Dec 21, 2017

Washington Healthcare Update

This Week: Taxes, Government Funding Bill and the OIG says Drug Misclassifications resulted in billions not paid in rebates.

Note: The next edition will be January 16. Happy Holidays and a Happy New Year!

1. Congress



2. Administration

3. Courts

4. Reports

1. Congress


Final Tax Legislation Makes Health Care Changes

The House passed the conference version of the GOP tax bill 227-203. The Senate followed with a party line vote. Because of issues identified by the Senate parliamentarian, three provisions in the bill do not follow what is known as the Byrd rule and the House had to vote on the Senate-passed version.  

The provisions in question include using 529 savings accounts for home school, the short title of the Tax Cut and Jobs Act and part of the criteria used to determine whether the endowments of private universities are subject to the legislation’s new excise tax.  

The final legislation for the tax package proposes zeroing out the penalty levied on most people who fail to purchase insurance starting in 2019. This move effectively eliminates the individual mandate of the Affordable Care Act. This would mark the GOP’s first major legislative blow to the ACA after months of unsuccessful attempts to repeal and replace the law.

The package also preserves and temporarily expands a tax deduction for people facing large medical expenses. Under the bill, individuals could deduct medical costs that exceed 7.5 percent of their adjustable gross income for the 2017 and 2018 tax years. After that, the threshold would return to its current 10 percent.

The agreement also cuts in half the benefits of the orphan drug tax credit. The House wanted to eliminate the credit entirely. Pharmaceutical companies can use the orphan drug credit to claim a credit equal to 50 percent of their clinical testing expenses when researching medicines for diseases that affect fewer than 200,000 Americans. Under the new proposal, they will be able to claim only 25 percent. The tax credit is one element of a 1983 law credited with bringing to market more drugs to treat “orphan” diseases.

Government Funding Bill in Flux

The federal government runs out of money at midnight on Dec. 22 and Congress is grappling with how to get past that deadline without a shutdown. It is likely that Congress will do a streamlined continuing resolution to Jan. 19 that includes funding for CHIP for two quarters of the year and permits further redistribution of existing funds. It is unlikely that the market stabilization provisions championed by Sen. Susan Collins (R-ME) will be included in the continuing resolution, but will be dealt with in January in the larger spending proposal in January. Provisions known as Medicare Extenders will also wait until January.

House May Take Up Disaster Relief

As soon as today the House could take up a third disaster relief bill, H.R. 4667, that costs $81 billion. Most of the money will be funneled to FEMA, Community Development Block Grants and the U.S. Army Corps of Engineers to pay for recovery efforts from hurricanes and wildfires. But there are also a number of items to address health care needs:

  • CDC gets $200 million for mosquito eradication and infectious disease prevention efforts;
  • $80 million is slated for hiring emergency workers and replenishing emergency medical supplies;
  • Community Health Centers receive $60 million for building projects and operations;
  • SAMHSA gets $20 million to pay for behavioral health treatment; and
  • NIH is allocated $15 million to repair or rebuild nonfederal medical research facilities.

Democrats are angry about what’s not included in the bill: funding for Medicaid beneficiaries in Puerto Rico and the U.S. Virgin Islands. They had sought roughly $5 billion over two years to prevent the territories from running out of money early next year.


Drug Pricing

MACPAC, the congressional advisory panel that studies Medicaid, put forth last week a number of ways the insurance program could reduce drug costs. Proposals include pushing Congress to amend the rebate policy for line-extension drugs. A drafting error in the ACA has minimized the effect of a policy meant to bring down the costs of these drugs, which are slight modifications on the original version, like an extended-release product. They also want CMS to finalize the definition of line extension drugs to ensure rebates are properly collected. CBO estimates this would reduce Medicaid spending by $1-$5 billion over five years.

The advisers also discussed a policy that would prevent brand-name drug companies from considering the price of an authorized generic along with the actual brand drug price when calculating rebates for the branded version. And they discussed ramping up enforcement to ensure manufacturers are properly classifying drugs and paying the right rebates. The committee will offer formal recommendations for a vote in a future meeting.

Graham Cassidy Johnson Déjà Vu?

Sens. Graham, Cassidy and Johnson say they are developing a strategy to revive their Affordable Care Act repeal and replacement proposal in 2018. The authors of the legislation are reviewing how to redo the bill’s spending formulas and how to build support. 

Graham-Cassidy was the fourth repeal bill to fail over the summer began and would have replaced the health care law’s funding for Medicaid expansion and private insurance subsidies with block grants.

2. Administration

HIPAA Guidance for 21st Century Cures Act Rolled Out

HHS’s Office for Civil Rights today rolled out a battery of HIPAA guidance and educational materials related to the opioid crisis and mandates from the 21st Century Cures Act, H.R. 34 (114).

