GAO Highlights Medicare Program Risks and Recommends Program Integrity Actions

The Government Accountability Office (GAO) has released its latest update to its “High-Risk Series” reports, which again lists Medicare as a high-risk program, in part because of the program’s substantial size and scope, and its wide-ranging effects on beneficiaries, the health care industry, and the U.S. economy. The latest report highlights five areas of particular concern to the GAO: 

  1. Payments and provider incentives in original Medicare (specifically referencing physician feedback reports, physician self-referral policy, high-expenditure Part B drugs, end stage renal disease (ESRD) bundled payments, and low-volume payment adjustments for dialysis facilities);
  2. Medicare Advantage (MA) and other Medicare health plans (including concerns about MA plan payment adjustments and excess payments to Special Needs Plans);
  3. Program design effects on beneficiaries (addressing coordination for dual-eligible beneficiaries, dual-eligible special needs plans, and access to preventive services);
  4. Program management (including implementation of durable medical equipment competitive bidding and oversight of Centers for Medicare & Medicaid Services (CMS) contracts); and
  5. Oversight of patient care and safety (including the use of clinical data registries and oversight of vulnerable Medicare beneficiaries in nursing homes and long-term care hospitals (LTCHs)).

The GAO makes a series of recommendations to Congress and CMS to address program risks. Specifically, GAO recommends that Congress consider directing the HHS Secretary to require providers who self-refer intensity-modulated radiation therapy services to disclose to their patients that they have a financial interest in the service. The GAO also recommends that Congress better align Medicare beneficiary cost-sharing requirements with U.S. Preventive Task Force recommendations.

Specific recommendations for CMS include:

  • Disseminating physician performance feedback reports more frequently;
  • Improving the timeliness and efficacy of CMS’s monitoring of the accuracy of ESRD low volume payment adjustments;
  • Improving the accuracy of the adjustment made for differences in diagnostic coding practices between MA and Medicare fee-for service (FFS) programs;
  • Establishing specific plans for using MA encounter data to risk adjust payments or for other purposes;
  • Evaluating the extent to which dual-eligible special needs plans have provided appropriate care to the population they serve; and
  • Expanding validation surveys at LTCHs to assess accreditation organization identification of deficiencies.

In addition, the GAO lists the following recommendations for CMS to exercise Affordable Care Act authorities to reduce the risk of improper Medicare payments:  

  • Require a surety bond for certain types of at-risk providers and suppliers;
  • Publish a proposed rule for increased disclosures of prior actions taken against providers and suppliers enrolling or revalidating enrollment in Medicare, such as whether the provider or supplier has been subject to a payment suspension from a federal health care program;
  • Establish core elements of compliance programs for providers and suppliers;
  • Improve automated edits that identify services billed in medically unlikely amounts;
  • Develop performance measures for the Zone Program Integrity Contractors who explicitly link their work to the agency’s Medicare FFS program integrity performance measures and improper payment reduction goals;
  • Reduce differences between contractor postpayment review requirements when possible;
  • Monitor the database used to track Recovery Auditor activities to ensure that all postpayment review contractors are submitting required data and that the data the database contains are accurate and complete;
  • Require Medicare administrative contractors to share information about the underlying policies and savings related to their most effective edits; and
  • Efficiently identify and implement an information technology solution that addresses the removal of Social Security numbers from Medicare beneficiaries’ health insurance cards.

OIG and CMS Extend Fraud/Abuse Waivers for Medicare Shared Savings Program/ACOs; Invite Feedback on Waiver Policy

Today the OIG and CMS published a joint notice continuing the effectiveness of fraud and abuse law waivers granted in 2011 in connection with the Medicare Shared Savings Program, which is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form accountable care organizations (ACOs). 

By way of background, in a November 2, 2011 joint OIG-CMS interim final rule with comment period, the agencies established waivers of the application of the federal physician self-referral law, the federal anti-kickback statute, and certain civil monetary penalties law provisions to specified arrangements involving ACOs participating in the Shared Savings Program (the Waiver IFC).  In 2011 Reed Smith prepared an in-depth analysis of the Medicare Shared Savings Program, including an analysis of the Waiver IFC.  Because of a general 3-year deadline for publishing Medicare final rules after the publication of a proposed or interim final rule, the agencies are extending the timeline for publication of a final rule concerning Shared Savings Program waivers to avoid “creating legal uncertainty for ACOs participating in the Shared Savings Program and potentially disrupting ongoing business plans or operations of some ACOs.”  The notice also states that CMS is developing a proposed rule to make certain modifications to the Shared Savings Program regulations; in order to ensure that the final waiver regulations align with the Shared Savings Program rules, the agencies believe “the prudent course of action at this time is to extend the effectiveness of the Waiver IFC.”  Thus the Waiver IFC will remain in effect through November 2, 2015, unless a final waiver rule becomes effective on an earlier date.


