Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

A recent OIG report, “Adverse Events in Hospitals: Public Disclosure of Information about Events,” focuses on policies and practices associated with the public disclosure of hospital adverse event information, including mechanisms for protecting patient privacy. In the OIG review of 17 state adverse event reporting systems, eight Patient Safety Organizations overseen by AHRQ, and CMS Medicare claims data, the OIG found only limited public disclosure of information about adverse events (defined as harm experienced by a patient as a result of medical care). The OIG notes, however, that seven state systems disclosed more extensive information than others (e.g., analysis of the causes of adverse events, guidance for reducing future occurrences, and information about improvements made by hospitals), which can serve as models for other entities.

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The GAO has issued a report entitled "Medicaid: Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted." The GAO’s review found that, among other things, certain states with large supplemental payments for uncompensated care costs did not calculate correctly the hospital-specific disproportionate share hospital (DSH) payment limits. In the report, the GAO recommends that CMS ensure that states account for all Medicaid payments, including non-DSH supplemental payments, when calculating payment limits.

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CMS has expanded its Hospital Compare website to include updated information on 30-day mortality rates for patients with heart failure, acute myocardial infarction, and pneumonia, and to include new data on 30-day readmissions rates for patients originally admitted for one of these three conditions.

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CMS is requesting Office of Management and Budget (OMB) approval of revisions to the Hospital and Hospital Health Care Complex Cost Report for cost reporting periods beginning on or after February 1, 2010.  CMS will accept comments on the proposed revisions through August 31, 2009.  A summary of changes is available after the jump. 
 

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According to CMS, the cost report revisions would, among other things:

• Clarify existing instructions and definitions.

• Standardize reporting of legislative and policy changes incorporated in the prior version of the hospital cost report (FORM CMS-2552-96) through transmittal updates.

• Reorganize data on Worksheet S-2, which drives the cost report, for a better flow.

• Remove obsolete worksheets and cost centers.

• Assign standard reporting lines and incorporate settlement worksheets for the following: Inpatient Psychiatric Facility or subprovider, Inpatient Rehabilitation Facility or subprovider, Long Term Care Hospital

• Include a worksheet for GME and IME.

• Include Worksheet S-2, Part II to: incorporate data previously reported on the Provider Cost Report Reimbursement Questionnaire, Form CMS-339, require electronic submission as part of the cost report electronic filing; and, eliminate separate submission of the Form CMS-339.

• Include Worksheet S-3, Part IV to collect wage information previously reported on the Form CMS 339.

• Include Worksheet S-3, Part V to collect contract labor and benefit costs.

• Redesign numerous worksheets for more efficient collection of data.

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The White House has proposed $313 billion in new Medicare and Medicaid cuts over 10 years, in addition to the provisions included in the Administration's proposed FY 2010 budget. Among other things, the Administration is endorsing: incorporating productivity adjustments into Medicare payment updates; reducing hospital subsidies for treating the uninsured as coverage increases; paying "better" prices for Medicare Part D drugs (including reducing reimbursement for beneficiaries dually eligible for Medicare and Medicaid); increasing the equipment utilization factor for advanced imaging from 50 percent to 95 percent; adopting MedPAC’s recommendations for 2010 payments to skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals; and cutting waste, fraud, and abuse (including prepayment review for physicians in high-risk areas or those that order a high volume of high-risk services such as durable medical equipment, home health, and home infusion services).

The following chart summarizes the Obama Administration's health reform financing proposals released to date:

Source	Health Care Reserve Fund ($ in billions)
	10 years
FY 2010 Budget -  Medicare and Medicaid Savings -  Revenues	$635 $309 $326
Additional Medicare and Medicaid Savings -  Incorporate productivity adjustments into Medicare payment      updates -  Reduce hospital subsidies for treating the uninsured as       coverage increases -  Pay better prices for Medicare Part D drugs -  Other	$313 $110  $106  $75 $22
Total	$948

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A new GAO report on emergency department overcrowding concludes that emergency department crowding continues to occur in hospital emergency departments, with about one-fourth of hospitals reporting diverting ambulances at least once in 2006. Wait times in emergency department have increased nationally, and in some cases exceeded recommended time frames. Boarding of patients in the emergency department while awaiting transfer to an inpatient bed or another facility continues to be reported as a problem, but national data is limited. Based on articles and interviews, the GAO concludes that a lack of access to inpatient beds continues to be the main factor contributing to emergency department crowding.

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Today Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley released a policy paper setting forth options for financing health reform. This is the third and final set of policy options for discussion before the Finance Committee marks up legislation in June. The Finance Committee has scheduled a member "walk through" to discuss the financing policy options on May 20, 2009. The financing options include, among other things: adjusting annual market basket updates and imposing “productivity adjustments” for various Medicare fee-for-service providers; a variety of payment changes impacting hospitals and home health agencies; Part B payment reforms (targeting potentially-overvalued Part B services and utilization of advanced diagnostic imaging services); improvements to promote payment accuracy for durable medical equipment; a variety of reforms pertaining to Medicaid drug rebates; policy options to reduce inappropriate spending variations across and within geographic areas; revisions to beneficiary cost-sharing obligations, including Part D means testing; and a variety of tax code changes involving the exclusion for employer-provided health coverage, changes to the itemized deduction for medical expenses, and excise tax provisions affecting alcohol and sugar-sweetened beverages.  The Finance Committee will accept comments on the health reform financing options through May 26, 2009.

