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

CMS has posted data on hospital charges associated with the 100 most common Medicare inpatient stays. In a fact sheet announcing the availability of the data, CMS highlighted the “significant variation in charges from hospital to hospital -- including those within the same community -- for inpatient services that may be provided in connection with a given inpatient stay.” For instance, a CMS fact sheet notes that the range in average inpatient charges for services associated with joint replacement (MS-DRG 470) range from $5,300 to $223,000.
 

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As required by law, on March 1, 2013, President Obama issued a sequestration order triggering automatic cuts to a wide range of federal programs, including Medicare payments to providers and health plans. On March 8, 2013, CMS released its first guidance on sequestration, in the form of an “e-News” message to providers. CMS confirms that Medicare fee-for-service (FFS) claims with dates-of-service or dates-of-discharge on or after April 1, 2013 generally will incur a 2% reduction. Claims for DMEPOS supplies – including claims under the DMEPOS competitive bidding program – also will be reduced by 2%, if the date of service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013. CMS notes that the sequestration adjustment will be applied to claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments. Moreover, while beneficiary deductible and coinsurance payments are not subject to sequestration, Medicare’s payment to beneficiaries for unassigned claims is subject to the 2% cut. CMS encourages Medicare providers and suppliers who bill claims on an unassigned basis to discuss with beneficiaries the impact sequestration will have on Medicare reimbursement. Additional details on how sequestration affects Medicare are provided in our recent client alert. 

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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 January 2, 2013, President Obama signed into law (via autopen) the “fiscal cliff” deal, H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA). In addition to making well-publicized changes to the tax code, the new law includes numerous Medicare payment provisions. Most notably, the law includes a one-year Medicare physician fee schedule (MPFS) fix that is paid for by approximately $30 billion in other health care (mainly Medicare) spending reductions over 10 years. ATRA also delays until March 2013 the automatic, across-the-board “sequestration” cuts in federal spending imposed by the Budget Control Act of 2011, which was expected to reduce Medicare provider payments by more than $11 billion in fiscal year (FY) 2013 and $123 billion over the period of FY 2013 to 2021 (CBO subsequently estimated  that the 2013 cut to Medicare payments now will be approximately $9.9 billion due to changes in the sequestration targets under the ATRA). The delay in sequestration, coupled with the government again reaching its debt ceiling, sets up another near-term battle on federal spending, during which Medicare, Medicaid, and other health care programs could be targeted for even more significant cuts.

The health provisions of ATRA are summarized in our Client Alert.

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CMS has released updated data on Medicare payments to hospitals for commonly-performed outpatient procedures as part of its initiative to make more cost and quality data available to consumers. The updated hospital outpatient department information reflects calendar year 2011 data.

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The House and Senate have approved a temporary spending bill (H.J.Res. 117) to prevent a federal government shutdown in light of Congress’ failure to reach agreement on the regular appropriations bills before the start of the new fiscal year on October 1, 2012. The short-term measure funds the government until March 27, 2013, generally at spending levels set under last year’s Budget Control Act (BCA) with certain exceptions. The House first approved H.J.Res. 117 on September 13, 2012 and the Senate followed on September 22. The bill now awaits the President’s signature; the Administration is on record in support of the bill. With action on this “must-pass” bill completed, Congress has recessed until after the November elections, with a “lame duck” session tentatively scheduled to begin November 13, 2012. High on the Congressional agenda for November is addressing the automatic spending cuts scheduled to take effect in January 2003 under the BCA’s sequestration provisions (along with expiring tax provisions that will lead to sharp tax rate hikes in January). As discussed in our recent special alert, Medicare providers are facing $11.085 billion in cuts for FY 2013 under sequestration unless Congress and the Administration reach agreement on an alternative budget deal that supersedes the BCA.

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Medicare providers are facing $11.085 billion in automatic, across-the-board cuts for fiscal year (FY) 2013 under the terms of last year’s political compromise regarding the debt ceiling. Pursuant to this legislation, known as the Budget Control Act (BCA), the Office of Management and Budget (OMB) issued a report on September 14, 2012 detailing the spending cuts, known as sequestration, that will be triggered under the BCA. The cuts will go into effect on January 2, 2013 unless Congress and the Administration reach agreement on an alternative budget deal that supersedes the BCA – action that is unlikely to be considered until after the November elections and possibly not until 2013.

