Medicare Update

Subcommittee on Health to Hold Hearing on Medicare Trustees' 2008 Annual Report

The House Ways and Means Subcommittee on Health recently released a Hearing Advisory announcing that it will hold a hearing on the 2008 Annual Report of the Medicare Board of Trustees (Trustees).  The hearing is scheduled to take place at 10:00 a.m. on April 1, 2008. The 2008 Annual Report was released on March 25, 2008. In the 2008 Annual Report, the Trustees indicate that the financial outlook for the Medicare program continues to raise serious concerns.  However, in the Hearing Advisory, Subcommittee on Health Chairman Pete Stark states:

"Reviewing the Trustees' Report is a core part of Congress's oversight responsibilities, and one I take seriously.  Medicare is critically important to the 44 million beneficiaries who rely on it for health care and financial peace of mind.  While the program faces demographic challenges in the future, those can be dealt with if there is a bipartisan commitment to preserve and improve the program.  We should not succumb to alarmist claims that the sky is falling.  The most important immediate step we can take to help Medicare's financial outlook is to eliminate the Medicare Advantage overpayments.  This corporate pork fattens insurance company profits while unnecessarily draining program resources.  I can't take seriously the claims of concern from those who protect these excessive payments at the expense of beneficiaries, taxpayers and the program's future."

Medicare Trustees Issue 2008 Annual Report and Medicare Funding Warning

On March 25, 2008, the Department of Health and Human Services issued a Press Release announcing the release of the 2008 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Report).   

In the Report, the Board of Trustees (Trustees) indicate that the financial outlook for the Medicare program continues to raise serious concerns. According to the Report, Medicare expenditures were $432 billion in 2007 and are projected to increase in future years at a faster pace than workers' earnings or the economy overall.  In fact, under intermediate assumptions, the Report projects that Medicare expenditures will increase from 3.2 percent of gross domestic product (GDP) in 2007 to 10.8 percent of GDP by 2082. Further, the Report projects that, from the beginning of 2008 to the end of 2017, the assets of the Medicare Health Insurance (HI) Trust Fund will decrease from $326 billion to $96 billion. The Report also projects that the HI Trust Fund will be exhausted in 2019.

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), the Trustees are required to include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring that the President propose policies to reduce general revenues as a share of Medicare costs.

The Medicare funding warning was first triggered by the Trustees' 2007 annual report.  Consequently, in February 2008, the Department of Health and Human Services released a legislative proposal. The legislative proposal was followed by the introduction of S.2662 and H.R.5480, which are both entitled the Medicare Funding Warning Response Act of 2008. However, to date, Congress has not taken any action on S.2662 or H.R.5480.

A Medicare funding warning is again triggered by the Report.  According to the Press Release, the triggering of the funding warning requires that the President again propose Medicare legislation, within 15 days after the release of next year's budget, to keep general revenue spending below 45 percent of total Medicare spending.

Subcommittee on Health to Hold Hearing on MedPACs March 2008 Report to Congress

On March 11, 2008, the House Ways and Means Subcommittee on Health will hold a hearing on the Medicare Payment Advisory Commission's (MedPAC) March 2008 Report to Congress: Medicare Payment Policy.  MedPAC is required to submit its recommendations on Medicare payment policies to Congress by March 1 of each year.  The hearing will be held at 10:00 a.m. and include the testimony of MedPAC Chairman Glenn M. Hackbarth.  The Subcommittee on Health will be accepting written submissions for the hearing record.  A recently released Advisory from the Subcommittee on Health explains how to make such written submissions.

HHS Secretary Releases Medicare Funding Warning Response Act of 2008

The Secretary of the Department of Health and Human Services, Michael O. Leavitt, recently released the text of a letter to House Speaker Nancy Pelosi and a related legislative proposal, entitled the Medicare Funding Warning Response Act of 2008 (Act).

According to the letter, the Act is being proposed to address the Medicare funding warning issued by the Medicare Board of Trustees (Trustees) pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  Under the MMA, the Trustees are required to include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring the President to propose policies to reduce general revenues as a share of Medicare costs.

According to Secretary Leavitt, the Act would take a 3-step approach.  As reflected in a summary of the Act, the first step would generally include the development and implementation of interoperable electronic health records and personal health records for beneficiaries, increasing the transparency of pricing and quality information for beneficiaries, and providing incentives for providers to deliver, and beneficiaries to choose, high-quality, low-cost health care.

As an apparent second step, the Act would implement malpractice liability reforms, including reforms limiting noneconomic damages, regulating attorney contingency fees, addressing evidence of collateral source benefits, and specifying guidelines for punitive damages. As a third step, the Act would increase the Medicare Part D premium for beneficiaries with incomes greater than $82,000 and married beneficiaries with incomes greater than $164,000. 

