MEDICARE LEGISLATIVE UPDATE: THE SGR AND SO MUCH MORE AHLA INSTITUTE ON MEDICARE AND MEDICAID PAYMENT ISSUES MARCH 26-28, 2014

Transcription

1 MEDICARE LEGISLATIVE UPDATE: THE SGR AND SO MUCH MORE AHLA INSTITUTE ON MEDICARE AND MEDICAID PAYMENT ISSUES MARCH 26-28, 2014 ERIC ZIMMERMAN MCDERMOTT WILL & EMERY LLP I. Recent Medicare Program Legislative Changes A. Medicare Legislation Since the Affordable Care Act of Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, Public Law (June 25, 2010) 2. Physician Payment and Therapy Relief Act of 2010, Public Law (November 30, 2010) 3. Medicare and Medicaid Extenders Act of 2010, Public Law (December 15, 2010) 4. Budget Control Act of 2011, Public Law (August 2, 2011) 5. Temporary Payroll Tax Cut Continuation Act of 2011, Public Law (December 23, 2011) 6. Middle Class Tax Relief and Job Creation Act of 2012, Public Law (February 22, 2012) 7. American Taxpayer Relief Act of 2012, Public Law (January 2, 2013) 8. Pathway for SGR Reform Act of 2013, Public Law (December 26, 2013) B. Major Medicare Part A and B Program Legislative Changes Since the Affordable Care Act of Physicians a. Payment Update The Medicare statute requires that the Medicare physician fee schedule be revised upward or downward every year This outline summarizes legislative changes that the author considers to be major ; the author does not endeavor to summarize all statutory changes occurring in this period.

2 depending on the results of a complex formula known as the sustainable growth rate (SGR). Since 2003, Congress has intervened 17 times with legislation overriding reductions required by the SGR, including most recently in the Bipartisan Budget Act of 2013, which suspends the SGR formula until March 31, However, each time Congress delays implementation of the reductions, the reductions commanded by the formula the next year are compounded. In 2002, physician payment rates were to be reduced by 4.8 percent pursuant to the SGR formula. In 2013, had Congress not stepped in, Medicare payments to physicians would have been cut by 29 percent. The amount of the formula-driven cut has begun to decrease: The projected cut for 2014 is 20.1 percent. b. Geographic Payment Cost Indices Medicare payments to physicians are geographically adjusted to reflect the varying cost of delivering physician services across locations. The adjustments are made by indices, known as the Geographic Practice Cost Indices (GPCI), that reflect how each geographic area compares to the national average. In 2003, Congress established that for three years there would be floor of 1.0 on the work component of the formula used to determine physician payments, which meant that physician payments would not be reduced in a geographic area just because the relative cost of physician work in that area fell below the national average. Congress has extended the work GPCI floor consistently since then, including most recently through March 31, 2014 by the Bipartisan Budget Act of c. Mental Health Add-on Legislation enacted in 2008 increased Medicare payments for mental health services furnished by physicians by 5 percent for a period of 18 months. Congress extended the add-on payment three times, including most recently through February 2012 by the Temporary Payroll Tax Cut Continuation Act. This provision has not been extended since. d. Technical Component of Certain Physician Pathology Services In 1999, the Health Care Financing Administration (now CMS) established a policy that Medicare would only make payment to a hospital for pathology services furnished to hospital patients. To the extent that hospitals may have outsourced those pathology services to an independent lab, the hospital would be required to bill Medicare and receive payment, and then compensate the lab for the services it provided. Congress has repeatedly suspended implementation of this regulation, most recently through the Middle Class Tax Relief and Job Creation Act through June This provision has not been extended since. 2. Hospitals a. Documentation and Coding Adjustments Under the TMA, Abstinence Education, and QI Programs Extension Act of 2007 (Public Law ),