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Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley released a lengthy policy paper on April 28, 2009 discussing options for reducing health care costs and improving quality in the health care delivery system, including significant Medicare payment reform proposals. Key areas addressed in the paper include the following:  

• Promoting Quality Care – Policy options to promote quality in the Medicare program include: establishing value‐based purchasing programs for hospitals, home health, and SNFs by FY 2012; expanding programs leading to value‐based purchasing for doctors, IRFs, and LTCHs; tying Medicare Advantage payments to quality of care; and restricting utilization of diagnostic imaging services.
• Fostering Care Coordination and Provider Collaboration – Policy options to enhance care management efforts include: establishing Medicare payment incentives for hospitals that reduce preventable hospital readmissions; providing a single bundled Medicare payment for acute and post‐acute episodes of care; establishing Medicare pilot programs of patient‐centered care coordination models for the chronically ill ; making reforms to Medicare physician reimbursement rates.
• Infrastructure Investments – Potential health delivery infrastructure investments include:  additional efforts to support widespread adoption and meaningful use of health information technology (beyond ARRA provisions); the development of quality measures; the establishment of a independent institute to conduct comparative effectiveness research; and improvements to health care workforce training.
• Transparency– Policy options to promote transparency include: requiring drug and device manufacturers to report publicly certain payments to physicians; establishing new restrictions on specialty hospitals; and expanding information for consumers on nursing home quality. 
• Other Health Care Delivery Options – Among other things, the plan calls for various steps to promote primary care (including providing primary care practitioners and targeted general surgeons with a 5% Medicare payment bonus) and expanded efforts to fight Medicare fraud and abuse.

The the deadline for public comments is May 15, 2009. The document is the first of three sets of potential option papers, each covering a different topic area that members will discuss before a bipartisan “Chairman’s Mark” on comprehensive health care reform is developed. Policy option papers on increasing health care coverage and financing health care reform will be released following future roundtable discussions on those topics. Note that the Finance Committee held its roundtable discussion on access to health care coverage on May 5, 2009, so an options paper on that topic should be available in the near future. In addition, on May 12, the Senate Finance Committee is holding its third roundtable discussion, this one focusing on financing comprehensive health care reform.

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CMS has announced the 14 communities selected for its “Care Transitions Project,” which seeks to improve health care processes so that patients, their caregivers, and their entire team of providers can work together to eliminate unnecessary hospital readmissions. The project will include hospital and community system-wide interventions, interventions that target specific diseases or conditions, and interventions that target specific reasons for admission. Communities in the following regions have been selected to participate in the Project: Providence, R.I.; Upper Capitol Region, N.Y.; Western Pennsylvania; Southwestern New Jersey; Metro Atlanta East, Ga.; Miami.; Tuscaloosa, Ala.; Evansville, Ind.; Greater Lansing Area, Mich.; Omaha, Neb.; Baton Rouge, La.; North West Denver, Colo.; Harlingen, Texas; and Whatcom County, Wash.  

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The OIG has released a report from an event it cosponsored with the Health Care Compliance Association (HCCA) in November 2008 on “Driving for Quality in Acute Care: A Board of Directors Dashboard," the sixth roundtable collaboration between OIG and HCCA. Participants at the government-industry roundtable included representatives from hospital systems, trade associations, and government. The meeting focused on how hospital boards of directors can use information dashboards, or scorecards, as a tool to promote quality of care in their institutions. The discussions included information on best practices for tracking measures of quality, safety, customer satisfaction, and financial and employee performance. Participants also offered suggestions for increasing accountability for quality outcomes and stressed the importance of promoting transparency of quality of care information. The full report is available here.

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On April 1, 2009, the House Appropriations Subcommittee on Labor-HHS is holding a hearing on “Pathways to Health Reform: Implementing the National Strategy to Reduce Healthcare-Associated Infections.”

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On March 11, 2009, President Obama signed into law H.R. 1105, an omnibus spending bill that completes work on the remaining FY 2009 appropriations bills, including funding for the Department of Health and Human Services (HHS). Among other things, the law (PL 111-008) increases funding for the Food and Drug Administration (FDA) by $335 million above 2008 levels to help FDA improve the safety of domestic and imported food and medical products. The measure also includes increased funding compared to FY 2008 levels for the National Institutes of Health (NIH), the Centers for Disease Control and Prevention, community health centers, health professions training, childhood immunizations, and rural hospital programs. Moreover, the act funds a new initiative to reduce hospital and clinic infections and requires national and state plans to combat infections. 

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The HHS Office of Inspector General (OIG) has issued a report on “Hospital Compliance With Medicare's Postacute Care Transfer Policy During Fiscal Years 2003 Through 2005.” Under the postacute care transfer policy, Medicare pays full prospective payments to hospitals that discharge inpatients to their homes, but for patients with certain diagnoses, payments to the hospital are reduced for discharges to certain post-acute care settings (such as skilled nursing facilities). The OIG estimated that hospitals improperly coded 15,051 claims as discharges to home rather than transfers to post-acute care, resulting in $24.8 million in overpayments. The OIG noted, however, that claims edits adopted by CMS in 2004 significantly decreased these types of overpayments. A separate OIG review examined “Medicare Payments to Managed Care Plans on Behalf of Deceased Enrollees.” The OIG found that CMS paid approximately $4.4 million to Medicare Advantage plans for coverage periods after the enrollees' months of death, although CMS had correctly stopped payments for the vast majority of the deceased enrollees.

