The Senate has adjourned until April 13, 2015 without taking action on the House-approved Medicare Access and CHIP Reauthorization Act, which would repeal the Sustainable Growth Rate (SGR) formula, reform Medicare physician payments, and make other policy changes. In the interim, the 21.2% physician fee schedule cut mandated by the SGR will be triggered for services furnished on or after April 1, 2015. In a recent update, CMS reminded providers that electronic claims are not paid earlier than 14 calendar days (29 days for paper claims) after the date of receipt, so applicable claims will be held at least until the Senate returns, but the timing of any Senate action is still unclear. CMS intends to provide an update by April 11, 2015 on the status of Congressional action to avert the negative update and the agency’s next steps.
Repeals SGR Formula, Adopts Medicare and Other Policy Changes
Today the U.S. House of Representatives approved a major Medicare package, the Medicare Access and CHIP Reauthorization Act (MACRA), which would reform Medicare reimbursement policy for physician fee schedule services and adopt a series of policy changes affecting a wide range of providers and suppliers.
Most notably, the bill would repeal the statutory Sustainable Growth Rate (SGR) formula, which has called for deep cuts in Medicare rates in recent years, but Congress has routinely stepped in to override the full application of the formula. Instead, after a period of stable payment updates, MACRA would link physician payment updates to quality and value measurements and participation in alternative payment models. MACRA also would extend certain expiring Medicare and other health policy provisions, including a two-year extension of the Children’s Health Insurance Program.
To finance these provisions, MACRA would reduce Medicare market basket updates for post-acute care providers, revise Medicare inpatient hospital payment rate updates, restructure Medicaid disproportionate share hospital (DSH) reductions, require additional income-related adjustments for Medicare Part B and part D premiums, and bar first-dollar Medigap coverage policies.
Finally, the bill includes a number of other health policy provisions, including: new program integrity policies (including eliminating civil money penalties for inducements to physicians to limit services that are not medically necessary); a requirement that suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) that bid in a competitive bidding program obtain a bid surety bond that would be forfeited if the supplier does not accept a contract under certain circumstances; a delay in enforcement of the “two midnight” inpatient status policy; and revisions to Medicare payment for global surgical packages (including blocking a CMS decision to eliminate 10- and 90-day global surgical packages).
President Obama has promised to sign the bill if approved by the Senate. Timing is critical given that the latest short-term SGR “fix” expires at the end of the month, and physicians face a 21% across-the-board cut on April 1, 2015 in the absence of Congressional action.
The Medicare Payment Advisory Commission (MedPAC) has released its annual recommendations to Congress on Medicare policies, including Medicare fee-for-service (FFS) payment updates and a status report on the Medicare Advantage and Medicare Part D programs. The following are highlights of the recommendations for 2016 (many of which were recommended previously):
- With regard to physician services, Congress should repeal the Sustainable Growth Rate (SGR) methodology for physician services and replace it with a 10-year path of statutory updates that includes a higher rate update for primary care services than for specialty care services (note that Congress may take up SGR reform legislation as early as this month, before the latest temporary patch expires and a 21.2% fee schedule cut goes into effect April 1, 2015). In addition, Congress should direct the Department of Health and Human Services (HHS) Secretary to increase shared savings opportunities for physicians and health professionals in two-sided risk accountable care organizations (ACOs). MedPAC also endorsed the collection of data to establish more accurate work and practice expense values, along with reductions to the relative values for overpriced fee-schedule services to reduce fee schedule spending by at least 1% annually for each of five consecutive years. Congress also should establish a prospective per beneficiary payment to replace the Primary Care Incentive Payment program (which provides a 10% bonus payment for certain primary care practitioner services) after it expires at the end of 2015.
- MedPAC recommends a 3.25% update to inpatient and outpatient hospital payment rates for 2016, concurrent with changes to the outpatient payment system and the long-term care hospital (LTCH) payment system. Specifically, MedPAC calls on Congress to direct the Secretary to reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory payment classifications. Second, MedPAC recommends reducing payment for LTCH services furnished to patients whose illness is not characterized as chronically critically ill (CCI) to the same rate that an acute care hospital would be paid for such care; savings from this provision would fund an outlier pool for acute care hospitals that treat costly CCI patients (this provision would be phased in from 2016 to 2018).
- Congress should eliminate the skilled nursing facility (SNF) market basket update. Congress also should direct the Secretary to revise the SNF prospective payment system (PPS) to rely on patient characteristics and begin a process of rebasing a year after these revisions are implemented, with an initial reduction of 4% and subsequent reductions until Medicare’s payments better align with providers’ costs.
- Congress should eliminate the fiscal year 2016 Medicare rate update for inpatient rehabilitation facilities (IRFs) and direct the Secretary to eliminate payment differences between IRFs and SNFs for selected conditions, with IRF payment reductions phased in over 3 years. IRFs also should receive relief from regulations specifying the intensity and mix of services for site-neutral conditions.
- Congress should eliminate the ambulatory surgical center (ASC) payment update for 2016 and require ASCs to submit cost data.
- Congress should direct teliminate the home health market basket update for 2016, rebase rates, revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services, and expand medical review activities and exercise program integrity authorities. In addition, Congress should direct the Secretary to reduce payments to HHAs with relatively high risk-adjusted rates of hospital readmission and establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use.
- Congress should eliminate the 2016 update for LTCHs, hospices, and outpatient dialysis services.
While MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies.
CMS has posted a January 2015 release of the National Physician Fee Schedule Relative Value File, reflecting a conversion factor (CF) of $35.7547 – down slightly from the $35.8013 included in the 2015 final MPFS rule published on November 12, 2014. CMS is expected to publish a notice explaining the reasons for the revised CF. CMS had previously announced that it is holding Medicare physician claims for services furnished during the first two weeks of 2015 because of unspecified errors found in the MPFS final rule. The claims hold is not expected to actually disrupt cash flow since clean electronic claims are not processed for 14 days anyway.