In the notice, the agencies also suggest that they would benefit from additional stakeholder input to inform their understanding of:

  1. how and to what  extent ACOs are using the waivers;
  2. whether the existing waivers serve the needs of ACOs and the Medicare program;
  3. whether the  waivers adequately protect the Medicare program and beneficiaries from the types of harms associated with referral payments or payments to reduce or limit services; and
  4. whether there are new or changed  considerations that should inform the development of additional notice  and comment rulemaking.

No deadline is specified for providing feedback on these considerations. 

Ways and Means Committee Seeks Comments on Medicare Program Integrity Bill

The Chairman of the House Ways and Means Subcommittee on Health is seeking comments on a draft bill, the Protecting Integrity in Medicare Act of 2014, that is “aimed at combating fraud, waste and abuse in the Medicare program.” The bill covers a range of Medicare and Medicaid policies, from establishing new alternative sanctions for technical physician self-referral violations to providing more flexibility in meeting durable medical equipment (DME) documentation requirements. Among other things, the bill would: 

  • Establish an alternative fixed financial penalty for individuals and entities that voluntarily disclose a technical Stark violation (e.g., an arrangement that is not in writing or that is not signed by one or more parties) through the Self-Referral Disclosure Protocol; the per-arrangement penalty would be capped at $5,000 if submitted within the year of the noncompliance and $10,000 thereafter;
  • Require a study on how to establish a permanent physician-hospital gainsharing program;
  • Expand the professionals who can document DME face-to-face encounters beyond physicians to align with the professionals who can furnish such encounters;
  • Establish claims processing edits to prevent Medicare payments for incarcerated, unlawfully present, and deceased individuals;
  • Require Medicare administrative contractors (MACs) to establish improper payment outreach and education programs, and modify how MACs prioritize efforts to reduce improper payment or error rates;
  • Allow Medicaid fraud control units to investigate abuse and neglect in home and community based facilities;
  • Provide the HHS OIG with up to 1.5% of all amounts collected from Medicare false claim and fraud cases;
  • Give the Secretary greater flexibility to protect Medicaid from fraud, waste, and abuse;
  • Improve incentives for individuals to report Medicare fraud and abuse under the Senior Medicare Patrol;
  • Require valid prescriber National Provider Identifiers to be included on pharmacy claims;
  • Revise the process for renewing MAC contracts;
  • Create a high-risk beneficiary drug management program under the supervision of a Part D plan sponsor;
  • Require the Secretary to issue guidance on the application of the “Common Rule” to clinical data registries;
  • Revoke eligibility for Medicare benefits for providers convicted of defrauding the Medicare program under certain circumstances;
  • Require home health agencies to obtain a surety bond in the amount of at least $50,000 as a condition of Medicare participation;
  • Require prior authorization (PA) for certain chiropractic visits, blepharoplasty, and browplasty surgeries and expand a PA demonstration for non-emergent ambulance services;
  • Require Social Security numbers to be removed from beneficiary Medicare cards; and
  • Require the Secretary to include vacuum erection systems in the DME competitive bidding program by 2016.

Subcommittee Chairman Kevin Brady (R-TX) will accept comments on the discussion draft until September 1, 2014.

OIG Proposed Rule Would Expand Civil Monetary Penalty Authority

On the heels of its proposed rule to expand its health program exclusion authority, the Office of Inspector General (OIG) of the Department of Health and Human Services has published a proposed rule that would amend the health care program civil monetary penalty (CMP) regulations. The rule would codify the OIG’s expanded statutory authority under the Affordable Care Act to impose CMPs on providers and suppliers and would allow for significant penalties in a variety of scenarios, some of which could extend beyond what is currently permitted.

Reed Smith attorneys have prepared a Client Alert summarizing and analyzing the OIG’s proposed rule, including the various scenarios under which CMPs could be issued under the proposed regulations, such as: failure to report and return an overpayment; failure to grant OIG timely access to records upon request; ordering or prescribing items or services while excluded from a federal health care program, as well as arranging or contracting with an individual or entity who meets this criteria; making false statements or omitting or misrepresenting material facts in an application, bid, or contract; and failing to submit or certify drug-pricing and product information in a timely manner. In addition, the alert covers the changes in technical language proposed by OIG to clarify and more clearly define the scope of CMP regulations.

The Client Alert is available here.

California Weighs Further Curtailment of Physician Self-Referrals

This post was written by Paul Pitts.

California State Senator Ed Hernandez, O.D., Chair of the Senate Health Committee, has introduced legislation that would close an exception in state law that currently permits physicians to provide advanced imaging, anatomic pathology, radiation therapy, and physical therapy within their office or the office of their group practice.  Under current law, the so-called “in-office exception” permits physicians to refer patients to their own practice for these services, which are typically ancillary to the primary service of the referring physician. If this legislation is adopted, California’s self-referral law would be more restrictive than the federal physician self-referral law, commonly referred to as the Stark law. Physicians in California residing outside of rural areas would be prohibited from referring any patients, regardless of source of payment, for advanced imaging, anatomic pathology, radiation therapy, and physical therapy performed by the referring physician’s own practice. The proposed legislation, Senate Bill 1215, is scheduled for an April 21, 2014 hearing before the Senate Business, Professions and Economic Development Committee. Comments on the legislation may be sent to the committee at State Capitol, Room 2053 Sacramento, California 95814.

