This issue of ASH Washington Update addresses the completion of the FY 2003 budget, Medicare physician payments, the FY 2004 budget debate, Medicare reform proposals, the cloning debate, medical liability reform, and medical errors legislation. If you have questions, or need more information, please contact Jeff Coughlin by e-mail or phone at 202-776-0544.

FY 2003 Budget Finalized
CMS Finalizes 2003 Medicare Physician Payment Reimbursements
House and Senate Offer FY 2004 Budget Resolutions
Medicare Reform Proposals Unveiled
House Passes Cloning Ban While Senate Continues Debate
Medical Liability Bill Approved By House
Medical Errors Legislation Swiftly Moves through House

FY 2003 Budget Finalized

The long overdue fiscal year (FY) 2003 budget process was completed on February 20 when President George W. Bush signed the omnibus appropriations bill (HJ Res 2) into law, funding the 11 remaining annual spending bills. The House and Senate both approved the legislation February 13 (it was approved by the House 338 to 83 and by the Senate 76 to 20), after months of tense negotiations between the two chambers over discretionary funding levels. Until the FY 2003 budget was signed into law, most of the federal government was functioning under a continuing resolution that funded agencies such as the National Institutes of Health (NIH) at FY 2002 levels. FY 2003 was slated to begin October 1, 2002.

For NIH, the FY 2003 budget provides funding of $27.16 billion, a $3.8 billion or 16 percent increase over last year's levels. This funding level effectively completes the five-year effort to double the NIH budget, raising NIH annual appropriations from $13.6 billion in FY 1998 to over $27 billion in FY 2003.

Within NIH, the FY 2003 budget includes: $4.62 billion for the National Cancer Institute, a $430 million or 10.3 percent increase; $2.8 billion for the National Heart, Lung, and Blood Institute, a $220 million or 8.5 percent boost; $1.63 billion for the National Institute of Diabetes and Digestive and Kidney Diseases, a $160 million or 10.9 percent increase; and $1 billion for the National Institute on Aging, a $107 million or 12 percent boost.

The Centers for Disease Control and Prevention (CDC) receives $4.3 billion in FY 2003, a $107 million or 2 percent cut from last year's funding level.

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CMS Finalizes 2003 Medicare Physician Payment Reimbursements

Physicians and other health care providers will receive a 1.6 percent boost in Medicare reimbursement rates for the rest of 2003. Based on legislation approved by the House and Senate and signed into law by President Bush on February 20, the Centers for Medicare & Medicaid Services (CMS) recalculated the 2003 fee schedule and adjusted Medicare physician payments from a 4.4 percent cut to a 1.6 percent increase.

Before Congress and the President agreed on revising the fee schedule, CMS published the 2003 conversion factor in December at $34.59, a $1.60 or 4.4 percent reduction from 2002. After a major advocacy effort from physicians that encouraged Congress to halt 2003 Medicare payment cuts, Congress and the White House reached an agreement. Based on the final package, CMS revised the 2003 conversion factor to $36.78, a $0.59 or 1.6 percent increase over 2002. The new fees apply to services provided from March 1 to December 31, 2003.

According to CMS, under the new fee schedule, the average hematologist/oncologist will receive approximately a 3 percent hike in 2003 payments. This boost results from the overall 1.6 percent reimbursement increase as well as changes to the hematology/oncology relative value units used in determining payments.

Also, with the delay in finalizing the 2003 fee schedule, CMS extended the deadline for physicians to decide if they want to participate in Medicare until April 14. Additional information is available on the CMS website at www.cms.gov/regulations/pfs/default.asp.

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House and Senate Offer FY 2004 Budget Resolutions

The House and Senate Budget Committees have both completed and approved their respective fiscal year (FY) 2004 budget resolutions. Although Republicans control both Budget Committees, each chamber's budget blueprint differs slightly from President George W. Bush's FY 2004 proposal. The House and Senate are both expected to vote on their budget proposals during the last week of March.

President George W. Bush released his FY 2004 Budget on Monday, February 3. Overall, the President's $2.23 trillion spending proposal includes further tax cuts, sharp increases in defense spending, and close to a funding freeze on other domestic discretionary programs. In addition, the President's plan provides $400 billion over the next decade for a Prescription Drug Benefit Plan. The President proposed $27.9 billion for the National Institutes of Health (NIH) in FY 2004, a $700 million or 2 percent funding increase.

