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**Legislative
Bulletin......................................................February
1, 2006**

**DRAFT**

**Contents:**

**S. 1932 --- Deficit Reduction Act Conference Report (Titles V and
VI)**

**Changes to the House-passed version of H.R. 4241 included in the
Conference Report are indicated in red**

**Title V: Medicare**

**[Savings to Taxpayers]{.underline}**: According to CBO, Title V would
reduce federal spending \$6.4 billion over five years.

All Medicare provisions in the S. 1932 Conference Report were originally
included in the Senate version of the Deficit Reduction Act. For a
complete review of the Medicare provisions included in the Conference
Report, please visit
<http://www.congress.gov/erp/rl/html/RL33131.html#TOC1_9>. If you have
any questions regarding these provisions, please do not hesitate to
contact the RSC.

**Title VI: Medicaid and SCHIP**

[]{.mark}

**[Savings to Taxpayers]{.underline}**: According to CBO, Title VI would
reduce federal spending and by \$4.7 billion over five years.

**[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**

-   **Prescription Payments---Federal Upper Limit**: Adjusts Medicaid
    payments to pharmacists to be based on "average manufacturer price"
    (AMP), instead of "average whole sale price." In addition, beginning
    in 2007, the federal government will not pay more than 250% of the
    average manufacturers price (AMP) of the lowest-cost version of a
    generic drug. The changes bring roughly \$3.6 billion in savings,
    (up from \$1.9 billion in the House-passed version).

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-   **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.

-   **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.

**Chapter 2: Reform of Asset Transfers**

-   **Look Back Period and Period of Ineligibility:** Changes (from 3 to
    5 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. The provision also requires
> states to impose partial months of ineligibility on individuals
> penalized under the asset-transfer rules. Under current law, states
> may round down the penalty period by a month. In effect, this
> provision prohibits the practice of rounding down. The conference
> report also gives authority to the states to accumulate multiple
> transfers into one penalty period.
>
> **[Additional Information]{.underline}**
>
> 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).

-   **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.

-   **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 (House-passed limit); however, a state
    may *choose* to apply a limit of \$750,000 in the place of the
    \$500,000 limit, if that state has "higher median home values." This
    provision saves \$298 million over five years (down from \$580
    million in the House-passed version).

-   **Treatment of Large Annuities:** Provides that a state must require
    that, as a condition for providing long-term care, an individual
    disclose the certain information. 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. The measure also restricts the types of
    annuities that may be retained as an asset by a Medicaid beneficiary
    or their spouse.

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-   **"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.

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-   **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.

[]{.mark}

-   **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. The conference report
> included this provision with the Senate provision requiring long-term
> care partnership programs to meet certain requirements.

**Chapter 3: Fraud, Waste, and Abuse**

-   **States and the False Claims Act**: Encourages states to enact laws
    modeled after the federal False Claims Act by decreasing by 10%
    Medicaid money recovered under such laws that must be repaid to the
    federal government. The False Claims Act establishes liability when
    any person or entity improperly receives or avoids payment to the
    Federal government.

-   **False Claims Act Education Programs**: Requires any entity
    receiving annual Medicaid payments of \$5 million or more, to
    educate its employees on state and federal false-claims laws,
    whistle-blower protections, and policies and procedures for
    detecting fraud, waste, and abuse.

-   **Double Payments on Prescription Drug Claims**: Prohibits states
    from billing Medicaid twice for the same covered outpatient drug.

-   **Medicaid Integrity Program**: Establishes the Medicaid Integrity
    Program, which allows certain entities to review the actions of
    Medicaid providers, audit payment claims, identify and recover
    overpayments, and educate providers on "payment integrity and
    benefit quality assurance issues." The legislation requires the new
    Medicaid Integrity Program in include in its function, a national
    expansion of the Medicare-Medicaid data matching program. The
    measure authorizes \$5 million in FY06, \$50 million in each of
    FY2007 and FY2008, \$75 million each year following. The bill also
    establishes a Medicaid Chief Financial Officer and Medicaid
    Integrity Program Oversight Board and authorizes an additional \$25
    million in each of FY2006-FY2010 for Medicaid activities of the
    Office of Inspector General in HHS. Under current law, the Office of
    Inspector General at HHS handles these responsibilities.

    -   **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.

    -   **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.

**Chapter 4: Cost Sharing and Benefits**

-   **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 certain
    individuals and services. 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 conference report
    included changes to the cost sharing and premium provisions,
    changing total savings for this provision to \$960 million over five
    years (down from \$2.3 billion).

