The White House can take a number of behind-the-scenes steps to sabotage the exchanges and hasten their undoing. Already, it’s deploying some of those tactics.
President Donald Trump has vowed to “let Obamacare fail,” after legislative efforts to undo the Affordable Care Act have stalled.
He and congressional Republicans have repeatedly portrayed the Affordable Care Act insurance marketplaces, also known as exchanges, as being in a “death spiral.” But independent analyses have concluded that such spontaneous disintegration isn’t happening.
In a number of ways, the Trump administration’s policies are pushing Obamacare into the vortex.
Reports from Standard & Poor’s, the Congressional Budget Office and the Kaiser Family Foundation all suggest that the exchanges — where people can shop for coverage, often with the help of a government subsidy — are stabilizing. (Kaiser Health News is an editorially independent program of the foundation.)
But, like every piece of legislation, Obamacare faces a difficult political reality: Its marketplaces require active maintenance and federal support.
The White House can take a number of behind-the-scenes steps to sabotage the exchanges and hasten their undoing. Already, it’s deploying some of those tactics.
“The administration has a lot of power to undermine the markets and make them dysfunctional,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms, who specializes in private insurance markets.
Here’s a look at five ways the White House is already working to weaken the health law, and what that means for consumers.
‘Cost-Sharing Reductions’
Under the ACA, when someone’s income falls between 100 and 250 percent of the federal poverty level — up to about $29,000 for an individual or around $61,000 for a family of four — marketplace carriers must offer a plan with “cost-sharing reductions” (CSRs) that reduce consumers’ out-of-pocket expenses.
Reducing cost-sharing — generally copayments and deductibles — makes plans more expensive for the insurers. The Obama administration used its rule-making power to set up direct payments to carriers to help offset this burden. The Trump White House has inherited that responsibility but also has the power to end the payment program.
The nonpartisan Congressional Budget Office estimated CSR subsidies in 2017 would total about $7 billion. Without that money, analysts say, more insurers might choose to exit, limiting options for consumers, and letting the insurers who remain charge higher prices.
Trump has been committedly noncommittal, publicly indicating he would like to halt the subsidies, but so far — on a month-to-month basis — letting them continue.
The uncertainty makes insurance companies skittish about participating, analysts noted. It’s also one reason some plans say they have had to increase their rates, noted Charles Gaba, a Michigan-based blogger who tracks ACA sign-ups. For instance: When filing plans for the 2018 marketplace, carriers on average raised premiums by about 34 percent — with about 20 points stemming from CSR uncertainty, Gaba said, based on an analysis of 21 states’ initial rate filings. Dropping the subsidies altogether would be even more damaging.
Weaken The Mandate
The White House has already signaled it does not want to enforce the individual mandate — the health law’s requirement that all people have coverage. And administration officials have repeated that position.
Meanwhile, in January, it issued an executive order that encouraged U.S. agencies to grant exemptions and waive or defer health law provisions that could put financial strain on companies or individuals — which could also be applied to the individual mandate.
For 2016 tax returns, though, the Internal Revenue Service continued to impose a financial penalty on people who didn’t have health insurance and who didn’t qualify for an exemption.
But enforcement may be waning. This year, the IRS was supposed to reject tax returns if people didn’t indicate whether they had coverage, flagging them for a potential penalty. Instead, it continued processing them, citing Trump’s executive order.
If the IRS has already processed any tax refunds for consumers, then they “don’t have much leverage” when attempting to collect the mandate fee, said Timothy Jost, emeritus law professor at Washington and Lee University in Virginia and an expert on health reform.
Enforcement of the mandate enforcement, economists note, is crucial to ensuring that enough healthy people buy coverage to balance the costs of sicker beneficiaries.
But even with the mandate in effect, the efforts to defang it bring confusion.
“A lot of people believe the Trump administration is not enforcing it,” Jost said.
As a result, healthy people may become less likely to buy insurance, even as sick ones continue seeking it. That means higher prices, and a shakier pool.
“If they don’t think they’re going to get healthy people in the risk pool, they’re going to increase their rates further to protect themselves,” Jost said. “And as they raise their rates further to protect themselves, people … start to drop out.”
Thus, the president’s position on the mandate is leaving insurance carriers and commissioners “apprehensive,” noted Mike Kreidler, Washington state’s insurance commissioner.
A Bare Market
Skittishness on the part of insurers could lead them to drop out of some marketplaces, leaving consumers in some areas with few or no choices. Those “bare markets” are possible under even stable circumstances — and preventing them requires active federal involvement.
Under the Obama administration, high-level officials were “on the phone daily with insurance company executives … trying to get them to participate,” Corlette said. “It was very much an all-hands-on-deck, ‘we’re going to make it work for you guys’ kind of communication.”
And so far Trump’s Department of Health and Human Services doesn’t appear to be emphasizing this kind of essential outreach, both Corlette and Jost suggested. A few months ago, Kreidler agreed, HHS staffers appeared interested in helping states fill their bare counties — but that support has since dwindled.
“This may be sort of under the radar, but it can have real, lasting effects” for consumer choice, Corlette said.
All Quiet On The Enrollment Front
The administration could further undermine the marketplace by dropping outreach to consumers. It’s already a shorter enrollment period this year — spanning six weeks instead of three months, from Nov. 1 to Dec. 15 — though that change was already slated to eventually take effect.
That shorter period means people may miss the memo on signing up — or at least need an extra push, Corlette said. And that’s another way the administration could undermine the marketplaces: simply choosing not to advertise them.
Last sign-up season, HHS stopped open enrollment advertising in January, pulling ads a few days before the period ended. Enrollment dropped compared with previous years, Jost and Gaba noted, with young, healthy people being more likely not to buy coverage.
The administration also just stopped funding federal contractors that supported efforts by community groups and other organizations in some of the nation’s largest cities to sign up people.