Reed Smith Client Alert: CMS/OIG Extend Protections for Electronic Health Record Donations

As previously reported, the Office of Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) published final rules in December amending Anti-Kickback Statute (AKS) and Stark Law regulations permitting certain arrangements involving the donation of interoperable electronic health record (EHR) software or information technology and training services.  Reed Smith has prepared a summary of the final rules, including a side-by-side comparison of the EHR AKS Safe Harbor and the Stark Law’s EHR Exception that highlights the recent revisions. 

Final Rules Issued Extending Protections of Electronic Health Record Donations

This post was written by John Wyand and Susan Edwards.

On December 27, 2013, the Office of Inspector General and the Centers for Medicare & Medicaid Services each published, in the Federal Register, a final rule that amends regulations protecting, from the Anti-Kickback Statute and Stark law, certain arrangements involving the donation of interoperable electronic health records (EHR) software or information technology and training services related to such EHR software. The final rules:

  • Extend the protections of the Stark law exception (42 C.F.R. § 411.357(w)) and the Anti-Kickback safe harbor (42 C.F.R. § 1001.952(y)) from December 31, 2013 to December 31, 2021 (the “sunset” provisions)
  • Exclude laboratory companies from the types of entities that may donate EHR items and services
  • Update the provisions under which an EHR donor or recipient can ascertain, with certainty, that EHR is interoperable pursuant to the exception and safe harbor (the “deeming” provisions)
  • Remove the requirements that donated EHR include electronic prescribing capability
  • Clarify the requirement prohibiting any action that limits or restricts the use, compatibility, or interoperability of donated items or services

Click here to view the amendment to the Stark law exception; and click here to view the amendment to the Anti-Kickback safe harbor.

With the exception of the amendments to the sunset provisions, which go into effect December 31, 2013, the amended regulations will be effective as of March 27, 2014.

Reed Smith will prepare a comprehensive Client Alert on the final rules, which will be published shortly.

Reed Smith lawyers have significant experience advising clients on EHR technology issues and will continue to monitor regulatory changes in this area. For more information regarding how we can assist you, please contact your principal Reed Smith lawyer or a lawyer listed in this publication.

GAO Examines Self-Referral of Anatomic Pathology, IMRT Services

The Government Accountability Office (GAO) has issued two reports on trends in physician referrals to entities in which the provider or the provider's family members have a financial interest – both of which conclude that financial incentives are likely a major factor driving increases in referrals. In the first report, “Medicare: Action Needed to Address Higher Use of Anatomic Pathology Services by Providers Who Self-Refer,” the GAO concentrates on three provider specialties -- dermatology, gastroenterology, and urology -- that in 2010 accounted for 90% of referrals for self-referred anatomic pathology services (the preparation and examination of tissue samples to diagnose disease). Among other things, the report found that referrals for anatomic pathology services by these specialists (specifically services represented by CPT code 88305) substantially increased the year after they began to self-refer, compared both to before they started self-referring and to those specialists who continued to self-refer or never self-referred services. Self-referring providers of these specialties also referred more services on average than non-self-referring providers, even taking into account geography and patient characteristics. In response to the GAO’s suggestion that CMS improve its ability to identify self-referred anatomic pathology services and limit financial incentives for high levels of referrals, HHS notes that it identified CPT code 88305 as a potentially misvalued code and reduced its reimbursement by approximately 30% percent in 2013, which HHS believes has significantly reduced the financial incentives associated with self-referral for these procedures.

In a second report, “Higher Use of Costly Prostate Cancer Treatment by Providers Who Self-Refer Warrants Scrutiny,” the GAO examined self-referral of prostate cancer-related intensity-modulated radiation therapy (IMRT) services. According to the GAO, from 2006 to 2010, the number of IMRT procedures performed by self-referring groups increased rapidly (from about 80,000 to 366,000), while it declined for non-self-referring groups. This growth in self-referred services was primarily due to limited-specialty groups, particularly urologists, rather than multispecialty groups. Self-referring groups also were more likely to refer their patients for IMRT than other less costly treatments (e.g., radical prostatectomy or brachytherapy). Because Medicare providers are generally not required to disclose that they self-refer IMRT services, the GAO states that “beneficiaries may not be aware that their provider has a financial interest in recommending IMRT over alternative treatments that may be equally effective, have different risks and side effects, and are less expensive for Medicare and beneficiaries.” The GAO recommended that CMS require providers to disclose their financial interests in IMRT to their patients; which HHS does not support because, among other things, it could be complex to administer and would not address overutilization. HHS also noted that the President has proposed excluding certain services from the in-office ancillary services exception to the physician self-referral law.

