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August/September 2003


Legislative Watch

By George G. Olsen, JD, and Rebecca A. Reisinger
Between the moratorium on therapy caps and a proposed rule for SNF PPS, CMS has been busy. Here’s an update.

At nearly 2:30 AM on June 27, 2003, the House of Representatives passed HR 1, the Medicare Prescription Drug and Modernization Act of 2003, by a vote of 216-215. Section 624 of this legislation includes an extension of the moratorium on the outpatient therapy caps beginning on January 1, 2004, and running through the end of the calendar year.

This provision also requires that, no later than December 31, 2003, the Secretary of Health and Human Services (HHS) must submit the reports mandated under the Balanced Budget Act of 1997, relating to alternatives to a single, annual, dollar limitation on outpatient therapy, and the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), concerning utilization patterns for outpatient therapy. Although both of these reports were due some time ago, neither has been submitted to Congress.

The legislation also directs the Secretary to request the Institute of Medicine of the National Academy of Sciences “to identify conditions or diseases that should justify conducting an assessment of the need to waive the therapy caps.”

No later than July 1, 2004, the Secretary must provide Congress with a preliminary report on such conditions and diseases. A final report is due by September 1, 2004, and by October 1, 2004, the Secretary must submit to Congress “a recommendation of criteria, with respect to such conditions and diseases, under which a waiver of the therapy caps would apply.” Congress has requested these reports in an effort to ascertain whether a waiver process can serve as an alternative to the therapy caps.

Staving Off The Caps
The Senate passed its version of the Medicare legislation, the Prescription Drug and Medicare Improvement Act of 2003 (S 1), on June 27, 2003, by a strong bipartisan vote of 76-21. The Senate bill does not include an extension of the moratorium or any of the study requirements.

However, during the 2 weeks when the bill was being debated on the Senate floor, Senate Finance Committee Chairman Grassley stated publicly that he would support the House moratorium when the bill is before the conference committee. Since the lengthy House and Senate bills differ in many material respects, the two bodies have appointed a conference committee to work out the differences and arrive at a single bill. This bill must then be adopted by both chambers before it is sent to the president for signing into law. Given the extremely complicated and politically charged issues that the conference must address, it is unlikely that the committee will complete its work before the fall.

As noted above, the moratorium provided for in the House bill will become effective on January 1, 2004, assuming that the conference is successful and the president signs the bill. Despite positive movement on the cap moratorium in Congress, CMS repeatedly said that there would be no further administrative extension of the moratorium and that providers had to begin to comply with the caps on July 1, 2003. Extensive efforts were made by provider and patient groups to dissuade CMS from taking this step, but CMS rejected all such overtures.

In one final attempt to stave off the implementation of the caps, the American Parkinson Disease Association, Easter Seals, and the Medicare Rights Center filed a lawsuit on June 25, 2003, against HHS Secretary Thompson and CMS Administrator Scully. The lawsuit sought a temporary restraining order to enjoin CMS from implementing the caps. Following oral argument before the US District Court for the District of Columbia on June 30, 2003, the judge instructed the parties to meet and attempt to work out a compromise. Lengthy discussions between the parties led to an agreement that was accepted by the judge.

The agreement provides that CMS will delay implementation of the caps for another 60 days until September 1, 2003. CMS will also post notices on its Web site to advise beneficiaries that the therapy caps would become effective on September 1, 2003. Beneficiaries will also receive such notice through Medicare Summary Notices that will be distributed in July. All counts in the complaint were stayed until September 1, 2003, except the count concerning the conflict between consolidated billing and skilled nursing facility (SNF) residents. The parties will attempt to resolve this issue over the next 60 days. Another status conference is scheduled for September 15, 2003.

Following the court settlement, CMS published a new document, entitled “New Medicare Limits on Therapy Services” (Publication No. CMS-10988), that advises beneficiaries and other interested parties about the operation of the therapy caps. CMS provided two examples:

Example 1: Mr Jones has Medicare Part A and Part B. He has already paid his yearly Part B deductible ($100 in 2003). In September and October 2003, he got medically necessary physical therapy and speech language pathology at his therapists’ private offices.

Mr Jones’ combined outpatient physical therapy and speech language pathology costs total $2,000. The Medicare-approved limit is $1,590.
  • Medicare pays 80% of the $1,590 limit ($1,272).
  • Mr Jones pays 20% of the limit ($318) and the extra amount over the limit ($410).
  • Mr Jones pays a total of $728 for these services.
Medicare will not cover any more outpatient physical therapy or speech language pathology for Mr Jones until 2004 unless he gets it at a hospital outpatient department.

Example 2: Ms Jackson gets outpatient occupational therapy, which costs $1,000. The Medicare-approved limit is $1,590.
  • Medicare pays 80% of the $1,000 cost ($800).
  • Ms Jackson pays 20% of the cost ($200).
If Ms Jackson needs more occupational therapy in 2003, Medicare will cover 80% of up to $590 in additional costs (reaching the $1,590 limit). After she reaches the limit, she can choose to go to a hospital outpatient department to get therapy services. Ms Jackson would still have to pay the co-payment for these services.

