On May 8, 2013, the House Energy and Commerce Subcommittee on Health approved by voice vote H.R. 1407, legislation to reauthorize and combine the Animal Drug User Fee Act and the Animal Generic Drug User Fee Act. TheEnergy and Commerce Committee also recently held hearings on: the Administration’s HHS budget proposal; the Center for Consumer Information and Insurance Oversight and implementation of the ACA; the lack of transparency and consumer driven market forces in U.S. health care system; and the impact of HIPAA on patient care and public safety. The House Ways and Means Health Subcommittee held a hearing on Medicare physician payment reform, and the Senate Finance Committee has scheduled a May 14 hearing on this topic. Other Senate panels also recently held hearings on health policy issues, including: a HELP Committee hearing on "Successful Primary Care Programs: Creating the Workforce We Need"’ a Homeland Security Committee hearing on “Oversight and Business Practices of Durable Medical Equipment Companies”; and a Special Committee on Aging hearing on "The National Plan to Address Alzheimer's Disease: Are We On Track to 2025?"
On April 25, 2013, CMS announced that, due to technical issues, it is delaying implementation of the Phase 2 ordering and referring deniial editsntil further notice. By way of background, CMS plans to implement edits that will deny claims for Medicare Part B services (including the technical/non-interpretation component of imaging services, lab services, and durable medical equipment) and Part A home health agency services if the ordering/referring physician or other professional is not identified, is not in Medicare's enrollment records, or is not of a specialty type that may order/refer the service/item being billed. While CMS intended to require Medicare contractors to activate these edits effective May 1, 2013, concerns had been raised by physicians and suppliers that they could experience claims denials and delays based on discrepancies between the names of the ordering physician on the 1500 claim form and in Medicare’s enrollment records. CMS expects to announce a new implementation date in the near future.
CMS Announces "Winners" of Medicare DMEPOS Competitive Bidding Round 2/National Mail Order Competition
On April 9, 2013, CMS announced the names of 799 suppliers that have been awarded 3-year contracts under Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, along with the 18 suppliers that accepted contracts under the national mail order competition for diabetic testing supplies. Under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. Contracts under Round 2 and national mail-order contracts begin on July 1, 2013. As previously reported, Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2, which covers eight product areas in 100 CBAs. Mail-order diabetic testing supplies contracts cover all 50 States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. Medicare reimbursement for diabetic testing supplies will fall 72% compared to current fee schedule amounts (the new prices will be applied in the retail setting as well under separate legislative authority). CMS notes that Round 2 contract suppliers have 2,988 locations to serve Medicare beneficiaries in the CBAs, and about 63% of these suppliers are “small suppliers,” with gross revenues of $3.5 million or less. CMS will now step up educational efforts aimed at suppliers, referral agents, and beneficiaries in preparation for the expansion of competitive bidding this summer.
The OIG has called on CMS to expand its use of surety bonds for Medicare DMEPOS suppliers, in a report entitled “Surety Bonds Remain an Underutilized Tool to Protect Medicare from Supplier Overpayments.” Although CMS has required suppliers to obtain a minimum of $50,000 in surety bond coverage per location since 2009, the OIG found that CMS did not have accurate surety bond information for all Medicare suppliers as of 2011, and bonds in effect do not enable the agency to recoup all overpayments. As of August 2011, 1,429 suppliers owed $70 million to Medicare, but $20 million of this amount was owed by 312 suppliers without bonds. Out of the $50 million owed by bonded suppliers, the OIG estimates that $42 million will likely remain uncollected because the overpayment exceeds the $50,000 bond amount. The OIG recommends that CMS: improve oversight of supplier data to ensure accurate reporting; immediately begin recovering outstanding overpayments from suppliers’ surety bonds; consider using ACA authority to require increased surety bond amounts for suppliers receiving high levels of Medicare payments; and specify that collection of debts through surety bonds is based on dates of service. CMS concurred with the OIG recommendations, noting in its response to the report that as of July 2012, it has collected $263,000 in overpayments from sureties, and additional recoveries are expected. CMS also stated that it considering linking DMEPOS surety bond amounts to the volume of a supplier’s billing. CMS also is considering requiring home health agencies and certain other provider and supplier types to obtain and maintain surety bonds as a condition of enrollment.
