Legislative Watch

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December 2003

By George G. Olsen, JD, and Rebecca A. Reisinger

Landmark Medicare legislation provides relief for rehab providers.
In the days immediately preceding Thanksgiving, the Senate and the House of Representatives passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The debate on the legislation on the floors of the two bodies was lengthy, frequently acrimonious, and historic. By establishing a prescription drug benefit for Medicare beneficiaries and expanding the role of private health plans in the delivery of health care services, the legislation constitutes the most sweeping change in the Medicare program since its inception four decades ago. Among its hundreds of provisions are several that will significantly benefit rehabilitation providers and their patients. The legislation must now be presented to President Bush for signature into law.

A Long and Winding Road

The tortured path the legislation took to enactment demonstrates how truly complicated and controversial it is. After nearly 5 years of preliminary work, the leadership in the House and Senate intensified the effort to pass the legislation before Congress recessed for the year. Long markups, some dragging on through the night, were held in the House Ways and Means Committee and the House Energy and Commerce Committee, as well as the Senate Finance Committee. Thereafter, late on the evening of June 27, 2003, the Senate passed its bill (S 1) by a vote of 76 to 21. Several hours later, early in the morning of the next day, the House passed its version of the bill (HR 1) by one vote, 216-215. A conference committee was convened to reconcile the differences between S 1 and HR 1. The committee met for over 3 months and finally, in early November, it produced a compromise between the House and Senate bills, which was embodied in a conference report that had to be approved by both the House and Senate.

On Saturday, November 22, 2003, at 6:00 AM, the House passed the conference report (H Rept 108-391) to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (HR 1) by a vote of 220-215. The House vote was held open for almost 3 hours, an unprecedented amount of time, as the Republican leadership lobbied members to switch their votes from "no" to "yes" after an initial losing vote count (216-218) threatened to scuttle the measure.

On Monday, November 24, 2003, the Senate voted to end debate on the conference report (invoked cloture) on H Rept 108-391 by a vote of 70-29. Immediately following the cloture vote, Minority Leader Daschle (D-SD) raised a budget point of order against the measure, and the Senate waived the budget point of order by a vote of 61-39. On November 25, the Senate passed the conference report to HR 1 by a vote of 54-44; 10 Democrats voted in favor of the measure and nine Republicans voted against it.

Rehabilitation Provisions

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 adds a prescription drug benefit to Medicare and makes a variety of fundamental reforms to the entitlement program. Included in the legislation are provisions extending the moratorium on outpatient therapy caps, a 1.5% update in the physician fee schedule for 2004 and 2005, and several important regulatory reforms that will benefit providers of care.

The Balanced Budget Act of 1997 (BBA 97) instituted $1,500 annual payment limitations for outpatient therapy services provided by nonhospital providers. The Balanced Budget Refinement Act of 1999 (BBRA 99) imposed a moratorium on the therapy caps in 2000 and 2001; the Medicare Benefits Improvement and Protection Act of 2000 (BIPA) extended the moratorium through 2002. The therapy caps became effective again in September 2003.

The Medicare conference report suspends the therapy caps upon enactment so the limitations that became effective in September 2003 would cease to be in effect for the remainder of 2003. The therapy caps will remain suspended through 2005. The Secretary of Health and Human Services is required to submit reports mandated by BBRA 99 and BIPA to Congress no later than March 31, 2004; these studies shall include alternatives to a single annual dollar cap and utilization patterns for outpatient therapy. The Government Accounting Office (GAO) is required to identify and report to Congress conditions or diseases that might justify waiving the application of therapy caps; the GAO report is due October 1, 2004.

Physician Fee Schedule Update

Physicians and many nonphysician Medicare providers are paid on the basis of a fee schedule. The fee schedule is updated every year in a complex exercise intended to limit the overall increases in spending for physician and nonphysician services. Each service is assigned a relative value, and the relative value is multiplied by a conversion factor to arrive at a dollar amount payment that Medicare will make to the health care provider for rendering the specific service.

The conversion factor is updated every year-the update may be positive or negative depending on a spending target known as the Sustainable Growth Rate (SGR). The operation of the SGR threatened to result in significant reductions in payments to providers under the fee schedule over several years. This situation led to the inclusion of a provision in the Consolidated Appropriations Resolution of 2003 (PL 108-7) that allowed redeterminations of SGR for prior years; the new calculation resulted in a 2003 conversion factor that is 1.6% higher than the 2002 level. In adopting this provision, Congress believed that it had addressed the problem of the fee schedule reductions. Not so. The Centers for Medicare and Medicaid Services announced shortly after Congress had acted that reductions in 2004 and beyond would occur without further Congressional intervention. Absent a new law, physicians and non-physician providers would have experienced a reduction of 4.5% in payments under the physician fee schedule in 2004 and additional reductions in years after that.

The Medicare Conference Report ensures that the conversion factor update will not be less than 1.5% in 2004 and 2005. Furthermore, the increases will be exempt from a budget neutrality provision. The provision will not be treated as a change in law. In addition to the positive conversion factor update, the conference report changes the formula for calculating the SGR so that GDP measurements will take into account a 10-year rolling average rather than a 1-year change from the preceding year in determining the SGR.

