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.

Read the full article here.

Senate Finance Committee Leaders Release Comprehensive Report on Combating Waste, Fraud and Abuse in Medicare & Medicaid Programs

by Erica Stocker

On January 31, a group of six current and former members of the Senate Finance Committee—led by current Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT)—released a comprehensive report detailing recommendations on combating waste, fraud and abuse in the Medicare and Medicaid programs. The report is a compilation of recommendations received from more than 160 health care industry stakeholders following a solicitation of such information in May 2012, and also includes proposals from the group of Senate Finance leaders themselves.

Senators Baucus and Hatch were joined by Senators Tom Coburn (R-OK), Ron Wyden (D-OR), Chuck Grassley (R-IA) and Tom Carper (D-DE) in soliciting the recommendations and releasing the report. In the coming months, this group of six intend to work not only within the Finance Committee—which has jurisdiction over Medicare and Medicaid—but also with other relevant Senate Committees, the Centers for Medicare and Medicaid Services (CMS), other appropriate federal agencies and interested stakeholders.

Specifically, the bipartisan report focuses on five key themes: improper payments; beneficiary protection; audit burden; data management; and enforcement. Several changes of note—some of which are within CMS’ authority to make and will not require legislation—include:

  • Increasing state Medicaid anti-fraud program funding;
  • Making changes to payment policies that tend to lead to waste, fraud and abuse due to inconsistent pricing;
  • Requiring the Centers for Medicare and Medicaid Services (CMS) to use currently un-utilized statutory authorities, such as mandatory compliance programs;
  • Making operational changes with regard to CMS audit contractors, in order to promote efficiency and effectiveness;
  • Clarifying appropriate settings for care (inpatient vs. outpatient, for example); and
  • Creating a balance between Medicare contractor incentives for identifying overpayments versus penalties when findings are overturned through appeals to CMS.

Upon the report’s release, Chairman Baucus noted that the Committee had received nearly 2,000 pages of input from stakeholders. “Now we must take these ideas and put them to work and strengthen Medicare and Medicaid, ensuring the programs continue to care for those they serve,” Baucus stated.

The Finance Committee press release with a link to the full PDF report can be found here.

As these recommendations advance, we can assist clients in expressing any ideas or concerns to relevant legislators and policymakers.

CMS Issues Final Rule on Incorrectly Classified SCHs

by Amy Hooper Kearbey and Eric Zimmerman

The Facts

On August 1, 2012, the Centers for Medicare & Medicaid Services (CMS) posted the Inpatient Prospective Payment System (IPPS) final rule for fiscal year 2013.  In the rule, CMS finalized a revision to its regulations to address situations where a hospital was incorrectly classified as a Sole Community Hospital (SCH).  Under the revised regulation, an SCH is required to report “any factor or information that could have affected its initial classification [as an SCH].”  If a hospital makes such a report, and CMS subsequently determines that the hospital should not have been classified as an SCH initially, CMS will revoke SCH status effective 30 days after CMS’s determination.  If the hospital fails to report, CMS may recoup overpayments consistent with existing reopening rules  (i.e. for cost reporting periods that are within the 3-year reopening period).

CMS’s proposed rulemaking drew a number of comments from stakeholders.  Although CMS addressed several concerns raised in the comments, CMS did not respond to questions regarding the level of due diligence that a hospital is expected to exercise to discover errors in its initial classification as an SCH status or the extent to which a hospital should be able to rely on CMS’s final determination regarding SCH status.  In particular, stakeholders requested that CMS incorporate an express “awareness” requirement into the regulatory language, such that a hospital has a duty to report only if it becomes aware of a factor or information that could have affected its initial classification as an SCH, but CMS declined to do so.  CMS instead instructed that a hospital must report if it “suspects that it should not have qualified as an SCH,” without addressing what standard would be used to determine whether a hospital should have had a suspicion about its SCH classification.  Stakeholders also requested that CMS expressly clarify that only the regulations and interpretations that were effective at the time of the initial classification are relevant.  CMS confirmed this in the preamble, but it did not incorporate this concept into the regulatory language.

What’s at Stake

The new regulation calls into question whether a hospital can rely on CMS’s determination that the hospital qualifies for SCH status.  The regulation also creates a meaningful incentive to report any suspicion regarding SCH status because the financial implications of not reporting are significant – the potential for retrospective revocation for all cost reports subject to reopening. 

