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Health Extenders Overview and Outlook

Brownstein Client Alert, October 17, 2019

On Friday, Sept. 27, President Trump signed a continuing resolution (CR) to fund the government at current levels until Nov. 21. This extended funding for the 20 health care programs that were set to expire at the end of the fiscal year, Sept. 30. If Congress fails to reach a deal before the new Nov. 21 deadline, which is expected, they will pass another CR to continue funding through Dec. 13. This article describes the health programs that are set to expire, the funding cuts that are scheduled to go into effect, and legislation that Congress will consider to pay for these health “extenders.”

Overview

Due to the political nature of several provisions related to gun control, abortion and border wall funding, and disagreements between Democrats and Republicans on top-line spending levels, Senate Appropriations Committee Chair Richard Shelby (R-AL) has suggested that Congress may pass a full-year CR. This would maintain current funding levels for both the programs originally set to expire Sept. 30 and the five additional programs set to expire Dec. 31 through the next year.

In discussing health care “extenders,” we are referring to the extension of time-limited public health programs that will lapse once a statutory deadline is reached, unless there is further legislative action. These include programs for community health centers, safety net hospitals, juvenile diabetes programs, mental health and addiction treatment facilities, and several others, which will be discussed in more detail below. The programs are all related to Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and private health insurance programs and activities, or health care-related provisions that were enacted in the Patient Protection and Affordable Care Act (ACA; P.L. 111-148) or last extended under the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123).

Though many of these programs enjoy bipartisan support, there are concerns about what measures Congress might pass to pay for the cost of these programs, estimated from $20 billion‒$40 billion, depending on how long the programs are extended (2 years versus 5 years).

Expiring Programs

Programs Expiring Nov. 21:

Health Care-Related Program	Provision	Provision	Cost to Extend
Medicaid	Protections for Recipients of Home and Community-Based Services against Spouse Impoverishment	SSA §1924 42 U.S.C. §1296r-5	No cost estimate
Medicaid	Additional Medicaid Funding for the Territories	SSA §1108 42 U.S.C. §1308	FY2020 DHS allotment ratio to $300 million, subsequent years subject to an increase
Medicaid	Money Follows the Person (MFP) Rebalancing Demonstration Grant	DRA, §6071(g)(2) Affordable Care Act, §2403(a)	$254.5 million for the remainder of 2019 (not scheduled to receive any new funding after this year)
Medicare	Outreach and Assistance for Low-Income Programs	MIPPA §119 42 U.S.C. §1395b-3 note	$37.5 million annually (SHIPs, $13 million; AAAs, $7.5 million; ADRCs, $5 million; contract with the National Center for Benefits and Outreach Enrollment, $12 million)
Medicare	Temporary Extension of LTCH Site Neutral Payment Policy Transition Period	SSA §1886(m)(6)(B)(i) 42 U.S.C. §1395ww(m)(6)(B)(i)	No cost estimate
Medicare	Temporary Exception for Certain Spinal Cord Conditions from Application of the Medicare LTCH Site Neutral Payment for Certain LTCHs	SSA §1886(m)(6)(F) 42 U.S.C. §1395ww(m)(6)(F)	No cost estimate
Medicare	Funding for Implementation of Section 101 of MACRA	MACRA § 101(c)(3))	No cost estimate
Medicare	Priorities and Funding for Measure Development	SSA §1848(s) 42 U.S.C. §1395w-4(s)	Funds appropriated prior to FY2020 are available for obligation through the end of FY2022 ($15 million/year from FY2015 through FY2019)
Medicare	Contract with a Consensus-Based Entity Regarding Performance Measurement	SSA §1890(d) 42 U.S.C. §1395aaa	Funds appropriated prior to FY2020 are available for obligation until expended ($7.5 million/year from FY2018 and FY2019)
Medicare	Quality Measure Selection	SSA §1890A 42 U.S.C. §1395aaa-1	Funds appropriated prior to FY2020 are available for obligation until expended ($7.5 million/year from FY2018 and FY2019)
Medicare	Patient-Centered Outcomes Research Trust Fund	IRC §9511 and §§4375- 4377, SSA §1183); 26 U.S.C. §9511; 26 U.S.C. §§4375-4377; 42 U.S.C. §1320e-2	$150 million/year if programs are funded through FY2026
Other	Family-to-Family Health Information Centers	SSA §501(c) 42 U.S.C. §701(c)(1)(A)(iii)	$6 million/year if programs are funded through FY2024
Other	Sexual Risk Avoidance Education Program	SSA §501 42 U.S.C. §710	No cost estimate
Other	Personal Responsibility Education Program	SSA §513 42 U.S.C. §713(f)	$75 million/year if programs are funded through FY2024
Other	Pregnancy Assistance Fund	ACA §10212 42 U.S.C. §18201-18204	$25 million/year if programs are funded through FY2024
Other	Teaching Health Centers	PHSA §340H 42 U.S.C. §256h	$126.6 million/year if programs are funded through FY2024
Other	Community Health Centers Fund	PHSA §330 42 U.S.C. §254b-2(b)(1)	$4 billion/year if programs are funded through FY2024
Other	Special Diabetes Programs	PHSA §330B and §330C 42 U.S.C. §254c-2(b) and §254c-3(b)	$200 million/year if programs are funded through FY2024
Other	National Health Service Corps Appropriations	PHSA §338H 42 U.S.C. §254b-2(b)(2)	$385 million/year if programs are funded through FY2024
Other	Teaching Health Centers	PHSA §340H 42 U.S.C. §256h	$126.5 million/year if programs are funded through FY2024

