President Bush signed the Deficit Reduction Act of 2005 (DRA 2005) on February 8, 2006. DRA 2005 contained numerous budget cutting provisions impacting Medicare and Medicaid reimbursement programs. Following is a description of the most significant.

I. Physician Reimbursements

Physician Payments. In 2006, physicians were scheduled to receive a 4.4 percent reduction in Medicare payments. DRA 2005 reinstates the 2005 physician fee schedule. Claims already submitted should be “reprocessed” at the higher rate without resubmission. CMS had advised Medicare carriers to hold claims rather than pay them at reduced rates. These claims should now be paid at the new 2006 rates. Note that this additional increase will automatically be subtracted from future payments under the Sustainable Growth Rate methodology unless legislatively reformed.

Moratorium and Strategic Plan for Physician Investment in Specialty Hospitals. The moratorium on enrollment of specialty hospitals has been legislatively extended for six months following the enactment of DRA 2005, i.e., February 8, 2006, meaning that the moratorium is extended until August 8, 2006. HHS is required to develop and implement a strategic plan to address issues regarding physician investment of specialty hospitals, i.e.:

a.Proportionality of investment return;
b.Bona fide investment;
c.Annual disclosure of investment information;
d.Medicaid and charity care; and
e.Appropriate enforcement.

An interim report is due not later than May 8, 2006 and the final report is due August 8, 2006.

Durable Medical Equipment. Current policy provides that Medicare pay 120 percent of the DME purchase price over 15 months. In addition, beneficiaries currently pay 20 percent of the six-month maintenance fee for DME, whether or not maintenance or servicing is required. Under the legislation, Medicare would pay 105 percent of the DME purchase price over 13 months and ownership of the DME would be transferred to the beneficiary after the 13th month. Further, beneficiaries would be responsible for 20 percent of maintenance and servicing only when maintenance and servicing were required. Changes governing the beneficiary ownership of oxygen equipment also were included in the legislation.

Home Health. The home health payment rate of 2006 would be frozen under the legislation, and beginning in 2007 home health agencies (HHAs) would be required to report quality data and receive an incentive payment for provision of high quality care. HHAs serving rural beneficiaries would see a one-year five percent add-on payment under the legislation.

ESRD. The End Stage Renal Disease (ESRD) composite rate update of 1.6 percent would be extended for another year, covering services through 2006.

Federal Qualified Health Centers (FQHCs). Under the legislation, diabetes self-management training services and medical nutrition therapy services would be reimbursed as part of the all-inclusive rate to FQHCs. FQHCs also would be reimbursed for services provided by a health care professional who contracts with the center, and restrictions of FQHCs receiving homeless grants would be eliminated.

Gain-Sharing Demonstration Projects. HHS shall develop a program for qualified game-sharing demonstration projects, and shall improve no fewer than two and no more than six projects by November 1, 2006. These projects shall be operational no later than January 1, 2007 and shall have the following conditions:

a.A demonstration project shall involve an arrangement between a hospital and a physician under which the hospital provides remuneration to the physician that represents solely a share of the savings incurred directly as a result of collaborative efforts between the hospital and the physician;

b.A demonstration project shall be conducted pursuant to a written agreement that defines how the project will achieve improvements in quality and efficiency and is submitted to HHS prior to the implementation of the project;

c.The project shall include a notification process to inform patients who are treated in a hospital participating in the project of the participation of the hospital (the statute doesn’t require disclosure of the physician, but I presume that will be apparent to the patient);

d.The project shall provide measures to ensure that the quality and efficiency of the care provided to patients participating in the project is continuously monitored to ensure such quality and efficiency;

e.The elements of the demonstration project must be reviewed by an organization that is not affiliated with a hospital or the physician participating in the project; and

f.The project shall not be structured in a manner that awards physicians for participating in the project on the basis of the volume or value of referrals to the hospital.

Multiple Imaging Procedures and Ambulatory Surgery Center Payments. The Secretary is directed to develop fee schedules beginning with 2007 that cap certain ambulatory surgery center fees and certain multiple procedure diagnostic imaging procedures. The intent of these changes is to assure that ASC reimbursement for those procedures does not exceed hospital reimbursement and to avoid duplicate technical component payment.

II. Hospital Reimbursement

Hospital Reporting of Quality Data. The penalty for failure to report defined hospital-quality data has been increased from .4% to 2% of Medicare payments effective for 2006. Effective for fiscal year 2007, HHS shall begin to adopt baselines for the performance measures set forth in the November 2005 report by the Institute of Medicine of the National Academy of Sciences, incorporated into the Medicare Prescription Drug, Improvement and Modernization Act of 2003. HHS shall establish procedures for making data submitted under this clause available to the public. Such procedures shall ensure that a hospital has the opportunity to review the data that is to be made public with respect to the hospital prior to such data being made public. HHS shall report quality measures of process, structure, outcome, patient’s perspectives on care, efficiency, and cost.

Hospital Value – Based Purchasing Program. HHS shall develop a plan to implement a value-based purchasing program for payments under the Medicare program beginning with fiscal year 2009. The program shall include consideration of the following issues:

a.The ongoing development, selection and modification process for measures of quality and efficiency in hospital in-patient settings;

b.The reporting, collection and validation of quality data;

c.The structure of value-based payment adjustments, including the determination of thresholds or improvements in quality that would substantiate a payment adjustment, the size of such payments, and the sources of funding for the value-based payments; and

d.The disclosure of information on hospital performance.

Quality Adjustments for DRG Classifications for Certain Hospital-Acquired Infections. For discharges occurring on or after October 1, 2008, the DRG assigned for a discharge that includes certain hospital acquired infections shall be a DRG that does not result in a higher payment based upon the presence of this condition. In other words, hospitals are not going to be permitted to bill a higher DRG group if the underlying diagnosis for the higher DRG group is an infection acquired while in the hospital for a different DRG.

Small Rural Hospitals. A three-year transition for hold harmless payments would be provided to small rural hospitals. Under this provision small rural hospitals would receive 95 percent of the payment difference between the prior payment system and the hospital outpatient payment system in 2006, 90 percent of the difference in 2007, and 85 percent of the difference in 2008. However, rural sole community hospitals would not be covered by the transition period because CMS has already included a 7.1 percent increase in their payment for 2006.

Preventive Screenings. Ultrasound screening for Abdominal Aortic Aneurysms (AAA) and screening for colorectal cancer would be covered for certain at-risk individuals and these screens would be exempt from the Part B deductible.

III. Medicaid Provisions

Asset Transfer Policy. Loopholes in the asset transfer policy, allowing wealthy beneficiaries to qualify for Medicaid, would be closed. The new policy would lengthen the look back policy for asset transfers from three years to five years and the penalty period would begin the day the individual applies for Medicaid. Further, individuals with more than $500,000 in home equity would not qualify for Medicaid. This cap could be increased to $750,000 by the states. The home equity policy would apply only to individuals and not to applicants with spouses or dependent children.