Note that the new CF applies only to services provided during the first three months of 2015, as a result of a temporary patch included in the Protecting Access to Medicare Act (PAMA) of 2014. On April 1, 2015, the conversion factor is scheduled to be adjusted according to the statutory Sustainable Growth Rate (SGR) formula, resulting in an estimated 21.2% reduction -- unless Congress steps in and establishes an alternative conversion factor or otherwise reforms the SGR formula. Congress is expected to attempt to adopt a measure to prevent the scheduled April 1 SGR reduction from taking place.
On December 16, 2014, Congress gave final approval to H.R. 5771, a tax extender bill that includes the “Achieving a Better Life Experience (ABLE) Act of 2014.” The ABLE Act provisions allow individuals with disabilities to establish tax free savings accounts to pay for qualified expenses (e.g. medical, post-secondary education, housing, and transportation expenses). Prior to House consideration, three Medicare “offsets” were added to help pay for the bill – despite the concerns among a number of lawmakers about the need to reserve such offsets for helping to pay for future Medicare physician fee schedule (MPFS) sustainable growth rate formula reform legislation. The three Medicare provisions would: (1) accelerate the start date for payment adjustments for MPFS misvalued services to 2016 and revise the annual targets (saving $365 million); (2) prohibit Medicare coverage of vacuum erection systems until such time as Medicare covers erectile dysfunction drugs under Part D (saving $444 million); and (3) delay implementation of oral-only end stage renal disease (ESRD)-related drugs in the ESRD PPS until January 1, 2025. The bill is now awaiting the President’s signature.
In early April, Reed Smith hosted an enlightening, industry-leading conference on post-acute care in Washington, D.C. The conference, entitled “Reed Smith 2014 Washington Health Care Conference: Focus on Post-Acute Care," brought together a panel of experts to discuss episodic care, bundling models, and alternative payment and delivery systems. The conference also featured other speakers who presented from the perspective of investors and Capitol Hill, along with a keynote address from American Enterprise Institute resident scholar Dr. Norman Ornstein.
Policy Discussion on Payment Models
The conference started with a panel discussing bundling initiatives and other alternative payment models. The panel featured Barbara Gage, Ph.D., Fellow and Managing Director of Engelberg Center for Health Care Reform at the Brookings Institution; Judy Feder, Ph.D., Professor at Georgetown University; Vincent Mor, Ph.D., Professor at Brown University School of Medicine; and James Michel, Director for Medicare Research & Reimbursement at the American Health Care Association (“AHCA”). The panel brought with them decades of experience in health care policy and research, and a deep knowledge of post-acute care providers’ current reimbursement systems, in addition to models expected to reform payment for post-acute services in the future.
Dr. Gage spoke first, and introduced bundling by discussing the triple aim adopted by the Centers for Medicare & Medicaid Services (“CMS”): achieve better care for patients, better communities’ health, and lower costs by improving the health care system. She explained how new payment models—including bundled payment initiatives and accountable care organizations—strive to accomplish the above-mentioned triple aim. Gage discussed whether the post-acute setting in which a patient receives treatment distinguishes the patient’s outcome and the level of resources that different post-acute settings (e.g., home health, skilled nursing facilities (“SNF”), inpatient rehabilitation facilities (“IRF”), or long-term acute care hospitals (“LTCH”)) furnish to patients. Gage described in great detail the arguments in favor of bundled payments, emphasizing that one of the benefits of a bundled payment model is that it forces communication across all care settings.
Dr. Feder, on the other hand, urged caution as reimbursement moves to new models. She stressed that bundled payment models, for example, create powerful incentives to potentially reduce or limit the care furnished to patients, and therefore could result in reduced quality of care. Feder explained that bundling is not new, and that, e.g., payers have bundled in the inpatient hospital setting for 30 years. Feder pointed out that when Medicare implemented diagnosis-related groups in the inpatient hospital prospective payment system, hospital length of stay “dropp[ed] like a stone.” Feder underscored that the biggest challenges arise from patients whose health is deteriorating, and explained that the number of home health visits, for instance, are the lowest when patient acuity is the highest. In order to ensure adequate, appropriate, and high-quality care for patients, Feder suggested that policymakers thoughtfully develop and implement any new payment system over time, and incorporate quality mechanisms that serve to protect patients. Feder suggested that good patient data and strong accountability measures are essential to any bundled payment program.
After Feder spoke, Dr. Mor took the podium and analogized capitation versus fee-for-service as being “between the devil and the deep blue sea.” He further explained that fee-for-service reimbursement models have encouraged runaway costs and increased utilization, and that there is a lack of provider accountability and responsibility. In contrast, he explained that in capitation reimbursement models, there is an inherent incentive to deny care. Mor discussed how policymakers can ensure patients receive quality care from providers, and raised a number of thought-provoking questions, such as whether a SNF or other post-acute provider should be responsible for rehospitalization after the discharge of a patient, and whether low rehospitalization reflects overall high-quality care. Mor urged the development of a common assessment tool that includes hospital assessment data in order to more accurately measure post-acute quality and case-mix. He also recommended that CMS use the “Welcome to Medicare” assessment and other periodic beneficiary assessments to obtain risk profiles for patients. Mor ended his presentation by suggesting that while capitation models—such as bundling—are preferable to fee-for-service because one entity is responsible for patients’ care, capitation models face challenges as well, including how to properly measure case-mix and outcomes.
