In one of its final acts before adjourning, the 109th Congress approved the Tax Relief and Health Care Act of 2006 (the Act), legislation that includes several dozen relatively modest Medicare and Medicaid changes. Most of the provisions extend expiring provisions from the Medicare Modernization Act of 2003 (MMA) and Deficit Reduction Act of 2005 (DRA), the two most recent Medicare and Medicaid bills, and stave off payment reductions that otherwise would have taken effect shortly. The legislation is mostly good news for physicians, hospitals and other healthcare service providers, as well as program beneficiaries. The Act, H.R.6111, is expected to be sent to and signed by President Bush shortly. This On the Subject provides an overview of the most significant Medicare- and Medicaid-related provisions in the Act.
Medicare statute requires the Centers for Medicare & Medicaid Services (CMS) to adjust the payments to physicians up or down depending on how actual expenditures compare to a variety of inflation indices. In recent years, the update formula has repeatedly required negative updates, and for 2007 would have reduced payments for physician services by 5 percent. The Act blocks CMS from implementing this cut, and instead requires that payments remain at 2006 levels through 2007, subject to other adjustments announced by CMS in November 2006.
The Act also begins a process of linking payment to performance by offering a limited 1.5 percent bonus payment to physicians and other eligible professionals who report quality information consistent with measures established by CMS.
Finally, the bill extends a provision established by the MMA that set a minimum 1.0 geographic adjustment factor used to determine locality-specific payments. The 1.0 floor otherwise would have expired at the end of this year.
The Act requires CMS to inflate the composite rate component of the payment formula by 1.6 percent effective for services furnished after April 1, 2007.
The bill extends a change originally made by the Benefits Improvement and Protection Act of 2000 (BIPA), and further extended by the MMA, that permits independent laboratories with arrangements with hospitals in effect as of July 22, 1999, to bill for the technical component of pathology services provided to inpatients or outpatients of such hospitals. This special exception is now extended through 2007.
The bill also extends a special exception that pays hospitals with fewer than 50 beds located in low-density population rural areas 100 percent of reasonable costs, rather than under a fee schedule, for clinical diagnostic laboratory tests furnished under Part B. This special treatment expired in July 2006, but now will be available through July 2007.
Hospitals and Ambulatory Surgery Centers
The Act extends by six months a provision included in the MMA that reclassified approximately 120 hospitals for purposes of the wage index geographic adjustment factor. The special reclassifications were originally approved for three years and set to expire on April 1, 2007. Under the Act, these reclassifications will be effective through September 30, 2007. The Act also requires CMS to make specific proposals by May 2008 to revise the way Medicare geographically adjusts hospital payments taking into account recommendations from the Medicare Payment Advisory Commission, which also are required by the Act.
The Act also provides incentives for hospitals and ambulatory surgery centers (ASCs) to begin reporting data on outpatient service quality indicators. Beginning in 2009, hospitals and ASCs that fail to report on outpatient service quality indicators established by CMS will receive payments based on an inflation adjustment reduced by two percentage points. For example, if statutory formulas inflate hospital outpatient and ASC payments in 2009 by three percent, facilities that fail to report specified data will have their payments inflated by only one percent.
Drugs, Biologicals and Devices
The MMA established that brachytherapy devices consisting of radioactive sources (or seeds) would be paid on the basis of a hospital’s cost for such device for services furnished during 2004, 2005 and 2006. The Act extends payment for brachytherapy sources on the basis of costs through 2007.
MMA revised the way Medicare pays for Part B drugs. Payments for drugs furnished under Part B are now based on either an average sales price (ASP) payment methodology, which sets payments at the weighted average ASP plus 6 percent, or under a recently established competitive acquisition program (CAP). The Act deletes statutory requirements that payments to CAP contractors be conditioned upon the administration of the drugs and biologicals, and specifies that payment may be made to the contractor upon receipt of a claim for a drug or biological supplied by the contractor. The Act also requires CMS to establish a post-payment review process to assure that payment is made for a drug or biological only if it has been administered.
Medicare Part B covers certain drugs used as anti-cancer chemotherapeutic agents and certain oral anti-emetic drugs used as part of an anti-cancer chemotherapeutic regimen. The Act requires that effective January 1, 2008, all claims submitted for drugs for treatment of anemia in connection with cancer must include information specified by CMS on the hemoglobin or hematocrit levels for the individual.
Medicare Part B covers certain vaccines and their administration. Medicare Part D covers other vaccines licensed under the Public Health Service Act. The Act provides that during 2007, the administration costs for a vaccine paid under Part D are to be paid under Part B.
Legislation enacted in 1997 capped annual payments for all outpatient therapy services provided by non-hospital providers at $1,500 per beneficiary. The payment limits apply to physical, speech and occupational therapy. Subsequent legislation delayed implementation of the therapy caps until 2006. The DRA established a one-year exceptions process whereby beneficiaries can request and be granted an exception from the cap and receive an unlimited amount of therapy services deemed medically necessary by Medicare. The Act extends the exceptions process for an additional year through 2007.
Managed Care Organizations
The MMA established a pool of $10 billion to provide incentives for health plans to enter into and remain in the Medicare Advantage regional program. Money in the fund is available for expenditures from January 1, 2007, to December 31, 2013. The Act delays the initial availability of the stabilization fund until 2012, and reduces the amount available to $3.5 billion.
Recovery Audit Contractors
The MMA established a three-year, three-state demonstration project whereby “recovery audit contractors” would be authorized to audit hospitals and recoup overpayments. Payments to the contractors are made on a contingency basis. The Act allows CMS to continue using recovery audit contractors beyond the initial 3-year period, and requires CMS to expand the program to all states by 2010.
Medicaid Provider Tax Rate
In response to urging from a united front of the nation’s governors and the nursing home community, the Act forestalls an expected Bush Administration regulation that would have restricted states’ use of health care provider tax assessments to fund state Medicaid programs. The Bush Administration had favored cutting the maximum allowable “safe harbor” provider tax rate to three percent. The legislation effectively limits this expected reduction by codifying the maximum allowable provider tax rate at six percent. From January 1, 2008, through September 30, 2011, however, the rate is temporarily reduced to 5.5 percent.
Transitional Medical Assistance
The Act extends the Transitional Medical Assistance (TMA) program through June 2007. The TMA program provides temporary Medicaid coverage for persons making the transition from welfare to work. This extension enjoyed support from President Bush as well as Republicans and Democrats in Congress.
State Children’s Health Insurance Program
In related action, Congress passed separate legislation (H.R.6164) to address a looming funding shortfall in the State Children’s Health Insurance program (SCHIP) by redistributing unspent SCHIP funds from fiscal years 2004 and 2005 to those states that face funding shortfalls for fiscal year 2007. This effort is intended to help states cover their SCHIP funding shortfalls through approximately May 2007, which gives the 110th Congress additional time to consider more comprehensive SCHIP reauthorization legislation.