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# Legislative Bulletin.................................................July 15, 2008

**Contents:**

**H.R. 6331** --- **Medicare Improvements for Patients and Providers
Act**

H.R. 6331 --- Medicare Improvements for Patients and Providers Act

*(Rangel, D-NY)*

**Please note the Conservative Concerns beginning on page 10, and those
highlighted throughout the bulletin.**

**[Order of Business]{.underline}**: The Democratic House Leadership has
indicated that the House will likely vote to override the President's
veto of H.R. 6331 today, July 15, 2008. The vote on H.R. 6331 is to
either sustain or override the President's veto. For additional
information on the process in the House regarding vetoed bills, please
see the "Process for a Vetoed Bill" section below.

[**Process for a Vetoed Bill**:]{.underline}

-   The House and Senate pass an identical bill.

-   The President vetoes the bill and sends a veto message to the House.

-   The Speaker "lays a veto message before the House on the day it is
    received\...When the message is laid before the House, the question
    on passage is considered as pending."  

-   Consideration of a vetoed bill (a privileged matter) generally takes
    precedence over other floor matters (it can interrupt other floor
    business), *except* in certain specific instances: a motion to
    adjourn, a question of privilege under the Constitution (such as a
    blue-slip resolution), and unfinished business with the previous
    question order (such as a bill with the previous question ordered to
    passage on the day before, but the House adjourned before voting on
    passage of the bill).

-   If the House does *not* wish to proceed immediately to reconsider
    the bill, three motions are in order:

    1.  motions to lay on the table (if passed, a motion to take it from
        the table is in order at any time);

    2.  motions to postpone consideration to a day certain (it becomes
        unfinished business on that day); or

    3.  motion to refer to committee (a motion to discharge is highly
        privileged and in order at any time).

-   If none of the above three motions are offered, the House proceeds
    to debate the override question under the hour rule and then votes
    on the question of overriding the veto.

-   If the veto is sustained, the bill is referred to committee. Since
    the bill has been rejected (when the veto was sustained), a motion
    to take the bill from committee is not privileged.

**[The Vote on H.R. 6331---Sustaining the Presidential
Veto]{.underline}**: When a vote is requested on a vetoed bill, the
question is: "Will the House, on reconsideration, pass the bill, the
objections of the President to the contrary notwithstanding." Thus, it
is as if the bill is up for normal consideration again, [only the
threshold for passage is now 2/3 of those voting]{.underline}. **If a
member opposes the bill and voted NO when it was originally considered
and passed, then he would vote NO again (still opposing the bill,
thereby voting to sustain the President's veto).**

**[Summary]{.underline}**: H.R. 6331 eliminates for six months a
reduction in Medicare physician payments scheduled to take effect on
June 30, 2008, freezing payment levels for the balance of 2008 and
providing a 1.1% increase in fee schedule levels for 2009. H.R. 6331
also reduces payments to and modifies the structure of privately-run
Medicare Advantage fee-for-service (FFS) plans that have shown
significant growth in recent years.

**[Medicare]{.underline}**: H.R. 6331 contains many provisions that
would alter Titles XVIII (Medicare) and XIX (Medicaid) of the Social
Security Act as follows:

***Coverage of Preventive Services***. The bill would create a process
for the Secretary of Health and Human Services to extend Medicare
coverage to additional preventive services under Parts A and B, and
would waive the deductible with respect to the initial physical exam
provided upon a beneficiary's enrollment in the Medicare program. *CBO
scores this provision as costing \$5.9 billion over eleven years*.

***Mental Health Parity***. The bill would reduce over five years the
co-payment for outpatient psychiatric services to 20%, consistent with
the co-payment rate for physician visits under Medicare Part B. *CBO
scores this provision as costing \$3 billion over eleven years*.

***Marketing Restrictions on Private Plans***. The bill would impose
restrictions with respect to the marketing tactics used by private
Medicare Advantage and prescription drug plans. The bill would eliminate
unsolicited direct contact to beneficiaries, restrict the provision of
gifts to nominal values, require annual training of agents and brokers
licensed under state law, and impose related marketing restrictions. *No
net cost*.