James Michel from AHCA noted the operational challenges associated with bundled payments. For example, it is difficult for post-acute providers to assume the responsibility for patients after the post-acute provider discharges a given beneficiary. Michel also stated that the Center for Medicare & Medicaid Innovation Bundled Payments for Care Improvement initiative’s models incentivize low-cost providers to participate, but providers who recognize they have higher costs than the community average will not participate because of the risk that they will miss the spending target, resulting in a payment to the government. Michel noted that AHCA has developed its own bundled payment proposal, in part to preserve a process in which patients and their families can decide where the patient should be treated after an acute stay. The AHCA bundled payment proposal includes four proposed episodes (e.g., major respiratory condition and septicemia) that would account for approximately 60 percent of all SNF care and more than 50 percent of all post-acute care.
Wall Street Perspective
Jay Barnes, a Senior Vice President for Healthcare Investment Banking at Jefferies, LLC, spoke from the Wall Street perspective, addressing the current appetite for deals in the post-acute space. He described a tepid outlook for post-acute investment stemming from the uncertainty of the future payment models and the changing regulatory landscape, particularly with regard to LTCHs. He informed attendees that the private equity market has been non-existent in the post-acute space because it is challenging to create projection models when future reimbursement for post-acute care remains murky. He explained that the post-acute transactions occurring are largely driven by real estate. For example, Barnes described the recently announced Emeritus Senior Living and Brookdale Senior Living merger as driven by real estate.
Cate McCanless, Senior Policy Analyst at Brownstein Hyatt Farber Schreck, provided an insightful overview of Medicare activity on Capitol Hill. She explained that Congress has focused on post-acute care because of the perceived “comfortable” margins achieved by post-acute providers (according to the Medicare Payment Advisory Commission). McCanless also described the outlook for the discussion draft of the Improving Medicare Post-Acute Care Transformation (“IMPACT”) Act of 2014, released by the House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Ranking Member Sandy Levin (D-Mich.), along with Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Ranking Member Orrin Hatch (R-Utah), March 18, 2014. The IMPACT Act draft includes one measure discussed by Mor during the bundling panel: the reporting of common data across post-acute providers, and the required reporting by acute-care hospitals of patient assessment data gathered in advance of discharge. McCanless also explained that while there has been some Congressional momentum in eliminating Medicare's sustainable growth-rate (“SGR”) formula in order to move to an alternative payment model, such momentum may lose steam this year now that a temporary patch has been enacted, because eliminating the SGR would be expensive, and it is an election year. McCanless pointed out certain post-acute policy proposals that would result in cost savings, such as reducing the SNF payment update by 1.1 percent, which would save an estimated $12 billion, and equalizing certain payments for SNFs and IRFs, which would save an estimated $1 billion; these provisions could be targets for offsets for future Medicare reforms.
Impact of Political Polarization on Health Policy
Dr. Norman Ornstein, noted observer of Congress and politics, and keynote speaker at Reed Smith’s inaugural Health Care Conference, closed the session with a thoughtful discussion regarding the current state of American politics. He described not just the polarization, but also the tribalism, of American politics today, depicting a broken American political system where opposing parties have adopted a mantra of, “if you support it, I am against it.” Despite Ornstein’s bleak description of the current state of politics, he offered some suggestions for reform, including incentivizing citizens to vote. He argued that if more of the American public is engaged, politicians must meet in the middle on at least some policy debates.
In all, the inaugural Reed Smith Health Care Conference led to provocative discussions and a deeper understanding of the political climate and policy recommendations likely to impact—or even transform—post-acute care in the not-so-distant future. We look forward to next year’s conference.
On April 1, 2014, President Obama signed into law H.R. 4302, the “Protecting Access to Medicare Act of 2014” (“the Act”). The Act includes a one-year Medicare physician fee schedule fix that averts a nearly 24 percent payment cut set for April 1, 2014, but which falls far short of earlier hopes for full repeal of the current sustainable growth rate (SGR) formula. The Act also includes numerous other Medicare payment and policy changes, including skilled nursing facility value-based purchasing provisions, reforms to the physician fee schedule relative valuation process, a new framework for clinical laboratory payments, a variety of changes impacting imaging services, changes in the exceptions for long term care hospitals, and extension of certain expiring provisions. In other areas, the bill includes a one-year delay in the transition to ICD-10, changes to the timetable for Medicaid disproportionate share hospital cuts, and “front-loading” of the 2024 Medicare sequestration reduction.
For more information, read our summary of major provisions of the Act.
The Medicare Payment Advisory Commission (MedPAC) has released its annual report to Congress on Medicare payment policy, including payment update recommendations for all the major Medicare fee-for-service payment (FFS) systems, limited recommendations related to the Medicare Advantage (MA) program, and a status report on the Medicare Part D program. The following are highlights of the recommendations for 2015 (many of which were recommended previously):
- MedPAC recommends a 3.25% update to inpatient and outpatient hospital payment rates, concurrent with two changes that would institute site-neutral payments among settings. First, Congress should direct the HHS Secretary to reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory payment classifications. Second, MedPAC recommends reducing payment for long-term care hospital (LTCH) services furnished to patients whose illness is not characterized as chronically critically ill (CCI) to the same rate that an acute care hospital would be paid for such care; savings from this provision would fund an outlier pool for acute care hospitals that treat costly CCI patients.
- Congress should repeal the sustainable growth rate (SGR) system for physician services and replace it with a 10-year path of statutory updates that includes a higher update for primary care services than for specialty care services. MedPAC also endorsed the collection of data to establish more accurate work and practice expense values; budget-neutral changes to improve data on which relative value unit weights are based and to redistribute payments from overpriced to underpriced services; and relative value unit reductions to achieve fee schedule savings.
- Congress should eliminate the ambulatory surgical center (ASC) payment update for 2015, require ASCs to submit cost data, and direct the Secretary to implement a value-based purchasing program for ASCs by 2016.