3 Congress required CMS to adjust hospital payments in fiscal years 2010 through 2012 to offset payment increases believed to have resulted in fiscal years 2008 and 2009 from the transition to a new coding classification system and not from actual changes in hospitals case mix. The American Taxpayer Relief Act revised the 2007 legislation to require an offset for fiscal year 2010 too, and required an additional prospective adjustment in fiscal years 2014 through 2017 to further offset an $11 billion increase in aggregate payments from 2008 through 2013 that also resulted from implementation of the new coding classification system. b. Outpatient PPS Transitional Payments Beginning in 2005, Medicare provided additional payments under the Hospital Outpatient Prospective Payment System (OPPS) to small rural hospitals (i.e., those with 100 or fewer beds) and hospitals designated as Sole Community Hospitals (SCHs). Both protections were repeatedly extended. Congress extended the hold harmless protections again in the Middle Class Tax Relief and Job Creation Act, but only for hospitals with 100 or fewer beds. Congress allowed the program to lapse in its entirety on December 31, 2012, and it has not been renewed since. c. Wage Index/Section 508 Special wage index reclassification criteria created pursuant to Section 508 of the Medicare Modernization Act of 2003 enabled approximately 120 hospitals to receive a higher wage index for a three-year period ending April 1, Congress extended these reclassifications eight times, but the last such extension was made by the Middle Class Tax Relief and Job Creation Act through March 31, d. Medicare-dependent Small Rural Hospitals Medicare has a special reimbursement methodology that increases Medicare payments for certain hospitals that qualify as Medicare-Dependent Hospitals (MDHs). This program is designed to support small rural hospitals with a substantial Medicare patient population that rely significantly on Medicare payments. This program expired October 1, 2013, but the Bipartisan Budget Act of 2013 extends the MDH program through March 31, e. Low Volume Adjustments Medicare provides a percentage increase for each payment to certain qualifying low-volume hospitals. The Affordable Care Act substantially broadened the eligibility criteria, enabling many more hospitals to qualify for these additional payments. The Bipartisan Budget Act of 2013 continues the broader eligibility criteria for lowvolume hospitals as well as the Affordable Care Act methodology for calculating such payments through March 31, f. Bad Debt Medicare pays certain providers a portion of beneficiaries unpaid coinsurance and deductible amounts. Hospitals generally are paid 70 percent of these bad debts, while critical access hospitals, rural health clinics, federally qualified health clinics, community mental health clinics,

4 health maintenance organizations reimbursed on a cost basis, competitive medical plans, health care prepayment plans and end-stage renal disease facilities are paid 100 percent of uncollected amounts. Medicare also pays skilled nursing facilities 100 percent of bad debts for Medicare beneficiaries who are eligible for Medicaid (dual eligibles) and 70 percent of the uncollected allowable costs for all other beneficiaries. The Middle Class Tax Relief and Job Creation Act reduced Medicare s bad debt payment to 65 percent for all eligible provider types. Where payments will be reduced from 100 percent to 65 percent, those reductions will be phased in over three years: 88 percent in 2013, 76 percent in 2014, and 65 percent in g. Long-term Care Hospitals Under current law, Medicare pays hospitals qualifying as long-term care hospitals pursuant to the long-term care hospital prospective payment system (LTCH PPS). Pursuant to the Bipartisan Budget Act of 2013, Medicare payment to hospitals with LTCH status will change in several fundamental ways beginning in FY Beginning with cost reporting periods beginning on or after October 1, 2015, Medicare will pay LTCHs under the LTCH PPS only for patients who (1) spent at least 3 days in a hospital intensive care unit immediately prior to admission to the LTCH, or (2) received at least 96 hours of ventilator services at the LTCH, and the patient does not have a principal diagnosis relating to a psychiatric diagnosis or rehabilitation. All other patients/discharges will be paid pursuant to the lower of IPPS comparable rate as defined under 42 C.F.R (d)(4), plus any applicable outliers as permitted under , or 100 percent of the estimated cost for the services involved. This new payment methodology will be phased in. Beginning with cost reporting periods beginning on or after October 1, 2019, if at least 50 percent of an LTCH s payments in a fiscal year are not made under the LTCH PPS, the LTCH will be paid under the IPPS (not IPPS comparable rates) beginning with the next fiscal year. CMS is required to establish a process whereby an LTCH can appeal this demotion to restore payment based on the LTCH-PPS. The new law also extends protection from the 25 percent rule. For a period of 9 years beginning with cost reporting periods beginning on or after July 1, 2007, CMS is prohibited from enforcing 42 C.F.R applicable to LTCHs that qualify as hospitals-within hospitals or applicable to freestanding LTCHs (i.e., the 25 percent rule ) under which an LTCH that admits more than 25 percent of its total discharges from a single hospital has payments reduced to the IPPS comparable rate for those discharges in excess of 25 percent. CMS is forever prohibited from enforcing 42 C.F.R with respect to LTCHs that are eligible for grandfather protection pursuant to 4417(a) of the Balanced Budget Act of 1997 (Public Law ). The new law also reinstates the new facility development and expansion moratorium. For the period beginning January 1, 2015, and ending September 30, 2017, CMS shall impose a

