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

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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CMS published a final rule on December 19, 2008 that implements a provision of the Deficit Reduction Act of 2005 that provides states with additional flexibility to establish a non-emergency medical transportation brokerage program, and to receive the federal medical assistance percentage matching rate. The rule is effective January 20, 2009.

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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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HHS has published the federal medical assistance percentages and enhanced federal medical assistance percentages for fiscal year (FY) 2010. The percentages in this notice apply to state expenditures for most medical services and medical insurance services, and assistance payments for certain social services. 

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On December 3, 2008, the Centers for Medicare & Medicaid Services (CMS) published a final rule to provide states with increased flexibility under an approved state plan to define the scope of covered Medicaid benefits, as authorized by the Deficit Reduction Act of 2005 (DRA). Under the rule, states may offer coverage of the following benchmark or benchmark-equivalent benefit packages to certain Medicaid recipients:  the standard Blue Cross/Blue Shield preferred provider option service benefit plan under the Federal Employees Health Benefit Plan; state employee coverage; coverage offered by the state’s largest commercial health maintenance organization; or coverage approved by the Secretary of the Department of Health and Human Services (HHS). The rule is effective February 2, 2009. Note that CMS characterizes the rule as a codification of guidance CMS issued on March 31, 2006 to state Medicaid directors, and the agency points out that states have already begun implementing this provision in advance of this final rule. 

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On November 25, 2008, CMS published a final rule on Medicaid premiums and cost sharing to implement requirements of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006. Among other things, the legislation provided state Medicaid agencies with increased flexibility to impose premium and cost sharing requirements on certain Medicaid recipients, including drug cost sharing requirements designed to encourage the use of preferred drugs and to allow higher cost-sharing for non-emergency care furnished in a hospital emergency department. The rule is effective 60 days after publication.

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On November 17, 2008, CMS reported that the improper payment rate for the Medicare, Medicaid and SCHIP programs fell from 3.9% in FY 2007 to 3.6% percent in FY 2008. For the Medicare fee-for-service program, most improper payments were due to claims for services that were medically unnecessary or incorrectly coded, while the vast majority of Medicaid and SCHIP errors are due to inadequate documentation. CMS also reported the Medicare Advantage improper payment rate for the first time; that rate was 10.6% in 2006, primarily reflecting health plan errors in documenting members’ diagnoses. CMS also is developing methodologies to report the Medicare Part D error rate in the future.

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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 28, 2008, CMS informed state health officials of CMS policy regarding the refunding of the federal share of Medicaid overpayments, damages, fines, penalties, and any other component of a legal judgment or settlement when a state recovers pursuant to legal action under its state False Claims Act (FCA). CMS notes that many states have enacted their own FCA statutes modeled on the Federal False Claims Act, and numerous questions have arisen regarding Medicaid overpayment identification, investigation, and refunds of the federal share when that overpayment is attributable to fraud and abuse. Additionally, the letter explains what amounts must be returned to the federal government on any recovery, the proper accounting of the relator’s share and litigation expenses, and the time frame for refunding the federal share of any state FCA recovery.

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Medicaid spending is projected to total $339 billion in 2008, up 7.3% from 2007 levels, according to figures released by CMS October 17, 2008. Medicaid spending is expected to continue increasing by 7.9% on average over the next 10 years, reaching $674 billion by 2017, far exceeding the 4.8% projected growth rate for the general economy and pointing to continued strains on state budgets in the coming years. Additional spending details are contained in the CMS Office of the Actuary’s first annual fiscal report on Medicaid.

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On October 21, 2008, the Senate Finance Committee held a field hearing in Montana on "High Health Care Costs: A State Perspective." 

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The HHS Office of Inspector General (OIG) has issued a report entitled “Medicaid-Funded Personal Care Services in Excess of 24 Hours per Day.” Based on a sampling of cases in five states, the OIG found 871 instances in which states paid claims for Medicaid reimbursement for personal care services (such as assistance with activities of daily living) in excess of 24 hours per day, and many other cases in which services totaled close to 24 hours a day. The OIG suggested that CMS inform states regarding vulnerabilities in this area, including problems associated with allowing providers to submit such claims in date ranges that include days on which no services were provided.

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On October 3, 2008, CMS published a final rule to provides guidance to states that seek to administer self-directed personal assistance services through their state plans, as authorized by the Deficit Reduction Act of 2005. The state plan option allows beneficiaries, through an approved self-directed services plan and budget, to purchase personal assistance services, rather than have those services directed by an agency.   Beneficiaries could hire qualified family members to perform certain personal assistance (but not medical) services.   Allotments also could be used to purchase items that promote independence, such as a wheelchair ramp. The rule provides guidance to ensure beneficiary health and welfare and financial accountability of the state plan option. To request state plan change, the state must have an existing personal care services benefit or be operating a home or community-based services waiver program.   Beneficiary enrollment would be voluntary, and the state also must provide traditional agency-delivered services if the beneficiary wishes to discontinue self-directed care. The rule is effective November 3, 2008. 

