Download Washington Report - January, 2002

Washington Report - January, 2002
Bill Finerfrock
Capitol Associates
Economic Stimulus Tops 2002 Agenda: Medicare Reform - Maybe
As Congress returns to work for the 2nd session of the 107th Congress, enactment of an economic
stimulus package tops the agenda. The House has already passed a economic stimulus package but
efforts to reach a compromise in the Senate broke down just before the holidays.
In mid-January, the Congressional Budget Office (CBO) announced that due to the economic
slowdown and increased spending on defense and bioterrorism, the expected federal budget surplus
for FY 2002 is now projected to be a deficit in the neighborhood of $22 Billion. CBO also
announced that based upon current spending and tax projections, they anticipate a federal deficit of
$14 Billion in FY 2003. It is important to note that these deficit projections do not assume
enactment of any additional federal spending for defense, homeland security or enactment of an
economic stimulus package.
The net effect of the Congressional desire to adopt an economic stimulus package and increase
spending for defense and homeland security in light of already expected deficits means that the
federal deficits will be larger in 2002 and 2003 than CBO projects, unless federal spending in other
areas is cut in order to offset increases in these areas.
This is also important because the money set-aside last year for major Medicare reform is no longer
available, having been used to pay for the previously mentioned increased spending.
In order for Congress to enact legislation making major reforms in the Medicare program it will have
to either increase revenues going into the trust fund (raise taxes), decrease spending in other areas of
Medicare to offset increased expenditures for things like prescription drugs, or tap into the Medicare
trust fund. Given that we are in the midst of a recession and 2002 is an election year, it is highly
unlikely that either party would seriously consider a tax increase. Therefore, we are left with either
Medicare cuts in some areas to offset increased spending for a prescription drug program or tapping
into the Trust Fund.
President Bush is expected to continue his support for creation of a Medicare prescription drug
program and include money for this reform in his budget submission in early February. It has been
reported that the President will recommend putting approximately $190 billion in his budget over the
next 10 years for a prescription drug proposal. However, the leading Democratic alternative may
cost as much as $400 Billion over the next 10 years. Even by Washington standards, that’s a pretty
large difference in cost.
While Medicare reform will be an attractive campaign issue, it is going to be extremely difficult for
Congress to enact any major reforms given the budgetary constraints outlined above. That means
that this year, perhaps more so than in past years, the resolution of the Budget debate will give us a
clear indication of just what we can expect from the 107th Congress.
Watch the Budget
Each year, Congress is supposed to adopt a budget that outlines broad spending projections for all
federal agencies and programs. In theory, this budget is binding on Congress as it works on
legislation throughout the year. If, at any time, Congress considers legislation that would violate the
budget agreement, an individual Senator can, for example, raise a budget point of order which, if
sustained by the parliamentarian, would mean that Congress could only enact the legislation with a
super majority (60 votes instead of a simple majority). Given the current makeup in Congress,
achieving this level of support is extremely difficult, if not impossible, on controversial legislation.
Consequently the budget agreement constrains Congress from doing things in excess.
One of the areas that the Budget Resolution sets limits on is the Medicare Budget. Because the
Medicare program is an entitlement (not subject to annual appropriations for benefits), the
Congressional Budget Office each year sets what is called the “baseline” for Medicare. The baseline
essentially establishes the projected expenditures for Medicare over the course of the next year, 5
years and 10 years. These are projections because there is much in the program that cannot be
controlled (i.e. just exactly how many Medicare beneficiaries will there be 2005?).
But Congress can affect Medicare outlays by making programmatic changes. An adjustment to the
fee schedule, expansion of benefits, raising the age of eligibility would all have a measurable effect
on future Medicare expenditures. These changes would alter the baseline projections made by the
Congressional Budget Office. When Congress adopts the budget resolution, it will set out what it
expects will be future expenditures or the future baseline for Medicare. In doing so, certain
assumptions will be made. It can set a budget assuming adoption of a prescription drug program that
costs $100 Billion dollars. It can set a budget without assuming adoption of a prescription drug
program. Whether the budget makes this or any other assumptions does not necessarily mean that a
prescription drug program will or will not get enacted, it simply determines how easy or difficult that
task may be.
This is where last years change in party control of the Senate- particularly the timing of that change became critical.
As you will recall, Senator Jim Jeffords announced that he was switching from Republican to
Independent which had the effect of moving control of the Senate from Republican to Democrat.
While this change, in and of itself was important, the timing of that switch was, in some ways, even
more important.