By way of background, the BCA set a January 2012 deadline for a bipartisan Joint Select Committee on Deficit Reduction to propose and Congress to enact a plan to reduce the deficit by $1.2 trillion in FYs 2013 through 2021. Because the Joint Select Committee failed to produce such a plan, automatic cuts to achieve this level of savings will be imposed on January 2, 2013. The cuts must be apportioned equally among FYs 2013 through 2021, and divided evenly between defense functions and non-defense functions (including Medicare provider payments subject to a cap). Mandatory programs exempt from sequestration, include, among others, Social Security, Medicaid, the Children’s Health Insurance Program (CHIP), and veterans’ benefits.

The Budget Control Act imposes a number of special rules regarding the application of sequestration to the Medicare program. Most notably, Medicare cuts are limited to provider payments, and reductions are capped at 2% of individual provider payments under Medicare Parts A and B, and monthly payments under Part C (Medicare Advantage) and Part D prescription drug plan contracts. Medicare payment reductions must be made at a uniform rate across all programs and activities subject to sequestration. Sequestration reductions will be disregarded for purposes of computing adjustments to Medicare payment rates, including the Part C growth percentage, the Part D annual growth rate, and application of risk corridors to Part D payment rates. Also specifically exempt from sequestration are Part D low-income subsidies, Part D catastrophic subsidies, and payments to states for Qualified Individual premiums.

The new OMB report, which was mandated by the Sequestration Transparency Act of 2012, estimates the level of BCA sequestration cuts that will be applied January 2, 2013 for the remainder of FY 2013. With regard to Medicare, the report includes a discussion of mandatory provider spending subject to the 2% cap and other discretionary spending subject to sequestration (bringing the total Medicare cuts to more than $11.085 billion). The cuts are broken down as follows: Part A/Federal Hospital Insurance (HI) Trust Fund: Mandatory and discretionary spending cuts will total approximately $5.8 billion; Part B/Federal Supplementary Medical Insurance (SMI) Trust Fund cuts will total about $5.2 billion; and Part D prescription drug plan payments will be reduced by about $591 million (note that Part C/Medicare Advantage, funding is included in the HI and SMI trust fund reductions).

In addition to the Medicare provider cuts, OMB projects that for FY 2013, the BCA will impose cuts in other nondefense spending ranging from 7.6% to 8.2%, along with 9.4% to 10.0% cuts in defense programs (depending on whether the programs are classified as discretionary or mandatory). The nondefense cuts apply to a number of health care programs, including: a $2.5 billion cut in National Institutes of Health funding; a $605 million reduction in funding for the Health Resources and Services Administration; a $319 million cut in the Food and Drug Administration budget; a $66 million cut in Affordable Care Act (ACA) Affordable Insurance Exchange Grants; and a $78 million reduction in Health Care Fraud and Abuse Control Account funding.

It is uncertain at this time whether the sequestration cuts actually will be imposed, or if an alternative budget scheme – with potentially more dramatic Medicare and Medicaid impact – ultimately will be enacted. We will continue to post updates on budget activities impacting the Medicare program on our blog, where you also can find our previous reports on this topic.

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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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Recent hearings on health policy issues include:

• A House Ways and Means Committee hearing on the impact of limitations on the use of tax-advantaged accounts for the purchase of over-the-counter medication.
• A Senate Finance Committee discussion on “Medicare Physician Payments: Understanding the Past so We Can Envision the Future.”
• A Ways and Means Health Subcommittee hearing on the Medicare DMEPOS competitive bidding program.  A GAO report released at the hearing found it is too soon to determine the full effects of competitive bidding on beneficiaries and suppliers.
• A House Energy and Commerce Subcommittee on Oversight and Investigations hearing on “Budget and Spending Concerns at HHS.”  At the hearing, the GAO issued a report reiterating its recommendations to minimize improper Medicare payments (such as using prepayment controls to identify potentially-improper DME claims and enhanced payment safeguards for physicians who use advanced imaging services) and improve oversight of Medicaid payments.