***Low-Income Programs***. H.R. 6331 would extend the Qualifying
Individual program under Medicare and Medicaid for eighteen months,
through December 2009, at a cost of \$500 million. The bill would also
expand eligibility for enrollment in the low-income subsidy program by
altering the asset test for the Medicare Savings Program, and engaging
in further outreach to beneficiaries eligible for participation but not
currently enrolled. Other provisions in this section would codify
current guidance eliminating the Part D late enrollment penalty for
individuals eligible for low-income subsidies, and require the
translation of the enrollment form into at least 10 languages other than
English. *Total cost of these provisions is \$7.7 billion over eleven
years*.

***Hospital Provisions***. The bill includes several hospital-related
provisions, including the extension of rural hospital flexibility
program, new grants for the provision of mental health services to Iraq
war veterans in rural areas, new grants to certain critical access
hospitals, a re-adjustment of target payment amounts for sole community
hospitals, a new demonstration program for integrating care in certain
rural communities, and the reclassification of certain hospitals. *Total
cost of these provisions according to CBO is \$600 million over eleven
years*.

***Physician Services***. The bill makes several adjustments to
physician payment rates, including the following:

*Conversion Factor*: The bill would extend the 0.5% update to the
conversion factor for physician reimbursements, currently due to expire
on June 30, 2008, through the end of calendar year 2008, effectively
freezing payment levels for the balance of the year. For 2009, the
conversion factor will be 1.1%. The bill also provides that the
adjustments made for 2008 and 2009 will be disregarded for the purposes
of computing the sustainable growth rate (SGR) conversion factor in 2010
and future years, which would necessitate a 21% reduction in
reimbursement levels in 2010.

*Quality Reporting*: H.R. 6331 would revise and extend existing quality
reporting language to provide a 1.5% bonus payment in 2008, and 2.0%
bonus payments in 2009 and 2010, to those physicians reporting selected
quality data measurements. *Cost of both the quality reporting and
conversion factor provisions is \$6.4 billion over six years, and \$4.5
billion over eleven.*

*Electronic Prescribing*: The bill provides bonus payments for
physicians who participate in electronic prescribing and report relevant
quality measures---2.0% in 2009 and 2010, 1.0% in 2011 and 2012, and
0.5% in 2013. Physicians not participating in the electronic prescribing
program will receive reimbursement reductions of 1% in 2012, 1.5% in
2013, and 2% in 2014 and thereafter. *Saves \$1.4 billion over eleven
years*.

*Other provisions*: With respect to physician services, the bill also
revises a medical home demonstration project, extends the floor for
Medicare work geographic adjustments under the physician fee schedule
through December 2009, imposes accreditation requirements on the payment
of diagnostic imaging services, and increases payment levels for
teaching anesthesiologists. H.R. 6331 also includes a requirement for
the Secretary to report to Congress on the creation of a new system of
value-based purchasing for physician services. *Total cost of \$1.9
billion over eleven years*.

***Other Part B Adjustments***. The bill would make several other
adjustments to the Part B program, among which are an extension through
December 2009 of the exceptions process for Medicare therapy caps
(*costs \$1.2 billion over eleven years*), the inclusion of
speech-language pathology services as a service for which providers can
bill Medicare directly (*\$100 million cost*), the establishment of
cardiac and pulmonary rehabilitation programs (*\$500 million cost*), a
repeal of the transfer of ownership with respect to oxygen equipment,
repeal of a competitive bidding demonstration project for clinical
laboratory services coupled with other adjustments for lab services
(*\$2 billion savings*), increased payments for ambulance services
(*\$100 million cost*), payment clarification for clinical laboratory
tests made at critical access hospitals (*\$300 million cost*), and
increased payment limits for federally qualified health centers treating
Medicare patients (*\$100 million cost*).

***Kidney Disease and Dialysis Provisions***. H.R. 6331 makes several
adjustments to the end-stage renal disease program, including new
coverage for kidney disease education services, a 1% increase in
dialysis reimbursement rates for 2009 and 2010, and a requirement that
the Secretary develop a bundled rate payment system for renal dialysis
by January 2011, to be phased in over four years, that includes payment
for drugs and tests related to dialysis treatment for which Medicare
currently reimburses providers separately. *Costs \$1.5 billion over
eleven years*.

