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**Legislative Bulletin..........................................November
8, 2005**

**Contents:**

**H.R. 4241 --- Deficit Reduction Act (Title III)**

**Title III: Committee on Energy and Commerce**

**[Background]{.underline}**: Under the budget resolution (H. Con. Res.
95), the House authorizing committees were instructed to find savings to
reduce the growth in mandatory spending. The House Energy and Commerce
Committee was originally tasked with finding \$14.7 billion in savings
as part of a \$35 billion package of savings over five years. Once the
Republican Conference adopted the more ambitious goal of \$50 billion in
savings over five years, the Committee was expected to find additional
savings.

**[Savings to Taxpayers]{.underline}**: According to CBO, Title III
would reduce federal spending and increase federal receipts (a credit
against spending and therefore, a form of savings) by \$17.1 billion
over five years (see Table 1). Such savings amount to 31.7% of the
\$53.9 billion deficit reduction package.

**Table 1. Savings By Subtitle, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
  **Committee on Energy and Commerce (Medicaid)** **2006**      **2006-10**

  Medicaid (Subtitle A)                           -440          -11,877

  Katrina Health Care Relief (Subtitle B)         2,515         2,553

  Katrina and Rita Energy Relief (Subtitle C)     1,000         1,000

  Digital Television Transition (Subtitle D)      7             -8,742

  **Total Savings**                               []{.mark}     **-17,066**
  ----------------------------------------------- ------------- -------------

**[Committee Action]{.underline}**: On October 28, 2005, the House
Energy and Commerce Committee reported its submissions to the House
Budget Committee to be compiled into one reconciliation package along
with the submissions of the other authorizing committees. On November
3^rd^, the Budget Committee reported the package, the Deficit Reduction
Act, for consideration by the full House of Representatives.

**[Medicaid Savings in Perspective]{.underline}**: Enacted in 1965,
Medicaid has yet to undergo a comprehensive reform. However, as an
entitlement with over 50 million enrollees, the program is set to grow
at 7.7% annually over the next ten years. By 2040, Medicaid, along with
Social Security and Medicare, will consume the entirety of today's
budget as these program absorb the retirement of the Baby Boom
generation. Since the states shoulder much of the cost of the program,
they too are increasingly unable to meet their Medicaid obligations. In
fact, according to the House Budget Committee, since 2005, all states
reduced Medicaid provider payments, 38 states reduced eligibility, and
34 reduced benefits. This legislation would *slow the growth* of
Medicaid from 7.7% to 7.5% over the next ten years and embrace many of
the individual reforms recently endorsed the National Governors
Association.

In addition, numerous OIG and GAO reports have outlined many examples of
waste, fraud, abuse, and shortcomings of the current Medicaid system.
For example, the most recent Health and Human Services, Office of the
Inspector General Semi-annual report to Congress, cites the following
examples:

-   Schering-Plough Corporation agreed to pay \$345.5 million related to
    the supposed illegal pricing of an allergy drug (Claritin) under the
    Medicaid drug rebate program;

-   In a study of only three states, nursing facilities were running
    funding deficits ranging from \$290,000 to \$25 million, and the
    states were failing to match the federal government's funding; and

-   In FY04, HHS Office of Inspector General, in connection with the
    states, recovered over \$572 million due to convictions for Medicaid
    fraud.

**[Summary by Subtitle]{.underline}**

***[Subtitle A: Medicaid, Summary by Chapters]{.underline}***

**Chapter 1: Prescription Drug Reforms**

**Table 2. Prescription Drug Reforms Savings/Spending, Outlays In
Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Prescription Payments---Federal Upper Limit     0             -1,900

  Rebates on Physician-Administered Drugs         -5            -70

  Authorized Generic Drugs Included in Best Price -20           -220

  Children's Hospitals Included in 340B Program   \*            \*

  Limit Use of Prior Authorization for            0             125
  Antidepressant Drugs                                          

  **Total: Chapter 1, Prescription Drug Reforms** **-25**       **-2,065**
  ----------------------------------------------- ------------- -------------

\* between -\$500,000 and \$500,000

-   **Prescription Payments---Federal Upper Limit**:

> Adjusts Medicaid payments to pharmacists by basing them on "retail
> average manufacturer price" (RAMP) instead of the current system,
> which is based on the average wholesale price (AWP). RAMP is defined
> as the average price paid to a manufacturer for the drug in the United
> States by wholesalers for drugs distributed to retail pharmacies
> (excluding mail-order pharmacies). In addition, the definition for
> RAMP includes a detailed list of discounts given by manufacturers to
> certain buyers, which are to be included in the calculation of RAMP.
>
> In addition, the legislation establishes a new federal upper payment
> limit (the federal share of Medicaid drug reimbursements) and
> prohibits federal funding for payments of Medicaid-covered outpatient
> drugs, if the cost of the drug is in excess of those limits. Upper
> payment limit is defined for a single-source drug, as 106 percent of
> the RAMP, or for a multiple-source drug, as 120 percent of the RAMP.
>
> Although states would continue to determine their respective
> dispensing fees, the legislation requires states, under most
> circumstances, to establish dispensing fees of not less than \$8 per
> prescription (up from the current national average of \$4), for
> covered outpatient multiple-source drugs, and directs states providing
> medical assistance for covered outpatient, drugs to pay a dispensing
> fee for each drug for which Federal financial participation is
> available. Additionally, states are given flexibility to vary the
> dispensing fee based on certain circumstances including pharmacies
> serving rural and "underserved" areas and sole community pharmacies.
>
> **[Additional Information]{.underline}:** GAO, HHS Office of the
> Inspector General, among others, have reported that calculating
> Medicaid payments to pharmacists based upon average wholesale price
> (AWP) is not a good measure of actual prices, is over inflated, and
> provides large room for overpayments. Additionally, all information
> regarding prices reported to the Secretary of HHS, though the Center
> for Medicare and Medicaid Services (CMS) by the manufacturers is,
> under current law, not allowed to be disclosed or made available
> outside of CMS. The proposed legislation replaces AWP with RAMP and
> makes public all information reported to CMS by the manufacturers, in
> hopes of limiting inflated drug prices and costs and to align Medicaid
> reimbursement to what it actually costs pharmacists to purchase drugs
> from the manufacturers.
>
> Currently, many states require manufacturers to pay them (the states)
> a rebate for the use of their drugs in the Medicaid program. This
> rebate generates revenue for the states, which some use to offset
> their Medicaid costs and others spend as general revenues. Under
> current law, the rebate is calculated based upon average manufacturer
> price (AMP), which is very similar to RAMP. By calculating Medicaid
> payments to pharmacists through RAMP (instead of AWP), this bill will
> result in the manufacturers' rebate and Medicaid drug payments to
> pharmacists being calculated on similar formulas.