Programs Expiring Dec. 31:

Health Care-Related Program	Provision	Provision	Cost to Extend
Medicare	Floor on Work Geographic Practice Cost Indices	SSA §1848(e)(1) 42 U.S.C. §1395w4(e)(1)(E)	$955 million over 2018-2022 period if programs are funded through 2022
Medicare	Transitional Payment Rules for Certain Radiation Therapy Services	SSA §1848 42 U.S.C. 1395w-4(b)(11)	No cost estimate
Private Health Insurance	Health Coverage Tax Credit	IRC §35 26 U.S.C. §35	No cost estimate
Private Health Insurance	Annual Fee on Health Insurance Providers Goes into Effect on Jan. 1	ACA §9010	Raises $161 billion over 2019-2028 period (-$13 billion in 2018, reaching -$22 billion by 2028)
Private Health Insurance	Excise Tax on Medical Device Manufacturers	26 U.S.C. §4191	Raises $19.6 billion over 2017-2026 period if tax goes into effect

Medicaid Disproportionate Share Hospital (DSH) Cuts

The Medicaid DSH program is designed to give safety-net hospitals, which serve a large share of low-income and uninsured patients, more financial flexibility by requiring Medicaid to make payments to qualifying hospitals using both state and federal funds. Under the Affordable Care Act (ACA), Congress would have reduced federal DSH allotments beginning in 2014 to account for the anticipated decrease in uncompensated care; however, several pieces of legislation have been enacted since 2010 that have delayed the reduction schedule.

On Sept. 23, the Centers for Medicare and Medicaid Services (CMS) published a final rule for calculating $4 billion in state Medicaid DSH cuts for FY 2020 and $8 billion each subsequent year through 2025. These cuts were set to go into effect on Oct. 1, but were delayed to Nov. 21 through the CR signed on Sept. 27.

Members of Congress on both sides of the aisle are seeking a fix for DSH cuts, though they have disagreed as to whether to repeal the reductions in allotments, continue to delay them, or have the reductions go into effect with changes to the formula for reductions. While Republicans do not support the DSH cuts imposed by the ACA, they would like to see legislation that changes the underlying formula, which they see as flawed. At the end of July, the House Committee on Energy and Commerce passed Rep. Tom O’Halleran’s (D-AZ) bipartisan Reauthorizing and Extending America’s Community Health (REACH) Act (H.R. 2328), which would eliminate the scheduled reductions to Medicaid DSH funding for FY 2020 and FY 2021, and reduce the cuts by half in FY 2022, for a total of $16 billion in relief. The legislation would also provide new funding to community health centers, the National Health Service Corps, and several other expiring health care programs, and protect patients from surprise medical bills. The Senate Finance Committee has not agreed on how to proceed on DSH cuts or other health extenders, and given the short time frame, may agree to the House version of the bill.