Today, the Obama Administration released its proposed federal budget for fiscal year 2014. As widely reported, the budget incorporates an offer the President made to Congress in December 2012 to achieve nearly $1.8 trillion in additional deficit reduction over the next 10 years, including $401 billion in health savings (the Administration observes that this level of cuts would “provide more than enough deficit reduction to replace the damaging cuts required by the Joint Committee sequestration”).
Virtually all provider types – and drug manufacturers – would be impacted by the budget provisions, if adopted as proposed. The budget proposal is certainly subject to change during the legislative process, particularly as the House and Senate leadership pursue alternative budget frameworks, and indeed, gridlock could prevent significant action on entitlement reform this year. Nevertheless, the proposals bear careful monitoring because they could eventually be included in any long-elusive “grand bargain” to reform the Medicare program and reduce the federal debt.
Highlights of the Administration’s Medicare and Medicaid proposals include the following:
Medicare Provider Payments
- Reform the Medicare physician fee schedule/sustainable growth rate (SGR) formula to provide stable payments followed by payment linked to participation in an “accountable payment model.”
- Reduce Medicare coverage of bad debts from 65% generally to 25% over three years starting in 2014.
- Reduce Medicare indirect medical education add-on payments by $11 billion over 10 years.
- Reduce payment for post-acute care services in several ways.
- Reduce payment updates for inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), skilled nursing facilities (SNFs), and home health agencies (HHAs) by 1.1 percentage points, beginning in 2014 through 2023 (the update could not fall below 0%). This provision would save $79 billion over 10 years.
- Adjust the standard for classifying a facility as an IRF (at least 75% of patient cases admitted to an IRF must meet one or more of 13 designated severity conditions), saving about $2.5 billion over 10 years.
- Equalize IRF and SNF payments for three conditions involving hips and knees, pulmonary conditions, as well as other conditions selected by the Secretary, saving $2.0 billion over 10 years.
- Reduce by up to 3% payments to SNFs with high rates of care-sensitive, preventable hospital readmissions, beginning in 2017, saving $2.2 billion over 10 years.
- Implement bundled payments for post-acute care providers (LTCHs, IRFs, SNFs, and HHAs) beginning in 2018. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates based on patient characteristics and other factors would be set to produce a permanent and total cumulative adjustment of -2.85% by 2020. Beneficiary coinsurance would equal levels under current law. This provision would save $8.2 billion over 10 years.
- Align Medicare payments to rural providers with the cost of care, saving $2 billion over 10 years.
- Align Medicare payment for clinical laboratory services with private sector rates and encourage electronic reporting of laboratory results.
Prescription Drug Provisions
- Reduce payment for physician-administered Medicare Part B drugs from 106% of average sales price to 103% of average sales price. Manufacturers would be required to provide a specified rebate in certain instances as determined by the Secretary “to preserve access to care.”
- Provide Medicaid-level drug rebates for brand name and generic drugs provided to beneficiaries who receive Part D low-income subsidies, saving $123 billion over 10 years.
- Close the Medicare Part D donut hole by 2015, rather than 2020, by increasing manufacturer discounts to from 50% to 75% beginning in plan year 2015.
- Lower Medicaid drug costs by clarifying the definition of brand drugs, excluding authorized generic drugs from average manufacturer price calculations for determining manufacturer rebate obligations for brand drugs, making a technical correction to the Affordable Care Act (ACA) alternative rebate for new drug formulations, and calculating Medicaid federal upper limits based only on generic drug prices. These proposals are projected to save $8.8 billion over 10 years.
- Encourage the use of generic drugs by Part D low-income subsidy beneficiaries by modifying copayments, saving approximately $7 billion over 10 years.
