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To:	ATRA Membership
From:	Peter W. Thomas, Esq., Principal, Powers, Pyles, Sutter & Verville, P.C. Dustin May, Legislative Director, Powers, Pyles, Sutter & Verville, P.C. Adam Phelps, Legislative Director, Powers, Pyles, Sutter & Verville, P.C.
Date:	June 28, 2002
Re:	Medicare Prescription Drug and Provider Giveback Legislation Passes House of Representatives

Legislative Status

The week of June 17, 2002, the House of Representatives Energy and Commerce Committee and the Ways and Means Committee considered Medicare prescription drug coverage and reform legislation by marking up H.R. 4954. Both committees passed differing versions of the legislation that week on party-line votes. On June 27, 2002, the House of Representatives Rules Committee met to reconcile the differences between the two bills and reported a rule for consideration of the bill on the House floor. The rule contained a "self-executing" amendment that reconciled the two committee-passed bills directly on the floor when the rule passed. No other amendments, including a Democratic substitute amendment, were allowed to be offered under the rule. After lengthy debate and parliamentary tactics by the Democrats to protest the rule for consideration of the bill, the bill passed on a party-line vote of 221-208 at 3:00 a.m. on June 28, 2002. Eight Republicans voted against the bill on various grounds, mostly in protest of the fact the Republican bill did not adequately address prescription drug prices. However, eight Democrats crossed party lines to votes for the Republican bill. Some are in tight reelection races and others were supportive of the Republican plan on fiscal grounds.

Drug Benefit

The House-passed bill would allow Medicare beneficiaries to purchase drug coverage directly from private insurance companies for a $250 annual deductible and a $33 monthly premium. Low-income seniors would be exempt from the premiums and deductible with the exception of small copayments for each prescription. The plan would cover 80% of seniors' annual prescription drug costs up to $1,000, 50% up to $2,000 and no costs between $2,000 and $3,700, after which a catastrophic benefit would begin.

Home Health

The House-passed bill would eliminate a 15% cut in payments which, in current law, is scheduled to go into effect on October 1, 2002. Also, with regard to annual inflationary payment updates, the bills would change the timing of all payment updates from fiscal years to calendar years. The update for fiscal 2002 would remain the market basket increase, the inflationary adjustment given to home health agencies every year, minus 1.1%. That update would be extended through the end of calendar year 2002. The update for calendar 2003 would be 2%, a 1% reduction from the 3% market basket increase projected for calendar 2003. The update for 2004 would be 1.1%, a 2% reduction from the 3.1% projected market basket increase. The update for 2005 would be 2.7%, a .6% reduction from the 3.3% projected market basket increase.

The home health copayment was eliminated from the House-passed bill.

Competitive Bidding

The House-passed bill would require the Secretary to establish and implement competitive bidding programs for areas throughout the country starting with one-third of the areas in 2004 and the remaining two-thirds in 2005. The Secretary would be required to enter into contracts with suppliers for "competitive acquisition areas" for not longer than three years in duration. The items to be subject to competitive bidding would be "durable medical equipment and inhalation drugs used with durable medical equipment" as well as "off-the-shelf orthotics" (defined as covered orthotics which "require minimal self-adjustment for appropriate use and does not require expertise in trimming, bending, molding, assembling, or customizing to fit the patient").

The competitive bidding contracts may not be awarded unless the Secretary "finds" the selected suppliers meet all of the quality and financial standards set by the Secretary or accreditation organizations, the amounts paid under the contract are expected to be less than the total amounts that would have been paid otherwise, the beneficiaries have a choice of multiple suppliers and beneficiary liability is limited to the applicable percentage of the contract award price. The Secretary is to establish quality standards after consulting with "an expert outside advisory panel" composed of representatives of suppliers, practitioners and physicians.

Medicare Physician Payment Update Increase

The legislation provides a 6% increase in Medicare physician payments over the next three years rather than the 14.2% cut projected under current law (a favorable swing of nearly 23% when compounded). The provision allocates $21.3 billion over five years to prevent additional reductions in the Medicare conversion factor. Chairman Tauzin stated repeatedly during the mark-up that he will continue efforts on a long-term solution to the Medicare physician payment problem.

