• Thanks to the Galen Institute, I ran across this interesting report on health care industry 2007 overview and 2008 trends projection prepared by Booz Allen Hamilton.
• The Centers for Medicare and Medicaid Services (CMS) published in the current Health Affairs journal a report on 2006 U.S. health care expenditures. The data is available here. The CMS press release advises in pertinent part that
  

  Health care spending growth in the United States accelerated slightly in 2006, increasing 6.7 percent compared to 6.5 percent in 2005, which was the slowest rate of growth since 1999. Health care spending, however, continues to outpace overall economic growth and general inflation, which grew 6.1 percent and 3.2 percent, respectively, in 2006.Out-of-pocket spending grew 3.8 percent in 2006, a deceleration from 5.2 percent growth in 2005. This slowdown is attributable to the negative growth in out-of-pocket payments for prescription drugs, mainly due to the introduction of the Medicare Part D benefit. Out-of-pocket spending accounted for 12 percent of national health spending in 2006; this share has steadily declined since 1998, when it accounted for 15 percent of health spending. Out-of-pocket spending relative to overall household spending, however, has remained fairly flat since 2003. The CMS found that overall private spending growth slowed in 2006. Private health insurance premiums grew 5.5 percent in 2006, which was the slowest rate of growth since 1997. Benefit payment growth also slowed, from 6.9 percent growth in 2005 to 6.0 percent in 2006. The slower growth reflects, in part, a decline in private health insurance spending on prescription drugs. The ratio of net cost of private health insurance (the difference between premiums and benefits) to total private health insurance premiums was 12.3 percent in 2006, slightly lower than 12.7 percent in 2005. At the aggregate level in 2006, businesses (25 percent), households (31 percent), other private sponsors (3 percent), and governments (40 percent) paid for about the same share of health services and supplies as they did in 2005. However, spending shifts did occur within major sponsor categories due to implementation of the Medicare Part D benefit. Medicare’s share of federal spending increased from 29 percent in 2005 to 34 percent in 2006, while Medicaid’s share decreased from 45 percent to 40 percent. For households, the share of Medicare spending attributable to payroll taxes and premiums increased slightly in response to first-time Medicare Part D premiums. Conversely, the out-of-pocket spending share decreased slightly due, in part, to the newly available prescription drug coverage through Medicare Part D. Total Medicaid spending declined for the first time since the program’s inception, falling 0.9 percent in 2006. The introduction of Medicare Part D, which shifted drug coverage for dual eligibles from Medicaid into Medicare, contributed to the decline in Medicaid spending growth. Other reasons for the decline include continued cost containment efforts by states and slower enrollment growth due to more restrictive eligibility criteria and a stronger economy. Spending growth for most personal health care services slowed in 2006. Hospital spending, which accounts for 31 percent of total health care spending, grew 7.0 percent in 2006, a decrease of 0.3 percentage points from 2005 and a continued deceleration from 2002 (when growth was 8.2 percent). The 2006 growth rate was partially driven by lower utilization of hospital services, especially within Medicare as fee-for-service inpatient hospital admissions declined. Spending for physician and clinical services also slowed, increasing 5.9 percent in 2006, which is 1.5 percentage points slower than in 2005 and the slowest rate of growth since 1999. The slowdown was driven by a deceleration in price growth, fueled by a near freeze on Medicare payments to physicians (whose fee schedule update was 0.2 percent in 2006) that influenced private payers as well. The implementation of the Medicare Part D prescription drug benefit affected a variety of indicators, including rates of growth of prescription drug spending and the share of drug spending accounted for by Medicare. The Medicare Part D benefit contributed to an increase in total Medicare spending, which grew 18.7 percent in 2006 compared to 9.3 percent in 2005. In addition, Medicare Advantage spending as a share of total Medicare spending increased from 14 percent in 2005 to 18 percent in 2006, in part due to a 25 percent increase in Medicare Advantage enrollment over the same period. At the same time, traditional fee-for-service enrollment declined 3.8 percent and its share of total Medicare spending fell from 86 to 82 percent. Prescription drug spending growth accelerated for the first time in six years—from a low of 5.8 percent in 2005 to 8.5 percent in 2006. Roughly half of this growth was due to increased use of prescription drugs, partly a result of coverage now available under Medicare Part D, as well as new indications for existing drugs, growth in therapeutic classes, and increased use of specialty drugs. However, a higher generic dispensing rate in 2006 helped to restrain prescription drug spending growth, which despite the acceleration still remained well below the average annual growth of 13.4 percent per year that occurred between the years 1995 and 2004. The higher rate of use of generic drugs was driven, in part, by the continued use of tiered co-payment structures, certain drugs going off patent, and the lack of new blockbuster drugs. Total prescription drug spending in 2006 was $216.7 billion, compared to $199.7 billion in 2005. Public funding sources, including Medicare and Medicaid, accounted for 34 percent of total drug spending, whereas in 2005 their share was approximately 28 percent. In addition to an increase in the share of prescription drug spending funded by public sources, the implementation of Medicare Part D also shifted Medicaid funding to Medicare for dually eligible individuals. Medicare’s share of total prescription drug spending increased from 2 percent in 2005 to 18 percent in 2006. Medicaid’s share of total drug spending fell from 19 percent in 2005 to 9 percent in 2006. Private funding for prescription drugs, including private health insurance and out-of-pocket spending, declined by 1.3 percent from 2005 to 2006; as a result, the private share fell from 72 percent in 2005 to 66 percent in 2006.

