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Below is this week’s “Capitol Hill Healthcare Update,” which is posted on Mondays when Congress is in session. Highlights this week include a lame duck update on year-end health bills and tax provisions; lawmakers reacting to a federal judge ruling the Affordable Care Act is unconstitutional; Sen. Hatch seeks to update Hatch-Waxman; health providers targeted by proposals to reduce the budget deficit; and more.

GOVERNMENT SHUTDOWN: CONGRESS WAITS ON TRUMP

Congressional Republicans are waiting for President Donald Trump to signal whether he would accept a short-term funding extension that would push back this week’s risk of a partial government shutdown into January.

The House last week adjourned until Wednesday, leaving only two days before a Friday deadline when funding expires for about 25 percent of the government that employs 380,000 federal workers. Expiring funding would impact operations at the departments of Agriculture, Commerce, Justice, Homeland Security, Interior, State, Transportation, and Housing and Urban Development as well as several smaller agencies.

While most spending issues for those departments have been resolved, the White House and congressional Democrats are at loggerheads over Trump’s demand for $5 billion for additional fencing along the Mexican border. Although Republicans control Congress until January, any budget bill needs 60 Senate votes, requiring Trump to win over some Democrats.

GOP appropriators on Capitol Hill are preparing two scenarios: a stopgap funding bill that would extend current spending into January and a bill that would keep homeland security funding flat while approving new spending for the other departments.

Most federal healthcare operations – including at HHS, CMS and other agencies – were approved earlier and would be unaffected by a shutdown. But the FDA, which is funded through the agriculture spending bill that has not yet passed Congress, could see nonessential functions stop in a shutdown.

GOVERNMENT SHUTDOWN: WHAT HAPPENS TO THE FDA?

If the government closes, the FDA won’t accept regulatory submissions such as new drug and medical device applications that require user fees, and nearly half of the agency’s workforce could be furloughed.

Neither the FDA nor HHS has issued guidelines for what happens in the event of a shutdown this week. But when the government was briefly closed in January during a separate budget battle, <a href="https://www.hhs.gov/about/budget/fy-2018-hhs-contingency-staffing-plan/index.html">HHS contingency plans</a> called for many functions funded by industry user fees to continue while other agency operations shuttered.

Although FDA staff were available for emergency facility inspections during that shutdown, routine inspections stopped. The agency said it lacked legal authority to accept user fees and that it couldn’t accept regulatory submissions that required an industry fee.

FDA furloughed 42 percent of its workforce earlier this year, but the agency said it could have responded to emergencies such as drug shortages, and outbreaks related to foodborne illness and infectious diseases. FDA also said it could have managed high-risk recalls and pursued criminal enforcement and civil investigations.

The House earlier this year <a href="https://appropriations.house.gov/news/documentsingle.aspx?DocumentID=395290">voted to increase FDA’s fiscal 2019 budget by $308 million</a>, and the Senate voted to <a href="https://www.appropriations.senate.gov/news/committee-advances-fy2019-agriculture-appropriations-bill">boost FDA funding by $159 million</a>. But final agency funding has been stalled amid Congress’ larger budget standoff.

 PHARMA’S PART D ‘DOUGHNUT HOLE’ FIX STALLS IN LAME DUCK

Pharmaceutical manufacturers’ efforts to change mandated discounts they provide in the Medicare Part D prescription drug “doughnut hole” continue to stall amid opposition from Democrats and the White House.

Medicare covers most drug costs up to $3,750 annually, and beneficiaries are responsible for costs above that and up to $5,000, when catastrophic coverage beings. To help seniors pay for medicine in that coverage gap, manufacturers had been required to provide 50 percent discounts. But an erroneous Congressional Budget Office fiscal forecast led lawmakers in February to increase that mandated discount to 70 percent – costing the industry billions of dollars.

House Speaker Paul Ryan, R-Wis., has been leading the effort to lower the discount to 63 percent. This summer, more than 200 House lawmakers – including several dozen Democrats – called on congressional leaders to press for that change.

But House Democrat leaders have blocked it, and the White House is reluctant to support a plan that would save the industry billions of dollars annually at the same time the Trump administration is trying to advance policies to reduce drug prices.

CHANGES TO ACA TAXES UNLIKELY AMID DEMOCRAT OPPOSITION AS GOP DELAYS VOTE

House Republicans last week <a href="https://waysandmeans.house.gov/urgent-disaster-relief-leads-tweaked-year-end-tax-relief-package/">introduced</a> but then postponed a vote on new legislation that would delay several Affordable Care Act tax provisions.