Regulatory Relief Provisions

The House-passed bill also includes Medicare regulatory relief provisions adopted by the House of Representatives last December. Those include limitations on the ability of CMS to require new documentation guidelines for Evaluation and Management (E&M) services. CMS would be required to pilot test new guidelines and involve the physician groups in their creation prior to any required new system of documentation. The bills would also establish a Medicare ombudsman for providers and one for consumers. They would also provide that rules could not be retroactively applied unless required by statute or that the Secretary makes a finding that retroactivity is in the public interest. With respect to rule-making, the reforms would ensure that rules could not have a new provision in the final rule that was not related to an issue raised in the proposed rule. An advisory body would be established on the Emergency Medical Treatment and Labor Act (EMTALA) and be made up of seven medical doctors with EMTALA experience, hospital, and consumer representatives.

Skilled Nursing Facility Funding

The House-passed bill provides for temporary payment increases of 12% for 2003, 10% for 2004, and 8% for 2005 for skilled nursing facility bonus payments for the nursing component of care.

Teaching Hospital Provisions

IME--Under current law, the indirect medical education {IME} payment made to teaching hospitals in addition to their DRG payment per case would be reduced. The current formula provides an increase for each case discharged which is the sum of the proportion of residents to beds of each hospital times a multiplier which is 6.5% in 2002. In essence, this formula compensates teaching hospitals for extra diagnostic procedures and time spent by attending physicians used to educate medical residents.

Under current law the multiplier drops to 5.5% in 2003 and 2004. The House-passed bill places the multiplier at 6% in 2003 and 5.9% in 2004. In the Ways and Means Committee, however, an amendment was defeated to raise the multiplier to 6.5% in both 2003 and 2004. The amendment, introduced by Rep. Richard Neal (D-MA), would have attached the "American Hospital Preservation Act," which has 274 cosponsors, to the Medicare package. The amendment failed after Thomas argued that hospital groups already support the GOP package, adding that a vote for the amendment would cause a domino effect of other providers seeking increased payments.

Redistribution of Unused Resident Positions-Under the House-passed bill, the Secretary will determine if a teaching hospital's current number of residents (reference level) is less than applicable resident limit. If so, 25 percent of the unused residency payments would be retained by the hospital and 75 percent redistributed. The resident reference level would be the highest number of allopathic and osteopathic resident positions (before the application of any weighting factors) for the hospital during the reference period. A hospital's reference period would be the 3 most recent consecutive cost reporting periods for which a hospital's cost reports have been settled (or in the absence of such settled cost reports, submitted reports) on or before September 30, 2001. The Secretary would be able to adjust a hospital's resident reference level, upon the timely request for such an adjustment, for the cost reporting period that includes July 1, 2002.

The Secretary would be authorized to increase the applicable resident limits for other hospitals. No increase would be permitted for any portion of cost reporting period that occurs before July 1, 2003 or before the date of a hospital's application for such an increase. No increase would be permitted unless the hospital has applied for such an increase by December 1, 2004. The Secretary would first distribute the increased resident count to programs in hospitals located in rural areas and hospitals that are not in large urban areas on a first-come-first-served basis. The hospital would have to demonstrate that the resident positions would be filled; not more than 25 positions would be given to any hospitals. These hospitals would be reimbursed for DGME for the increase in resident positions at the locality adjusted national average per resident amount. A hospital's indirect medical education (IME) limit would be treated in the same way as changes to the aggregate limit except any resulting increase in resident counts would not affect a hospital's IME payments.

These provisions would not apply to reductions in residency programs that occurred as part of the voluntary reduction program or would affect the ability of certain hospitals to establish a new medical residency training programs.

The Secretary would be required to submit a report to Congress no later than July 1, 2004 that recommends whether to extend the application deadline for increases in resident limits.

