Health Policy Report

The Week in Review

Congress’ schedule was upended last week following the death of former President George H.W. Bush. President Trump declared last Wednesday a national day of mourning in honor of the state funeral for the nation’s 41^st president, prompting lawmakers to strike a deal to postpone the government funding deadline until December 21. House lawmakers postponed their previously scheduled votes until today, whereas the Senate cleared the nominations of Bernard McNamee to be a member of the Federal Energy Regulatory Commission (FERC) and Kathleen Kraninger to be Director of the Consumer Financial Protection Bureau (CFPB).

Following the Bush funeral proceedings, President Trump signed a two-week government funding resolution, setting up a Christmastime showdown over his demand for $5 billion in funding for a wall along the U.S.-Mexico border. The contentious debate has deadlocked the final stretch of the FY2019 appropriations process, leaving seven funding bills in limbo. House Minority Leader Nancy Pelosi (D-CA) stated that Democrats will not support additional wall funding, instead calling upon Congress to pass the six appropriations bills where members have agreement and fund the Department of Homeland Security (DHS) through a yearlong continuing resolution. 

The Week Ahead

Both chambers of Congress will resume legislative business today. In the House, lawmakers will take up a series of suspension bills, as well as the Farm Bill once the legislative text is finalized. When the Senate reconvenes this afternoon, the upper chamber will resume consideration of Justin Muzinich to be Deputy Secretary of the Treasury.

Trump Administration Releases Health Sector Reform Recommendations

The heads of the federal departments that oversee the nation’s healthcare system last Monday submitted a report to President Donald Trump outlining areas in state and federal policy they say inhibit choice and competition in healthcare. Secretaries Alex Azar, Steven Mnuchin, and Alexander Acosta of the Departments of Health and Human Services (HHS), Treasury, and Labor respectively, offered policy recommendations to the President that address the shortcomings they identified. The report offers a discussion of the benefits of applying free-market principles to the healthcare sector and suggestions for how best to introduce more competitiveness into healthcare.

In particular, the report criticizes consolidation in healthcare, a lack of choice and competition, and certain government policies including Affordable Care Act (ACA) rules and Medicare payments. It also outlines a blueprint on moving towards what it terms “consumer-driven healthcare.” The report offers recommendations in each of these areas, including vigorous antitrust enforcement, loosening network adequacy standards, and lowering barriers to entry for providers.

The recommendations outlined by the Secretaries are numerous and would require implementation by multiple levels of government. State governments, Congress, and the Departments would be involved with turning the recommendations into policy. The Secretaries highlight the actions HHS, Treasury, and Labor have taken to implement the Administration’s healthcare agenda nearly two years into the Trump Presidency and indicate that they stand ready to do more alongside the states and Congress.

FDA Releases Proposed New Medical Device Approval Guidelines

Last Tuesday, the Food and Drug Administration (FDA) released a proposed rule that establishes the procedures and criteria for De Novo medical device approvals. The De Novo approval pathway is for devices that are new to the market and do not have a substantial equivalent, or predicate, that is already approved by the FDA. Devices with a predicate may be approved based on the equivalence of the device. In a release accompanying the rule, the FDA stated that it anticipates this proposed rule will streamline the approvals of low-risk class I and II medical devices.

On November 26, 2018, FDA Commissioner Scott Gottlieb announced that the FDA was working to modernize the 510(k) program for medical device approvals based on predicate devices. As the FDA anticipates that fewer device approvals will be based on predicates with the stricter criteria it envisions, more devices are expected to be approved using the De Novo pathway.

The new pathway allows applicants to submit a request for a De Novo approval under any circumstances — there does not need to be a determination that no predicate exists. Devices will be classified as Class III devices requiring premarket authorization if insufficient evidence exists to classify them as class I or II. The FDA anticipates that this process will make De Novo approvals more efficient, as devices will no longer be automatically classified as Class III if no predicate exists.

CMS Adopts Budget Neutral Risk Adjustment Approach for 2018 

The Centers for Medicare & Medicaid Services (CMS) issued the final rule last week for the federally-operated risk adjustment methodology previously established for the 2018 benefit year. The agency finalized its proposal to employ a risk adjustment methodology which utilizes the statewide average premium and is operated in a budget-neutral manner. HHS projects this will result in risk adjustment transfers of $4.8 billion for the 2018 benefit year are $4.8 billion.

For the 2018 benefit year, HHS operates the risk adjustment program in all 50 states and the District of Columbia since no state elected to operate its own program. The risk adjustment program, which takes payments from insurers with healthier customers and redistributes that money to companies with sicker enrollees, has been criticized by companies that allege the program penalizes smaller health plans. A federal judge partially agreed with this sentiment during a February ruling in a New Mexico federal court, saying that HHS was misguided in requiring that the program be budget neutral. On August 10, 2018, HHS published a proposed rule which sought to address the court’s concerns.