The fact that Senator Jeffords made the switch after the adoption of the Budget Resolution was
extremely important. What this meant was that Democrats could only enact legislation that
conformed to the budget parameters set by the Republicans. Normally, the party that negotiates the
budget agreement is then the party that is responsible for adopting policies consistent with that
agreement. Instead, we had the unprecedented situation of a budget agreement adopted exclusively
by one party with subsequent responsibility for living within that budget agreement turned over to
the other party.
So while the new Democratic Senate majority wanted to enact a prescription drug plan, it was
limited to adopting a plan that met with Republican budget projections. Adopting the prescription
drug plan that the Senate Democrats wanted would have violated the budget agreement. As was
previously noted, any Senator could have raised a budget point of order and necessitated a 60 vote
majority to pass the Senate.
By contrast, the House Republicans were able to adopt their proposals but they were operating within
a budget framework they had agreed to.
This year, by virtue of Democrats being in control of the Senate during the development of the 2003
budget, they will have a say in the final budget numbers and more importantly, the spending
assumptions that underlie those numbers. The spending priority differences between Republicans
and Democrats are significant. It is quite possible that Congress will fail to reach agreement on a
budget and simply not adopt a budget for the next fiscal year.
It is important to note that the adoption of a federal budget is not mandatory. If both Houses of
Congress fail to reach an agreement on a budget resolution for Fiscal Year 2003 spending, then the
FY ‘02 Budget Resolution remains in effect for the entitlement programs (Medicare, Medicaid,
Social Security, etc.). The Medicare and Medicaid spending projections assumed in last years budget
remain in force.
So watch the budget. If Senate Democrats and House Republicans cannot reach agreement on a
budget resolution (unusual but not unprecedented), then the prospects for Medicare reform this year
diminish significantly. If, however, the two parties can agree to a budget resolution that presumes
Medicare reform, then we could see a major Medicare bill this year.
Medicare Contractor Reform
Just prior to the holiday recess, a bipartisan piece of legislation was introduced in the Senate to make
major administrative and contracting reforms in the Medicare program. S. 1738, the Medicare
Appeals, Regulatory, and Contracting Improvement Act of 2001, was put forward by Senator John
Kerry (D-MA). Most significantly, the legislation has been cosponsored by a majority of the
members of the Finance Committee (the Senate Committee with jurisdiction over Medicare issues),
including Senators Baucus and Grassley, the chair and ranking republican respectively, on the
Committee.
Much of the Kerry bill is identical to the Medicare Regulatory and Contracting Reform Act of 2001
passed by the House of Representatives on December 4, 2001. That bill, H.R. 3391, passed the
House by a vote of 408 - 0. If you would like to view a copy of either the House or Senate bills, go
to: http://thomas.loc.gov/ and type in the bill number (H.R. 3391 or S. 1738) and click on the
appropriate icon for the particular information you want about this bill. A side-by-side comparison
of these bills is also available for your review on the HBMA website.
In resolving the differences in the two versions, Congressional negotiators will attempt to produce a
bill that has no impact on Medicare revenues (either positively or negatively) so as not to trigger a
budgetary point of order (see previous article). The Congressional Budget Office has indicated that
the bill, as passed by the House, could result in increased Medicare expenditures. As indicated by
the broad bi-partisan support this legislation has generated, it is expected to pass the Senate with
little opposition. However, the future of this proposal could be clouded if Senators seek to attach
other, broader, Medicare reform proposals.
HBMA leaders will continue to work with Congress to produce meaningful and appropriate
Medicare administrative and contracting reforms.
MedPAC supports Medicare Contractor Reforms
In a special report to Congress, the Medicare Payment Advisory Commission (MedPAC) has
recommended significant Administrative and Contractor reforms. These reforms are, in many
cases, similar to the reforms being supported by a bipartisan coalition of Representatives and
Senators.
The following are the recommendations of the Commission. If you would like to review the
entire report and the rationale behind these recommendations, go to: www.medpac.GOV/
and click on the document entitled, “Report to the Congress: Reducing Medicare Complexity
and Regulatory Burden” (December 2001).
Recommendation 1: CMS should move to a standard nationwide system of claims
processing and eliminate local descriptions of policy and regulation. The Congress
should allow CMS to contract as necessary to implement a standard system efficiently.
Recommendation 2: The Medicare program should provide timely, binding written
guidance to plans and providers. Plans and providers that rely on such guidance should
not be subject to civil or criminal penalties or be required to refund related payments if
that guidance is later found to be in error.
Recommendation 3: CMS should explore ways to reduce routine administrative
requirements for plans and providers that demonstrate sustained good performance.