5 moratorium on the establishment and classification of an LTCH or satellite facility and an increase of LTCH beds in existing LTCHs or satellite facilities. 3. Therapy Services a. Caps Legislation enacted in 1997 created an annual per-medicarebeneficiary cap of $1,500 for outpatient therapy services, except when received from a hospital outpatient department. The annual cap applied to physical and speech therapy combined, and separately to occupational therapy. From 1997 through the end of 2005, the caps were never imposed because Congress enacted a series of laws temporarily suspending the caps. In 2005 legislation, Congress allowed the caps to go into effect in 2006, but established an exceptions process whereby Medicare beneficiaries can request and be granted an exception to the caps, and receive an unlimited amount of therapy services to the extent deemed medically necessary by Medicare. The 2005 law authorized the exceptions process for only one year, but Congress has also repeatedly extended the exceptions process. The Bipartisan Budget Act of 2013 extends this exceptions process, effectively suspending the cap through March 31, Prior to 2012, the limits on annual payments for therapy services did not apply to therapy services furnished by hospitals. The Middle Class Tax Relief and Job Creation Act applied the caps to therapy services furnished by hospitals in outpatient settings. The American Taxpayer Relief Act broadened the scope of the caps further, applying the caps to therapy services furnished on an outpatient basis by critical access hospitals. The American Taxpayer Relief Act also provided additional protection to beneficiaries affected by this cap by incorporating the beneficiary rights provisions of Section 1879 of the Social Security Act. Section 1879 protects Medicare beneficiaries from liability for items and services furnished to them if the Medicare beneficiary and the provider did not know, and could not have been reasonably expected to know, that the item or service would be non-covered. b. Multiple Service Payment Reductions CMS has a number of policies that limit payment when multiple procedures are furnished on the same day. CMS originally created a 25 percent multiple procedure payment reduction by regulation in November In response to these regulations, Congress passed the Physician Payment and Therapy Relief Act of 2010 (Public Law ), which, among other things, decreased the payment reduction to 20 percent. Under the American Taxpayer Relief Act, Congress mandated that the multiple procedure payment reduction be increased to 50 percent for therapy services furnished on or after April 1, 2013.