Dropping advertising, shortening open enrollment or simply scaling back on technical maintenance for the marketplace website could all have significant impact, Corlette said. People who are sick and need insurance will likely seek it out, but those who are healthier — for whom health insurance is a less pressing priority — could miss the boat.
Again, Jost said, that affects insurer participation.
“Insurance is a product that need to be sold,” he said. “If the insurers believe they’re not going to get any help at all in marketing their product,” he added, fewer will want to enter the marketplace.
Word of (Bad) Mouth
HHS has taken an active role in criticizing the health law — pushing press releases and videos that argue it has helped more than hurt. That strategy could do a lot of harm, experts said.
If consumers keep hearing the law is failing, Jost noted, some will ultimately believe it, buying coverage only if they need it and thereby skewing the insurance risk pool.
Perceived hostility also has an effect on insurers, steering them away from marketplace participation.
“When you undermine confidence in the marketplace, you don’t need a Ph.D. in economics to know it’s not good long term,” Corlette said.
In exchange for approval, Mountain States Health Alliance and Wellmont Health System promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns.
JOHNSON CITY, Tenn. — Looking out a fourth-floor window of his hospital system’s headquarters, Alan Levine can see the Appalachian Mountains that have defined this hardscrabble region for generations.
What gets the CEO’s attention, though, is neither the steep hills in the distance nor one of his Mountain States Health Alliance hospitals across the parking lot. Rather, it’s a nearby shopping center where his main rival — Wellmont Health System, which owns seven area hospitals — runs an urgent care and outpatient cancer center. Mountain States offers the same services just up the road.
“Money is being wasted,” Levine said, noting that duplication of medical services is common throughout northeastern Tennessee and southwestern Virginia where Mountain States and Wellmont have been in a health care “arms race” for years, each trying to outduel the other for the doctors and services that will bring in business.
The companies now want to merge, which would create a monopoly on hospital care in a 13-county region that studies have placed among the nation’s least healthy places. The merger’s savings would pay for a range of public health services that they can’t afford now, the companies project. And they are trying to pull it off without Washington regulators’ approval, breaking with hospitals’ usual path to consolidation.
In a typical case, a plan that eliminates so much competition in a market would almost certainly provoke a court battle with the Federal Trade Commission, which enforces antitrust laws and challenges anti-competitive behavior in the health industry.
To avert such a fight, the hospitals are using an obscure legal maneuver available in Tennessee and Virginia and some other states.
The view of mountains is everywhere in Johnson City, Tenn. (Phil Galewitz/KHN)
Generally known as a Certificate of Public Agreement (COPA), the process works like this: If regulators in Virginia and Tennessee agree that the merger is in the public interest, Wellmont and Mountain States would operate as one company under a state-supervised agreement governing key parts of their operations, including setting prices. The states’ approval would prevent the FTC from challenging the merger under federal antitrust law.
Their decisions could come as soon as this month.
In exchange for approval, Mountain States and Wellmont promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns, such as obesity and smoking — areas previously neglected by the systems that don’t increase hospital admissions and bring in big revenue, hospital officials said
“The question that needs to be asked is whether tight state oversight of a monopoly is better than failed competition,” said Robert Berenson, a health policy expert at the Urban Institute.
Little-Used And Rarely Challenged Mechanism
The federal antitrust exemption made possible under a COPA dates to a Supreme Court ruling in the 1940s used only about a dozen times to allow hospital mergers. One was an hour away from here, in Asheville, N.C.
There’s little scholarly research on COPAs’ results.
Last summer, the FTC dropped its challenge to a merger of two West Virginia hospitals after the state adopted a COPA law and permitted the deal.
In recent years, hospital mergers and acquisitions have created behemoth health systems that have used their status to demand high payments from insurers and patients. Studies by health economists have repeatedly found that consolidation means higher prices.
But the same calculus may not apply here and in other regions where a preponderance of patients are poor or uninsured, officials from both Mountain States and Wellmont say.
While President Donald Trump and Republicans in Congress stress the value of free-market principles in health care, both hospitals argue that in their part of Appalachia the market has led to unnecessary spending, driven up health costs and forced them to focus on services that produce the highest profits rather than meet the community’s most pressing health needs. In this deeply conservative region where death rates from cancer and heart disease are among the nation’s highest, the hospitals say only a state-sanctioned monopoly can help them control rising prices and improve their population’s health.
Without their proposed merger, Levine said, both hospital systems would likely have to sell to an out-of-market chain. That would likely eliminate local control of the facilities and could lead to massive layoffs and the closure of hospitals and services, he said. Together, the two hospital systems employ about 17,000 people.
Alan Levine, CEO of Mountain States Health Alliance, outside his Johnson City, Tenn., office. (Phil Galewitz/KHN)
The FTC, which is urging the states to reject the hospitals’ plan, contends the hospitals could form an alliance or take other steps short of a merger to accomplish the benefits they say one will bring. The agency says the hospitals’ market probably would be no worse off if one chain merged with a company outside the area.
Feds Wary Of Promises
The hospitals are making big promises to sell their deal. They say no hospitals would close for at least five years, although some could be converted to specialized health facilities to treat problems such as mental health or drug addiction. After the merger, all qualified doctors would have staff privileges at all hospitals to treat patients. No insurer would pay lower rates than others. The new hospital system would spend at least $160 million over 10 years to improve public health, expand medical research and support graduate medical education for work in rural areas.
The FTC maintains the hospitals’ pledges are unreliable and dismissed them as having “significant shortcomings, gaps and ambiguities” in an analysis filed with state regulators in January.
Levine said the plan is the best deal for the community given the factors that handicap the hospitals. Those include declining populations and Medicare reimbursement rates that are lower here than other parts of the country because of lower average wages. Another concern is the cost of caring for uninsured people — neither Virginia nor Tennessee expanded Medicaid under the health law, which would have lowered uninsured rates.
