Medicare Update

CMS to Hold Open Door Forum on Home Health P4P Demonstration Project

The Centers for Medicare & Medicaid Services (CMS) will hold a Special Open Door Forum on the Medicare home health pay-for-performance demonstration project.  The Open Door Forum will take place from 1:00 p.m. to 2:30 p.m. (EST) on November 13, 2007.

During the Open Door Forum, CMS will provide an overview of the demonstration design, define those eligible to participate and the application process, and explain the next steps for home health agencies (HHA) that are interested in participating.  CMS reports that a question and answer session will follow the presentation. Slides and other information for the Open Door Forum will be available on the CMS website.

To participate in the Open Door Forum, registration is required. The deadline for registration is 2:00 p.m. (EST) on November 9, 2007.  Beginning on November 19, 2007, CMS will also make an audio recording of the Open Door Forum available for download from the CMS website.

The Medicare home health pay-for-performance demonstration project will be conducted in the states of Connecticut, Massachusetts, Tennessee, Alabama, Georgia, Illinois and California.  CMS reported that it would begin recruiting HHAs for the demonstration project during October 2007, and that HHA enrollments would be accepted through November 30, 2007.  However, the implementation phase of the demonstration will not begin until January 1, 2008.

HHS Demonstration to Encourage Physicians to Adopt Electronic Health Records

On October 30, 2007, the Department of Health and Human Services (HHS) announced in a News Release that the Centers for Medicare & Medicaid Services (CMS) will conduct a 5 year demonstration project that encourages small-to-medium sized physician practices to adopt electronic health records (EHR).

According to the News Release, CMS will recruit up to 1,200 physician practices for the demonstration project.  Under the demonstration project, participating physician practices will be required to use an EHR system approved by a certification body recognized by HHS.  The system must be in place by the second year of the demonstration project and will be used to perform specific functions intended to positively affect patient care processes. As part of the demonstration project, a core incentive payment will be made to physician groups using certified EHRs to meet certain clinical quality measures, with an enhanced bonus related to the integrated of EHRs in managing patient care.   

HHS estimates that, during the demonstration project, 3.6 million consumers may be directly affected by their primary care physicians adopting certified EHRs. HHS also reports that, to amplify the effect of the demonstration project, CMS will be encouraging private insurance companies to offer similar incentives for EHR adoption.

CMS Releases Instructions for Home Health Demonstration in High-Risk Areas

On July 17, 2007, the Department of Health and Human Services (HHS) issued a Press Release and Fact Sheet announcing the Medicare Provider Enrollment Demonstration for Home Health Agencies in High-Risk Areas, which is a 2 year demonstration project designed to protect Medicare beneficiaries from fraudulent home health agencies (HHA).

At that time, HHS reported that the demonstration project would focus on HHAs operating in greater Los Angeles, California and Houston, Texas, and require HHAs to resubmit enrollment applications (CMS-855A) to be considered qualified Medicare HHAs.  In the Press Release, HHS also described the circumstances in which Medicare contractors would revoke Medicare billing privileges.

On October 16, 2007, the Centers for Medicare & Medicaid Services (CMS) released Transmittal No. 223 (Transmittal).  The Transmittal provides more detail regarding the demonstration project and outlines the policies that Medicare contractors will follow in implementing and executing the demonstration project.

The Transmittal also suggests that Medicare contractors will be sending out revalidation letters by October 31, 2007 requiring demonstration HHAs to submit CMS-855A applications.  The revalidation letter to be used by Medicare contractors is set forth in an attachment to the Transmittal.

CMS Revises Hospital Inpatient Prospective Payment System Rates

On October 10, 2007, the Centers for Medicare & Medicaid Services (CMS) published corrections to the final Medicare inpatient prospective payment system (IPPS) rule for FY 2008 (Final Rule). 

However, the corrections to the Final Rule were developed prior to Congress enacting the TMA, Abstinence Education and QI Programs Extension Act of 2007 (Act), which reduced the documentation and coding adjustment (or so-called “behavioral offset”) from -1.2 percent to -0.6 percent for FY 2008.  Consequently, the reduction in the behavioral offset for FY 2008 was not reflected in the corrections to the Final Rule. 