-   **Judicial Review:** Prohibits any administrative or judicial review
    of a number of provisions in the bill, including the Secretary's
    determinations of federal upper limits, RAMPs, and the Secretary's
    disclosure to states of the average manufacturer prices. In other
    words, the bill protects against lawsuits attempting to overturn
    these decisions by the Secretary.

-   **Reports**: Requires GAO to study the appropriateness of payment
    levels to pharmacies for dispensing fees under the Medicaid program.
    In addition, HHS, Office of the Inspector General must submit to
    Congress reports examining (1) the appropriateness of using the RAMP
    and (2) the payment to specialty pharmacies.

[]{.mark}

-   **Outside Contractors:** Permits the Secretary of HHS to hire an
    outside contractor to collect and compile the information submitted
    to CMS by the manufacturers regarding their average prices. The
    outside entity would also calculate RAMP. Currently, CMS handles
    this process internally.

-   **Rebates on Physician-Administered Drugs**: Requires states to
    provide utilization and coding information to CMS for physician
    administered outpatient drugs. This provision will help CMS identify
    if manufacturers are not paying rebates for the drugs.

-   **Authorized Generic Drugs Included in Best Price:** Provides that
    manufactures are to report to the Secretary of HHS the AMP for
    covered outpatient drugs, including authorized generic drugs (many
    of which are being produced by the brand name company or a
    subsidiary company thereof) or any other drugs sold under a new drug
    application to the current drug manufacturer reporting requirements.
    In addition, manufacturers must report their best price for
    single-source drugs, innovator multiple-source drugs, authorized
    generic drugs and any other drugs sold under a new drug application.
    The bill specifically includes authorized generic drugs in the
    reporting requirements for manufacturers regarding average
    manufacturer price reporting.

> **[Additional Information]{.underline}**: Under current law,
> manufacturers are required to give rebates to states to ensure
> Medicaid pays comparable to the manufacturer's "best price." Discounts
> are routinely offered to large drug purchasers, and the rebates are
> designed to guarantee that states pay the best price offered by the
> manufacturer to any other major purchasers. This system offers an
> incentive to drug manufactures to push up all of their prices to
> account for this discount. Manufacturers of brand name drugs are
> beginning to produce generic drugs in house, or are allowing a
> subsidiary company to produce the generic drugs, before the company's
> patent on the drug expires. This is known as "authorized generics."
> Under the current structure, the best price for authorized generic
> drugs is not included in the formula for determining best price, which
> affects to the amount of rebate the state gets back from the
> manufacturers. The bill provision requires the best price for
> authorized generic drugs to be included in the calculation and is
> predicted to increase the manufacturers' rebate to the states,
> although some have predicted that manufactures will stop providing
> generic drugs through Medicaid, rather than pay higher rebates. Other
> types of generics, just not these authorized generics, will continue
> to be available through Medicaid.

-   **340B Program**: Allows certain children's hospitals to purchase
    prescription drugs at discounted prices. Currently, community health
    centers and some disproportionate-share hospitals can purchase
    Medicaid drugs at discounted prices if they sell the drugs in their
    own internal pharmacy. This provision allows children's hospitals to
    do the same.

-   **Limit Use of Prior Authorization for Antidepressant Drugs**:
    Permits states to place atypical antipsychotic (used for treating
    Schizophrenia) and antidepressant single-source drugs on a list of
    drugs requiring prior authorization, when it is not likely to harm
    patients or increase overall medical costs. In addition, the measure
    provides that if a request for these prescriptions is not responded
    to by a drew review board within 24 hours of the submission, a
    payment is automatically made to the pharmacy for a 30 day
    prescription of the drug.

> In short, the legislation makes it more difficult for states to
> require physicians to obtain permission before prescribing drugs to
> treat depression and other psychiatric conditions. Often, those
> receiving these types of drugs are particularly sensitive to
> variations in the drug (like those between brand name and generic) and
> reports indicate they can be harmed from missing even one day's dose.

**Chapter 2: Reform of Asset Transfers**

**Table 3. Asset Transfer Reforms Savings, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Look Back Period and Period of Ineligibility    -140          -1,490

  Home Equity Limit                               -30           -580

  Treatment of Large Annuities                    -20           -280

  "Income First" Rule                             -10           -90

  Continuing Care Retirement Communities' Fees    -10           -80

  **Total: Chapter 2, Asset Transfer Reforms**    **-210**      **-2,520**
  ----------------------------------------------- ------------- -------------

-   **Look Back Period and Period of Ineligibility:** Changes (from 3
    to5 years) the length of time in which a state may look back into
    the assets and disposal thereof by individuals attempting to qualify
    for Medicaid nursing home benefits.