Any outpatient physical therapy, speech language pathology, or occupational therapy received before September 1, 2003, does not count toward the outpatient therapy limit for 2003. In 2004, the limits will apply to therapy services for the whole calendar year.

Although efforts are being made to prevent the caps from becoming effective at all in 2003, as matters stand now, providers must comply as of September 1, 2003. Information on compliance requirements is available in CMS Transmittal AB-03-057 and CMS Transmittal AB-03-018, both of which are available on the CMS Web site.

SNF PPS and Consolidated Billing

On May 16, 2003, CMS issued a proposed rule updating payment rates under the Medicare prospective payment system for skilled nursing facilities for fiscal year 2004. The proposed rates would apply to Medicare Part A SNF services beginning on October 1, 2003. Key provisions of the proposed rule include the following:
  • Market Basket Update: The proposed rates would reflect an update using the full amount of the latest market basket index, which is 2.9%. This factor may be revised in the final rule, however, when later forecast data are available. The payment rates, once updated for FY04 using the market basket index, are further adjusted by a wage-index budget-neutrality factor.
  • No Case-Mix Refinements: CMS is not proposing to implement case-mix refinements in this rule. Therefore, the proposed payment rates for FY04 “reflect the continued use of the 44-group RUG-III [Resource Utilization Groups, phase III] classification system discussed in the May 12, 1998 interim final rule.” The add-ons to the federal rates for the specified RUG-III Groups (required by section 101(a) of the BBRA and modified by section 314 of the Medicare, Medicaid, and SCHIP Benefit Improvement and Protection Act (BIPA)) will be maintained.
  • Ongoing Research: The proposed rule states that CMS is continuing to consider short-term and long-term revisions to the case-mix classification methodology. A contract was awarded to the Urban Institute in July 2001 for research to assist CMS in refining the case-mix classification system. The research will be included in the BIPA-mandated report to Congress, due by January 1, 2005.
  • Use of Hospital Wage Index: Hospital wage-index data have been used to develop a wage index for SNFs since the inception of the SNF PPS. The rule proposes to continue this practice for FY04. While CMS believes the development of a SNF-specific wage index has the potential to improve accuracy of SNF payments, the undertaking of a SNF-specific wage index is not “feasible within the current level of programmatic resources.” The rule proposes to continue use of the FY03 wage index to adjust SNF PPS payments for FY04. The wage-index adjustment would be applied to the proposed labor-related portion of the federal rate, which is 76.435% of the total rate. (The percentage reflects the labor-related relative importance for FY04.)
  • Budget Neutrality: CMS is required to apply the wage index in a budget-neutral manner. Because CMS is proposing to use the same wage index for FY04 as was applied in FY03, the proposed budget-neutrality factor for FY04 is 1.0000. However, the budget-neutrality factor may change in the final rule.
  • Relationship of RUG-III Classification System to Existing SNF Level-of-Care Criteria: CMS is proposing to continue the existing designation of the upper-26 RUG-III groups for purposes of the administrative presumption (that presumption is that any beneficiary correctly assigned to one of the upper-26 RUG-III groups in the initial assessment is automatically classified as meeting the SNF level-of-care definition up to the reference date for that assessment).
  • Public Comment on Codes Eligible for Exclusion From Consolidated Billing: The BBRA identified for exclusion a number of service codes within four specified categories (chemotherapy, chemotherapy administration services, radioisotope services, and customized prosthetic devices). The BBRA also gave the Secretary the authority to designate additional, individual services for exclusion within each of the specified service categories. CMS is inviting public comments to identify codes in any of the four categories that represent recent medical advances and that might meet the BBRA criteria for exclusion from SNF consolidated billing. CMS wants any new service codes to be identified by means of HCPCS codes in effect as of October 1, 2002. Making changes in this manner sets the stage for “routine future updates” that may be accomplished by issuing a program memorandum.
  • Swing-Bed Hospitals and PPS: By July 31, 2003, all swing-bed hospitals will be covered by the SNF PPS.
  • Distinct-Part SNFs: While some SNFs function as separate entities, CMS recognizes that it is possible for a SNF to operate as a “distinct part” of a larger organization. The proposed rule seeks to clarify the definition of a “distinct part” SNF and explains how the survey and certification requirements are being applied to “distinct parts” in separate physical locations.
  • Composite Distinct-Part SNFs: CMS proposes to establish additional criteria to apply to a composite distinct-part SNF or NF. The rule proposes to treat a composite distinct part as a single distinct part. The additional criteria are not intended to create a new category of nursing homes but rather to clarify various survey and certification issues arising from this type of configuration. The criteria are not meant to supersede or replace existing policies. The use of a composite configuration is limited to facilities within the same state. Surveyors will be looking for various requirements that must be met independently in each location of the composite distinct part. Those requirements include the posting of residents’ rights, readily available survey results, equal access by residents to activities and social services, a designated director of food services, and various physical environment requirements. CMS also proposes to allow a resident to remain in or return to the same location of the composite distinct part to which that resident was originally admitted.
The comment period on the proposed rule has closed, and the final rule may be, as of this writing, issued within the next several weeks.

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 a summer associate at Williams & Jensen, PC.

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