- Improve program integrity for Medicaid drug coverage by directing states to track high prescribers and utilizers of Medicaid prescription drugs; requiring manufacturers to make full restitution to states for any covered drug improperly reported by the manufacturer on the Medicaid drug coverage list; allowing more regular audits and surveys of manufacturers to ensure compliance with Medicaid drug rebate agreement requirements; requiring drugs to be electronically listed with the FDA to receive Medicaid coverage; and expanding penalties for reporting false information for the calculation of Medicaid rebates.
- Increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into “pay for delay” agreements and modifying the length of exclusivity on brand name biologics.
Program Integrity/Efficiency Provisions
- Provide $640 million in combined mandatory and discretionary program integrity funding to implement activities that reduce payment error rates, prevent fraud and abuse, target high-risk services and supplies, and enhance civil and criminal enforcement for Medicare, Medicaid, and CHIP.
- Authorize civil monetary penalties or other intermediate sanctions for providers who do not update enrollment records and permit exclusion of individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs.
- Expand authority to investigate and prosecute allegations of abuse or neglect of Medicaid beneficiaries in additional health care settings.
- Exclude radiation therapy, therapy services, and advanced imaging from the in-office ancillary services exception to the prohibition against physician self-referrals (Stark law), except in cases where a practice meets certain accountability standards, as defined by the Secretary.
- Require prior authorization of advance imaging services.
- Require prepayment review or prior authorization for power mobility devices.
- Allow the Secretary to create a system to validate practitioners’ orders for certain high-risk items and services.
Other Medicare Provisions
- Revise beneficiary cost-sharing requirements, including increased income-related premiums under Parts B and D, a new home health copayment, and increased premiums for beneficiaries with Medigap policies with particularly low cost-sharing requirements.
- Increase the minimum Medicare Advantage (MA) coding intensity adjustment (which decreases MA plan payments to reflect differences in coding practices between Medicare fee-for-service and MA) and align employer group waiver plan payments with MA bids, saving $19 billion over 10 years.
- Strengthen the Independent Payment Advisory Board (IPAB) by reducing the target rate of Medicare cost growth from gross domestic product plus one percentage point to plus 0.5 percentage point.
- Expand the availability of Medicare data released to physicians and other providers for performance improvement, fraud prevention, value-added analysis, and other purposes.
- Base Medicaid rates for durable medical equipment on Medicare rates to save $4.5 billion over 10 years.
- Align Medicaid Disproportionate Share Hospital (DSH) payments with expected levels of uncompensated care to save $3.6 billion over 10 years.
- Affirm Medicaid’s position as a payer of last resort when another entity is legally liable to pay claims.
A 131-page Department of Health and Human Services (HHS) “Budget in Brief” summary discusses these provisions in greater detail, and also addresses other HHS agency budget proposals and discusses HHS’s implementation of private health insurance protections and programs under the ACA.
As required by law, on March 1, 2013, President Obama issued a sequestration order triggering automatic cuts to a wide range of federal programs, including Medicare payments to providers and health plans. On March 8, 2013, CMS released its first guidance on sequestration, in the form of an “e-News” message to providers. CMS confirms that Medicare fee-for-service (FFS) claims with dates-of-service or dates-of-discharge on or after April 1, 2013 generally will incur a 2% reduction. Claims for DMEPOS supplies – including claims under the DMEPOS competitive bidding program – also will be reduced by 2%, if the date of service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013. CMS notes that the sequestration adjustment will be applied to claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments. Moreover, while beneficiary deductible and coinsurance payments are not subject to sequestration, Medicare’s payment to beneficiaries for unassigned claims is subject to the 2% cut. CMS encourages Medicare providers and suppliers who bill claims on an unassigned basis to discuss with beneficiaries the impact sequestration will have on Medicare reimbursement. Additional details on how sequestration affects Medicare are provided in our recent client alert.
CMS Requests Comments on New Forms to Disclose Competitive Bidding Contract Supplier Ownership Changes
CMS is seeking comments on new forms it intends to require suppliers to use to report changes of ownership (CHOW) involving contract suppliers under the Medicare durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) competitive bidding program. CMS will evaluate the information in the forms to determine if a supplier that merges with or acquires a contract supplier meets the conditions for awarding a competitive bidding contract as specified in regulations. The proposed Change of Ownership Purchaser Form and Contract Supplier Notification Form will be used in all rounds of competition. CMS will accept comments on the forms through April 30, 2013.