> In addition, the legislation changes the start date for the period of
> ineligibility for those who transfer assets below fair market value,
> to the beginning of when the individual becomes eligible for Medicaid
> *and* receives services, instead of the current start date, which is
> simply the day the assets are transferred.
>
> **Additional Information:** It is common practice for seniors to
> transfer assets for less than fair market value, as well as their
> savings, to relatives or other individuals, to become impoverished
> enough to qualify for certain Medicaid coverage. In 1997, the National
> Academy of Elder Law Attorneys (NAELA) offered a seminar outlining
> principles of "advanced Medicaid planning," which detailed various
> ways for the elderly, married couples and single individuals to divert
> their assets and savings in order to qualify for Medicaid nursing home
> care. These suggestions included:

-   Getting a divorce

-   Purchasing a new wardrobe and anything else you may want

-   Paying off a home equity loan

-   Creating a limited partnership trust to make the money an
    "inaccessible asset," which does not count toward an individual's
    worth when applying for Medicaid.

> Under current law, there is a penalty period for an individual who
> transfers assets. It is calculated by dividing the value of the
> transfer by the average amount of money the individual would have
> spent monthly in a nursing facility. The resulting number translates
> into the number of months the person remains ineligible for Medicaid.
> [This penalty period begins on the day the assets were
> transferred]{.underline}, which means that the period typically
> expires before the individual is even receiving Medicaid assistance.
> By changing the start date to the day the individual is enrolled in
> Medicaid and receiving care, the individual will be required to use
> his own money to pay for the months of nursing care equal to the
> period of ineligibility (penalty period). For example, if an
> individual gives his adult child a house worth \$100,000, and the
> average monthly cost for a local nursing facility is \$5,000, the
> individual would be given a penalty period of 20 months, in which they
> would be required to pay for his own care. These provisions are to
> apply to transfers made on or after the date of the enactment of this
> Act.

-   **Hardship Waivers:** Directs each state to provide for a hardship
    waiver process to be used if application of the asset transfer
    provision will deny the individual life saving care or food,
    clothing, shelter, or other necessities of life. In short, a
    Medicaid applicant receiving a penalty period under the transfer of
    assets provision, may apply for an undue hardship waiver.

> Current law provides for the undue hardship waiver (which is rarely
> used according CRS), however, this provision encourages states to
> "promote" the waiver to Medicaid participants, by requiring states
> inform Medicaid recipients of their right to apply for a waiver.

-   **Home Equity Limit:** Provides that an individual is not eligible
    for long-term care services if the individual's equity interest in
    his home exceeds \$500,000. Beginning in 2011, the \$500,000 limit
    is to be increased for inflation. This provision will not apply if
    the individual's spouse, children under the age of 21, or child who
    is blind or disabled, are living in the home, and the Secretary is
    directed to establish a process for waiving this provision in light
    of demonstrated hardship. Under current law, the value of the
    applicant's home is not considered while determining eligibility,
    meaning, if an individual owns a home worth \$1 million, it is not
    taken into consideration when determining the individual's need for
    Medicaid assistance.

-   **Treatment of Large Annuities:** Provides that a state must require
    that, as a condition for providing long-term care, an individual
    disclose the following information:

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-   a description of any interest the individual has in an annuity
    regardless of whether the annuity is irrevocable or treated as an
    asset; and

-   full information concerning any transaction involving the transfer
    or disposal of assets during the previous five years, if in excess
    of \$100,000

> In the case of any annuity in which an institutionalized individual or
> "community spouse" (spouse not receiving Medicaid) has an interest, if
> long-term care is provided to him, the state becomes the remainder
> beneficiary in the first position for the total amount paid on behalf
> of the individual for medical assistance. Meaning the state would be
> reimbursed for services rendered through the individual's annuity.
> Under current law (the Estate Recovery Program), states are required
> to recover their Medicaid costs through access to assets in probate,
> but accessing annuities for the same purpose is only *allowed, not
> required*.

-   **"Income-First" Rule:** Requires that, if the community spouse
    needs additional income, the institutionalized spouse's income is
    the first fund from which payments to the community spouse should be
    derived. Only after the institutionalized individual's income is
    depleted, is the individual permitted to use other resources, such
    as transferring assets, to supplement the community spouse's monthly
    income.

> Under current law, certain protections guard against "impoverishment"
> of the community spouse of an individual attempting to receive
> long-term care. For example, the community spouse is permitted to
> possess some assets such as a house and car, without these items being
> counted as part of his spouse's assets for the purposes of qualifying
> for Medicaid. In addition, the community spouse's income is not
> considered as available money during the process of applying for
> Medicaid edibility.

-   **Continuing Care Retirement Communities' Fees:** Permits continuing
    care retirement communities or life care communities, including
    services in a nursing facility that are part of such communities, to
    require residents to spend on their care, resources that are
    declared for the purposes of admission, before applying for medical
    assistance.

> Continuing Care Retirement Communities (CCRCs) typically charge a
> resident a very large entrance fee (approximately \$500,000). This fee
> is the individual's security that he or she may live in that facility
> and be cared for there for the remainder of his or her life. Any money
> that the individual has left over after paying the entrance fee is to
> be used to pay for his actual medical expenses while living in the
> facility. However, some residents choose to pay the entrance fee and
> then attempt to transfer the remainder of their assets and savings, in
> order to qualify for Medicaid assistance, instead of using one's own
> resources to pay for medical care. This provision allows CRCCs to
> *require* in their contracts, that individuals will not impoverish
> themselves after admittance to the facility. In addition, individuals
> are directed to use any of the entrance fee, if the facility provides
> that option, to pay for medical care after their own resources have
> been depleted and before they apply for Medicaid.

