Legislative Watch

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March 2002

By George G. Olsen, JD

Reviewing President Bush's proposed budget offers insight into the administration's legislative initiatives and the possible resolutions it will undergo before it is ratified.

At the beginning of each year, members of Congress, federal regulators and policymakers, and interest groups of all types anxiously await the President's proposed budget for the upcoming fiscal year. The budget proposal is critical for several reasons.

First, it provides a clear statement of the priorities of the White House for the next year and offers guidance on the legislative initiatives that the administration will pursue in Congress. The budget also delineates regulatory efforts that the President proposes the various agencies of the federal government undertake.

Second, the President's budget lays the foundation for work on the budget resolution that Congress is supposed to pass each year to govern the appropriations process.

Third, the budget document informs interest groups as to whether the President supports legislation, regulations, or policies of importance to them. This in turn helps them fabricate strategies for accomplishing their objectives in Congress or the regulatory agencies.

On February 4, 2002, President Bush released his budget plan for fiscal year (FY) 2003 that begins on October 1, 2002. Dispersed throughout the budget proposal are numerous sections addressing federal spending on health care issues. In an effort to provide a sense of the depth and breadth of the health care initiatives encompassed by the budget-as well as appreciation for the enormous amount of federal funds spent on health care each year-a synopsis follows of the parts of the President's budget that address health care issues.

DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS)

The President's budget for HHS for FY 2003 is $489 billion, a 6.3% increase over 2002.
The budget calls for $4.3 billion for bioterrorism preparedness, an increase of $1.3 billion, or 45%, above FY 2002.
Streamlining efforts in 2003 will focus on HHS' human resources, public affairs, legislative affairs, and building and facilities management functions.
In 2003, HHS will reduce the number of human resources offices from 40 to four.
HHS will streamline its 50 public affairs offices and more than 20 legislative affairs offices into one office for public affairs and one centralized legislative affairs office.
The budget consolidates facilities construction and maintenance activities for the National Institutes of Health (NIH), Centers for Disease Control and Prevention (CDC), and Health Resources and Services Administration (HRSA) in the Office of the Secretary so that HHS can manage buildings competitively across the department.
The FY 2003 budget provides $3.9 billion in additional funding for NIH thereby doubling the FY 1998 level to $27.2 billion.
The budget includes $1.8 billion for bioterrorism research, including development of an improved anthrax vaccine, and laboratory and research facilities construction and upgrades related to terrorism.
The FY 2003 budget provides $5.5 billion for cancer research at the National Cancer Institute and other NIH institutes.
$100 million of NIH funds for FY 2003 are dedicated to the global fund to fight HIV/AIDS, malaria, and tuberculosis.
The budget expands the number of research grants funded by NIH to 35,920, an increase of 8,800 from those underwritten in 1998.
The President's budget request for the Federal Drug Administration (FDA) totals $1.727 billion including $1.432 billion in budget authority and $295 million in user fees. This represents an 8% increase above FY 2002.
The $295 million in user fees includes $272 million anticipated under the Prescription Drug User Fee Act (PDUFA) and additional user fees proposed for implementation of the Mammography Quality Standards Act ($16.4 million), export certification ($1.6 million), and the color certification program ($5.1 million).
The FY 2003 budget provides $159 million to continue the FDA's counterterrorism programs.
$28.6 million of the proposed budget is for inflation-related pay increases for FDA staff.
In FY 2003, $5 million is allocated for the improvement of patient protection against medical errors involving the use of FDA-regulated drugs, biological products, and medical devices. The budget proposal calls for improved reporting systems, expanded surveillance of risks associated with vaccines and biologicals, and enhanced identification of potential product tampering.
$4.6 million of the budget is for expansion of the FDA's generic drugs program by hiring additional product reviewers and plant inspectors, and by more closely monitoring the quality of imported generic drugs and bulk drug substances.