“Competition is and should be the first choice, but in an area where competition becomes irrational and there are limited choices, there has to be a Plan B. If not this, then what?” he said.
Blue Cross and Blue Shield of Tennessee, the state’s largest health insurer, is not opposing the hospitals’ combination, a spokesman said. But its counterpart in Virginia, Anthem, hasn’t been persuaded.
“Anthem does not believe that there are any commitments that will protect Southwest Virginia and Northeast Tennessee health care consumers from the negative impact of a state-sanctioned monopoly,” the company said in a statement.
Wanted: Better Job Prospects
The proposed COPA has strong support among large employers in the region, including Eastman, a Kingsport, Tenn., chemical company with $9 billion in annual revenue that employs more than 7,000 people locally. “We get local governance, input and control … and that’s a lot better situation for us,” said David Golden, a senior vice president at Eastman.
Still, walking around Johnson City — the region’s largest city with almost 67,000 people — it’s easy to feel an unease among small employers and residents about a merger. Many worry about possible job cuts.
“Eliminating duplication of services means eliminating people,” said Dick Nelson, 60, who runs a coffee and art shop downtown and has lived here for 27 years. “I don’t care how much health care costs because my insurance will pay it,” he said.
In Kingsport, where Wellmont and Mountain States each has a hospital, Thorp is leery about a merger, too. “It’s an economic move, not an enhancement of medical care,” said Thorp, who runs a newsstand downtown. “We pride ourselves here for having good education and health care. They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?”
Tom Throp owns Wallace News, a staple in downtown Kingsport, Tenn. Of the hospital consolidation plan, he says: “They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?” (Phil Galewitz/KHN)
Levine said no place better supports the case for a hospital merger than Wise County in southwestern Virginia, a scenic area with about 40,000 people whose three hospitals all operate below half their capacity. Mountain States and Wellmont each own a hospital in Norton, the county seat with 4,000 residents. Despite few patients, the hospitals still bear hard-to-cut costs for buildings, equipment and adequate staffing levels, Levine said.
On a recent weekday morning, Lonesome Pine Hospital, a Wellmont facility in Big Stone Gap, Va., looked nearly deserted. No volunteers or staffers were visible inside its main entrance and fewer than a fifth of its 70 acute-care beds were being used.
A five-minute drive away, Mountain States’ Norton Community Hospital’s 129 beds are about a quarter filled. Its maternity unit delivers fewer than five babies a week. The hospital offers hyperbaric oxygen therapy — a treatment that pays well under Medicare’s reimbursement rates — to help diabetics heal their wounds. But it has no endocrinologists to help diabetics manage their disease to avoid such complications. Despite a high rate of heart disease in the community, there’s no cardiologist on staff.
Whether a state-sanctioned merger will resolve the incongruities — here or in other poor regions — depends on how firmly regulators hold the hospitals to their pre-merger commitments. If the merger plan gets rejected, Mountain States and Wellmont will resume arch-competitive business practices that do not always put community interests first, said Bart Hove, Wellmont’s CEO.
“It’s about competing for the dollar in any way you can and extracting a dollar from your competition,” Hove said. “You do what you can to drive patients to your hospital.”
The Senate is using a budget process called “reconciliation” that allows Republicans to pass a bill with only 50 votes. But there are strict rules about what can and cannot be included, and those rules are enforced by the parliamentarian.
The official rules keeper in the Senate Friday tossed a bucket of cold water on the Senate Republican health bill by advising that major parts of the bill cannot be passed with a simple majority, but rather would require 60 votes. Republicans hold only 52 seats in the Senate.
Senate Parliamentarian Elizabeth MacDonough said that a super-majority is needed for the temporary defunding of Planned Parenthood, abortion coverage restrictions to health plans purchased with tax credits and the requirement that people with breaks in coverage wait six months before they can purchase new plans.
The Senate is using a budget process called “reconciliation” that allows Republicans to pass a bill with only 50 votes (and the potential tie to be broken by Vice President Mike Pence). But there are strict rules about what can and cannot be included, and those rules are enforced by the parliamentarian. Those rules can be waived, but that requires 60 votes, and all the chamber’s Democrats have vowed to fight every version of the bill to “repeal and replace” the Affordable Care Act, which is set for a possible vote next week.
The list was released by Democrats on the Senate Budget Committee and later confirmed by a spokesman for the committee Republicans. It is the result of what is called the “Byrd Bath,” a process in which the parliamentarian hears arguments from Democrats and Republicans and then advises on which provisions comply with the Byrd Rule. That rule requires that only matters directly pertaining to the federal budget are included. The rule is named for former Senate Majority Leader Robert Byrd (D-W.Va.), who first wrote it.
Senate Republicans were quick to point out that the document is “guidance” that they can use to try to rewrite impermissible language. The guidance “will help inform action on the legislation going forward,” said a spokesman for Senate Budget Committee Chairman Mike Enzi (R-Wyo.).
Among the other provisions that the parliamentarian has advised should require 60 votes are ones that would eliminate Medicaid requirements to provide 10 “essential health benefits.” Also on the list is a provision to repeal a requirement that insurers spend a minimum amount of each premium dollar on direct medical services, rather than administration or profits.
The determination also pertains to a part of the bill that would continue payments for “cost-sharing subsidies” to insurers for two more years. Those subsidies help lower-income people afford out-of-pocket costs like deductibles. The parliamentarian said that duplicated existing law.
MacDonough also said that a provision in the House version of the bill that pertains directly to New York violates the Byrd Rule. That measure would change the way the state collects money for Medicaid. That could suggest efforts by Senate Majority Leader Mitch McConnell (R-Ky.) to offer state-specific changes to gain support for the bill might meet the same fate.
Minority Leader Chuck Schumer (D-N.Y.) said that decision could have “the greatest effect on Republicans’ ability to pass this bill.” He predicted it would “tie the majority leader’s hands as he tries to win over reluctant Republicans.”
