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Key Legislative and Regulatory Developments

Momentum Builds on FSA Contribution Limit Coalition As you are aware, the Patient Protection and Affordable Care Act (ACA) limited the amount of funds an employee can contribute to a Flexible Spending Arrangement (FSA) to $2,500 per year, beginning in 2013. This limitation was included largely as an offset to help fund the ACA coverage expansions. Since FSA contributions are exempt from employment and federal income taxes, reducing contributions through the new $2,500 limit was projected to increase federal tax revenues. In the 113th Congress, U.S. Senator Mike Johanns (R-NE) and U.S. Congressman Erik Paulsen (RMN) introduced the Family Health Care Flexibility Act (S. 610 / H.R. 1248) which would repeal both the $2,500 FSA cap and the requirement that OTC medications purchased with FSA or Health Savings Account (HSA) funds require a prescription from a physician. On March 22, during a late-night session of the Senate, a non-binding amendment to the Senate Budget Resolution in support of repealing both provisions was approved by voice vote. We have currently put a proposal before the American Refractive Surgery Council (ARSC) to create a coalition of organizations impacted by these provisions and build on the momentum established by the successful vote in the Senate. We believe if we are able to quickly engage the U.S. Congress the probability of altering the FSA cap will dramatically rise.

President Obama Releases FY 2014 Budget Proposal On April 10, President Obama released his FY 2014 Budget Proposal. The budget funds the federal government at a level of $3.77 trillion for FY 2014 and reduces the deficit by $1.8 trillion over the next decade through roughly $580 billion in new revenues and $1.2 trillion in spending cuts, including $401 billion from Medicare and other health programs over the next ten years. The Presidents budget proposal typically frames the debate about the federal budget, which Congress takes into consideration when crafting the budget that will eventually be used as a framework for yearly appropriations. However, the late release of Obamas budget makes it more of a messaging document. New revenues would come through several tax increases including: creating a minimum 30% tax bracket for individuals making $1 million per year or more (known as the Buffet rule); limiting tax-deferred retirement accounts to $3 million; increasing the federal tax on cigarettes to $1.95 (+ $0.94) per pack; taxing carried interest at normal income tax rate as opposed to the capital gains rate. The budget would also index inflation adjustments for federal programs such as Social Security using the Chained Consumer Price Index (CPI). The $1.2 trillion in spending cuts are intended to replace the sequester. Discretionary programs would be cut by $200 billion, split equally between defense and non-defense programs. Medicare spending would be reduced by about $370 billion. This would be achieved by: increasing means testing for Part B and Part D premiums; requiring manufacturers to provide drug rebates to Part D plans for dual-eligible beneficiaries; increasing Part D coverage gap 1008 Upper Gulph Road Wayne, PA 19087

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discounts to 75% beginning in 2015; increasing Part D copayments for brand name drugs; lowering Part D copayments for generic drugs for Low Income Subsidy (LIS) beneficiaries; reducing bad debt payments to hospitals from 65% to 25% over 3 years; bundling post-acute care payments; allowing only providers who meet certain criteria to self-refer for therapy and advanced imaging services; and reduce the Independent Payment Advisory Board (IPAB) target rate for Medicare spending to GDP + 0.5% beginning in 2020. Medicaid funding is left largely untouched by the budget, aside from reducing Disproportionate Share Hospital (DSH) payments by $3.6 billion over ten years. The Presidents budget would also repeal the Sustainable Growth Rate (SGR) formula by stabilizing payments for several years followed by implementation of various pay-forperformance models from which physicians could choose. For FY 2014, the proposed program level funding for health programs are as follows:

Agency Health and Human Services (HHS) Agency for Healthcare Research & Quality (AHRQ) Centers for Disease Control & Prevention (CDC) Centers for Medicare & Medicaid Services (CMS) Food and Drug Administration (FDA) Health Resources and Services Administration (HRSA) National Institutes of Health (NIH) Substance Abuse & Mental Health Services Administration (SAMHSA)

FY 2012 Actual (millions) $873,872 $405.1

FY 2014 Proposed (millions) $974,594 $433.7

Change (millions) + $100,722 / 11.5% + $28.6 / 7.1%

$6,859 $548,900 $3,833 $6,215 $30,860 $3,347.0

$6,589 $505,596 $4,654 $6,021 $31,331 $3,347.9

- $270 / 3.9% + $43,304 / 7.9% + $821 / 21.4% - $194 / 3.1% + $471 / 1.5% + $0.9 / 0.03%

The Presidents FY 2014 budget proposal can be found HERE.