***Delay of Durable Medical Equipment Competitive Bidding***. The
legislation would terminate all Round 1 contracts for Medicare durable
medical equipment made pursuant to the initial round of competitive
bidding completed this spring, and would direct CMS to re-bid Round 1 at
some point during 2009. Future rounds of competitive bidding would also
be delayed, with Round 2 taking place during 2011, and competitive
bidding in rural areas and smaller metropolitan areas being delayed
until 2015. The approximately \$3 billion cost of the delay would be
paid for by an across-the-board reduction of 9.5% for all supplies
scheduled to be subjected to competitive bidding. In addition, the bill
would require the CMS contractor to notify suppliers missing financial
documentation related to their bids, extend disclosure and accreditation
requirements to sub-contractors, and establish an ombudsman within CMS
to respond to complaints from suppliers and individuals about the
competitive bidding process.

***Medicare Advantage Provisions***. H.R. 6331 would cut Medicare
Advantage payments, primarily through two adjustments. The first would
phase out duplicate payments related to indirect medical education (IME)
costs at teaching hospitals. Currently, IME costs are incorporated into
the benchmark which Medicare Advantage plans bid against, even though
Medicare also makes IME payments to teaching hospitals in association
with hospital stays for Medicare Advantage beneficiaries. The
Administration incorporated this proposal into its Fiscal Year 2009
budget submission to Congress.

The bill also would repeal "deeming" authority language for private
fee-for-service plans within Medicare Advantage, which currently can
reimburse providers at the traditional Medicare rate and "deem" these
providers part of their network. Instead, H.R. 6331 would require
private fee-for-service plans to adopt physician networks in areas where
at least two other types of coordinated care plans (e.g. Health
Maintenance Organizations Preferred Provider Organizations, etc.)
operate.

Preliminary data from CMS indicate that the provisions in H.R. 6331
would result in private fee-for-service plans losing their "deeming"
authority in 96% of counties in which they currently operate,
potentially resulting in loss of beneficiary access to a type of
Medicare Advantage plan which has experienced significant growth in
recent years. The Congressional Budget Office confirms that the
provision would reduce both Medicare outlays and enrollment in the
Medicare Advantage program. In a [Statement of Administration
Policy](http://www.whitehouse.gov/omb/legislative/sap/110-2/saps3101-s.pdf)
on the Senate bill (S. 3101) incorporating these provisions, the Office
of Management and Budget opposed the changes as a "fundamental
restructuring" of this segment of the Medicare Advantage program that
would result in beneficiaries losing access to the enhanced benefits
which Medicare Advantage plans provide. The IME provision and the
deeming language collectively cut Medicare Advantage by *\$12.5 billion
over six years, and \$47.5 billion over eleven years*.

H.R. 6331 includes several other provisions relating to Medicare
Advantage plans, including an extension of and revisions to plans for
special needs individuals (*costs \$500 million over eleven years*),
garnishment of the remaining funds left in the Medicare Advantage
stabilization fund (*saves \$1.8 billion over eleven years*), and two
studies by the Medicare Payment Advisory Commission (MedPAC) regarding
Medicare Advantage quality data and payment formulae.

***Pharmacy Provisions***. The bill makes changes to the Part D
prescription drug program, most notably requiring "prompt payment" by
drug plans to pharmacies for prescriptions within 14 days for electronic
claims and 30 days for all other claims, at a cost of *\$700 million
over eleven years*.

***Release of Part D Data***. The bill would permit the Secretary to
utilize Part D claims data from private plans in order to improve the
public health as the Secretary determines appropriate, and would further
allow Congressional support agencies to obtain the data for oversight
and monitoring purposes. *No net cost*.

***Medicare Improvement Fund***. H.R. 6331 would establish a Medicare
Improvement Fund to allow the Secretary to make enhancements to Medicare
Parts A and B, and appropriates funding from FY2014 through FY2017 to
fund such efforts. *Costs \$24.2 billion over eleven years*.

***Federal Payment Levy***. The bill would expand the federal payment
levy---which provides for the recoupment of taxes owed the federal
government by private contractors---to Medicare provider and supplier
payments. *Saves \$400 million over eleven years*.

***TMA and Title V Extension***. H.R. 6331 would extend for twelve
months (until June 30, 2009), both the authorization for Title V
programs (abstinence education programs), and the authorization for
Transitional Medical Assistance (Medicaid benefits for low-income
families transitioning from welfare to work). TMA has historically been
extended along with the Title V Abstinence Education Program. Regarding
the Title V grant program, in order for states to receive Title V block
grant funds, states must use the funds exclusively for teaching
abstinence. In addition, in order to receive federal funds, a state must
match every \$4 in federal funds with \$3 in state funds. *Costs \$1
billion over eleven years*.