**Chapter 3: Flexibility in Cost Sharing and Benefits**

**Table 4. Cost Sharing and Benefits Savings, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Increasing Cost Sharing and Premiums            -70           -2,250

  Alternative Benefit Packages                    -150          -3,940

  Cost Sharing for Prescription Drugs             0             -260

  Non-Emergency Care Provisions                   10            0

  Non-Emergency Medical Transportation            15            -55

  Exemption for Women with Certain Cancers        \*            3

  **Total: Chapter 3, Cost Sharing and Benefits** **-195**      **-6,502**
  ----------------------------------------------- ------------- -------------

\*between -\$500,000 and \$500,000

-   **Increasing Cost Sharing and Premiums:** Allows a state, the option
    of imposing premiums and cost sharing for any group of individuals
    and for most type of Medicaid services, exempting the following
    individuals and services:

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-   Individuals under 18 years of age, automatically eligible for
    Medicaid;

-   Pregnant women;

-   Any terminally ill individual who is receiving hospice care;

-   Any individual who is an inpatient in a hospital, nursing facility,
    intermediate care facility for the mentally retarded, or other
    medical institution, if such individual is required (as a condition
    of receiving services) to spend, for costs of medical care, all but
    a minimal amount of the individual's income required for personal
    needs;

-   Preventive services (such as well-baby and well-child care and
    immunizations) provided to children under 18 years of age,
    regardless of family income;

-   Certain emergency services; and

-   *Family planning services and certain supplies*

> Under current law, states are permitted to require cost sharing.
> However, such cost sharing is limited to \$3. In fact, a majority of
> those receiving Medicaid assistance do not pay any cost share for the
> services provided. The legislation directs the Secretary of HHS to
> increase the allowable state cost-share amount (called the "nominal
> amount"), over a period of three years, for those under the poverty
> level, from \$3 to \$5 by 2008. States are permitted to impose
> increased cost-sharing amounts for individuals with family incomes
> over the federal poverty level. In addition, the Secretary would
> increase the nominal amount beginning in 2009, for medical inflation.
> The bill places a limit of 5% of total income on the combined total of
> nominal amounts, premiums and cost sharing charged to families above
> the poverty line.

-   **Enforcing Premiums and Cost Sharing**: Allows states the option of
    refusing to provide medical assistance to an individual who fails to
    pay a premium and to terminate eligibility for the medical
    assistance if the failure to pay continues for 60 days or more.
    States are allowed to waive this provision in case of undue
    hardship.

> The legislation allows states to permit a Medicaid provider to
> require, as a condition for receiving medical care, the payment of any
> cost sharing authorized under this Act, with respect to care, items,
> or services. However, the bill states, "Nothing in this paragraph
> \[provision\] shall be construed as preventing a provider from
> reducing or waiving the application of such cost sharing."

-   **Alternative Benefit Packages**: Permits the states to provide
    medical assistance to individuals within one or more groups of
    beneficiaries, specified by the state, by enrolling them in various
    coverage packages ("benchmark packages"). Some of these packages
    could provide reduced coverage for those with certain incomes. The
    legislation provides that states could *not* reduce coverage for
    certain beneficiaries including among others, certain disabled
    individuals, pregnant women and children. The following plans are
    specifically listed to be considered to be benchmark coverage:

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-   The standard Blue Cross/Blue Shield preferred provider option
    service benefit plan (for federal employees);

-   A health benefits coverage plan that is offered and generally
    available to state employees in the state involved; and

-   The health insurance coverage plan that:

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-   is offered by a health maintenance organization; and

-   has the largest insured commercial, non-Medicaid enrollment of
    covered lives of such coverage plans offered by such a health
    maintenance organization in the state involved.

> The bill also provides an extensive, specific definition of what
> services and coverage will be considered to be actually equivalent to
> benchmark coverage. Current law is generally restrictive in nature and
> does not allow states to provide various types/ levels of benefit
> packages to different individuals based upon their income.

-   **Cost Sharing for Prescription Drugs:** Allows states to increase
    cost sharing for drugs that are not preferred drugs within a class.
    States may waive or reduce the cost sharing otherwise applicable for
    preferred drugs within the class and may not apply the cost sharing
    for preferred drugs to individuals for whom cost sharing may not
    otherwise be imposed (such as the poor and disabled). The bill
    places a limit of 5% of total income on the nominal amount, premiums
    and cost shares charged to families considered to be above the
    poverty line.

> In addition, the legislation provides that if a physician determines
> that the preferred drug would be either ineffective or harmful to the
> individual, the state may apply the cost-sharing amount (used for
> preferred drugs) to the non-preferred product prescribed for the
> individual. States are also allowed to exclude certain drugs or drug
> classes from the cost-sharing regulations and must have a system for
> prior authorization and appeal procedures in order to implement these
> provisions.
>
> [Note]{.underline}: Provides that in no case, may a state treat as a
> non-preferred drug under this subsection a drug that is treated as a
> preferred drug under the TRICARE pharmacy benefit program or impose
> cost sharing under this subsection that exceeds the cost sharing
> imposed under the standards for the TRICARE pharmacy benefit program.

-   **Emergency Room Copayments for Non-Emergency Care:** Permits states
    to impose cost sharing for non-emergency services furnished to an
    individual in a hospital emergency department if:

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-   The individual has an alternate non-emergency services provider
    available, with respect to these services;

-   The physician or hospital informs the beneficiary, after appropriate
    screening assessment and before providing the non-emergency care,
    about the cost of care and the options for seeking different care.

> For individuals below the federal poverty level, cost-sharing fees
> could only be increased to twice the nominal amount (currently \$3
> increasing to \$5 by 2008). Currently, states may apply for a waiver
> in order to increase these cost sharing fees, and this provision
> eliminates the need to apply for such a waiver.

