- Effects of the New Federal Spending Package on the Health Sector
- January 30, 2015 | Author: Eric A. Klein
- Law Firm: Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office
In mid-December, President Obama signed into law a $1.1 trillion spending bill known as the “Consolidated and Further Continuing Appropriations Act, 2015” or “Cromnibus.” This post explores provisions that relate to the health sector and Affordable Care Act (ACA) implementation.
The spending package allocates just over $60 million to the Office of the National Coordinator for Health Information Technology for the ongoing development and advancement of interoperable health IT. An emphasis on interoperability resounds as another provision limits aspects of Department of Defense and Department of Veterans Affairs spending until the department’s report on a plan to achieve electronic health record interoperability between them.
The Act allocates just over $14.9 million for health IT adoption (and other quality improvement measures) in rural hospitals. An additional $1 million is available to fund telehealth initiatives in rural areas.
Among other provisions affecting insurance, the Act mandates that the ACA’s risk corridor program be budget neutral. The program seeks to incentivize insurers to offer qualified health plans in the face of significant uncertainty by transferring funds from plans with lower than projected costs to those with allowable costs that are higher than anticipated. According to the spending package, the Centers for Medicare & Medicaid Services (CMS) may not apply resources from accounts funded by the Act towards risk corridor payments. This limits the agency to funding the program through collections.
While insurers may have depended on risk corridor payments in setting rates for 2014 and 2015, budget constraints should not come as a surprise. Department of Health & Human Services (HHS) guidance issued earlier in 2014 set forth that the program would be implemented “in a budget neutral manner.” While HHS anticipated that collections would be sufficient to cover expenditures, the department also stated that payments would be reduced pro rata to the extent of any shortfall.
A second insurance-related provision amends section 833 of the Internal Revenue Code, which grants tax benefits to Blue Cross and Blue Shield plans, as well as certain other qualifying health care organizations. Section 833 benefits apply only to an organization with a medical loss ratio (MLR) of at least 85 percent. The IRS published final regulations in January 2014 providing that the MLR numerator—defined as the organization’s total premium revenue expended on reimbursement for clinical services provided to enrollees—does not include amounts spent on activities to improve health care quality. (The MLR denominator is an organization’s total premium revenue for a taxable year.)
The Act’s amendment aligns section 833’s MLR definition with that provided by section 2718 of the ACA, pursuant to which costs associated with activities to improve health care quality may be counted in the numerator alongside medical claims. Examples of activities affected by the change include case management, care coordination, and care compliance initiatives, and investments in health information technology to support such initiatives. The provision is retroactively applied to taxable years beginning after December 31, 2009.
The Act does not address other controversial aspects of section 833, such as the scope of the benefits provided to nonprofit health plans, and whether there are possible means for an otherwise eligible organization to mitigate the consequences of having an insufficient MLR.
The spending package cuts appropriations for the Independent Payment Advisory Board (IPAB) by $10 million. While it has not yet been operationalized, IPAB is a 15-member panel created and empowered by the ACA to achieve cost savings in the Medicare system. The ACA appropriated $15 million a year for the entity. In addition, CMS is prohibited from using Medicare program funds for non-Medicare ACA activities.
Prevention and Public Health
Finally, the Act places some restrictions and requirements on spending under the ACA’s Prevention and Public Health Fund. These provisions generally appear to address concerns over transparency. For example, HHS must establish a publicly accessible website to provide information regarding the use of available funding.
 The full text of the Act is available here http://docs.house.gov/billsthisweek/20141208/CPRT-113-HPRT-RU00-HR83sa.pdf
 Department of Health & Human Services. Risk Corridors and Budget Neutrality. Apr. 11, 2014.