Health Reform and Medicare: Overview of Key Provisions Tom Ault Principal, Health Policy Alternatives For The Alliance for Health Reform Washington DC May 7, 2010

Delivery System Reform: “Bending the Health Care Cost Curve”

Delivery System Reforms Enacted Previously Some pieces previously enacted in the February stimulus package (American Recovery and Reinvestment Act of 2009, P.L. 111-5) Comparative effectiveness research funding ($1.1 billion) Health Information Technology funding (net $19 billion) Promises Medicare & Medicaid financial incentives totaling a net $14 to $27 billion over 10 years for eligible professionals and eligible hospitals Promises Medicare & Medicaid financial incentives totaling a net $14 to $27 billion over 10 years for eligible professionals (EPs) and eligible hospitals. Up to $44,000 in Medicare incentives per physician over 4 years (2011-2014) for meaningful users of certified EHRs. Up to $63,750 in Medicaid incentives per eligible professional over 6 years (in year 1, incentives available for adopting, implementing, or upgrading certified EHR; in years 2-6, for meaningful use). Eligible professionals can only get Medicare or Medicaid incentives; eligible hospitals can qualify for both. 3 3

Delivery System Reforms Through Medicare Higher payment for primary care physicians Payments to medical homes Voluntary pilot program for bundling Accountable care organizations Lower payment for preventable hospital readmissions Payment reduction for healthcare-acquired conditions Value-based purchasing Addressing geographic variation Medicare and Medicaid Innovation Center PPACA provides a 10% bonus for office, SNF, home, rest home and other specified visits for family medicine, internal medicine, geriatric medicine, pediatric medicine if at least 60% of total Medicare payments are for bonus-eligible services Effective 1/1/2011 through 12/31/2015 Also provides 10% bonus for major procedures furnished by general surgeons in HPSAs Existing 5% bonus payments for certain psychiatric therapeutic procedures extended through 12/31/2010 4

Potential to Have 6% of Base DRG Payments At Risk by 2017 Potential Dollars at Risk for Hospital Quality Provisions (percent reduction in DRG payments) Potential to Have 6% of Base DRG Payments At Risk by 2017 VBP Readmissions Hospital Acquired Conditions Begin FY 2013 1-2% reduction (phased in over 4 years) Opportunity to recoup full amount and more Begin FY 2013 1-3% reduction (phased in over 3 years) Begin FY 2015 1% reduction

Quality Reporting for Physicians Makes Physician Quality Incentive Program (PQRI) permanent Provides 1% bonus in 2011 based on successful reporting and provides a bonus of 0.5% in 2012-2014 Imposes 1.5% penalty in 2015 for failure to report successfully; penalty increased to 2% beginning in 2016 Requires plan from Secretary to integrate clinical reporting with electronic health records (EHR) Physician Compare website Physician feedback program VBP for physicians Beginning in 2011, allows registry reporting through a Maintenance of Certification program operated by a specialty body of the Board of Medical Specialties Provides an additional 0.5% in 2011-2014 for participation in qualified specialty Maintenance of Certification (MOC) programs Requires timely feedback on likelihood of receiving incentive payment and an appeals process Establishes value-based modifier to physician fee schedule Beginning 2015, requires that 1% of physician payment be adjusted by a value index based on performance in 2014 Index includes quality and efficiency measures determined by the Secretary Adjustment is budget neutral 6

Statute includes a menu of 20 possible models Medicare Delivery System Reforms Center for Medicare and Medicaid Innovation Test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care Medicare, Medicaid, and CHIP Secretary must select models for testing where there is evidence that the model addresses a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures Statute includes a menu of 20 possible models Secretary may limit model testing to certain geographic areas $10 billion available 2011-2019 through direct appropriation; $5 million in 2010 Secretary may, through rulemaking, expand the duration and scope of a model (even go nationwide) if: Model reduces spending without reducing quality, or model improves care without increasing spending No waiver authority for expansion phase Contracting directly with groups of providers and suppliers, such as through risk-based comprehensive payment or salary-based payment. Supporting care coordination for individuals at high risk of hospitalization through an HIT-enabled provider network that includes home tele-health technology. Varying payment to physicians who order advanced diagnostic imaging based on their adherence to appropriateness criteria. Paying providers and suppliers for using patient decision-support tools. Allowing states to test all-payer payment reform. Aligning guidelines of cancer care with payment incentives under Medicare in the areas of treatment planning and follow-up care planning. Developing a collaborative of high-quality, low-cost health care institutions responsible for developing and implementing best practices, and assisting other institutions in adopting such best practices. Testing the use of electronic monitoring by specialists, including intensivists and critical care specialists, based at integrated health systems. Allowing direct access to certain health professionals or services, such as outpatient physical therapy (that is, without requiring a physician order or referral). Establishing comprehensive payments to Healthcare Innovation Zones (groups of providers, including a teaching hospital, delivering full spectrum of health services while also incorporating innovative clinical training methods). Using telehealth services, especially in medically underserved areas and facilities of the Indian Health Service. 7