***Other Extensions***. The bill also adjusts the federal Medicaid
matching rate for foster care and related services provided by the
District of Columbia, and extends certain other provisions, including
Medicaid Disproportionate Share Hospital (DSH) payments, TANF
supplemental grants, and special diabetes grant programs. *Total cost of
\$1 billion over eleven years*.

**[Additional Background on Senate Legislation]{.underline}**: H.R. 6331
closely resembles legislation (S. 3101) originally introduced by Senate
Finance Committee Chairman Max Baucus (D-MT). At least one circulating
draft of H.R. 6331 includes "Sense of the Senate" language, despite the
fact that the bill is ostensibly an original House measure. On June 12,
2008, the Senate by a 54-39 vote failed to invoke cloture on a motion to
proceed to consideration of S. 3101.

Despite sharing similar language, H.R. 6331 and S. 3101 differ in a few
respects. The House bill excludes cuts to reimbursement of oxygen
supplies and power-driven wheelchairs included in the Senate version,
instead incorporating the federal payment tax levy and other provisions
to compensate for the lost budgetary savings. In addition, H.R. 6331
includes legislation (H.R. 6252) introduced by Ways and Means Health
Subcommittee Chairman Pete Stark (D-CA) and Ranking Member Dave Camp
(R-MI) to postpone competitive bidding of durable medical equipment.
Chairman Baucus had attempted to add these provisions to his Senate
legislation, but was unable to persuade enough Senate Republicans to
support cloture in order to allow him to do so, largely because
Republicans objected to the Medicare Advantage cuts envisioned by his
legislation.

**[Additional Background on Medicare Advantage]{.underline}**: The
Medicare Modernization Act of 2003 made several changes to the bidding
and payment structure for private Medicare Advantage plans to deliver
health care to beneficiaries. As currently constructed, plans receive
capitated monthly payments that are subject to risk adjustment---so that
plans caring for older, sicker beneficiaries receive higher payments
than those with healthier populations. In order to determine the
capitated payment amount, plans submit annual bids to the Centers for
Medicare and Medicaid Services (CMS). The bids are compared against a
benchmark established by a detailed formula---but the comparison against
the benchmark does not directly allow plans to compete against each
other, or against traditional Medicare, when CMS evaluates plan bids.

In the event a plan's bid is below the annual benchmark, 75% of the
savings is returned to the beneficiary in the form of lower cost-sharing
(i.e. premiums, co-payments, etc.) or better benefits, with the
remaining 25% returned to the federal government. If a plan's bid is
above the benchmark, beneficiaries pay the full amount of any marginal
costs above the benchmark threshold.

Most Medicare Advantage plans use rebates provided when bidding below
the benchmark to cover additional services over and above those provided
by traditional Medicare, and in so doing reduce beneficiaries' exposure
to out-of-pocket costs. A Government Accountability Office (GAO) report
released in February 2008 documented that in most cases, beneficiaries
receive better benefits under Medicare Advantage than they would under
traditional Medicare. The GAO study found that beneficiary cost-sharing
would be 42% of the amounts anticipated under traditional Medicare, with
beneficiaries saving an average of \$67 per month, or \$804
annually.[^1] These savings to MA beneficiaries occurred because plans
dedicated 89% of their rebates from low bids to reduced cost-sharing or
lower premiums. The remaining 11% of rebates were used to finance
additional benefits, such as vision, dental, and hearing coverage, along
with various health education, wellness, and preventive benefits.[^2]
Due in part to the increased benefits which Medicare Advantage plans
have provided, enrollment in MA plans is estimated to rise to 22.3% of
all Medicare beneficiaries in 2008, up from 12.1% in 2004.[^3]

Some independent studies have suggested that Medicare Advantage plans
incur higher costs than the average annual cost of providing coverage
through traditional Medicare, though estimates vary as to the disparity
between the two forms of coverage. However, to the extent that MA plans
in fact receive payments in excess of the costs of traditional Medicare,
this discrepancy remains inextricably linked to two features of the
Medicare Advantage program---the increased benefits for beneficiaries,
and the complexity of the MA plan bidding mechanism. Because of the
problems inherent in the statutory benchmark design, plans have little
incentive to submit bids less than the cost of traditional Medicare, as
plans that bid above the costs of traditional Medicare but below the
benchmark receive the difference between traditional Medicare costs and
the plan bid as an extra payment to the plan.[^4]

