Senate Lays Groundwork for Fall Health Care Negotiations Before Recessing This Month

Manatt on Health

The Big Picture

Before leaving for its August recess, the Senate made progress on two major Biden Administration priorities by passing bipartisan infrastructure legislation and a fiscal year (FY) 2022 budget resolution. While these actions were pivotal steps in advancing President Biden’s “Build Back Better” agenda, based on the American Jobs Plan and the American Families Plan, released earlier this year, the fate of both of these efforts—and the health care changes they envision—are far from certain. When Congress returns to Washington, the prospects for significant health care legislation may depend on whether the progressive and moderate Democratic wings that together control a closely divided Congress can work together to find common ground.

Bipartisan Infrastructure Legislation

On Tuesday, the Senate passed the Infrastructure Investment and Jobs Act in a final, bipartisan vote of 69 to 30. After months of policy negotiations between the White House and a bipartisan group of senators, the final bill text included $550 billion in new spending on a variety of physical infrastructure investments. While not primarily focused on health policy, two policies related to prescription drugs were included to help pay for the legislation:

  • Delay of the Medicare Part D Rebate Rule: The bipartisan infrastructure bill includes a three-year delay of the Trump-era rebate rule, pushing the effective date to January 1, 2026, and yielding savings of an estimated $51 billion. In the November 2020 final rule, the Department of Health and Human Services (HHS) along with the HHS Office of Inspector General (OIG) issued an interim final rule that would change the system for negotiating drug prices under Medicare Part D. The so-called “rebate rule” revises the regulatory discount safe harbor to the anti-kickback statute such that rebates that pharmaceutical manufacturers pay to Medicare Part D are no longer protected by the safe harbor. The rule creates a new safe harbor to protect discounts that are made at the time of sale. Based on a 2019 analysis, the rule was projected to increase Part D premiums by 25% and increase federal spending by $196 billion over ten years. Because of litigation challenging the rule’s hasty promulgation, earlier this year the Biden Administration delayed the effective date of the rebate rule by one year, to January 2023. The additional three-year delay included in the infrastructure legislation counts as savings under congressional budget rules.
  • Part B Drug Rebates Based on Vial Size: The bipartisan infrastructure legislation also included a new requirement for drug companies to refund Medicare for leftover medicine when vials contain more of a physician-administered drug than a patient needs. While many medications are typically dosed based on a patient’s weight or specific clinical need, most pharmaceutical manufacturers produce only a single-dose vial size. In turn, a significant amount of medication is being discarded from these uniformly sized vials, leading to waste of the unused drugs and unnecessary payments. The text of the infrastructure bill mirrors the text of the Recovering Excessive Funds for Unused and Needless Drugs (REFUND) Act, requiring drug companies to refund Medicare Part B for unused portions of drugs packed in vials. According to the Congressional Budget Office (CBO), this provision will save around $3 billion over ten years.

FY 2022 Budget Resolution and Health Policy Priorities

With work on the bipartisan infrastructure package complete, the Senate passed the FY 2022 budget resolution. Last month, Senate Majority Leader Chuck Schumer (D-NY), Senate Budget Committee Chair Bernie Sanders (I-VT) and members of the Senate Budget Committee announced agreement on a $3.5 trillion FY 2022 budget resolution. Last week, Senate Budget Committee Chair Bernie Sanders (I-VT) released the text of the budget resolution, which reflected the outline agreed to earlier this summer and included budget reconciliation instructions for House and Senate committees to craft policy recommendations in order to provide new investments and savings. Once the House and Senate agree to a joint budget resolution, legislation crafted pursuant to these budget reconciliation instructions can be passed with a simple majority in the Senate, clearing the way for the Democratically-controlled Congress to advance key health policy proposals that it shares with the President.

The budget resolution passed by the Senate is only a framework, providing a high-level blueprint for and deferring policy development work to congressional committees. However, a Budget Committee memorandum provided to Democratic senators provides an overview of the policies under each committee’s jurisdiction that are expected to be considered for inclusion in forthcoming budget reconciliation legislation based on the allotments made in the budget resolution. The health policy priorities include:

