Washington Highlights: August 5, 2005

Contents Inpatient Final Rule Increases DRGs Subject to Post-Acute Care Transfer Policy CMS Publishes Proposed Medicare Physician Fee Schedule Rule Inpatient Rehabilitation Final Rule Includes Teaching Adjustment Congress Faces Full Appropriations Agenda in September Legislation Introduced to Repeal SGR and Implement Physician Quality Improvement Veterans Health Care Receives FY 2005 Supplemental Funds Legislation Removing Physician Group Limits on Patients Receiving Substance Abuse Treatment Enacted Prior Issues July 29, 2005 July 22, 2005 July 15, 2005 July 8, 2005 July 1, 2005 Archive

Inpatient Final Rule Increases DRGs Subject to Post-Acute Care Transfer Policy

The Centers for Medicare and Medicaid Services (CMS) Aug. 2 published its hospital inpatient prospective payment system (IPPS) final rule for Fiscal Year (FY) 2006 on its Web site. In response to public comments, CMS decided to expand the number of diagnosis related groups (DRGs) subject to the post-acute care transfer policy by less than what it had originally proposed. Thus, 182 DRGs, rather than the proposed 231 DRGs, will be subject to the policy in FY 2006. However, this number is still substantially more than the 30 DRGs that are currently subject to the post-acute care transfer policy.

In the final rule, CMS increases the standardized payment amount by the full market basket increase of 3.7 percent for hospitals that report clinical data on 10 quality measures related to the treatment of heart attack, heart failure and pneumonia cases for two consecutive calendar years. Those that do not will receive a 3.3 percent rate increase. In the area of graduate medical education (GME), CMS maintains the proposed provisions to establish indirect medical education (IME) resident caps for non-IPPS hospitals that convert to the IPPS, allow new teaching hospitals to affiliate with existing teaching hospitals under certain conditions and modify the requirements used in determining the initial residency periods for residents in specialties that require a general clinical training year.

In other areas, the final rule:

• Revises the cardiovascular DRGs, which CMS believes will address a portion of the disproportionately higher payments that are accruing to specialty hospitals under the current DRG system;
• Reduces the share of Medicare's inpatient hospital payments that are attributable to hospital labor costs from 71.1 to 69.7 percent for hospitals in areas that have labor costs greater than the national average; and
• Reduces the outlier threshold from 25,800 in 2005 to $23,600 in 2006.

The final rule will appear in the Aug. 12 Federal Register. The new policies and payment rates will become effective with discharges occurring on or after Oct. 1, 2005.

Information:
Karen Fisher, Senior Associate Vice President
AAMC Health Care Affairs
kfisher@aamc.org
(202) 862-6140

Diana Mayes, Staff Associate
AAMC Health Care Affairs
dmayes@aamc.org
(202) 828-0498

CMS Publishes Proposed Medicare Physician Fee Schedule Rule

The Centers for Medicare and Medicaid Services (CMS) Aug. 1 released the proposed rule for Calendar Year (CY) 2006 services and items covered by Medicare Part B. The proposed rule indicates that the conversion factor for CY 2006 will be reduced by 4.3 percent, as required by a statutory formula. The physician fee schedule specifies payment rates to physicians and other providers for more than 7,000 health care services and procedures, ranging from simple office visits to complex surgery. The fee schedule is updated on an annual basis according to a formula specified by statute. The formula requires CMS to adjust the update up or down depending on how actual expenditures compare to a target rate, called the sustainable growth rate (SGR). The SGR is calculated based on medical inflation, the projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation. If actual spending exceeds the SGR, as it has in the past several years, the law requires CMS to reduce the update factor. CMS expects to pay approximately $56.5 billion to 875,000 physicians and other health care professionals in 2006.

In addition to updating the Medicare physician fee schedule, the proposed rule will revise a number of other policies affecting Medicare Part B payments, including:

• Reducing payments for certain diagnostic imaging procedures when they are performed on contiguous body parts in the same session with the patient as recommended by MedPAC;
• Revising the methodology used to account for the costs of running a physician's practice (Practice Expense RVUs);
• Refining the payment adjustments for the malpractice costs associated with specific services;
• Addressing issues related to payment of teaching physician anesthesiologists, especially with respect to those services affecting multiple cases concurrently;
• Expanding screening glaucoma benefit to include Hispanic-Americans age 65 and older because they are identified as an ethnic group at high risk for the disease (currently this benefit is limited to individuals with diabetes, or family history of glaucoma, and African-Americans age 50 and over, another group with a propensity to develop glaucoma); and
• Revising the list of health services for which physicians are prohibited from self-referring their patients (the physician self-referral rules) to include diagnostic nuclear medicine services and therapeutic nuclear medicine services.