Some of the provisions that didn’t pass muster with MacDonough were key to getting the bill through the House. And if they are dropped, it might make it difficult for the House to approve a final version of the bill.
Not all the decisions went the Democrats’ way. MacDonough found that only a simple majority is needed for language allowing states to impose work requirements for Medicaid recipients. She also said that a provision that will ban abortions if the services are paid through a new fund provided to states would be allowed. That’s because that fund will be governed by existing rules that already ban abortion in most cases.
A few provisions remain under review, according to the list. Those include allowing states to waive a long list of insurance protections, including the ACA’s essential health benefits and preexisting coverage guarantees. Also still under review is language allowing small businesses to pool together to purchase insurance as well as a provision changing requirements related to how much more insurers can charge older adults.
This year, a critical and risky one for drug companies, the industry as a whole is ratcheting up campaign donations and its presence on Capitol Hill. Congressional donations from pharmaceutical PACs rose 11 percent in the first quarter.
Two federal investigations — one examining opioid sales, another about a multiple sclerosis drug whose price had soared to $34,000 a vial — were only part of the troubles Mallinckrodt faced as the year began.
The stock of the drugmaker, whose United States headquarters are in St. Louis, was tanking. Wall Street worried that Medicare might reduce the half-billion dollars it was spending yearly on a Mallinckrodt drug with limited evidence of effectiveness.
This year, the company left the industry trade group Pharmaceutical Research and Manufacturers of America, or PhRMA, after the group threatened to kick out companies that did not spend enough on research.
Mallinckrodt, however, has been increasing its spending in another area: It has been writing checks to politicians.
After making meager donations in 2015, the company’s political action committee began raising its contributions for congressional campaigns last year. Lawmakers in both the House and Senate collected $44,000 from Mallinckrodt in 2017’s first quarter, nearly nine times what they got from the company in the same period two years ago.
Mallinckrodt also spent $610,000 lobbying Congress, triple the amount of 2015’s first quarter. The company, which makes pain-control drugs as well as H.P. Acthar, an injectable gel prescribed for multiple sclerosis and other diseases, has lobbied on issues related to opioids, patents, Medicare and other matters, regulatory filings show.
Mallinckrodt is far from unique. This year, a critical and risky one for drug companies, the industry as a whole is ratcheting up campaign donations and its presence on Capitol Hill, a new database compiled by Kaiser Health News shows.
“The stakes are really high right now,” said David Maris, who follows pharmaceutical stocks for Wells Fargo, given that President Donald Trump has joined Democrats to demand action on drug costs.
Mallinckrodt acknowledges that it has increased its political spending to help its particular causes. “We actively participate in the political process on issues that matter to us and our patients,” Rhonda Sciarra, a Mallinckrodt spokeswoman, said by email. “Our PAC’s absolute spend remains small in relation to other companies in our industry.”
Congressional donations from pharmaceutical PACs rose 11 percent in this year’s first quarter, compared with the first three months of 2015 (the comparable point in the previous election cycle), according to a Kaiser Health News analysis. The increase accompanied a spike in pharma lobbying for the period.
Contributions to powerful committee members who handle health policy matters also increased in the face of public anger over the opioid crisis as well as anticipated renewal of legislation that determines the “user fees” companies pay for regulatory drug approval.
A dozen Republican committee heads and ranking Democrats on health-related panels collected $281,600 from pharma-related PACs in the first quarter, up 80 percent from what people in the same positions collected in the first quarter of 2015, the data show. Such initial donations often set the pace for a two-year election cycle, and suggest whom corporate interests are trying to cultivate in a new Congress, with implied promises of more to come, analysts say.
For pharma companies, “now would be the time to give out the money, ahead of a piece of legislation that may come down the road,” said Kent Cooper, a former Federal Election Commission official who has tracked political money for decades. “You want to get your name out there and make a connection with these members’ legislative assistants — so you are known to them and you can get in their door.”
Other drugmakers increasing their congressional donations include AbbVie — whose blockbuster rheumatoid arthritis injection, Humira, faces threats from competition — and Alexion Pharmaceuticals. A six-figure price tag for Soliris, Alexion’s treatment for a rare blood disorder, makes it one of the world’s most expensive drugs.
Pfizer, the No. 2 pharma donor in the first quarter after Sanofi, gave $130,900 to congressional campaigns, three times its contribution for the same period two years ago. So far this year, the company has raised the price of dozens of drugs by an average of 20 percent, The Financial Times reported.
PhRMA, a big giver in the past, has not yet joined individual companies in increasing donations for this election cycle. Congressional campaigns collected $7,000 in the first quarter from PhRMA, which Politico reported had raised member dues to prepare for the drug-price fight. They got $31,500 two years ago.
The totals do not include contributions from individual executives and lobbyists, or donations to leadership PACs. Leadership PACs associated with a particular member of Congress often spend money on other members’ campaigns, as well as on things that a campaign committee cannot finance. Details on contributions to leadership PACs take longer to become available.
Outrage was still bubbling last year over moves by Turing Pharmaceuticals and Mylan to raise prices of cheap-to-make, lifesaving drugs to hundreds of dollars a dose, when the country elected a Republican president who vowed: “I’m going to bring down drug prices.” Nearly 8 in 10 Americans said in a September poll they believed prescription drug prices were unreasonable.
Evidence has grown that pharma companies helped fuel the nation’s addiction and overdose crisis with sales of powerful painkillers, prompting calls for an overhaul. Drug developers are also preparing for renewal of the Prescription Drug User Fee Act, which generates revenue to pay for government review and approval of drugs.
At the same time, drug companies anticipated Republican efforts to repeal and replace the Affordable Care Act, which finances billions in drug sales. That process has stalled in the Senate. All of this gives drugmakers the most powerful incentives in years to cultivate policymakers, analysts say.
Tense politics may also be prompting members of Congress to be energetic about soliciting donations.