Some conservatives would also argue that a discussion focused solely on
Medicare Advantage "overpayments" ignores the significant benefits that
MA plans provide to key underserved beneficiary populations. Medicare
Advantage plans have expanded access to coverage in rural areas.
Moreover, the disproportionate share of low-income and minority
populations who have chosen the MA option suggests that the
comprehensive benefits provided are well-suited to beneficiaries among
vulnerable populations. Data from the Medicare Current Beneficiary
Survey demonstrate that almost half (49%) of Medicare Advantage
beneficiaries have incomes less than \$20,000, and that 70% of Hispanic
and African-American Medicare Advantage enrollees had incomes below the
\$20,000 level.[^5]

**[Additional Background on Medicare Physician
Reimbursements]{.underline}**: Under current Medicare law, doctors
providing health care services to Part B enrollees are compensated
through a "fee-for-service" system, in which physician payments are
distributed on a per-service basis, as determined by a fee schedule and
an annual conversion factor (a formula dollar amount). The fee schedule
assigns "relative values" to each type of provided service. Relative
value reflects physicians' work time and skill, average medical practice
expenses, and geographical adjustments. In order to determine the
physician payment for a specific service, the conversion factor
(\$37.8975 in 2006) is multiplied by the relative value for that
service. For example, if a routine office visit is assigned a relative
value of 2.1, then Medicare would provide the physician with a payment
of \$79.58 for that service. (\$37.8975 x 2.1)

Medicare law requires that the conversion factor be updated each year.
The formula used to determine the annual update takes into consideration
the following factors:

-   Medicare economic index (MEI)--cost of providing medical care;

-   Sustainable Growth Rate (SGR)--target for aggregate growth in
    Medicare physician payments; and

-   Performance Adjustment--an adjustment ranging from -13% to +3%, to
    bring the MEI change in line with what is allowed under SGR, in
    order to restrain overall spending.

Every November, the Centers for Medicare and Medicaid Services (CMS)
announces the statutory annual update to the conversion factor for the
subsequent year. The new conversion factor is calculated by increasing
or decreasing the previous year's factor by the annual update.

From 2002 to 2007, the statutory formula calculation resulted in a
negative update, which would have reduced physician payments, but not
overall physician spending. The negative updates occurred because
Medicare spending on physician payments increased the previous year
beyond what is allowed by SGR. The SGR mechanism is designed to balance
the previous year's increase in physician spending with a decrease in
the next year, in order to maintain the aggregate growth targets. Thus,
in light of increased Medicare spending in recent years, the statutory
formula has resulted in negative annual updates. It is important to note
that while imperfect, the SGR was designed as a cost-containment
mechanism to help deal with Medicare's exploding costs, and to some
extent it has worked, forcing offsets in some years and causing
physician payment levels to be scrutinized annually as if they were
discretionary spending.

Since 2003, Congress has chosen to override current law, providing
doctors with increases each year, and level funding in 2006. In 2007,
Congress provided a 1.5% update bonus payment for physicians who report
on quality of care measures; however, Congress also provided that the
2007 "fix" would be disregarded by CMS for the purpose of calculating
the SGR for 2008, resulting in a higher projected cut next year. The
specific data for each year is outlined in the following table.

+-------------+------------------------+-------------------------------+
| **Year**    | **Statutory**          | **Congressional "Fix" to the  |
|             |                        | Update (%)\***                |
|             | **Annual**             |                               |
|             |                        |                               |
|             | **Update (%)**         |                               |
+-------------+------------------------+-------------------------------+
| 2002        | -5.4                   | -5.4\*\*                      |
+-------------+------------------------+-------------------------------+
| 2003        | -4.4                   | +1.6                          |
+-------------+------------------------+-------------------------------+
| 2004        | -4.5                   | +1.5                          |
+-------------+------------------------+-------------------------------+
| 2005        | -3.3                   | +1.5                          |
+-------------+------------------------+-------------------------------+
| 2006        | -4.4                   | 0                             |
+-------------+------------------------+-------------------------------+
| 2007        | -5.0                   | +1.5\*\*\*                    |
+-------------+------------------------+-------------------------------+
| 2008        | -10.1§                 | 0.5 (proposed)                |
+-------------+------------------------+-------------------------------+

> \* The annual update that *actually went into effect* for that year.
>
> \*\* CMS made other adjustments, as provided by law, which resulted in
> a net update of - 4.8%; however, Congress did not act to override the
> -5.4% statutory update.
>
> \*\*\* The full 1.5% increase was provided to physicians reporting
> quality of care measures; physicians not reporting quality of care
> received no net increase.
>
> § The Tax Relief and Health Care Act signed last year provided that
> 2007's Congressional "fix" was to be disregarded for the purpose of
> calculating the SGR in 2008 and future years.

