Medicare Act Impacts Sub-Acute and Post-Hospital Providers
January 21, 2004
The recently enacted Medicare Prescription Drug and Modernization Act of 2003 (Act) establishes a Voluntary Drug Benefit Program under a new Medicare Part D program for Medicare beneficiaries, with coverage effective January 1, 2006. (The Drug Benefit Program is the subject of a separate, November 26, 2003, McDermott Will & Emery Health Law Update addressing the Drug Benefit provisions of the Act in detail.) These provisions may be of interest to rehabilitation therapy providers, skilled nursing facilities, home health agencies, hospice and durable medical equipment (DME) suppliers.
Therapy Services (§624)
Legislation enacted in 1997 established an annual per-beneficiary payment limit of $1,500 for all outpatient therapy services provided by non-hospital providers. The payment limits apply to physical, speech and occupational therapy. Subsequent legislation delayed the implementation of therapy caps, currently calculated at $1,590, until September 2003. The Act provides for further suspension of the therapy caps through calendar year 2005. By March 31, 2004, the U.S. Department of Health and Human Services (HHS) must submit reports to the U.S. Congress relating to an alternative to a single annual dollar cap on outpatient therapy and a second report relating to utilization patterns for outpatient therapy. By October 1, 2004, the comptroller general of the United States must submit a report to Congress on conditions and diseases that may justify waiving the application of the therapy caps with respect to such conditions or diseases.
Per Diem Amount Increase for Skilled Nursing Facilities (SNFs) with Residents Diagnosed with AIDS (§511)
Legislation approved in 1999 established a favorable payment treatment to certain hospital-based SNFs only, which, in their cost-reporting year beginning in fiscal year 1998, recorded more than 60 percent of their patient days from Part A beneficiaries who were immuno-compromised and suffered from diagnoses specified by the Department of Health and Human Services Secretary Tommy Thompson. This adjustment has been replaced with a new payment increase of the Medicare per diem that will apply to all SNFs, whether or not they are hospital-based. Beginning October 1, 2004, any SNF furnishing Part A covered services to a resident diagnosed with acquired immune deficiency syndrome (AIDS) will receive an increase of 128 percent of the per diem amount otherwise payable through SNF prospective payment system (PPS), determined without regard to certain other increases that may be payable to the SNF under Medicare PPS. The Act indicates that this increase is to reflect increased costs associated with such residents of SNFs, although there is some question in the industry as to the adequacy of this increase to cover the additional cost of care of SNF residents diagnosed with AIDS. This augmented SNF PPS payment will continue until the Secretary Thompson certifies that case-mix adjustments under the SNF PPS appropriately compensate for the increased costs associated with furnishing Part A services to AIDS residents.
Authority to Expand Originating Telehealth Sites to Include SNFs (§418)
The Act requires the secretary of HHS to evaluate demonstration projects under which SNFs are treated as originating sites for telehealth services and to submit a report to Congress no later than January 1, 2005, that includes recommendations to ensure that permitting a SNF to serve as an originating site for the use of telehealth services or any other service delivered via a telecommunications system does not serve as a substitute for in-person visits furnished by a physician, a physician assistant, a nurse practitioner or a clinical nurse specialist. The Act includes authority to expand originating telehealth sites to include SNFs insofar as the secretary concludes that it is advisable to permit a SNF to be an originating site for telehealth services, beginning on January 1, 2006.
Additional Information in Medicare Summary Notices (§925)
Starting before mid-year 2004, Medicare Summary Notices sent to beneficiaries with respect to the provision of post-hospital extended care services under Part A must include information on the number of days of coverage of remaining for that beneficiary for the spell of illness involved.
Information about Medicare Certified SNFs and Discharge Planning from Hospitals to Evaluate Need for Hospice and SNF Care (§926)
The secretary must publicly provide information that enables hospital discharge planners, Medicare beneficiaries and the public to identify SNFs that are participating in the Medicare program. In addition, the Act requires hospital discharge planners to evaluate a patient’s need for hospice care and post-hospital extended care services.
Hospice Services (§512)
The Act provides for Medicare coverage of a hospice consultation furnished by a physician employed by (or serving as medical director of) a hospice to a terminally ill Medicare beneficiary who has never elected to receive hospice benefits under the Medicare program. The consultation must consist of an evaluation of the individual’s need for pain and symptom management, evaluation of the individual’s need for hospice care and counseling regarding hospice and other care options. Medicare reimbursement for this service will be set at a rate equivalent to that paid under the Medicare fee schedule (excluding the practice expense component) for an office or outpatient visit for evaluation and management services in connection with present problems of moderate severity that require medical decision-making of low complexity.