Additionally, CMS explains in the final rule the new flexibilities it finalized in the 2019 Payment Notice when HHS will be operating the risk adjustment program, which will allow states to request a state-specific reduction for risk adjustment transfers in the individual, small group, or merged markets by up to 50 percent starting with the 2020 benefit year. Risk-adjustment payment policies for the 2019 benefit year were finalized in April of this year.

Sens. Grassley, Wyden Introduce Bill to Curb Medicaid Drug Misclassifications

Sens. Chuck Grassley (R-IA) and Ron Wyden (D-WA) announced last Tuesday they will introduce a bill aimed at cracking down on manufacturers who purposefully misclassify drugs to improve their reimbursement under Medicaid. The Senators argue the loophole has allowed pharmaceutical manufacturers to overcharge taxpayers hundreds of millions of dollars and used Mylan's EpiPen as the primary example under this scenario. Senator Wyden called for swift action, noting that he hoped the bill would become law “by the end of the year.”

Mylan settled with the Justice Department in 2016 for $465 million over the misclassification of EpiPen as a generic drug, when it was actually a brand-name product. After extensive investigation, the Office of Inspector General (HHS-OIG) found that taxpayers may have overpaid for EpiPen by as much as $1.27 billion over ten years. Sen. Grassley is responsible for leading the Congressional investigation into the ongoing misclassification issue for Mylan and other drug manufacturers, and the Senator pledged in a senate floor speech last week to continue his work as part of his drug pricing agenda as the incoming chair of the Senate Finance Committee. His partnership with Sen. Wyden, who will continue to serve as Ranking Member, likely signals that the two plan to use their committee leadership in the 116th Congress to seek common ground on drug pricing.

The so-called Right Rebate Act will expand Medicaid’s authority to go after drug manufacturers suspected of misclassifying brand-name drugs as generics. As the authors explain, the Department of Health & Human Services (HHS) does not currently have the explicit authority to demand manufacturers reclassify their drugs or impose civil monetary penalties when caught with improper classification. The legislation would give states and HHS the power to impose capped civil monetary penalties for misclassification in the Medicaid drug rebate program, and recouped rebates would be used “to improve drug data reporting systems and oversight of manufacturer compliance.” Additionally, HHS would be given the power to correct misclassification if a manufacturer does not correct the issue itself within a timely manner of being notified. The bill also requires that Congress receive a public report annually identifying misclassified drugs and the actions taken to correct each situation.

FDA Releases Framework on Real-World Evidence Program

The Food and Drug Administration (FDA) released a new Framework for FDA’s Real-World Evidence Program which outlines how the agency plans to leverage real-world data to improve regulatory decisions. As detailed in a blog post from Commissioner Scott Gottlieb, the Framework “is aimed at leveraging information gathered from patients and the medical community to inform and shape the FDA’s decisions across our drug and biologic development efforts.” The Commissioner goes on to note that in the coming months, the agency will advance other new initiatives to better leverage real-world evidence (RWE) and real-world data (RWD) in their programs.

As detailed in the Framework, the FDA will evaluate the role of observational studies in contributing to the evidence for demonstrating drug and biologic product efficacy. Additionally, the agency will need to develop new guidance on designing clinical trials that include pragmatic design elements as a tool for generating evidence of effectiveness for regulatory decisions. The Framework also notes that RWE provides a potential source of information that can complement, augment and expand the way medical products are used. FDA will accept public comment on the Framework for 60 days. 

CMS: Health Spending Growth Slowed to 3.9% in 2017

National health spending rose 3.9% in 2017 — a slower growth rate than the previous 2 years — mainly due to a slowdown in use and intensity of hospital care, physician and clinical services, and prescription drugs, according to a new report from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary. Spending reached $3.5 trillion, but grew more slowly than in 2016, when it increased by 4.8%, or 2015, when it grew by 5.8%. The 2017 health spending growth of 3.9% is lower than the 4.2% increase the gross domestic product (GDP) for 2017; healthcare’s share of the GDP was 17.9%, similar to 2016.

CMS officials attributed at least part of the slowdown in health care spending to the lull in Medicaid expansions and drug spending growth, which slacked off following the spike in spending to treat hepatitis C. The report also demonstrated a dampened growth rate for pain prescriptions, which could be driven by broad concern about overprescribing contributing to the nation's epidemic of opioid addiction. However, the reduction in health care spending was broadly based, with spending on most medical goods and services slower in 2017 than the previous year. 

With respect to the sources of spending, spending by the federal government increased 3.2 percent, down from 4.9 percent in 2016. Medicaid was a big part of that slowdown: Medicaid enrollment grew slower, and the federal government paid a smaller share of the cost of newly eligible Medicaid enrollees. There also was a decline in the net cost of insurance for Medicare and Medicaid enrollees in private plans in 2017. Growth in household spending on healthcare also went down in 2017, increasing 3.8 percent, down from 4.8 percent in 2016, which was thanks to less growth in out-of-pocket spending.