Regulatory Relief

The legislation includes numerous regulatory reforms that will be of great benefit to all Medicare providers. Small providers will particularly benefit from these provisions.

The Secretary must publish a regulatory timeline for the publication of final regulations based on the previous publication of a proposed regulation or an interim final regulation.
If a final regulation includes a provision that is not a "logical outgrowth" of a previously published notice, that provision will be treated as a proposed regulation and shall not take effect until the public has had a chance to comment and until the Secretary has published the provision again as a final regulation.
Except for a limited number of circumstances, the Secretary may not make any substantive changes in regulations, manual instructions, interpretative rules, statements of policy, or guidelines that apply retroactively to services provided under the Medicare program. Providers will have 30 days to comply with any substantive changes.
The exceptions to the general rule include a situation where retroactive application is necessary to comply with statutory requirements, or where failure to apply the change retroactively will be "contrary to the public interest."
Providers who follow written guidance on the submission or payment of claims (provided by the Secretary or by a Medicare contractor) will not be required to pay any penalties or interest where the guidance is later found to be in error.
Medicare administrative contractors shall be required to respond to written inquiries from providers and beneficiaries within 45 business days of receiving the inquiry.
Each Medicare administrative contractor is required to establish a toll-free telephone number where providers may obtain information about coding, claims, coverage, and billing procedures. In addition, the Medicare administrative contractors must maintain a system for identifying and monitoring those who provide information in writing and over the telephone to Medicare providers and beneficiaries.
Medicare contractors are required to increase the amount of training offered to providers. Education and training activities must be tailored to meet the needs of small providers of services (fewer than 25 full-time-equivalent employees). Medicare contractors may not use a record of attendance at (or failure to attend) an educational activity as a means of selecting providers for prepayment review.
Where an appeal concerns a question of law, and where members of the Departmental Appeals Board (DAB) or a panel of administrative law judges (ALJs) determines that the DAB does not have the authority to decide the question of law, and where there are no material issues of fact in dispute, the provider appealing may file a civil action in US district court. If a provider files an appeal and asks for a determination of the DAB's authority on an issue, the DAB or panel of ALJs must make a decision on the request and respond in writing to the provider within 60 days after receiving the determination request. If the 60-day time frame is not met by the DAB, the provider may file a civil suit in the district court of the United States.
Medicare contractors may conduct random prepayment reviews only to develop contractor-wide claims payment error rates or under circumstances provided under regulations where such regulations have been developed in consultation with providers. The Secretary must develop a standard protocol for conducting random prepayment audits. Medicare contractors may not initiate nonrandom prepayment review without a likelihood of a sustained or high level of payment error.
If a hardship prevents a provider from repaying an overpayment within 30 days, the provider may ask for an extended repayment plan; the plan may range from 6 months to 5 years in circumstances of extreme hardship. Where a provider is alleged to have received an overpayment, and where the provider appeals, a Medicare contractor cannot recoup an overpayment until a reconsideration decision has been rendered. If a provider submits a re-payment, and later the Secretary finds the repayment was not necessary, Medicare must reimburse the provider at the same rate of interest as is applied to a provider when late payments are subject to interest.
Medicare contractors may not use extrapolation to determine overpayment amounts unless the Secretary determines there is a sustained or high level of payment error or documented educational intervention has not corrected the payment error. The Secretary must establish a standard methodology for Medicare contractors to use in selecting a sample of claims for review where an abnormal billing pattern has been discovered.
The Secretary is not prohibited from using consent settlements. However, the legislation gives providers 45 days to provide more information to the Secretary before a consent settlement is offered. The Secretary must review the additional information and take it into account in determining whether an overpayment was made.
The Secretary must develop a process where providers are allowed an opportunity to correct minor errors or omissions on submitted claims without having to initiate an appeal. The process will allow providers to resubmit corrected claims.
Drug Benefit

The full Medicare Part D benefit will not begin until 2006. However, a transitional drug discount card will be available to all Medicare beneficiaries beginning in April 2004. The Department of Health and Human Services estimates beneficiaries will save between 15% and 25% on their prescriptions. Low-income beneficiaries will also receive $600 to put toward prescriptions in each of the years 2004 and 2005.

In 2006, the Standard Medicare Part D benefit will include a $275 annual deductible and will require the beneficiary to pay a monthly premium and 25% of drug costs up to $2,250. The government will pick up almost all the cost once a beneficiary has spent $3,600. Beneficiaries with annual incomes below 150% of poverty will receive additional assistance. Entities providing the drug plans will be allowed to offer the standard benefit or its actuarial equivalent.

Beneficiaries will receive prescription drug coverage through Prescription Drug Plans or through the new Medicare Advantage (MA) program; the MA program replaces Medicare+Choice. These plans will provide drug coverage and bear some of the financial risk for drug costs; federal subsidies will be provided to encourage participation. The monthly premiums will be determined through a bidding process, and plans will compete on the basis of premiums and their ability to negotiate drug discounts for the beneficiaries enrolled in the plan.®

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. Rebecca A. Reisinger is an associate at Williams & Jensen, PC.

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December 2003