The publications include two webpages on HIPAA and mental health, along with guidance on sharing substance use disorder data with a patient’s family or caregivers. The package also includes guidance on HIPAA and research, a mandate from 21st Century Cures.

The office is convening a working group on HIPAA coverage of research disclosures and uses of protected health information. A report is planned on whether policy related to such disclosures should be changed.

CMS Tells States It Will Not Accept Certain Financing in 1115 Waivers

On Dec. 15, the Centers for Medicare & Medicaid Services (CMS) released a letter to states announcing that CMS will no longer be accepting state proposals to finance Medicaid 1115 demonstrations by drawing down federal funds for programs that have historically been paid for by states outside of Medicaid. These time-limited arrangements, known as Designated State Health Programs (DSHP), effectively allow states to bypass paying their usual share of Medicaid expenses for demonstration programs. Authority for DSHP in current demonstrations will continue until the end of the state’s current demonstration period but will not be extended or renewed.

The letter is available on at

FDA Releases Draft Guidance on Orphan Drug Loophole

The FDA released draft guidance Dec. 19 that aims to resolve a loophole that allows drug companies to avoid conducting studies of certain drugs in pediatric patients.

The technicality allowed drug companies to obtain an orphan drug designation for a pediatric class of an otherwise common adult disease, then only study the drug in the adult population. Current law exempts orphan drugs from pediatric study requirements, even in a situation where the company receives a variety of benefits because of that population.

The FDA draft guidance says it will no longer grant orphan drug designations to drugs for pediatric subpopulations of common diseases unless the use of the drug in children meets the regulatory criteria for an orphan subset or unless the disease in the pediatric subpopulation is considered a different condition in the adult population.

FDA will implement the policy after it publishes the final version of the guidance document. In the interim, it will refrain from issuing final decisions on requests for pediatric subpopulation orphan designations.

FDA Approves Gene Therapy for Genetically Inherited Blindness, New Guidance Promised 

On Dec. 19, the FDA-approved Spark Therapeutics’ Luxturna, a gene therapy used to treat patients with a rare form of genetically inherited blindness and the first FDA-approved directly administered gene therapy that targets a disease caused by mutations in a specific gene. 

FDA also will issue disease-specific guidance on the development of gene therapy products.  Those guidances are to “lay out modern and more efficient parameters—including new clinical measures for the evaluation and review of gene therapy for different high priority diseases where the platform is being targeted,” the FDA commissioner said in an announcement.

3. Courts

CSR Suit Settlement Could Clear Way for AGs’ Related Suit

The Trump administration, Democratic attorneys general and House Republicans reached a settlement that if approved would effectively scrap a federal D.C. district court ruling that HHS lacked authority to provide insurers ACA cost-sharing reduction payments absent a congressional appropriation. This would clear the way for the AGs’ related case challenging President Donald Trump’s decision to halt the payments. The D.C. district ruling was appealed by the Obama administration but the appeal had been on hold for over a year as the Trump administration weighed its stance.

The Trump administration told the court it decided to settle and drop the appeal because it agreed with House Republicans that the CSR payments were illegal. The federal court had let the CSR payments continue during the appeal, but the Trump administration cut off CSR funding in October.

The House, the administration and the AGs filed the settlement in the U.S. Court of Appeals for the District of Columbia; it is subject to approval by the lower court.

At issue is the legality of the cost-sharing reduction payments made to issuers for lowering out-of-pocket expenses for consumers enrolled in certain silver-level products. The GOP-led House argued that the Obama administration violated the law by distributing the funding without a specific appropriation. In 2015, Judge Rosemary Collyer surprised stakeholders first by ruling that the House had standing to sue the administration, and then by ruling in favor of the House on the merits, and thus blocked the payments. However, the judge allowed the administration to continue making the payments during the appeals process.

After Trump won the presidential election in November 2016, the House GOP and White House requested the appeal be put on hold to give the new administration time to consider next steps. The court allowed the abeyance to continue through the year, but in August also agreed to allow the group of Democratic AGs to intervene in the case to argue in support of the CSRs. In October, after the Trump administration decided to officially act on its ongoing threats to stop making the payments, the AGs filed a separate case in the Northern District Court of California.

Under the settlement, the parties requested that the federal D.C. district court issue an “indicative ruling” stating that if the appeals court remands the case, the court will vacate the portion of its filing that blocked the payments pending an appropriation. “If the district court grants that motion, the Parties and the States will file a motion that asks the court of appeals to remand the case to allow the district court to grant the motion as provided in its indicative ruling,” according to the settlement.