- Congress should eliminate the skilled nursing facility (SNF) market basket update. Congress also should direct the Secretary to revise the prospective payment system for SNFs and begin a process of rebasing with an initial reduction of 4% and subsequent reductions until Medicare’s payments better align with providers’ costs. Moreover, Congress should direct the Secretary to reduce payments to SNFs with relatively high risk-adjusted rates of rehospitalization during Medicare-covered stays.
- MedPAC reiterates previous recommendations to rebase home health rates, eliminate the market basket update, revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services, and establish a per episode copay for home health episodes not preceded by hospitalization or post-acute care use. In addition, Congress should direct the Secretary to reduce payments to home health agencies with relatively high risk-adjusted rates of hospital readmission.
- Congress should eliminate the update to hospice rates for FY 2015 and adopt a series of previous MedPAC payment reform recommendations.
- Congress should eliminate the 2015 updates for outpatient dialysis services and direct the Secretary to establish a quality measure that assesses poor outcomes related to anemia in the End-Stage Renal Disease Quality Incentive Program, revise the low-volume adjustment, and audit dialysis facilities’ cost reports.
- Congress should eliminate the FY 2015 payment updates for inpatient rehabilitation facilities and LTCHs.
- With regard to Medicare Advantage (MA), MedPAC recommends that Congress: (1) direct the Secretary to determine payments for employer-group MA plans in a manner more consistent with the determination of payments for comparable non-employer group plans; and (2) include the Medicare hospice benefit in the MA benefits package beginning 2016.
Note that while MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies.
The clock is winding down for Congress to pass Medicare sustainable growth rate (SGR) formula reform legislation before the latest temporary spending patch expires at the end of the month and doctors again face steep cut in Medicare physician fee schedule (MPFS) payments. While there had been high hopes for a permanent reform once key committee leaders reached agreement on a bipartisan, bicameral SGR reform bill, financing the roughly $180 billion package (including funding for various expiring Medicare provisions) has been the sticking point. When the House of Representatives approved its version of the bill on March 14 (H.R. 4015), it relied on savings attributed to repeal of the ACA individual insurance mandate to finance the bill – a proposal which drew a veto threat from the Administration and which will not be considered by the Senate. On the other hand, Senate Finance Committee Chairman Wyden has suggested offsetting the costs by capturing savings from “overseas contingency operations” funds (future war spending that is not expected to be expended) or not offsetting the costs – neither of which would pass the House. Given this impasse, lawmakers are exploring another temporary fix, potentially through the end of 2014, with offsets for the smaller package likely to come from reductions in other Medicare spending. If Congress does not reach an agreement, MPFS payments will be subject to an approximate 24% cut on April 1, 2014 (although CMS announced in the final MPFS rule the conversion factor would be reduced by 20.1%, the Congressional Budget Office estimates that given other adjustments in the rule, the effective update to physician payments for 2014 will be a reduction of 23.7% if the rule goes into effect).
The bipartisan leadership of the House Energy and Commerce Committee, House Ways & Means Committee, and Senate Finance Committee have released a consensus Medicare physician fee schedule reform bill expected to be considered by Congress before the latest temporary payment patch expires at the end of March. Highlights of H.R. 4015, the SGR Repeal and Medicare Provider Payment Modernization Act, include the following:
- The bill would repeal the statutory “Sustainable Growth Rate” (SGR) provision, which has called for deep cuts in Medicare rates in recent years. Congress has routinely stepped in to override the full application of the formula – most recently replacing a 20.1% cut scheduled to go into effect January 1, 2014 with a 0.5% update for the first three months of 2014 – but H.R. 4015 would offer a permanent fix.
- For five years (2014-2018) the bill would provide annual Medicare physician fee schedule updates of 0.5% during a transition period to a new quality-based system (thus for 2014, the temporary 0.5% update in place through March would be extended for the full year).
- Three current physician quality programs would be consolidated into a single value-based program called the “Merit-Based Incentive Payment System,” which starting in 2018 would tie payment to performance in four categories: quality; resource use; electronic health record meaningful use; and clinical practice improvement activities. Quality measures will be developed and updated in consultation with physicians and other stakeholders.
- The bill would provide bonus payments to providers who receive a significant portion of their revenue from an alternative payment model (APM) or patient centered medical home (PCMH); the threshold would begin at 25% in 2018 and increase over time.
- The measure includes a number of other provisions designed to improve payment accuracy for individual provider services, promote appropriate use criteria for certain advanced diagnostic imaging services, expand care coordination for individuals with chronic care, and expand the use of Medicare data for transparency and quality improvement.
A formal budget estimate for the package has not yet been released, although earlier versions of the plans have had 10-year costs of more than $121 billion over 10 years. The Committees have not yet identified what “offsets” would be used to pay for the package, but cuts impacting a broad range of health care provider types, health plans, and drug manufacturers have all been unofficially floated as options.
On February 11, 2014, Congress approved a one-year extension of Medicare sequestration cuts as part of a bill (an amendment to S. 25) to restore certain military retiree pension benefits. Under the legislation, current 2% across-the-board cuts to Medicare provider payments would be extended through 2024 (instead of 2023). While the savings from the sequestration extension would primarily be used to finance the military pension benefits, $2.3 billion would be set aside to help finance pending Medicare physician fee schedule reform legislation (a fraction of the estimated cost of reform). The measure now awaits the President’s signature.
There is obviously hope that Congress will reach an alternative budget solution in the intervening years before the sequestration extension would be imposed. Nevertheless, this is the second time in two months that Congress has turned to an extension of Medicare sequestration as a funding mechanism -- a troubling new trend for Medicare providers.