In the President's budget for fiscal year 2009, the President proposes to reduce Medicare spending by $178 billion over 5 years.  The President also proposes an automatic reduction in the rate of Medicare growth if the above MMA threshold is exceeded.  The reduction would begin as a .4% reduction to all payments to providers in the year the threshold is exceeded, and would grow by .4% every year the shortfall continues to occur. Reportedly, this automatic reduction is designed to encourage the President and Congress to reach an agreement on reforms to slow Medicare spending and bring it back in line with the threshold established by the MMA.

In the letter to House Speaker Nancy Pelosi, Secretary Leavitt characterizes the Act and the President's budget for fiscal year 2009 as taking "the first step of responding to the funding warning" and laying the "foundation for the comprehensive Medicare reforms that are necessary to strengthen and improve the program for future generations."  However, others have characterized the proposals as dead on arrival.

Senator Grassley Introduces Nursing Home Transparency and Improvement Act of 2008

On February 14, 2008, Senator Charles Grassley and Senator Herb Kohl introduced the Nursing Home Transparency and Improvement Act of 2008 (S.2641).  According to a related Press Release, S.2641 aims to bring more transparency to consumers regarding nursing home quality, improve enforcement, and strengthen nursing home staff training requirements.

Among other things, S.2641 would reportedly require that "special focus facility" designations be placed on the Nursing Home Compare website.  S.2641 would also require that CMS develop a standardized complaint form and require more uniform reporting of nursing staff levels so that comparisons can be made across nursing homes.  S.2641 would also strengthen the available penalties.  For instance, S.2641 would reportedly allow the Secretary to impose civil monetary penalties of up to $100,000 for a deficiency resulting in death, $3,000-$25,000 for deficiencies at the level of actual harm or immediate jeopardy, and not more than $3,000 for other deficiencies.  Finally, S.2641 would attempt to improve staff training by including dementia management and abuse prevention training as part of pre-employment training. 

Additional information on S.2641 can be found in a related Press Release. 

President's Budget Proposes $178 Billion in Medicare Cuts

On February 4, 2008, the President delivered a $3.1 trillion budget proposal to Congress for fiscal year (FY) 2009.  As widely reported, the budget includes $178 billion in Medicare program reductions over the next 5 years, and $556 billion in Medicare reductions over the next decade. 

Further, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) requires that Medicare's Board of Trustees include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring the President to propose policies to reduce general revenues as a share of Medicare costs.  The Trustees issued their second Medicare funding warning with the 2007 Medicare Trustees Report. 

In the President's budget for FY 2009, the President proposes an automatic reduction in the rate of Medicare growth if the above MMA threshold is exceeded.  The reduction would begin as a .4% reduction to all payments to providers in the year the threshold is exceeded, and would grow by .4% every year the shortfall continues to occur.  Reportedly, this automatic reduction is designed to encourage the President and Congress to reach an agreement on reforms to slow Medicare spending and bring it back in line with the threshold established by the MMA.

President's Budget to Seek Significant Medicare Cuts

On February 4, 2008, the President is expected to present Congress with his fiscal year (FY) 2009 budget.  In a recent article, the Washington Post reports that the FY 2009 budget will include spending freezes for a number of domestic programs and significant spending cuts for federal health care programs in an attempt to balance the budget by 2012.

In fact, the Washington Post reports that, under the President's FY 2009 budget, the growth of federal health care programs would be reduced by $208 billion over 5 years, with approximately $170 billion of that amount coming from the Medicare program.  A significant portion of the Medicare reductions (or savings) are expected to come from freezing Medicare payment rates or amounts for certain providers and suppliers (e.g., hospitals, nursing homes, hospices and home health agencies).  However, it has been reported that the Medicare Advantage program would not experience similar reductions under the President's FY 2009 budget.

In response to various news reports covering the President's FY 2009 budget, House Speaker Nancy Pelosi released the following statement:

"The President is proposing to once again slash health care coverage for seniors and low-income working Americans.  The President's cuts are exactly the wrong medicine when the cost of the health care and the number of uninsured continue to rise and families are feeling economically insecure."

"The Administration's proposed cuts in Medicare and Medicaid, even larger than last year's, are particularly unjustified when the largest subsidies in the Medicare program -- payment to Medicare Advantage plans -- are left untouched."

Interestingly, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) requires that Medicare's Board of Trustees (Trustees) include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring that the President propose policies to reduce general revenues as a share of Medicare costs. 