-   **Establishing Alternate Non-Emergency Services Providers:**
    Authorizes \$100 million for a four-year period beginning inFY06,
    for payments to states for the establishment of alternative,
    non-emergency service providers. The legislation defines an
    alternative, non-emergency service provider as "a health care
    provider, such as a physician's office, health care clinic,
    community health center, hospital outpatient department, or similar
    health care provider, that provides clinically appropriate services
    for such diagnosis or treatment of the condition within a clinically
    appropriate time."

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-   **Non-Emergency Medical Transportation**: Permits the states to
    establish a non-emergency medical transportation program in order to
    more cost-effectively provide transportation for individuals
    eligible for medical assistance who lack transportation.

> Under current law, states are required to provide transportation for
> Medicaid patients to and from appointments, etc. States can either
> offer transportation as an optional Medicaid service, or they may
> include it under their administrative costs. Different levels of
> federal matching rates and regulations apply to states, depending on
> which method they choose.

-   **Women with Cancer Exemption**: Exempts women covered under the
    breast or cervical cancer program from all provisions in this
    chapter. Under current law, states can choose to provide Medicaid to
    certain women (under the age of 65) with breast or cervical cancer
    or who need early detection screening. This provision means that the
    reforms, such as the cost-sharing and benchmark packages, will not
    apply to the women covered under Medicaid.

**Chapter 4: Expanded Access to Certain Benefits**

**Table 5. Benefit Expansions, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Home and Community Based Services               0             815

  Self-Directed Services Provisions               5             130

  Long-Term Care Partnership Programs             0             10

  Health Opportunity Accounts                     5             60

  **Total: Chapter 4, Benefit Expansions**        **10**        **1,015**
  ----------------------------------------------- ------------- -------------

-   **Home and Community Based Services:** Permits states to offer home
    care to qualifying individuals, instead of requiring that the
    individual be admitted to a nursing or long-term care facility.
    Under current law, states must apply for a waiver in order to
    provide one or more limited services at home. Under this provision,
    it would no longer be necessary to receive such a waiver.

-   **Self-Directed Services:** Permits states to provide payment for
    part or all of the cost of self-directed personal assistance
    services to certain individuals in need of long-term care. A state
    would be required to provide a support system that ensures
    participants in the self-directed personal assistance services
    program are appropriately assessed and counseled prior to enrollment
    and are able to manage their budgets.

> Self-directed personal assistance services is defined as personal care
> and related services, or home- and community-based services otherwise
> available that are provided though an offered service, participants
> purchase personal assistance and related services, as well as
> personally hire, fire, supervise, and manage the individuals providing
> such services.

-   **Long-Term Care Partnership Programs:** Repeals a current
    restriction on many states by permitting them to operate long-term
    care partnership programs that allow long-term care recipients to
    qualify for an exemption from the asset requirements if they later
    need nursing home care under Medicaid. The legislation outlines
    specifically which types of benefits are to be offered under this
    program, which income and asset requirements may be waived, and the
    specific restrictions placed upon states and the individuals
    participating in the program.

> Medicaid currently rewards individuals who have purchased private,
> long-term care insurance, by allowing them to more easily qualify for
> Medicaid after their private insurance has run out or expired.
> Typically, these individuals are permitted to retain assets and income
> higher than most Medicaid beneficiaries. However, current law provides
> that only states that had, before 1993, a federally approved plan to
> accept these types of patients, are allowed to operate such a program.
> This provision repeals that restriction, allowing states with approved
> plans after 1993 to also provide this benefit.

-   **Health Opportunity Accounts:** Requires the Secretary to establish
    a demonstration program under which states may provide health
    opportunity accounts under their state plans, for the provision of
    alternative benefits for eligible population groups in one or more
    geographic areas of the state specified by the state. Under these
    health opportunity accounts (HOAs), the state (up to \$2,500 per
    adult, including federal portion), the family members, other
    individuals or groups, and charitable groups could contribute to the
    accounts and the beneficiaries would use the money to pay for
    certain health care services, as outlined by the state.

> The demonstration project is to begin on January 1, 2006, and it is
> limited to only 10 state demonstration projects. After the five-year
> period, these demonstration programs are eligible to be extended or
> made permanent, and other states may establish such programs, at the
> Secretary's discretion.

**Chapter 5: Other Provisions**

**Table 6. Other Provisions, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Require Evidence of Citizenship                 -5            -220

  Restrictions on Provider Taxes                  -5            -615

  Third-Party Recovery                            -20           -480

  Targeted Case Management Services               -30           -760

  Additional Funding for the Territories          20            140

  Medicaid Transformation Grants                  0             100

  Payment for Emergency Services                  0             -60

  Modify Calculations of FMAPs                    15            85

  Non-Application to Katrina Evacuees             5             5

  **Total: Chapter 5, Other Provisions**          **-20**       **-1,805**
  ----------------------------------------------- ------------- -------------

-   **Require Evidence of Citizenship:** Requires individuals enrolling
    in Medicaid to provide proof of their U.S. citizenship. Currently,
    an individual must only declare he or she is a U.S. and is not
    required to prove it. Some reports indicate many illegal immigrants
    are currently receiving Medicaid.

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-   **Restrictions on Provider Taxes:** Requires that taxes on managed
    care organizations (MCOs) apply to all similar organizations,
    including those not serving Medicaid participants.

> Under current law, many states tax health care providers in order to
> recover some of their Medicaid expenditures. If a state chooses to tax
> health care providers, certain provisions in current law require these
> states to tax an entire group or class of providers, if a tax is to be
> imposed on just one. However, the law presently allows states to
> individually tax MCO's providing Medicaid services.

-   **Third-Party Recovery:** Provides that pharmacy benefit managers
    (and other "third parties") are liable for payment of a claim for a
    health care item or service. Although, under current law, these
    third parties are considered legally liable for Medicaid services,
    this provision strengthens the current statue, and clarifies
    specifically which types of entities are liable and for what exactly
    they are responsible.