6 4. Clinical Laboratories a. Updates The Middle Class Tax Relief and Job Creation Act reduced Medicare payments for clinical laboratory services paid under the Clinical Laboratory Fee Schedule by 2 percent beginning in b. Reasonable Costs Payments for Certain Clinical Diagnostic Laboratory Tests Furnished to Hospital Patients in Certain Rural Areas Generally, Medicare pays for clinical diagnostic laboratory services based on fee schedules. However, for hospitals with fewer than 50 beds in qualified low-density population areas, Medicare pays on the basis of reasonable costs. 5. Durable Medical Equipment CMS began implementing a Competitive Bidding Program (CBP) for diabetes testing supplies purchased through mail order suppliers in For the first two years, the payment amounts established under the CBP applied only in nine areas where the CBP was conducted. CMS is now conducting a second round of bidding, and in July 2013, the payment amount for all diabetes testing supplies purchased through mail order suppliers throughout the United States will be set through the competitive bidding program. Meanwhile, payment amounts for diabetes testing supplies purchased through non-mail-order suppliers (e.g., retail pharmacies) continue to be set by fee schedule. As a result, through much of 2012, CMS paid three different amounts for diabetes testing supplies: approximately $38 if purchased from a non-mail-order supplier, approximately $34 if purchased from a mail order supplier outside of a competitive bidding area, and approximately $14 if purchased from a mail order supplier in a competitive bidding area. The American Taxpayer Relief Act aligned those payment amounts, providing that effective April 1, 2013, Medicare will pay approximately $34 for all diabetes testing supplies, and then effective with implementation of the national competitive bidding program (July 1, 2013), Medicare will pay one rate (i.e., the rate determined through the CBP) regardless of where the supplies are purchased. 6. Ambulance Services The Bipartisan Budget Act of 2013 extended several ambulance service payment add-ons through March 31, 2014, including a 3 percent increase for ground ambulance trips originating in rural areas by 3 percent, a 2 percent increase for ground ambulance trips originating in urban areas, special treatment for certain air ambulance services originating in rural areas, and a super add-on of 22.6 percent for ambulance services in the lowest population density areas. 7. Sequestration The Budget Control Act of 2011 required, among other things, that the Administration make mandatory across the board reductions in Federal spending, also known as sequestration, by January 2, 2013 if Congress failed to take certain actions, which Congress did ultimately fail to take. The American Taxpayer Relief Act postponed sequestration for 2

7 months, to March 1, Pursuant to this legislation and implementing instructions from CMS, Medicare fee-for-service payment for claims with dates of service or dates of discharge on or after April 1, 2013, are reduced 2 percent. The claims payment adjustment is applied to all claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments. Beneficiary payments for deductibles and coinsurance are not subject to the 2 percent payment reduction.

8 II. Medicare Program Deficit Reduction Options 1 PROPOSAL DESCRIPTION PRES. 2 RYAN 3 SIMPSON- OTHER 5 BOWLES 4 BENEFICIARIES Eligibility Age Currently, most Americans become eligible for Medicare benefits when they reach the 65 years old. Several proposals have recommended gradually raising the Medicare eligibility age from 65 to 67 to align CBO, Hatch Medicare eligibility with the full retirement age for Social Security. Deductibles Copayments Several proposals have recommended increasing the Part B deductible ($147 in 2013). The President has recommended gradually increasing the deductible by $75, while Simpson-Bowles recommends increasing the Part B deductible to $550 (while simultaneously lowering the Part A deductible to $550). Medicare beneficiaries do not pay copayments for several Medicare services, like home health, clinical laboratory services and skilled nursing facility services for the first 20 days of the benefit period. Several proposals have recommended imposing a 20% or fixed dollar copay requirements. The President would require a $100 beneficiary copayment for home health services for episodes with five or more visits not preceded by a hospital or inpatient post-acute stay. Hatch MedPAC, CBO 1 The following table identifies a sampling of Medicare program payment-related changes that have appeared in what the author regards to be major deficit reduction and Medicare reform proposals. This table does not endeavor to identify or describe major broad-based reform proposals, such as those that would transform the program into a premium support system. 2 Refers to proposals recommended or endorsed by the President through a budget proposal (FY 2013 and 2014) or other policy recommendation. 3 Refers to Congressman Paul Ryan s Path to Prosperity budget proposal. 4 Refers to the recommendations of The National Commission on Fiscal Responsibility and Reform Moment of Truth report (December 2010) and A Bipartisan Path Forward to Securing America s Future (April 2013); the Commission is chaired by Erskine Bowles and former Senator Alan Simpson. 5 CBO refers to recommendations of the Congressional Budget Office from Reducing the Deficit: Spending and Revenue Options (March 2011); MedPAC refers to recommendations of the Medicare Payment Advisory Commission, Draft Offset List (Sept. 20, 2011); Hatch: refers to recommendations from Senator Orrin Hatch, September 27, 2012; refers to recommendations of the Bipartisan Policy Center from Debt Reduction Task Force Plan 2.0, chaired by former Senator Pete Domenici and former US Office of Management and Budget Director Alice (Dec. 3, 2012); Cantor-Biden refers to a list of proposed healthcare cuts allegedly considered by Representative Eric Cantor and Vice President Biden during discussions around the Budget Control Act in August 2011.