The <a href="https://docs.house.gov/billsthisweek/20181210/BILLS-115HASAHR88-RCP115-86.pdf">measure</a> would suspend the 2.3 percent excise tax on medical devices through 2024. It would delay the tax on high-cost health coverage until 2023, and suspend until 2022 an annual fee on health insurance providers. The legislation also includes separate tax changes to education and retirement savings while also including corrections to the 2017 tax reform law.

While Republicans may be able to pass the bill on a party-line vote in the House, it’s doubtful they would pick up the nine Democrats needed to win passage in the Senate. House Democrats, who will take control of the chamber next month, want to delay the tax vote until they have more leverage to shape the legislation and extract policy concessions from Republicans.

SENATE FATE UNCERTAIN FOR BILL COORDINATING CARE FOR KIDS 

The House last week <a href="http://clerk.house.gov/evs/2018/roll428.xml">overwhelmingly approved</a> a catch-all <a href="http://docs.house.gov/billsthisweek/20181210/HR7217.pdf">Medicaid bill</a> that would allow states to coordinate care for children with complex medical needs, but its future in the Senate is unclear.

As lawmakers enter the final days of the lame duck session and with a Friday deadline to approve funding to avert a partial government shutdown, the Medicaid legislation hangs in the balance. It could be added to a year-end spending bill if one is approved. A less clear pathway would be as a standalone bill in the Senate, where any senator could block it.

Introduced by retiring <a href="https://joebarton.house.gov/">Rep. Joe Barton</a>, R-Texas, the bill includes an updated version of Barton’s <a href="https://www.childrenshospitals.org/newsroom/press-releases/2018/lawmakers-focus-on-helping-children-with-bipartisan-ace-kids-act">ACE Kids legislation</a>, which would allow states to use an existing <a href="https://www.medicaid.gov/medicaid/ltss/health-homes/index.html">Health Homes</a> model to coordinate care for children with medically complex conditions.

It also would boost funding for state Medicaid programs to help transition individuals with chronic conditions and disabilities out of institutional care, include a three-month extension of spousal impoverishment rules that protect elderly couples from having to bear the full expenses of nursing home care, and exclude complex rehabilitative manual wheelchairs from Medicare competitive bidding.

To help pay for these programs, the bill includes legislation introduced by Sens. <a href="https://www.wyden.senate.gov/">Ron Wyden</a>, D-Ore., and <a href="https://www.grassley.senate.gov/">Chuck Grassley</a>, R-Iowa, that would permit HHS to fine pharmaceutical manufacturers that overcharge Medicaid by misclassifying their drugs as generics.

BUDGET FORECASTERS SAY CHANGES TO HEALTH PROGRAMS COULD SAVE BILLIONS

The Congressional Budget Office (CBO) last week <a href="https://www.cbo.gov/publication/54667">catalogued policy changes</a> that lawmakers could consider to reduce the budget deficit, including sharp reductions in federal health programs that would affect both providers and beneficiaries.

To help inform lawmakers, CBO periodically issues policy options to reduce the deficit, which currently stands at $779 billion. Entitlement programs like Social Security and Medicare are included along with proposed cuts to discretionary spending such as defense, education and transportation.

Most of CBO’s proposed healthcare spending cuts and program changes would be politically explosive and would be unlikely to win congressional approval, including:
<ul>
 	<li>Reduce Washington’s $375 billion annual commitment to Medicaid by establishing per-enrollee spending caps. Republicans tried to do this in 2017 as part of repealing the Affordable Care Act. But that effort split the party, was defeated in the Senate and likely contributed to the GOP’s losses in the midterm elections last month.</li>
 	<li>Change Medicare beneficiary cost-sharing and Medigap rules, including creating a single annual deductible for Part A and Part B and capping enrollees’ out-of-pocket expenses. Depending on the details, the government could save nearly $100 billion between 2022 and 2028.</li>
 	<li>Increase over five years to 35 percent the premiums for both Part B outpatient services and the Part D prescription drug benefit, reducing government spending by $389 billion between 2020 and 2028.</li>
 	<li>Increase the Medicare eligibility age from 65 to 67, saving $18 billion between 2023 and 2028.</li>
 	<li>Require pharmaceutical manufacturers to pay a rebate to the federal government for brand-name drugs sold to low-income enrollees in the Medicare Part D program, reducing taxpayer spending by $154 billion between 2021 and 2028.</li>
 	<li>Consolidate all mandatory federal spending for graduate medical education into a grant program for teaching hospitals, reducing spending by $34 billion between 2020 and 2028.</li>
</ul>
SENATE DEMOCRATS KEEP UP PRESSURE ON DRUG INDUSTRY