Recommendation 4: The Secretary of Health and Human Services should work with the
Department of Justice to improve consistency and eliminate redundancy in enforcement
roles and activities.
Recommendation 5: The Congress should provide reasonable time lines and resources
for CMS to develop and test regulations thoroughly before implementation.
Recommendation 6: CMS should eliminate regulations and other issuances that become
obsolete as a result of program changes.
Recommendation 7: The Congress should appropriate the necessary resources for CMS
to acquire new technology that would simplify administrative processes and improve
information exchange with program participants.
Medicare Fee Schedule Reductions Take Effect
Despite a furious effort by organized medicine to reduce a 5.4% cut in Medicare physician payments,
Congress failed to act on legislation that would have limited that reduction to .9%. While a large, bipartisan coalition of Senators and Representatives supported legislation limiting the reduction to less
than 1%, an agreement could not be reached prior to adjournment.
Although many in Congress were sympathetic to the concerns raised by the physician community,
many were concerned about the only addressing the physician payment issue when so many other
providers (hospitals, nursing home, home health agencies, etc.) had raised similar concerns about
possible or projected cuts in their payments.
Because the cut has already been factored into the CBO baseline for Medicare, any effort to restore
the cut would have to be paid for by either reductions in other Medicare expenditures, or an increase
in Medicare revenues. Neither of these prospects is particularly appealing given that the cost of
raising payments would “cost” Medicare several billion dollars.
At its core, the reduction came about because system used to update Medicare physician payments is
tied to the gross domestic product (GDP). While this tie was advantageous to physicians at times
when the GDP growth was rising faster than medical inflation (throughout the 90s), it became
disadvantageous when the country slipped into a recession during 2001.
The Medicare Payment Advisory Commission has been asked by Congress to develop a new formula
for determining the annual updates for physician payments. The Commission has been directed to
submit its recommendations by March.
There will certainly be considerable political pressure on Congress to restore at least some of the
5.4% cut in physician reimbursement. Whether that translates into political success will depend on
the cost of restoration, the amount of pressure other providers put on Congress to raise their
payments and the willingness of Congress to increase the deficit beyond the $21 Billion already
projected by the Congressional Budget Office.
MedPAC Makes Payment Recommendations in Preparation of March Report
At its January 16-17 meeting, the Medicare Payment Advisory Commission (MedPAC) approved
recommendations addressing physician and hospital inpatient and outpatient payment systems. The
Commission also discussed other factors that Medicare should take into account in setting physician
and provider payment rates as well as payments for indirect medical education.
MedPAC recommended that Congress should update payments for physician services by 2.5 percent
for 2003. The recommendation would remove the current sustainable growth rate (SGR) system
which relies heavily on changes in the Gross Domestic Product and instead require that the Secretary
of Health and Human Services update physician payments based on the estimated change in input
prices, minus an adjustment for productivity.
MedPAC urged that Congress increase the fiscal year 2003 base rate for inpatient services by the
hospital market basket minus 0.55 percent for hospitals in large urban areas and by the market basket
rate for all other hospitals. The differing level of increase for large urban versus non-large urban
hospitals is part of an effort to gradually eliminate the differential in inpatient rates between hospitals
in large urban areas and hospitals in other areas. This differential will not close the gap but rather
narrow it slightly.
MedPAC also recommended an increase the payment rates for services covered by the outpatient
prospective payment system. The amount of the increase would be equivalent to the change in the
hospital market basket. MedPAC staff estimated that the 2002 Medicare margin for outpatient
services would be 3.8 percent; although the overall outpatient margin for 2002 would average minus
16.3 percent.
Finally, MedPAC concluded that the Geographic Adjustment Factor (GAF) for physician services is
a reasonable method for adjusting floor and rate of increase ceilings for geographic differences in the
cost of residency training. When looking at other possible adjusters such as the hospital wage index,
the resident and teaching wage index, an index based on per resident costs or payments, and a
composite index using two or more of the above indices, it was determined that none would be as
appropriate as the physician GAF.
When examining whether or not Medicare should account for factors not related to providers’ costs
for serving beneficiaries, staff concluded that this issue should be further pursued actively for
specific policies next year. Glenn Hackbarth, Chairman of the Commission, said that this
presentation would not be included in MedPAC’s March report, but examining the “total margins”
would assist in the understanding of its relevance in the Medicare payment and cost policies.
The Commission said that it should also not make any recommendations regarding indirect medical
education (IME) payments in its March report. More data is required to examine if Medicare should
continue making extra payments to providers unrelated to the cost of caring for Medicare patients
and if the IME adjustment should be reduced to the empirical cost relationship.
