Health reform's first change: tax reporting rule cut

The AMA was among those supporting the rescission of the 1099 rule, which would have increased practices' administrative work.

By Doug Trapp — Posted April 18, 2011

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The first successful legislative attempt to amend the national health system reform law is a bipartisan measure repealing an expense reporting provision that would have increased the amount of paperwork medical practices and other small businesses must file with the government.

The health reform law required businesses to file a 1099 form with the Internal Revenue Service for each vendor from whom the businesses purchase at least $600 in goods and services annually. By increasing tax collections from those vendors, the provision was expected to raise about $20 billion over a decade to help offset the cost of the health reform law's coverage expansions.

On April 5, the Senate approved a House-passed bill rescinding the reporting provision in the reform law. At this article's deadline, President Obama had not signed the change into law, but White House officials indicated that he would.

The cost of the repeal will be paid for by recouping certain federal funding dedicated to expanding coverage. Some lower-income recipients of health insurance assistance under the health reform law would need to repay those subsidies if their incomes increased above a certain threshold later in the year. Although Obama opposed that method of paying for the 1099 rescission, he did not threaten a veto over the funding mechanism.

The American Medical Association and the Medical Group Management Assn. were among the organizations that supported the 1099 repeal. "Existing administrative burdens already weigh heavily on physicians, taking up time that is better spent caring for patients," said AMA Immediate Past President J. James Rohack, MD.

The MGMA did not estimate the potential impact of the paperwork provision on physician practices, but the original language posed a burden, said Miranda Franco, MGMA government affairs representative.

The U.S. Chamber of Commerce also applauded the repeal of the provision, which the organization said could have encouraged businesses to avoid making certain purchases to limit the number of 1099 filings. "With small businesses struggling to grow and create jobs, the last thing they need is the federal government burying them in senseless paperwork," said R. Bruce Josten, the Chamber's executive vice president for government affairs.

Republicans began the 1099 repeal effort soon after Obama signed the health reform law in March 2010, and it soon attracted bipartisan support. Until recently, the House and Senate were unable to agree on how to pay for the changes.

Republicans hope the repeal is the first of several bills to roll back the health reform law. Democrats, however, have not embraced any of the other measures from House Republicans.

On April 13, the House was scheduled to consider a measure to repeal the health reform law's Prevention and Public Health Fund. Rescinding the fund would reduce spending by $16 billion over a decade, the Congressional Budget Office said.

House GOP members are targeting the fund because it gives the Health and Human Services secretary latitude to spend billions without approval by Congress. So far, HHS has awarded $1.25 billion for local tobacco cessation efforts, information technology upgrades for public health departments and research to monitor the impact of health reform. Senate Democrats and President Obama oppose repealing the fund.

House Republicans also are advancing a medical liability reform bill modeled on reforms in California since 1975, including a $250,000 cap on noneconomic damage awards. The House Energy and Commerce health subcommittee held an April 6 hearing on the measure, which has the support of the AMA and other physician organizations. It already has passed the House Judiciary Committee.

GOP panel members said the bill is needed to discourage the practice of defensive medicine, to encourage physicians to enter specialties that have high liability costs and to reduce health spending. The bill is sponsored by Rep. Phil Gingrey, MD (R, Ga.).

Capping noneconomic damages still allows patients a day in court and fair compensation, said House Energy and Commerce Committee Chair Joe Pitts (R, Pa.).

"It merely reins in over-the-top verdicts," he said.

But committee Democrats said certain lawsuits for legitimate injuries would not be pursued if noneconomic damages were limited so severely. In addition, $250,000 -- unadjusted for inflation -- is not enough to compensate for the pain and suffering of patients who have been disfigured, rendered blind or otherwise seriously injured, they said.

"It will penalize innocent victims of medical negligence," said Rep. Lois Capps (D, Calif.), adding that the bill does nothing to cut preventable medical errors or improve patient care.

Rep. Michael Burgess, MD (R, Texas), acknowledged after the hearing that getting Senate approval of the House GOP bill will be difficult. Several previous versions died in the Senate, including when Republicans controlled the chamber.

Rep. Frank Pallone (D, N.J.) was more blunt in summing up the bill's prospects: "It will never go anywhere, and it's just a waste of time."

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