Lawmakers Reach Deal to End Government Shutdown, Raise Debt Ceiling

by Andrea M. Bergman, Karen S. Sealander, Erica Stocker and Eric Zimmerman

While the focus over the past 16 days has been on the shuttered government and the prospect of the United States defaulting on its debt obligations, there are subtexts that are relevant to the health care industry.  This On the Subject details five key health care takeaways.

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CMS Changes to the Clinical Laboratory Fee Schedule

by Christine Park Song, John Warren and Eric Zimmerman

On Friday July 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published the 2014 Medicare Physician Fee Schedule and the 2014 Medicare Hospital Outpatient Prospective Payment System Notices of Proposed Rulemaking.  The proposed rules are available in the Federal Register at pages 43282 and 43534, respectively.   These notices include three proposed changes to Medicare payment for Clinical Laboratory services that would address the rapid technological changes in the clinical diagnostic lab environment.

First, CMS is proposing a process that would allow for the systematic examination of payment amounts on the Clinical Laboratory Fee Schedule (CLFS).   The process would:

  • Identify those CLFS codes that had undergone “technological changes” affecting the price of the test. CMS defines a technological change as any change to the tools, machines, supplies, labor, instruments, skills, techniques and devices that results in changes to the resources required to perform the test, the types of personnel required to perform the test and/or the volume, frequency and site of service of the testing;
  • Review all CLFS codes over a five-year period, beginning with the oldest codes, reviewing a portion of the total codes each year; and,
  • Make appropriate adjustments to payment rates on the CLFS whenever necessary.  CMS anticipates that most adjustments will be decreases; however, they note that the process could result in increased payments as well.

Notably absent from their review is an analysis of the costs of the resources needed and used to develop tests,  including intellectual property costs, which can be a significant portion of the costs of newer tests and costs which are generally not accounted for under the CLFS.

The full list of codes that CMS is proposing to package is available on CMS' website (Addendum P).

The second proposal involves proposed changes to the Hospital Outpatient Prospective Payment System (OPPS) for CY 2014.  Specifically, the Notice of Proposed Rulemaking includes a proposal to bundle clinical laboratory payments into the OPPS payments for related services.  CMS believes that, in general, clinical laboratory tests essentially support the underlying outpatient encounter. CMS argues that, because the OPPS is meant to be an all-inclusive payment system and not a fee schedule, bundling clinical laboratory payments into the OPPS payment is appropriate.

CMS proposes two exceptions to this policy: 

  • If a lab test is unrelated to the primary service, that is, if the test was ordered for purposes unrelated to the OPPS encounter, it would continue to be paid separately. Lab tests meeting this exception criterion would also need to be ordered by a physician other than the physician ordering the OPPS service. 
  • Exempt molecular diagnostic tests, citing the novelty and different use patterns for these tests. 

The third proposal would limit Medicare payments for non-facility based services paid under the Physician Fee Schedule (PFS) to the amount paid when the service is performed in the facility setting. CMS believes that anomalies in data used to set rates under the PFS and the way that data are used in the PFS’s resource-based Practice Expense (PE) methodology leads to inaccurate payments for certain services. CMS believes that PE input data voluntarily submitted to the Relative Value Scale Update Committee (RUC) may be inaccurate, incomplete or biased. Further, the lack of a comprehensive review and evaluation of PE inputs is believed to contribute to these discrepancies. For most services, this proposed policy change will have a small impact (-2 percent to +1 percent); however, for clinical laboratories in particular, CMS estimates that this proposal will reduce payments by 25 percent.

If finalized, these three proposals would operate to substantially affect Medicare payment for clinical laboratory services, and could likewise affect market demand for some tests.

Congress, President Extend Endangered Medicare and Medicaid Programs

by Teddy Eynon, Karen S. Sealander and Eric Zimmerman

The Temporary Payroll Tax Cut Continuation Act of 2011 extends numerous expiring Medicare and Medicaid programs, thus sparing physicians, hospitals and other health care providers significant Medicare and Medicaid payment cuts.  This On the Subject provides an overview of the most significant Medicare- and Medicaid-related provisions in the Temporary Continuation Act.