The Congressional Budget Office (CBO) has raised the specter that pending legislation to reform the Medicare physician fee schedule statutory update formula could increase the likelihood that the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) mechanism would be triggered – potentially resulting in as much as $0.6 billion in Medicare provider cuts during the 2015-2023 period.
As previously reported, House and Senate panels are proceeding with plans to reform the unpopular “sustainable growth rate” (SGR) formula – the statutory provision that outlines how Medicare physician fee schedule rates are updated annually. In recent years, the formula has called for deep cuts in Medicare rates – although Congress has routinely stepped in with temporary patches to avert the full application of the formula. Most recently, the SGR contributed to a 20.1% cut in the Medicare physician fee schedule update for 2014 – but Congress approved the Bipartisan Budget Act of 2013 in December to replace that cut with a 0.5% increase for services provided only during the first three months of 2014. The temporary patch is intended to give lawmakers time to finalize pending bipartisan proposals to permanently repeal the SGR policy and replace it with a period of stable payment followed by reimbursement linked to quality of care.
Congressional panels tasked with drafting the SGR legislation have not yet revealed how they intend to pay for the costs of their bills. In the absence of such offsets, the CBO has estimated that the version of the legislation approved by the House Ways and Means Committee in December (H.R. 2810) would increase spending by about $121 billion over the 2014-2023 period, while the Senate Finance Committee package (S. 1871) would increase direct spending by $150.4 billion during that period. According to the CBO, such spending increases would result in the IPAB mechanism being triggered.
By way of background, under the ACA, the IPAB is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based on inflation and growth in the economy, beginning in 2015. IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). The IPAB is barred from submitting proposals that reduce Medicare payments prior to 2020 for providers that had reimbursement cuts under the ACA beyond a productivity adjustment (such as acute care hospitals, long-term care hospitals, inpatient rehabilitation facilities, and outpatient hospital services, among others), thereby potentially increasing the impact of the IPAB cuts on physicians and Medicare Advantage and Part D plan sponsors. Note that none of the 15 members of the IPAB have actually been nominated yet, so the panel currently exists in name only (but failure to appoint a panel would not forestall the cuts – if IPAB does not submit a plan, the responsibility falls to the HHS Secretary).
Last May, the CBO had projected that Medicare per-beneficiary spending would be below the IPAB triggers for fiscal years 2015 through 2023. In budget estimates released last week, however, the CBO estimates that under the House SGR reform bill, the IPAB mechanism would be required to produce a $0.5 billion reduction in Medicare spending over the 2015-2023 period. The Senate Finance SGR package would require even higher IPAB savings -- $0.6 billion over the same period.
Congressional negotiators finalizing the SGR package are expected to eventually identify their own spending offsets, which could impact spending on a potentially broader range of health care provider types, health plans, and drug manufacturers, but minimize the potential that the IPAB makes those decisions. The question now – if SGR reform actually proceeds -- is whether it will be Congress or the IPAB panel that identifies the offsetting savings. Either way, however, it appears that SGR reform could be a good news/bad news proposition, with long-overdue SGR reforms adopted, but at a currently-unknown price.
On January 9, 2014, the House Energy and Commerce Health Subcommittee is holding a hearing on “The Extenders Policies: What Are They and How Should They Continue Under a Permanent SGR (Sustainable Growth Rate) Repeal Landscape?” The so-called extenders are measures that secure the continuation of various temporary Medicare payment and policy revisions impacting hospitals, physicians, therapy providers, and certain other provider types that are routinely extended by Congress (most recently as part of the Pathway for SGR Reform Act).
President Signs 2-Year Funding Bill with Medicare SGR Patch, Sequestration Extension for Medicare Providers
On December 26, 2013, President Obama signed into law H.J. Res. 59, the Bipartisan Budget Act of 2013, which includes the Pathway for SGR Reform Act of 2013 (“the Act”). In addition to establishing federal budget targets for fiscal years (FYs) 2014 and 2015, the Act includes a number of provisions impacting the Medicare and Medicaid programs. Most notably, the Act provides a short-term reprieve from a looming Medicare physician fee schedule cut while lawmakers work to finalize a longer-term solution. It also extends Medicare provider payment cuts under existing sequestration authority for two years and makes a variety of other policy changes. The Act’s major Medicare and Medicaid provisions are summarized below.
Short-Term Medicare Physician Fee Schedule Patch. The final Medicare physician fee schedule rule, which was published on December 10, 2013, called for a 20.1% reduction in the fee schedule update for 2014, largely as a result of the statutory sustainable growth rate (SGR) formula. The Act blocks the 20.1% cut and replaces it with a 0.5% increase for services provided through March 31, 2014, resulting in a 2014 conversion factor after all adjustments of $35.8228 (note that Medicare sequestration cuts applicable to the MPFS and other Medicare payment systems continue, as described below.). This temporary payment boost is intended to provide Congress with additional time to finalize pending legislation that would permanently repeal the SGR policy and replace it with a period of stable payment followed by reimbursement linked to quality of care. Bipartisan SGR reform bills have been overwhelmingly approved by the Senate Finance Committee, the House Ways and Means Committee, and the House Energy and Commerce Committee, but differences in the measures must still be resolved and spending offsets need to be identified.