Bill Introduced to Narrow Stark Exception for In-Office Services

This post was written by Paul Pitts and Rachel Golick.

A new bill introduced in the House on August 1, 2013 by Congresswoman Jackie Speier (D-CA) and Congressman Jim McDermott (D-WI) would dramatically narrow the in-office ancillary services (IOAS) exception to the Stark law for physician groups performing imaging, pathology radiation therapy and physical therapy services. The bill (“Promoting Integrity of Medicare Act of 2013”) would amend the IOAS exception by excluding “specified non-ancillary services” from its protection. Initially, the bill identifies the following services as “non-ancillary services” excluded from the IOAS exception: (a) pathology services; (b) radiation therapy services and supplies; (c) advanced imaging services (i.e., CT, MRI and PET); and (d) physical therapy services. If adopted, the bill would prohibit, for example, a physician ordering advanced imaging services for a Medicare beneficiary if the services are performed in the ordering physician’s offices. However, referrals of low-end imaging, such as x-ray or ultrasound, would still fall within the IOAS exception.

In addition, the bill would require enhanced CMS review of so-called “non-ancillary services” to identify those creating a high risk of Stark Law noncompliance, including using prepayment reviews, claims audits, focused medical review, or computer algorithms. The bill would also create higher penalties for referrals of “non-ancillary services” by imposing upon those referrals civil monetary penalties that are greater than the penalties currently authorized for other violations of the Stark law.

The bill was introduced after others in the federal government have criticized self-referral. A September 2012 study by the Government Accounting Office found that the number of advanced imaging services ordered by physicians increased when the services were performed in the referring physician’s office. The GAO recommended that CMS improve its ability to identify self-referral of advanced imaging services and address increases in these services. More recently, the Obama Administration’s proposed federal budget for fiscal year 2014 suggested excluding radiation therapy, therapy services, and advanced imaging from the IOAS exception, except in cases where a practice meets certain accountability standards. No action on the bill, the GAO recommendation or the Obama budget has been taken to date.

OIG Publishes Updated Provider Self-Disclosure Protocol

This post was written by Scot T. Hasselman and Susan A. Edwards.

The Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) has issued a revised version of its Provider Self-Disclosure Protocol (Updated SDP), dated April 17, 2013, which established a process for health care providers to voluntarily identify, disclose, and resolve instances of potential fraud involving federal health care programs.  Specifically, this protocol is intended to address:  (1) conduct involving potential false billings; (2) conduct regarding excluded persons; (3) conduct involving potential violations of the Anti-Kickback Statute (AKS); and (4) conduct involving potential violations of the AKS and the Stark Law.

The Updated SDP provides guidance on how to investigate the conduct described above, quantify damages, and report such conduct to OIG to resolve the provider’s liability under OIG’s civil monetary penalty authorities.  The document supersedes the previous OIG Provider Self-Disclosure Protocol issued in 1998 and three previous “Open Letters to Health Care Providers.”  The OIG notes that over the past 15 years, it has resolved over 800 disclosures, resulting in recoveries of more than $280 million to federal health care programs.  The Updated SDP reflects the OIG’s experience with the protocol since 1988, along with feedback it received from the public in response to a June 18, 2012 comment solicitation.  

A summary of the Updated SDP, highlighting notable statements and requirements, is available in our Client Alert.

CMS, OIG Propose Extension of Electronic Health Record Donation Protections

This post was written by Jennifer Pike.

CMS and the OIG have proposed new rules to extend existing protections that allow hospitals to donate electronic health record (EHR) technology to physicians who refer patients to their facilities. By way of background, in 2006, CMS established an exception to the Stark self-referral law to allow hospitals to donate EHR technology to physicians under certain circumstances. Likewise, in 2006, the OIG established a safe-harbor to protect such EHR donations from enforcement under the federal anti-kickback statute. While both protections are set to expire on December 31, 2013, the proposed rules would extend the provisions until the end of 2016 as a means to facilitate the adoption of EHR technology. The proposed rules also would (1) remove the requirement from the original rule that donated EHR technology contain electronic prescribing capability, and (2) update the provision under which EHR technology is deemed interoperable, which would expand the types of EHR systems that qualify for the protections. Comments on both proposed rules will be accepted until June 10, 2013.

Obama Administration's Proposed FY 2014 Budget Includes $401 Billion in Health Program Savings

Today, the Obama Administration released its proposed federal budget for fiscal year 2014. As widely reported, the budget incorporates an offer the President made to Congress in December 2012 to achieve nearly $1.8 trillion in additional deficit reduction over the next 10 years, including $401 billion in health savings (the Administration observes that this level of cuts would “provide more than enough deficit reduction to replace the damaging cuts required by the Joint Committee sequestration”).