In the 2006 Medicare Trustees Report, the Trustees issued the first Medicare funding warning.  The 2007 Medicare Trustees Report contained the second Medicare funding warning.  Under the MMA, the second Medicare funding warning technically requires that the President propose Medicare legislation, within 15 days after the release of the FY 2009 budget, to keep general revenue spending below 45 percent of total Medicare spending. However, a recent CQ Politics article raises doubt as to whether such action will be immediately taken.

Senator Baucus Comments on Rising Medicare Costs

In a Press Release, Senate Finance Committee Chairman Max Baucus commented on the Centers for Medicare & Medicaid Services (CMS) recent report of rising Medicare costs in the journal Health Affairs, stating:

"Attention to rising health care costs has to be at the center not only of our Medicare considerations, but at the center of any consideration of comprehensive health care reform.  Rising health care costs are the biggest threat to the future of Medicare and Medicaid, and indeed a great threat to our nation's economic stability as well.  But while Congress looks at ways to curb rising costs for the long-term, we need to acknowledge the toll high costs are taking on health consumers now, and consider helpful measures like expansion of eligibility for Medicare's low-income subsidy.  This can benefit seniors strapped for cash as health care costs rise, but there's also clear evidence that patients with comprehensive, affordable health coverage are more likely to adhere to treatment regimens and thus need fewer hospitalizations and emergency room visits, and will be less likely to develop chronic and acute illnesses - all of which will help to reduce health care costs.  So a two-pronged consideration of rising health care costs, both for the short and long term, is needed."

In an earlier Press Release, addressing the Medicare, Medicaid and SCHIP Extension Act of 2007, Senator Baucus stated:

"...the Finance Committee will move aggressively on broader Medicare reform in the next session of Congress.  Changes that make every part of Medicare better for seniors are solely needed.  A hard look at Medicare Advantage is now overdue.  Work on comprehensive Medicare legislation will continue and see completion in the early part of 2008."

CMS Extends Medicare Participation Decision Period for Physicians

Due to the enactment of the Medicare, Medicaid and SCHIP Extension Act of 2007 (Act), the Centers for Medicare & Medicaid Services (CMS) reports that it is extending the participation decision period an additional 45 days. 

The Medicare Physician Fee Schedule Final Rule for 2008 provided for a 10.1 percent reduction in the Medicare payment rate for physician services beginning January 1, 2008.  The Act prevented the 10.1 percent reduction from taking effect on January 1, 2008 and replaced it with a 0.5 percent increase through June 30, 2008.  Due to this late change, CMS reports that the participation decision period will now run through February 15, 2008, instead of ending on December 31, 2007.  However, all participating status changes will be effective January 1, 2008.

President Bush Signs Medicare, Medicaid and SCHIP Extension Act of 2007

On December 29, 2007, President Bush signed the Medicare, Medicaid and SCHIP Extension Act of 2007 (Act) into law, extending the State Children's Health Insurance Program (SCHIP) and temporarily addressing a number of Medicare program issues.

As widely reported, the Act prevents the 10.1 percent reduction in Medicare physician payments that was scheduled for 2008 and gives physicians a 0.5 percent increase through June 30, 2008.  The 10.1 percent reduction in Medicare physician payments is driven by the statutory sustainable growth rate (SGR) formula, which is intended to control the growth in aggregate Medicare expenditures for physician services. Therefore, Congress will have to revisit the issue before July 1, 2008 or the 10.1 percent reduction will take effect at that time.  The 109th session of Congress passed similar legislation averting a 5 percent reduction in Medicare physician payments for 2007. The 5 percent reduction for 2007 was also driven by the SGR formula.

The Act also extends the Medicare therapy cap exception process through June 30, 2008.  The Balanced Budget Act of 1997 required that the Centers for Medicare & Medicaid Services (CMS) impose the therapy caps on Medicare payments for outpatient physical therapy (OPT), speech-language pathology (OSP) and occupational therapy (OOT) services in all settings, except hospital outpatient departments.  However, the Deficit Reduction Act of 2005 directed CMS to create a clinically-based exception process to the therapy caps for 2006. The Tax Relief and Health Care Act of 2006 extended that exception process through 2007. If Congress had not acted to extend the exception process through June 30, 2008, the Medicare Physician Fee Schedule Final Rule for 2008 would have imposed a combined therapy cap of $1,810 per beneficiary for OPT and OSP, and a separate cap of $1,810 for OOT, beginning January 1, 2008.  Unless Congress repeals the therapy caps or further extends the therapy cap exception process prior to July 1, 2008, the therapy caps will take effect when the Act's extension expires on June 30, 2008.

The Act also contains a number of other provisions impacting Medicare providers and suppliers, such as provisions freezing the inpatient rehabilitation facility compliance threshold at 60 percent and allowing certain comorbidities to count toward that threshold.