2-Year Extension of Medicare Sequestration Cuts. While the Act provides limited relief from sequestration cuts for certain defense and non-defense spending for FYs 2014 and 2015, the Act does not extend relief to sequestration reductions impacting mandatory programs such as Medicare; the 2% reduction to Medicare provider and plan payments therefore will continue in 2014 unless additional Congressional action is taken. In fact, the Act achieves new savings by extending sequestration for mandatory programs – including Medicare – for another two years, through 2023. The Act also “realigns” the Medicare sequestration amounts for FY 2023 to capture more of the sequestration savings during the first half of FY 2023, which falls in the legislation’s 10-year budget window. Specifically, the 2% cap on Medicare provider payment cuts will be raised to 2.9% for the first 6 months of FY 2023, and then drop to 1.11% for the second half of FY 2023. This change “scores” as $2.1 billion in savings, although the provision is billed as not increasing the overall effect of the sequester on Medicare providers. Obviously, there is a hope that Congress will adopt an alternative deficit reduction framework well before the sequestration extension would be triggered.
Extension of Therapy Cap Exceptions. The Act maintains the status quo for outpatient therapy services by extending the exceptions process for outpatient therapy caps through March 31, 2014. The Medicare program has annual limitations (or caps) on the amount of expenses a patient can accrue for outpatient therapy services in a given year. When an exception to the cap is requested for medically-necessary services furnished through March 31, 2014, therapy providers must continue to include the KX modifier on the claim form. All claims exceeding the cap continue to be subject to manual medical review. In addition, the Act extends the application of the therapy cap and exceptions to therapy services furnished in a hospital outpatient department through March 31, 2014 (which was otherwise set to expire on December 31, 2013).
Extension of Other Expiring Provisions. The Act extends for three months certain Medicare policies set to expire December 31, 2013, including: the floor used in the Medicare physician work geographic adjustment; certain ambulance add-on payments;the Qualified Individual program that reimburses states for certain Part B premiums; and the Transitional Medical Assistance program.
The Act also extends for six months (through March 31, 2014) the Medicare low-volume hospital payment and the Medicare-dependent Hospital program. In addition, the Act extends for one year the authority for Medicare Advantage Special Needs Plans (through 2016) and certain Medicare reasonable cost contracts (through 2014). Funding for the National Quality Forum (NQF) for certain health care performance measurement activities is extended until currently-available funds expire.
Medicare Long Term Care Hospital (LTCH) Payments. The Act includes a number of provisions impacting the provision of and payment for LTCH services provided to Medicare beneficiaries. Among other things, the Act establishes new criteria for LTCHs to be paid under the LTCH PPS rather than the acute inpatient prospective payment system (IPPS) rate. In particular, the Act establishes new “site neutral” Medicare payment criteria for LTCH services provided on or after October 1, 2015. Subject to certain exceptions, LTCHs will be reimbursed at the rate otherwise paid under the IPPS unless the patient had a preceding hospital stay including at least three days in an Intensive Care Unit (ICU) or received qualifying ventilator services. The Act provides for a two-year transition to the site neutral payment rate, during which time a blended rate will be paid.
For cost reporting periods beginning in FY 2020, payment for all discharges from an LTCH may be subject to the new site neutral payment limitation unless the number of discharges for which payment is not made at the site neutral payment rate is greater than 50% of the total number of discharges for the LTCH. In other words, if the LTCH’s site neutral payment rate is 50% or greater, then all discharges (beginning in the next cost reporting period) will be reimbursed at the IPPS rate. The Act requires CMS to establish a process for an LTCH subject to the IPPS payment rate to re-qualify for payment under LTCH PPS.
Moreover, the Act delays full implementation of the so-called “25% rule” for three years, through FY 2017 (when this policy is implemented, if an LTCH admits more than the specified percentage of its patients from a single acute care hospital during a fiscal year, it will be paid at a rate comparable to the IPPS rate for patients above the specified percentage threshold). In addition, the Act extends the current moratorium on establishing or increasing LTCH beds (with certain exceptions) through September 30, 2017.
For cost reporting periods beginning on or after October 1, 2015, LTCH discharges paid at the site neutral payment rate or by a Medicare Advantage plan will be excluded from calculation of the LTCH’s average length of stay.
Medicaid DSH Payments. The Act restructures planned reductions in Medicaid disproportionate share hospital (DSH) payments by delaying FY 2014 cuts until FY 2016 but increasing the overall level of reductions and extending cuts through FY 2023, for a total savings of $3.9 billion during the FY 2014-2023 budget window.
Strengthening Medicaid Third-Party Liability. The Act includes provisions intended to strengthen Medicaid third-party liability. Among other things, the Act reinforces Medicaid’s standing as the payer of last resort by letting states delay paying certain prenatal and preventive pediatric care claims, to the extent that doing so is cost-effective and will not adversely affect access to care. It also allows Medicaid to recover costs from beneficiary liability settlements. These provisions take effect on October 1, 2014.
On December 10, 2013, CMS published its final rule updating Medicare physician fee schedule (PFS) rates and polices for calendar year (CY) 2014, which includes a 20.1% across-the-board cut in PFS rates in 2014 (down from 24.4% projected under the proposed rule). The cuts are largely due to the statutory Sustainable Growth Rate (SGR) update formula, although lawmakers are seeking agreement on legislation to block the automatic cuts. The rule also includes a number of significant Part B policy changes, including the following highlights:
- The final 2014 conversion factor (CF) is $27.2006, compared to the 2013 CF of $34.0230, mainly as a result of the statutory SGR formula. Congress is expected to override this formula, either on a temporary or permanent basis, but final action is still uncertain (see legislative update below). CMS estimates that if Congress freezes the PFS update for 2014, it would actually result in a CF of $35.6446, an increase compared to 2013, due to the application of a budget neutrality adjustment. Reimbursement changes for individual procedures vary based on numerous other policies.
- CMS did not finalize a controversial proposal under its potentially misvalued code initiative to reduce PFS rates for more than 200 codes if Medicare physician office payment exceeds the payment under the hospital outpatient prospective payment system (OPPS) or ambulatory surgical center (ASC) prospective payment system (PPS). CMS expects to develop a revised proposal for using OPPS and ASC rates in establishing physician practice expense relative value units, which CMS will propose through future notice and comment rulemaking. CMS is continuing its efforts to identify and adjust payment for potentially misvalued codes, however, including by adopting on an interim basis work relative value units for approximately 200 additional codes. These interim values are subject for public comment until January 27, 2014.