Information:
Denise Dodero, Associate Vice President
AAMC Health Care Affairs
ddodero@aamc.org
(202) 828-0493

Mary Patton, Senior Policy Analys
AAMC Division of Health Care Affairs
mpatton@aamc.org
(202) 862-6297

Inpatient Rehabilitation Final Rule Includes Teaching Adjustment

The Centers for Medicare and Medicaid Services (CMS) Aug. 1 issued its Medicare inpatient rehabilitation facility (IRF) final rule for Fiscal Year (FY) 2006 on its Web site. The final rule, increases aggregate payments to inpatient rehabilitation facilities by 3.4 percent, after accounting for a 3.6 percent market basket update, adjustments for coding changes, and changes to the outlier threshold.

CMS is implementing a teaching adjustment to compensate teaching rehab facilities for the higher costs they incur in providing care. These facilities include both Medicare qualifying rehabilitation hospitals and qualifying rehabilitation distinct part units of acute care hospitals. The adjustment is the result of an analysis of IRF prospective payment system (PPS) data from FY 2003, which indicated a statistically significant relationship between teaching status and costs. The teaching variable is the ratio of residents to average daily census (RADC). Thus, a teaching IRF with an RADC of 0.10 would receive a 10.9 percent increase in its PPS payment. Consistent with the teaching adjustment policy for the inpatient hospital and psychiatric facilities PPS, CMS imposes a cap on the count of residents that can be included in the RADC, in order to constrain teaching payments. In addition, the final rule establishes the base period for determining an IRF's FTE resident cap as the IRF's most recent cost reporting period ending on Nov. 15, 2004, consistent with the FTE cap policy in the inpatient psychiatric facility PPS.

The final inpatient rehab facility PPS final rule also:

• Adopts a 1.9 percent across-the-board reduction in the standard payment amount;
• Refines the IRF classification system and relative weights, as well as the system used to determine additional payment for an illness or condition other than the admitting diagnosis that affects the costs of treating a beneficiary; and
• Implements Core Based Statistical Area (CBSA) market area definitions for the wage index. The rule provides for a one-year transition to the new CBSAs and implements a "hold harmless" policy for existing rural providers.

The final rule will be published in the Aug. 15 Federal Register. The policies will become effective Oct. 1, 2005.

Information:
Karen Fisher, Senior Associate Vice President
AAMC Health Care Affairs
kfisher@aamc.org
(202) 862-6140

Diana Mayes, Staff Associate
AAMC Health Care Affairs
dmayes@aamc.org
(202) 828-0498

Congress Faces Full Appropriations Agenda in September

When Congress returns to Washington Sept. 6, it will begin the annual ritual of trying to complete the appropriations bills before the Oct. 1 start of the fiscal year. Although the House has met the goal set by House Appropriations Chairman Jerry Lewis (R-Calif.) of passing all 11 of the FY 2006 bills by the end of June, there is much work left to be done in the Senate, where the spending bills will face competition for floor time with budget reconciliation and the Supreme Court nomination of John Roberts.

The Senate has passed 5 of its 12 bills, but only two conference reports - interior and legislative branch - have been cleared for the President. Among the bills waiting for Senate floor consideration is the Labor-HHS-Education bill (H.R. 3010), traditionally one of the more contentious bills. This year promises more of the same, as Labor-HHS-Education Subcommittee Chair Arlen Specter (R-Pa.) has pledged to add a provision to expand the number of human embryonic stem cell lines eligible for federal research funding to the bill unless the Senate gets to vote on the House-passed version of this proposal (H.R. 810).

In addition, the House and Senate adopted different reorganization plans for the appropriations subcommittees, which means some subcommittees have slightly different jurisdictions, a factor that may complicate the conferences for several of the bills and set the stage for yet another omnibus appropriations bill later this year.