Because the Tax Relief and Health Care Act (P.L. 109-432), signed into
law in December 2006, provided that 2007's Congressional "fix" was to be
disregarded for the purpose of calculating the SGR in 2008 and future
years, the 10.1% negative annual update for 2008 will be restored once
the December 2007 legislation expires on July 1, 2008, absent further
Congressional action. In addition, H.R. 6331 includes a similar
provision noting that the "fix" proposed would be disregarded for the
purpose of calculating the SGR in 2010 and future years, resulting in a
projected 21% reduction in fee schedule levels in January 2010.

**[Additional Background on Durable Medical Equipment]{.underline}**: In
addition to providing coverage for outpatient physician services,
Medicare Part B also helps pay for durable medical equipment,
prosthetics, orthotics, and supplies (DMEPOS) needed by beneficiaries.
Currently, Medicare reimburses beneficiaries for supplies using a series
of fee schedules, which are generally based on historical prices subject
to annual updates or other adjustments. Medicare finances 80% of the
actual costs or the fee schedule amount, whichever less, with the
beneficiary paying the difference. The Centers for Medicare and Medicaid
Services (CMS) estimates that about 10 million individuals---or about
one-quarter of all beneficiaries---receive medical supplies under Part B
in a given year, at a cost to Medicare of approximately \$10 billion
annually.[^6]

In recent years, some conservatives have raised concerns that the prices
on the Medicare fee schedule for DMEPOS were in excess of market prices.
In 2002, testimony by the Department of Health and Human Services
Inspector General revealed that the prices paid by Medicare for 16
selected items of durable medical equipment were higher than prices paid
by Medicaid, the Federal Employee Health Benefits (FEHB) plans, and
consumers purchasing directly from retailers. The Inspector General
projected that using the lower prices by other payers for these 16
common items alone would have saved Medicare more than \$100 million
annually.[^7]

In response to the above findings, Congress in the Medicare
Modernization Act (MMA) of 2003 (P.L. 108-173) enacted cuts in the fee
schedule levels for the 16 specific items studied by the Inspector
General's testimony, while creating a new competitive bidding process
for DMEPOS suppliers in Section 302 of the law. This nationwide program
followed on the heels of three demonstration projects, authorized under
the Balanced Budget Act of 1997, established during the period 1999-2002
in Florida and Texas. The pilot programs demonstrated the ability of
competitive bidding to reduce the costs of DMEPOS by an average
19.1%---saving the federal government \$7.5 million, and \$1.9 million
in reduced beneficiary co-payments---while maintaining beneficiary
access to required items.[^8]

In addition to a program of competitive bidding for DMEPOS, the MMA also
established a new accreditation process for suppliers designed to review
suppliers' financial records and other related documentation to
establish their status as *bona fide* health equipment suppliers. A
November 2007 CMS estimate indicated that 10.3% of payments to medical
equipment suppliers were improper---a rate of questionable payments more
than double those of other Medicare providers.[^9] Coupled with the new
competitive bidding program, the accreditation mechanism was intended to
eliminate "fly-by-night" DMEPOS suppliers from operating within the
Medicare program, and thus was included in the anti-fraud title of MMA.

In recent months, the competitive bidding program has come under
criticism due both to procedural concerns as to how the bidding process
was conducted---several of which CMS is working to address---and broader
concerns as to whether the program will adversely affect beneficiary
access to supplies and/or DMEPOS suppliers, particularly small
businesses, whose bids were priced unsuccessfully. Some conservatives
may question the need to delay the competitive bidding process,
particularly on the latter grounds. CMS provided specific opportunities
for small businesses to participate in the DMEPOS competitive bidding
process, resulting in approximately half of firms who accepted winning
bids having revenues of less than \$3.5 million. These small business
opportunities occurred in the context of a market-oriented bidding
mechanism that, when fully implemented, will save taxpayers
approximately \$1 billion annually---and will provide additional savings
to Medicare beneficiaries in the form of reduced co-payments. In
addition, the accreditation mechanism established by Section 302 of MMA
provides a quality check previously lacking for DMEPOS purchases and
suppliers.