9 PROPOSAL DESCRIPTION PRES. 2 RYAN 3 SIMPSON- OTHER 5 BOWLES 4 Medigap Most Medicare beneficiaries have supplemental insurance policies that pay beneficiary deductibles and copays. Several proposals have recommended prohibiting Medigap policies from covering the first $550 of CBO, Hatch, beneficiary cost-sharing obligations and limit coverage to 50 percent of the next $4,950 in cost sharing. Others recommend imposing surcharges (e.g., 15%) on purchases of Medigap policies with low cost-sharing obligations. Premiums Under current law beneficiaries pay a monthly premium for Parts B and D. Premiums are means tested. In 2012, Part B premiums ranged from approximately $105 for low-income individuals to $335 for higher income individuals. Some proposals have recommended gradually increasing the share of Part B costs paid by enrollees from 25 percent to 35 percent and increase Part D premiums from 25.5 percent to 35 percent of the national average cost of standard Part D coverage.. Premium Support SGR Site Neutrality Some proposals recommend transforming Medicare from a guaranteed defined benefit program to a guaranteed defined premium program where beneficiaries would receive federal dollars to purchase insurance through a private market. PROVIDERS/SUPPLIERS Numerous proposals recommend repealing the SGR; most also recommend replacing it with statutory updates (some positive, some negative, some even). Because of the various methodologies Medicare uses to determine payments for different provider types, program payments for similar services can vary widely depending on the setting. Some proposals have recommended equalizing payments for services commonly furnished in physician offices. Bad Debt Medicare reimburses hospitals and skilled nursing facilities a portion (65 percent) of the bad debt they incur when Medicare beneficiaries do not pay the cost sharing they owe for services received. Some proposals have recommended further reducing (e.g., to 25%) or entirely eliminating bad debt payments. CBO, Hatch, MedPAC MedPAC

10 PROPOSAL DESCRIPTION PRES. 2 RYAN 3 SIMPSON- OTHER 5 BOWLES 4 GME/IME Medicare makes supplemental payments to hospitals with teaching programs. For the indirect costs associated with maintaining a teaching program, Medicare pays teaching hospitals an additional 5.5 percent per MedPAC, Medicare stay for every 10 percent increase in the hospital s ratio of CBO, medical residents to beds. Several proposals have recommended lowering Domenicithat adjustment from 1.88% to 2.2%. Other proposals have recommended limiting direct GME payments to 120 percent of the national average salary paid to residents in 2010, updated annually thereafter. CAHs Value-based purchasing Inflation Updates Part B Drugs Clinical Lab services Hospitals designated as critical access hospitals are paid 101% of reasonable costs. Some proposals have recommended reducing that reimbursement to 100% of reasonable costs, and revoking CAH status from facilities within 10 miles of another hospital. At present, 2% of hospital payments are linked to performance against a variety of quality measures. Some proposals have called for increasing this percentage to 5%; other proposals recommend subjecting more services to value-based purchasing programs. Others call for increasing readmission penalties, and including more diagnoses. Payments for many services are inflated annually using the consumer price index for urban areas. Some proposals have recommended adopting the Chain-Weighted Consumer Price Index for Urban Consumers. Medicare pays for most drugs covered under Part B on the basis of average sales price. Since 2005, the Medicare payment amount has been ASP+6%. Some proposals have called for reducing the payment to ASP+3%. While most drugs are paid using ASP, some drugs (those administered at home with an infusion pump, like immune globulin administered by subcutaneous injection, and preventive vaccines for influenza, pneumococcus, and hepatitis B) are paid based on average wholesale price. Some proposals have recommended moving these drugs to an ASP methodology. Other proposals have recommended allowing Medicare to directly negotiate payments for some of these drugs. Recent legislation has reduced payments to clinical lab services; some proposals recommend across-the-board payment reductions of as much as 10%. The President has proposed lowering payment rates by 1.75 percent for multiple years, and providing CMS with authority to further CBO, Cantor- Biden MedPAC