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On February 26, 2009, the Obama Administration released its proposed federal budget for fiscal year (FY) 2010. Most significantly in terms of health policy, the proposal would establish a reserve fund of $633.8 billion over 10 years to finance health reform. While half of the reserve funds would come from tax increases on higher-income individuals, the rest would come from health system savings impacting a wide range of providers, health plans, and manufacturers. While additional details are expected to be released in the coming weeks, the following are highlights of the information released to date: 

• Medicare Advantage (MA) Payments. The budget would replace the current mechanism for establishing MA rates with a competitive system in which Medicare payments would be based upon an average of plans’ bids. The Administration estimates a savings of more than $175 billion over 10 years from this provision – approximately half of the health care savings in the budget proposal.
• Reducing Drug Prices. The Administration proposes establishing a regulatory pathway for approval of follow-on biologicals. Additionally, brand biologic manufacturers would be prohibited from reformulating existing products into new products to restart the exclusivity process. The Administration also would prevent drug companies from blocking generic drugs from consumers by prohibiting anticompetitive agreements between brand name and generic drug manufacturers intended to keep generic drugs off the market. The budget also would increase the Medicaid drug rebate for brand-name drugs from 15.1% to 22.1% of the average manufacturer price (AMP), apply the additional rebate to new drug formulations, and allow states to collect rebates on drugs provided through Medicaid managed care organizations. The budget also supports the Food and Drug Administration’s (FDA) efforts to allow Americans to buy drugs from other countries.
• Medicare and Medicaid Payment Accuracy/Program Integrity. The budget would expand CMS’s capacity to identify excessive payments and correct problems, such as through use of National Correct Coding Initiative edits for Medicaid claims. The budget also proposes to dedicate additional resources for oversight and program integrity activities related to the Medicare prescription drug program, MA, and Medicaid.
• Hospital/Post-Acute Care Bundling, Reduced Hospital Readmission Rates. The budget calls for bundling payments to hospitals and certain post-acute providers for services provided within 30 days after discharge from the hospital. In addition, hospitals with high rates of readmission would be paid less if patients are re-admitted to the hospital within the same 30-day period.
• Hospital Quality Improvement. The budget would link a portion of Medicare payments for acute inpatient hospital services to hospital performance on specific quality measures.
• Physician Payment System Reforms. The Administration supports “comprehensive, but fiscally responsible” reforms to the physician fee schedule formula.
• Cancer Research.  The budget includes over $6 billion in funding for the National Institutes of Health (NIH) to support cancer research.

Other Medicare/Medicaid health policy line-items identified in the budget charts include the following, among others: 

• Establishing survey and certification revisit and recertification user fees;
• Enabling physicians to form voluntary groups that coordinate care for Medicare beneficiaries and to receive performance-based payments for coordinated care;
• Addressing financial conflicts of interest in physician-owned specialty hospitals;
• Requiring the use of radiology benefit managers for Medicare imaging services;
• Aligning Medicare home health payments with costs; and
• Imposing higher Medicare drug benefit premiums on certain higher-income beneficiaries.

Note that many provisions of the proposed budget would require Congressional approval to implement. To that end, a number of Congressional committees have scheduled hearings on the budget proposal, including a March 10 Senate Finance Committee hearing focusing on the budget’s health care provisions.

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On February 25, 2009, the House of Representatives approved H.R. 1105, an omnibus spending bill to complete work on the remaining FY 2009 appropriations bills, including funding for HHS. Among other things, the bill includes increased funding compared to FY 2008 levels for the NIH, the Centers for Disease Control and Prevention, community health centers, health professions training, childhood immunizations, and rural hospital programs. The bill also funds a new initiative to reduce hospital and clinic infections and requires national and state plans to combat infections. The bill now is pending before the Senate. 

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The Internal Revenue Services (IRS) has issued a final report on its tax-exempt hospital project, which was designed to ascertain how nonprofit hospitals benefit their communities. The project also reviewed executive compensation practices of nonprofit hospitals. The final report is based on the responses to questionnaires the IRS received from almost 500 hospitals.

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This post was written by Karl A. Thallner, Jr., Carol C. Loepere, Debra A. McCurdy, Brad M. Rostolsky, Jacqueline B. Penrod, and Amie E. Schaadt.

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”). The sweeping $790 billion economic stimulus package includes a number of health care policy provisions. Reed Smith's Health Care Memorandum summarizes the major health policy provisions of the Act.

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On February 27, 2009, MedPAC released its March 2009 Report to the Congress: Medicare Payment Policy. The report includes a series of recommendations for Medicare payments designed to assure beneficiaries’ access to care and preserve Medicare’s long-term sustainability, particularly through reductions in payment updates for 2010. The report also includes recommendations to increase transparency of physician financial relationships. A listing of key recommendations follows after the jump. 

Hospitals

• The Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2010 by the projected rate of increase in the hospital market basket index, concurrent with implementation of a quality incentive payment program.
• The Congress should reduce the indirect medical education adjustment (IME) in 2010 by 1 percentage point to 4.5 percent per 10 percent increment in the resident-to-bed ratio. The funds obtained by reducing the IME adjustment should be used to fund a quality incentive payment program.