Effective May 1, 2013, Medicare contractors will activate edits that will deny claims for Medicare Part B (including imaging and lab services), DME, and Part A home health agency (HHA) services if the ordering/referring physician or other professional is not identified, is not in Medicare's enrollment records, or is not of a specialty type that may order/refer the service/item being billed. Concerns have been raised by physicians and suppliers that they could experience claims denials and delays after May 1 based on discrepancies between the names of the ordering physician on the 1500 claim form and in Medicare’s enrollment records. CMS is holding a March 20, 2013 National Provider Call to discuss these new requirements.
A new OIG report, “Part B Payments for Drugs Infused through Durable Medical Equipment,” calls for changes in the Medicare reimbursement methodology for Part B infusion drugs administered in conjunction with DME in light of potentially inaccurate pricing. By way of background, DME infusion drugs are reimbursed at 95% of the drug’s average wholesale price (AWP) in effect on October 1, 2003, compared to 106% of the average sales price (ASP) for most Part B drugs. Based on a comparison of actual Medicare reimbursement and the amount that would have been paid under the ASP methodology for each DME infusion drug from 2005 to 2011, the OIG found that payment exceeded ASPs by 54%-122% annually. On the other hand, reimbursement for up to one-third of DME infusion drugs were below the ASP, indicating that in some cases Medicare may underpay for these drugs. On the whole, the OIG estimates that Medicare spending on DME infusion drugs would have been cut by 44% ($334 million) between 2005 and 2011 if payment had been based on ASP. The OIG recommends that CMS either (1) seek legislation requiring DME infusion drug payment to be based on ASP, or (2) include DME infusion drugs in the next round of the DMEPOS competitive bidding program. CMS was noncommittal on legislative changes, but said it would include ME infusion drugs in the next round of competitive bidding (CMS has not yet provided other details on future expansion of competitive bidding).
CMS is extending the 2013 Medicare participation enrollment period for suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) until April 15, 2013. By way of background, a supplier that signs a participation agreement commits to accepting the Medicare Part B rate as payment in full for all beneficiaries. Changes in a supplier’s participation status can only be made during the annual open enrollment period. While CMS is extending the deadline because some suppliers apparently were not aware of a previous deadline extension to February 15, the new announcement gives suppliers another opportunity to examine their participation status in light of recent Medicare payment developments, including sequestration and upcoming Medicare cuts for retail diabetic testing supplies. Any change in election status will be effective January 1, 2013, but CMS will not reprocess claims already filed.
CMS is holding series of meetings in May and June 2013 to discuss preliminary determinations for applications for new Healthcare Common Procedure Coding System (HCPCS) codes for the 2014 update. The following are the 2013 public meeting dates:
- May 8 and 9, 2013 -- Drugs/Biologicals/Radiopharmaceuticals/Radiologic Imaging Agents
- May 29, 2013 -- Supplies and Other
- June 4, 2013 -- Durable Medical Equipment and Accessories & Orthotics and Prosthetics
Draft agendas, including a summary of each request and CMS’s preliminary decision, are expected to be posted on the HCPCS web site at least 4 weeks before each meeting.
CMS Slashes Medicare Reimbursement under Round 2 of the Medicare DMEPOS Competitive Bidding Program/National Mail Order Competition for Diabetic Testing Supplies
Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, CMS announced on January 30, 2013. Medicare reimbursement will fall even more dramatically under the national mail order competition for diabetic testing supplies, with payment reduced by 72% compared to current fee schedule amounts (and under the terms of the new “fiscal cliff” law, these prices will be applied in the retail setting as well). Round 2 and national mail-order contracts and prices are scheduled to go into effect on July 1, 2013. CMS estimates that competitive bidding will save the Medicare Part B Trust Fund $25.7 billion and Medicare beneficiaries $17.1 billion between 2013 and 2022.