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-   **Targeted Case Management Services:** Supplements the current
    definition of "case management services" by outlining exactly what
    types of activities are to be funded under this section of Medicaid.
    Specifically, the legislation provides that the term case management
    service is to include the following:

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-   Assessment of an eligible individual to determine service needs;

-   Development of a specific care plan based on the information
    collected through an assessment, that specifies the goals and
    actions to address the medical, social, educational, and other
    services needed by the eligible individual;

-   Referral and related activities to help an individual obtain needed
    services; and

-   Monitoring and follow-up activities, including contacts necessary to
    ensure care plan is effectively implemented.

> Targeted case management is a benefit that states *may* offer to its
> enrollees intended to assist beneficiaries in gaining access to other
> services (educational, social, etc). Under current law, the term "case
> management services" is defined as services which will assist
> individuals eligible under the plan in gaining access to needed
> medical, social, educational, and other services. The above
> qualifications are added to clarify and narrow this definition, and
> specific exclusions are also listed.

-   **Additional Funding for the Territories:** Increases the federal
    funding limit in FY06 and FY07 to the following territories by the
    following amounts:

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-   Puerto Rico: \$12 million in FY06 and \$12 million in FY07

-   Virgin Islands: \$2.5 million in FY06 and \$5 million in FY07

-   Guam: \$2.5 million in FY06 and \$5 million in FY07

-   Northern Mariana Islands: \$1 million in FY06 and \$2 million in
    FY07

-   American Samoa: \$2 million in FY06 and \$4 million in FY07

> The bill provides that for FY08 and the following years, the annual
> limit on federal funding for Medicaid programs in each of the listed
> territories is to be increased for inflation. Under Medicaid, the 50
> U.S. states are not given a specific limit for the federal share of
> Medicaid; rather, it is based upon a matching rate. However, the
> territories listed above are given an annual federal allotments for
> their Medicaid expenses.

-   **Medicaid Transformation Grants:** Authorizes \$100 million over
    two years for new payments to states for the adoption of innovative
    methods to improve the effectiveness and efficiency in providing
    medical assistance. States are **[not]{.underline}** required to
    match federal funds to receive these payments. Specifically, the
    bill outlines the following methods to be included:

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-   Methods for reducing patient error rates through the implementation
    and use of electronic health records and supplies;

-   Methods for improving rates of collection from estates of amounts
    owed;

-   Methods for reducing waste, fraud, and abuse under the program; and

-   Implementation of a risk management program as part of a drug use
    review program.

    -   **Payment for Emergency Services:** Requires any non-contract
        provider of emergency services to accept as payment in full, the
        amounts (less any payments for indirect costs of medical
        education and direct costs of graduate medical education) that
        it could collect if the beneficiary received medical assistance
        under this title other than through enrollment in such an
        entity.

    -   **Modify Calculations of FMAPs:** Provides that, for purposes of
        computing the federal medical assistance percentage (FMAP), the
        amount of money a state receives from the federal government,
        any employer pension contribution that exceeds a certain level
        is to be disregarded in computing the per capita income of the
        state (although it is not be disregarded in computing the
        national per capita income for the continental United States,
        Alaska and Hawaii).

    -   **Non-Application to Katrina Evacuees:** Assumes that none of
        the provisions in this title shall apply during the 11-month
        period beginning September 1, 2005, to individuals that qualify
        for Medicaid and are a resident in an area declared as a result
        of Hurricane Katrina.

***[Subtitle B: Katrina Health Care Relief]{.underline}***

**Table 7. Katrina Health Care Relief Spending, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Temporary FMAP Increase for LA, MS, AL          2,470         2,463

  State High-Risk Insurance Pools                 45            90

  **Total: Subtitle B, Katrina Health Care        **2,515**     **2,553**
  Relief**                                                      
  ----------------------------------------------- ------------- -------------

-   **Temporary FMAP Increase for LA, MS, AL:** Increases the federal
    share (FMAP) of Medicaid for the period beginning August 28, 2005,
    and ending May 15, 2006, for areas declared a disaster in Louisiana,
    Mississippi or Alabama, (to 100%, up from 70% in Alabama and
    Louisiana and 76% in Mississippi). In addition, the 100% federal
    match will apply to participants (children) in the State Children's
    Health Insurance Program (SCHIP).

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-   **State High-Risk Insurance Pools:** Authorizes \$90 million in FY06
    in new direct spending for high-risk pools. High-risk pools,
    typically operated by state-established entities that contract with
    private insurance companies, are designed to provide health
    insurance to individuals who cannot obtain or afford health
    insurance due to preexisting conditions or other reasons. Risk pool
    premiums are usually limited between 125% and 200% of market rates
    and do not cover operational costs given the high-risk nature of the
    insured individuals.

-   **Health Care Waivers**: Directs the Secretary to identify areas
    that have been directly impacted by Hurricane Katrina or are located
    in a state which has absorbed a significant number of Hurricane
    Katrina evacuees and to determine which health care centers are
    located in "medically underserved areas." The Secretary is directed
    to waive several requirements for these entities, including certain
    governing board policies and some of the requirements for the
    entities regarding the provision of "primary health services." The
    provision sunsets in two years.

-   **Hold Harmless:** Under current law, the state and U.S. per capita
    personal income statistics from the three most recent years are used
    to calculate the FMAP for each state on an annual basis. This
    provision requires that, for any year after 2006, if the Secretary
    of HHS determines that a significant number of individuals who were
    evacuated to, and live in, a state as a result of Hurricane Katrina
    (as of October 1, 2005), the income of these individuals is not to
    be included in that state's FMAP for Medicaid and SCHIP.

