaul Medical Device Approvals

Last Monday, the Food and Drug Administration (FDA) announced changes to the process for approving medical devices for the U.S. market. The policy aims to revamp the 510(k) program, a process for approving devices based on predicates, or devices that are substantially equivalent to an already-approved device. In releasing the plan, FDA emphasized that as medical technology becomes more complex, interconnected, and advanced, the predicates on which devices are based have become less relevant. With that in mind, the agency is proposing to limit the age of predicates to 10 years to avoid comparing disparate technologies, requiring an approval outside the 510(k) process if a comparable device is older.

In 2019, the FDA intends to release guidance that will establish an alternative 510(k) approval pathway based on objective safety and performance criteria rather than on a predicate device, and eventually the FDA envisions solely using that pathway as opposed to comparisons to older devices. Under this approach, “Manufacturers would be able to demonstrate that their products meet or exceed objective safety and performance criteria that are based on modern technological principles,” wrote FDA Commissioner Scott Gottlieb, M.D. and Center for Devices and Radiological Health (CDRH) Director Jeff Shuren, M.D. The statement also noted that Congressional approval may be necessary to implement some of the proposals outlined today.

Approximately 80 percent of all FDA reviews of medical devices are undertaken through the 510(k) process, and a major overhaul of the process could present significant disruption in the current environment for FDA’s approval of medical devices. In response to Commissioner Gottlieb and Director Shuren’s statement, AdvaMed, a leading medical device trade association, cautioned that the 10-year cutoff for predicates could be “arbitrary.” “It is our hope that…the agency will recognize that in some cases there are legitimate reasons for using older predicates, and that for some devices where the technology has changed little using those older predicates still makes sense,” wrote AdvaMed President and CEO Scott Whitaker.