What’s Ahead in 2018

Manatt on Health

Congress returned from recess with a large agenda for the new year. The federal government is only funded through January 19 and the next funding bill is expected to carry with it longer-term extensions of the Children’s Health Insurance Program (CHIP), community health center funding and other programs that will lapse without further action, as well as delay of Medicaid Disproportionate Share Hospital (DSH) payments for fiscal years 2018 and 2019. A key question looking beyond January is whether Republicans will continue to pursue Affordable Care Act (ACA) repeal and replace efforts and/or tackle entitlement reform—including major changes to Medicaid—or whether Congress will move on to focus on other priorities. The election of Senator Doug Jones (D-AL) reduced the Senate Republican majority to 51 votes and 2018 is an election year, making controversial legislation more difficult to pass. Nevertheless, strong voices both in and out of Congress are still pressing for healthcare reform. Time will tell whether Congress considers significant healthcare legislation in 2018.

In light of election year dynamics in Congress, the pending retirement of Senate Finance Committee Chairman Orrin Hatch (R-UT) and the reduced Republican majority in the Senate, it is possible that the most significant health policy changes will come from the Administration. The expected confirmation of Health and Human Services (HHS) Secretary nominee Alex Azar is not expected to drastically shift the direction of the Administration’s policies, and will likely accelerate momentum. In addition to ongoing efforts to review and potentially roll back the previous Administration’s regulations, we are likely to see the Administration advance a variety of policies that promote flexibility for states, providers and insurers. Below we highlight key areas where we expect to see changes over the next year; the President’s budget, which will be released in February, will provide a lens into additional policy priorities for the year.

Medicaid. In its first year, the Trump Administration signaled a clear policy vision and priorities for the Medicaid program, both through direct policy statements and guidance, and through Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma’s significant engagement with congressional Republicans and governors to advance legislative proposals to cap federal Medicaid funding to states. Simply stated, the Administration’s policy vision for Medicaid is to reduce the size and scope of, and federal funding for, the program, and to relax statutory and regulatory requirements to give states more flexibility in program design and management—particularly with respect to work requirements as a condition of Medicaid eligibility. The Administration’s vision for Medicaid, if realized, would represent a fundamental change in the federal-state partnership that has characterized the program since its inception over 50 years ago.

We anticipate an uptick in administrative action to advance Medicaid policy priorities— including approvals of state 1115 waivers. Over a dozen states have submitted waivers to CMS seeking authority for precedent-setting changes to their Medicaid programs, including proposals that would increase beneficiary cost sharing, lock beneficiaries out of coverage for failure to pay cost sharing, impose eligibility time limits and, perhaps most notably, apply work requirements to segments of the Medicaid population. Given Ms. Verma’s commitment to giving states authority to impose work requirements, waiver approvals are expected early this year (perhaps after the HHS Secretary nominee clears his January 9 hearing), along with policy guidance from the agency outlining parameters for work requirements. CMS policy makers have also indicated interest in working with states to control drug spending, and multiple states are requesting (or considering requesting) waiver authority to limit their Medicaid drug formularies and/or otherwise control drug spending; CMS’s response to these proposals is another controversial area to watch this year.

In addition to increased waiver activity, this year the Administration is expected to revisit several Obama-era regulations, most notably by proposing changes to the 2016 Medicaid managed care rule.

1332 Waivers. HHS and the Department of the Treasury could approve more reinsurance waivers similar to the three approved in 2017, though the number of new waiver submissions is likely to be small unless Congress provides new federal funding. Conversely, the Administration could put a hold on waivers unless and until Congress streamlines the 1332 process. Least likely but possible, the Administration could stretch the law to approve game-changing waivers, such as the Iowa waiver that was withdrawn in 2017, under current law.

Marketplace and Individual Market Coverage. The Administration will be making several additional, smaller decisions that will shape the regulatory climate and influence insurers’ assessments of whether to increase or decrease their market participation for 2019 and how to factor the mandate repeal into their rate filings. States could have to contend with more underserved areas, and both state and federal regulators will face pressure to keep rates down for unsubsidized enrollees who must bear the full brunt of any premium increases. CMS continues to signal a strong focus on deregulation, likely to be the driving force behind these changes. Most recently, HHS released a Request for Information (RFI) that seeks input on how deregulation could expand choice and competition. Interestingly, the RFI encompasses “State or Federal laws, regulations, or policies,” suggesting that the Administration could take on state laws if they were judged to be anticompetitive.

Center for Medicare and Medicaid Innovation. The Center for Medicare and Medicaid Innovation (CMMI) is poised to launch several new model tests in 2018, enabling the agency to test payment innovations and consider them for broader adoption. Under the new Administration, CMMI spent much of 2017 considering its options for initiatives, and may now be prepared to launch model tests reflecting that work. Areas of focus could include new Medicare physician payment models that qualify participants, including physicians in Medicare Advantage networks, for Advanced Alternative Payment Model credit under the Medicare Access and CHIP Reauthorization Act (MACRA); a test of value-based prescription drug purchasing; or models and initiatives in pediatrics and/or behavioral health.

Drug Pricing Policy. This year will present another test of whether the Administration, and especially a new Secretary of HHS, will follow through on President Trump’s many pledges to rein in prescription drug pricing. The new year is expected to bring guidance from CMS on how drug manufacturers can work with public and private sector customers to implement outcome-based and other innovative pricing ideas, which may include actions by CMMI to test new models of pricing and reimbursement for Part B and/or Part D drugs.

Opioids. The Administration will remain focused on responding to the opioid epidemic. Late last year, the Administration released a response to the President’s Commission on Combatting Drug Addiction and the Opioid Crisis, generally agreeing with the recommendations. The Administration simultaneously released a summary of actions the Administration has taken to date that are consistent with the recommendations. It is unclear to what extent the Administration will invest new dollars in responding to the epidemic; the President’s budget could send an important signal in this respect.

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