**[Cost to Taxpayers]{.underline}**: A Congressional Budget Office (CBO)
score for H.R. 6331 was unavailable at press time. However, a CBO
estimate on a similar bill (S. 3101) introduced and considered in the
Senate noted that that legislation would increase spending on physician
and related services by \$19.8 billion over six years and \$62.8 billion
over the 2008-2018 period. These spending increases would be offset by
spending cuts in other health spending, primarily Medicare Advantage
plans. Overall, S. 3101 was projected to reduce direct spending by \$5
million over the six- and eleven-year budget windows.

**[Committee Action]{.underline}**: The bill was introduced on June 20,
2008, and referred to the Energy and Commerce and Ways and Means
Committees, neither of which took official action on the legislation.
The House passed the bill under suspension of the rules on June 24, 2008
by a 355-59 vote, and the Senate passed the bill by voice vote after
invoking cloture by a vote of 69-30 on July 9, 2008.

**[Possible Conservative Concerns]{.underline}**: Numerous aspects of
H.R. 6331 may raise concerns for conservatives, including, but not
necessarily limited to, the following:

-   [Government Price Fixing]{.underline}. By making alterations in
    physician and other Medicare fee schedules, H.R. 6331 would
    reinforce a system whereby Congress, by adjusting various
    reimbursement levels, permits the government, rather than the
    private marketplace, to set prices for medical goods and services.
    Senate Finance Committee Chairman Max Baucus admitted some disquiet
    about this dynamic---and Congress' lack of expertise to micro-manage
    the health care system---at a health care summit on June 16: "How in
    the world am I supposed to know what the proper reimbursement should
    be for a particular procedure?"[^10] Yet H.R. 6331, based on
    legislation Chairman Baucus himself introduced, would retain the
    current system of price-fixing---while repealing a competitive
    bidding demonstration project for clinical laboratory services and
    delaying a competitive bidding program designed to inject market
    forces into the purchase of durable medical equipment and supplies.

-   [Budgetary Gimmick]{.underline}. Because language in H.R. 6331
    stipulates that the conversion factor adjustments in the bill shall
    not be considered when determining future years' SGR rates,
    physician reimbursement rates will be reduced 21% in 2010---an
    action which, given past trends, many observers would consider
    highly unlikely. Therefore, some conservatives may be concerned that
    this language is designed to mask the true cost of the physician
    reimbursement adjustments included in the bill, creating a budgetary
    gimmick that future Congresses will feel pressured to remedy.

-   [Undermines Medicare Advantage]{.underline}. H.R. 6331 includes
    several provisions designed to "reform" private fee-for-service
    plans operating within Medicare Advantage that would reduce their
    payments by \$47.5 billion over eleven years, effectively ending
    their "deeming" authority, and requiring virtually all private
    fee-for-service plans to contract with health care providers. Some
    conservatives may be concerned that these changes would undermine
    the effectiveness of the Medicare Advantage program, which has grown
    in popularity among seniors due to the benefit enhancements that
    private coverage can provide.

-   [Creates New Medicare Fund]{.underline}. The bill would establish a
    new Medicare Improvement Fund, which would receive \$19.9 billion
    for the "enhancement" of traditional Medicare Parts A and B during
    Fiscal Years 2014-2017. Some conservatives may consider this account
    a new "slush fund" that will be used to finance further expansions
    of government-run health programs, rather than to bolster Medicare's
    precarious financial future.

-   [Release of Part D Data]{.underline}. H.R. 6331 would authorize the
    Secretary to utilize Part D claims data from private health plans
    for any use deemed by the Secretary as relating to the public
    health, and would further authorize Congressional support agencies
    to utilize the same data for oversight purposes. Some conservatives
    may be concerned that these wide-ranging provisions could lead to
    the public release of private and proprietary information related to
    the claims and bidding practices of private health plans providing
    prescription drug coverage under Part D, and could be used to
    initiate "fishing expedition" investigations at the behest of
    Democrats philosophically opposed to having private entities provide
    coverage to Medicare beneficiaries.