Observations on Delivery System Reforms Delivery system changes are key element of health reform legislation Focus generally on setting up long-term shifts rather than short-term budget savings Cautious CBO scoring due to lack of experience Experimentation with specifics – demonstrations, pilot projects with regulatory authority to move forward Implementation details to be worked out; very broad agency discretion – regulations will be key Challenges and opportunities for providers 8

Other Medicare Payment Changes 9

Medicare Payment Reductions Update reductions for hospitals, skilled nursing facilities, home health agencies, hospice programs, laboratory services, dialysis facilities Reductions can cause a negative update Productivity offset will apply to all payment updates beginning 2012 Reduction in Medicare hospital disproportionate share adjustment New standards for the tax exemption of nonprofit hospitals Productivity offset applied to all Medicare annual updates Based on 10-year moving average of change in annual economy-wide private non-farm business multi-factor productivity Same as the productivity adjustment in the MEI used to update physician fees Likely range: 1.0 to 1.3 percentage points each year Beginning 2011: Applies to all Part B items and services Beginning 2012: Applies to hospitals and SNFs Beginning 2013 Applies to hospice providers Reduction in Medicare Hospital Disproportionate Share Adjustment Begins in FY 2014 75% reduction in current payment reflects “empirically justified” level and MedPAC recommendations Additional payments are made to reflect uncompensated care costs to be distributed to each hospital based on its share of total uncompensated care costs large portion of the DSH reduction goes into the uncompensated care pool in the initial years, but note that allocation is different Aggregate amount of additional payments determined by percent reduction in the national uninsured population e.g., if uninsured rate falls by 20%, then 80% of the 75% reduction would be distributed to hospitals based on each hospital’s share of total uncompensated care provided by all hospitals Physician Update For 2010, current law causes the conversion factor to fall 21.2% affects all payments under the fee schedule Medicare projects large negative physician payment updates for several years after 2010 By 2015, payment rates will have dropped by more than 35 percent compared to 2001 Payment declines are due to the Sustainable Growth Rate (SGR) mechanism, which limits physician spending growth to increases in the gross domestic product (GDP) Imposes new standards for the tax exemption of nonprofit hospitals Requires that a hospital complete a community needs assessment once every three years Requires hospitals to adopt and publicize a financial assistance policy Limits charges for patients who qualify for financial assistance to amounts generally billed to insured patients Prohibits a hospital from taking extraordinary collection actions if the hospital has not made reasonable efforts to notify patients of its financial assistance policy Effective for taxable years after 3/23/2010; community assessment effective 3/23/2012 Requires Treasury/HHS to report annually to Congress on levels of charity care, bad debt, unreimbursed costs, etc. Also requires a report to Congress by 3/23/2015 on trends 10 10

Effective Dates for Key Medicare Provisions Year PPACA (as amended by HCERA) 2010 Provider update reductions 2011 Initial national quality strategy; Make hospital charges public; Medicare and Medicaid Innovation Center (not later than 1/1/2011) 2012 Productivity offset; ACOs 2013 Reductions for preventable hospital readmissions; Bundling pilot; Value-based purchasing (VBP); physician misvalued codes 2014 Medicare and Medicaid DSH reductions; Mandatory quality reporting for IRFs, LTCHs and IPFs; IPAB 2015 Reductions for hospital-acquired conditions; Independent Payment Advisory Board; physician value-based modifier 2016 VBP pilot programs for IRFs, LTCHs and IPFs 2020 1st year that IPAB proposals can affect hospital payment rates Note: policy development and proposed rules will commence at least a year before each provision’s effective date. 11

