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

On April 1, 2013, CMS released the 2014 rate announcement and final call letter for Medicare Advantage (MA) and Part D prescription drug plans. Notably, under final rate announcement, CMS is forecasting that the final estimate of the combined effect of the Medicare Advantage (MA) growth percentage and the fee-for-service (FFS) growth percentage is 3.3%, compared to -2.2% in the advance call letter, which has the effect of increasing MA plan payment rates. This reversal is a result of CMS building into its spending forecast the assumption that Congress will once again override scheduled cuts in Medicare payments to physicians under the sustainable growth rate formula (thereby allowing MA plan payments to be compared to higher expected FFS spending levels). CMS also is phasing in the alignment of MA benchmarks with Medicare FFS costs and adjusting for diagnostic coding differences between MA plans and FFS providers, along with revising the risk adjustment model.

With regard to Part D, CMS notes that for the first time in the Part D program’s history, the costs of beneficiary coverage are falling, with the 2014 defined standard Part D prescription drug benefit having lower co-payments and deductible than in 2013. CMS also is adopting a number of policy changes for 2014, including requiring Part D plan retail and mail pharmacies to obtain patient consent to deliver a prescription, new or refill, prior to each delivery (CMS also encourages Part D plans to implement this consent requirement for the remainder of this year). While CMS had proposed requiring Part D sponsors to place beneficiary-level prior authorization requirements on certain categories of drugs which may be covered under the hospice or end stage renal disease (ESRD) benefits, so as to ensure that these drugs are appropriately payable under Part D before the prescriptions are filled, the final policy permits sponsors to use other approaches, such as pay-and-chase, to resolve payment responsibility in these situations.

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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:

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MedPAC has released its annual report to Congress on Medicare Payment Policy, including payment update recommendations for all the major Medicare FFS payment systems and limited Medicare Advantage (MA) recommendations. The report also includes data on the status of the MA and Medicare Part D programs, including information about enrollment, plan options, and beneficiary cost-sharing. Note that while MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies. Major recommendations include the following (many of which were included in previous reports):

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The GAO has issued a report on the methodology CMS uses to calculate a risk adjustment for Medicare Advantage (MA) plans, updating an analysis in provided in January 2012. The GAO previously reported that differences in diagnostic coding between MA plans and Medicare FFS resulted in inaccurately-high MA risk scores and excessive payments to MA plans. While CMS made an adjustment for coding differences in 2010, the GAO concluded that the adjustments were insufficient. Based on an analysis of two years of data available since the GAO completed its analysis for the January 2012 report, the GAO found that the cumulative impact of coding differences on risk scores increased from 2010 through 2012, and that CMS's adjustment to risk scores to account for diagnostic coding differences was too low. The GAO estimates that as a result, at least $3.2 billion in excess payments were made to MA plans over three years. The GAO continues to recommend that CMS update its methodology to more accurately account for differences in diagnostic coding between MA plans and Medicare FFS. 
 

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Due to continuing budget gridlock in Washington, sequestration has been triggered – meaning automatic cuts to a wide range of federal programs, including Medicare payments to providers and health plans. While the Centers for Medicare & Medicaid Services has not yet announced detailed plans for implementing the sequester requirements for its programs, this Alert answers some basic questions about sequestration and how it will impact the Medicare program. Among other things, the Alert addresses what Medicare spending is impacted by sequestration, when the Medicare cuts start, and how long sequestration will last.

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On February 15, 2013, CMS released a proposed rule implementing the ACA’s medical loss ratio (MLR) requirements for Medicare Advantage (MA) and prescription drug (Part C and Part D) plans. Under these provisions, which are intended to limit plan spending on marketing, overhead, and profit, MA organizations and Part D plan sponsors will be required to report their MLR, reflecting the percentage of contract revenue spent on clinical services, prescription drugs, quality improving activities, and direct benefits to beneficiaries in the form of reduced Part B premiums. CMS has generally aligned the Medicare MLR rules with commercial MLR regulations that went into effect January 1, 2011.  Plan sponsors that do not have an MLR of at least 85% will be subject to payment remittance; if a plan sponsor fails to meet MLR requirements for more than 3 consecutive years, it also will be subject to enrollment sanctions and, after 5 consecutive years, to contract termination. CMS expects the first year of MLR reporting to occur in 2015 for the 2014 contract year. Comments on the proposed rule will be accepted for 60 days. The official version of the proposed rule will be published in the Federal Register on February 22, 2013.