-   [Delays Competitive Bidding]{.underline}. H.R. 6331 would delay the
    first round of competitive bidding for durable medical equipment,
    and would nullify contracts signed by CMS for the first round of
    bidding this spring. Re-opening the bidding process could prejudice
    entities who won their bids earlier this year, while potentially
    reducing savings to the federal government by allowing suppliers to
    bid more strategically in a re-bid scenario. Some conservatives may
    be concerned that the delay contemplated by H.R. 6331 would allow a
    new Administration to take steps undermining the competitive bidding
    program through the regulatory process, and/or allow a new
    Administration and a future Congress to make the "temporary" delay
    permanent and abolish competitive bidding outright.

**[Administration Position]{.underline}**: Although a formal Statement
of Administration Policy (SAP) was unavailable at press time, reports
indicate that the Administration opposes the legislation and will likely
issue a veto threat on the bill.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: Yes, the bill would expand eligibility for
participation in the Medicare Savings Program.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: No.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: An earmarks/revenue
benefits statement required under House Rule XXI, Clause 9(a) was not
available at press time.

**[Constitutional Authority]{.underline}**: A committee report citing
constitutional authority is unavailable.

**[RSC Staff Contact]{.underline}**: Chris Jacobs,
<christopher.jacobs@mail.house.gov>, (202) 226-8585

\###

[^1]: Government Accountability Office, "Medicare Advantage: Increased
    Spending Relative to Medicare Fee-for-Service May Not Always Reduce
    Beneficiary Out-of-Pocket Costs," (Washington, Report GAO-08-359,
    February 2008), available online at
    <http://www.gao.gov/new.items/d08359.pdf> (accessed May 19, 2008),
    p. 23.

[^2]: Ibid., pp. 17-20.

[^3]: Department of Health and Human Services, "HHS Budget in Brief:
    Fiscal Year 2009," available online at
    <http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf> (accessed
    May 19, 2008), p. 58.

[^4]: The Medicare Payment Advisory Commission (MedPAC) has alleged that
    the formula-driven benchmarks themselves exceed the cost of
    traditional Medicare. See Medicare Payment Advisory Commission,
    *Report to the Congress: Medicare Payment Policy* (Washington, DC,
    March 2008), available online at
    <http://www.medpac.gov/documents/Mar08_EntireReport.pdf> (accessed
    May 9, 2008), Table 3-3, p. 247.

[^5]: America's Health Insurance Plans, "Low Income and Minority
    Beneficiaries in Medicare Advantage Plans," (Washington, DC, AHIP
    Center for Policy and Research, February 2007), available online at
    <http://www.ahipresearch.org/PDFs/FullReportAHIPMALowIncomeandMinorityFeb2007.pdf>
    (accessed May 19, 2008), p. 3.

[^6]: Cited in Government Accountability Office, "Medicare: Competitive
    Bidding for Medical Equipment and Supplies Could Reduce Program
    Payments, but Adequate Oversight Is Critical," (Washington, Report
    GAO-08-767T), available online at
    <http://www.gao.gov/new.items/d08767t.pdf> (accessed June 9, 2008),
    p. 3.

[^7]: Testimony of Janet Rehnquist, Inspector General of the Department
    of Health and Human Services, before Senate Appropriations
    Subcommittee on Labor, HHS, and Education, June 12, 2002 hearing,
    available online at
    <http://www.oig.hhs.gov/testimony/docs/2002/020611fin.pdf> (accessed
    June 16, 2008).

[^8]: Testimony of Thomas Hoerger, Senior Fellow, Research Triangle
    Institute International, before House Ways and Means Subcommittee on
    Health, May 6, 2008 hearing on Durable Medical Equipment Competitive
    Bidding, available online at
    <http://waysandmeans.house.gov/hearings.asp?formmode=printfriendly&id=6906>
    (accessed June 9, 2008).

[^9]: Cited in Government Accountability Office, "Medicare Competitive
    Bidding," pp. 10-11.

[^10]: Quoted in Anna Edney, "Bernanke: Health Care Reform Will Require
    Higher Spending," *CongressDailyPM* June 16, 2008, available online
    at
    <http://www.nationaljournal.com/congressdaily/cdp_20080616_8602.php>
    (accessed June 16, 2008).