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On October 7, 2008, CMS pubished a final rule revising the definition of "multiple source drug" under the Medicaid program. The rule also responds to public comments received on the March 14, 2008 interim final rule with comment period. The final rule adopts the March 2008 interim final rule with the following change: in §447.205, paragraph (3)(i) of the definition of multiple source drug, the term "covered outpatient drug" is revised to read "drug product" and "listed product" respectively to reflect the statutory language. As noted in the interim final rule with comment period, to the extent that this rule may affect Medicaid reimbursement rates for retail pharmacies, it is subject to the injunction issued by the United States District Court for the District of Columbia in National Association of Chain Drug Stores et al. v. Health and Human Services. The rule is effective is effective November 6, 2008. 

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On October 1, 2008, the HHS Office of Inspector General (OIG) released its FY 2009 Work Plan, which discusses planned OIG audit, inspection, and investigative initiatives affecting virtually every type of health care provider and supplier.

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Numerous recent Congressional committee hearings have focused on health policy issues, including the following:

• On September 24, 2008, the Senate Aging Committee examined "ways to respect Americans' choices at the end of life.” The panel also held a hearing September 17 on direct-to-consumer medical device advertising.
• House Ways and Means Health Subcommittee held a hearing September 23, 2008 on problems in the private health insurance market, with a focus on the need for reforms in the non-group or individual market. The panel also met September 11 to examine on Medicare physician payment policy reform. 
• On September 23, 2008, the House Oversight and Government Reform Domestic Policy Subcommittee held a hearing on Medicaid pediatric dental care reform. The full Committee also held a hearing September 16 on HIV prevention.
• The House Energy and Commerce Subcommittee on Health held a hearing September 18, 2008 on health reform, as did the House Small Business Committee.
• The Senate Finance Committee held a hearing September 16, 2008, on health care delivery system reform, focusing on creating a patient-centered model of care and supporting primary care. On September 23, 2008, the Committee held a hearing on insurance market reform, highlighting health insurance exchanges that connect individuals, small businesses and those eligible for premium subsidies to available health insurance plans.
• The Senate Special Committee on Aging held a hearing September 11, 2008 on Medicare information issues.  

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On September 2, 2008, the Department of Health and Human Services (HHS) published a notice with comment period regarding State Long-Term Care Partnership Program reciprocity agreements. By way of background, the Deficit Reduction Act of 2005 (DRA) allows states to provide asset disregards and related estate recovery offsets for Medicaid applicants who receive benefits under qualified long term care insurance policies (Partnership policies) that were purchased in the same state. This notice establishes standards for states that choose to enter into a DRA reciprocity agreement under which they agree to provide the same disregards and offsets for qualified Partnership policies that a Medicaid applicant purchased in another state that participates in the reciprocity agreement.

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The Department of Health and Human Services (HHS) has announced that it is voluntarily extending until August 1, 2008 the current statutory moratorium on the implementation of two Medicaid rules (the current moratorium expired May 25, 2008). The two rules in question pertain to Graduate Medical Education (published on May 23, 2007) and Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the Integrity of Federal-State Financial Partnership (May 29, 2007). HHS wants to use this time to address Congressional concerns about the impact of the regulations in light of pending legislation to extend the current moratorium.

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On May 22, 2008, the Senate approved a version of the fiscal year (FY) 2008 emergency supplemental appropriations bill, H.R. 2642. The Senate bill would extend a current moratorium on implementation of certain Medicaid regulations and block additional rules through April 1, 2009. The rules affected by the legislation involve: payments to public safety net institutions; coverage of rehabilitation services for people with disabilities; outreach and enrollment in schools and specialized medical transportation to school for children covered by Medicaid; graduate medical education payments; coverage of hospital clinic services; case management services; state provider tax laws; and appeals filed through HHS. In addition, the bill would eliminate, for new hospitals with physician ownership, the "whole hospital" exception to the Stark law's referral prohibition, and would add, for existing hospitals with physician ownership, significant additional conditions to that exception. The version of the measure approved by the House does not include specialty hospital provisions. The two versions will need to be reconciled before being sent to the President, who has threatened to veto both the House and Senate versions. 

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On May 15, the House of Representatives approved an supplemental spending bill (H.R. 2642)  that would extend a current moratorium on implementation of certain Medicaid regulations and block additional rules through April 1, 2009. The rules affected by the legislation involve: payments to public safety net institutions; coverage of rehabilitation services for people with disabilities; outreach and enrollment in schools and specialized medical transportation to school for children covered by Medicaid; graduate medical education payments; coverage of hospital clinic services; case management services; state provider tax laws; and appeals filed through HHS. The bill also would provide $25 million annually to fund Medicaid anti-fraud activities. To finance the legislation, the bill would extend an electronic asset verification demonstration for Medicaid applicants and beneficiaries, and temporarily borrow money from the Physician Assistance and Quality Improvement (PAQI) Fund. The Senate Appropriations Committee also has approved a version of supplemental spending legislation that would likewise block the various Medicaid rules, and in addition would eliminate, for new hospitals with physician ownership, the "whole hospital" exception to the Stark law's referral prohibition, and would add, for existing hospitals with physician ownership, significant additional conditions to that exception.  The full Senate is expected to consider a revised version of the legislation this week; the two versions of the bill would need to be reconciled before being sent to the President, who has expressed opposition to the House version of the bill.

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