Other Provisions Independent Payment Advisory Board (IPAB) Comparative Effectiveness – “Patient-Centered Outcomes Research” Alternatives to malpractice mitigation: $50 million authorized for 5 years beginning FY 2011 for demonstration grants to states HHS will license a biological product as a biosimilar if FDA determines it and the reference product to be biosimilar or interchangeable Physician Ownership and Referral Physician Ownership/Investment Transparency Enhanced Program Integrity Physician Ownership and Referral Adds requirements for rural hospitals to qualify for the rural provider exception to the prohibition on certain physician self-referrals due to ownership or investment Beginning not later than 9/23/2011, only hospitals with physician ownership or investment and a provider agreement in operation on 12/31/2010 and that meet numerous specified requirements are exempt from the prohibition on self-referral Limits the number of operating rooms, procedure rooms, and beds for which the hospital is licensed at any time on or after 3/23/2010 to the number of operating rooms, procedure rooms, and beds for which the hospital is licensed on 3/23/2010 Provides a process to allow qualified hospitals to apply for an exception To qualify for an exception, a hospital must either be a high Medicaid facility or satisfy five specified criteria Capacity increase is limited to facilities on the main campus and cannot exceed 200% of the number of operating rooms, procedure rooms and beds on 3/23/2010 Physician Ownership/Investment Transparency Requires annual reports from covered manufacturers, beginning no later than March 31, 2013, of payments or other transfers of value to physicians and teaching hospitals A payment/transfer of value means a transfer of anything of value but there are a number of statutory exclusions (e.g., discounts/rebates). Reports must be in electronic form Manufacturers allowed to delay submission due to a product development agreement/clinical investigation Manufacturers & group purchasing organizations required to report annually regarding an ownership/investment interest held by a physician (or immediate family member) in the preceding year Penalties for failure to submit these reports Requires written disclosure by the referring physician to patients of any ownership interest in CT, MRI and PET services to which the physician refers a patient; must also provide patients a list of area suppliers of the services. Requires drug makers or distributors to report to the Secretary certain information regarding drug samples distributed to requesting licensed practitioners. Selected Program Integrity Provisions Enhanced screening of providers and suppliers before granting Medicare, Medicaid or CHIP billing privileges. Enhanced oversight of new providers and suppliers (30-365 days), such as prepayment review. Temporary moratorium on enrollment of new providers and suppliers if determined necessary to prevent or combat fraud, waste, or abuse. 90-day Medicare payment withhold for new durable medical equipment suppliers if significant risk of fraudulent activity. Prompt reporting and repayment of identified Medicare and Medicaid overpayments required. Administrative penalties for knowing participation by a beneficiary in a health care fraud scheme. Penalties for false statements on provider or supplier enrollment applications. Maximum period for Medicare claims submission reduced to 12 months (from 36 months). Only Medicare-enrolled physicians/professionals can order home health or DME. Face-to-face encounters required before physicians/professionals can order home health or DME covered under Medicare or Medicaid. Providers, physicians, and suppliers may be disenrolled from Medicare if they fail to maintain and provide access to documentation relating to written orders for home health and DME, and for referrals for other services. RAC program extended to Medicare Parts C and D and Medicaid.

Implications of Delivery System Reform and Medicare Changes Physician updates may continue to be year to year Prospect of low (or negative) inpatient hospital updates for FY 2011-2015 Quality of care will affect payments and public perception Significant increase in regulations to implement Medicare changes and delivery system reforms Extremely broad administrative discretion Unknown participation in, and effectiveness of, pilot and voluntary programs And other changes like comparative effectiveness and expanded fraud and abuse enforcement Significant increase in regulations to implement health care reform Numerous areas with administrative discretion Many provisions waive customary statutory protections including: Administrative Procedures Act Implementation allowed through interim final regulations or manual instructions Federal Advisory Committee Act (FACA) Federal Acquisition Regulation (FAR) Pilot programs can be expanded without further legislation Judicial review is prohibited for nearly all important Medicare implementation decisions and actions