Health Care for a Lame Duck

At the start of the COVID-19 pandemic, Congress gave the Secretary of Health and Human Services (HHS) the authority to waive certain payment restrictions on telehealth services for Medicare and created flexibilities for private plans.¹ The Medicare flexibilities led to the Secretary approving new telehealth services for coverage more than once annually, permitting audio-only telehealth services, and enabling telehealth services to originate from any geographic region or any patient location.² Congress has made many of the flexibilities permanent for mental and behavioral health care. But these flexibilities will expire in other areas of health care at the end of 2024. There are multiple proposals to either temporarily or permanently extend them. The Congressional Budget Office (CBO) projects that extending the Medicare provisions for two years would cost $4.3 billion, though CBO notes there are many uncertainties around that
estimate.³

Recommendation
Congress should not permanently extend the Medicare telehealth provisions outside of mental and behavioral health services (which have already been made permanent) until policymakers have a better understanding of the costs and value of telehealth usage in a taxpayer-funded program. It is unknown at this point whether telehealth improves people’s health outcomes or decreases costs. Telehealth does encourage higher utilization of certain services—particularly mental and behavioral health care, where telehealth quality appears to be similar to that of in-person visits.⁴ But there is less evidence in many other areas. Temporary extensions of telehealth flexibilities should be coupled with requirements to research the quality and cost effectiveness of telehealth services. Congress should also explore overutilization and the potential for fraud in telehealth.

Funding for community health centers (CHCs), which provide primary care to underserved communities, expires at the end of the year. As a result of the Affordable Care Act, CHCs receive about 70 percent of their funding through the mandatory Community Health Center Fund (CHCF), which Congress reauthorizes every few years. The other 30 percent is through annual discretionary funding. In March, Congress extended base funding for the CHCF through December 2024 at an annualized rate of $4.4 billion.⁵ Policymakers are looking to combine this funding with related funding for the National Health Service Corps (NHSC) and the Teaching Health Center Graduate Medical Education (THCGME) Program—programs that CHCs rely on for some additional funding as well as staff.

There are multiple legislative proposals for funding and two primary vehicles being considered. First, in 2023 the House passed a $4.4 billion appropriation for the CHCF per year through December 2025, $350 million for the NHSC per year through December 2025, and $300 million over seven years for THCGME.⁶ The second option—which has been voted out of the Senate Health, Education, Labor, and Pensions (HELP) Committee—includes $5.8 billion per year for CHCs for three years, a “one-time” $3 billion for health center capital projects, $950 million annually for the NHSC for three years, and $300 million per year for five years for THCGME. Both of these proposals should be seen as starting points in both chambers for negotiation.

Recommendation
While the final policy may differ from these current options, Congress should minimize the amount of additional funding to CHCs and ensure that any additional funding is discretionary and not mandatory. The goal of CHCs is to increase access to care, but CHCs are not the only—or the most effective—means of doing so, and a good case has never been made as to why their funding needs to be mandatory. Instead, Congress should adopt recommendations from Paragon’s Theo Merkel in his letter to the Senate HELP Committee, in which he laid out several ideas that would more efficiently increase access to care.⁷ These options include relaxing current bottlenecks of training, allowing non-physician health care providers to do jobs they are already trained to do, and eliminating barriers to technology such as telehealth and artificial intelligence.

Additionally, Congress should not provide additional funding to THCGME and NHSC programs. The United States has more physicians per 10,000 people than it has ever had, and nurse practitioners and physician assistants are now major parts of the provider workforce.⁸ The need for more public THCGME and NHSC funding is questionable at best, as these programs have routinely failed to prove efficacy.⁹ Policymakers should also be skeptical that the “one-time” $3 billion is actually just one-time: Temporary funding typically becomes permanent, meaning that CHCs will be back asking for more when that $3 billion inevitably proves to not be enough.

The Centers for Medicare and Medicaid Services (CMS) annually updates the Physician Fee Schedule (PFS). This year, physicians will receive a 2.83 percent cut to the 2025 PFS payment factor (the base dollar amount that CMS uses to calculate prices for each procedure).¹⁰ Due to statutory formulas, CMS has routinely finalized PFS reductions since the early 2000s—and Congress has stepped in every time to negate or mitigate those reductions in what has become an almost annual ritual known as the “doc fix.”¹¹ Hospital payments in Medicare have increased annually, while physician payments have lagged. This has led to increased health care consolidation, with hospitals buying up physician practices. This is in part due to the higher prices and payments that hospitals get relative to physicians in Medicare.¹²