By way of background, under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. The Round 1 “Rebid” went into effect January 1, 2011 in nine CBAs, involving nine product categories. Payment amounts under the Round 1 rebid average 32% below the Medicare DMEPOS fee schedule amounts. CMS has recently conducted a “recompete” for six product categories in the Round 1 Rebid areas (including additional products) to take effect in 2014.
Round 2 will take place in 100 CBAs covering 91 metropolitan statistical areas, with three-year contracts effective July 1, 2013. CMS announced yesterday that the weighted average savings by product category are as follows:
- Oxygen, Oxygen Equip. & Supplies - 41%
- Standard (power & manual) Wheelchairs, Scooters, & Accessories - 36%
- Enteral Nutrients, Equip. & Supplies - 41%
- CPAP/RAD & Related Supplies & Accessories - 47%
- Hospital Beds & Accessories - 44%
- Walkers & Accessories - 46%
- Support Surfaces (Group 2 Mattresses & Overlays) - 63%
- NPWT Pumps & Related Supplies & Accessories - 41%
CMS also conducted a national mail-order competition for diabetic testing supplies concurrent with the Round 2 competition. CMS announced that Medicare payment for diabetic testing supplies (100 lancets and test strips) under competitive bidding will be reduced from $77.90 to a national rate of $22.47. While the competition for diabetic testing supplies was intended to apply only to mail-order suppliers, it is important to note that the American Taxpayer Relief Act of 2012 (ATRA), which was signed into law on January 2, 2013, sets Medicare payment amounts for retail diabetic supplies at the national mail order competitive bidding single-payment amounts, effective July 1, 2013. In other words, as a result of the ATRA, the competitive bidding process is being used to reduce pricing for DMEPOS other than items that actually were subject to competitive bidding. This policy was adopted despite CMS’s previous acknowledgment that "there are pricing differences between mail order and non-mail order diabetic testing supplies because of the delivery methods for these supplies." Even though under competitive bidding program rules, only successful bidders that sign a contract with CMS will be eligible to furnish mail order diabetes supplies to Medicare beneficiaries as of July 1, 2013, Medicare beneficiaries will not be limited to using contract suppliers to obtain retail/storefront diabetes supplies. In sum, a Medicare beneficiary must use a contract supplier to obtain mail order diabetic testing supplies, but can pick up diabetic testing supplies from any local retailer; the payment to the supplier and the beneficiary copayment will be the same in either setting. (The ATRA also temporarily reduces fee schedule amounts for retail diabetic testing supplies to mail order amounts from April 1, 2013 until the national mail-order program single payment amounts start on July 1, 2013.)
CMS next will be mailing contracts to “winning” bidders. According to a CMS fact sheet, 14,654 contract offers will be made to 867 Round 2 bidders, who have 3,109 locations to serve Medicare beneficiaries in the CBAs. CMS also will offer 15 contracts for the national mail-order program; the national mail-order program winners have 48 locations in all. CMS notes that about 62% of Round 2 winning suppliers are small suppliers (gross revenues of $3.5 million or less), and 33% of national mail-order contract offers will go to small suppliers. When the contracting process is complete, unsuccessful bidders will be notified of the reasons they were not offered a contract. CMS expects to announce the names of the contract suppliers in the spring of 2013. CMS and the Competitive Bidding Implementation Contractor (CBIC) also will be stepping up educational activities leading up to implementation of Round 2 and national mail-order bidding.
For more information, including the single price amounts for each code subject to bidding, see the CBIC website, and Reed Smith’s previous reporting on the competitive bidding program is available here.
CMS has released the revised CMS-855S Medicare supplier enrollment application, version 01/13. Suppliers may use the 07/11 version of the CMS-855S through May 7, 2013, at which time any information received on the obsolete form will be returned to the supplier, according to the National Supplier Clearinghouse. CMS also has posted an updated (1/13) version of the CMS 855O form, the Medicare Enrollment Application - Registration for Eligible Ordering and Referring Physicians and Non-Physician Practitioners.