While this issue is of particular concern to SCHs, all hospitals should take note of CMS’s view that a hospital may not always rely on a final determination rendered by the Agency.

Steps to Consider

SCHs that have reason to suspect that they may not have initially satisfied all of the qualification criteria required for SCH status should consider investigating that suspicion, and making a report to CMS to avoid severe recoupments for failing to report.  Because of the significant legal and reimbursement implications associated with these investigations and reports, it is advisable to conduct these activities under the oversight of legal counsel.

In addition to the new regulatory requirement regarding initial classifications, SCHs should continue to be mindful of existing regulations at 42 C.F.R. § 412.92 that require the hospital to monitor certain changes to the circumstances under which it qualified for SCH status, such as the opening of a new hospital in the area or a change to the hospital’s geographic classification, and to report such changes to CMS.

Congress, President Agree to Extend Expiring Medicare and Medicaid Payments

by Andrea M. Bergman, Teddy Eynon, Karen S. Sealander and Eric Zimmerman

On February 17, 2012, Congress approved the Middle Class Tax Relief and Job Creation Act of 2012, ending debate over the extension of payroll tax reductions, unemployment insurance benefits, and numerous Medicare and Medicaid payment provisions, most of which were set to expire at the end of February. This White Paper provides an overview of the most significant Medicare- and Medicaid-related provisions in the act.

To read the full article, click here

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.

To read the full article, please click here

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.


 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.

Wage Index Report Issued by Institute of Medicine Affects Medicare Payments to Hospitals

The Facts
The Institute of Medicine (IOM) on June 1, 2011, released a long anticipated report analyzing geographic adjustment factors under the Medicare program, including the hospital wage index and physician geographic practice cost index. This report is the first of two that have been commissioned by the Centers for Medicare & Medicaid Services (CMS) to examine the hospital wage index under the Inpatient Prospective Payment System and the geographic practice cost indices (GPCIs) under the Physician Fee Schedule. The focus of this first report is evaluating alternative methodologies and data sources for improving the accuracy of the hospital wage index and the GPCIs.

The IOM embraced recommendations remarkably similar to those made by the Medicare Payment Advisory Commission in its 2007 study of the wage index, including using Bureau of Labor Statistics data instead of hospital cost report wage data to form the backbone of the wage index. However, IOM departs from MedPAC in a few key respects. First, IOM recommends retaining metropolitan statistical areas (MSAs) as the building block for reflecting labor markets, instead using counties as MedPAC recommended. Similar to MedPAC, IOM also embraces a smoothing technique to eliminate sharp differences in wage index values between areas, but IOM recommends using commuting patterns rather than mathematical formulas, which MedPAC recommended. Notably consistent among these various reports is the proposal to eliminate reclassification processes, which IOM and others reason would no longer be necessary with smoothing.

The IOM report is the latest in a series of wage index reports to be released of late, all of which were generated by health reform legislation. CMS in April 2011 released a report on wage index reform developed by its consultant, Acumen, which recommended using wage and commuting data to define hospital labor markets rather than relying on MSAs.

What's at Stake
Future changes to the wage index, such as those recommended by the IOM, could dramatically increase or decrease Medicare payments to hospitals. While the release of this report is important for informing the discussion of geographic adjustment factors in Medicare payment, it likely will not have any immediate impact. The IOM report and others before it highlight that legislation is necessary to advance many of the recommendations. The Affordable Care Act (ACA) requires CMS to issue a plan to reform the wage index by December 31, 2011. CMS is expected to rely heavily on work previously done by Acumen for this report. Timing for the final report is not yet certain, but is critical. Congress is not likely to act until it gets CMS's report, and even then action will be difficult. Budget neutral action will redistribute billions of dollars, which makes any change politically difficult. Insulating would-be losers from heavy losses resulting from reform could be very expensive, which also makes any change politically challenging.

Steps to Consider

  • Hospitals may re-examine the 2007 MedPAC report to evaluate how the MedPAC proposals and comparable IOM proposals may impact payment.
  • Hospitals also may examine recommendations from CMS's contractor, Acumen, to evaluate potential impact.
  • Finally, hospitals that anticipate significant reimbursement impacts -- positive or negative -- arising from wage index changes, may wish to begin discussing these issues with congressional representatives.

