Life Science Compliance Update

May 14, 2015

Update on the Medical Device Tax Repeal Efforts

Medical Device

The Medical Device Tax, instituted as part of the Affordable Care Act, is a tax of 2.3 percent on the sale price of medical device products. There has been considerable pushback against the tax—with members of Congress from both sides of the aisle arguing that it stifles innovation and costs jobs. While there has been a lot of talk about a repeal, the issue has seemed to stall until recently.  

In late April, the United States Senate Committee on Finance held a hearing entitled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation and Patients.” In the lead-up to the hearing, Finance Committee Chairman Orrin Hatch (R-UT) stated that the Committee plans to mark up a bill to repeal the tax “soon,” notes Cooley Health Beat.  

The hearing itself is quite interesting. Senator Patrick J. Toomey (R-PA) started things off by holding up various medical devices—including a mechanical heart pump, a spinal implant, and a vagal nerve stimulator for epilepsy—all of which vastly improve patients’ lives but which took millions of dollars in losses to bring to market before ever showing a profit. The device tax only magnifies these losses. Toomey noted that at least one manufacturer, in order to offset the costs of the medical device tax, would be building its next factory outside the U.S. Further, the tax has cost jobs, as a number of speakers testified

Toomey also raised an important point when discussing how the tax works in practice:

My view is that the tax, the Medical Device Tax, is not only onerous on its scale, but it’s bad in its design. It is a tax on sales, not a tax on profits. And so these companies that I alluded to that spent large sums of money making these product and bringing them to market, they were losing money years, even when they started to have sales. The initial sales those years were not enough to be profitable. To impose a tax on those sales prior to there even being a profit, it just adds to the debt load that these companies have to carry. And there is only so much debt that can be financed. This is one of the concerns that I have. The design of this tax is very very unfortunate.

In the House: Protect Medical Innovation Act "prior to Memorial Day recess"

Even more recently, a group of 18 Democrats in the U.S. House of Representatives urged House leaders to pass H.R. 160, the "Protect Medical Innovation Act," that would repeal the device tax. The bill is sponsored by Rep. Erik Paulsen (R-Minn.) and Rep. Ron Kind (D-Wis). 

In a May 1 letter written by Rep. Scott Peters (D-Calif.) and co-signed by 17 other Democrats, the lawmakers said that the medical device tax is blocking new medical technology breakthroughs and ultimately harming patients. Furthermore, the tax is harming the employment outlook of a vibrant sector. “The medical technology industry directly employs over 400,000 Americans,” states the letter. “The industry is primarily comprised of small and medium-sized businesses and American companies representing 38% of the global market.” Importantly, “[o]f the 6,500 medical device manufacturers in the United States, 80% employ fewer than 50 employees," notes Peters. 

The letter was addressed to House Speaker John Boehner (R-Ohio), Minority Leader Nancy Pelosi (D-Calif.), Ways and Means Committee Chairman Paul Ryan (R-Wis.), and Committee Ranking Member Sander Levin (D-Mich.).He urged the House leaders to pass H.R. 160 by the Memorial Day recess. 

The sticking point in getting a medical device repeal has been the lack of a budget offset. Last year, the Joint Committee on Taxation estimated that the tax would raise about $28 billion over the next decade. H.R. 160 doesn’t include a way to offset that expected source of revenue. The White House has indicated that the President would veto a measure that doesn't account for the budget.

May 07, 2015

Over 500 Organizations Urge Congress to Repeal ACA's Independent Payment Advisory Board (IPAB)

  Healthcare reform

In an effort to curtail the rise in Medicare cost, the Affordable Care Act established the Independent Payment Advisory Board (IPAB), which would consist of 15 presidentially appointed members tasked with proposing Medicare cuts if spending growth exceeded certain inflation-based projections. IPAB has been the root of a fair deal of controversy, with opponents criticizing the provision for giving too much power to “15 unelected, unaccountable bureaucrats.” Others have termed the IPAB a “death panel,” given their power over Medicare reimbursements and ability to essentially ration care.

Despite the opposition, IPAB hasn’t been an active issue because Medicare spending has not continued to rise at a high rate over the last few years. In January, Modern Healthcare reported that “[n]ews about the 15-member panel, whose members have yet to be named, quietly reappeared last week when Congress agreed to reduce $10 million in funding for IPAB in the 2014 omnibus spending bill.” The provisions for IPAB come into effect if certain per capita spending surpasses certain targets, and “Medicare spending per enrollee grew just 0.7% in 2012, even slower than the 2.5% growth rate in 2011.”

Indeed, the IPAB seemed to have been lost amidst other healthcare news—including the repeal of SGR and insertion of new quality payment metrics.

However, yesterday, over 500 organizations wrote a letter to Congress to repeal the IPAB provisions of the Affordable Care Act. The organizations wrote that they found IPAB “not only poses a threat to that access but also, once activated, will shift healthcare costs to consumers in the private sector and infringe upon the decisionmaking responsibilities and prerogatives of the Congress.”

The letter to Congress states that an unelected board without adequate oversight or accountability would be taking actions historically reserved for the public’s elected representatives in the U.S. House and Senate.

The letter notes that once in place, IPAB must achieve mandated savings within a one-year time frame. Instead of pursuing long-term reforms to strengthen Medicare, IPAB would be more likely to achieve its targets by cutting payments to healthcare providers, the letter argues

“This would be devastating for patients, affecting access to care and innovative therapies,” the groups wrote, pointing out that the number of physicians unable to accept new Medicare patients due to low reimbursement rates has been increasing. “IPAB-generated payment reductions would only increase the access difficulties faced by too many Medicare beneficiaries. Furthermore, payment reductions to Medicare providers will almost certainly result in a shifting of health costs to employers and consumers in the private sector.”