In addition, the Senate HELP Committeehas scheduled hearings May 15 and 16 on HIV/AIDS drug costs and health care delivery reforms, respectively. In addition, the House Judiciary Subcommittee on Intellectual Property and Competition is holding a hearing May 18 on health care consolidation and competition after the ACA . 

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On May 10, 2012, the House of Representatives approved H.R. 5652, the Sequester Replacement Reconciliation Act of 2012, on a largely party-line vote. The legislation would replace certain across-the-board cuts to defense and domestic spending scheduled to begin in 2013 under last year’s Budget Control Act with a new package of domestic spending reductions made through the budget reconciliation process (note that the scheduled 2% across-the-board cut to Medicare provider payments would be retained). Among many other things, the House bill would: repeal certain ACA funding (including the Prevention and Public Health Fund, funding for the Consumer Operated and Oriented Plan program, funding for state insurance exchanges, and state bonus payments for increasing Medicaid enrollment); repeal ACA Medicaid maintenance of effort requirements; revise Medicaid provider tax provisions; and provide for various medical malpractice reforms.  The Obama Administration strongly opposes the House bill, and consideration in the Senate is unlikely.  Any legislative action to block the scheduled sequestration and revise spending/tax policy is not expected until much later in the year – potentially after the November elections.

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On March 29, 2012, the House of Representatives approved on a 228 - 191 vote H.Con.Res. 112, House Budget Chairman Paul Ryan’s proposal establishing budget targets for fiscal year 2013. The resolution (which was approved with no Democratic votes) would direct various House committees to develop legislation to, among other things: repeal the ACA; establish a Medicare “premium support” program (under which beneficiaries turning 65 on or after January 1, 2023 would receive a premium support payment to offset the cost of the traditional Medicare program or a private plan); provide a 10-year Medicare physician fee-schedule fix (no details are provided); raise the Medicare eligibility age starting in 2023 to conform with Social Security eligibility; expand Medicare means testing; and convert Medicaid to a block-grant program. Senate Finance Committee Chairman Max Baucus has voiced strong opposition to the House Medicare proposals.  Moreover, the Senate is not expected to act on any budget resolution this year, since Senate Leader Reid has indicated that he plans to rely on the budget parameters set forth in last summer’s debt ceiling agreement.
 

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On February 22, 2012, President Obama signed into law H.R. 3630, the Middle Class Tax Relief and Job Creation Act, which was approved by Congress on February 17. In addition to extending a payroll tax cut through the end of the year and extending unemployment benefits, the new law includes a number of Medicare and Medicaid provisions, including a provision temporarily averting a steep cut in Medicare physician payments. The following are highlights of the health policy provisions included in H.R. 3630 and accompanying conference report (House Report 112-399).

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On February 13, 2012, President Obama released his proposed fiscal year (FY) 2013 budget.  The budget includes a number of legislative proposals – some of which were included in the President’s September 2011 deficit reduction plan -- that would reduce Medicare spending by $302.8 billion and cut Medicaid spending by $55.7 billion over 10 years.  Highlights are available after the jump.

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On February 9, 2012, CMS will host a national provider call on the Medicare Spending Per Beneficiary Measure (MSPB).  The MSPB measure was finalized for inclusion in Hospital Value-Based Purchasing (VBP) program in the FY 2012 hospital inpatient prospective payment system final rule. The call will provide background information and discuss how the measure is calculated, including the approach to risk adjustment and payment standardization. Registration is required.

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According to new CMS national health spending statistics, U.S. health care spending grew 3.9% in 2010 -- the lowest rate of increase in 51 years. The relatively low rate of growth is attributed to lower utilization of health care services. Notably, retail prescription drug spending grew only 1.2%, the slowest rate of growth for prescription drug spending recorded in the national health expenditure survey. Medicare spending grew 5.0% in 2010, while Medicaid spending increased 7.2%.

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The Congressional Budget Office (CBO) has issued a report on options for raising the Medicare and Social Security eligibility ages. CBO estimates that gradually raising the Medicare eligibility age to 67 would reduce federal Medicare outlays, net of premiums and other offsetting receipts, by $148 billion from 2012 through 2021, although Medicaid and health insurance subsidy spending could rise somewhat.