AMA Establishes New Principles for ACOs

The American Medical Association has established new principles to guide the development and operation of accountable care organizations, which emphasize physician leadership and patient participation.

To read the full article, click here.

Congress Creates Independent Payment Advisory Board: Are Medicare Solvency Decisions Finally on the Way?

As part of the health care reform legislation, and in an effort to help restrain growth in Medicare expenditures, Congress has created the Independent Payment Advisory Board, which has the authority to develop proposals that will become law if Congress fails to enact alternative proposals. 

Click here to read the full article. 

President to Nominate Don Berwick to Head CMS

The Facts

President Obama is reportedly poised to nominate Don Berwick, M.D., M.P.P., to head the Centers for Medicare & Medicaid Services (CMS).  Since 2006, when Dr. Mark McClellan left, CMS has been without a permanent administrator. 

Berwick is the current president and CEO of the Institute for Healthcare Improvement, a Cambridge, Massachusetts, organization that seeks to improve health care by "building the will for change, cultivating promising concepts for improving patient care, and helping health care systems put those ideas into action."  In its work, the institute seeks to "accelerate the measurable and continual progress of health care systems."  For more information about the institute, visit  Berwick is also a clinical professor of pediatrics at Harvard Medical School and a professor of health care policy at the Harvard School of Public Health.  Berwick served as vice-chair of the U.S. Preventive Services Task Force, and chair of the National Advisory Council of the Agency for Healthcare Research and Quality.  He also served two terms on the Institute of Medicine’s governing council.

Berwick would have the difficult job of managing and improving Medicare, Medicaid and the Children's Health Insurance Program, while simultaneously implementing much of the recently enacted health reform legislation.  While Medicare currently covers 46 million Americans, Medicaid currently covers 43.5 million Americans and is slated to expand to cover an additional 16 million individuals through expanded eligibility in health reform legislation.  However, in light of Berwick’s vast experience in the area of health quality improvement, he seems well-positioned to lead CMS as the agency positions itself to increasingly focus on paying for value as opposed to volume.

What’s at Stake

As the new head of the largest medical payer in the nation, Berwick’s leadership and decisions would significantly affect almost everyone in the health care sector.  With the enactment of health reform legislation, implementation is the primary focus of the Obama administration.  Berwick would have a vital role in determining how this reform is rolled out and ensuring that this reform meets U.S. Department of Health and Human Services Secretary Kathleen Sebelius’s goal of HHS becoming “the face of competent government — the face of a help desk that can really respond to personal issues and questions.”

Steps to Consider

The post of CMS administrator requires U.S. Senate confirmation, a process that may reignite the deep political and philosophical divisions about the newly passed health reform legislation.  Thus, all in the health care sector should monitor the nomination and Senate confirmation process.

Medicare Payment Authority Would Shift to New Board Under Senate Bill

The Facts

The Senate health reform bill would establish a 15-member Independent Payment Advisory Board (IPAB) with significant authority with respect to Medicare payment rates. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions.  The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings. Subject to some limitations—hospitals, for example, would be exempt until 2020—the IPAB could recommend spending reductions affecting Medicare providers and suppliers, as well as Medicare Advantage and Prescription Drug Plans.  In years in which the IPAB would not be required to make recommendations, it would be required to submit an advisory report.  Every two years, the IPAB would make recommendations on slowing the growth of private health expenditures. 

The proposed IPAB has drawn significant criticism from advocacy groups, and a similar provision is not included in the House bill. However, the Senate’s IPAB proposal has strong support from President Obama and is expected to emerge in some form in any final comprehensive health reform package.

What’s at Stake

Medicare providers and suppliers could be subject to significant payment cuts if the proposed IPAB is enacted and overall Medicare spending continues to increase at its current rate.  A group of providers and advocacy groups, including the American Hospital Association, joined in a January 11, 2010, letter opposing the IPAB, noting that it would not be accountable to anyone but the president (who appoints its members). Shifting payment authority from Congress to an independent commission would be a significant change, and is viewed as one of the most meaningful measures in health reform legislation with respect to bending the cost curve in health spending.