The parties also recognize the executive branch continues to disagree with the district court’s nonmerit holdings, including the conclusion that the House had standing and cause of action to bring the suit. “The Parties agree that because subsequent developments have obviated the need to resolve those issues in an appeal in this case, the district court’s holdings on those issues should not in any way control the resolution of the same or similar issues should they arise in other litigation between the House and the Executive Branch.”

The Democratic attorneys general, a recent addition to the case, benefit from the settlement because it paves the way for movement in their Northern District of California suit challenging Trump’s decision to cut off the CSRs.

Judge Blocks Trump Administration Rules on Birth Control Coverage 

On Friday, Dec. 15, a federal judge in Pennsylvania blocked the Trump administration from enforcing new rules that would allow virtually any employer to claim a religious or moral objection to the Affordable Care Act’s birth control coverage mandate.

Judge Wendy Beetlestone granted Pennsylvania’s request for a preliminary injunction, saying the commonwealth could suffer “serious and irreparable harm” from the rules. The administration’s new policy would greatly expand the exemptions to the health law’s requirement to provide FDA-approved contraception at no cost.

“The Commonwealth’s concern is absent available cost-effective contraception, women will either forgo contraception entirely or choose cheaper but less effective methods—individual choices which will result in an increase in unintended pregnancies,” Beetlestone wrote in her 44-page opinion. “That in turn will inflict economic harm on the Commonwealth because unintended pregnancies are more likely to impose additional costs on Pennsylvania’s state-funded health programs.”

In addition, a federal judge in California heard arguments over the same issue earlier this week and is expected to issue a ruling soon. Four other states—Delaware, Maryland, New York and Virginia—have joined California in the motion.

4. Reports

Trust for America’s Health Finds Lack of Investment in Health Preparedness

The Trust for America’s Health issued a report critical that the U.S. does not invest adequately in health preparedness capabilities that and instead relies on inefficient federal emergency funding packages every time a disaster strikes. According to the report, since 2002 (the year after 9/11), federal funds for basic preparedness have been cut in half, and 25 states failed to meet five out of ten key indicators of public health preparedness. Only 19 states and Washington, D.C., increased or maintained public health funding in the last fiscal year.

To read the report:

GAO: Drug Industry: Profits, Research and Development Spending, and Merger and Acquisition Deals

GAO-18-40, November 17

The GAO was asked to examine changes in the drug industry. This report describes: (1) how the financial performance and structure of the industry have changed over time; (2) how reported R&D spending and new drug approvals have changed; and (3) what is known about the potential effects of consolidation on drug prices and new drug development. The GAO, identified key trends within the worldwide drug industry from 2006 through 2015, including:

•     Estimated pharmaceutical and biotechnology sales revenue increased from $534 billion to $775 billion in 2015 dollars.

•     About 67 percent of all drug companies saw an increase in their annual average profit margins from 2006 to 2015. Among the largest 25 companies, annual average profit margin fluctuated between 15 and 20 percent. To read the report:


HHS OIG Releases Report on Drug Misclassifications

Misclassification of drugs in Medicaid will likely cost the government over $1 billion in unpaid rebates, according to an HHS inspector general’s report. At least 885 drugs in 2016 were misclassified. 

According to the report drug companies may have owed Medicaid an additional $1.3 billion in rebates from 2012 to 2016 for the 10 potentially misclassified drugs with the highest total 2016 reimbursements. These companies paid only $199 million in rebates over this time period.

Congress asked OIG to look into drug misclassifications and Medicaid following the concern over the rising prices of Mylan’s EpiPen. Mylan had been classifying the EpiPen as a generic drug for Medicaid rebate purposes since 1997.

In the report, the OIG raised questions about CMS authority to compel drug companies to correct inaccurate classifications. CMS also doesn’t maintain a database of potential errors. OIG suggested CMS seek legislative authority to let it compel drug companies to change their rebate classifications or determine whether on its own it could suspend companies from Medicaid until misclassifications are addressed.

Fifty-four manufacturers potentially misclassified their drugs, but four companies were responsible for 54 percent of the potential misclassifications, OIG found.

To read the report:

If you have any questions, contact the following individuals at McGuireWoods Consulting:

Stephanie Kennan, Senior Vice President
Anne Starke, Research Associate

Founded in 1998, McGuireWoods Consulting LLC (MWC) is a full-service public affairs firm offering infrastructure and economic development, strategic communications & grassroots, and government relations services. McGuireWoods Consulting is a subsidiary of the McGuireWoods LLP law firm and has been named in The National Law Journal's special annual report, "The Influence 50," for the past several years. In the most recent report, McGuireWoods Consulting was ranked 15th of the 1,900 government relations firms in Washington, D.C.

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