Extension of Update Limitation on High Cost Programs-Starting in FY2001, hospitals received no less than 70 percent of a geographically adjusted national average amount. Hospitals with per resident amounts above 140 percent of the geographically adjusted national average amount had payments frozen at current levels for FY2001 and FY2002, and in FY2003-FY2005 would receive an update equal to the Consumer Price Index (CPI) increase minus 2 percentage points. Hospitals with per resident amounts between 70 percent and 140 percent of the geographically adjusted national average would continue to receive payments based on their hospital-specific per resident amounts updated for inflation.

Disproportionate Share Hospital Provisions

Enhanced Disproportionate Share Hospital (DSH) Treatment for Rural and Urban Hospitals with Fewer than 100 Beds-Starting for discharges on or after October 1, 2002, the DSH adjustment that hospitals (other than urban hospitals with a 100 or more beds or certain public hospitals) would receive would be based on a blend of their current DSH adjustment and the current DSH adjustment for large urban hospitals. However, the new DSH adjustment would not exceed 10 percent for any hospital that was not classified as a RRC. A hospital's new DSH adjustment would be calculated using 80 percent of the existing DSH adjustment in FY2003; 60 percent in FY2004; 40 percent in FY2005; 20 percent in FY2006; and 0 percent in FY2007 and subsequently.

Medicaid DSH Increase-The House-passed bill provides an additional $2billion for Medicaid DSH hospitals over the next 10 years.

Therapy Caps

Therapy Caps-Under current law there has been a moratorium on the application of the per patient physical and speech, and occupational therapy services. The last year of the moratorium is 2002. Caps of $1500 for physical and speech and $1500 for occupational therapies will go into effect in 2003 if current law is not changed. The House-passed bill extends the moratorium on the caps for another 2 years. Rep. Frank Pallone (D-NJ) introduced an amendment in Committee to permanently repeal the caps, at a cost of $2.6 billion over 5 years, $3.6 billion over 10. The amendment failed on a party-line vote.

Study on Direct Access-The House-passed bill does not include provisions authorizing direct access to physical therapy services without MD referral or certification of need. It does include a study by the GAO of the effects of direct access to physical therapy services. The study would examine referral patterns for physical therapy services in states that authorize direct access and in states that do not, i.e. those states that require an MD referral. It would also require an examination of the delivery of physical therapy services in DoD facilities and an analysis of the impact of direct access on expenditures under Medicare and on beneficiaries. Finally, the study would also examine the potential effects of prohibiting physicians from referring patients for physical therapy services within the practice of the referring physician or his or her group practice. This aspect of the study is essentially a critical review of whether the exception in the Stark Physician Referral law for group practices should be maintained, at least for physical therapy; but it would seem that the premise underlying the study provision applies equally to all other health services covered by the Stark law.

Renal Dialysis Provisions

Composite Rate-The House-passed would increase the composite rate 1.2 percent for services furnished in 2004. The provision would specify that the prohibition on exceptions to the composite rate would not apply to pediatric facilities, as of October 1, 2002, that did not have an exception rate as of that date. Pediatric facilities would be defined as a renal facility at least 50 percent of whose patients were under age 18.

Study on Home/In-Center Dialysis-The House-passed bill would require the General Accounting Office of the Department of Health and Human Services to submit a report to Congress within one year of enactment. The report would be required to contain: an analysis of the differences in costs of providing renal dialysis services in home settings and facility settings; 2) an assessment of the percentage of overhead costs in home settings and facility settings; and 3) an evaluation of whether the charges for home dialysis equipment and supplies were reasonable and necessary.

Medicare Benefits Administration

Under the House-passed bill, the Medicare Benefits Administration (MBA) would be an agency established within HHS that would be placed in control of Medicare Part C, the Managed Care component of Medicare, and Part D, the new prescription drug section of the legislation. The department would segment and bring parity to Parts A and B of Medicare the managed care components of the program.

More information on this new department will follow in a subsequent memorandum.

Outlook

Although the legislation has passed the House, prospects in the Senate look bleak. The Finance Committee has indicated it will have meetings and possibly hearings on prescription drug coverage during July; a compromise is likely to remain illusive. A provider giveback bill, however, is expected to be considered and passed during the fall.