The complex Medicare law requires annual formulaic adjustments to physician reimbursement amounts under Medicare Part B. The Centers for Medicare and Medicaid Services (CMS) described the formula as follows:

The formula compares the actual rate of growth in spending to a target rate, which is based on such factors as the growth in number of Medicare fee-for-service beneficiaries and statutory or regulatory changes in benefits. If the actual rate of growth exceeds the target rate, the update is decreased; if it is less, the update is increased.

The formula has been producing payment reductions. For the past few years, Congress has waived the mandated reduction. The Tax Relief and Health Care Act of 2006 waived the 5.0% reduction that the formula would have required for 2007.

The AMA News is reporting that

Medicare pay to physicians will be reduced about 10% next year if current law remains unchanged, the Congressional Budget Office said Dec. 28, 2006, in its final cost assessment of the legislation that averted a 5% cut this year.

Future Congressional relief from the formulaic reductions may be complicated by the Democrat’s new pay-go policy. As there are many federal annuitants with primary Medicare coverage enrolled in the Federal Employees Health Benefits Program, Medicare payment cuts are picked up by the FEHB Program for those enrollees. This should be interesting.

In his column last week, the respected Newsweek columnist Robert Samuelson criticized the selfishness and cynicism of “older boomers (say, those born by 1955).” I don’t mind being criticized as selfish or cynical (after all I live and work inside the Beltway), but I do question the older boomer label as applied to me. After all I was way to young for Woodstock! I was even surprised to learn yesterday in the Post that Grace Slick (who performed at Woodstock — I saw the movie) is alive and painting. I thought that she had met the same fate as her friends, Jim Morrison and Janis Joplin.

John Snow, the CEO of the Nation’s largest prescription benefit manager, Medco, observed this week that his company stands to benefit from the Caremark merger no matter which suitor, CVS or Express Scripts, prevails. According to Reuters, Snow said that “We’ve been getting calls from retailers asking how they can stay aligned with us as the possibility of a CVS-Caremark combination blooms. I think that is nothing but good for us and our customers.” Although I have no idea whether this is a coincidental or related development, Medco’s common stock price rose almost 10% this week from $53.67 last Friday to $58.71 today.

This afternoon, the House passed H.R. 4, the bill that would require the Secretary of Health and Human Services to negotiate lower Medicare Part D drug prices by a vote of 255 – 170 (with 10 absentees). In a press conference today, the President’s press secretary Tony Snow said:

First, there is a Medicare prescription drug bill that’s making its way through the House, H.R. 4. Both the Congressional Budget Office and the Department of Health and Human Services — their actuaries say the bill is going to have little or no effect on federal spending and provide no substantial savings to the government or Medicare beneficiaries. We have a Medicare prescription drug reform that has been saving people significant amounts of money, it is effective. If this bill is presented to the President, he will veto it.

Of course, the bill still must pass the Senate, but the Constitution (Art I, § 7) requires a 2/3s vote of the House (290 House votes) and Senate (67 Senate votes) to override a Presidential veto.

The House is set to vote tomorrow tomorrow on H.R. 4, the bill that would require the Secretary of Health and Human Services (HHS) to negotiate lower Medicare Part D drug prices. Yesterday, the Congressional Budget Office concluded that the bill will not lower Medicare Part D costs as also suggested by critics of the bill. (Finally the Washington Post and the New York Times have recognized that the VA relies on statutorily mandated pricing, rather than negotiations for its discounts and that the VA healthcare system is not analogous to Medicare).

Today, HHS Secretary Leavitt explained in the Washington Post why he opposes the bill, and later the President announced that he will veto the bill if Congress enacts it. (A similar bill, S. 250, was introduced in the Senate today.) It is highly unlike that Congress could overturn that veto with the required 2/3s vote.

Express Scripts has filed a Delaware lawsuit seeking to void the $695 million breakup fee required by the CVS/Caremark merger agreement, according to the Wall Street Journal.

A CMS study on 2005 U.S. health care spending was published today in Health Affairs. The abstract explains that

In 2005, U.S. health care spending increased 6.9 percent to almost $2.0 trillion, or $6,697 per person. The health care portion of gross domestic product (GDP) was 16.0 percent, slightly higher than the 15.9 percent share in 2004. This third consecutive year of slower health spending growth was largely driven by prescription drug expenditures [greater use of generic drugs]. Spending for hospital and physician and clinical services grew at similar rates as they did in 2004.

In contrast, the U.S. consumer price index (urban) increased 3.15% from December 2004 to December 2005. AHIP issued a press release on the study.

Yesterday, after the Caremark board of directors spurned the Express Scripts merger proposal, Express Scripts announced that it is making four nominations to the Caremark board through a proxy vote effort. Today, it was revealed in an SEC filing that an Express Scripts subsidiary “bought 591,000 shares of Caremark Rx Inc. last month for almost $30 million.” CVS is not pleased.

In a separate development, a federal judge in Nashville, TN, where Caremark is headquartered, has dismissed two shareholder suits challenging the CVS merger proposal “on grounds that [the suits] cover the same issues as a separate case pending in chancery court in Delaware,” where Caremark is incorporated.

The Washington Post reports that Acting Centers for Medicare and Medicaid Services Administrator Leslie Norwalk expressed doubts about the value of the bill — H.R. 4 — that would authorize her agency to negotiate Medicare Part D drug prices with manufacturers, echoing criticisms published in yesterday’s New York Times (see 1/7 FEHBlog entry). The Department of Health and Human Services announced today that the current competitive system under which the private Medicare Part D drug plan sponsors negotiate with the manufacturers is producing lower Medicare Part D program costs. Of course, the sponsors of HR 4 beg to differ. The bill is expected to be put to vote on January 12 pursuant to Section 510 of H. Res. 6, which the House passed on January 5.

Yesterday, Caremark’s Board of Directors unanimously rejected holding discussion with Express Scripts over its merger proposal and “affirmed its strong commitment to Caremark’s pending merger of equals with CVS Corp.” In a detailed press release, Caremark further explained that

As a result of having received antitrust clearance, integration planning for a CVS/Caremark merger is underway, assuring achievement of synergies starting in 2007. Caremark and CVS have filed a joint proxy statement with the Securities and Exchange Commission and are proceeding forward to a vote on the pending merger at special shareholders meetings to be held in the first quarter of this year.

The Caremark proxy statement for this shareholders meeting can be viewed on the SEC website. is publicly available CVS expressed its appreciation of the Caremark Board’s decision.

Express Scripts issued its own press release which seeks to rebut the Caremark Board’s rationale for rejecting its proposal and announcing that

Express Scripts intends to file a proxy statement in connection with Caremark’s special meeting of stockholders at which the Caremark stockholders will consider the CVS Merger Agreement and matters in connection therewith.