MedPAC’s next meeting is scheduled for March 21-22.
Medicare & Medicaid 2002 Program Memos
These issuances are official agency transmittals used for communicating reminder items,
request for action or information of a one time only, non-recurring nature. If you would like to
get a copy of these memos, go to: www.hcfa.gov/pubforms/transmit/memos/comm_date_dsc.htm
A-02-004
Critical Access Hospitals (CAH) Exempt from the Ambulance Fee Schedule
Effective: 7/1/02
B-02-003
New Permanent Modifier for “Specific Required Documentation on File”
Effective: 7/1/02
AB-02-006
Customer Service Assessment Management System (CSAMS) for Medicare Call
Centers. Effective: 2/10/02
AB-02-005
Elimination of Official Level III Healthcare Common Procedure Coding System
(HCPCS) Codes/Modifiers and Unapproved Local Codes/Modifiers.
Effective: 10/16/02
AB-02-004
Harkin Grantees: Aggregate Report Dates.
AB-02-003
Accelerated Referral of Non-MSP Delinquent Debts (Active and Currently Not
Collectible (CNC)) to Debt Collection Center (DCC) for Cross Servicing and
Treasury Offset Program (TOP). Effective: 1/1/01
AB-02-002
Claims Processing Instructions For The Medicare Quality Partnerships
Demonstration (formerly referred to as "Centers of Excellence") and The Medicare
Provider Partnership Demonstration. Effective: 4/1/02
A-02-002
Discontinuance of Contract With Integriguard (Division of CMRI) to Conduct
Community Mental Health Centers (CMHC) Site Visits After January 15, 2002.
Effective: 1/15/02
A-02-003
Handling of Inpatient Claims Containing HCPCS Codes J7198, J7199, and Q2022
for Payment for Blood Clotting Factor Administered to Hemophilia Inpatients.
Effective: 1/11/02
AB-02-001
New Temporary “K” Codes for Ostomy Devices and Supplies. Effective: 4/1/02
B-02-002
Notification to Carriers and Providers of Skilled Nursing Facility (SNF)
Consolidated Billing (CB) Coding Information on CMS Web site.
B-02-001
The Do Not Forward (DNF) Initiative—Using “Return Service Requested”
Envelopes for Remittance Advice
A-01-150
Provider Education Article: CY2002 OUTPATIENT PROSPECTIVE PAYMENT
SYSTEM RATE IMPLEMENTATION DELAY.
A-01-149
Amended Production Dates for the Provider Statistical and Reimbursement (PS&R)
Report and Extension of Due Date For Filing Provider Cost Reports.
A-01-148
Changes to Fiscal Year (FY) 2001 Nursing and Allied Health Education Payment
Policies as Required by the Benefits Improvement and Protection Act of 2000
(BIPA), P. L.106-554. Effective: 4/1/02
A-01-147
Federal Fiscal Year (FY) 2003 Wage Index: Request for FY 1999 Wage Data from
Hospitals Affected by the Filing Extensions Provided by Transmittal Numbers
A-01-88 and A-01-117.
A-01-145
Delay of the 2002 Update to the Outpatient Prospective Payment System (OPPS).
Effective: 1/7/02
A-01-146
Inpatient Rehabilitation Facility Prospective Payment System (IRFPPS)--Revenue
Code File Update. Effective: 1/1/02
A-01-144
Additional Information Related to Section 212 of the Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Public Law
106-554) Affecting Medicare-Dependent, Small Rural Hospitals (MDHs). Also,
Clarifications and Corrections to: Changes to the Hospital Inpatient Prospective
Payment Systems and Rates and Costs of Graduate Medical Education; Fiscal Year
2002 Rates, Etc.; Final Rules, as Published in the Federal Register on August 1, 2001
(66 FR 39828).
AB-01-189
Medicare Coverage of Non-Invasive Vascular Studies for End Stage Renal
Disease (ESRD) Patients. Effective: 1/1/02
B-01-78
Correction to Fee Schedule File for Parenteral and Enteral Nutrition Items and
Services (PEN). Effective: 1/1/02
B-01-77
Correction to Correct Coding Edits, Version 8.0, Effective January 1, 2002
AB-01-188
Coverage and Billing of Ambulatory Blood Pressure Monitoring (ABPM)
Effective: 4/1/02
AB-01-186
Suspension of National Coverage Policy on Electrical Stimulation for Wound
Healing. Effective: 12/18/01
AB-01-187
Update to Waived Tests – November 21, 2001. Effective:1/7/2002