Physicians and Ambulatory Surgical Centers

• The Congress should update payments for physician services in 2010 by 1.1 percent.
• The Congress should establish a budget-neutral payment adjustment for primary care services billed under the physician fee schedule and furnished by primary-care-focused practitioners. Primary-care-focused practitioners are those whose specialty designation is defined as primary care and/or those whose pattern of claims meets a minimum threshold of furnishing primary care services. The Secretary would use rulemaking to establish criteria for determining a primary-care-focused practitioner.
• The Congress should direct the Secretary to increase the equipment use standard for expensive imaging machines from 25 to 45 hours per week. This change should redistribute RVUs from expensive imaging to other physician services.
• The Congress should increase payments for ambulatory surgical centers (ASC) services in calendar year 2010 by 0.6 percent. In addition, the Congress should require ASCs to submit to the Secretary cost data and quality data that will allow for an effective evaluation of the adequacy of ASC payment rates.

Dialysis Services

• The Congress should maintain current law and update the composite rate in calendar year 2010 by 1 percent.

Skilled Nursing Facility Services

• The Congress should eliminate the update to payment rates for skilled nursing facility services for fiscal year 2010.
• The Congress should require the Secretary to revise the skilled nursing facility (SNF) prospective payment system by: adding a separate nontherapy ancillary (NTA) component, replacing the therapy component with one that establishes payments based on predicted patient care needs, and adopting an outlier policy.
• The Secretary should direct SNFs to report more accurate diagnostic and service-use information by requiring that: claims include detailed diagnosis information and dates of service, services furnished since admission to the SNF be recorded separately in the patient assessment, and SNFs report their nursing costs in the Medicare cost report.
• The Congress should establish a quality incentive payment policy for SNFs in Medicare and to improve quality measurement for SNFs, the Secretary should: add the risk-adjusted rates of potentially avoidable rehospitalizations and community discharge to its publicly reported post-acute care quality measures; revise the pain, pressure ulcer, and delirium measures currently reported on CMS’s Nursing Home Compare website; and require SNFs to conduct patient assessments at admission and discharge.

Home Health Services

• The Congress should eliminate the market basket increase for 2010 and advance the planned reductions for coding adjustments in 2011 to 2010, so that payments in 2010 are reduced by 5.5 percent from 2009 levels.
• The Congress should direct the Secretary to re-base rates for home health care services in 2011 to reflect the average cost of providing care.
• The Congress should direct the Secretary to assess payment measures that protect the quality of care and ensure incentives for the efficient delivery of home health care. The study should include alternative payment strategies such as blended payments and risk corridors and outcome-based quality incentives.

Inpatient Rehabilitation Facilities

• The update to the payment rates for inpatient rehabilitation services should be eliminated for fiscal year 2010.

Long-Term Care Hospitals

• The Secretary should update payment rates for long-term care hospitals for fiscal year 2010 by the projected rate of increase in the rehabilitation, psychiatric and long-term care hospital (RPL) market basket index less the Commission’s adjustment for productivity growth.

Recommendations on Medicare Advantage Payments

• The Congress should: Eliminate the stabilization fund for regional PPOs. Remove the effect of payments for indirect medical education from the MA plan benchmarks. Set the benchmarks that CMS uses to evaluate MA plan bids at 100 percent of FFS costs. Pay-for-performance should apply in MA to reward plans that provide higher quality care. Clarify that regional plans should submit bids that are standardized for the region’s MA-eligible population.
• The Secretary should calculate clinical measures for the FFS program that would permit CMS to compare the FFS program with MA plans.

Recommendations on Public Reporting of Physician Financial Relationships

• The Congress should require all manufacturers and distributors of drugs, biologicals, medical devices, and medical supplies (and their subsidiaries) to report to the Secretary their financial relationships with: physicians, physician groups, and other prescribers; pharmacies and pharmacists; health plans, pharmacy benefit managers, and their employees; hospitals and medical schools; organizations that sponsor continuing medical education; patient organizations; and professional organizations.
• The Congress should direct the Secretary to post the information submitted by manufacturers on a public website in a format that is searchable by: manufacturer; recipient’s name, location, and specialty (if applicable); type of payment; name of the related drug or device (if applicable); and year.
• The Congress should require manufacturers and distributors of drugs to report to the Secretary the following information about drug samples: each recipient’s name and business address; the name, dosage, and number of units of each sample; and the date of distribution. The Secretary should make this information available through data use agreements.
• The Congress should require all hospitals and other entities that bill Medicare for services to annually report the ownership share of each physician who directly or indirectly owns an interest in the entity (excluding publicly traded corporations). The Secretary should post this information on a searchable public website.
• The Congress should require the Secretary to submit a report, based on the Disclosure of Financial Relationships Report, of the types and prevalence of financial arrangements between hospitals and physicians.

Recommendations on Reforming the Hospice Benefit

• The Congress should direct the Secretary to change the Medicare payment system for hospice to: have relatively higher payments per day at the beginning of the episode and relatively lower payments per day as the length of the episode increases; include a relatively higher payment for the costs associated with patient death at the end of the episode; and implement the payment system changes in 2013, with a brief transitional period. These payment system changes should be implemented in a budget neutral manner in the first year.
• The Congress should direct the Secretary to: require that a hospice physician or advanced practice nurse visit the patient to determine continued eligibility prior to the 180th-day recertification and each subsequent recertification and attest that such visits took place, require that certifications and recertifications include a brief narrative describing the clinical basis for the patient’s prognosis, and require that all stays in excess of 180 days be medically reviewed for hospices for which stays exceeding 180 days make up 40 percent or more of their total cases.
• The Secretary should direct the Office of Inspector General to investigate: the prevalence of financial relationships between hospices and long-term care facilities such as nursing facilities and assisted living facilities that may represent a conflict of interest and influence admissions to hospice, differences in patterns of nursing home referrals to hospice, the appropriateness of enrollment practices for hospices with unusual utilization patterns (e.g., high frequency of very long stays, very short stays, or enrollment of patients discharged from other hospices), and the appropriateness of hospice marketing materials and other admissions practices and potential correlations between length of stay and deficiencies in marketing or admissions practices.
• The Secretary should collect additional data on hospice care and improve the quality of all data collected to facilitate the management of the hospice benefit. Additional data could be collected from claims as a condition of payment and from hospice cost reports.