On October 24, 2007, CMS released revised IPPS rates for FY 2008, which incorporate the Act's reduction in the behavioral offset and will be effective for discharges occurring on or after October 1, 2007.  CMS reports that the revised rates and CMS's implementation of the Act will appear in the Federal Register in the near future.

Senators Introduce Transparency in Medical Device Pricing Act of 2007

On October 23, 2007, Senators Charles Grassley and Arlen Specter issued a Press Release announcing the introduction of the Transparency in Medical Device Pricing Act of 2007 (Act). 

According to the Press Release, the Act would require medical device manufacturers, as a condition of receiving direct and indirect Medicare payments, to submit data to the Secretary of the Department of Health and Human Services on the average and median sales prices for all implantable medical devices used in inpatient and outpatient procedures. The Act would require manufacturers to make such data submissions on a quarterly basis.

The Act would also require the Centers for Medicare & Medicaid Services (CMS) to make the data available on the CMS website, and to update the website data on a quarterly basis. Under the Act, medical device manufacturers would be subject to civil monetary penalties from $10,000 to $100,000 for failing to report or misrepresenting price data.

In a floor statement, Senator Grassley suggested that the Act would bring transparency to medical device pricing so that market forces could truly work and that it would level the playing field when hospitals negotiate with medical device manufacturers.

Senator Baucus to Introduce Resolution on Erythropoiesis Stimulating Agents

On October 19, 2007, Senate Finance Committee Chairman, Max Baucus, announced in a News Release that he intends to introduce a resolution addressing the Medicare national coverage determination on Erythropoiesis Stimulating Agents (ESAs) for non-renal disease indications (NCD).  According to the News Release, the resolution would nullify the NCD, and compel the Centers for Medicare & Medicaid Services (CMS) to issue new coverage rules.   

On July 30, 2007, CMS announced in a Press Release that it had adopted a final NCD for the use of ESAs in cancer and related neoplastic conditions.  CMS reports that the NCD was opened in response to the Food and Drug Administration's (FDA) recent advisories regarding the use of ESAs. However, critics of the final NCD claim that CMS's decision on ESAs lacks a scientific basis, limits the use of ESAs to levels below amounts approved by the FDA, and will prevent vulnerable cancer patients from getting the care that they need.

In August 2007, Senator Arlen Specter introduced a similar resolution (S. Res. 305), directing CMS to reconsider the final NCD, consult with the clinical oncology community regarding revisions, and to implement revisions.  The Senate passed S. Res. 305 on September 4, 2007. More recently, Representative Anna Eshoo introduced a joint resolution (H.J. Res. 54) in September 2007, which disapproves of the final NCD and would cause the final NCD to have no force and effect. Following introduction, H.J. Res. 54 was referred to the House Ways and Means and Energy and Commerce Committees.

ESAs are marketed in the United States as Epogen, Aranesp and Procrit.  They are man-made versions of erythropoietin, a hormone produced in the kidney and that stimulates the bone marrow to make more red blood cells.

OIG Releases Advisory Opinion No. 07-13

On October 19, 2007, the Department of Health and Human Services' Office of Inspector General (OIG) released OIG Advisory Opinion No. 07-13 (Advisory Opinion). 

In the Advisory Opinion, a group of ophthalmologists and optometrists, and a wholly-owned subsidiary of a nonprofit hospital system (hospital) owed 100 percent of a group practice.  The ophthalmologists and hospital also had ownership interests in a surgical center, which operated Medicare certified single specialty ophthalmology ambulatory surgical centers (ASCs). Under the proposed arrangement, the hospital intended to sell some of its ownership interest in the surgical center to the optometrists.  Therefore, the group practice and surgical center inquired whether the addition of the optometrists as owners of the single specialty ophthalmology ASCs would violate the Federal anti-kickback statute and constitute grounds for related sanctions, including civil monetary penalties and program exclusions.   

Based on the facts presented, the OIG concluded that the proposed arrangement could potentially generate prohibited remuneration under the Federal anti-kickback statute and that the OIG could potentially impose related sanctions.  In reaching that conclusion, the OIG found that the proposed arrangement did not satisfy the safe harbor for investment interests in hospital/physician-owned ASCs.  The OIG pointed out that the safe harbor requires, among other things, that ownership be limited to physicians who perform ASC procedures on a regular basis (as demonstrated by meeting a one-third practice income test) and other investors who are not in a position to generate referrals to the ASC or its investors.  However, the OIG found that the optometrists would perform no ASC procedures, but would generate referrals to other investors (e.g., ophthalmologists) and, indirectly, to the surgical center ASCs. 