Virtually all provider types – and drug manufacturers – would be impacted by the budget provisions, if adopted as proposed. The budget proposal is certainly subject to change during the legislative process, particularly as the House and Senate leadership pursue alternative budget frameworks, and indeed, gridlock could prevent significant action on entitlement reform this year. Nevertheless, the proposals bear careful monitoring because they could eventually be included in any long-elusive “grand bargain” to reform the Medicare program and reduce the federal debt.

Highlights of the Administration’s Medicare and Medicaid proposals include the following:

Medicare Provider Payments

  • Reform the Medicare physician fee schedule/sustainable growth rate (SGR) formula to provide stable payments followed by payment linked to participation in an “accountable payment model.”
  • Reduce Medicare coverage of bad debts from 65% generally to 25% over three years starting in 2014.
  • Reduce Medicare indirect medical education add-on payments by $11 billion over 10 years.
  • Reduce payment for post-acute care services in several ways.
    • Reduce payment updates for inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), skilled nursing facilities (SNFs), and home health agencies (HHAs) by 1.1 percentage points, beginning in 2014 through 2023 (the update could not fall below 0%). This provision would save $79 billion over 10 years.
    • Adjust the standard for classifying a facility as an IRF (at least 75% of patient cases admitted to an IRF must meet one or more of 13 designated severity conditions), saving about $2.5 billion over 10 years.
    • Equalize IRF and SNF payments for three conditions involving hips and knees, pulmonary conditions, as well as other conditions selected by the Secretary, saving $2.0 billion over 10 years.
    • Reduce by up to 3% payments to SNFs with high rates of care-sensitive, preventable hospital readmissions, beginning in 2017, saving $2.2 billion over 10 years.
    • Implement bundled payments for post-acute care providers (LTCHs, IRFs, SNFs, and HHAs) beginning in 2018. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates based on patient characteristics and other factors would be set to produce a permanent and total cumulative adjustment of -2.85% by 2020. Beneficiary coinsurance would equal levels under current law. This provision would save $8.2 billion over 10 years.
  • Align Medicare payments to rural providers with the cost of care, saving $2 billion over 10 years.
  • Align Medicare payment for clinical laboratory services with private sector rates and encourage electronic reporting of laboratory results.

Prescription Drug Provisions

  • Reduce payment for physician-administered Medicare Part B drugs from 106% of average sales price to 103% of average sales price. Manufacturers would be required to provide a specified rebate in certain instances as determined by the Secretary “to preserve access to care.”
  • Provide Medicaid-level drug rebates for brand name and generic drugs provided to beneficiaries who receive Part D low-income subsidies, saving $123 billion over 10 years.
  • Close the Medicare Part D donut hole by 2015, rather than 2020, by increasing manufacturer discounts to from 50% to 75% beginning in plan year 2015.
  • Lower Medicaid drug costs by clarifying the definition of brand drugs, excluding authorized generic drugs from average manufacturer price calculations for determining manufacturer rebate obligations for brand drugs, making a technical correction to the Affordable Care Act (ACA) alternative rebate for new drug formulations, and calculating Medicaid federal upper limits based only on generic drug prices. These proposals are projected to save $8.8 billion over 10 years. 
  • Encourage the use of generic drugs by Part D low-income subsidy beneficiaries by modifying copayments, saving approximately $7 billion over 10 years. 
  • Improve program integrity for Medicaid drug coverage by directing states to track high prescribers and utilizers of Medicaid prescription drugs; requiring manufacturers to make full restitution to states for any covered drug improperly reported by the manufacturer on the Medicaid drug coverage list; allowing more regular audits and surveys of manufacturers to ensure compliance with Medicaid drug rebate agreement requirements; requiring drugs to be electronically listed with the FDA to receive Medicaid coverage; and expanding penalties for reporting false information for the calculation of Medicaid rebates. 
  • Increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into “pay for delay” agreements and modifying the length of exclusivity on brand name biologics.

Program Integrity/Efficiency Provisions

  • Provide $640 million in combined mandatory and discretionary program integrity funding to implement activities that reduce payment error rates, prevent fraud and abuse, target high-risk services and supplies, and enhance civil and criminal enforcement for Medicare, Medicaid, and CHIP. 
  • Authorize civil monetary penalties or other intermediate sanctions for providers who do not update enrollment records and permit exclusion of individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs. 
  • Expand authority to investigate and prosecute allegations of abuse or neglect of Medicaid beneficiaries in additional health care settings.
  • Exclude radiation therapy, therapy services, and advanced imaging from the in-office ancillary services exception to the prohibition against physician self-referrals (Stark law), except in cases where a practice meets certain accountability standards, as defined by the Secretary.
  • Require prior authorization of advance imaging services.
  • Require prepayment review or prior authorization for power mobility devices.
  • Allow the Secretary to create a system to validate practitioners’ orders for certain high-risk items and services.