***[Subtitle C: Katrina and Rita Energy Relief]{.underline}***

**Table 8. Katrina and Rita Energy Relief Spending, Outlays In
Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Increase Funding for LIHEAP                                   1,000

  **Total: Subtitle C**                                         **1,000**
  ----------------------------------------------- ------------- -------------

> **Increase Funding for LIHEAP:** Provides a one-time expenditure of
> \$1 billion (in direct spending) for FY06 funding for Low-Income Home
> Energy Assistance (LIHEAP). This funding is designed to provide
> assistance to offset the anticipated higher energy costs caused by
> Hurricanes Katrina and Rita. The legislation sunsets this provision on
> September 30, 2006.
>
> **Note**: Typically, LIHEAP is funded through the annual
> appropriations process.

**[New State-Government, Local-Government, or Private-Sector
Mandates:]{.underline}**

According to CBO, subtitles A, B, and C contain no intergovernmental or
private-sector mandates.

***[Subtitle D: Digital Television Transition]{.underline}***

**Table 9. Digital Television Transition Savings, Outlays In Millions**

  ----------------------------------------------- ------------- -------------
                                                  **2006**      **2006-10**

  Spectrum Auction Proceeds                       0             -10,000

  Converter Box Subsidies                         5             990

  Interoperability Grants                         0             235

  NYC Television Reimbursement                    2             30

  Low-Power Transition Assistance                 0             3

  **Total: Subtitle D, Digital Television**       **7**         **8,742**
  ----------------------------------------------- ------------- -------------

**[Background]{.underline}**: As the Energy & Commerce Committee
reports, in 1996, to facilitate the digital TV transition, Congress gave
each full-power television broadcaster (for free) an extra channel of
spectrum to broadcast in digital format while continuing to broadcast in
analog format on its original channel. Each broadcaster was supposed to
eventually return either the original or additional channel and
broadcast exclusively in digital format on the remaining channel. In
1997, Congress earmarked for public safety use some of the spectrum the
broadcasters are supposed to return. Congress designated the rest of the
spectrum to be auctioned for advanced commercial applications, such as
wireless broadband services. Congress set December 31, 2006, as the
deadline for broadcasters to return the spectrum for public safety and
wireless use.

However, a "loophole" allows broadcasters in a market to delay the
return of the spectrum until more than 85% of TV households in that
market have at least one TV with access to digital broadcast channels
using a digital television receiver, a digital-to-analog converter box,
or cable or satellite service. Experts forecast it will take many more
years to meet the 85-percent test nationwide.

The Committee further writes that "DTV offers sharper and wider
pictures, and CD-quality sound. Even consumers with analog televisions
connected to a converter box or cable or satellite service will receive
better service than they did before the transition."

Once the transition is complete, the Committee argues, broadcasters will
be able to redirect the resources they currently expend running both
analog and digital stations and "focus on programming that capitalizes
on the advanced features of digital transmissions." Manufacturers will
also be able to increase the production of TVs and other consumer
electronics equipment that takes advantage of these features, "which
will also drive down prices." The cleared spectrum will also be able to
be used to bring "cutting-edge" wireless services to public safety
officials and consumers. This spectrum travels greater distances at
lower costs and "more easily penetrates buildings and foliage."
Consequently, the Committee contends, "it is ideal to bring mobile
broadband services not only to urban areas, but to rural areas as well,
which currently have very few cost-effective broadband options."

**[FCC Spectrum Auction:]{.underline}** Amends existing law regarding
the Federal Communications Commission's (FCC) authority to auction
licenses to use the electromagnetic spectrum. This subtitle contains
provisions aimed at assisting consumers and others affected by the
transition from analog to digital television broadcasts and provisions
for grants to public safety agencies for communications systems.
Highlights of this subtitle are as follows:

-   Extends permanently the FCC's authority (which currently expires at
    the end of fiscal year 2007) to auction licenses to use the
    electromagnetic spectrum.

-   Requires all broadcasters to stop their analog broadcasts and return
    their analog licenses to the FCC by [December 31, 2008]{.underline},
    without possibility for extension. *\[Under current law,
    broadcasters do not have to return their analog licenses until
    December 31, 2006 OR until at least 85% of households in their
    respective service areas are able to receive digital TV signals.\]*
    Beginning in 2009, broadcasters would have one channel in the
    television core (channels 2-51) on which to broadcast only in
    digital.

-   Requires the FCC to clear the frequencies now used for channels 52
    through 69 and auction them by January 7, 2008, for wireless
    broadband and other high-speed voice, video, and data uses (a
    portion has already been reserved for public safety purposes to
    establish more efficient, interoperable communications systems).

-   Directs the FCC to report to Congress on the extent to which women,
    minorities, and small businesses can and do participate in the
    auction process.

-   Reserves some of the proceeds from the auctions of licenses for the
    use of the returned TV spectrum in the following four new funds for
    [direct spending]{.underline} by the Commerce Department:

> **Digital Television Conversion Fund**.

-   Establishes this new fund capitalized by revenues from the auctions
    of the returned analog licenses. In addition, the Department of
    Commerce (acting through the National Telecommunications and
    Information Administration (NTIA)) would be authorized to borrow up
    to \$990 million from the U.S. Treasury to advance-fund and
    implement the Analog-to-Analog Converter Box Program (though these
    borrowed funds would have to be repaid from the auction sales). Caps
    administrative costs for this new subsidy program at \$160 million.