“My sense is that Republicans are nervous in the House — especially given the long-term record of the presidential party losing seats in the midterm,” said David Magleby, a political scientist at Brigham Young University who studies campaign finance. “I would be surprised if Republican incumbents across the board aren’t more aggressive in raising money in the first and second quarters.”
In the past six months, Mallinckrodt has come under pressure for both painkiller sales and price increases for non-narcotic drugs. Earlier this month, the Justice Department announced the company would pay $35 million to resolve an investigation into whether it ignored enormous volumes of its oxycodone moving through distributors and pharmacies. Over several years, The Washington Post reported, Mallinckrodt was responsible for two-thirds of all the oxycodone sold in Florida.
In January, it agreed to pay $100 million to settle Federal Trade Commission allegations that a company it bought three years ago had illegally quashed competition, enabling it to raise the price of Acthar, the multiple sclerosis drug, which the FTC said cost only $40 per vial in 2001, to $34,000. Mallinckrodt disputed the agency’s complaint but said it settled to put the matter to rest.
The drug is prescribed to treat a rare form of epilepsyas well as multiple sclerosis and other ailments. Even Mallinckrodt acknowledges that “clinical trials demonstrating the efficacy for Acthar are limited.”
But in part because of price increases, global sales of the drug soared from $123 million in the 2014 fiscal year to $1.2 billion in the 2016 fiscal year. It was Medicare’s most expensive drug per patient in 2015 — $162,371 for the year — and now makes up a third of the company’s revenue.
Company shareholders have worried that Medicare will crack down on sales of Acthar. Mallinckrodt has pledged to keep future price increases for all drugs to single-digit percentages per year, though that could still be well above the current inflation rate of less than 3 percent.
Mallinckrodt’s biggest donations on Capitol Hill, of $5,000 each, went to Ann Wagner, a House member from its home state, Missouri, and Sen. Orrin Hatch, the powerful chairman of the Senate Finance Committee. That amount is the maximum a PAC can give to a campaign committee for each primary and general election.
Ever since it was spun off as an independent company in 2013, Mallinckrodt has made its legal home in Ireland, which allows it to take advantage of lower income tax rates. Hatch favors cutting U.S. corporate taxes to eliminate incentives to make such moves.
Mallinckrodt gave lesser amounts to 16 other congressional campaigns, including that of Paul Ryan, the House speaker. Ryan, who has played down Trump’s attacks on the pharmaceutical industry, was the top recipient of industry money in the first quarter, with $82,750 collected, the data show.
The White House has made no proposals on drug costs. Trump has said little about the issue since January, when he said drug sellers were “getting away with murder.”
Drug companies are hedging their bets, writing checks to individual Democrats and Republicans. With Trump breaking ranks with Republicans to favor reform, “you can’t tell who’s your friend and who’s not,” said Maris, the Wells Fargo analyst. “So you have to go to a ground game — a more one-on-one legislator basis.”
Naema Ahmed contributed to this report.
KHN’s coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.
Federal health officials made more than $16 billion in improper payments to private Medicare Advantage health plans last year and need to crack down on billing errors by the insurers, a top congressional auditor testified Wednesday.
James Cosgrove, who directs health care reviews for the Government Accountability Office, told the House Ways and Means oversight subcommittee that the Medicare Advantage improper payment rate was 10 percent in 2016, which comes to $16.2 billion.
Adding in the overpayments for standard Medicare programs, the tally for last year approached $60 billion — which is almost twice as much as the National Institutes of Health spends on medical research each year.
“Fundamental changes are necessary” to improve how the federal Centers for Medicare and Medicaid Services ferrets out billing mistakes and recoups overpayments from health insurers, he said.
Medicare serves about 56 million people, both those 65 and older and disabled people of any age. About 19 million have chosen to enroll in Medicare Advantage plans as an alternative to standard Medicare.
Federal officials predict the Medicare Advantage option will grow further as massive numbers of baby boomers retire in coming years.
Standard Medicare has a similar problem making accurate payments to doctors, hospitals and other health care providers, according to statistics presented at the hearing. Standard Medicare’s payment error rate was cited at 11 percent, or $41 billion for 2016.
Last week, Attorney General Jeff Sessions announced the arrest of 412 people, some 100 doctors among them, in a scattershot of health care fraud schemes that allegedly ripped off the government for about $1.3 billion, mostly from Medicare.
CMS official Jonathan Morse said that the “largest contributors” to billing mistakes in standard Medicare were claims from home health care and inpatient rehabilitation facilities.
Some lawmakers appeared frustrated that CMS cannot say for sure how much of the “improper payments” in both Medicare options are caused by fraud. The agency uses the term broadly to cover billing fraud, waste and abuse, as well as simply overcharges and underpayments.
“When trying to understand how much fraud is in Medicare, the answer is simply we don’t know,” subcommittee Chairman Vern Buchanan (R-Fla.) said.
Yet he added that “it doesn’t take a big percentage [of fraud] to get a giant number” of dollars.
CMS official Morse did little to clear up any confusion over billing mistakes. In his written testimony, he said that improper payments are “most often payments for which there is no or insufficient supporting documentation to determine whether the service … was medically necessary.”
In his testimony, GAO official Cosgrove focused on the Medicare Advantage program. He took aim at a little-known government audit process called Risk Adjustment Data Validation, or RADV. These audits require health plans to submit a sample of patient records for review.
Cosgrove said that the RADV audits take too long to complete and failed to focus on health plans with the greatest potential for recovery of overcharges. He also said that CMS officials had not done enough to make sure the payment data they use are accurate. As a result, “the soundness of billions of dollars in Medicare expenditures remains unsubstantiated,” according to written testimony.
The GAO, the watchdog arm of Congress, has previously criticized CMS for its failure to ferret out overcharges in Medicare Advantage. In an April report, GAO found that CMS has spent about $117 million on the Medicare Advantage audits since 2010 but recouped just under $14 million in total.
