2008 Health Care Forecast Conference Prospects for Federal Health Legislation

1. 2008 Health Care Forecast ConferenceProspects for Federal Health Legislation Irvine, California February 21, 2008 Dean A. Rosen Mehlman Vogel Castagnetti, Inc.

2. Overview • Health Care in the 110th Congress • Progress report • What will happen in 2008? What won’t? • How will the 2008 elections influence the 110th Congress? • What do the debates in the current Congress portend for 2009 and Beyond

3. 110th Congress Health Care Scorecard Completed Health information technology Patent reform Prescription drug importation Follow-on biologics Stem cell funding Medicare Rx negotiation Oversight Potential/Pending • Prescription Drug User Fee • Medical Device User Fee • Pediatric exclusivity • Drug safety • Children’s Health • Medicare physician payment • Medicare physician payment • Medicare Advantage cuts and marketing reforms • Medicare Part A & B offsets and reforms • FMAP increase • Mental health parity • Genetic nondiscrimination

4. FDA Amendments Act of 2007 • Reauthorizes, expands, and increases prescription Rx user fees for 5 years • Reauthorizes and expands medical device user fees for 5 years, while reducing application fees • Expands FDA authority over advertising, post-market surveillance, labeling • Increases FDA food safety authority • Reauthorizes Best Pharmaceuticals for Children and Pediatric Research Equity Acts • Establishes Reagan-Udall Foundation to speed R&D and improve safety

5. My Forecast:What Will Happen During the 110th Congress’ Second Session?

6. Medicare Reform: Six-Month Mulligan Questions Predictions Yes Likely Modest Patched, and threadbare Modest to miniscule, perhaps IME and some private FFS deeming • Will Congress act? • Will Congress act by June 30? • Will the final result contain policy changes? • Will SGR be fixed, or just patched? • Will MA payments be cut?

7. Pay-Go May Be Most Significant 110th Congress Reform Affecting Health Policy Saturday, January 6, 2007 House Adopts Pay-as-You-Go Rules Changes Aim to Curb Deficit Spending, Shed Light on Earmarks By Lori Montgomery, Washington Post Staff Writer On its second day under Democratic management, the House yesterday overwhelmingly approved new rules aimed at reining in deficit spending and shedding more light on the murky world of special-interest projects known as earmarks. Under the new provisions, the House will for the first time in years be required to pay for any proposal to cut taxes or increase spending on the most expensive federal programs by raising taxes or cutting spending elsewhere. And lawmakers will be required to disclose the sponsors of earmarks, which are attached in virtual secrecy to legislation to direct money to favored interests or home-district projects.

8. Bush Administration Budget Priorities Bush Administration FY2009 Budget Proposals

9. Democrats’ Have Different View Medicare Winners and Losers in House CHAMP Act Parts B & D Beneficiary Improvements Physician Payment Increase 30 20 $15.9 44% $20.1 56% 10 0 Five Year Spending/Savings (billions) -$2.7 4% -$1.0 2% -$5.7 10% - 10 -$50.2 84% - 20 Other Part B Reductions Part A Reductions Other Parts A & B Reductions - 30 - 40 - 50 Medicare Advantage Reductions - 60 MVC Analysis of CBO Data

10. Quality Improvement: A Mixed Outlook Expand Medicare pay-for-performance/reporting • House and Senate leaders have different views • Small Medicare package = limited reforms Comparative effectiveness • Growing support but cost and lack of viable legislative vehicle could be barriers Health information technology • Senate bill awaits floor action • House will begin moving through committee • Privacy concerns and physician opposition to Medicare claims data release pose stumbling blocks in election year

11. Health Care Access and Coverage: As SCHIP Shows, Prospects Dim in 2008 Tax reform • Repeal employment-based exclusion • Standard deduction and/or credit SCHIP expansion, Medicare buy-in, other government program expansions Community health centers reauthorization

12. Health Insurance Regulation/Beneficiary Protections: Industry & Business Support Could Pave Way to Passage Mental health parity • Closer to passage than anytime in decade • But House will have to right-size Genetic nondiscrimination • Looks likely in 2008 Medicare marketing restrictions • Likely if Medicare bill Long-term care insurance marketing • More scrutiny likely, but issue not yet ripe

13. Prescription Drugs: Some Threats Remain Medicare Rx negotiation • Can’t pass Senate Prescription drug importation • Could be attached to any number of appropriations bills, but faces veto threat Transparency/Physician disclosure • Could be part of Medicare SGR package Patent reform • Final bill will be more to Rx industry’s liking Follow-on biologics • Waxman and others holding out for better deal?

