WASHINGTON WIRE

February 10, 2006
Issue 88

In this issue, you'll find:

President Bush Releases FY 2007 Budget Proposal
Medicare Part D Solutions and Possible Savings to States
Asbestos Legislation Debate Stalled in the Senate
Hearings and Events

Top Story

President Bush Releases FY 2007 Budget Proposal

On Monday, February 6, 2006, President Bush released his fiscal year (FY) 2007 Budget Proposal. The Administration's $2.77 trillion budget includes $870.7 billion for annually appropriated discretionary programs and the remainder in entitlement spending including Social Security, Medicare and Medicaid.

The Budget Proposal recommends large cuts to or the elimination of 141 programs, for a savings of almost $15 billion to the federal government. Total discretionary spending for the Department of Health and Human Services (HHS) under the President's Budget would fall to $67.6 billion, a 2.3 percent decrease from FY 2006. Additionally, the President's budget proposes significant changes to the Medicare and Medicaid programs, as well as several new initiatives aimed at controlling health care costs.

As part of the Medicare proposal, the Bush Administration proposes to achieve $2.1 billion in savings in FY 2007 and $22.2 billion over the next five years by reducing Part A Medicare payments. Included in these proposals, the typical annual increase (i.e. "market basket") in the cost of delivering hospital care would be lowered by 0.45 percentage points in FY 2007, and 0.4 percentages points in FY 2008 and 2009.

The President's Medicare Part B budget proposals would save $460 million in 2007 and $15.6 billion over five years. The budget supports a transition to a "pay-for-performance" system for provider reimbursements. As part of this effort, the Administration is encouraging quality data reporting to CMS by providers.

The President's budget also proposes to phase-out Medicare's bad debt reimbursement to providers over the next four years, thereby encouraging providers to more rigorously pursue debt collection from beneficiaries. Additionally, in an effort to promote long-term sustainability of the Medicare program, the President's budget proposes to solidify an MMA "soft-target" budget provision that requires the Medicare Trustees to issue a warning and recommendation when general revenues are projected to exceed 45 percent of total Medicare financing. Under the budget proposal, if Congress does not respond legislatively to the recommendations, an automatic four-tenths of one percent reduction would be applied to all Medicare provider payments for each year that the 45 percent threshold is surpassed.

The President's budget includes a number of Medicaid-related proposals, although a comprehensive reform of the program was not offered. Generally, these provisions target waste, fraud and abuse, waiver reform, and benefit category restrictions and would save approximately $13.2 billion over the next five years. Additionally, many of the proposals supported in the President's budget reflect changes that will be implemented through the recently passed budget reconciliation bill, the Deficit Reduction Act of 2005.

The President's budget also proposes a number of initiatives aimed at containing general health care costs that were outlined in his recent State of the Union address. The President proposes spending $156.1 billion over ten years to promote the use of health savings accounts (HSA) which allow individuals enrolled in high-deductible health care plans to contribute tax-free funds to pay out-of-pocket health care expenses. Additionally, a total of $168 million is requested to promote the use of Health Information Technology (HIT).

In terms of discretionary spending, the Centers for Disease Control and Prevention (CDC) would receive $5.8 billion in FY 2007, down from the $6.2 billion appropriated in FY 2006 and the National Institutes of Health (NIH) would receive level funding of $28.6 billion in FY 2007 under the President's budget. Considering the inflationary effects of funding research, this equates to a cut in funding for NIH.

Congress is expected to consider these recommendations as it begins that FY 2007 budget and appropriations process.

Health Care News

Medicare Part D Solutions and Possible Savings to States

On Wednesday, February 8, 2006, during a Senate Finance Committee hearing, Centers for Medicare and Medicaid Services (CMS) Administrator, Mark McClellan stated that CMS would attempt to resolve the majority of Medicare Part D implementation problems by mid-April.