IPAB Will Not be Triggered in 2013; Administration Begins Seeking Recommendations for Members On April 30, the Chief Actuary for the Centers for Medicare and Medicaid Services (CMS) officially informed CMS Administrator Marilyn Tavenner that the Independent Payment Advisory 1008 Upper Gulph Road Wayne, PA 19087

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Boards (IPAB) Medicare spending triggers will not be breached this year. This was the statutory deadline under which the CMS actuary had to determine for the first time whether Medicares per capita growth rate exceeded the targets to require IPAB action. On April 25, Department of Health and Human Services (HHS) Secretary Kathleen Sebelius said the Obama administration has asked Republican and Democratic leaders of the House and Senate for recommendations for IPAB members during a House Appropriations Subcommittee hearing. The Affordable Care Act (ACA) provides for the President to make appointments to IPAB in consultation with Congress.

FDA Commissioner Hamburg Discusses Sequester Impact During FDA Appropriations Hearings On April 18, Food and Drug Administration (FDA) Commissioner Margaret Hamburg testified before the Senate Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (Ag-FDA) Appropriations Subcommittee to discuss the presidents FY 2014 budget request for the FDA. Hamburg discussed the impact of the sequester on FDA and said that because FDA is currently below its maximum full-time equivalent (FTE) level, no furloughs would be necessary but new hiring would be diminished. Hamburg stated she was concerned that $83 million in industry user fees were being sequestered, and said she would support the exemption of these user fees from sequestration in future years. On April 26, Hamburg testified before the House Ag-FDA Appropriations Subcommittee where she was asked why user fees were being sequestered and the impact the loss of those funds will have. Hamburg noted that the White House Office of Management and Budget (OMB) made the interpretation that user fees were sequestrable. Hamburg also said the sequestered portion of the user fees are diverted into what amounts to an escrow account and will sit unused. Hamburg also believes the loss of these funds will disrupt the carefully negotiated user fee agreements with the life-science industries and may potentially impact FDAs review performance.

Treasury Secretary Lew Defends Medical Device Tax During Senate Budget Hearing On April 16, the Senate Budget Committee held a hearing to discuss the Presidents FY 2014 budget and revenue proposals. The hearing featured testimony from Treasury Secretary Jack Lew. During the hearing, Lew testified on the budgets approach to reducing the deficit through spending cuts as well as raising new revenues. Senator Kelly Ayotte (R-NH) asked Lew about the 2.3% medical device excise tax, noting the Senate had passed a budget amendment to repeal it. Lew supported the tax, saying it was a critical funding source for the Affordable Care Act (ACA). Lew said there were misunderstandings before the vote over how the tax treats domestic versus internationally manufactured devices. However, Lew acknowledged there may be ways to modify the tax so it does not discriminate against startup companies.

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House Republicans Release Second Draft of SGR Reform Plan On April 3, House Energy and Commerce (E&C) Committee and Ways and Means (W&M) Committee Republicans updated their plan to repeal the Sustainable Growth Rate (SGR) formula with more detailed proposals for replacing the Medicare physician payment system. The new proposed framework would set up a three-phase, multiyear system for physician reimbursements. In the first phase, the SGR would be repealed and a series of stable physician payments would be implemented. The second phase would integrate risk-adjusted quality measures and incentive payments for providing efficient care. Finally, the last phase of the plan would establish long-term alternative payment models that physicians could choose at any time to utilize or stay in the fee-for-service (FFS) model. In a letter to health care providers, E&C Chairman Fred Upton (R-MI), W&M Chairman Dave Camp (R-MI), E&C Health Subcommittee Chairman Joe Pitts (R-PA), and W&M Health Subcommittee Chairman Kevin Brady (R-TX) addressed comments from the first phase of their draft proposals with more details and asked for providers to submit feedback on the new proposed framework. Upton and others have indicated they would like to take up legislation on the SGR this summer. The letter and proposal can be found in full HERE.

Bipartisan Concerns Grow over ACA Implementation; Tavenner Nomination Blocked During April, several congressional hearings highlighted the continued criticism and concern about the Affordable Care Ace (ACA). The discussions covered typical policy arguments for and against the ACA, but there was increased criticism of the Department of Health and Human Services (HHS) efforts to implement the law. These concerns were notable because they were often bipartisan. On April 24, the House Energy and Commerce (E&C) Oversight and Investigations Subcommittee held a hearing featuring witness testimony from Gary Cohen, Director of the Center for Consumer Information and Insurance Oversight (CCIIO), who attested that the Agency will be prepared to implement open enrollment for health insurance exchanges on October 1, 2013, despite skepticism from numerous stakeholders. However, Cohen corrected a claim he had previously made that 900 plan issuers had expressed interest in applying for participation in the Federally Facilitated Exchanges (FFEs), saying that the correct number was actually 109. During a Senate Finance Committee Hearing on April 17, which was called to discuss HHS FY 2014 Budget, Chairman Max Baucus (D-MT) criticized HHS Secretary Kathleen Sebelius for her departments lack of outreach to the public regarding health exchanges and the open enrollment period beginning on October 1. Baucus said he saw a huge train wreck coming for exchange enrollment due to the lack of clear information about the law. Sebelius maintained that HHS would have the exchanges ready by the beginning of open enrollment. The next day when Sebelius testified before the House E&C Health Subcommittee about HHS FY 2014 budget, Sebelius faced scrutiny from Republican Committee Members who said the ACA is 1008 Upper Gulph Road Wayne, PA 19087