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On February 13, 2009, the House and Senate approved the conference report to accompany H.R. 1, the American Recovery and Reinvestment Act.  President Obama signed the bill into law on February 17, 2009.  The $790 billion economic stimulus package includes a number of health care policy provisions.  Among other things, the final agreement includes:

• $19 billion to accelerate the adoption of health information technology systems;
• Strengthened federal privacy and security provisions to protect personally-identifiable health information;
• Approximately $87 billion in additional federal matching funds over two years to help states maintain their Medicaid programs in the face of state budget shortfalls;
• $1.1 billion to support comparative effectiveness research;
• $1 billion for a new Prevention and Wellness Fund; and
• Provisions to help unemployed workers maintain health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) law.
• A provision blocking a fiscal year 2009 reduction in Medicare payments to teaching hospitals related to capital payments for indirect medical education;
• A provision blocking a fiscal year 2009 Medicare payment cut to hospice providers related to a wage index payment add-on;
• Technical corrections to the Medicare, Medicaid, and SCHIP Extension Act of 2007 related to Medicare payments for long-term care hospitals;
• A temporary increase in states’ annual disproportionate share hospital allotments;
• An extension of moratoria on Medicaid regulations for targeted case management, provider taxes, and school-based administration and transportation services through June 30, 2009, and a new moratorium on a Medicaid regulation related to hospital outpatient services through June 30, 2009;
• An extension of Transitional Medical Assistance and the Qualified Individual program; and
• Medicaid prompt payment requirements for nursing facilities and hospitals.

Information on the versions of the measure approved earlier by the House and Senate is available here.    

Update:  On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”).  Reed Smith's Health Care Memorandum summarizes the major health policy provisions of the Act.

 

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CMS has announced the sites for its Acute Care Episode (ACE) demonstration, under which CMS will test the use of a bundled payment for both hospital and physician services for a select set of inpatient episodes of care. The demonstration seeks to encourage hospitals and physicians to develop efficiencies in the care they provide to beneficiaries through quality improvement in clinical pathways, improved coordination of care among specialists, and provider incentive programs (i.e., “gainsharing”). The sites for the demonstration are: Baptist Health System in San Antonio, Texas; Oklahoma Heart Hospital LLC in Oklahoma City, Okla.; Exempla Saint Joseph Hospital in Denver, Colo.; Hillcrest Medical Center in Tulsa, Okla.; and Lovelace Health System in Albuquerque, N.M. These facilities will receive bundled payments for 28 cardiac and 9 orthopedic inpatient surgical services and procedures, beginning in early 2009. 

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On January 8, 2009, CMS announced that more than 3,000 hospitals – or 99.3 percent of participating hospitals -- will receive the full Medicare payment update for calendar year (CY) 2009 as part of the new Hospital Outpatient Quality Data Reporting Program. The reporting program was mandated by the Tax Relief and Health Care Act of 2006, and applies to all hospitals paid under the hospital outpatient prospective payment system (OPPS). Under this program, eligible hospitals that successfully report outpatient quality data receive the full market basket update; those that do not receive an update that is reduced by 2.0 percentage points. 

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The Department of Health and Human Services (HHS) has released its “Action Plan to Prevent Healthcare-Associated Infections,” which establishes a set of five-year national prevention targets to reduce health care-associated infections (HAIs). 

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The Medicare Payment Advisory Commission (MedPAC) is meeting January 8-9, 2009 to discuss a variety of Medicare payment and policy issues, including payments to hospitals, physicians, ambulatory surgical centers, dialysis providers, skilled nursing facilities, home health agencies, inpatient rehabilitation facilities, long-term care hospitals, hospices, and Medicare Advantage plans.  

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On December 19, 2008, the Centers for Medicare & Medicaid Services (CMS) published a final rule implementing provisions of the Medicare Modernization Act of 2003 related to state auditing and reporting of Medicaid disproportionate share hospital (DSH) payments, effective January 19, 2009. CMS also published a separate notice announcing the final federal share DSH allotments for federal fiscal year (FY) 2007 and the preliminary federal share DSH allotments for FY 2009. The notice also announces the final FY 2007 and the preliminary FY 2009 limitations on aggregate DSH payments that states may make to institutions for mental disease and other mental health facilities. 