Steps to Consider

  • Understand the broad and significant powers granted to the IPAB. For example, achieving coverage of new procedures and technologies could be impeded significantly if the role of Congress is minimized.
  • Keep informed about the Medicare per capita growth rate and the IPAB’s authority to make recommendations for payment reductions.
  • Should the IPAB be enacted, work to identify individuals for nomination. ‪

Health Care Reform May Discourage Employers from Providing Retiree Medical Benefits

The Facts

Both the recently passed Senate and House health care reform bills contain provisions that affect retiree health benefits. Both bills remove the tax exemption for Medicare Part D subsidies received by employers who provide retiree prescription drug coverage. In addition, the House bill prohibits employers from changing a retiree’s available benefits once the individual has retired, and the Senate bill contains a 40 percent excise tax on retiree health benefits that exceed certain thresholds ($9,850 for single coverage and $26,000 for family coverage). Both bills decrease the Medicare prescription drug coverage gap by $500 (with the House bill completely eliminating the gap by 2019) and provide a 50 percent discount on brand-name drugs to retirees affected by the coverage gap.

What’s at Stake

These provisions have the potential to decrease employer-provided retiree health and prescription drug benefits. Employers will find it much more expensive to provide these benefits without the tax exemption for the prescription drug coverage subsidy and with the threat of a 40 percent excise tax on health coverage beyond the stated threshold. This extra cost may serve as a deterrent to providing such benefits. In addition, the inability to alter the benefits offered to retirees provides an incentive to decrease or eliminate retiree benefits so employers are not obligated to provide such coverage indefinitely. Further, the reduction in the Medicare coverage gap and discount on drugs will influence employers to eliminate prescription drug coverage because these increases bring the Medicare drug benefit to a level closer to that of employer-provided coverage. 

Steps to Consider

  • Review the progress of the proposals to determine next steps, such as plan redesign.
  • Consider weighing in with your congressional delegation explaining the impact of the various provisions and indicating your views on them.     
  • Evaluate the impact of the final law on retiree health and prescription drug benefits, and consider adjusting benefits accordingly.

Senate Majority Leader Reid Unveils Democrats' Health Reform Plan

The Facts

On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act.  The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July.  Set forth below are some of the bill’s principal provisions. 

  • Requires most legal residents to obtain health insurance or pay a penalty of $95 in 2014, $350 in 2015 and $750 in 2016
  • Imposes a $750 per employee penalty on firms with more than 50 workers that do not offer coverage if any of the firm’s employees obtain subsidized coverage through the new health insurance exchange 
  • Requires coverage of prevention and wellness benefits and exempts these benefits from deductibles and other cost-sharing requirements
  • Implements insurance market reforms including disallowing lifetime and annual limits and prohibiting preexisting condition exclusions
  • Substantially reduces the growth of Medicare payment rates for many services (as compared to growth rates under current law)
  • Creates a new independent Medicare advisory board, which could recommend payment reductions
  • Seeks to promote the quality and efficiency of health care by linking payment to better quality outcomes
  • Imposes a 40 percent excise tax on employer-sponsored health insurance with annual premiums above $8,500 for single coverage and $23,000 for family coverage 
  • Imposes annual flat fees of $2.3 billion on the pharmaceutical manufacturing sector, $2 billion on the medical device manufacturing sector and $6.7 billion on the health insurance sector
  • Imposes a 5 percent excise tax on voluntary cosmetic surgical and medical procedures
  • Increases the Medicare payroll tax rate from 1.45 percent to 1.95 percent on individuals earning over $200,000 and couples earning more than $250,000
  • Sets up health insurance exchanges through which approximately 25 million people are estimated to purchase health insurance coverage
  • Creates a new public plan – the Community Health Insurance Option (states could opt out, and the government would negotiate payment rates with providers)

What’s at Stake

Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.

Steps to Consider

  • Carefully evaluate the impact of the provisions. 
  • Assess the cost of compliance with the new provisions. 
  • Examine ongoing business decisions in light of the direction health reform is taking.
  • Consider working to impact the shape of health reform legislation.