Because no safe harbor would protect the addition of the optometrists as owners of the surgical center, the OIG next examined whether the proposed arrangement would pose a minimal risk under the Federal anti-kickback statute.  In doing so, the OIG found that there were no safeguards to minimize the risk that the optometrists' investment in the surgical center would be for the purpose of inducing or rewarding referrals.  The OIG also found that the ophthalmologists and optometrists were in distinctly different positions. In particular, the OIG determined that the ophthalmologists personally performed surgical procedures at the surgical center ASCs as an extension of their office practices, but that the surgical center ASCs were not a comparable extension of the optometrists' office practices. Further, the OIG concluded that the likelihood that the optometrists would use their investment in the surgical center as a vehicle for receiving remuneration for referrals to the ophthalmologists increased significantly. Therefore, the OIG concluded that the proposed arrangement did not pose a minimal risk.

CMS Reports that Most Hospitals Satisfy Quality Reporting Requirements

The Centers for Medicare & Medicaid Services (CMS) recently announced in a Press Release that the majority of Medicare inpatient prospective payment system (IPPS) hospitals are reporting valuable quality of care data and will receive the full market basket update of 3.3 percent next year. 

In fact, CMS reports that, of the 3,506 eligible acute care hospitals eligible to participate in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program in 2007, 93 percent participated and met the requirements, 6 percent failed to meet the requirements, and 1 percent chose not to participate. 

Under the RHQDAPU program, hospitals that report certain quality measures and met other requirements receive the full market basket update.  The RHQDAPU program was authorized by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and launched by CMS in FY 2005 with 10 reportable quality measures and a 0.4 percent market basket reduction for hospitals that did not meet program requirements. 

More recently, the Deficit Reduction Act of 2005 (DRA) provided for the market basket update under IPPS to be reduced by 2.0 percentage points for hospitals that do not participate in quality reporting or meet quality measure reporting requirements.  The DRA also directed CMS to increase the number of quality measures. 

In fact, during FY 2007, hospitals reported on measures related to the quality of care provided to patients with heart failure, heart disease, pneumonia, and patients having surgery. However, for FY 2008, hospitals will be required to report on 27 quality measures, including 24 processes of care measures for discharges on or after January 1, 2007.   

As part of the RHQDAPU program for FY 2008, CMS also implemented a patient satisfaction survey, known as the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). HCAHPS asks about consumer perceptions of the care received during a hospital stay (e.g., responsiveness of hospital staff, cleanliness and overall rating of the hospital).  Further, beginning with discharges on or after July 1, 2007, HCAHPS will be one of the quality measures that must be reported to receive a full market basket update.

CMS Announces First Site For Clinical Laboratory Competitive Bidding Demonstration

On October 17, 2007, the Centers for Medicare & Medicaid Services (CMS) published a Notice in the Federal Register announcing that the first site for the Medicare clinical laboratory services competitive bidding demonstration project will be the San Diego-Carlsbad-San Marcos, California metropolitan statistical area (MSA).

The objective of the demonstration project is to determine whether competitive bidding can be used to provide Part B clinical laboratory services at fees below current Medicare payment rates while maintaining quality and access to care. The demonstration project will cover tests provided to beneficiaries enrolled in the traditional fee-for-service (FFS) Medicare program who reside in the area of the demonstration site or competitive bid area (CBA) during the 3 year demonstration.

The demonstration project is mandated by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). The MMA requires that the demonstration project: (i) include tests paid under the Medicare Part B clinical laboratory fee schedule; (2) exclude entities that have a “face-to-face encounter” with patients; (iii) exclude pap smears and colorectal cancer screening tests; and (iv) include Clinical Laboratory Improvement Amendments (CLIA) program requirements.

Further, the payment basis determined for each competitive acquisition area will be substituted for payment under the existing Medicare Part B Clinical Laboratory Fee Schedule. The competitively set demonstration fee schedule will be used to pay for laboratory services in the CBA for the 3 year demonstration project. Multiple winners are expected in each CBA.

