Washington Highlights: August 4 , 2006

Contents CMS Changes DRG Methodology in Inpatient Final Rule CMS Modifies Position on "Didactic Activities" in Inpatient Final Rule Rehab Facilities Receive a 3.3 Percent Update in FY 2007 IRF Final Rule OIG and CMS Issue Final EHR Rules House Passes Health IT Bill Committee Leadership Urges Extension of Specialty Hospital Moratorium Reps. Johnson, Cardin Circulate Letter Urging Physician Payment Relief AAMC Comments on Proposed Population Study of Genes and Environment AAMC Comments to PTO on Patentable Subject Matter Guidelines Prior Issues July 28, 2006 July 21, 2006 July 14, 2006 July 7, 2006 June 30, 2006 Archive

CMS Changes DRG Methodology in Inpatient Final Rule

The Centers for Medicare and Medicaid Services (CMS) will move from a charge-based to a cost-based methodology for determining per case payment weights according to the fiscal year (FY) 2007 Medicare hospital inpatient prospective payment system (IPPS) final rule, published Aug. 1 on the CMS Web site. However, the methodology contains significant changes from what was originally proposed and will be phased-in over 3 years. In addition, CMS will not implement a new consolidated severity adjusted diagnosis-related group (CS-DRGs) system, but will add 20 new DRGs to the current system. The changes will go into effect Oct. 1.

While CMS did not implement a one-year delay in the changes, as urged by the hospital community and others, CMS was responsive in making a number of significant technical corrections that had been identified by hospitals. CMS also decided to retain the current method of "standardizing" costs across hospitals, rather than implementing a new hospital-specific relative value (HSRV) standardization process. However, the agency said it will continue to analyze the HSRV option and may implement it in the future.

In terms of refining the DRG classification system to better reflect patient severity, CMS stated that while it decided not to implement the CS-DRGs this year, the Agency will conduct an evaluation "with public input" of alternative systems to make more comprehensive changes in FY 2008.

In other areas, the final rule:

• sets the outlier threshold at $24,475 in FY 2007, which is $875 more than the current year, but $1,055 less than what was proposed; and


• postpones publication of wage index values to collect occupational mix data (to comply with the court-ordered move to a 100 percent occupational mix adjustment in FY 2007). CMS states in the final rule that these values will be published in a separate notice before Oct. 1.

The rule will be published in the Aug. 18 Federal Register.

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

CMS Modifies Position on "Didactic Activities" in Inpatient Final Rule

In the FY 2007 Medicare inpatient prospective payment system (IPPS) final rule, published on the CMS Web site Aug. 1, CMS modified its position regarding when hospitals may count the time residents spent in didactic activities, such as conferences and educational lectures, for purposes of calculating direct graduate medical education (DGME) and indirect medical education (IME) payments. In the proposed rule, CMS stated that didactic time must be excluded in all IME calculations, and for DGME calculations in nonhospital sites, because the activities are not "related to patient care." Over 1,200 commenters urged CMS to rescind this position and recognize the integral relationship between didactic activities and patient care delivery.

While CMS staunchly defends its position in the final rule that didactic time is not related to patient care, because of the documentation burdens associated with identifying all didactic activities, CMS has decided, effective Oct. 1, 2006, to institute a "one workday" threshold for documentation purposes. CMS states, "as long as an entire workday is not scheduled for didactic activities, then for documentation purposes, that day may be recorded as spent in patient care activities" (page 851).

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

Rehab Facilities Receive a 3.3 Percent Update in FY 2007 IRF Final Rule

CMS Aug. 1 issued its Medicare inpatient rehabilitation facility (IRF) final rule for FY 2007 on its Web site. The final rule provides for an update to IRF payment rates, equal to the rehabilitation, psychiatric, and long-term care hospital (RPL) market basket increase of 3.3 percent.

Overall, however, the estimated payments per discharge for IRFs in FY 2007 are projected to increase by only 0.8 percent. This is largely due to a 2.6 percent cut in the standard payment amount to adjust for coding changes that CMS believes do not reflect changes in patient severity. This cut is slightly lower than the 2.9 percent reduction included in the proposed rule. CMS reduced the payment cut in response to comments expressing concern that the proposed reduction to the standard payment amount did not take into account patient severity changes resulting from the transition to the 75 percent threshold.