House Democrats' Health Reform Bill Proposes Significant Fraud and Abuse Reform

The Facts
The first draft of the House Democrats’ health care reform legislation published June 19, 2009, portends the government’s continued focus on Medicare program integrity, fraud and abuse reform, and transparency in industry-physician relationships. The bill includes several provisions that propose to enhance existing program penalties for fraud and abuse. Further, the bill explicitly provides that existing authority relating to program integrity and the authority to prevent and prosecute fraud, waste and abuse will apply equally to the public health insurance option. Other provisions of the bill propose to strengthen significantly compliance requirements for Medicare program participation.

Proposals for increasing existing penalties include enhanced penalties for:

  • False statements on provider or supplier enrollment applications
  • Submission of false Medicare, Medicaid or CHIP claims
  • Delay of Inspector General investigations
  • Exclusion of individuals from program participation
  • Obstruction of program audits

Proposals aimed at enhancing program and provider protections include:

  • Requiring providers and suppliers to adopt compliance programs that contain certain “core elements” established by the Secretary
  • Requiring physicians to provide documentation on referrals to programs at high risk of waste and abuse, such as durable medical equipment or home health services
  • Requiring repayments of known Medicare and Medicaid overpayments within a specified time period and making the failure to repay a false claim
  • Increasing access to databases and information necessary to identify fraud, waste and abuse
  • Proposing a more robust version of the Physician Payments Sunshine Act (S.301)

What’s at Stake
The provisions in the proposed bill underscore the federal government’s objective to fund some of the cost of health care reform through increased program penalties, reducing fraud, waste and abuse and enhancing payment protections. Physicians, providers and suppliers may see increased enforcement activities bolstered by greater scrutiny of program activities.

Steps to Consider

  • Review and assess current compliance programs and procedures to ensure accuracy of claims data
  • Consider whether existing policies and procedures for responding to government investigations should be modified or updated in light of the potential for increased government enforcement activity
  • Evaluate the additional investment of time and resources to meet the proposed physician payment transparency requirements

House Democratic Health Reform Bill Provides Only Preview of Provider Payment Changes

The Facts
On June 19, 2009, House Democrats unveiled their first draft of health care reform legislation. Despite exceeding 850 pages, the draft bill is still a work-in-progress. Many of the anticipated Medicare program payment reductions and revisions are absent from this draft, but providers should not draw too much comfort from that. President Obama has called for more than $600 billion in savings from Medicare, and those savings will be required to pay for the massive overhaul. Providers should still expect significant savings provisions to be added later.

In the meantime, the bill still includes considerable change, including:

  • Annual Medicare payment updates for virtually every facility type, including all hospitals and post-acute care providers, would be reduced by a productivity adjustment factor. Given that hospital market baskets are expected to be between 2.0 and 2.5 percent in FY 2010, the actual update for providers, if this change were to be enacted, could be only slightly above zero.
  • Medicare payment for post-acute services would be revamped and coordinated across settings.
  • Medicare payments for imaging services would be reduced.
  • Hospitals would be penalized for excess readmissions.
  • Ambulatory Surgery Centers would for the first time submit cost reports and quality data.

What’s at Stake
The proposed bill foreshadows a new reimbursement paradigm that focuses on accountability for quality, cost savings, coordinated care, and increased scrutiny to preclude conflicts of interest and other skewed incentives. Health care service providers will face new systems, obligations and incentives that will dramatically alter how providers furnish services and interact with Medicare and its beneficiaries.

Steps to Consider

  • Examine current approaches to patient care and consider internal and external steps necessary to manage the impending shift from traditional fee-for-service payments to payments based on quality measurements and care coordination.
  • Explore relationships with management companies or other partners who can improve overall quality and reduce cost.
  • Consider new relationships with physicians to invest doctors in quality outcomes.

President Obama Urges Congress to Complete Health Care Reform by October

The Facts
President Obama is driving an extremely ambitious effort to achieve comprehensive health reform by October 2009.  House and Senate leaders are responding with an aggressive timeline for developing legislation to be on the president’s desk this fall.

Heeding lessons learned from the failed Clinton health reform efforts, the president has until now resisted imposing his views directly on Congress.  Now visibly engaged, the president enunciated his policy preferences in a June 2, 2009, letter to Congress:

  • A public health insurance option
  • A health insurance exchange
  • Allowing individuals to keep their current coverage
  • Promoting best practices to improve health quality
  • Paying for the full cost of health reform (estimated at $1.2 – $1.5 trillion) through a combination of reducing Medicare and Medicaid spending and raising revenue

The president also indicated a willingness to consider individual and employer mandates as well as an enhanced role for the Medicare Payment Advisory Commission.  Click here for a copy of the president’s letter.