11 PROPOSAL DESCRIPTION PRES. 2 RYAN 3 SIMPSON- BOWLES 4 OTHER 5 adjust individual payment rates. Others have recommended establishing clinical lab reimbursements via a competitive bidding model like the one used to establish reimbursement amounts for certain items of durable medical equipment. Post-acute care providers IPAB Durable Medical Equipment In-office ancillary services exception Benchmarks Some proposals have recommended rebasing skilled nursing facility and home health payments to more closely align payments with costs. Other proposals recommend reducing payments by 1.1 percent per year for 7 years. Other proposals recommend lower payments for certain services furnished in inpatient rehabilitation facilities to equal SNF payments or increasing the percentage of cases required to meet severity conditions. The President has proposed reinstitute the 75% standard for classifying a facility as an IRF, implement a readmissions payment penalty program for SNF, and implement a bundled payment for post-acute care services furnished in LTCHs, IRFs, SNFs, and home health providers. The Independent Payment Advisory Board was established by the ACA, and given extraordinary powers to recommend and implement changes to Medicare payment policies if certain triggers are hit. Some have proposed lowering the triggers so that IPAB recommendations are initiated more readily. Others recommend removing exemptions that protect certain providers -- like hospitals -- from the scope of IPABs review in the early years. The President has proposed to limit Federal reimbursement for a State s Medicaid spending on certain DME services to what Medicare would have paid in the same State for the same services." Medicare Advantage Medicare pays plans under a process that compares bids against benchmarks. The ACA required benchmarks to be gradually reduced between Some proposals have recommended accelerating the phase-in, setting benchmarks equal to local costs of traditional Medicare in counties in which benchmarks for Medicare Advantage plans are higher than local costs of traditional Medicare or setting benchmarks via a competitive bidding process. MedPAC Bipartisan Policy Center

12 5 PROPOSAL DESCRIPTION PRES. 2 RYAN 3 SIMPSON- BOWLES 4 OTHER Risk Adjustments Currently, Medicare prospectively adjusts payments to Medicare Advantage plans to reflect the expected costs and health risks of each enrollee. Some proposals have recommended improving risk adjustment accuracy by requiring CMS to use two years of historical medical claims data, rather than one year, and including the number of medical conditions, to adjust the payments to Medicare Advantage plans for the demographics and health history of each plan enrollee. MedPAC Quality Ratings Rebates Biosimilar Exclusivity period Price setting Part D copayments Medicare Advantage plans are rated on a 1 to 5 star scale, with 1 star representing poor performance and 5 stars representing excellent performance. The ACA authorized plans with 4 or more stars to receive bonuses of 5 added to their benchmark; in 2012, CMS implemented a demonstration to extend lesser bonuses to plans with as few as 3 stars. Some have recommended terminating the CMS demonstration. Part D Prescription Drug Plans Under Medicaid, drug manufacturers pay a rebate to the Federal government (shared with the states) based on best price and price increases. Some proposals would require manufacturers to pay similar rebates under Part D for beneficiaries enrolled in the Low-Income Subsidy (LIS) program. The ACA established a pathway for biosimilars to come to market, but granted a 12-year period of exclusivity to novel biologics. Some have proposed lowering the period of exclusivity to 7 years. The price paid for a Medicare Part D drug is determined through negotiation between private drug plans administering the benefit and the drug manufacturer. Some proposals have recommended authorizing CMS to negotiate lower prices for drugs sold by only one manufacturer. The President has proposed to increase utilization of generic drugs by lowering copayments for generic drugs by more than 15 percent, to $0.90 for beneficiaries with income below 100 percent of the federal poverty level, and $1.80 for beneficiaries with incomes below 135 percent of the federal poverty level. Brand drug copayments would increase to twice the level required under current law GAO, MedPAC MedPAC, CBO,