The OIG is calling on CMS to lower Medicare payment for certain back orthosis products, either by subjecting these products to the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program or by making an inherent reasonableness adjustment. This recommendation stems from the OIG’s findings that Medicare payment amounts far exceeded supplier acquisition costs for lumbar-sacral orthoses billed under L0631. Specifically, between July 2010 and June 2011, the average Medicare-allowed amount for L0631 was $919, compared to the average supplier acquisition cost of $191, resulting in Medicare paying an estimated $37 million more than supplier costs. Moreover, while the code descriptor for L0631 references fitting and adjustment services, the OIG found that for 33% of claims the supplier did not report providing such services, and only 7% of suppliers reported providing any additional services other than general instructions. CMS agreed that Medicare payments for back orthoses billed under HCPCS code L0631 “should be adjusted to more closely reflect the supplier’s acquisition costs for the device and the level of service provided when furnishing the device.” CMS indicated that it would be pursing competitive bidding rather than an inherent reasonableness adjustment, noting that it is working to finalize its classification of HCPCS codes that may be considered to be “off-the-shelf” orthotics and subject to DMEPOS competitive bidding (the preliminary classification list included HCPCS code L0631).
OIG Finds DMEPOS Competitive Bidding Not Spurring Suppliers to Solicit Specific Brands/Modes of Delivery
The OIG has released a statutorily-mandated report on the extent of supplier solicitation of physicians under the Round 1 rebid of the Medicare DMEPOS competitive bidding program, which began in nine competitive bidding areas on January 1, 2011. Under competitive bidding rules, a physician can prescribe a specific brand or mode of delivery (e.g., gaseous or liquid oxygen system) if the physician determines it is needed to avoid an adverse beneficiary medical outcome. In such cases, the contract supplier must furnish the item as prescribed, ask the physician to approve an alternative brand, or help the beneficiary find a contract supplier to furnish the prescribed brand (if a physician does not prescribe a specific brand, the supplier may choose a brand within the HCPCS code). Concerns have been raised that suppliers might have a financial motivation to solicit physicians to change a prescribed brand if the supplier does not carry the brand or have it in stock rather than send the patient to a different supplier, even though it would not result in a different Medicare payment amount. For its report, “Limited Supplier Solicitation of Prescribing Physicians under Medicare DMEPOS Competitive Bidding Program,” the OIG surveyed a sample of 294 physicians who prescribed competitive-bid items during the first half of 2011. The OIG found that 58% of the physicians did not prescribe brand-specific products, so had no reason to be solicited by suppliers regarding brand changes. Of the physicians that did prescribe a specific brand or mode of delivery, 69% did not receive any requests for brand changes. Only 33 physicians in the sample reported solicitations (22 of which were for diabetes supplies), and they told OIG that supplier reasons for change requests included the supplier’s belief that a change would better meet patient needs, the supplier not carrying the prescribed brand, and patient requests. The OIG also observed that none of the 37,000 Medicare hotline calls related to the competitive bidding program involved concerns about supplier solicitation of physicians regarding brand or mode of delivery.
On January 2, 2013, President Obama signed into law (via autopen) the “fiscal cliff” deal, H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA). In addition to making well-publicized changes to the tax code, the new law includes numerous Medicare payment provisions. Most notably, the law includes a one-year Medicare physician fee schedule (MPFS) fix that is paid for by approximately $30 billion in other health care (mainly Medicare) spending reductions over 10 years. ATRA also delays until March 2013 the automatic, across-the-board “sequestration” cuts in federal spending imposed by the Budget Control Act of 2011, which was expected to reduce Medicare provider payments by more than $11 billion in fiscal year (FY) 2013 and $123 billion over the period of FY 2013 to 2021 (CBO subsequently estimated that the 2013 cut to Medicare payments now will be approximately $9.9 billion due to changes in the sequestration targets under the ATRA). The delay in sequestration, coupled with the government again reaching its debt ceiling, sets up another near-term battle on federal spending, during which Medicare, Medicaid, and other health care programs could be targeted for even more significant cuts.
The health provisions of ATRA are summarized in our Client Alert.