14. Oversight & Investigations: No Legislation Necessary! Health plans and Rx/biotech industry continue to make inviting targets

15. 2008 Elections’ Influence on Congress

16. Public Opinion

17. Economy Now Most Important Issue in Choosing President… But Health Care Remains in Top Three Economy Iraq Health Care Source: January 14, 2008 ABC Washington Post Poll

18. Voters See Health Care As Leading Economic Issue Source: January 14, 2008 ABC Washington Post Poll

19. Health Care Much More Important to Democratic Voters Percent saying health care most or second-most important issue Washington Post/ABC News Poll, November 1, 2007

20. Democrats More Focused on Coverage, GOP Focused on Cost But Voters Understand They Go Hand in Hand Which ONE of the following health care issues would you most like to hear the Presidential candidates talk about? Total Republican Democrat Independent Total Republican Democrat Independent Total Republican Democrat Independent Kaiser Family Foundation, October 2007

21. The Candidates’ Proposals

22. Health Reform Plan Comparisons

23. Health Reform Plan Comparisons

24. Health Reform Plan Comparisons

25. Key Takeaways Democrats Republicans General proposals Primary goal reducing cost Rely on increased competition in individual insurance market Insurance deregulation Price and quality transparency But McCain agrees with Ds on importation and generics Tort reform Attention to ideology • Relatively specific plans • Primary goal increasing coverage • Rely on government programs and employers • Increase insurance regulation • Pharma, device, insurance industry scrutiny • No real tort reform • Keen attention to interest groups (e.g., nurses, unions, business)

26. A Look Ahead: Lessons Learned from the 110th Congress

27. SCHIP and Medicare Debates Highlight Political Fault Lines, Competing Policy Visions • Political parties polarized on coverage • SCHIP debate proxy war for looming larger battles • Significant differences on role of private and public sector • More consensus on quality, cost • Health IT, prevention, chronic care, aligning payment incentives in public programs, etc. • Pay-go poses significant challenges for would-be reformers • There is no free lunch • Lack of consensus on where to cut • Even more controversy over whether to raise taxes • Health reform debate in the 111th Congress will also be about taxes, spending and entitlements • Makeup of Congress matters

28. Federal Health Program Expenditures Are Growing Piece of Entitlement Spending Pie Other $366 22% Social Security $646 39% Medicaid & SCHIP $231 14% Health Care Total $642 39% Medicare $411 25% Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018, January 2008

29. Beginning 2008, President Must Submit Proposal to Reduce Medicare Spending $1,000 2008 President must submit first proposal to reduce Medicare general revenue funding 2010 Tax Cuts Expire $863 $799 $800 $741 45% Trigger $688 $640 2006 and 2007 Medicare Trustees Issue Funding Warning $594 $553 $600 Expenditures (billions) $513 $476 $438 $408 $400 $200 $0 Fiscal Year 2007 Medicare Trustees Report; expenditures are not net of premiums

30. Republicans Defending 22 Seats (with 6 Retirements) While Democrats Defending 12 Barrasso Lott

31. House of Representatives Retirements • Tom Allen, ME • Darlene Hooley, OR • Mike McNulty, NY • Marty Meehan, MA • Mark Udall, CO • Tom Udall, CO • Albert Wynn, MD • Richard Baker, LA • Barbara Cubin, WY • Tom Davis, VA • John Doolittle, CA • Terry Everett, AL • Mike Ferguson, NJ • Wayne Gilchrest, MD • Dennis Hastert, IL • Dave Hobson, OH • Kenny Hulshof, MO • Duncan Hunter, CA • Bobby Jindal, LA • Ray LaHood, IL • Ron Lewis, IL • Jim McCrery, LA • Steve Pearce, NM • John Peterson, PA • Chip Pickering, MS • Deborah Pryce, OH • Jim Ramstad, MN • Ralph Regula, OH • Rick Renzi, AZ • Jim Saxton, NJ • John Shadegg, AZ • Tom Tancredo, CO • James Walsh, NY • Dave Weldon, FL • Jerry Weller, IL • Roger Wicker, MS • Heather Wilson, NM 7 30 * As of February 19, 2008