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driving up insurance premiums and forcing small business to cut back on full-time employees. Sebelius said there was no way to infer how the ACA is impacting insurance premiums and that there is no connection between the ACA and small business hiring practices. The House Small Business Committee also held a hearing focused on several key ACA provisions for small businesses, such as the employer mandate, individual health exchanges, the small business exchange, and a temporary tax credit for small business owners health insurance costs. Members of both parties expressed concern about the uncertainty surrounding the laws implementation, noting the small business exchange program has already been delayed for a year and the open enrollment period is approaching quickly. Finally, Senate Health Education Labor and Pension (HELP) Committee Chairman Tom Harkin (DIA) placed a hold on the confirmation of Centers for Medicare and Medicaid Services (CMS) Acting Administrator Marilyn Tavenner after it became public that Sebelius had shifted funds from the ACAs Prevention and Public Health Fund to pay for exchange enrollment and outreach.

CMS Reverses Proposed Policy: Announces 3.3% MA Payment Boost for 2014 On April 1, the Centers for Medicare and Medicaid Services (CMS) announced the 2014 Medicare Advantage (MA) Capitation Rates and MA and Part D Final Call Letter, which included a 3.3% payment boost to MA plans in 2014. In its proposed rulemaking released in February, CMS proposed a 2.2% payment cut to MA plans. This rulemaking was followed by an extensive campaign from lawmakers and interested stakeholders who asserted that CMSs proposed MA cuts could be detrimental to beneficiaries. When calculating its proposed payment rates, CMS assumed the scheduled physician payment cut under the sustainable growth rate (SGR) would go into effect in 2014. However, in the Final Call Letter, CMS overrode its proposed calculations and assumed that Congress would avert the physician payment cuts through another SGR patch, leading to the change in MA payment rates. The guidance also defined statutory updates to the annual parameters for the defined standard Part D prescription drug benefit are finalized as proposed: Part D Benefit Parameters Defined Standard Benefit Deductible Initial Coverage Limit (Total drug costs after deductible before hitting coverage gap) Out-of-Pocket Threshold (Total amount beneficiary pays before hitting catastrophic phase) Minimum Cost-sharing for Generic/Preferred Multi-Source Drugs in the Catastrophic Phase Minimum Cost-sharing for Other Drugs in the Catastrophic Phase Retiree Drug Subsidy (RDS) Cost Threshold (Amount RDS sponsor must spend before claiming the RDS 1008 Upper Gulph Road Wayne, PA 19087 2013 2014

$325 $2,970 $4,750 $2.65 $6.60

$310 $2,850 $4,550 $2.55 $6.35

$325

$310

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subsidy) Cost Limit (Amount after which RDS sponsor claims no RDS subsidy)

$6,600

$6,350

For the first time since the inception of the Part D program, the deductible for the defined standard plan will be lower in 2014 than in previous years. The amount of any increase to total beneficiary costs in MA plans is limited to $34 per member per month, compared to the previous limit of $36 per member per month. The Final Call Letter is available HERE.

Bausch & Lomb Trulign Toric IOL Receives Approval Recommendation from FDA Advisory Panel On April 8, the Food and Drug Administration (FDA) held a meeting of the Ophthalmic Devices Panel of the Medical Devices Advisory Committee to discuss, make recommendations, and vote on information regarding the premarket approval application (PMA) for the Trulign Toric Posterior Chamber Intraocular Lens (IOL) sponsored by Bausch & Lomb (B+L). The panel heard presentations from B+Ls regulatory team as well as FDAs Division of Ophthalmic and Ear, Nose, and Throat Devices (DOED) staff, prompting questions and discussion about the products clinical data, proposed indications, safety, and efficacy. B+Ls strategy for presenting the Trulign Toric IOL to the advisory panel was clear: establish the profile of the Truligns parent Crystalens IOL and frame the Trulign Toric IOL as an upgrade to the Crystalens platform allowing the lens to correct for astigmatism via its toric posterior surface. However, B+L faced repeated criticism about the lack of data regarding the Trulign IOLs accommodating properties. B+L did not examine accommodation in its Trulign study, instead relying on data on the Crystalens IOL. The panel was ultimately reluctant to allow B+L to claim the lens had accommodative properties. However, the panel still believed the product was safe and effective for treating presbyopia and astigmatism incident to cataractous lens removal and still overwhelmingly supported the products approval.

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