For your information, discretionary spending refers to programs that require an annual appropriation; for example, funding for the operations of most federal agencies is discretionary spending, including the Department of Health and Human Services (HHS) and NIH. Mandatory spending is mostly for entitlement programs. Examples include Social Security, Medicare and Medicaid.

The House's FY 2004 plan calls for cuts to mandatory spending and discretionary programs to support the President's tax cuts and balance the federal budget by 2010. Overall, the House's proposal calls for a 1 percent discretionary spending increase, but includes large funding boosts for the Departments of Defense and Homeland Security, effectively cutting other discretionary funding by 1 percent. Also included in the budget proposal are instructions to two House Committees to reduce non-Social Security mandatory spending programs-including Medicare and Medicaid-over the next ten years. The House's proposal expects the two committees to save $262 billion and $111 billion over ten years, most of which is expected to come from Medicare and Medicaid.

For health programs, the House is proposing a $1.4 billion or 2.8 percent cut from FY 2003 funding levels. The House Budget Committee is proposing $27.9 billion for NIH, the same level of funding as President Bush's budget proposal. ASH is supporting $30 billion for NIH funding in FY 2004, a $2.7 billion or 10 percent increase over FY 2003.

The Senate's budget plan proposes to balance the federal budget by 2013. Overall, the Senate's proposal calls for a 2.4 percent discretionary spending program increase in FY 2004, with a $152 million or 0.3 percent increase for health programs. The budget resolution includes $27.9 for NIH in FY 2004.

However, Senators Arlen Specter (R-PA) and Tom Harkin (D-IA)-the Chair and Ranking Member of the Senate Departments of Labor, HHS, and Education Appropriations Subcommittee-are preparing to offer an amendment to the Senate's version of the budget when it reaches the floor. The amendment seeks to add $2.8 billion in additional funding for Public Health Service programs, including $1.8 billion for NIH, $600 million for the Centers for Disease Control and Prevention, and $400 million for another HHS agency. Senators Specter and Harkin see the $700 million increase proposed by the Bush Administration as inadequate to "translate the achievements made over the past five years into treatments and cures for the many maladies that continue to plague our society." Under their plan, NIH would receive $29.7 billion in FY 2004, a $2.5 billion or 9 percent increase.

Again, the House and Senate are planning to conclude debate and vote on their respective FY 2004 budget proposals by next week.

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Medicare Reform Proposals Unveiled

In early March, President George W. Bush and Congressional Democrats revealed separate frameworks for reforming Medicare and adding a prescription drug benefit to the program. The main component of the President's $400 million plan provides more extensive drug coverage to seniors who give up traditional Medicare fee-for-service (FFS) and join a private insurance plan. Democrats are offering a more comprehensive benefit, but their proposal will cost more than twice the Bush Administration's plan.

President Bush's new Medicare framework offers few specifics in hopes of allowing Congress to craft a prescription drug benefit that can pass both chambers. Under the President's plan, there are three benefit options: traditional FFS coverage, Enhanced Medicare, and Medicare Advantage.

In the traditional FFS coverage plan, beneficiaries would receive a drug discount card that allows them to save 10 to 25 percent on their medications. Under the Enhanced Medicare option, seniors could choose a private insurance plan that offers a subsidized prescription drug benefit with a monthly premium and annual deductible. For the Medicare Advantage plan, seniors could enroll in a private insurance plan, similar to the options available through the Medicare+Choice program. Under this option, participants who select more efficient plans would benefit from the savings. The President's plan is scheduled to begin in 2006.

The Democratic proposal is based on the belief that seniors shouldn't have to leave traditional Medicare to get drug coverage. The program-expected to cost more than $800 million over 10 years-gives beneficiaries a $25 monthly premium for drug coverage and a $100 deductible. Seniors would have a 20 percent coinsurance charge, and they would pay nothing for medications once they spent $2,000 out-of-pocket in a year.

Policymakers maintain a prescription drug benefit must be approved by this year's August recess, or it risks becoming entangled with the 2004 Presidential elections, most likely forcing a prescription drug benefit discussion to be shelved until 2005.

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House Passes Cloning Ban While Senate Continues Debate

The House approved legislation that bans all forms of human cloning, including somatic cell nuclear transfer (SCNT), on Thursday, February 27. The "Human Cloning Prohibition Act of 2003" (HR 534), championed by Representative Dave Weldon (R-FL), was pushed quickly through the House on a mostly partisan vote. If enacted, the bill also prohibits patients from returning home from abroad after receiving treatment using therapeutic cloning research.