The letter concludes: “We strongly support bringing greater cost-efficiency to the Medicare program. We also advocate continuing efforts to improve the quality of care delivered to Medicare beneficiaries. The Independent Payment Advisory Board will achieve neither of these objectives and will only weaken, not strengthen, a program critical to the health and well-being of current and future beneficiaries.”

The letter echoes the American Medical Association’s (AMA) concerns with the IPAB. “While some applaud the new advisory board as a mechanism for controlling health care costs outside the influence of political processes and pressures,” AMA states, “others have criticized the scope of its authority and the lack of flexibility in its mandate.” AMA has stated that they “continue[ ] to fight for the elimination of the Independent Payment Advisory Board, which will impose arbitrary across-the-board cuts to physicians and other providers.”

Legislation to repeal the board sponsored by Reps. Phil Roe (R-Tenn.) and Linda Sánchez (D-Calif.) has 222 co-sponsors, including 19 Democrats, reports The Hill

April 20, 2015

Obama Signs SGR Repeal Legislation; Value-Based Payment Model Comes Into Full Force in 2019


On Thursday, April 16, President Obama signed into law the legislation ending and replacing the Sustainable Growth Rate (SGR) Formula, which would have reduced Medicare physician payments by 21 percent. Perhaps foreshadowing the dawn of a new age of physician reimbursement, Obama signed the bill outside on a beautiful spring day.  

Late Tuesday, the Senate voted 92-8 to approve the legislation. The American Medical Association (AMA) responded favorably to the news, stating that the bill, entitled the Medicare and CHIP Reauthorization Act (MACRA), “will ensure access to care for seniors, military personnel and their families, children and low income adults.” The Act “once and for all gets rid of the flawed [SGR] formula that has plagued the health care system for more than a decade, paving the way for physicians to implement new delivery and payment reforms that will improve quality of care and reduce costs.”

Under SGR, Medicare’s budget was calculated by linking Medicare spending to economic growth. However, once health care costs began rising faster than the growth of the economy, physicians were at continual risk for cuts to their reimbursements. For over a decade Congress passed temporary “doc fixes” to keep the reimbursements steady. The new legislation eliminates the need for repeated fixes by repealing the SGR law and replacing it with a new system that eventually ties payments to participation in value-based payment models. Most of the changes are not slated to take effect until 2019. Doctors will receive an annual update of 0.5 percent in each of the years 2015 through 2019.

In 2019, the payment models change significantly. The National Review summarizes the value-based goals:

The heart of the bill is a new, two-tiered indexing system for physician fees. Physicians who agree to participate in Medicare Accountable Care Organizations (ACOs)--or in similar alternative payment models--will receive a permanent 0.75 percent increase in their fees each year. Physicians that don’t join an ACO will be placed into the “Merit-Based Incentive Payment System,” or MIPS. On average, physicians in MIPS will receive a payment increase of 0.25 percent every year — far below the annual payment increase for physicians in ACOs.

Merit-Based Incentive Payment System (MIPS)

In addition to MACRA's payment incentives to encourage providers to participate in alternative payment models--like medical homes, accountable care organizations, and bundled care--the law introduces the concept of the Merit-Based Incentive Payment System for physicians not in these alternative models. MIPS “consolidates the three existing incentive programs, continuing the focus on quality, resource use, and meaningful electronic health record (EHR) use with which professionals are familiar, but in a cohesive program that avoids redundancies,” states the House Bill explainer.

Under MIPS Medicare’s current quality reporting programs will be streamlined and simplified into one merit-based incentive payment system, referred to as “MIPS.” This consolidation will reduce the aggregate level of financial penalties physicians otherwise could have faced. The three programs contemplated by the bill to be consolidated into the MIPS are:

  • The Physician Quality Reporting System (PQRS), which incentivizes professionals to report on quality of care measures through a combination of incentive payments and negative payment adjustments (View CMS's page on PQRS here);
  • The Value-Based Modifier (VBM) Program, which adjusts payment based on performance on PQRS quality measures (and Medicare cost data), though the value modifier (VM) is a separate adjustment from the PQRS payment adjustment (CMS's page here); and
  • "Meaningful Use" of EHRs, which stipulates certain requirements in the use of certified EHR systems (Health IT's page here).

Under MACRA, starting in 2019, payments will be adjusted based on provider performance in the MIPS, rather than the above individual programs. Each year, HHS will establish a list of MIPS quality measures through rulemaking. Eligible professionals will be assessed in four performance categories, namely:

  • Quality (using measures from existing quality programs and new ones developed by professional organizations);
  • Resource use, using measures developed by the current VBM program;
  • EHR ‘meaningful use’ (using requirements established under current regulation); and,
  • A new component, “clinical practice improvement activities,” which “gives credit to professionals working to improve their practices and facilitates future participation in APMs.”

Professionals will receive a “composite performance score” based on their performance in each of the above categories. 

As noted above, the MIPS quality measures will be fleshed out in rulemaking--and here is where the rubber will hit the road for the future of healthcare delivery. Matching up the proper incentives with the most cost-effective quality care is a topic for another day. 

Several interesting articles have been written about what quality metrics should dictate payments to physicians. The Wall Street Journal's "What Measures Should Be Used To Evaluate Health Care?" provides a variety of viewpoints about the best measures for patient care. 


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