Later this month, the Supreme Court will hear challenges to the Patient Protection and Affordable Care Act (PPACA), the massive healthcare overhaul championed by the White House and Congressional Democrats that was signed into law in 2010. The court’s consideration sets the stage for a final decision on the legality of at least parts of the controversial measure later this June. While it is unclear whether the law will survive the Supreme Court or Republican attacks on Capitol Hill, for now, it continues its march forward, with numerous obligations potentially affecting our industry set to go into effect over the next couple of years.
Of course, much of the attention surrounding the law has centered on those measures that are aimed at expanding coverage to about 32 million uninsured; for instance, the so-called “individual mandate” and the requirement that larger employers provide coverage, both of which go into effect in 2014. However, cost containment and quality measures that utilize government programs like Medicare to incentivize improvements in healthcare don’t get much attention, but they could have an impact on certain segments of the nonwovens industry.
For example, beginning this year, the Center for Medicare and Medicaid Services (CMS) will begin penalizing hospitals for excess readmissions, withholding 1% of all inpatient Medicare payments in 2012, 2% in 2013 and 3% in 2014 and beyond. The law also attempts to tackle the increasing number of hospital-acquired conditions (HACs) by reducing Medicare payments by 1% for hospitals with the highest HAC rates and expanding to Medicaid a Medicare policy of restricting payments to hospitals for extra care related to “certain preventable infections and medical errors.”
Moreover, October 1 will mark the launch of PPACA-mandated value-based purchasing (VBP) in which Medicare payments to approximately 3000 acute care hospitals will be linked to their performance on government-established clinical processes of care and patient experience metrics. While “pay-for-performance” measures like VBP seem like a no-brainer, a 2010 VHA, Inc. study detailed the potential downside, finding that roughly 75% of hospitals are not ready to meet the demands of VBP and face big losses with a projected average revenue risk of almost $7 million over five years. Although initiatives aimed at reducing HACs and hospital readmissions could create new opportunities for nonwovens that reduce the likelihood of infections and other illnesses, taken together, VBP and the other quality measures could also significantly reduce the resources that hospitals and other providers have to spend on healthcare supplies, including nonwovens.
Another important provision is one of the many “pay-fors” in the law, a 2.3% excise tax on the sale of certain medical devices set to go into effect in 2013. Device makers say the tax will cost the industry nearly $3 billion each year as well as tens of thousands of domestic jobs. The provision does, however, exempt certain items from the tax, including eyeglasses, contact lenses, hearing aids and “any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use.” In fact, last month the Internal Revenue Service published proposed guidance for determining which medical devices would be eligible for the so-called “retail exemption” but the agency is still collecting public input.
As it stands, bills repealing the tax have been introduced in both House and Senate and enjoy significant bipartisan support. Unfortunately, their future is somewhat murky because of the imperative to find a $20 billion offset to replace the tax revenue due to the recent focus on deficit reduction.
So what does it all mean for our industry? As they say, it’s complicated. This is a groundbreaking law that makes major changes to the health system as we know it. It appears PPACA could increase demand for our industry’s health related products by expanding medical care access to about 32 million more Americans. On the other hand, providers may be facing new resource constraints due to programs like VBP, which might reduce spending on these products. Add in questions about the law’s ability to survive legal and legislative challenges and you’ve got a recipe for speculation no matter how expert you are on the topic. To learn more about health care reform, visit: www.kff.org.
Planning for the CPSIA Rule on Periodic Testing
Since Congress passed the Consumer Product Safety Improvement Act (CPSIA) in 2008, the Consumer Product Safety Commission (CPSC) has struggled through its implementation, with efforts to set lead limits, establish third-party testing requirements and launch a product injury database stymied by legislative maneuvers, Commission deadlock and lawsuits. As of January 1, however, significant third-party testing and certification rules finally became effective, requiring manufacturers and importers of children’s products to demonstrate that goods made after December 31, 2011 comply with toy safety standards, bans on phthalates and limits on total lead content and lead in paint. This means companies must know now what is required of them specifically.
To that end, to ensure continuous compliance with the various safety standards, on October 19, the Commission released a final rule describing requirements for retesting products at certain predefined intervals and when they have undergone a “material change.” The Commission defines “material change” as one to a “product’s design, to the manufacturing process or to the source of component parts for the product, which a manufacturer, exercising due care, knows, or should know, could affect the product’s ability to comply with the applicable children’s product standards.”
The retest need only be for compliance with requirements that could have been affected by the “material change.” If it is to only one component that does not affect other parts or the finished product’s compliance, then only that part must be re-evaluated.
Even when there hasn’t been a material change, routine testing is mandated, allowing manufacturers to report annually if they maintain a “periodic testing plan;” biennially if they create a written production testing plan for each facility; or once every three years if they utilize internal testing conducted by a firewalled, ISO-certified laboratory (most companies, however, are expected to select one of the first two options since few have in-house laboratories that meet the stringent specifications). The “periodic testing plan” must be in writing and identify the procedures to be conducted, the planned intervals and number of samples. The “production testing plan,” meanwhile, must detail the process-management techniques; the tests to be conducted or the measurements to be taken and the intervals; the number of samples; and a description of how these evaluations provide a high degree of assurance of compliance with applicable regulations.
The rule also stipulates extensive record keeping requirements, requiring manufacturers and importers maintain for five years numerous documents including: a Children’s Product Certificate for each product; records of each third party certification test (for each manufacturing site); descriptions of all material changes in product design, manufacturing process, component part sourcing; test values and certification test runs; undue influence procedures and periodic or production testing plans and results.
As it stands, a legislative “fix” to the CPSIA approved by Congress last summer (H.R. 2715) requires the Commission to revise third-party testing regulations if, after considering public comments, it determines it could reduce testing costs while still assuring compliance. However, CPSC has until January 2013 to respond, and it’s difficult to say whether the Commission will agree changes are warranted. In the meantime, companies will need to take steps to ensure they are meeting their obligations to avoid the threat of an enforcement action. To that end, the Commission’s Small Business Ombudsman recently announced it has updated its website to feature a collection of straightforward, easy to follow resources to help manufacturers understand their obligations under the CPSIA and other product safety laws. To access, visit: www.cpsc.gov/BUSINFO/smbus.html.