• Speaking of prescription drug expenses, the major pharmacy chain Walgreens announced last week that it does not plan to acquire a major prescription benefit manager, and CNNMoney.com reported that Express Script’s failed attempt to acquire the Caremark PBM has worked out OK for the company:
  

  If Express Scripts (NASDAQ:ESRX) was disappointed its bid for Caremark failed, it’s been crying all the way to the bank. Since March, when it lost out to drugstore chain CVS (NYSE:CVS) CVS for the rival pharmacy benefit manager, Express Scripts’ ESRX stock has nearly doubled in price.

• Finally, the Hartford Courant reported on a payment dispute between Aetna and out-of-network health care providers supported by the American Medical Association.

San Francisco, California, recently adopted an ordinance generally requiring local employers with at least 20 employees (50 employees for a non-profit) to pay at least a certain sum of money for employee health coverage or pay the same sum to the City. On December 27, 2007, the federal district court sitting in San Franciso ruled that the Employee Retirement Income Security Act of 1974, as amended (ERISA), preempts the San Francisco ordinance because it mandates that employers adopted ERISA governed health care plans for their employees.

I did not find that ruling particularly noteworthy. The U.S. Court of Appeals for the Fourth Circuit had reached a similar result in a case involving a Maryland law that required Wal-Mart to provide health care coverage for its employees. However, today, the U.S. Court of Appeals for the Ninth Circuit stayed that district court order and permitted San Francisco to enforce its ordinance. The San Francisco Chronicle summarized the opinion as follows:

[I]n today’s ruling, the appeals court said San Francisco has not required any employer to adopt a health plan or provide specific benefits, as long as the company complies with the ordinance by paying a fee. To comply, “employers need not have any (health) plan at all; and if they do have such a plan, they need not make any changes in it,” Judge William Fletcher said in the 3-0 ruling. He also said the hardships that the city and its residents would suffer from a delay in implementation would be far greater than the harm to restaurant owners from having to abide by the ordinance during the appeal process. “Otherwise-avoidable human suffering, illness and possibly death will result if a stay (of White’s ruling) is denied,” Fletcher said.

This issue is destined for U.S. Supreme Court review.

Happy New Year and welcome to the Ermer & Brownell, PLLC, website, the new location of the FEHBlog. It has been a slow week for FEHB Program related news. President Bush did sign into law the Freedom of Information Act reform bill known as the OPEN Government Act of 2007 . Congress returns from its holiday recess later this month, Govexec.com is predicting even more gridlock for the second session of the 110th Congress. Time will tell.

This is my last post of 2007. I hope that you find the FEHBlog useful. We are moving our website from gordon-ermer.com to ermerlaw.com effective January 1. Please continue to visit the FEHBlog on the website of our new law firm, Ermer & Brownell, PLLC.

The Equal Employment Opportunity Commission (EEOC) finally published on December 26 its final rule exempting employer sponsored health care benefits from the requirements of the Age Discrimination in Employment Act. The EEOC action is intended to override a Third Circuit U.S. Court of Appeals decision issued in 2000, and it permits employers to differentiate health benefits coverage based on whether or not the participant also has Medicare coverage. More information can be found in this Chicago Tribune article.