Payment errors and overcharges by Medicare Advantage plans were the subject of a lengthy investigation by Kaiser Health News and the Center for Public Integrity. Federal officials have struggled for years to weed out billing irregularities by Medicare Advantage plans, according to CMS records obtained through a Freedom of Information Act lawsuit filed by the Center for Public Integrity.
The investigation found that Medicare Advantage payment errors result mostly from flaws in a billing formula called a risk score. Congress expected risk scores would pay higher amounts for sicker patients and less for people in good health when it began phasing in the billing scales in 2004.
But since then, a wide range of CMS audits and other reviews have found that Medicare wastes billions of tax dollars annually because some health plans inflate risk scores by exaggerating how sick their patients are. One CMS memo made public through the FOIA lawsuit referred to risk-based payments as essentially an “honor system,” with few audits to curtail fraud and abuse.
Even when RADV audits have detected widespread overpayments, CMS officials have failed to recoup money after years of haggling with the health plans.
In January, Kaiser Health News reported that Medicare had potentially overpaid five Medicare Advantage health plans by $128 million in 2007, but under pressure from the insurance industry collected just $3.4 million and settled the cases.
Morse testified on Wednesday that CMS is still in the process of completing appeals of RADV audits from 2007. He said that payment errors have been calculated for 2011 and that reviews for 2012 and 2013 were underway.
These results are years behind schedule, according to CMS documents, which show the results were expected in early 2014. In the past, officials have said that they expected to collect as much as $370 million from the 2011 audits.
Morse said on Wednesday he didn’t know when the 2011 audit results would be released. “Hopefully soon,” he said after the hearing. “I actually don’t know.”
On Wednesday, the Congressional Budget Office released its estimates on an amendment to H.R. 1628 that would repeal the Affordable Care Act outright.
This is the CBO’s fourth review of repeal-and-replace-related legislative drafts. Below are past scores from the Senate’s Better Care Reconciliation Act, released June 26, and the House-passed American Health Care Act, released May 24.
A draft report forecasting lower premiums for everyone who buys their own health insurance under a controversial amendment proposed by Sen. Ted Cruz drew immediate criticism Wednesday from health policy experts.
By draft surfaced just as Republican senators were lunching with President Donald Trump on Wednesday to talk about the next steps in the health care debate.
“The Republicans never discuss how good their healthcare bill is, & it will get even better at lunchtime,” tweeted Trump, before the group convened.
But findings from the draft report drew immediate criticism from health policy experts as opaque and misleading.
“The details get a bit dicey,” said Craig Garthwaite, director of the health care program at Northwestern University’s Kellogg School of Management. “No one I’ve talked to thinks [the analysis] is well done.”
The forecasts in a draft analysis by the Department of Health and Human Services are exactly opposite from what many experts predict.
Still, the HHS analysis did provide some insight into how HHS envisioned that the Cruz plan, part of the Senate bill that appeared to die this week, could have worked. Particularly notable: The analysis assumes annual deductibles of $12,000, which means consumers would have to pay that amount — which is far higher than allowed under the ACA — before most benefits are covered.
On Wednesday, health care developments continued to unfold at a breakneck pace, and with a zigzagging trajectory, when the Senate Budget Committee posted on its website yet another bill. This one is an updated version of the 2015 “repeal and delay” bill, which is likely the measure the Senate will consider next week if a vote to start debate succeeds.
It would repeal all of the taxes that paid for the Affordable Care Act’s benefits, roll back the expansion of Medicaid (but not cap the underlying program), nullify the requirement for most people to have insurance and rescind the financial aid for low- and moderate-income Americans.
Late in the afternoon, the Congressional Budget Office released an updated estimate of an earlier analysis concluding that the new “repeal and delay” measure could result in 32 million fewer Americans having coverage and premiums doubling by 2026. By 2020, according to CBO, “about half the nation’s population would live in areas having no insurer participating in the non-group market.” The new bill does not include the Cruz amendment, the subject of the HHS report.
Opposition to the Cruz amendment from powerful health care sectors, like the insurance industry, is cited as one reason why the Senate was unable to muster enough votes to move the whole Senate bill forward for debate this week.
Last Friday, the insurance industry trade lobby sent a harsh warning to Congress, saying the Cruz amendment “is simply unworkable in any form and would undermine protections for those with pre-existing medical conditions, increase premiums and lead to widespread terminations of coverage.”
Today, the HHS report took a very different view.
First reported in the right-leaning Washington Examiner, it forecasts far more people covered by insurance in 2024 if the Cruz plan were adopted, as compared with how many would be insured under the Affordable Care Act.
It also projects premiums would fall, both in plans that meet all the rules of the ACA, and in plans Cruz proposes, which would not have to follow the rules. The Cruz plans would have lower premiums, however, because they could come with far fewer benefits — and could reject people with medical problems or charge them more.
Insurers and actuaries said the Cruz proposal would result in a segmented market, with younger and healthier people drawn to the skimpier, less expensive plans. That, in turn, would leave older or sicker enrollees in the ACA-compliant plans, causing their premiums to spiral upward.
But the analysis by HHS shows premium costs for ACA-compliant plans would go down by more than $250 a month in 2024 when compared with what they would be under current law. The Cruz plans would be super cheap, at under $200 a month under the rosiest scenario outlined.
Experts today immediately pounced on the department’s methods — in as much as they could be determined, since the full report was not released.
(HHS did not respond to requests for comment or for the release of the full report.)
For starters, the draft report, they say, compares premiums for a 40-year-old with the “weighted average” of all people of all ages purchasing ACA plans now.
“It’s not apples to apples,” said Matt Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Innovation in Health Policy.
It cited its own “proprietary model” used to determine how many people would switch from ACA plans to the new Cruz plans, without spelling out its assumptions. Not including such details is highly unusual and makes the results difficult to analyze, said Garthwaite, adding: “There’s nothing in this that gives me any hope that the entire report will be any more accurate, complete or unbiased.”