To implement the demonstration project, there will be a single bidding competition covering demonstration tests for each CBA. Bidders will be required to submit a bid price for each Health Care Procedure Coding System code in the demonstration test menu. Bidding laboratories will be asked to identify demonstration tests that they do not perform, and explain their plans for responding to requests for tests that they do not perform in house (e.g., subcontracting and referrals). As part of the bidding process, laboratories will also be required to provide information on ownership, location of affiliated laboratories and specimen collection sites, CLIA certification, laboratory finances, and quality.

Under the demonstration project, “required bidders” will be those organizations that will supply, or expect to supply, at least $100,000 annually in demonstration tests to Medicare beneficiaries residing in the CBA during any year of the demonstration project. Required bidders that bid and win will be paid under one demonstration fee schedule for services provided to beneficiaries residing in the CBA during the demonstration project.

According to the Notice, “non-required bidders” will be laboratories that are not exempt from the demonstration project, but have the option of participating in the bidding process.  Non-required bidders that do not bid, and those that bid and win, will be paid under the demonstration fee schedule. However, non-required bidders that choose to bid and do not win will not receive payment for services provided to beneficiaries residing in the CBA during the demonstration project. For purposes of the demonstration project, a non-required bidder includes:

• A small business laboratory, which is a laboratory that will supply less than $100,000 annually in demonstration tests to Medicare FFS beneficiaries residing in the CBA during each year of the demonstration project. These laboratories may choose to be a “passive” laboratory. A passive-small business laboratory will have a $100,000 ceiling on annual payment from Medicare for demonstration tests during the demonstration project.
• A laboratory that exclusively serves beneficiaries entitled to Medicare because they have end-stage renal disease (ESRD) residing in the CBA may choose to be a “passive” laboratory under the demonstration project. A passive-ESRD laboratory may continue to provide services to ESRD beneficiaries residing in the CBA and receive payment from Medicare for demonstration tests paid under the competitively set demonstration fee schedule during the demonstration project.
• A laboratory that exclusively serves beneficiaries residing in nursing homes, or receiving home health services, in the CBA may choose to be a “passive” laboratory under the demonstration project. A passive-nursing home laboratory may continue to provide services to beneficiaries residing in nursing homes, or receiving home health services, in the CBA and receive payment from Medicare for demonstration tests paid under the demonstration fee schedule during the demonstration project.

In the Notice, CMS also announced that a bidder’s conference will take place on October 31, 2007 in the San Diego-Carlsbad-San Marcos, California MSA. The bidder’s conference will allow potential bidders to learn about the demonstration rules and ask questions about the bidding process. Additional information on the demonstration project can be found in CMS's recent Press Release on the demonstration project and through the demonstration project page,

House Committee on Oversight Releases Report on Private Medicare Drug Plans

On October 15, 2007, the House Committee on Oversight and Government Reform released a report entitled Private Medicare Drug Plans: High Expenses and Low Rebates Increase the Costs of Medicare Drug Coverage (Report).

According to the Report, the use of private insurers to deliver Medicare drug coverage is driving up costs and producing only limited drug price savings.  The Report estimates that taxpayers and Medicare Part D beneficiaries could have saved nearly $15 billion in 2007 if administrative expenses were reduced to the level achieved by the traditional Medicare program, and drug prices were reduced to Medicaid program levels. 

In support of this finding, the Report suggests that administrative expenses, sales costs, and profits of the privatized Medicare Part D program are almost 6 times higher than the administrative expenses of the traditional Medicare program, and that Medicare Part D insurers have not negotiated significant drug manufacturer rebates when compared to the rebates achieved through the Medicaid program.  The Report also suggests that Medicare Part D insurers do not pass through rebates to beneficiaries by reducing drug prices in coverage gaps, that the structure of pricing formulas have resulted in drug prices that are generally no lower than those available through discount pharmacies and on-line drugstores, and that Medicare Part D insurers have a mixed record when it comes to promoting the use of generic drugs.

The Report is based, in part, on information provided to the Committee on Oversight and Government Reform by Medicare Part D insurers.  On February 9, 2007, Committee Chairman, Henry Waxman, sent a letter to 12 Medicare Part D insurers requesting the information they reported to the Centers for Medicare & Medicaid Services on the following topics: Medicare prescription drug plan profits and administrative costs; negotiated price discounts, rebates and other price concessions obtained from drug manufacturers and pharmacies; and the extent to which (and the methods by which) such discounts, rebates and price concessions are passed on to Medicare beneficiaries.