Medicare

Mandatory spending for Medicare under the budget proposal would increase by $4.1 billion to $234.5 billion.
Drug card. HHS will seek to implement a Medicare-endorsed prescription drug card to give beneficiaries "immediate access to drug discounts and other valuable pharmacy services." Medicare will endorse drug cards that meet "high standards for managing pharmacy services and providing discounts" and that give seniors information to identify the card that provides the best services and discounts.
Drug benefit. The FY 2003 budget dedicates $190 billion over 10 years for targeted improvements and comprehensive Medicare modernization, including a subsidized prescription drug benefit, better insurance protection, and better private options for all beneficiaries.
Enhanced federal match. The budget proposes to begin phasing in comprehensive drug coverage for lower-income Medicare beneficiaries up to 150% of the federal poverty level. States would be allowed to expand drug coverage to Medicare beneficiaries up to 100% of the poverty level at current matching rates. As an added incentive for states to expand coverage up to 150% of the poverty level, the federal government would pay 90% of the state's costs of expansion above 100% of the poverty level. The states would be responsible for the remaining 10%. The budget contends that this policy would eventually expand drug coverage for up to 3 million persons without drug assistance.
Model Medicaid waiver. The administration proposes to develop model waivers to allow states to reduce drug expenditures and expand drug-only coverage to more Medicare beneficiaries. States would have the flexibility to use competitive approaches to providing drug benefits (preferred drug lists, prior authorization), including Medicare-endorsed drug cards.
Medicare + Choice. The budget proposes to reform the current payment system for Medicare + Choice plans "by tying plan payments to the health care cost increases plans are actually experiencing" and by "adjusting payments to better reflect beneficiaries' health status." The administration's budget also gives Medicare + Choice plans more flexibility in designing their plans and proposes bonus payments for new types of plans that enter the program. The budget proposes an increase of $3.3 billion over 10 years for these purposes.
Medigap. The 2003 budget proposes to add two new Medigap plans that would improve on the eight existing plans by offering prescription drug coverage and catastrophic coverage, and including "nominal beneficiary cost sharing at a lower premium cost" than most existing plans.
Medical equipment. The budget posits that Medicare "pays too much" for medical equipment "such as hospital beds and oxygen as well as prosthetics and orthotics." The budget proposes a nationwide competitive billing system for medical equipment. Projected savings are $200 million in 2003 and $3.8 billion over 10 years.
Physician fee schedule. The budget recognizes that recent short-term adjustments in payments for physicians have been large and that "provisions that have held down growth of other payment systems toward historical growth rates" are set to expire. Accordingly, the administration "is willing to work with Congress to smooth out such payment adjustments through reforms in payment policy that, in both the short- and long-term, are budget neutral across payment updates."
Federal Employees Health Benefits Program (FEHBP). The administration will work with stakeholders to develop additional FEHBP options for retirees that improve choice by making a full range of private health insurance options available.
Medicare secondary payor. The budget proposes a requirement that insurers and those sponsoring group health plans periodically report those beneficiaries for whom Medicare could be the secondary payor.
Average wholesale price. The budget makes note of Congressional bipartisan interest in addressing Medicare overpayments for covered prescription drugs. "The administration this year intends to improve the payment system for these drugs consistent with quality care."
Medicare premium subsidy. The budget proposes to extend the subsidy for Medicare premiums for certain qualified individuals.

Medicaid and State Children's Health Insurance Program (SCHIP)

The budget proposal provides for spending at $158.9 billion in 2003, an increase of $13.9 billion.
Health Insurance Flexibility and Accountability (HIFA). The administration will continue to build on the HIFA demonstration initiative by developing proposals that will give states the statutory authority to provide broader coverage to low income uninsured and the flexibility to design innovative programs without seeking waivers.
Unused SCHIP funds. The budget proposes to extend the availability of $3.2 billion in unused SCHIP funds until 2006.
School-based billing. In 2002, the administration will release guides that will "address all aspects of school-based Medicaid billing."
Drug rebates. The administration proposes to improve the drug rebate system "and more explicitly link state payment to pharmacies with the manufacturer rebates." The budget also proposes "to ensure that all necessary price information is reported, and that states collect all rebates owed to them." States and the federal government are to cooperate to make sure that Medicaid does not pay for prescription drugs that third parties should cover. The budget estimates savings of $5.45 billion from 2003 to 2007 and $17.64 billion over 10 years.

George G. Olsen, JD, is a partner of the firm Williams & Jensen, PC, Washington, DC. He is also legal counsel for the National Association of Rehabilitation Agencies and Providers.

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March 2002