CMS also has released the 2014 Advance Notice and draft Call Letter, which detail updates to payment methodologies, other policies, and program operations for MA organizations and Part D drug plan sponsors. CMS notes that for the first time in the Part D program’s history, the costs of beneficiary coverage are falling, with 2014 defined standard Part D prescription drug benefit having lower co-payments and deductible than in 2013. CMS also is proposing a number of policy changes for 2014, including requiring Part D plan retail and mail pharmacies to obtain patient consent to deliver a prescription, new or refill, prior to each delivery. In addition, CMS proposes to require that Part D sponsors place beneficiary-level prior authorization requirements on certain categories of drugs which may be covered under the hospice or end stage renal disease (ESRD) benefits, so as to ensure that these drugs are appropriately payable under Part D before the prescriptions are filled.  Comments will be accepted until March 1, 2013.  The final 2014 Rate Announcement and Call Letter will be published on April 1, 2013.

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The OIG recently identified barriers to the effectiveness of the Medicare Drug Integrity Contractor (MEDIC) in performing Medicare Parts C and D benefit integrity activities between April 2010 and March 2011. For instance, the MEDIC reported that it does not have access to centralized Part C data, it lacks access to certain prescription drug event data, and there is no mechanism to recover payments from Part C or Part D plan sponsors when law enforcement agencies do not accept these cases for further action. Moreover, while the MEDIC has benefit integrity responsibility for both Medicare Parts C and D, the OIG determined that Part C investigations and case referrals represented a small percentage of its activities (only 8% of investigations and referrals involved Part C only; the majority were Part D only). The OIG makes a series of recommendations to, among other things: improve the data available to the MEDIC (including information from pharmacies, physicians, and pharmacy benefit managers); expand the ability of the MEDIC to recover payments from Part C and Part D plan sponsors; and require Part C and Part D plan sponsors to refer potential fraud and abuse incidents to the MEDIC. For details, see the full report, MEDIC Benefit Integrity Activities in Medicare Parts C and D.

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The OIG’s December 2012 Compendium of Unimplemented Recommendations highlights unimplemented OIG recommendations that the OIG believes represent significant opportunities for action in FY 2013. The report includes recommendations made through FY 2011 that were not fully implemented as of December 2012. The OIG’s priority open recommendations, which in the OIG’s view represent the most significant opportunities to positively impact HHS’s programs, include the following:

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MedPAC is meeting on November 1 -2, 2012 to discuss a variety of Medicare policy issues, including: Medicare payment for ambulance services, reducing the hospitalization rate for Medicare beneficiaries receiving home health care, Medicare payment for outpatient therapy services, geographic adjustment of payments for the work of physicians and other health professional, the role of provider prices in determining private-plan Medicare costs relative to fee-for-service Medicare, Medicare Advantage special needs plans, and Medicare payment differences for ambulatory care services across settings.

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The HHS Office of Inspector General (OIG) has released its FY 2013 Work Plan, which outlines audit, inspection, and investigative initiatives that the OIG intends to conduct in the coming year. The OIG plans activities in a wide range of areas, including reviews of Medicare fee-for-service reimbursement and program integrity policies involving virtually all types of providers and suppliers (with a heavy concentration of reviews involving hospitals and medical equipment suppliers). The OIG also will focus attention on Medicare Advantage and Medicare Part D prescription drug plan policies, including payment policy and plan oversight reviews. Numerous Medicaid reports also are on the books, including investigations involving Medicaid prescription drug pricing and rebate policies, various provider and supplier payment issues, and state management of their Medicaid programs. The Work Plan also includes numerous reviews involving other HHS agencies, such as reviews targeting Food and Drug Administration (FDA) and National Institutes of Health programs. The Work Plan also includes a description of the OIG’s legal and investigative activities related to Medicare and Medicaid.

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The 2013 Medicare Open Enrollment Period runs from October 15 to December 7, 2012. To help beneficiaries make informed choices, CMS has posted updated quality rating information for Medicare Advantage plans and Part D prescription drug plans for the coming year. An HHS press release summarizing the data and providing links to additional information is available here. 

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A number of recent Congressional hearings have focused on health policy issues, including the following:

• A House Small Business Healthcare Subcommittee hearing on “Medicare's Durable Medical Equipment Competitive Bidding Program: How Are Small Suppliers Faring?”
• Senate Aging Committee hearings on “Implementing the Physician Payments Sunshine Act” and “Eliminating Waste and Fraud in Medicare: An Examination of Prior Authorization Requirements for Power Mobility Devices.” 
• A House Oversight Committee hearing entitled “Administration's Failure to Prevent/End Medicaid Overpayments.” 
• House Ways and Means Committee hearings on (1) implementation of ACA health insurance exchanges and related provisions; (2) the status of Medicare Advantage (MA) plans; and (3) the Internal Revenue Service’s (IRS) implementation of various ACA tax provisions.
• A House Energy and Commerce Committee hearing on HHS’s use of special hiring authorities under Title 42 to appoint and compensate specialized science and research positions. 