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The HHS Office of Inspector General (OIG) has issued three reports on adverse events in hospitals, defined by the OIG as harm to a patient as a result of medical care. The first report, “Adverse Events in Hospitals: Overview of Key Issues,” identifies a number of areas integral to understanding the landscape of adverse events in hospitals, including the difficulty of measuring the incidence of adverse events, the importance of nonpayment policies for adverse events, barriers to adverse event reporting, legal concerns associated with public disclosure; and slow adoption of adverse event prevention recommendations. A second report, “Adverse Events in Hospitals: State Reporting Systems,” found that 26 states operated adverse event reporting systems as of January 2008. State strategies include legal protections to prevent improper disclosure, monetary penalties for failing to report, and feedback to hospitals about reported events. While specific reportable events and reporting criteria vary, most states use reported data in similar ways to hold individual hospitals accountable for their patient care performance and to promote learning and prevent adverse events. Finally, in “Adverse Events in Hospitals: Case Study of Incidence Among Medicare Beneficiaries in Two Selected Counties,” the OIG found that 13% of hospitalized Medicare beneficiaries in two selected counties experienced one of the four most serious categories of adverse events. The OIG notes that while “the results of this review are not nationally representative, the extent of adverse events and temporary harm found in this case study substantiates concerns about the incidence of adverse events in hospitals and the importance of safety initiatives to reduce occurrences.” The OIG will continue his work in this area.  

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On December 18, 2008, the Congressional Budget Office (CBO) released a major report entitled “Budget Options, Volume 1: Health Care,” which sets forth 115 policy options for Congress to consider as it addresses health care system reform. The CBO points out that Medicare is expected to grow from 2.8 percent of gross domestic product (GDP) in 2008 to nearly 9 percent of GDP in 2050. This spending growth will be fueled primarily by growth in per capita medical costs, according to the CBO, with the aging of the population playing a secondary role. In light of these trends, the CBO offers specific options addressing such areas as: health insurance (market reforms, tax treatment, access to federal programs); health care quality and efficiency; geographic variation in Medicare spending; paying for Medicare services (including hospital, physician, imaging, and post-acute care, and Medicare Advantage plan services, among others); financing and paying for services in Medicaid (including drug payment revisions) and SCHIP; premiums and cost sharing in federal health programs; long-term care; health behavior and health promotion; and closing the gap between Medicare’s spending and receipts.  The CBO also issued a separate report focusing on insurance reform, “Key Issues in Analyzing Major Health Insurance Proposals.” The CBO warns that without changes in policy, a substantial and growing number of nonelderly people are likely to be without health insurance. This issue cannot be addressed without making major changes in the financing or provision of health insurance and health care, which will involve "difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal and total costs for health care." The report describes the assumptions that CBO would use in estimating the effects of key elements of proposals to modify the health insurance system on federal costs, insurance coverage, and other outcomes. In particular, it considers the types of issues that would arise in estimating the effects of proposals to: provide tax credits or other types of subsidies to make insurance less expensive to the purchaser; require individuals to purchase health insurance; require firms to offer health insurance to their workers or pay into a fund that subsidizes insurance purchases; replace employment-based coverage with new purchasing arrangements or provide strong incentives for people to shift toward individually purchased coverage; and provide individuals with coverage under, or access to, existing insurance plans such as the Medicare program, either as an additional option or under a “Medicare-for-all” single-payer arrangement.

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On November 7, 2008, CMS published a final rule clarifying the definition of outpatient hospital services under Medicaid to align it more closely with the Medicare definition of such services. CMS stresses that the regulation does not eliminate any Medicaid benefit category, place reimbursement restrictions on those categories, or alter the qualifications that must be met to provide a Medicaid covered service. Note that while the proposed version of the rule, published September 28, 2007, included provisions regarding methods for demonstrating compliance with the upper payment limit (UPL), in consideration of the Congressional moratorium on a separate proposed rule on UPLs published January 18, 2007, CMS is reserving action on the proposed provisions related to outpatient hospital UPLs. CMS may consider publication of the UPL guidance at a future date. The rule is is effective December 8, 2008.

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On October 20, 2008, the Department of Health and Human Services (HHS), together with the Treasury and Labor Departments, published a final rule imposing requirements on group health plans and health insurance issuers concerning hospital lengths of stay for mothers and newborns following childbirth. The rule, which finalizes interim final rules published October 27, 1998 under the Newborns’ and Mothers’ Health Protection Act of 1996 and the Taxpayer Relief Act of 1997, generally prohibits group health plans and group health insurance issuers from limiting hospital lengths of stay in connection with childbirth to less than 48 hours for vaginal deliveries and 96 hours for cesarean sections, and provides other related protections. The rule is effective December 19, 2008, and applies to individual and group health plans and group health insurance issuers for plan years beginning on or after January 1, 2009. 

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On October 14, 2008, the Agency for Healthcare Research and Quality (AHRQ) and the Office for Civil Rights (OCR) of the Department of Health and Human Services (HHS) published a notice announcing the availability of an interim guidance document entitled “Implementing the Patient Safety and Quality Improvement Act of 2005, Including How to Become a Patient Safety Organization.'' The guidance document explains how HHS will begin implementing the Patient Safety and Quality Improvement Act of 2005 (Patient Safety Act), which is designed to encourage health care providers to voluntarily report patient safety information, medical errors, and “near misses” to Patient Safety Organizations (PSOs). In order to facilitate such disclosure, the law creates certain legal privilege and confidentiality protections for any patient safety work product (PSWP) either developed by a PSO or prepared by a health care provider and delivered to a PSO.   The new guidance explains how an entity can become a PSO, and how information may be protected as PSWP in the period prior to the promulgation of a final regulation that the agencies indicate will be issued before the end of 2008 (but that schedule is subject to change).  The interim guidance is effective October 14, 2008 until the effective date of a final rule.   While the final regulation will supersede this interim guidance, any information that became PSWP during this interim period based upon the Patient Safety Act criteria will remain PSWP, and thus privileged and confidential, after the interim period.