Since implement of the Medicare prescription drug benefit began on January 1, 2006, beneficiaries and states have faced a number of significant administration and access problems.

Dr. McClellan noted that CMS would not implement a monthly cut off date for enrollment to guarantee beneficiaries their benefits and stated that a contractor would be hired by February 15, 2006 to begin processing state claims for repayment of Medicare fees and administrative costs incurred during the transition. Dr. McClellan stated that the reimbursement may extend into March depending on the volume of claims received.

In a related story, Health and Human Services Secretary Michael Leavitt announced on Thursday, February 9, 2006, that states may see savings of $700 million in 2006 due to the decrease in costs of prescription drugs. Secretary Leavitt attributes the drop in prices to the Part D drug program. States would achieve the savings through a "clawback," or the amount of money that states pay back to the government for the savings they receive due to the Part D program.

Asbestos Legislation Debate Stalled in the Senate

On Thursday, February 9, 2006, Senator John Ensign (R-NV) raised a budgetary point of order on the Fairness in Asbestos Injury Resolution (FAIR) Act of 2005 (S. 852), temporarily halting debate on the issue.

Senator Ensign states that the bill violates spending restrictions as set forth by the Budget Act, which states that no more than $5 billion in new spending can be approved until 2016. Sponsored by Senate Judiciary Committee Chairman Arlen Specter (R-PA) and Ranking Member Patrick Leahy (D-VT), the FAIR Act calls for a $140 billion trust fund to be set up for victims of asbestos.

The Act also calls a halt to all asbestos lawsuits. The monies in the trust fund would come from private sources and not taxpayers, however, many conservative Republicans in the Senate are concerned that the funds will not be raised and the majority of the trust fund will fall on the shoulders of taxpayers. Opponents of the legislation want stricter medical criteria to determine eligibility for trust fund dollars. Currently the Congressional Budget Office has not released a cost estimate for the legislation.

Upcoming Events

Hearings and Events

Monday, February 13, 2006

Innovation in Health Information Technology
America's Health Insurance Plans
News Conference/Briefing
Noon, Mansfield Room Capitol Bldg

Tuesday, February 14, 2006

Fiscal 2007 Budget: Veterans' Affairs
Senate Veterans' Affairs Committee
Full Committee Hearing
10 a.m., 418 Russell Bldg.

Ryan White AIDS Services Funding Act
Senate Health, Education, Labor and Pensions Committee
Full Committee Other Event
10 a.m., 430 Dirksen Bldg.

Fiscal 2007 Budget: Veterans' Health Affairs
House Veterans' Affairs - Subcommittee on Health
Subcommittee Hearing
2 p.m., 334 Cannon Bldg.

Older Americans Act Reauthorization
Senate Health, Education, Labor and Pensions - Subcommittee on Retirement Security and Aging
Subcommittee Hearing
2:30 p.m., 430 Dirksen Bldg.

Wednesday, February 15, 2006

Fiscal 2007 Appropriations: Labor/HHS/Education
Senate Appropriations - Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
Subcommittee Hearing
9:30 a.m., 192 Dirksen Bldg.

Fiscal 2007 Budget: Overview
House Ways and Means Committee
Full Committee Hearing
10:30 a.m., 1100 Longworth Bldg.

Fiscal 2007 Budget: Health Care Priorities
House Energy and Commerce Committee
Full Committee Hearing
2 p.m., 2123 Rayburn Bldg.

Thursday, February 16, 2006

Fiscal 2007 Appropriations: Labor, HHS and Education
House Appropriations - Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
Subcommittee Hearing
10 a.m., 2358 Rayburn Bldg.

For More Information

For further information on any topics discussed or publications listed, or to get copies of anything mentioned in this alert, please call (202) 466-6550 and ask for the Legislative Practice Group.

Powers Pyles Sutter & Verville P.C. is a full service law firm specializing in health care and education law and located at 1875 Eye St., NW 12^th Floor, Washington DC 20006