Information:
Dave Moore, Senior Associate Vice President
AAMC Government Relations
dbmoore@aamc.org
(202) 828-0525

Legislation Introduced to Repeal SGR and Implement Physician Quality Improvement

House Ways and Means Subcommittee on Health Chairman Nancy Johnson (R-Conn.) July 28 introduced the "Medicare Value-Based Purchasing of Physicians' Services Act of 2005" (H.R. 3617), which would prevent the Medicare payment cuts to physicians scheduled to begin on January 1, 2006, and begin to transition the program to value-based purchasing.

Specifically, H.R. 3617 calls for a calendar year (CY) 2006 update to the Medicare Physician Fee Schedule of +1.5 percent. During 2007-2008, physicians who meet reporting requirements on performance would receive an update equal to the Medicare Economic Index (MEI) and physicians who do not report would receive an update of MEI minus 1 percent. During 2009 and after, physicians who meet reporting requirements on quality and efficiency measures would receive the MEI update and those who do not report would receive MEI minus 1 percent.

Under the bill's provisions, the Secretary of Health and Human Services (HHS) must provide for the selection of quality and efficiency measures, including outcome, process and structural measures. Medical specialties must submit proposed measures (directly or through a physician-consensus building process) to a broader consensus building organization by March 1, 2006. If no measures are submitted or if measures are insufficient, the Secretary may submit measures by April 1, 2006. The broad consensus building organization would submit measures to the Secretary by July 1, 2006. Public reporting of information would begin in 2009. Reporting would indicate whether the physician is new or had insufficient data to report on, or for any other physician, whether the physician met the performance objectives. In 2007 and 2008 reports would be provided to the physician only and an appeals process would allow the opportunity for review and comment on information concerning performance against the objectives. Further, HHS must educate physicians and beneficiaries about the program in 2006 and must conduct annual reports on physician volume growth. Over five years the Secretary must review improvement in quality and efficiency, access, and fairness of program implementation.

Other original co-sponsors of H.R. 3617 include Reps. Bob Beauprez (R-Colo.), Charles Boustany (R-La.), Michael Burgess (R-Texas), Dave Camp (R-Mich.), Phil English (R-Penn.), Phil Gingrey (R-Ga.), Sam Johnson (R-Texas), Ron Lewis (R-Ky.), Bob Ney (R-Ohio), Jim Ramstad (R-Minn.), Clay Shaw (R-Fla.), Christopher Shays (R-Conn.), Fred Upton (R-Mich.), Dave Weldon (R-Fla.), and Sue Kelly (R-N.Y.).

Information:
Lynne Davis Boyle, Assistant Vice President
AAMC Office of Governmental Relations
ldavisboyle@aamc.org
(202) 828-0526

Veterans Health Care Receives FY 2005 Supplemental Funds

The FY 2006 Interior-Environment Appropriations bill (H.R. 2361), signed into law by President Bush on Aug. 2, includes an additional $1.5 billion for veterans' medical care in FY 2005. The additional funds were needed to offset a projected shortfall in funds resulting from a flawed projection of the level of demand for care by veterans.

For FY 2006, the House passed its version of the Military Quality of Life and Veterans Affairs appropriations bill (H.R. 2528) on May 26, including an increase of $1 billion (4.0 percent) for VA medical care and a cut of $9 million (2.3 percent) for VA research. However, this bill was passed before the shortfall was announced by the Administration, and Subcommittee Chairman James Walsh (R-N.Y.) agreed that an additional $2 billion would be added for medical services in FY 2006 to cover the expected shortfall. The Senate Appropriations Committee approved its version of the FY 2006 bill on July 21, including a $3 billion increase for VA medical care. This is the President's budget, plus $2 billion to cover the predicted shortfall. Both the House and Senate rejected the President's plan for increased co-payments and enrollment fees. The Senate bill also provides a small increase for VA research of $10 million (2.4 percent).

Information:
Matthew Shick, Legislative Analyst
AAMC Government Relations
mshick@aamc.org
(202) 828-0525

Legislation Removing Physician Group Limits on Patients Receiving Substance Abuse Treatment Enacted

President Bush Aug. 2 signed into law legislation (S. 45), which removes the current statutory limit on physician group practices that treat substance abuse patients. Current law limiting treating physicians to 30 patients also imposes the 30 patient cap on group practices. S. 45 clarifies that group practices would not be limited to 30 patients, while still limiting each provider within the group to 30 patients seeking treatment for their drug addictions.