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The GAO has issued a report entitled “Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements.” The GAO found that Internal Revenue Service (IRS) standards allow nonprofit hospitals broad latitude to determine the activities that constitute community benefit, and state tax-exempt/nonprofit status rules also vary substantially.   While consensus generally exists regarding how charity care, unreimbursed costs of means-tested government health care programs, and certain other activities qualify as community benefit, there is no consensus defining bad debt and unreimbursed Medicare costs as community benefit. This lack of consensus and differences in measuring charity care and unreimbursed government health care program costs lead to substantial differences in the amount of community benefits hospitals report. The GAO recommends that federal and state policymakers and industry groups continue to address the variability in defining and measuring community benefit activities.

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CMS is encouraging hospitals and other health care providers to review a new publication, “Community Pan-Flu Preparedness: A Checklist of Key Legal Issues for Healthcare Providers," which is the result of a public interest dialogue session convened by the American Health Lawyers Association, the HHS Office of Inspector General, and the U.S. Centers for Disease Control. The guide is designed to assist providers and public health communities as they consider the legal impediments and implementation challenges to community pan-flu preparedness, and it offers practical solutions to such challenges.

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On August 20, 2008, CMS announced  that it is updating the data available on the Hospital Compare consumer Web site to include a pneumonia mortality measure, children’s asthma care measures, and data on each hospital’s risk-standardized mortality rate.

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On August 18, 2008, the Centers for Medicare & Medicaid Services (CMS) published its final Medicare hospital inpatient prospective payment system (IPPS) rule for fiscal year (FY) 2009, which begins October 1, 2008. CMS estimates that the rate updates and other policies in the rule will increase Medicare payments to acute care hospitals by almost $4.75 billion in FY 2009, although the impact on particular procedures varies.  The following are highlights of the sweeping regulation.

• Rate Update – The final rule includes a 3.6% market basket increase, although hospitals that do not report the quality measures will receive an update of market basket minus 2 percentage points, for a 1.6% update. This update will be partially offset by a 0.9% reduction designed to compensate for changes in documentation and coding practices that do not reflect real changes in case mix.  In FY 2009, CMS will complete the transition to cost-based relative weights, with relative weights based 100% on costs.
• Value-Based Purchasing Program – CMS is expanding the Hospital-Acquired Conditions policy, under which Medicare will not make higher payments to hospitals for care associated with certain reasonably-preventable conditions unless the condition were reported as present on admission.  CMS has added three new conditions for FY 2009: certain manifestations of poor glycemic control; surgical site infections following certain orthopedic surgeries and bariatric surgery for obesity; and deep vein thrombosis or pulmonary embolism following total knee replacement and hip replacement procedures. In addition, CMS is adding 13 new quality measures for which hospitals will have to report data in FY 2009 in order to receive the full Medicare IPPS market basket update in FY 2010 (down from 43 new measures in the proposed rule) and retiring one previous measure (pneumonia/oxygenation assessment).  Both initiatives are designed to further CMS's Value-Driven Health Care agenda.
• Charge Compression/Cost Centers – CMS is establishing separate cost centers for (1) medical supplies and (2) implantable devices. CMS is adopting this change to help address “charge compression," or the practice of hospitals applying a higher percentage charge markup over costs to lower-cost items and services and a lower-percentage charge markup over costs to higher cost items and services.
• New Technology Payments – Under the final rule, CMS will only consider for new technology add-on payments for a particular fiscal year, an application for which the new medical service or technology has received Food and Drug Administration (FDA) approval or clearance by July 1 prior to the particular fiscal year.
• Hospital Ownership/Physician Self-Referrals – The final rule includes significant revisions to hospital ownership and the physician self-referral provisions (also referred to as the "Stark Law").  Among other things, the final rule prohibits the use of “per-click” leases for office space or equipment when the lease is entered into between a referring physician or physician organization and an entity that furnishes designated health services (DHS). The rule also prohibits the use of a percentage-based compensation formula for determining the rental charges for the lease of office space or equipment (but does not apply to management agreements, billing services arrangements, and gainsharing arrangements). The final rule also revises the definition of an “entity” to include both the entity that bills Medicare for DHS as well as the entity that fully performs the DHS. These provisions are effective October 1, 2009.  Moreover, the rule modifies the “stand in the shoes” provisions in the Stark Act definition of indirect compensation arrangement. Specifically, a physician owner of (or investor in) a physician organization stands in the shoes of the physician organization for the Stark purposes if the physician has the ability or right to receive financial benefits of the ownership or investment.  However, a merely titular owner is not required to (but may select to) stand in the shoes of his or her physician organization.  CMS also is finalizing its proposed revisions to the definitions of “physician” and “physician organization,” and clarifying the period of time for which a physician would be prohibited from referring Medicare patients to an entity for DHS and for which the DHS entity would be prohibited from billing for such DHS where a financial relationship failed to satisfy a Stark Act exception.  The final rule also requires a physician-owned hospital to furnish to patients, on request, a list of physicians or immediate family members who own or invest in the hospital. Moreover, a physician-owned hospital must require all physician owners or investors who are also active members of the hospital's medical staff to disclose in writing their ownership or investment interests in the hospital to all patients they refer to the hospital.  CMS can terminate the Medicare provider agreement of a physician-owned hospital if it fails to comply with these disclosure provisions or with the requirement that a hospital disclose in writing to all patients whether there is a physician on-site at the hospital 24 hours per day, 7 days per week. Reed Smith is preparing a client memo analyzing these provisions; it will be available on our web site, reedsmith.com.
• Emergency Medical Treatment and Labor Act (EMTALA) – Under the final rule, if an individual with an unstable emergency medical condition presents to a participating hospital and is admitted, the admitting hospital has satisfied its EMTALA obligation.  If the patient is subsequently transferred to a hospital with capabilities for specialized care, that hospital does not have an EMTALA obligation to accept the individual. CMS invites ongoing public comment on whether this policy results in unintended consequences, such refusals by hospitals with specialized capabilities to accept the transfer inpatients whose emergency medical condition remains unstabilized.
• Other Policies – Among many other things, the rule: makes limited revisions to the classifications of cases to Medicare severity diagnosis-related groups (MS-DRGs) and Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs); updates the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid based on reasonable cost; implements wage index and geographic reclassification changes; reduces by 50% capital Indirect Graduate Medical Education payments; and implements provisions in the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) rebasing sole community hospital payment rates and extending certain geographic reclassifications and special exceptions. The rule also requires Medicare Advantage plans to provide encounter-level data to CMS to be used for risk adjustment, disproportionate share hospital calculations, and Medicare coverage tracking purposes. CMS did not adopt its proposal to expandthe postacute care transfer policy to transfers to home for the furnishing of home health services within 7 days (rather than 3 days) of hospital discharge. 