Study on Portable Diagnostic Ultrasound Services in SNFs (§513)
The Act prescribes a study by the comptroller general of portable diagnostic ultrasound services to Medicare beneficiaries in SNFs as to the types of equipment and training of technicians providing the ultrasound services, the clinical appropriateness of transporting portable diagnostic ultrasound equipment and technicians to patients in the SNF, as opposed to transporting patients to a diagnostic facility, and the financial impact if Medicare were to make a separate payment for portable ultrasound diagnostic services. The controller is to submit the report by December 8, 2005, including recommendations for legislation or administrative change.
Dual Eligibles (§103)
The federal government assumes financial responsibility for Medicaid prescription drug costs of Medicare-Medicaid dual eligible individuals. The government’s responsibility is to be phased in over a period of 10 years starting January 2006. Medicare is the primary payer for covered drugs for dual eligibles. Medicaid coverage is not available for Part D covered drugs or for any cost-sharing requirements. However, state Medicaid programs may provide coverage to dual eligibles for other prescription drugs.
Home Health Agencies (§701 and §704)
Pursuant to current law, Centers for Medicare & Medicaid Services (CMS) last inflated payments for home health services effective October 1, 2003, by the full market basket index. The Act maintains the full market basket update for the final quarter of 2003 and first quarter of 2004, but lowers the update to the market basket minus 0.8 percent for the remainder of 2004, 2005 and 2006. The new law also changes the timeframe for home health market basket updates from the federal fiscal year to a calendar year basis beginning in 2004.
In the case of home health services furnished in the home of beneficiaries living in rural areas, the Act provides a 5 percent additional payment for one year, effective April 1, 2004.
The Act also temporarily suspends the requirement that home health agencies must collect Home Health Outcome and Assessment Information Set (OASIS) data on private payment patients until the secretary reports to Congress on the benefits of such data and publishes final regulations regarding the collection and use of OASIS data. The Act does not include a controversial home health co-payment that was included in the version of the legislation approved by the U.S. House of Representatives.
Transition of Payment for DME From Fee Schedules to Competitive Bidding (§302 and §627)
The Act substantially revises how Medicare will pay for DME. Under current law, Medicare pays for DME, prosthetics, orthotics and a few other categories of covered items provided to patients in their home under a fee-schedule based payment. The Act makes competitive acquisition of DME throughout the United States, starting in 10 of the largest metropolitan statistical areas in 2007, 80 of the largest metropolitan statistical areas in 2009 and additional areas thereafter, replacing Medicare fee schedules payments for most DME and supplies, including drugs used with DME and off-the-shelf orthotics. Inhalation drugs, Class III medical devices and parent nutrients, equipment and supplies are excluded from competitive acquisition.
A single payment amount will be established for each item, and Medicare will pay 80 percent of the established rate (just as it currently pays 80 percent of the fee schedule rates). Suppliers will be required to accept Medicare assignment, and the bidding process will be repeated at least every three years. During the transition to competitive acquisition, existing payment rates for most DME will be frozen through 2008. Five high-volume items, oxygen and oxygen equipment, standard wheelchairs, nebulizers, diabetic supplies, hospital beds and air mattresses, are singled-out for special treatment. (See November 26, 2003 McDermott Will & Emery Health Law Update at www.mwe.com, page 25 for description of special payment treatment, supplier quality standards and documentation of medical necessity for certain DME like power wheelchairs.)
Environment for Sub-Acute and Post-Hospital Care
Without any significant changes in Medicare payment to sub-acute and post-hospital providers like SNFs and home health agencies, the Act can be viewed as a continuation of efforts in Washington, D.C. to stabilize payment and further ameliorate the displacement caused by the Balanced Budget Act of 1997, as resolved through the BBRA of 1999 and BIPA of 2000.
For SNFs, extension of the moratorium on therapy caps, some recognition of special circumstances in Medicare RUGs payment for SNFs, like the recognition of increased costs associated with caring for patients with AIDS and the BIPA changes, reflect a stabilizing environment, demonstrated by increased market capitalizations of publicly traded SNFs, including Genesis Healthcare, Beverly, Manor Care and Sun Healthcare and an improved environment for mergers and acquisitions within the industry.
This also points toward potential expansion into health care services areas that deemphasize the need for hard physical assets to provide services and encourages ancillary services businesses, including rehabilitation therapy, DME and home health services, where the margins may be more attractive. Some providers are adopting a three-prong strategy of reducing administrative and general costs, refinancing long-term debt at lower rates and enhancing margins with such ancillary businesses.
For home health agencies, the Act at least provides continued stability, and, in the case of rural home health agencies, actually provides some benefit. The elimination of the specter of co-payment for home health care and the suspension of OASIS requirements for private payment patients is a positive consideration for agencies. Home health should continue to be attractive to investors, evidenced by recent private transactions.
Hospice services is an area of current interest among private equity investors in view of unmet, or not satisfactorily met, need for these specialized services, and in view of available bed capacity in some facilities. The requirement that hospital discharge planners evaluate a patient’s need for hospice care and post-hospital extended care services suggests that there may be needs to be served by providers willing to develop these services.