Other Medicare Provisions

  • Revise beneficiary cost-sharing requirements, including increased income-related premiums under Parts B and D, a new home health copayment, and increased premiums for beneficiaries with Medigap policies with particularly low cost-sharing requirements.
  • Increase the minimum Medicare Advantage (MA) coding intensity adjustment (which decreases MA plan payments to reflect differences in coding practices between Medicare fee-for-service and MA) and align employer group waiver plan payments with MA bids, saving $19 billion over 10 years. 
  • Strengthen the Independent Payment Advisory Board (IPAB) by reducing the target rate of Medicare cost growth from gross domestic product plus one percentage point to plus 0.5 percentage point.
  • Expand the availability of Medicare data released to physicians and other providers for performance improvement, fraud prevention, value-added analysis, and other purposes.

Medicaid Provisions

  • Base Medicaid rates for durable medical equipment on Medicare rates to save $4.5 billion over 10 years.
  • Align Medicaid Disproportionate Share Hospital (DSH) payments with expected levels of uncompensated care to save $3.6 billion over 10 years. 
  • Affirm Medicaid’s position as a payer of last resort when another entity is legally liable to pay claims.

A 131-page Department of Health and Human Services (HHS) “Budget in Brief” summary discusses these provisions in greater detail, and also addresses other HHS agency budget proposals and discusses HHS’s implementation of private health insurance protections and programs under the ACA.

GAO Report Examines Medicare Costs From Self-Referrals of Advanced Imaging Services

A recent GAO report examines the growing prevalence of physician self-referral (referral to the physician’s own practice) for advanced imaging services (e.g., magnetic resonance imaging (MRI) and computed tomography (CT) services) and its effect on Medicare spending. The GAO reports that while the number of both self-referred and non-self-referred advanced imaging services increased from 2004 through 2010, the growth rate was much higher for self-referred services. For instance, the number of self-referred MRI services increased by more than 80% during this period, compared to a 12% growth rate for non-self-referred MRI services. Self-referring providers referred about twice as many MRI and CT services as providers who did not self-refer in 2010, and these differences persisted even after accounting for practice size, specialty, geography, or patient characteristics. The GAO also found that providers' referrals of MRI and CT services substantially increased the year after they purchased or leased imaging equipment or joined a group practice that self-referred. The GAO estimates that providers who self-referred likely made 400,000 more referrals for advanced imaging services in 2010 than they would have if they were not self-referring, increasing Medicare costs by about $109 million. The GAO points out that any unnecessary referrals “pose unacceptable risks for beneficiaries, particularly in the case of CT services, which involve the use of ionizing radiation that has been linked to an increased risk of developing cancer.” The GAO recommends that CMS take steps to improve its ability to identify self-referral of advanced imaging services and address increases in these services, including: inserting a self-referral flag on Medicare Part B claims form to indicate whether or not an advanced imaging service is self-referred; implementing a payment reduction for self-referred advanced imaging services to “recognize efficiencies when the same provider refers and performs a service”; and determining how to ensure the appropriateness of advanced imaging services referred by self-referring providers.

CMS Releases Information on Physician Self-Referral Prohibition Exception Process for Physician-Owned Hospitals

The final CY 2012 Medicare Outpatient Prospective Payment System (OPPS) final rule implemented a statutory mandate that CMS develop an exceptions process related to the ACA’s prohibition on expanding an existing physician-owned hospital’s facility capacity. The rule provided that in order to be eligible for an exception, the physician-owned hospital must satisfy eligibility criteria to qualify as an “Applicable Hospital” or “High Medicaid Facility.” CMS has published additional guidance addressing the process for accessing data, along with sample computations for determining whether a hospital satisfies the respective criteria.

Self-Disclosure Protocol Under Stark Act

As mandated by Section 6409 the ACA, CMS has released its Medicare self-referral disclosure protocol (SRDP). The SRDP sets forth a process to enable providers and suppliers to self-disclose actual or potential violations of the physician self-referral statute (known as the “Stark Act”). Under the SRDP, providers or suppliers would submit all information necessary for CMS to analyze the actual or potential Stark Act violations. The Secretary is authorized to reduce the amount due for violations of the Act based on certain factors, including timely self-disclosure. 

House Approves Stark Legislation to Enhance Medicare Fraud Authorities

On September 23, 2010, the House of Representatives approved H.R. 6130, the Strengthening Medicare Anti-Fraud Measures Act. The legislation, which was introduced by Reps. Pete Stark and Wally Herger, Chairman and Ranking Member of the House Ways and Means Health Subcommittee, would allow the OIG to exclude certain corporate executives from doing business with Medicare if their companies were convicted of fraud after the executive has left the company. The bill also would allow the OIG to exclude parent companies that commit fraud through “shell” companies. The legislation is still awaiting Senate action.