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On June 27, 2008, CMS published a final rule setting forth conditions of participation (COP) requirements for hospitals that transfuse blood and blood components to aid in the prevention of hepatitis C virus (HCV). Among other things, the rule requires hospitals to follow written procedures for handling blood and blood components that are at increased risk for transmitting HCV, quarantine prior collections from donors who are at increased risk for transmitting HCV infection; and notify affected transfusion recipients of the need for HCV testing and counseling. The rule is effective June 27, 2008.

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On June 13, 2008, the Medicare Payment Advisory Commission (MedPAC) released its June 2008 report to the Congress on "Reforming the Delivery System." MedPAC discusses a variety of payment and delivery reforms to improve Medicare quality, coordinate care, and reduce cost growth. 

Major recommendations include the following:

• Primary Care -- MedPAC recommends a budget-neutral adjustment that increases fee schedule payments for primary care services furnished by clinicians focused on delivering primary care. It also proposes establishing a Medicare "medical home" coordinated care pilot program
• Resource Use Around a Hospitalization -- MedPAC recommends several changes in Medicare payment for care provided around a hospitalization (e.g., inpatient stay plus 30 days postdischarge) to encourage care coordination and efficiency. First, the Secretary should confidentially report to hospitals and physicians information about resource use around a hospitalization and readmission rates, followed by public reporting of the data in two years. Medicare also should reduce payments to hospitals with relatively high readmission rates for select conditions while allowing hospitals and physicians to share in the savings that result from providing care more efficiently. MedPAC also recommends that CMS conduct a voluntary pilot program to test bundled payment for all services around a hospitalization for select conditions.
• Skilled Nursing Facilities -- MedPAC recommends revising the SNF prospective payment system (PPS) to incorporate a nontherapy ancillary payment component, a therapy payment component, and an outlier policy based on exceptionally high ancillary costs per stay. MedPAC also recommends that CMS require SNFs to report on patient diagnoses, service use during the SNF stay, and nursing costs. MedPAC concurrently released a contractor report prepared by staff from the Urban Institute on "Model Alternative Designs for a Revised PPS".
• Cost-Effectiveness -- MedPAC examines issues associated with creating a comparative effectiveness entity, including issues related to the structure and governance of the entity. MedPAC endorses a dedicated, broad-based, public and private financing mechanism.
• Physician-Manufacturer/ASC Relationships -- MedPAC examines options for collecting data on physicians’ financial relationships with manufacturers, hospitals, and ambulatory surgical centers.
• Hospice -- MedPAC observes that Medicare hospice spending increases have been largely driven by more beneficiaries using the hospice benefit and increases in hospice length of stay, in part due to incentives in Medicare’s hospice payment system that financially reward longer lengths of stay. Overall, Medicare payments to hospices appear adequate, but MedPAC found that this assessment masks considerable variation. In 2005, nonprofit and provider-based hospices had small negative margins, while for-profit and freestanding hospices had large positive margins.

While MedPAC’s recommendations are not binding on Congress, lawmakers often consider MedPAC’s advice as they develop Medicare policy.

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On May 16, the Department of Health and Human Services (HHS) issued two notices related to the HPP, which is designed to improve hospital and health care system responses to bioterrorism and other public health emergencies. The notices establish cost-sharing requirements for HPP cooperative agreement recipients and provide other funding information.

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CMS has launched the Acute Care Episode (ACE) demonstration program, under which hospitals will test the use of a bundled payment for both hospital and physician services for certain cardiac and orthopedic inpatient surgical services. The ACE demonstration goals are to: improve quality for Medicare beneficiaries; produce savings for providers, beneficiaries, and Medicare using market-based mechanisms; improve price and quality transparency, and increase collaboration among providers (including allowing certain voluntary gainsharing arrangements). There will be an informational teleconference for this demonstration on June 4 from 3 to 4:30 p.m. EST (dial 1-888-982-4492; the participant passcode “Acute Care”). 

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