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The Government Accountability Office (GAO) has issued a report entitled “Medicare Special Needs Plans: CMS Should Improve Information Available about Dual-Eligible Plans' Performance.” The report examines the characteristics of dual-eligible beneficiaries enrolled in Medicare Advantage plans known as dual-eligible special needs plans (D-SNPs), which serve Medicare beneficiaries who also are eligible for Medicaid because they meet income and other criteria. About 9% of the dual-eligible population is enrolled in 322 Medicare D-SNPs, and they were more frequently under age 65 and disabled, more likely to be eligible for full Medicaid benefits, and more frequently diagnosed with a chronic or disabling mental health condition than beneficiaries in other MA plans. The GAO found that D-SNPs provide fewer supplemental benefits on average than other MA plans, yet spend proportionately more of their rebate to fund supplemental benefits and less to reduce Medicare cost-sharing. The GAO recommends a number of steps CMS should take to increase D-SNPs' accountability, including: requiring D-SNPs to state explicitly in their models of care the extent of services they expect to provide; requiring D-SNPs to collect and report to CMS standard performance and outcome measures; and analyzing and publicizing the performance and outcomes data. 

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Recent Congressional hearings have focused on the following health policy issues, among others:  

• A House Ways and Means Health Subcommittee hearing entitled “Physician Organization Efforts to Promote High Quality Care and Implications for Medicare Physician Payment Reform";
• A Senate Commerce, Science and Transportation Committee hearing on short-supply, “gray market” prescription drugs; and
• A House Oversight and Government Reform Committee hearing on the Obama Administration’s Medicare Advantage Quality Bonus Payment Demonstration. The Panel also has scheduled an August 2 hearing on IRS enforcement of the ACA’s tax provisions.

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MedPAC has released its 2012 Data Book on “Health Care Spending and the Medicare Program.” The publication provides information on national health care and Medicare spending, Medicare and dual-eligible beneficiary demographics, Medicare quality, and Medicare beneficiary and other payer liability. It also includes data regarding various provider types, such as data on Medicare spending, beneficiary utilization of the service, number of providers, volume, length of stay, and Medicare profit margins. The Data Book also covers the Medicare Advantage and Part D drug programs.

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On June 11, 2012, CMS published corrections to the May 11, 2012 proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for fiscal year (FY) 2013. Among other things, CMS is decreasing the national capital standard federal payment rate, which in turn decreases the standardized amount used to calculate IPPS payment rates from $5,750.04 to $5,748.09. As a result, proposed payment amounts for 2013 would be slightly lower than previously calculated. CMS also clarifies its preamble discussions of qualifications for LTCHs and calculation of outlier payments and corrects technical and typographical issues. CMS also has published corrections to technical and typographical errors in its April 12, 2012 final rule with comment period updating Medicare Advantage (MA) and Medicare Part D prescription drug program rules for contract year 2013. 

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In a recent report, “Medicare Advantage: Quality Bonus Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings,” the GAO recommends that CMS cancel its Medicare Advantage (MA) Quality Bonus Payment Demonstration and allow the MA quality bonus payment system established by the ACA to take effect. The CMS demonstration, announced in November 2010, provides bonus payments to MA plans with 3 or more stars under a quality rating system and accelerates and increases bonuses for plans with higher quality ratings than envisioned under a separate ACA bonus structure. The GAO reports that the demonstration will cost $8.35 billion over 10 years, dwarfing all other Medicare demonstrations, and that most of the funds will be paid to average performing plans. Moreover, the demonstration's design precludes a credible evaluation of its effectiveness in achieving CMS’s stated research goal of determining whether its bonus structure boosts quality improvement more than the ACA structure.

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CMS has published a final rule to update MA and Part D prescription drug benefit program regulations for contract year 2013.  The final rule is summarized after the jump.

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As part of the April 12, 2012 MA/Part D final rule, CMS is finalizing its proposal to allow MA plans to limit durable medical equipment (DME) coverage to specific "preferred" brands and manufacturers if certain conditions are met. These conditions include beneficiary access to all preferred brands, a transition period permitting enrollees to retain non-preferred DME brands for 90 days when changing plans, exceptions to plan limitations based on medical necessity, the ability to appeal denials based on brand or manufacturer, and plan disclosure to enrollees of DME limitations. CMS also acknowledges that certain categories of DME include items that are not interchangeable; the agency will determine annually which categories or subcategories of DME require full plan coverage without limitation by brand or manufacturer. In the final rule, CMS has clarified that the restrictive contracting provisions does not apply to orthotics and prosthetics.

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CMS has announced the final audit methodology for the MA Risk Adjustment Data Validation (RADV) program, which is designed to reduce the MA payment error rate. Under the RADV program, CMS will verify that diagnosis codes submitted for payment by an MA organization are supported by the enrollee’s medical record documentation. CMS estimates that the program will recover a $370 million in overpayments for the first audit year.

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