On December 29, the President signed into law the bill extending funding for the State Childrens Health Insurance Program through March 2009. The extension bill does not include the program expansion advocated by Congressional leadership and creates another issue for the 2008 election.

• The President signed the Consolidated Appropriations Act of 2008 (HR 2764) into law today. It turns out that there’s a fly in the ointment for employer sponsored health plans. This massive law includes a provision that gives the Secretary of Health and Human Services carte blanche to collect Medicare secondary payer data from health plans and employers according to Business Insurance. This provision takes effect in 2009.
• The Healthcare Information Technology Standards Panel (HITSP) has approved another set of healthcare information technology interoperability specifications to the American Health Information Community, which is the next step in the process leading to Secretary of HHS approval. The new specifications relate to the following topics:

  — Consumer Access to Clinical Information will assist patients in making decisions regarding care and healthy lifestyles. Accessible information could include registration information, medication history, lab results, current and previous health conditions,
  allergies, summaries of healthcare encounters, and diagnoses. (see sample:
  http://tinyurl.com/36jt7d).

  — Quality indicators will benefit providers by providing a collection of data for inpatient and ambulatory care, and will benefit clinicians by providing realtime or near-realtime
  feedback regarding quality indicators and contra-indications for specific patients.

  — Emergency Responder-Electronic Health Record will track and provide on-site emergency care professionals, medical examiner/fatality managers, and public health
  practitioners with needed information regarding care, treatment, or investigation of emergency incident victims.

  The Chairman of HITSP has his own blog here.

• Another legal battle between a brand name drug manufacturer and a generic drug manufacturer has erupted. Teva Pharmaceuticals has launched a generic version of Wyeth’s blockbuster heartburn medicine Protonix according to the New York Times. Wyeth has announced plans to sue Teva for patent infringement. For the time being, however, Teva has stopped distributing its generic verision while the parties discuss settlement. According to the Wall Street Journal, “Some analysts said the launch puts pressure on Wyeth to settle with Teva to allow marketing of a generic pill before the patent expires” in mid -2010. The Journal also reports that another generic manufacturer Sun Pharmaceutical Industries Ltd., of India, is putting pressure on Wyeth over its anti-depressant Effexor patent, which is Wyeth’s best seller and also expires in mid-2010. North Jersey.com explains that
  

  Sun Pharmaceutical Industries Ltd., a generics manufacturer in India, has applied for U.S. Food and Drug Administration approval to sell a drug with the same active ingredient as Effexor XR, but with an important difference: It’s an extended-release tablet, not a capsule. FDA approval of what is likely to be a lower-priced drug from Sun might come when patent protection for Effexor’s active ingredient, venlafaxine, runs out in June 2008. Patent protection for the capsule formulation expires later. Sun’s different formulation should allow it to sidestep Wyeth’s patent rights, and Wyeth already has told Sun it won’t sue for patent infringement.

Last summer, the Centers for Medicare and Medicaid Services published a final rule that provides for reimbursing pharmacies for generic drugs dispensed to Medicaid beneficiaries based on average manufacturer price (“AMP”) rather than the average wholesale price. The drug store trade associations, the National Association of Chain Drug Stores and the National Community Pharmacist Association, warned that the rule would have a dire impact on pharmacies and lead to thousands of closures. I expect that the rule also would lead to higher generic drug costs for the FEHB Program and other employer sponsored health plans. The pharmacy trade associations have been working for a legislative fix because the rule is derived from the Deficit Reduction Act of 2005.

On December 14, Judge Royce Lamberth of the U.S. District Court for the District of Columbia preliminarily enjoined CMS from enforcing the rule in the case of National Association of Chain Drug Stores v. HHS Civil Action No. 1:07-cv-02017. The judge entered a written order on December 19. CMS can appeal this order to the D.C. Circuit.

According to the NAPS press release on the preliminary injunction,

“NCPA will use this reprieve to convince Congress of the need for structural improvements in the Medicaid reimbursement system that will not handicap community pharmacies by paying them substantially below their acquisition costs.”With Congress now in adjournment, time has run out this year for
AMP fix legislation endorsed by NCPA: H.R.3140, H.R.3700, and S.1951. NCPA
intends to keep working through the holidays to gain further support for their
enactment when Congress returns in mid-January.