  • Expanding Medicare Benefits: The memorandum includes investment, under the Finance Committee, to expand “Medicare to include dental, vision, hearing benefits and [to lower] the eligibility age.” Duration, coverage and scope of these potential supplementary benefits remain unknown. While there is a significant push from the progressive wing of the Democratic caucus to include vision, dental and hearing benefits, the probability of lowering the Medicare eligibility age remains low given the particularly high cost associated with that major policy change.
  • Closing the Medicaid “Coverage Gap”: Providing a federal coverage option in the 12 states that have not adopted Medicaid expansion under the Affordable Care Act (ACA) is a central priority for the White House and many congressional Democrats, and is specifically included in the memorandum to senators on the budget resolution. Although Sens. Raphael Warnock (D-GA), Tammy Baldwin (D-WI) and Jon Ossoff (D-GA) recently introduced the Medicaid Saves Lives Act (S. 2315) to create a Medicaid look-alike program and add additional expansion incentives for states through a significant federal medical assistance percentage (FMAP) increase, at this point it appears more likely that Congress could instead rely—at least temporarily—on making individuals in non-expansion states eligible for Marketplace tax credits as a more straightforward way to close the coverage gap.
  • Extending the Affordable Care Act Expansion From the American Rescue Plan: The American Rescue Plan, which President Biden signed into law on March 11, included a broad expansion of the ACA’s advance premium tax credit (APTC), by both expanding the generosity of the credits for those who already qualified and expanding eligibility for Americans to qualify to receive the tax credits. The American Rescue Plan tax credits expire at the end of plan year 2022. Democrats are expected to include a provision in reconciliation legislation to extend these tax credits further. The duration of the extension will depend on overall spending levels but the extension is not likely to be permanent.
  • Investing in Home- and Community-Based Services: Earlier this year, Sen. Bob Casey (D-PA) and Rep. Debbie Dingell (D-MI) introduced the Better Care Better Jobs Act, following President Biden’s call, in the American Jobs Plan, for a $400 billion investment in Medicaid home- and community-based services (HCBS). The budget resolution framework includes “long-term care for seniors and persons with disabilities,” suggesting that reconciliation legislative text may be based on Sen. Casey and Rep. Dingell’s proposal to enhance Medicaid funding for HCBS, strengthen the HCBS workforce, and permanently authorize spousal impoverishment protections and the Money Follows the Person demonstration; specific amounts and duration of this dedicated funding remain unclear.
  • Promoting Health Equity: The Democratic memorandum signals an intent for both the Senate Finance Committee and the Senate Health, Education, Labor and Pensions (HELP) Committee to invest in maternal, behavioral and racial justice initiatives, without specifying details.
  • Addressing Health Care Provider Shortages: Reconciliation legislation could include new investments in Graduate Medical Education as well as in primary care, including by supporting Community Health Centers and the National Health Service Corps.

Notably, the numbers in the budget resolution are nonbinding, and despite passage of the budget resolution, Senate Democrats have not reached consensus around advancing legislation with a $3.5 trillion price tag. Decisions about overall spending levels are one factor that will determine what policies are included in legislation later this year, and the duration of those policies.

Another key factor that will determine the size and scope of forthcoming health care legislation is the extent to which Democrats can find offsetting savings, which are expected to come in large part from efforts to lower the price of prescription drugs. The White House last week weighed in on the importance of congressional action to address patient costs on prescription drugs, highlighting several policies that the Administration supports, including allowing Medicare to negotiate drug prices; capping Medicare beneficiaries’ out-of-pocket costs; and penalizing drug companies when drug prices rise faster than inflation. Congress has tried in the past to advance such policies and it is not a foregone conclusion that Democrats in the House and Senate will come to agreement on significant enough changes to pay for the broad investments described above.

Using the spending levels included in the budget resolution as guideposts, committee staff will work on drafting policy details and getting cost and savings estimates from CBO throughout August to set up consideration of the budget reconciliation legislation this fall. The budget resolution set a September 15 deadline for committees to submit reconciliation legislation, but this deadline is likely to slip and drag these negotiations further into the fall.

Looking Ahead

Despite significant progress in the Senate last week, it may be months before Congress enacts either the bipartisan physical infrastructure bill or a Democrats-only reconciliation bill carrying various health care and other social program priorities. House Majority Leader Steny Hoyer (D-MD) announced that the House will return the week of August 23 to consider the FY 2022 budget resolution. However, House Speaker Nancy Pelosi (D-CA) has held firm on her intent to delay a vote on the bipartisan infrastructure package until after the Senate passes reconciliation legislation, including investments in health policy priorities and other social programs. Though the Speaker is getting pressure from both flanks of the Democratic caucus, this strategy is meant to ensure that progressive House Democrats support the bipartisan infrastructure bill and that moderate House Democrats support the reconciliation bill. These complicated dynamics signal a long road ahead, and negotiations and debate on the budget reconciliation legislation are likely to continue well into the fall months. All told, despite the Senate’s busy legislative week, the new investments outlined in the budget resolution and passed by the Senate this week are far from reaching the President’s desk.



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