-   Allows households to affirmatively [apply for up to two
    coupons]{.underline}, valued at [\$40 each]{.underline}, which could
    be applied toward the purchase of certain kinds of set-top boxes
    that convert over-the-air digital broadcast signals into an analog
    signal (that can be viewed on older TVs). The consumer will be
    required to pay the difference between the coupon and the cost of
    the box. Applications for coupons would be available electronically
    and, at a minimum, at government buildings (including post offices).
    The coupons, each of which would be [valid for three
    months]{.underline}, would be available from January 1, 2008,
    through January 31, 2009 (thereby effectively terminating the
    program on April 30, 2009). Each coupon would be [issued in the name
    of the applicant]{.underline} and would include a privacy-protected
    unique identifier number and other measures aimed at reducing fraud
    and unauthorized use. Only one coupon could be used per converter
    box. Participating retailers would have to be certified, and federal
    regulations would have to be developed to detail what kinds of
    converter boxes qualify under the coupon program (though no
    qualifying box could have an energy consumption in standby mode of
    more than nine watts). Finally, an expedited appeals process would
    be established for people who have coupon receipt or redemption
    problems. **Note:** Televisions that are connected to satellite or
    cable TV, will not need a converter box.

**Public Safety Interoperable Communication Fund**

-   Establishes this new \$500 million fund, capitalized by revenues
    from the auctions of the returned analog licenses, to make grants
    for the purchase or use of new communications equipment for public
    safety agencies that utilize a portion of the to-be-returned
    spectrum that is reserved for public safety uses.

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-   Requires that participating public safety agencies report to the
    Commerce Department on the use of these funds and agree that the
    federal share of any acquisition or deployment projects under this
    Fund be no more than 80%. Grants would be one-time payments, any
    unused portion of which after three years would have to be returned
    to the federal government. Returned funds could be re-awarded until
    2010.

> **NYC 9/11 Digital Transition Fund**

-   Establishes this new fund capitalized by revenues from the auctions
    of the returned analog licenses. In addition, the Department of
    Commerce would be authorized to borrow up to \$30 million from the
    U.S. Treasury to reimburse the Metropolitan Television Alliance for
    costs incurred in the design and deployment of a *temporary* digital
    television broadcast system to provide digital service in the New
    York City area prior to the completion of the *permanent* digital
    transmission facility atop the to-be-constructed Freedom Tower
    (though these borrowed funds would have to be repaid from the
    auction sales).

> **Low-Power Digital-to-Analog Conversion Fund**

-   Establishes this new \$3 million fund, capitalized by revenues from
    the auctions of the returned analog licenses, to help eligible,
    analog-only low-power TV stations purchase a analog-to-analog
    conversion device that enables it to convert the incoming digital
    signal of its corresponding full-power TV station to analog format
    for transmission on the low-power analog channel. Low-power stations
    would have to submit requests for compensation before 2009, and no
    station could get more than \$400 under this program.

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-   Requires manufacturers of analog television receivers to put warning
    labels (as detailed in the legislation), on their products
    manufactured in the U.S. or shipped in interstate commerce, about
    the transition to digital.

-   Requires retail distributors of analog television receivers to place
    warning signs in their establishments or warning language on
    websites or in catalogs (as detailed in the legislation) near the
    analog products for rent or sale.

-   Requires that the FCC and the NTIA commence a public outreach
    program (either separately or jointly) regarding the digital TV
    transition and periodically report to Congress on this outreach.

-   Requires cable companies and satellite distributors to include
    transition-TV-transition information (as detailed in the
    legislation) in the bills they send to their subscribers during
    2008.

-   Requires broadcasters to air two, 60-second public service
    announcements (as detailed in the legislation) about the digital
    transition daily during 2008---one between 8am and 9am each day and
    another between 8pm and 9pm each day.

-   Requires TV manufacturers to include digital tuners in all sets with
    screens between 13 inches and 24 inches sold in the United States,
    effective March 1, 2007 (four months sooner than under current law).

-   Requires cable companies and satellite carriers, to the extent
    technically feasible, to carry an eligible station's primary video
    stream in both standard digital *and analog* formats (without
    significant degradation in signal) until 2014. These companies would
    not have to carry a broadcaster's analog stream after December 31,
    2013.

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-   Directs the FCC, within 45 days of the enactment of this
    legislation, to assess whether the returned spectrum needs to be
    rechannelized to accommodate wireless broadband applications. The
    legislation expresses a sense of Congress that the FCC should
    rapidly disseminate wireless broadband licenses.

**[New State-Government, Local-Government, or Private-Sector
Mandates]{.underline}**: As CBO reports, this subtitle does contain
[intergovernmental]{.underline} mandates "because it would impose
certain requirements on television stations---more than 40 percent of
which are owned by state and local entities---and would preempt energy
efficiency standards in at least two states \[California and New
York\]." State and local governments would be prohibited from passing
laws that would regulate the energy consumption of the boxes.

This subtitle would also require public television stations to stop
broadcasting their analog signals by December 31, 2008, earlier than is
likely under current law. However, CBO reports that most publicly owned
television stations have already made the transition to digital
television and would realize savings of up to \$100,000 per station in
electricity costs when they turn off their analog signals. These
stations would be required to air two 60-second public service
announcements each day in 2008 about the transition to digital service.

The subtitle also includes a number of [private-sector]{.underline}
mandates, as follows (paraphrasing CBO):

-   Broadcast stations would have to terminate analog television service
    on December 31, 2008;

-   Manufacturers, retailers, broadcasters, and cable and satellite
    service providers would have to educate consumers about the digital
    transition (including by running public service announcements at
    specified times each day in 2008);

-   TV manufacturers would have to include digital tuners in all sets
    with screens between 13 inches and 24 inches sold in the United
    States, effective March 1, 2007 (four months sooner than under
    current law); and

-   Cable companies and satellite carriers would have to carry certain
    video streams that can be received by digital *and analog*
    televisions.

**[RSC Staff Contacts]{.underline}**:

Subtitle A, B, C: Joelle Cannon; <joelle.cannon@mail.house.gov>, (202)
226-9717

Subtitle D: Paul Teller; <paul.teller@mail.house.gov>, (202) 226-9718