Medicare Referral Prohibition Regulation Correction

On September 15, 2010, CMS published a notice correcting current regulatory language regarding exceptions to the referral prohibition related to compensation arrangements. Specifically, CMS is correcting language in 42 CFR Sec. 411.357 related to the exception for certain rentals of office space.

FTC/CMS/OIG Workshop on Accountable Care Organizations (Oct. 5, 2010)

On October 5, 2010, the FTC, CMS, and the OIG are holding a workshop on accountable care organizations (ACOs). These organizations, authorized by the ACA, are designed to deliver high-quality and efficient health care services to consumers. The workshop is intended to assess how the variety of possible ACO structures in different health care markets could affect the prices and the quality of health care delivered to privately insured consumers, as well as to Medicare and Medicaid beneficiaries. The workshop also will address antitrust, physician self-referral, anti-kickback, and civil monetary penalty considerations associated with the various ACO models, and whether safe harbors, exceptions, exemptions, or waivers from these laws may be warranted. Physicians, physician associations, hospitals, health systems, payers, consumers, and other interested parties are invited to participate in the workshop. The deadline for registration and submission of comments to be considered for discussion at the workshop is September 27, 2010.  The workshop is scheduled to be webcast.

* * Transcripts from the ACO workshop are now available.

CMS Proposes CY 2011 HOPPS/ASC Rates, Revises 2010 Rates

On July 2, 2010, CMS released its proposed rule updating the Medicare hospital outpatient prospective payment system (HOPPS) and the ambulatory surgical center (ASC) payment system rates and policies for calendar year (CY) 2011. The official version of the rule is scheduled to be published in the Federal Register on August 3, 2010. Comments on the proposed rule will be accepted until August 31, 2010. CMS expects to issue a final rule by November 1, 2010, which will be effective for services furnished on or after January 1, 2011. Highlights of the rule are available after the jump.

  • CMS estimates that the rule would increase HOPPS rates by 2.2% in 2011 compared to 2010 (the increase is 2.1% when cancer and children’s hospitals and community mental health centers are excluded). This update reflects a provision of the Affordable Care Act (ACA) that imposes a 0.25 percentage point reduction to the HOPPS update for CY 2011. Note that the impact of the policy and payment provisions of the proposed rule on payment for individual procedures varies.
  • The HOPPS update is reduced by 2.0 percentage points for certain hospitals that do not meet quality reporting requirements. CMS is proposing to expand the set of measures that must be reported by hospital outpatient departments (HOPDs) to qualify for the full payment update. To allow hospitals more time to prepare, CMS is proposing measures for reporting in CYs 2011 through 2013. Among other things, CMS is proposing to add six quality measures to the current 11 measures to be reported by HOPDs in CY 2011 for purposes of CY 2012 payment, including one structural health information technology measure, four claims-based imaging efficiency measures, and one chart-abstracted measure for emergency departments.
  • CMS proposes to increase the threshold for separate payment of hospital outpatient drugs and biologicals to those with a cost-per-day that exceeds $70, up from $65 currently. Payment for separately-payable drugs and biologicals without pass-through status would equal the average sales price (ASP) plus 6% (compared to the current rate of ASP plus 4%). This amount reflects the cost of separately-payable drugs and biologicals, calculated from hospital claims and cost reports, with an adjustment for pharmacy overhead cost that reflects the redistribution of $200 million of pharmacy overhead costs currently attributed to packaged drugs and biologicals to separately-payable drugs and biologicals.
  • The proposed rule would modify the supervision requirements for outpatient therapeutic services to require direct supervision of the initiation of a service followed by general supervision for certain non-surgical, extended-duration services, including observation services.
  • CMS would implement a number of ACA provisions related to limitations on certain physician referrals to hospitals in which they have an ownership or investment interest (and related changes to provider agreement regulations); payments to hospitals for direct graduate medical education and indirect medical education costs; waiver of beneficiary cost-sharing for preventive services; and payment adjustments for certain cancer hospitals.
  • With regard to ASC services, CMS estimates that the ASC update factor for CY 2011 would be 1.6%; however, this update would be entirely offset by a “multi-factor productivity” (MFP) adjustment mandated by the ACA, which CMS estimates will be 1.6% for 2011. The MFP adjustment is designed to encourage more efficient care by reducing Medicare reimbursement by the 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity, as reported by the Bureau of Labor Statistics. Consequently, CMS is proposing a 0% update to the ASC payment system for CY 2011. CMS also is proposing to add five surgical procedures to the list of covered ASC procedures, designate six procedures as office-based procedures, and update the list of covered ancillary services. The proposed rule also would implement an ACA provision waiving beneficiary copayments for certain preventive services under the ASC payment system.