On November 21, 2012, CMS announced that theFY 2012 Medicare fee-for-service program improper payment rate is 8.5% -- which represents $29.6 billion in improper payments. While CMS reports that the error rate for most Medicare provider types was in the 4.8% – 9.9% range, durable medical equipment (DME) suppliers had a 66% improper payment rate. Additionally, the Medicare Advantage/Part C composite improper payment error rate estimate for FY 2012 (based on calendar year 2010 payments) is 11.4%, the Part D prescription drug program composite improper payment error rate estimate is 3.1% (also based on CY 2010 payments), and the FY 2012 Medicaid improper payment error rate is 7.1%.
On November 15, 2012, the Centers for Medicare & Medicaid Services (CMS) published its publishing its final rule with comment period updating Medicare payment and other policies for the hospital outpatient prospective payment system (OPPS) and ambulatory surgical centers (ASCs) for CY 2013. The rule also updates Medicare quality reporting program policies and various other Medicare policies. Key provisions of the final rule include the following:
- The rule will increase 2013 OPPS rates by 1.8% compared to 2012 levels (although the impact on particular procedures will vary). This update reflects a hospital market basket increase of 2.6%, which is reduced under two Affordable Care Act (ACA) provisions – a 0.1 percentage point reduction and a 0.7% “multi-factor productivity” (MFP) adjustment/reduction. The OPPS update is subject to other adjustments, including a 2 percentage point reduction for hospitals that do not meet quality reporting requirements.
- Effective for 2013, CMS will determine OPPS relative weights using the geometric mean costs of services within an Ambulatory Payment Classification, rather than median costs. CMS expects this change will have a limited payment impact on most providers, but believes it better encompasses variations in costs and aligns with the inpatient PPS methodology.
- CMS will set OPPS payment for separately payable drugs and biologicals without pass-through status at average sales price (ASP) plus 6% (which it refers to as the “statutory default” rate), compared to the current ASP plus 4%. Notably, CMS will not make an adjustment for pharmacy overhead costs in 2013 to reflect the redistribution of package costs, as it had for 2010 through 2012. The final 2013 threshold for separate payment for outpatient drugs is a cost per day that exceeds $80, compared to $75 in 2012. CMS also adopted a special payment adjustment policy to account for the costs of radioisotopes derived from non-highly enriched uranium sources.
- With regard to ASC policy, CMS will increase ASC payment rates by 0.6%, which is derived from a 1.4% inflation update reduced by an MFP adjustment of -0.8%.
- The final rule makes refinements to several Medicare quality programs, including the Hospital Outpatient Quality Reporting Program, the ASC Quality Reporting Program, and the Inpatient Rehabilitation Facility Quality Reporting Program.
- CMS is clarifying the application of the supervision regulations to physical therapy, speech-language pathology, and occupational therapy services that are furnished in OPPS hospitals and critical access hospitals (CAHs). CMS also is extending nonenforcement of the requirement for direct supervision of outpatient therapeutic services furnished in CAHS and small rural hospitals with 100 or fewer beds for one final year through CY 2013 (CMS anticipates that this will be the final year of the extension).
- CMS adopted changes to the regulations regarding payment for new technology intraocular lens (NTIOLs) to require more stringent labeling and clinical outcomes evidence to support NTIOL applications.
- The final rule also addresses, among other things, payment for partial hospitalization services; revisions to the electronic reporting pilot for the Electronic Health Record Incentive Program; changes to regulations governing Quality Improvement Organizations (including the secure transmittal of electronic medical information, beneficiary complaint resolution, and notification processes); and a discussion of public comments related to potential changes to the Part A to Part B Rebilling Demonstration and hospital observation services policy.
CMS will accept comments on certain provisions, including payment classifications assigned to certain HCPCS codes and other specified provisions, until December 31, 2012.
