1. 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

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

3. Delivery System Reforms Enacted Previously
Some pieces previously enacted in the February stimulus package (American Recovery and Reinvestment Act of 2009, P.L )
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 ( ) 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

4. 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

5. 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

6. 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
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 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

7. 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 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

8. 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

9. Other Medicare Payment Changes9

10. 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

11. 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

12. 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 ( 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.

13. 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
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