In a related development, CMS has released a notice modifying the final 2010 HOPPS and ASC rules to reflect provisions of the ACA applicable to 2010 rates, including a 0.25% reduction to the HOPPS update for 2010. CMS estimates that the revised update to the HOPPS conversion factor and other adjustments as provided by the statute will decrease total HOPPS payments by 0.1% in CY 2010 compared to payment rates under the November 20, 2009 final rule, while CMS expects no change in aggregate ASC expenditures under the notice. CMS also issued a final rule making technical changes to the final 2010 HOPPS/ASC rule; the official version of both documents will be published in the August 3, 2010 Federal Register. 

Final CY 2010 Medicare Physician Fee Schedule Rule Released

The Centers for Medicare & Medicaid Services (CMS) has released its final rule updating the Medicare physician fee schedule (MPFS) for calendar year (CY) 2010. Most notably, the final rule calls for a 21.2% across-the-board cut in MPFS paymentsfor 2010 due to the statutory sustainable growth rate (SGR) formula (CMS had forecast a 21.5% cut in the proposed rule). For 2010, the SGR formula results in a conversion factor of $28.4061, compared to the 2009 conversion factor of $36.0666. [NOTE:  CMS subsequently published a notice correcting the conversion factor; the new conversion factor is $28.3895].   As noted above, Congressional leaders are seeking a legislative solution to block the pending cut, but the outcome of these reform efforts are not certain at this time. CMS did exercise its administrative authority to remove drugs from the definition of “physicians’ services” for purposes of the SGR formula, which CMS expects will reduce the number of future years in which physicians are projected to experience a negative update under the SGR formula, but which does not impact 2010 rates. The sweeping rule affects a wide range of other Medicare policies, as discussed after the jump.

  • CMS is cutting technical component payments for certain non-hospital imaging procedures by changing the imaging equipment usage assumption for equipment priced over $1 million from the current 50% usage rate to a 90% usage rate, which will reduce per procedure practice expense (PE) relative value units (RVUs) -- and thus the per procedure technical component reimbursement -- for services using such imaging equipment).   In the final rule, CMS decided only to apply this change to MRIs and CTs. The payment cut will be transitioned with full implementation not for four years. Beginning 2010, 75% of the practice expense is paid based on the old usage rate with full implementation in 2013. CMS also has adopted provisions to begin implementing the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) provision mandating an accreditation process for entities furnishing the technical component of certain advanced diagnostic testing procedures by January 1, 2012. CMS also is publishing a separate notice inviting independent accreditation organizations to participate in the accreditation program. 
  • The final rule revises the Electronic Prescribing Incentive Program and the Physician Quality Reporting Initiative (PQRI) to, among other things, simplify e-prescribing reporting requirements, provide additional reporting options (including an electronic health record-based reporting mechanism), allow group practices to be considered successful e-prescribers; and expand PQRI quality measures. 
  • CMS is adopting its proposal to refine malpractice RVUs to redirect payment to physicians with the highest malpractice costs.
  • CMS is ending payment for consultation codes and instead requiring use of evaluation and management (E/M) codes. Note that under the final rule, CMS is making an exception to this policy for telehealth consultations and maintaining payment for G-codes used to bill for these consultations. Savings from the discontinuation of consultation codes are being redistributed to increase payments for the existing E/M services and to the payment for the surgical global period.
  • The final rule clarifies the "stand in the shoes" standard for considering compensation arrangements under Stark.
  • CMS is establishing a process for submitting claims for damages caused by the MIPPA provision terminating contracts awarded in 2008 under the durable medical equipment, prosthetic, orthotic and supplies (DMEPOS) competitive bidding program, and making changes in the “grandfathering” rules for noncontract suppliers. CMS is also finalizing policy changes regarding maintenance and servicing of oxygen equipment. 
  • The rule provides that the annual per beneficiary outpatient therapy caps for CY 2010 will be $1860 each for (1) outpatient physical therapy and speech-language pathology services combined, and (2) outpatient occupational therapy services. CMS also notes that its authority to provide for exceptions to therapy caps will expire on December 31, 2009, unless the Congress acts to extend it.
  • The final rule implements a variety of other Part B policies, including provisions that: establish Medicare coverage of cardiac and pulmonary rehabilitation services and chronic kidney disease education; update end-stage renal disease (ESRD) facility rates; require authorized compendia used to determining medically-accepted indications of drugs and biologicals used off-label in anti-cancer chemotherapeutic regimens to have a transparent process to evaluate therapies and identify potential conflicts of interests; revise certain requirements under the Part B drug competitive acquisition program. 

The official version of the rule is scheduled to be published in the Federal Register on November 25, 2009. CMS will accept comments on certain provisions of the final rule until December 29, 2009. Specifically, CMS is accepting comments on the following issues: interim RVUs for selected codes, the physician self-referral designated health services, services for consideration for the Five-Year Review of work RVUs, and whether additional guidance is needed regarding CMS’s policy regarding services provided under arrangement.  

Older Entries

November 4, 2008 — Medicare Physician Fee Schedule Final CY 2009 Rule