CMS has released its final rule updating the Medicare physician fee schedule (MPFS) for 2013 and modifying numerous other Medicare Part B policies. Most significantly, the final rule includes a 26.5% across-the-board cut in physician fee schedule payments as a result of the statutory sustainable growth rate (SGR) formula. While Congress is widely expected to mitigate this policy in future legislation, the timing and scope of any such “fix” is highly uncertain. The following are highlights of the sweeping rule:
- Under the final rule, the 2013 MPFS conversion factor will be $25.0008, compared to $34.0376 in 2012. As noted, Congress could override the 26.5% SGR cut on either a temporary or permanent basis. Other provisions of the rule impact reimbursement for different types of services. For instance, the final rule seeks to benefit primary care physicians by authorizing separate payment to a patient’s community physician or practitioner to coordinate the patient’s care in the 30 days following a hospital or skilled nursing facility (SNF) stay. On the other hand, certain specialists, like diagnostic radiologists, would be negatively impacted by CMS’s continued expansion of the multiple procedure payment reduction (MPPR) policy. Under the final rule, on January 1, 2013 CMS will implement its policy, discussed in the CY 2012 final rule, applying the MPPR when one or more physicians in the same group practice furnish the interpretation of advance imaging services to the same patient, in the same session, on the same day. CMS also will apply the MPPR to the technical component of certain cardiovascular and ophthalmology diagnostic services for 2013. Under this policy, CMS will make full payment for the highest paid cardiovascular or ophthalmology diagnostic service and reduce the technical component payment for subsequent cardiovascular or ophthalmologic diagnostic services furnished by the same physician or group practice to the same patient on the same day by 25% for cardiovascular diagnostic services or 20% for ophthalmologic diagnostic services.
- CMS announced it is continuing to pay certain molecular pathology tests under the clinical laboratory fee schedule (CLFS), instead of assigning new genetic and genomic test codes to the physician fee schedule (as contemplated under the proposed rule). CMS also is establishing a new code (G0452, Molecular diagnostics; interpretation and report) to reimburse physicians under the MPFS for interpreting these tests.
- CMS is continuing implementation of the physician value-based payment modifier (Value Modifier), which was mandated by the ACA as a way to reward physicians for providing higher quality and more efficient care. In the final 2012 rule, CMS adopted performance measures to be used for future MPFS payment adjustments based on the Value Modifier. The final 2013 rule sets forth the payment methodology and phase-in plans. The Value Modifier is being phased in over from CY 2015 to CY 2017, with CY 2013 serving as the initial performance period for the CY 2015 Value Modifier. Under the final 2013 rule, the Value Modifier initially will apply to all groups of physician with 100 or more eligible professionals (up from 25 in the proposed rule). These groups will be able to choose two payment calculation options: (1) Value Modifier based strictly on participation in the Physician Quality Reporting System (PQRS), with groups that do not participate in the PQRS having a Value Modifier set at a -1.0% and groups that have reported at least one measure or elected the PQRS administrative claims option receiving a modifier of 0.0% (no payment adjustment, or (2) Value Modifier based on quality tiering, whereby groups with higher quality and lower costs will be paid more (maximum 2% increase), and groups with lower quality and higher costs will be paid less (maximum 1% negative adjustment).
- The rule also addresses, among many other things: modification of CMS’s Part B drug average manufacturer price (AMP) substitution policy to address drug shortage situations; payment reviews and adjustments for potentially misvalued codes; revisions to the PQRS and the Electronic Prescribing (eRx) Incentive Program; allowing Medicare to pay for portable x-ray services ordered by non-physician practitioners acting within their services within their state scope of practice and the scope of their Medicare benefit (in addition to physicians who currently may do so); termination of non-random prepayment review under the Medicare Prescription Drug, Improvement, and Modernization Act, and new claims-based data reporting requirements for therapy services under the Middle Class Tax Relief and Jobs Creation Act. Also, as discussed in the separate summary below, CMS has adopted a requirement for a face-to-face evaluation as a condition of Medicare payment for certain types of durable medical equipment (DME).
The rule was published in the Federal Register on November 16, 2012. CMS will accept comments on a limited number of provisions (interim final work, practice expense (PE), and malpractice RVUs for new, revised, potentially misvalued, and certain other CY 2013 HCPCS codes) until December 31, 2012.