Four Democratic senators last week <a href="https://www.blumenthal.senate.gov/newsroom/press/release/blumenthal-harris-merkley-and-klobuchar-introduce-bill-to-end-predatory-price-gouging-on-lifesaving-drugs">introduced legislation</a> that would give the federal government tools to end “predatory price gouging on lifesaving drugs.”

The <a href="https://www.blumenthal.senate.gov/download/cure-high-drug-prices-act">legislation</a> would require drug companies to submit “justifications” to HHS for price increases of more than 10 percent. If HHS found a price increase “in substantial excess of an amount that could be reasonably justified,” the department could deem the manufacturer guilty of “price gouging.”

Under the bill, HHS could force manufacturers to reimburse consumers, private payers and Medicare and Medicaid. It also could impose civil penalties up to three times the “excessive price” and refer the matter to the Justice Department.

The bill by Sen. <a href="https://www.blumenthal.senate.gov/">Richard Blumenthal</a>, D-Conn., was co-sponsored by Sens. <a href="https://www.harris.senate.gov/">Kamala Harris</a>, D-Calif., <a href="https://www.klobuchar.senate.gov/public/">Amy Klobuchar</a>, D-Minn. and <a href="https://www.merkley.senate.gov/">Jeff Merkley</a>, D-Ore.

Blumenthal’s legislation is just the latest congressional salvo aimed at the pharmaceutical industry. Sen. <a href="https://www.baldwin.senate.gov/">Tammy Baldwin</a>, D-Wis., last week <a href="https://www.baldwin.senate.gov/press-releases/baldwin-letter-to-pfizer">criticized a pharmaceutical company</a> for “<a href="https://www.baldwin.senate.gov/imo/media/doc/2018%2012%2011%20-%20Baldwin%20Letter%20to%20Pfizer%20Jan%20Price%20Announcement.pdf">playing political games</a>” by raising prices for 41 of its drugs, several months after the company said it would delay price increases.

Earlier this month, <a href="https://www.sanders.senate.gov/">Sen. Bernie Sanders</a>, I-Vt., said he wants to tie Medicare drug expenses to prices paid by consumers in countries where costs are fixed by government price controls. If pharmaceutical manufacturers refused to lower prices, the federal government could invalidate the drug’s patent and approve an immediate generic version.

HATCH BILL WOULD BLOCK DUAL CHALLENGES TO DRUG PATENTS

Retiring Senate Finance Committee Chairman <a href="https://www.hatch.senate.gov/public/index.cfm/home">Orrin Hatch</a>, R-Utah – co-author of <a href="https://www.congress.gov/bill/98th-congress/senate-bill/01538">the 1984 law</a> that established the pathway for generic drug approval – <a href="https://www.hatch.senate.gov/public/index.cfm/releases?ID=749DEA60-9D88-4824-9FEC-E22172D83DB2">introduced legislation</a> last week that would require drug patent challengers to choose either the Hatch-Waxman framework or a separate Patent and Trademark Office (PTO) process.

Congress in 2012 overhauled patent law and created the PTO’s inter partes review to crack down on so-called patent trolls. Hatch said generic drug and biosimiliars manufacturers have increasingly used IPR to circumvent the patent challenge process in Hatch-Waxman. Hedge funds with no interest in drug manufacturing also have filed IPR challenges, he said, hoping to profit from stock selloffs triggered by the IPR filings.

Hatch said <a href="https://www.hatch.senate.gov/public/index.cfm?a=Files.Serve&amp;File_id=2A32DA99-7D52-4CCC-A04F-284E95C9EA84">his bill</a> would restore the “careful balance” of ensuring a vibrant generic drug industry while ensuring innovator companies are incentivized to invest in research, development and clinical trials. Industry stakeholders, such as the <a href="https://www.bio.org/press-release/bio-statement-hatch-waxman-integrity-act-2018">Biotechnology Innovation Organization</a>, praised the senator’s bill.