Potential Offsets

Before the next round of funding expires, Congress will need to determine how to pay for the health care extenders and a repeal or further delay of the DSH cuts. Members have been considering several different options for reducing health costs, including through legislation addressing surprise medical bills and prescription drug prices. The following pieces of legislation are being explored as potential pay-fors:

H.R. 2375 / S. 64 – Preserve Access to Affordable Generics and Biosimilars Act: This bill would prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic in the market, or “pay-for-delay.” While this bill has not yet been scored by the Congressional Budget Office (CBO), the office unofficially estimated that a similar bill, the Biosimilars Competition Act of 2018, would save an estimated $100 million from 2019‒2028.
H.R. 965 / S. 340 – Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2019: This bill would allow a biosimilar or generic developer to bring a civil action against an innovator drug company if the latter refuses to make enough samples of a product available for testing. It would also explicitly empower the Food and Drug Administration (FDA) to approve alternative Risk Evaluation and Mitigation Strategy (REMS) programs if a generic or biosimilar developer and the innovator company are unable to arrive at a single shared system. In 2018, the CBO estimated that implementing the legislation would reduce spending by $3.3 billion over the 2019-2028 period and increase revenues by $600 million over the same period.
H.R. 2296 / S. 1391 – Fair Accountability and Innovative Research (FAIR) Drug Pricing Act of 2019: This bill would require drug manufacturers to disclose and provide more information about planned drug price increases, including research and development costs. The Department of Health and Human Services (HHS) would make all of the information from these reports publicly available within 30 days in an understandable online format, and submit an annual report to Congress summarizing the submitted information. CBO has not scored this proposal, but by reducing drug prices, the legislation would likely reduce direct health care spending.
Prescription Drug Cost Reduction Act (PDPRA) of 2019 (Senate Finance Committee package): This package would raise the cap on total Medicaid rebate amounts to at least 125% of Average Manufacturer Price (AMP) beginning in FY 2023; bar manufacturer gaming that uses “authorized generics” to lower rebate amounts; require auditing of manufacturer’s pricing and drug product information; extend the Medicaid Drug Rebate Program to certain drugs administered in outpatient hospital settings; prohibit use of “spread pricing” by Pharmacy Benefit Managers (PBMs), address conflicts of interest in administration of the Medicaid drug benefit: improve access to prescription drug data; and facilitate in-depth analysis of the Medicaid Drug Rebate Program. CBO estimates the package would reduce the deficit by over $20 billion over the 2020-2024 period and $100 billion over the 2020-2029 period. Of all the policies in the package, the modification of the maximum rebate amount under the Medicaid drug rebate program is most likely to be used as an offset in an end-of-year package. This policy alone would reduce spending by $1.377 billion over the 2020-2024 period and $12.488 billion over the 2020-2029 period.
S. 1895 – Lower Health Care Costs Act (Senate HELP Package): This bill intends to prevent surprise medical bills, reduce prescription drug prices, improve transparency in health care, invest in public health and improve health information exchange. Specific cost-saving measures include providing timely access to generic drugs and directing drug manufacturers to submit a report justifying planned price increases. According to the CBO, estimated budgetary effects would primarily stem from reduced federal subsidies for health care and health insurance, and increased direct spending for community health centers and other federal health programs. On net, they estimate that enacting the legislation would increase direct spending by about $18.7 billion and increase revenues by $26.2 billion over the 2019-2029 period, for a net decrease in the deficit of $7.6 billion.
H.R. 2328 – Reauthorizing and Extending America’s Community Health (REACH) Act: As discussed above, this bill would reauthorize and extend funding for community health centers through the Community Health Center Fund (CHC Fund), the National Health Service Corps (NHSC), the Teaching Health Center Graduate Medical Education Program, the Special Diabetes Program and the Special Diabetes Program for Indians, Family to Family Health Information Centers, the Personal Responsibility Education Program, the Sexual Risk Avoidance Program, and extensions of certain expiring Medicare programs. It would also reduce scheduled DSH cuts and protect patients from surprise medical billing and reduce payments to some health care providers working in facilities where surprise bills are likely. CBO estimates that enactment of this bill would increase direct spending by about $41.0 billion and increase revenues by $20.9 billion over the 2019-2029 period, for a net increase in the deficit of $20.1 billion.

Outlook

Though the short-term funding extensions delay the expiration of these programs, community health centers and other groups that depend on the funding are unable to plan ahead due to the uncertainty. Congress is expected to pass another CR to extend funding through mid-December, at which point they will likely pass a full-year CR if a government spending agreement cannot be reached through the appropriations process.

The House and Senate must agree on policies to offset the cost of the health extenders, and it is likely that Congress will pick bipartisan drug bills like CREATES, Pay-for-Delay, and the Medicaid AMP cap. While Congress initially eyed surprise billing legislation as a potential offset, there is broad disagreement over the policy direction for surprise billing legislation, and it is unlikely this legislation will be enacted by the end of the year.