HR 534 passed the House by a vote of 241 to 155. Representative James C. Greenwood (R-PA) sponsored legislation (HR 801) as a substitute to the Weldon bill but was defeated 174 to 231. In addition to providing strict penalties to any individual who uses SCNT with the intent to initiate pregnancy, the Greenwood bill would allow for further research into cloning for therapeutic purposes.

The cloning debate now moves completely to the Senate, where the outcome is much more unsettled. Senators Sam Brownback (R-KS) and Mary Landrieu (D-LA) introduced legislation similar to the Weldon bill (S 245). The bill has been referred to the Senate Committee on Health, Education, Labor, and Pensions.

Senators Orrin Hatch (R-UT), Dianne Feinstein (D-CA), Arlen Specter (R-PA), Tom Harkin (D-IA), Ted Kennedy (D-MA), and Zell Miller (D-GA) introduced competing legislation that would allow SCNT but prohibit reproductive cloning. Their bill is before the Judiciary Committee, which Hatch chairs. A hearing on the bill is scheduled for March 19, which should prompt some legislative action on the issue. However, at this point, it is unclear if either the Brownback bill or the legislation sponsored by Senator Hatch has the 60 votes needed to overcome the procedural rules of the Senate, avoiding the potential of a filibuster.

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Medical Liability Bill Approved By House

On March 13, the House approved legislation that places federal caps on damages in health care lawsuits by a 229-196 vote. The "Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2003" (HR 5) sets a federal limit of $250,000 on non-economic (pain and suffering) damages in health care lawsuits and limits punitive damages at the greater amount of double the economic damages awarded the plaintiff or $250,000. The legislation does not restrict the amount of economic damages that can be awarded.

The legislation approved by the House also provides for a maximum three-year statute of limitations on the filing of health care lawsuits. The bill defines health care lawsuits as "any health care liability claim concerning the provision of health care goods or services, or any medical product, affecting interstate commerce, or any health care liability action concerning the provision of health care goods or services, or any medical product, affecting interstate commerce, brought in a State or Federal court or pursuant to an alternative dispute resolution system."

After passage, James C. Greenwood (R-PA)-the principal sponsor of the bill-noted that Senate approval of the measure will be a tougher hurdle to overcome. To ensure passage, the Republican-controlled Senate plans to offer a "watered-down" version of the House bill. The range of lawsuits covered in the Senate's bill will not be as broad as the House legislation; the Senate bill will not include a provision on lawsuits against pharmaceutical and device makers.

Both House and Senate Democrats agree that there is a problem with rising malpractice awards, but believe that legislation similar to HR 5 will restrict the rights of injured patients while doing little to make insurance more affordable for physicians. Also, Democrats suggest the bill pre-empts or jeopardizes states' patient rights laws. The Senate is expected to raise medical liability reform legislation within the next month.

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Medical Errors Legislation Swiftly Moves through House

The House of Representatives overwhelming approved legislation March 12 to reduce medical errors. Passed by a vote of 418-6, the "Patient Safety and Quality Improvement Act" (HR 663) allows health care professionals to learn from one another's errors through a new, confidential database that catalogues medical mistakes.

HR 663 creates "patient safety organizations" within the Department of Health and Human Services to collect and analyze confidential information about medical errors from hospitals, doctors, and other health care providers, and disseminate the information to providers to help implement patient safety changes. These reports would be voluntary and in most instances could not be used as evidence in lawsuits. Only health care professionals would be allowed to see the reports to learn from each other's mistakes. This bill is a combination of the "Patient Safety Improvement Act" (HR 877), which passed the House Ways and Means Committee in a unanimous vote February 27, and HR 663, which the House Energy and Commerce Committee approved February 12.

The House legislation would cost about $20 million in fiscal year (FY) 2004 and $104 million from FYs 2004-2008. In addition, HR 663 authorizes $25 million annually for grants to health care providers to upgrade their technology to reduce the occurrence of medical errors. Hospitals and other providers could apply for grants to create compatible computer systems, computerize physician orders, and electronically transmit medical records.

Earlier in the year, the Senate expressed interest in moving medical errors legislation, but has not taken up any measures. Sources have indicated that the Senate could approve legislation similar to HR 663 before spring recess. The principal stumbling block in the Senate is concern about this legislation restricting patient access to other medical records that are now available.

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