The <a href="https://www.hatch.senate.gov/public/index.cfm?a=Files.Serve&amp;File_id=3CB18669-3FD1-4D38-BADA-A85A78C34E73">legislation</a> was co-sponsored by Sen. <a href="https://www.tillis.senate.gov/public/">Thom Tillis</a>, R-N.C., and companion legislation was introduced in the House by Rep. <a href="https://flores.house.gov/">Bill Flores</a>, R-Texas. The bill is unlikely to win congressional approval in the lame duck session or gain favor next year, when Democrats will control the House.

LAWMAKERS PROMISE VOTES, HEARINGS IN WAKE OF LATEST ACA COURT RULING

The decision Friday by a federal judge in Texas to strike down the Affordable Care Act (ACA) as unconstitutional triggered pushback from Democrats, including two leaders who advocated congressional intervention.

Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas ruled the law is invalid without the “individual mandate,” which Congress effectively repealed in last year’s tax reform law by eliminating the tax penalty for individuals who failed to purchase health insurance.

The ruling will be appealed, and it could take years to reach the Supreme Court, if it even gets that far. The ACA remains in effect pending that appeal.

Senate Democrat Leader <a href="https://www.schumer.senate.gov/">Chuck Schumer</a>, D-N.Y., <a href="https://www.realclearpolitics.com/video/2018/12/16/chuck_schumer_on_awful_obamacare_ruling_were_going_to_fight_this_tooth_and_nail.html">said</a> Congress should intervene in the case by passing new legislation. Incoming House Speaker <a href="https://www.democraticleader.gov/">Nancy Pelosi</a>, D-Calif., called the ruling “<a href="https://www.democraticleader.gov/newsroom/121418-4/">absurd</a>” and said when Democrats take control of the House in January they will “move swiftly to formally intervene in the appeals process.”

Congressional Republicans – many of whom were criticized during the midterm elections for undermining the ACA’s protections on pre-existing conditions – took a <a href="https://energycommerce.house.gov/news/press-release/walden-statement-on-obamacare-ruling/">more measured response</a>.

The ruling provides an “opportunity for truly bipartisan healthcare reform that protects those with pre-existing conditions, increases transparency and choice, and lowers costs,” said House Energy and Commerce Committee Chairman <a href="https://walden.house.gov/">Greg Walden</a>, R-Ore.

Incoming Senate Finance Committee Chairman Chuck Grassley, R-Iowa, <a href="https://twitter.com/ChuckGrassley/status/1074000916892782595">tweeted</a> after the ruling that the ACA is “fatally flawed” and that his committee will hold hearings on the health law next year.


BIPARTISAN BILL WOULD AID COVERAGE OF ORAL ONCOLOGY MEDICINE

Insurance companies couldn’t apply different cost-sharing requirements for oncology medicines that are administered orally or intravenously, according to <a href="https://www.smith.senate.gov/content/us-sens-tina-smith-jerry-moran-introduce-bipartisan-bill-make-life-saving-oral-cancer">bipartisan legislation</a> introduced in the Senate last week.

Health plans’ medical benefit typically covers traditional cancer medications administered intravenously, and patients face a moderate co-payment. But oral and self-administered medicines are usually covered under a plan’s pharmacy benefit, which frequently requires higher out-of-pocket costs.

Patients prescribed oral oncology drugs can face hundreds or even thousands of dollars more in cost-sharing than patients receiving an IV cancer drug, according to the Leukemia &amp; Lymphoma Society, which <a href="http://www.lls.org/lls-us-hq/news/us-senate-introduces-cancer-drug-parity-act">endorsed the Senate bill</a>.

Introduced by Sen. <a href="https://www.smith.senate.gov/HomePage">Tina Smith</a>, D-Minn., the bill would prevent insurance plans governed under federal laws from applying different cost-sharing to oral and self-administered cancer medicines. Forty-three states have enacted similar laws affecting state-regulated plans.

The federal so-called <a href="https://smithsenate.box.com/s/o26k8p1x2eezrbkl00auhivbksz7i9jl">oral parity bill</a> was co-sponsored by Sens. <a href="https://www.moran.senate.gov/public/">Jerry Moran</a>, R-Kan., <a href="https://www.murphy.senate.gov/">Chris Murphy</a>, D-Conn., and <a href="https://www.wicker.senate.gov/public/">Roger Wicker</a>, R-Miss. Similar legislation was introduced last year in the House by Reps. <a href="https://lance.house.gov/">Leonard Lance</a>, R-N.J., and <a href="https://higgins.house.gov/">Brian Higgins</a>, D-N.Y.