    -   **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.

> 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 state-identified 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. This provision was
    significantly modified in the Conference Report, increasing savings
    of this provision to \$960 million over five years (up from \$260
    million).

**Chapter 5: State Financing**

-   **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. This provision was modified in the
    Conference Report, decreasing savings to \$435 million over five
    years (down from \$610 million).

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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.

-   **DSH Allotment for the District of Columbia:** Increases from \$32
    million to \$49 million, the annual allotment ceiling for the
    District of Columbia for making disproportionate share hospital
    (DSH) payments. Under current law, Medicaid requires states to make
    payments to hospitals that treat a disproportionate number of
    Medicaid beneficiaries and those who cannot pay for their care. This
    provision increases the amount of money available to the District of
    Columbia to make these payments.

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-   **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.

**Chapter 6: Other Provisions**

-   **Allow states to cover certain disabled children:** Allows state
    Medicaid programs to cover children meeting the Supplemental
    Security Income (SSI) program disability standard, but are not
    eligible because they do not meet that program's income or asset
    requirements. Children of families exceeding 300 percent of the
    federal poverty level would not be eligible for that coverage. This
    provision takes effect on January 1, 2008, and would be phased in
    over a three-year period.

-   **Demonstration programs for certain disabled children:** Authorizes
    a new five-year demonstration project for up to 10 states to provide
    home- and community-based services to disabled children who
    otherwise would require psychiatric residential treatment.

    -   **Family-to-family health information centers**: Authorizes \$12
        million for FY2007-FY2009 and authorizes an additional \$5
        million, each year for FY2010 and FY2011 for funding under the
        Projects of Regional and National Significance program (SPRANS)
        of the Maternal and Child Services Block Grant (Title V of the
        Social Security Act) for the development and support of new
        family-to-family health information centers. These information
        centers are designed to assist families of children with
        disabilities to make educated decisions regarding health care
        options and available resources. The measure requires the
        Secretary to develop these health information centers in at
        least 25 states in FY2007, 40 states in FY2008, and all states
        in FY2009.

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-   **Restore Medicaid eligibility for certain SSI recipients:** Extends
    Medicaid eligibility to individuals under the age of 21 and eligible
    for SSI.

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-   **Money Follows the Person demonstration**: Authorizes the Secretary
    to establish a demonstration project in which the federal government
    pays 90% of the costs of the first 12 months of home- and community-
    based long-term care services for Medicaid recipients relocating
    from a long-term care institution into the "community" (moving back
    into a house). The measure outlines specific qualifications an
    individual must meet in order to qualify for this program.

    -   **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 certain methods
        to be included.

> Additionally, the House-passed version added a provision that the
> Secretary is to ensure that not less than 25 percent of the authorized
> funds are to be allocated among all the States, the population of
> which as of July 1, 2004, was more than 105 percent of the population
> of the same state as of April 1, 2000. In other words, \$25 million of
> the \$100 million authorized must be distributed among the states that
> have grown by over 5% in the last four years. If, for example, five
> states happen to have grown by 5% over those four years, this change
> will provide that each of those states gets no less \$5 million each
> for these Medicaid transformation grants.

-   **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.

-   **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.

-   **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.

-   **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.

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-   **State option to Operate Cash and Counseling Programs:** Allows
    states to establish and operate a program in which a Medicaid
    beneficiary could hire, supervise and manage the individuals
    providing his or her services (including personal care and related
    services or other home and community-based services).

***[Subtitle B: SCHIP]{.underline}***

-   **SCHIP**: The Conference Report includes provisions relating to the
    [State Children\'s Health Insurance
    Program](http://www.cms.hhs.gov/schip/) (SCHIP). These provisions
    cost \$20 million over five years. Specifically, the bill authorizes
    \$283 million for FY06 to states that meet a specified SCHIP
    shortfall. This money is to be directed to meet the health care
    needs of low-income children.

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

-   **Katrina-Related Health Care Costs**: The Conference Report
    authorizes \$2 billion to pay for health care costs for individuals
    affected by Hurricane Katrina. CBO estimates this money will all be
    spent in 2006.

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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. This provision was slightly modified by the
    Conference Report and costs \$80 million over five years (down from
    \$90 million).

-   **Implementation Funding:** Authorizes \$60 million to the Centers
    for Medicare and Medicaid Services for purposes of implementing
    Titles V (Medicare) and VI (Medicaid).