Recommendation
The nation’s finances are in worse shape than ever. Rather than completely waive the full 2.83 percent cut, it may be wise for Congress to only partially mitigate it. In fiscal terms, everyone that bills Medicare (especially hospitals but including insurers) needs to increase efficiency. The national debt is driven primarily by health spending, and a large portion of that spending is physician payments ($234.1 billion in Medicare alone in 2022). While another temporary doc fix is most likely during the lame duck, Congress should work on a permanent, fiscally sustainable approach to physician payment.¹³

PBMs have been a target in Congress over the past two years in its attempt to lower drug prices. Congress has considered multiple proposals that generally involve “delinking” PBM revenue from rebates and discounts PBMs negotiate with pharmaceutical manufacturers and pharmacies.

PBMs manage prescription drug benefits on behalf of the employers, unions, and insurers that sponsor drug plans. PBMs are responsible for negotiating rebates on drugs with pharmaceutical manufacturers to lower the net price sponsors pay.

The goal of “delinking” is to end the current standard practice whereby a plan sponsor allows the PBM to take a percentage of the rebate, which incentivizes the PBM to negotiate as large a rebate as possible. When negotiating a plan’s drug coverage, the PBM will incentivize the pharmaceutical manufacturer to offer a bigger rebate in exchange for placing the drug on a plan’s formulary and in a lower cost-sharing tier of coverage, which encourages a patient to choose that drug over its competitors and leads to more sales for the manufacturer. The larger the rebate, the more favorable the tier placement for the drug.

Critics claim this process has two connected negative effects: A manufacturer will raise the list price of a drug while still providing roughly the same final net price—so the rebate gets bigger and the PBM is more likely to give that drug better formulary placement. Critics say this then leads to the second effect: Because insurers typically set coinsurance at the pharmacy counter to be a percentage of the list price, the patient faces higher out-of-pocket spending at the pharmacy counter. Policymakers and delinking advocates have suggested banning PBMs from getting revenue off a percentage of these rebates, particularly in Medicare Part D plans.

University of Chicago economist Casey Mulligan estimates that annual Part D spending would increase between $3 billion and $10 billion if Part D plans were required to delink PBM revenue from rebates, because PBMs would have less incentive to negotiate larger rebates.¹⁴ Of note, CBO has estimated that bills including delinking would save minimal amounts of money, with one piece of legislation reducing the deficit by only $226 million over 10 years.¹⁵ The Government Accountability Office found that PBMs retained less than 1 percent of rebates in the Medicare Part D program.¹⁶

Recommendation
Congress should not delink PBM compensation from rebates, particularly in the commercial market. As noted above, there is good evidence that eliminating rebates or delinking them from PBM revenue would ultimately increase drug costs (or at the very least, would not lead them to be as low as they otherwise would be). Rebates are a negotiating tool that is widely used in our economy, and PBMs typically take only a small percentage of them, usually between 1 percent and 5 percent. Taxpayers risk higher drug prices if PBMs lose incentives to negotiate the best prices for their client plan sponsors.

Another potential item for movement in the lame duck is site neutrality in Medicare, where there has been bipartisan interest. Site neutrality is the policy of paying the same amount for the same service regardless of the site of service. Currently, Medicare pays more for services performed in hospital outpatient settings compared to ambulatory surgical centers and physician office settings. CBO estimated that a modest proposal for Medicare to pay for drug administration services performed in off-campus hospital outpatient departments at physician rates, which passed the House this year, would save about $3.7 billion over 10 years.¹⁷

Recommendation
Congress should adopt site-neutral policies as extensively as possible. As Paragon’s Joe Albanese has written, there are numerous proposals to equalize payment rates for specific ambulatory services and settings that could lower costs for seniors and save Medicare hundreds of billions of dollars.¹⁸ Congress should also consider policies to remove restrictions on where medical procedures can be performed, including by eliminating the Medicare inpatient-only list and expanding the list of covered procedures at ambulatory surgical centers. This is an issue with strong bipartisan support, as evidenced at a Paragon event earlier this year where four different policy organizations across the ideological spectrum expressed support and former HHS Secretaries Alex Azar and Kathleen Sebelius jointly promoted site-neutral payment policies in Medicare.¹⁹

Lame duck sessions are often where many policies that would otherwise be difficult to pass are jammed through at the last minute. In general, policymakers should avoid this sort of “Christmas-tree” style of legislating and focus on passing good policy through regular order while avoiding exorbitant expenditures to close last-minute deals. The issues above represent important policy areas that should be carefully considered, not rushed through.