CMS also implements a one-year extension of the 75 percent compliance threshold (75 percent rule) phase-in period to conform with the statutory language in section 5005 of the Deficit Reduction Act of 2005 (P.L. 109-171). The 75 percent rule, when fully phased-in, will require at least 75 percent of an IRF's patient population to have 1 of 13 designated medical conditions for which intensive inpatient rehabilitation services are medically necessary. For providers with cost reporting periods that start on or after July 1, 2006, and before July 1, 2007, the compliance threshold will be 60 percent; for providers with cost reporting periods starting on or after July 1, 2007, and before July 1, 2008, the compliance threshold will be 65 percent. The 75 percent threshold will be imposed for providers with cost reporting periods beginning on or after July 1, 2008. Until the 75 percent rule is fully implemented, the final rule also extends the use of co-morbidities meeting the criteria outlined in the regulations to determine compliance with the 75 percent rule.

In other areas, the final rule:

• Increases the outlier threshold from $5,129 to $5,534, which is less than the $5,609 in the proposed rule;


• Establishes requirements for suppliers of durable medical equipment, prosthetics, and supplies (DMEPOS) to be accredited by CMS-approved independent accrediting organizations to ensure compliance with future quality standards; and


• Implements a provision of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) that gives CMS the authority to use contractors to assist in the implementation of the DMEPOS Competitive Bidding Program.

The final rule will be published in the Aug. 18 Federal Register. The policies will become effective Oct. 1.

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

OIG and CMS Issue Final EHR Rules

The HHS Office of Inspector General and the Centers for Medicare and Medicaid Services (CMS) Aug. 1 released final rules that provide for an exception to the physician self-referral ("Stark") law and a safe harbor to the anti-kickback law for the donation of electronic health records (HER) information and related technology. They will be published in the Federal Register on Aug 8. The exception and safe harbor will be effective 60 days after publication. Both rules differ significantly from the proposed rules that were published in 2005.

The "Stark" exception protects donations of software or information technology (including connectivity and maintenance services) and training services (including help desk and similar support) necessary and used predominantly to create, maintain, transmit, or receive electronic health records. The donation of hardware is excluded from the exception. Among the conditions of the exception is that physicians must pay 15 percent of the cost of the donated items and services. The anti-kickback safe harbor is similar, though due to underlying statutory differences, it covers a broad array of providers, suppliers, practitioners and health plans. Consistent with the President's goal of adoption of electronic health records technology by 2014, the exception and safe harbor will sunset on Dec. 31, 2013.

The AAMC will be providing members with additional information shortly.

Information:
Ivy Baer, Director & Regulatory Counsel
AAMC Health Care Affairs
ibaer@aamc.orc
(202) 828-0490

House Passes Health IT Bill

The House July 27 passed (270-148) the "Health Information Technology (HIT) Promotion Act of 2006" (H.R. 4157). Of interest to teaching hospitals and medical schools, the bill:

• Amends the self-referral ("Stark") and anti-kickback laws to provide exceptions/safe harbors for the provision of HIT and training services. The exceptions/safe harbors apply to hospitals, group practices, prescription drug plan sponsors, Medicare advantage organizations, or any other such entity specified by the Secretary. Within 3 years, the Secretary must complete a study determining the impact of such changes on rate of HIT adoption, types of resources offered to providers, changes in provider relationships, and healthcare quality;


• Provides similar exceptions/safe harbors for consortia of healthcare providers, payers, employers and others to either collectively purchase and donate health information technology or offer a choice of technologies that take into account the varying needs of such providers;


• Directs the President to promote the advancement of healthcare quality and health research by allowing access to "useful categories" of non-identifiable electronic health information;


• Provides $15 million in matching grants in both FY 2007 and FY 2008 to help integrated health systems use HIT to better coordinate the provision of care;


• Directs the HHS Secretary to implement ICD-10 codes by Oct. 1, 2010. However, the Secretary can not demand a "level of specificity" that requires documentation of "non-medical information;" and


• Directs the HHS Secretary to study whether there is a need for "greater commonality" in state privacy laws and regulations.

The bill, which contains several other related provisions, must now be reconciled with the Senate's HIT bill (S. 1418). The Senate bill does not include the AAMC-supported Stark and anti-kickback provisions. It also provides a higher level of funds for purchasing HIT.

Committee Leadership Urges Extension of Specialty Hospital Moratorium

Senate Finance Committee Chair Charles Grassley (R-Iowa) and Ranking Member Max Baucus (D-Mont.) sent a July 28 letter to CMS Administrator Mark McClellan after learning of "significant shortcomings" in the agency's survey of how specialty hospitals affect community hospitals. As required under the Deficit Reduction Act of 2005 (P.L. 109-171), HHS will use CMS' findings to develop a strategic and implementing plan that addresses physician investment in specialty hospitals. The plan is due Aug. 8.