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On December 23, 2011, President Obama signed into law H.R. 3765, the Temporary Payroll Tax Cut Continuation Act of 2011.  Among other things, the law freezes Medicare physician fee schedule (MPFS) rates at 2011 levels through February 2012, temporarily averting a scheduled 27.4% cut under the statutory Sustainable Growth Rate (SGR) formula. The measure also extends for two months certain Medicare policies set to expire December 31, 2011, including: the floor used in the physician work geographic adjustment; the Medicare outpatient therapy cap exceptions process; payment for the technical component of certain physician pathology services; certain ambulance add-on payments; physician fee schedule mental health add-on payment; the outpatient hold harmless provision; minimum payment for bone mass measurement; the Qualified Individual program that reimburses states for certain Part B premiums; and the Transitional Medical Assistance program. The bill also extends for two months the authority for Medicare Modernization Act section 508 hospital reclassifications, with special rules for October and November 2011.  A CMS summary of the law is available here.   Note that the final version of the legislation does not include provisions adopted earlier by the House of Representatives to pay for a 2-year SGR fix through a variety of Medicare, Medicaid, and Affordable Care Act (ACA) cuts.  When Congress reconvenes, Congressional leaders are expected to tackle legislation to address these Medicare policies at least through 2012, although the outcome of such efforts is speculative at this point. Note that given the uncertainties associated with MPFS rates for 2012, the Centers for Medicare & Medicaid Services (CMS) is extending the 2012 Annual Participation Enrollment Period for health professionals through February 14, 2012 (although the effective date for any participation status change remains January 1, 2012 and will be in force for the entire year). 

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On December 13, 2011, the House of Representatives approved H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2011, a wide-ranging bill making payroll tax, unemployment insurance, energy, and other policy changes. Among many other things, the bill would avert a scheduled 27.4% cut in Medicare physician fee schedule (MPFS) payments in 2012 under the statutory Sustainable Growth Rate (SGR) formula and instead provide for a 1% payment update in 2012 and 2013. The costs of the MPFS fix would be offset through a variety of health care policy changes, including reducing funding for the ACA prevention and public health fund and ACA insurance subsidies, cutting Medicare reimbursement for hospital outpatient evaluation and management office visit services; reducing bad debt reimbursement, and rebasing Medicaid disproportionate share hospital allotments. The legislation also would extend: the Medicare outpatient therapy cap exceptions process; certain ambulance add-on payments; the floor used in the physician work geographic adjustment; the Qualified Individual program that reimburses states for certain Part B premiums; and the Transitional Medical Assistance program. In addition, the bill would relax certain restrictions on the expansion of physician-owned hospitals. The measure also would increase Medicare Part B and D premiums for higher-income beneficiaries beginning in 2017.  Note that the Senate is not expected to approve the House bill, and President Obama has announced that he would veto the bill if it does reach his desk. While Congress ultimately is expected to pass an SGR fix, the scope and timing of any such bill is uncertain at this time.

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MedPAC is meeting on December 15 and 16, 2011 to discuss payment adequacy of Medicare payment for a variety of provider types, along with ways to encourage the use of lower-cost medications by Medicare Part D low-income subsidy beneficiaries.

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On November 21, 2011, the co-chairs of the Joint Select Committee on Deficit Reduction, Representative Jeb Hensarling and Senator Patty Murray, announced that the panel would not be able to reach a deficit reduction agreement before the Committee’s deadline. Under the Budget Control Act, the bipartisan Joint Select Committee was required to identify $1.5 trillion in deficit reduction by November 23, which was then to be considered by Congress under expedited procedures. If legislation is not adopted to achieve deficit reduction targets by January 2012, $1.2 trillion in across-the-board spending cuts (sequestration) will be triggered, effective January 2013. While Medicare provider payments are subject to reduction under the enforcement mechanism, those reductions are capped at 2%. The Congressional Budget Office (CBO) has estimated that Medicare cuts under sequestration would total approximately $123 billion between 2013 and 2021 (other budget proposals under consideration contemplated much deeper cuts). Given that sequestration does not go into effect until 2013, lawmakers still have time to consider alternatives to sequestration, although compromise has been elusive to date (and President Obama has promised to veto any effort to repeal the automatic spending cuts absent an alternative deficit reduction agreement).

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