Meanwhile, over lunch at the White House, President Trump asked senators to skip all or part of their August recess in order to work on another proposal to repeal and replace the ACA. He promised premiums that would be significantly lower, without citing details on how that would occur.
Advocates of the program say the discounts — and the money hospitals make on payments from Medicare — are necessary to combat skyrocketing drug prices. But federal reports in recent years have raised concerns about oversight and abuse of the 340B program.
House Democrats are calling foul on Republican assertions that cuts to a little-known discount drug program will eventually reduce skyrocketing drug prices.
At a hearing Tuesday, Rep. Diana DeGette (D-Colo.) said high drug prices should be investigated separately from the focus on oversight of the drug discount program, known as 340B.
“I think we need an investigation, a robust investigation, and a series of hearings that explore in-depth the reasons for exorbitant cost of drugs and why the prices continue to rise,” DeGette said.
Last week, Health and Human Services Secretary Tom Price proposed steep cuts in what Medicare reimburses some hospitals for outpatient drugs under the 340B program. In a release, Price said such cuts would be “a significant step toward fulfilling President [Donald] Trump’s promise to address rising drug prices.”
DeGette countered Tuesday that the proposal “would do nothing” to address high drug prices and said making that connection “seems more like fantasy than reality.”
Also on Tuesday, there were other hints at Trump Administration efforts to address drug pricing. Food and Drug Administration Commissioner Scott Gottlieb talked in a public meeting about lowering drug prices on a different front — saying that the agency needs to increase generic drug competition.
Trump routinely criticized high drug prices on the campaign trail last year and promised to take action during his presidency. In June, a leaked draft of an executive order on drug prices, first reported by The New York Times, spoke of facilitating more drug competition but also targeted the 340B program. That strategy immediately drew criticism from Sen. Al Franken (D-Minn.), who said scaling back the program would drive up what hospital patients pay for drugs and force Americans “to choose between health and other basic life necessities, like putting food on the table and a roof overhead for the family.”
The federal 340B program requires pharmaceutical manufacturers to provide outpatient drugs at a significant discount to hospitals and clinics that serve a largely low-income population.
After buying the discounted drugs, the hospitals and clinics can bill Medicare or other insurers at their regular rate, pocketing the difference.
About 40 percent of hospitals nationwide participate in the program and, as House members pointed out Tuesday, the program has grown dramatically in recent years to become a significant force in the pharmaceutical marketplace. The Medicare Payment Advisory Commission estimated that hospitals and other participating entities spent more than $7 billion to buy 340B drugs in 2013, three times the amount spent in 2005.
Advocates of the program say the discounts — and the money hospitals make on payments from Medicare — are necessary to combat skyrocketing drug prices.
Rep. Joe Barton (R-Texas) noted “this is a difficult hearing” because while the program was created with good intent, its complexity makes it challenging to understand. For example, hospitals and clinics aren’t required to pass any discounts they receive on to patients — they can direct the money to their general fund.
Looking at his colleagues, Barton said: “We all support the program but it has grown topsy-turvy. We need to put the best minds on this.”
Republican lawmakers are not the only ones raising concerns about 340B oversight. The Pharmaceutical Research and Manufacturers of America, which represents drugmakers, advocates ensuring hospitals are “good stewards” of the money they gain from the program’s discounts.
Peggy Tighe, who represents hospitals in the 340B program as a principal at the D.C. law firm Powers, said “PhRMA has done a particularly good job of getting the attention of the administration …. They haven’t let up on 340B.”
The rule that Price proposed last week would cut what hospitals are paid for drugs from the Medicare Part B program, which covers outpatient drugs including those delivered through infusion.
Currently, Medicare pays hospitals an average sales price plus 6 percent for most of the Part B drugs they purchase. The administration’s proposal is to cut that to average sales price minus 22.5 percent.
340B Health, a coalition that represents hospitals, immediately responded to the proposal saying the cuts would be “devastating” to hospitals and would “lead to cuts in patient services.”
KHN’s coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.
Seven years of Republican vows to “repeal and replace” the Affordable Care Act came to a crashing halt Tuesday, when it became clear that the Senate could not muster the necessary votes for any of three separate proposals that have been under consideration.
The failure, at least for now, breaks one of the key promises Republicans have made to their voters since 2010, when the ACA first became law.
“This has been a very challenging experience for all of us,” Senate Majority Leader Mitch McConnell (R-Ky.) told reporters Tuesday afternoon. “It’s pretty clear that there are not 50 Republicans at the moment to vote for a replacement for Obamacare.”
Monday night’s declaration of opposition by conservative Sens. Mike Lee (R-Utah) and Jerry Moran (R-Kan.) effectively scotched even the chance to start debate on the version of a bill unveiled last week.
McConnell added that the Senate would vote early next week on a plan, originally approved in 2015 and vetoed by President Barack Obama, that would repeal parts of the health law. That approach would delay the effective date for two years to give lawmakers time to come up with a replacement.
However, the opposition of moderate Sens. Susan Collins (R-Maine), Shelley Moore Capito (R-W.Va.) and Lisa Murkowski (R-Alaska), ensures that vote will fail, too.
“To just say ‘repeal and trust us, we’re going to fix it in a couple of years,’ that’s not going to provide comfort to the anxiety a lot of Alaskan families are feeling right now,” Murkowski told reporters.
In retrospect, Republicans’ inability to overhaul the health law should not come as much of a surprise. Here are some of the reasons:
1. It’s hard to take things away from people.
Once launched, federal programs that provide people with benefits they find important and valuable are very difficult to rescind. In the case of health care, people’s lives can be at stake. In the current debate, patients who feared what would happen to their health coverage made their concerns known — loudly — to lawmakers.