Senate Finance Committee senior Republican Charles Grassley (R-IA) and eight of his nine Republican colleagues on the Finance Committee (all but Senator Olympia Snowe of Maine) responded with a joint letter to the president on June 5, 2009, that notes concern with the president’s expression of support for a public plan because a public plan is “one of the more divisive issues in the health care reform debate.”  Click here for a copy of the senators’ letter.  Clearly, as legislators move from options to concrete legislative proposals, it will be increasingly difficult to keep Republicans at the table in the Senate. 

Click here for the tentative timeline for achievement of health reform. 

What’s at Stake
Congress and the president are determined to overhaul the nation’s health care delivery system. Every aspect of the health sector will be affected. 

Steps to Consider
Providers, insurers, employers, drug and device makers, and every other entity in the health sector should closely examine the legislative proposals, assess their impact, and develop a course of action to maximize the positive impact of health system reform and minimize the negative impact.

Principal Components of House Health Reform Legislation Unveiled

The Facts
House Democrats released the broad parameters of their comprehensive health reform bill June 8, 2009.  The three House committees with jurisdiction over health reform plan to work from this common framework to develop a systemic reform proposal.  Click here for a health reform timeline.  Below are highlights of the plan: 

  • Protects current coverage and preserves choice of doctors, hospitals and plans
  • Creates a new national health insurance plan
  • Creates a national health insurance exchange and allows for regional or state exchanges
  • Initiates delivery system reforms, such as accountable care organizations, to incentivize quality and restrain health spending growth
  • Imposes individual coverage requirement and employer “pay or play”
  • Prohibits insurers from excluding pre-existing conditions and forbids rating based on gender, health status or occupation, and limits premium variation based on age 
  • Reforms Medicare’s sustainable growth rate formula for physician payment
  • Eliminates perceived overpayments to Medicare Advantage Plans

What’s at Stake
Reporting out a House bill by the August recess is at stake. While the House Democrats have united the three key House committees in producing this common framework, considerable dissension within the Democratic party remains.  A core area of disagreement is whether to include a public plan.  Pressure to achieve reform this year is considerable, as the Democrats do not want to risk spilling into next year’s congressional cycle.

Steps to Consider
Providers should assess the impact of a public plan option and expanded coverage, among other proposals.  Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans, review the concept of the insurance exchange and assess the business impact of the proposed new insurance market reforms.  Insurers that act as Medicare Advantage Plans should monitor proposals to reduce payments.  Both providers and insurers should assess the potential impact of accountable care organizations.  Finally, employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.

Senate Health Care Reform Policy Options: Medicare Payment

The Facts
The proposals under consideration in the Senate Finance Committee’s first of three anticipated health reform option papers, released on April 29, 2009, would make significant Medicare payment changes. Value-based purchasing would result in Medicare paying hospitals, home health agencies and skilled nursing facilities based on their actual performance against quality measures, rather than being paid for providing services and reporting on quality measures and activities, as they are now. Accountable care organizations would be established as a vehicle for groups of providers to voluntarily meet quality thresholds and share in cost savings achieved for the Medicare program. Bonus payments for primary care physicians and general surgeons of up to 5 percent of fee schedule amounts would be provided to physicians who furnish at least 60 percent of their services in specified ambulatory settings or practice in rural scarcity areas.

What’s at Stake
Providers will face increasing demands to shift the paradigm of patient care from a model based on fee-for-service payments to one oriented to quality measurements and care coordination. Providers also will be competing on the basis of quality and may experience changes in reimbursement individually, but the total pool of funds will not generally increase for many of the proposed reforms.

Steps to Consider

  • Examine current approaches to patient care and consider internal and external steps necessary to manage the impending shift from traditional fee-for-service payments to payments based on quality measurements and care coordination.
  • Explore relationships with management companies or better performing partners who can improve overall quality.
  • Consider new relationships with physicians to invest doctors in quality outcomes.
  • Continually evaluate ongoing business decisions in light of the direction and quick pace health reform is taking.