Recent/upcoming developments… There continue to be indications of interest on the part of Republicans in enacting a bipartisan health care bill by the end of this year.  This is being catalyzed by growing focus on the end of year expiration of the ACA enhanced subsidies and the need to address Medicare and Medicaid “extenders”.  We anticipate the visibility of this legislative effort to grow when Congress returns from its recess post-Labor Day.

Our outlook… Our expectation is that a year-end healthcare bill is more likely than not to include provisions relating to must-pass items (i.e., Medicare and Medicaid “extenders” like CHC funding and delaying CLFS and Medicaid DSH cuts) and non-controversial issues that have bipartisan support (i.e., public payer PBM reforms).  However, the key to unlocking a large-scale bipartisan healthcare bill will be whether lawmakers can get to a deal on extending the soon-to-expire ACA enhanced subsidies (eAPTCs).  If a bipartisan deal can be reached on that issue (on which we are skeptical), it then provides a catalyst and political cover for lawmakers to consider other substantive but controversial (and potentially disruptive) healthcare reforms, such as around Medicare Advantage (MA) and Medicare FFS site neutral payments (the savings of which can be used to offset the cost of extending the eAPTCs).  Below we highlight the proposals which are under discussion for inclusion in a year-end healthcare bill and their relative likelihood of enactment.

* ACA Subsidies… As previously noted, in recent weeks we have seen several Republicans (i.e., Sens. Tillis (R-NC), Hawley (R-MO), Sullivan (R-AK), and Murkowski (R-AK), as well as Senate Majority Leader Thune (R-SD)) signal either support for some sort of extension of the eAPTCs or suggest Republicans are debating the matter.  The recent engagement by Republicans on this issue – paired with our expectation that Democratic lawmakers will soon be ramping up their advocacy on this issue – suggests there is a ~35% probability (up from ~20%) the enhanced subsidies are addressed by year’s end.  We cannot have strong conviction on this, however, given that (1) key committee leaders (i.e., House Ways and Means Committee Chair Smith (R-MO) and Senate Finance Committee Chair Crapo (R-ID)) have indicated they are not yet considering this issue and (2) rank-and-file Republicans do not yet appear on board with an extension.  In any case, it remains our view that if Republicans agree to act on the subsidies, it will represent a pull-back from the status quo (i.e., extension but less access/generosity vs. the current law).

* MA… While Republicans remain strongly supportive of MA, targeted concerns are emerging within the party around abuse of the MA risk scoring system (upcoding), overuse of prior authorization (PA), and insurer efforts to suppress provider rates.  And recent comments from Crapo, Smith, and Senate HELP Committee Chair Cassidy (R-LA) suggest leadership is motivated to see MA reforms included in a year-end healthcare bill.  However, there are a variety of process/political hurdles that depress the probability of enactment for MA reforms (~35%) – most notably, that legislating around MA carries political risk (particularly heading into the midterm elections next year).  Proposals range from the disruptive (i.e., the No UPCODE Act (S. 1105), which would exclude diagnoses from in-home health assessments and chart reviews from risk score calculations, require the use of two years of diagnostic data in calculating the risk-adjusted payment rates instead of one, and require annual recalibrations of the coding intensity adjustment, likely saving at least $124b in savings over 10-years) to the more innocuous (i.e., the Improving Seniors’ Timely Access to Care Act (S. 4532/H.R. 8702), a bipartisan effort to codify and modestly expand the regulatory PA reforms implemented by CMS in recent years).

* Site Neutral… Site neutral reforms remain an appealing option for generating federal savings, though lawmakers have struggled for ~two years to pass anything more than innocuous of site neutral reforms (and most activity has occurred in the House rather than in the Senate).  The most disruptive proposals (i.e., expanding the existing site neutral policies to all off-campus outpatient departments, on-campus facilities, and/or ASCs) currently have a ~35% probability of enactment given the past success of hospital stakeholder lobbying and the concerns of lawmakers on both sides of the aisle around access implications.  Much more modest proposals (i.e., site neutral payments for drug administration services) have a ~45% probability of enactment given that they have previously passed the full House on both partisan and bipartisan bases (though the probability is diminished by the fact that Senate Republicans rejected this proposal in the context of the OBBBA, suggesting a lack of interest/support).

* PBMs… Senate Finance Chair Crapo (R-ID) has indicated that a bipartisan deal to impose new regulations on PBMs would be a top priority for his committee between now and the end of the year.  And we have multiple indications over the past several years that PBM reform is an area of strong bipartisan interest.  On substance, it remains our view that public payer focused PBM reforms are more likely to be enacted (55-60% probability) than commercial market reforms (35% probability), as the former generates federal savings and the latter has historically drawn lawmaker concern around the potential impact to premiums in the commercial and employer-sponsored markets.  That said, the emergence of a commercial pass-through proposal in the failed December 2024 appropriations bill and prior bipartisan action on commercial market reforms in the Senate reduces our confidence on this point.  Moreover, the fact that Crapo is signaling he wants to address this issue on a bipartisan basis leaves open the possibility of commercial market reforms being pursued (as the use of the partisan reconciliation process for enacting PBM reforms would foreclose the ability of lawmakers to include commercial reforms in such a bill).

* Medicare/Medicaid Extenders… There are dozens of “extenders” which are likely to be included in a year-end bill (60%+ probability) as they provide funding for niche programs which (in most cases) have existed for many years and/or have regularly been extended on a bipartisan basis (i.e., Community Health Centers, Low Volume Inpatient Hospital Add-On, Medicare Dependent Hospital Program, Special Diabetes Programs, Medicaid DSH, delays in various Medicare and other cuts, etc.).

Watch for these developments… As the ACA eAPTC issue is the lynchpin to a broader bill, we are watching for indications that Democratic lawmakers (i.e., Senate Finance Ranking Member Wyden (D-OR)) are pivoting from their current partisan criticism of Republicans and beginning to actively seeking a bipartisan deal on the matter, as this would suggest the debate around this issue is moving to a more serious phase.  In return, it will be important to watch for whether there is receptivity by Republicans (particularly in the House) to Democratic olive-branches on ACA subsidies, as open dialogue will suggest a deal is more likely than currently expected.  If an ACA deal does come together, we are watching for indications from rank-and-file Republican lawmakers as to their level of support for more politically controversial MA and site neutral reforms, as their support will be required for leadership to move ahead with votes on those issues.