Legislative Watch

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December 2002

By George G. Olsen, JD

With HR 4954, the House successfully passed Medicare reimbursement legislation. But for the Senate, a “givebacks” bill still proves elusive.

For much of this year, the House and Senate have been grappling with complicated and politically charged Medicare issues including the creation of a comprehensive prescription drug benefit, structural reform of the program, and revision in the payment methodologies for numerous types of Medicare providers. On June 28, 2002, the House succeeded in passing HR 4954, the Medicare Modernization and Prescription Drug Act. This legislation established a Medicare drug benefit and made important changes in the way Medicare reimburses rehabilitation service providers, physicians, home health agencies, skilled nursing facilities, and numerous other providers and suppliers.

To date, the Senate has been unable to follow suit. The high-water mark thus far has been the introduction of S 3018, the Beneficiary Access to Care and Medicare Equity Act, by Senator Max Baucus (D-Mont), the chairman of the Senate Finance Committee, and Senator Chuck Grassley (R-Iowa), the ranking member of that committee. For political reasons, it has been impossible to move this legislation through the regular order of the committee markup process. Two efforts to bring S 3018 directly to the Senate floor were rebuffed. For these reasons, a Medicare “givebacks” package has, as of this writing, made little progress in the Senate.

The prospects for enactment of Medicare legislation before the November Congressional elections are dim. More than likely, such action will occur, if at all this year, in a lame duck session of Congress. Even then, there are significant hurdles that would have to be overcome. One of the most significant impediments is the cost of the Medicare givebacks. The Congressional Budget Office (CBO) has estimated that the provider provisions in the bill that passed the House will cost $30 billion over 10 years. The Baucus-Grassley bill would cost $43 billion over the next decade according to the CBO. These costs are not inconsequential particularly in the face of a burgeoning federal deficit and the expense of antiterrorism efforts and an impending military action in Iraq. For its part, the Bush Administration has indicated that a “givebacks” bill should cost between $10 and $15 billion over 10 years.

A second stumbling block is the opposition of AARP to any Medicare provider package that does not include a comprehensive drug benefit. In a letter dated October 9, 2002, the association advised the Senate leadership that “AARP opposes giveback provisions without drug coverage in Medicare, and our 35 million members will not understand how the Senate can take this course of action.” Note that there is virtually no chance that the Senate will pass a drug benefit this year—3 weeks of debate on the Senate floor in August and four failed drug benefit amendments yield this conclusion. In order to pass a Medicare givebacks package this year, therefore, Congress will have to find a way to deal with AARP’s concerns—an effort that may prove far easier after the November 5 elections.

THERAPY CAPS

The Medicare, Medicaid, and SCHIP Beneficiary Improvements and Protection Act of 2000 (BIPA) imposed a moratorium on the implementation of the $1,500 caps on outpatient therapy services established by the Balanced Budget Act of 1997. The moratorium expires on December 31, 2002, and without legislative relief, the therapy caps will become effective as of January 1, 2003.

The bill passed by the House would extend the moratorium for another 2 years through calendar year 2004. HR 4954 would also (1) require the Secretary of HHS to promptly submit to Congress several reports on the therapy caps, which are now overdue; (2) authorize a study by the Institute of Medicine (IOM) on medical conditions that may justify a waiver of the caps; and (3) require a study by the General Accounting Office (GAO) of direct access to physical therapy services. The Baucus-Grassley proposal is similar in that it would also extend the moratorium for an additional 2 years. However, the study on conditions that might justify waivers of the caps would be done by the Secretary of HHS, not the IOM, and there is no provision for a GAO study of direct access.

PHYSICIAN FEE SCHEDULE

Under current law, Medicare pays for physician services, as well as for certain nonphysician services such as outpatient rehabilitation, on the basis of a fee schedule. This schedule assigns relative values to all such services, which are then adjusted for geographic variations in cost. The adjusted relative values are converted into a dollar payment amount by a conversion factor. As a result of the automatic operation of a complicated formula for annually updating the conversion factor, the fee schedule amounts for calendar 2002 were reduced by 5.4%. Without Congressional intervention, the formula will cause additional significant reductions in the fee schedule over the next several years.

Congress is concerned that these reductions will cause physicians and other providers to limit the number of Medicare beneficiaries they serve or, worse, to refuse to see any Medicare patients at all. Consequently, the House bill and S 3018 contain identical provisions to redress the problem.

The proposals provide that the update for 2003 would be set at 2% and the calculation of the updates for 2004 and 2005 would be modified to make it unlikely that reductions in the conversion factor (and hence the payment amounts) would be triggered. This result is achieved by using actual 2002 physician spending data as the measure of allowable costs for 2002, moving the starting date for the base period for the Sustainable Growth Rate (SGR) calculation from April 1, 1996, to January 1, 2002, and modifying the formula for calculating the SGR.

SKILLED NURSING FACILITIES

Medicare payments for SNF services are predicated on a daily rate system that utilizes 44 rate categories known as resource utilization groups (RUGs). Each RUG reflects a different mix of services such as skilled nursing care and therapy. BIPA increased the skilled nursing component of each RUG by 16.66% above the rates specified in regulations from the Centers for Medicare & Medicaid Services (CMS). These rates terminated on October 1, 2002. SNFs believe this diminution in payment rates will imperil the financial stability of many facilities. HR 4954 would increase the skilled nursing component of each RUG by 12% in fiscal year 2003, 10% in fiscal year 2004, and 8% in 2005. The rate increase would be above the rates specified in the CMS rule.

S 3018 would enhance the nursing component of each RUG 15% in 2003, 13% in 2004, and 11% in 2005. This proposal would also direct the GAO to provide a report to Congress that (1) gives results of an audit of nurse staffing ratios; (2) analyzes the impact of increased RUG payments on nurse staffing ratios; and (3) makes recommendations as to whether to continue to make increased payments to SNFs.

HR 4954 and S 3018 both contain a provision that would increase the RUG payment for a SNF resident with AIDS by 128%.

HOME HEALTH AGENCIES

By operation of law, the home health agency prospective payment system (PPS) rates were to be adjusted based on a 15% cut in limits on payments per visit and per beneficiary. Congress had postponed the PPS rate adjustment based on the 15% reduction until October 1, 2002.

The House and Senate bills would both eliminate the adjustment to the home health PPS dictated by the 15% decrease in the per visit and per beneficiary limits. Furthermore, both proposals would increase the PPS payment amounts by 2% for 2003, 1.1% in 2004, and 2.7% in 2005. The implementation dates for the PPS rates would be moved from the start of the fiscal year to the start of the calendar year. Also, both bills would extend through December 31, 2004, a 10% additional payment for home health care provided to beneficiaries in rural areas. HR 4954, but not S 3018, calls for a study of data collection and reporting requirements for the Outcome and Assessment Information Set (OASIS), directs the Medicare Payment Advisory Commission (MedPAC) to study a payment margin for home health agencies under PPS, and refines the definition of “homebound” for home health care qualifying purposes.

The bills also contain extensive provisions for reforms in several procedures that will be explored in an upcoming article. ®

George G. Olsen, JD, is a partner of the firm Williams & Jensen, PC, Washington, DC. He is also legal counsel for the National Association of Rehabilitation Agencies and Providers.

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December 2002