2. Republicans have long been divided on health care.
Republicans’ dirty little secret the past seven years is that the only thing they fundamentally agreed on when it comes to health care was the slogan “repeal and replace.” There’s a reason they failed to have a plan ready when Donald Trump was elected president — all efforts to reach a consensus had thus far failed.
“I did not come to Washington to hurt people,” said Capito in a statement. “I have serious concerns about how we continue to provide affordable care to those who have benefited from West Virginia’s decision to expand Medicaid.”
But the more conservative members, notably Sen. Rand Paul (R-Ky.), have other priorities. “All of us promised we would repeal Obamacare,” Paul told reporters Tuesday. “If you’re not willing to vote the way you voted in 2015 then you need to go back home and you need to explain to Republicans why you’re no longer for repealing Obamacare.”
3. Presidential leadership on hard issues is important.
President Trump has been all over the place in what he said he wanted from a health bill. It was his original insistence that “repeal and replace” happen simultaneously that moved Congress away from its 2015 strategy of repealing first and replacing later. He hosted a celebration in the White House Rose Garden when the House passed its bill, then subsequently called the measure “mean” during a strategy meeting with Senators.
When it became clear Monday night that the Senate effort was foundering, Trump tweeted: “Republicans should just REPEAL failing ObamaCare now & work on a new Healthcare Plan that will start from a clean slate.” But within hours he instead suggested, “As I have always said, let ObamaCare fail and then come together and do a great healthcare plan.”
The president “gave them an impossible assignment with his promises (more, better, cheaper for all) and neither policy nor bully pulpit help at crunch time,” said Len Nichols, a professor of health policy at George Mason University. “And now he’ll blame them for failing.”
Added Thomas Miller, of the conservative American Enterprise Institute: “We now have a randomized clinical trial that proves one cannot lead and govern via Twitter.”
4. Health care is complicated. Really.
Health care has not traditionally been a major voting issue for Republicans, and thus it has been a low priority — compared with issues like taxes and trade — for the officials they elect.
Adding to the complexity is that the Republicans’ bench is nowhere near as deep as the Democrats’ when it comes to health policy expertise. Democrats have toiled on these issues for years. Even before the Affordable Care Act, many had served in Congress for decades and learned from the mistakes that were made on efforts like the failed health bill under President Bill Clinton.
5. Some parts of the ACA really are popular, even among Republicans.
The requirement for most people to have insurance or else pay a fine — the individual mandate — has consistently been unpopular among voters of all political stripes. But many other major provisions of the health law, such as guaranteeing coverage for people with preexisting conditions, remain broadly popular.
In fact, in recent months, the Affordable Care Act has been growing in popularity. Most polls show it more than twice as popular as GOP efforts to overhaul it.
“Republicans have to admit that some of the things in the ACA, we actually liked,” said Murkowski.
That left a huge gap between Republicans who wanted to maintain the popular benefits and those who wanted to repeal the law entirely. A gap that, so far, Republicans have been unable to bridge.
Communities with higher rates of uninsurance are known to have worse access to care for those with Medicare or private insurance, says a healthcare policy expert.
Much has been written lately about how individuals’ health could suffer if they lose insurance under the health proposals circulating in the U.S. House and Senate. But there is another consequence: creating millions more people without insurance could also adversely affect the health of people who remain insured.
“We know that communities with higher rates of uninsurance have worse access to care for those with Medicare or private insurance,” said John Ayanian, director of the Institute for Healthcare Policy and Innovation at the University of Michigan. And if either of the GOP proposals under consideration becomes law, he said, “it’s very likely we would go back to some of those same problems we had a decade ago with high rates of uninsurance.”
The Congressional Budget Office has estimated that either the bill passed by the House or the one under consideration in the Senate could result in more than 20 million more Americans without insurance over the next decade.
Ayanian was part of an expert panel from the nonpartisan National Academy of Medicine that examined the implications of being uninsured in a series of studies from 2001 to 2009. An entire report looked solely at the spillover effect of large numbers of uninsured people on those around them. “The Committee believes it both mistaken and dangerous to assume that the persistence of a sizable uninsured population in the United States harms only those who are uninsured,” said the report.
That is mostly because it is difficult for health providers to maintain services in areas with large numbers of patients who cannot pay for care. “Those communities are less attractive for physicians and other health care providers to locate,” said Ayanian. “That affects access to care for everyone,” he said, particularly for critical but high-cost services like trauma care, burn care and neonatal intensive care.
The potential is not merely theoretical. Hospitals in sparsely populated areas, particularly in states that did not opt to expand the Medicaid program, have been cutting back services like maternity care or closing altogether in recent years. These are the same parts of the country that voted for President Donald Trump by large margins.
The impact is not just on availability of services. A 2007 study from researchers at the University of Pennsylvania in the journal Health Affairs found that in areas with many uninsured people, the quality of care was lower as well. Primary care doctors “reported that the higher the proportion of uninsured people in their community, the less likely they are to be able to refer their patients to high-quality specialists,” found the researchers. “Specialists also reported that the higher the community uninsurance rate, the less able they are to deliver high-quality care to their patients,” the study said.
That spillover effect extends beyond access to health care itself, according to a new report from The Commonwealth Fund. Researchers from George Washington University found that if the House-passed health bill were to become law, nearly 1.5 million jobs could be lost over the next decade.
“We’re talking about a net funding loss to states of millions of dollars,” said Leighton Ku, the study’s lead author. “What this means is that states will have higher needs, less revenue to pay for services, and at the same time the federal government is putting less money into Medicaid,” he said. “So it all adds up to a great revenue crunch that’s similar to the Great Recession” of the past decade.
While most of the job losses would be in health care, other jobs would be affected too, he said.
For example, health care workers who lose jobs will then purchase fewer goods and services, affecting the bottom line of local businesses. Health care facilities that were planning to expand might not, affecting the construction industry. And the impact could cross state lines, said Ku. “We might see fewer people going to Disney World,” he said, because people who lose their jobs would lack money to take vacations.