The Times They are A-Changing: The Baucus Plan – What Health Care Reform Could Look Like in the New Congress

By Jeffrey N. Wasserstein & William T. Koustas –

On November 12, 2008, Senate Finance Committee Chairman Max Baucus released a white paper detailing what he sees as the substantial problems in our health care system.  The paper, titled “Call to Action: Health Reform 2009” (“the Baucus Plan”) details the Chairman’s concerns about the state of our nation’s current health care system as well as possible solutions.

Chairman Baucus divides his plan into three sections: (1) increasing access to affordable health care by placing some responsibility on individuals, increasing existing government health care programs such as CHIP, strengthening the employer-based system, creating a Health Insurance Exchange for families and small businesses, increasing access to preventative care and address health care disparities in minority or immigrant communities; (2) improving the value of health care by reforming how that care is delivered to patients by using Federal reimbursement systems to improve the value placed on the role of the primary care provider, focusing payment incentives on the quality of care and not the quantity, modifying payment systems to encourage collaboration and accountability and improving the health care “infrastructure” by using health information technology and new research to determine which treatments work best; and (3) making the health care system use the money it receives more efficiently by eliminating waste, fraud and abuse, providing greater transparency in the health care system, reforming medical malpractice to reduce costs and spending, eliminating overpayments to private insurance providers in Medicare Advantage program, reforming long-term care and implementing tax incentives to promote the use of health care services directly by the consumer.

The Baucus Plan includes some provisions that may have a substantial impact on drug and device companies.  First, it mandates disclosure of “gifts and other transfers of value made by drug and device companies to physicians and other health care professionals.”  The Baucus Plan notes that the AMA and PhRMA have each adopted conduct codes to reduce inappropriate relationships, but argues that only complete and total disclosure can determine potential bias and inappropriate influences.  Presumably, this would incorporate the proposed Federal Sunshine Act. Second, the Baucus Plan seeks to create an independent private, non-profit entity called the Health Care Comparative Effectiveness Research Institute (“the Institute”).  The Institute would be responsible for conducting studies that assess the comparative utility of nearly everything used in modern medicine, from drugs and devices to procedures and services.  The results of these studies would be used by patients, providers and insurers to determine the most effective means of treatment for a specific individual, thus reducing costs and making health care delivery more efficient.  Obviously, the findings of the Institute would have a substantial impact on utilization of drugs and medical devices.

In addition to the new programs discussed above, the Baucus Plan also advocates the expansion of government programs already in place.  First, as a temporary measure, the Plan would allow Americans 55 to 64 to “buy-in” to Medicare coverage for people who could not afford private insurance or who are not receiving coverage from an employer, until the Health Insurance Exchange was created.  Second, the Baucus Plan would reform Medicaid to create a mandatory national eligibility minimum of 100 percent of the Federal poverty level and also require states to help manage costs associated with unanticipated demand for Medicaid, while also mandating Medicaid eligibility to everyone living in poverty.  Additionally, Chairman Baucus argues that Congress should extend Medicaid Rebates to drugs used by enrollees in Medicare Part D plans who are eligible for both Medicaid and Medicare (“dual eligibles”) since discounts negotiated by drug plans are usually less substantial than those required under the Medicaid Drug rebate Program.  Finally, the Baucus Plan suggests that the Federal government assist states with the costs of CHIP in order to expand enrollment.   Increasing the pool of beneficiaries eligible for the various programs will likely increase drug companies’ Medicaid Rebate liability for their covered outpatient drugs reimbursed under Medicaid, as well as providing additional downward pricing pressure as patients move into government-sponsored programs.

Finally, as part of the plan's attempt to reduce fraud, waste, and abuse, Chairman Baucus seeks to increase penalties and punishments of those who intentionally defraud the system.  In order to meet these goals, the Baucus Plan will increase resources to agencies that are primarily responsible for fighting fraud and abuse, such as HHS OIG, GAO, Medicaid Fraud Control Units, Medicare Payment Advisory Commission and law enforcement agencies. 

All of the proposed reforms discussed have far-reaching consequences to anyone involved in the health care industry, including drug and device companies.  While the ideas in Chairman Baucus’ plan may undergo substantial revision as additional healthcare reform proposals are formulated by the new Obama Administration and debated within Congress, the plan serves as a signal of the direction Congress is likely to take in the 111th Congress.