- CMS will make payment for non-face-to-face complex chronic care management services for Medicare beneficiaries who have multiple (two or more) significant chronic conditions, beginning in 2015. CMS will establish practice standards for such chronic care management services through future rulemaking.
- CMS is modifying the definition of eligible telehealth originating sites to include health professional shortage areas (HPSAs) located in rural census tracts of urban areas as determined by the Office of Rural Health Policy, which CMS expects to result in the inclusion of additional HPSAs as areas for telehealth originating sites. CMS is adding transitional care management services to the list of eligible Medicare telehealth services.
- CMS will continue implementation of the physician value-based payment modifier, which was mandated by the Affordable Care Act (ACA) to reward physicians for providing higher quality and more efficient care. The value modifier is being phased in from CY 2015 to CY 2017. CY 2014 is the performance period for the CY 2016 value modifier. CMS is finalizing plans to apply the value modifier to groups of 10 or more eligible physicians in 2016 (compared to groups of 100 or more in 2015), and increase the amount of payment at risk from 1% to 2% in 2016. CMS also is refining the methodologies used to calculate the value modifier to better identify both high and low performers for upward and downward payment adjustments.
- CMS has adopted its proposal to amend the “incident to” regulations to require that services and supplies be furnished in accordance with applicable state law, and that the individual performing “incident to” services meet any applicable requirements to provide the services, including state licensure requirements. The policy is intended to ensure that auxiliary personnel providing services to Medicare beneficiaries “incident to” the services of other practitioners do so in accordance with applicable state requirements, and that Medicare payments can be recovered when such services are not furnished in compliance with the state law.
- CMS has adopted without change its proposed process to systematically reexamine payment amounts under the Clinical Laboratory Fee Schedule to determine if changes in technology for the delivery of that service (e.g., changes to the tools, machines, supplies, labor, instruments, skills, techniques, and devices by which laboratory tests are produced and used) warrant an adjustment to the payment amount. Beginning with the CY 2015 PFS proposed rule, CMS will identify the test code, discuss how it has been impacted by technological changes, and propose an associated payment adjustment. CMS will solicit comments, and any payment adjustment would be adopted in the final rule, beginning with the CY 2015 final rule.
- CMS is establishing a centralized review process under which a single entity will make Investigational Device Exemption (IDE) coverage decisions, although the policy will not be implemented until 2015. The rule also establishes minimum standards for IDE studies and trials for which Medicare coverage of devices or routine items and services is provided (but CMS dropped earlier references to pivotal study and superiority study design criteria).
- CMS will apply the outpatient therapy cap limitations and related policies to outpatient therapy services furnished in a critical access hospital beginning on January 1, 2014, in conformance with the American Taxpayers Relief Act (ATRA).
- The final rule also addresses, among many other things: updates to the geographic practice cost indices; revisions to the calculation of the Medicare Economic Index; revisions to the Physician Quality Reporting System and the Electronic Health Record (EHR) Incentive program; revisions to regulations regarding liability for overpayments to conform to ATRA provisions with regard to the timing of the triggering event for the ‘‘without fault’’ and ‘‘against equity and good conscience’’ presumptions; and updates to the ambulance fee schedule regulations to conform with statutory requirements.
In light of the late release of the final Medicare PFS rule, CMS is extending the annual Medicare participation enrollment period for 2014 through January 31, 2014 (instead of the window ending on December 31, 2013). During this period, eligible physicians, practitioners, and suppliers may change their participation status, but the effective date for any participation status changes remains January 1, 2014.
On December 12, 2013, the Senate Finance Committee is scheduled to take up legislation to repeal the Medicare PFS sustainable growth rate formula and extend certain expiring health care provisions. While the current Congressional calendar leaves little time to address the latest round of SGR cuts before they take effect on January 1, 2014 (as discussed above), Congress may provide a short-term patch to provide additional time to consider more sweeping overhaul legislation. This situation is still very fluid, however, and the timing and scope of ultimate legislative action is still uncertain.
On October 16, 2013, the House and Senate approved H.R. 2775, the Continuing Appropriations Act of 2014. Under the resolution, the federal government was reopened, after being closed since October 1, 2013. The resolution also funds government operations through January 15, 2014 and suspends the debt limit through February 7, 2014. In the only health care policy provision, HHS is directed to verify the income of individuals applying for premium tax credits under the ACA. As part of the agreement, the House and Senate also agreed to go to conference on a budget resolution to establish the Congressional budget for FY 2014, which started October 1, 2013, and to set budget levels for FY 2015. Conferees are directed to present a budget agreement to Congress by December 13, 2013. As part of the conference deliberations, lawmakers are expected to address Medicare funding to some extent, particularly as lawmakers seek to avert an upcoming steep reduction in Medicare physician fee schedule payments and to extend certain Medicare provisions that expire at the end of the year. Any increases in Medicare program spending are typically offset by other health program cuts, so a wide range of Medicare policies could still be in play this year.
On July 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published its proposed rule updating Medicare physician fee schedule (PFS) rates and polices for calendar year (CY) 2014. CMS projects that PFS payments will be reduced by approximately 24.4% in 2014, largely due to the statutory Sustainable Growth Rate (SGR) update formula (although Congress is expected to eventually take action to block the automatic cuts, as it has in the past). The rule also includes a number of significant policy proposals, including the following highlights:
- Under the proposed rule, CMS projects an estimated 2014 conversion factor of $25.7109, adjusted to $26.8199 to include a budget neutrality adjustment, compared to the 2013 conversion factor of $34.0230. As noted, Congress could override the SGR formula on either a temporary or permanent basis, but the timing and scope of any such action is uncertain. Reimbursement changes for individual procedures would vary based on numerous other policy proposals and updates.