Sens. Grassley and Baucus have "received numerous reports" that "inappropriate hospitals are being surveyed, while appropriate hospitals are not being surveyed." Because the Senators have "serious questions as to whether CMS will obtain accurate information," they ask the agency to "reexamine the information...and determine whether or not additional information or time is needed." Since the Deficit Reduction Act permits a limited extension of the specialty hospital moratorium, the Senators "strongly recommend" that CMS use the additional time "to ensure that the strategic and implementing plan is based on adequate and accurate information."

The letter also criticizes Administrator McClellan for failing to submit responses to questions raised about the opening of 43 new specialty hospitals following the 2003 moratorium. Sen. Grassley also re-iterates his request for a "detailed response" regarding the selection of surveyed hospitals.

Information:
Christiane Mitchell, Senior Legislative Affairs Manager
AAMC Government Relations
cmitchell@aamc.org
(202) 828-0526

Reps. Johnson, Cardin Circulate Letter Urging Physician Payment Relief

Reps. Nancy Johnson (R-Conn.) and Ben Cardin (D-Md.) are seeking signatures for a bipartisan letter to Speaker Dennis Hastert (R-Ill.) and Minority Leader Nancy Pelosi (D-Calif.), urging House action to address the 2007 Medicare physician payment reductions before adjournment in October.

The letter, which is similar to a July 17 bipartisan Senate letter that was signed by 80 Senators [see Washington Highlights, July 28], states that "at a minimum, we must provide...a modest increase for physicians as they received a zero increase this year." Calling physicians the "foundation of our nation's health care system," the letter advises that a "stable and predictable payment law...is critical to preserving a patient centered care system."

Information:
Christiane Mitchell, Senior Legislative Affairs Manager
AAMC Government Relations
cmitchell@aamc.org
(202) 828-0526

AAMC Comments on Proposed Population Study of Genes and Environment

The AAMC July 31 commented on policy issues raised by a proposed study of genetics, environment, and health in a large cohort of the U.S. population. Many of the issues and policy considerations associated with such a study were comprehensively outlined in a draft report released in June by the Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS) in the Department of Health and Human Services (HHS).

The proposed study would follow potentially thousands of participants over a decade, collecting medical records, tissue samples and other data to assess directly gene-environment interactions and their relationship to disease. Proponents see such a study as a complement to the Human Genome Project and an opportunity to harness genomic information for public health.

In its draft report, SACGHS identified a range of policy considerations that would need to be resolved for the HHS Secretary to decide whether to proceed with such an ambitious study. These issues include scientific considerations, such as whether smaller studies addressing more focused research questions would comprise a more effective approach, and wider social implications, including how best to protect medical privacy and meet ethical obligations to participants.

In its comment letter to SACGHS' chair, Reed Tuckson, M.D., the Association noted that the current funding environment for NIH and other Public Health Service agencies is particularly constrained, and the initiation of any large project would necessarily have resource impacts on other Federal funded research, and urged the committee to emphasize these impacts more strongly in its final report. The AAMC also proposed that the final report reaffirm SACGHS' call for "genetic anti-discrimination" legislation which has passed the Senate and is currently stalled in the House. "For the government to move ahead," the AAMC cautioned, "with a highly publicized, wide-ranging data collection effort without first legislating comprehensive protection against employer or health insurer misuse of information could undermine public confidence in this research and could be a further barrier to recruitment." SACGHS is reviewing public comments to develop a final report for submission to Secretary Leavitt by January, 2007.

Information:
Stephen Heinig, Senior Research Fellow
AAMC Biomedical Health Sciences Research
sheinig@aamc.org
(202) 828-0488

AAMC Comments to PTO on Patentable Subject Matter Guidelines

In its comments, the AAMC asked the PTO to strengthen the guidelines' instructions to examiners to scrutinize and reject all claims on underlying scientific principles, natural phenomena, or abstract ideas themselves. Such instruction, the AAMC stressed, is required by long standing case law precedent, consistently reaffirmed by the Supreme Court. Although the high court dismissed the LabCorp case in June on technical grounds (the legal question at issue had not been sufficiently raised in arguments before the lower courts), Justices Breyer, Stevens, and Souter issued a minority opinion reaffirming prior precedent. "Patent examiners should remain confident that long-standing judicial exemptions under section 101 remain strongly in force," the AAMC stated.