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House End of Year Package Would Cut Hospital Funding More than $17 billion

by Karen S. Sealander and Erika Stocker

As the clock ticks down on Congress’ 2011 session and lawmakers look to wrap up outstanding FY 2012 appropriations bills, leaders in both the House of Representatives and the Senate continue to look for a path forward on priority legislation to extend unemployment benefits, renew the expiring Social Security payroll tax cut and prevent a steep cut in Medicare physician reimbursements as part of a large year-end “extenders” package. 

House Republicans released their extenders package, HR 3630, late last week and are working to build support for the measure, with a vote expected early this week. This 369-page legislation would reduce Medicare payments to hospitals by more than $17 billion in order to finance other of the bill’s provisions. Highlights of the health-related provisions are set forth below and a more detailed summary of the health-related provisions can be found here

Should HR 3630 pass the House, it is expected to be soundly rejected in the Senate. Further, President Obama has already indicated his displeasure with certain of the bill’s provisions. As such, we believe that there are two options for an extenders package to make its way to the President’s desk for a signature: (1) House and Senate leaders will need to have an earnest negotiation to agree on a compromise that can pass muster in a Republican-led House, can garner 60 votes in the Democratically-controlled Senate and can avoid the veto pen of President Obama, or (2) the Senate will approve its own extenders package in the nature of a substitute to the House bill, which the House would have little choice but to accept.

Highlights of some of the health-related provisions are as follows:

Extenders and Other Changes

  • The bill heads off a 27.4 percent cut in Medicare physician payments, and provides that for CYs 2012 and 2013, physician payments would increase 1 percent in each year. The Congressional Budget Office (CBO) scores this provision as costing $38.9 billion over 10 years.
  • The bill would extend several expiring Medicare ambulance add-on payments, including a 2 percent adjustment for urban ground ambulance services, a 3 percent adjustment for rural ground ambulance services and the 22.6 percent increase for ambulance payments for trips originating in “super rural areas,” through December 31, 2012,. CBO scored this provision at $0.1 billion over 10 years.
  • The bill would extend with modifications a program that provides an exceptions process to outpatient therapy caps through December 31, 2013. CBO scored this provision at $1.7 billion over 10 years.
  • The bill would extend the physician fee schedule's work relative value units (RVU) geographic floor through December 31, 2012.  CBO scored this provision at $0.5 billion over 10 years.
  • The bill would re-open physician-hospital ownership restrictions imposed under the Affordable Care Act (ACA) to allow physician-owned hospitals that were under construction, but did not have Medicare provider numbers as of December 31, 2010, to open and operate and qualify for grandfather protection.  The bill also would make it significantly easier for hospitals that were grandfathered under the ACA provisions to expand capacity (presently, grandfathered hospitals are allowed to expand bed and OR capacity only if they meet very limited criteria). CBO scored this provision at $0.3 billion over 10 years.

Offsets

 The bill utilizes a number of offsets, including several that come directly from hospital payments:

  • Reducing hospital outpatient prospective payment system (HOPPS) facility fee payments to hospitals for evaluation and management (E/M) services to be equal to the Medicare payment for the same service when furnished in a physician office. CBO estimates that this provision saves $6.8 billion over 10 years.
  • Reducing the reimbursement hospitals and other providers can receive for bad debts from 70 percent to 55 percent, phased in over 3 years.  CBO estimates that this provision saves $10.6 billion over 10 years. Of note, the President had proposed that the percentage be reduced to 25 percent.
  • Rebasing Medicaid disproportionate share hospital (DSH) payments.  CBO estimates that this provision saves $4.1 billion over 10 years.
  • Increase Medicare Part B and D premiums for high-income individuals by 15 percent, and increase the number of individuals considered to be high-income by lowering brackets from $85,000 for individuals to $80,000, and from $170,000 for couples to $160,000.  CBO estimates that this provision saves $31 billion over 10 years.
  • Reducing by $8 billion the Prevention and Public Health Fund created in the ACA.

Omitted Provisions

The bill is also noteworthy for what it does not include, including:

  • Sole community hospital and small rural hospital hold harmless or “TOPS” protections under the outpatient PPS, which will expire December 31, 2011.
  • Section 508 wage index reclassifications, which expired September 30, 2011.
  • Physician pathology technical component payments that allow independent laboratories to receive payments from Medicare for the technical component of pathology services performed for a hospital patient.
  • Reasonable cost payments for clinical laboratories in low density population areas, which expires July 2012.
  • The Medicare-dependent hospital designation program, which expires September 30, 2012.
  • Low-volume hospital payment adjustments, which expires September 30, 2012.