- Under its potentially misvalued code initiative, CMS is proposing to reduce PFS rates for more than 200 codes if Medicare physician office payment exceeds the payment in the outpatient hospital department or ambulatory surgical center (ASC) setting. CMS proposes limiting PFS payment in such cases to the total payment that Medicare would make to the practitioner and the facility when the service is furnished in a hospital outpatient department or ASC. Certain services would be exempt from this provision, including services without separate hospital outpatient prospective payment system (OPPS) payment rates and codes already subject to cuts pursuant to the Deficit Reduction Act imaging cap, among others). CMS estimates that this policy would have the biggest negative impact on allowed charges for independent laboratory PFS payments, radiation therapy center services, and pathology services. CMS also proposes to examine other specific codes as part of the agency’s ongoing review of misvalued codes.
- CMS proposes to make payments for non-face-to-face complex chronic care management services for Medicare beneficiaries who have multiple (two or more) significant chronic conditions. This provision would be implemented in 2015 to provide sufficient time to develop and obtain public input on the standards necessary to demonstrate the capability to provide these services.
- CMS proposes to modify the definition of eligible telehealth originating sites to include health professional shortage areas (HPSAs) located in rural census tracts of urban areas as determined by the Office of Rural Health Policy, which CMS expects to result in the inclusion of additional HPSAs as areas for telehealth originating sites. CMS also proposes adding transitional care management services to the list of eligible Medicare telehealth services.
- CMS proposes to continue implementation of the physician value-based payment modifier (Value Modifier), which was mandated by the Affordable Care Act (ACA) to reward physicians for providing higher quality and more efficient care. The Value Modifier is being phased in from CY 2015 to CY 2017, with CY 2013 serving as the initial performance period for the CY 2015 Value Modifier. In the proposed 2014 rule, CMS calls for the value modifier to apply to groups of 10 or more eligible physicians in 2016 (compared to groups of 100 or more in 2015), and increases the amount of payment at risk from 1% to 2% in 2016. CMS also proposes to refine the methodologies used to calculate the value-based payment modifier to better identify both high and low performers for upward and downward payment adjustments.
- CMS proposes to amend the “incident to” regulations to require that services and supplies be furnished in accordance with applicable state law, and that the individual performing “incident to” services meet any applicable requirements to provide the services, including state licensure requirements. CMS is proposing this policy to ensure that auxiliary personnel providing services to Medicare beneficiaries incident to the services of other practitioners do so in accordance with applicable state requirements, and to ensure that Medicare payments can be recovered when such services are not furnished in compliance with the state law.
- CMS proposes a process to systematically reexamine payment amounts under the Clinical Laboratory Fee Schedule (CLFS) to determine if changes in technology for the delivery of that service (e.g., changes to the tools, machines, supplies, labor, instruments, skills, techniques, and devices by which laboratory tests are produced and used) warrant an adjustment to the payment amount. Beginning with the CY 2015 PFS proposed rule, CMS would identify the test code, discuss how it has been impacted by technological changes, and propose an associated payment adjustment. CMS would solicit comments, and any payment adjustment would be adopted in the final rule, beginning with the CY 2015 final rule. CMS would first examine the codes that have been on the CLFS the longest and then work forward, over multiple years, until all of the codes on the CLFS have been reviewed.
- CMS proposes a centralized review process under which a single entity would be responsible for making Investigational Device Exemption (IDE) coverage decisions. The rule also would establish minimum standards for IDE studies and trials for which Medicare coverage of devices or routine items and services is provided (including pivotal study and superiority study design criteria).
- CMS proposes to apply the outpatient therapy cap limitations and related policies to outpatient therapy services furnished in a critical access hospital beginning on January 1, 2014, in conformance with the American Taxpayers Relief Act (ATRA).
- The sweeping rule also addresses, among many other things: updates to the geographic practice cost indices (GPCIs) and revisions to the weights assigned to each GPCI to increase the weight of work and reduce the weight of practice expense; revisions to the calculation of the Medicare Economic Index (MEI); revisions to the Physician Quality Reporting System (PQRS) and the Electronic Health Record (EHR) Incentive program; revisions to regulations regarding liability for overpayments to conform to ATRA provisions with regard to the timing of the triggering event for the ‘‘without fault’’ and ‘‘against equity and good conscience’’ presumptions; and updates to the ambulance fee schedule regulations to conform with statutory requirements.
The comment deadline is September 6, 2013.
On July 23, 2013, the House Energy and Commerce Health Subcommittee approved legislation to repeal the Medicare physician fee schedule SGR formula and replace it with a period of stable payment followed by reimbursement linked to quality of care. In the first phase, the legislation would set the fee schedule update for each of years 2014 through 2018 at 0.5%. During this time, the current law payment incentives, such as the PQRS and the EHR Incentive Program will continue. After that 5-year period, providers will receive an annual update of 0.5%, but an additional update adjustment would be based on quality performance under a new Update Incentive Program (UIP). Eligible professionals could choose at any time to opt-out of the fee-for-service program and participate in alternative payment models. The bill also requires the Secretary to implement a system for the periodic reporting by physicians of data on the accuracy of relative values for physician services, such as data relating to service volume and time; the Secretary could provide incentive payments to providers for reporting this data. The bill also directs Medicare to identify improperly valued services to reduce net physician fee schedule expenditures by 1% per year for 2016 through 2018 (not budget neutral). The full Committee is expected to vote on the legislation later this week.