The AMP rule also provided for CMS to post the AMPs on a public web site. Implementation of that provision also has been blocked by the court order.

Open Season is over. Congress is off on its holiday break after passing an omnibus Fiscal Year 2009 appropriations bill that includes FEHB Program appropriations and the now standard FEHB Program appropriations provisions, e.g., Cost Accounting Standards exclusion, abortion coverage restriction, contraceptive coverage mandate. Congress also passed a law avoiding at least for six months the scheduled 10.1% reduction in Medicare reimbursement to physicians. Congress did not pass a mental health parity bill or a health information technology bill, but those bills along with the genetic non-discrimination bill, will be taken up again next year. But for now, there is a peaceful respite from change in the FEHB Program.

Congress completed its work for 2007 today by approving an omnibus appropriations bill, additional war funding, and a health extenders bill. The health extenders bill provides State Children’s Health Insurance Program with sufficient funding for the current program through March 2009 and it provides doctors with a half of one percent increase in Medicare reimbursement through June 2008. That’s a lot better than the scheduled 10.1% cut in Medicare reimbursement to physicians, and it’s good news for the FEHB Program which pays benefits secondary to Medicare on thousands of annuitant members.

The Members of Congress and Senators can now leave our fair city for their home districts. Mental health parity, genetic non-discrimination, and other health care issues will await their return in January 2008.

• The Wall Street Journal reports that Senate negotiators are crafting a Medicare fix bill that would be acceptable to the minority and the President because it would avoid the 10.1% Medicare cut in payments to physicians scheduled for January 1 without socking it to the Medicare Advantage plans. “The package being worked out in the Senate would cut more than $1 billion from a “stabilization fund” created in a 2003 bill to help faltering Medicare Advantage insurers, congressional aides said. The package also would cut an incentive fund passed by Congress last year to encourage physicians to report quality data to the government.” However, the fix would only last for six months. The bill may adopted this week, which would be a nice Christmas gift for FEHB plans that pay secondary to Medicare for thousand of members.
• Congress also has passed a Freedom of Information Act reform bill. According to the AP,
  

  The bill restores a presumption of disclosure standard committing government agencies to releasing requested information unless there is a finding that such disclosure could do harm

  Agencies would be required to meet a 20-day deadline for responding to FOIA requests. Their FOIA offices would have to forward requests for information to the appropriate agency office within 10 days of receiving them. It they fail to meet the 20-day deadline, agencies would have to refund search and duplication fees for noncommercial requesters. They also would have to explain any redaction by citing the specific exemption under which the blacked-out information qualifies. Nonproprietary information held by government contractors also would be subject to the law. The legislation also creates a system for the media and public to track the status of their FOIA requests. It establishes a hotline service for all federal agencies to deal with problems and an ombudsman to provide an alternative to litigation in disclosure disputes.

The Administration has not yet announced whether the President will sign the bill into law.

• Health Affairs published a web exclusive study on the FEHB Program’s mental health parity program. Under the FEHB Program’s well received approach, a plan must provide parity in network but not out of network. The study, funded by American Psychiatric Foundation, the National Association of Social Workers Foundation, and the American Psychological Association, concludes that “Parity proposals that do not require any coverage for out-of-network MH benefits may paradoxically have the unintended adverse consequence of decreasing access to mental health treatment.” It’s a foregone conclusion that the mental health parity bill coming out of Congress next year will require out-of-network parity, thereby increasing FEHB Program expenses.

• The House of Representatives is now considering an omnibus appropriations bill that includes funding for the FEHB Program (under Division D Financial Services). According to the Washington Post, the President is signaling that he will sign the bill if Congress also approves additional funding for the war effort. The omnibus bill would increase federal employee compensation by 3.5% rather than the 3.0% proposed by the President. Next step will be the Senate.
• The Office of Management and Budget has unveiled the website on federal contracts and grants required by the 2006 Federal Funding Accountability and Transparency Act. Click here.
• CMS and the National Institute of Standards and Technology will be hosting a very reasonably priced conference “to discuss challenges, tips, techniques and issues surrounding implementing, adhering to and auditing HIPAA Security Rule requirements.” The conference will be held on January 16, 2008, at the NIST’s Gaithersburg, MD, campus.