On March 31, 2014, the U.S. Senate approved comprehensive Medicare legislation reauthorizing and extending dozens of Medicare payment enhancements, but also making several substantive changes that will profoundly impact affected stakeholders, including hospitals, physicians and laboratories.  The Act is expected to be signed by President Obama.  This newsletter provides an overview of the Medicare payment programs that were reauthorized and extended, as well as the more notable program changes.

The U.S. Senate on March 31, 2014, gave final approval to the Protecting Access to Medicare Act of 2014 (the Act), comprehensive Medicare legislation reauthorizing and extending dozens of Medicare payment enhancements, but also making several substantive changes that will profoundly impact affected stakeholders, including hospitals, physicians and laboratories, to name just a few.  The Act is expected to be signed by President Obama.

The following chart provides a quick overview of some of the more notable Medicare payment programs that were reauthorized and extended.  Each of the programs described below is extended 12 months, through March 31, 2015, unless otherwise noted.

The Act also makes a number of substantive changes to a variety of programs.  Following are brief summaries of some of the more notable program changes made by the Act.

Long-term Care Hospitals

The Pathway for SGR Reform Act of 2013 (Pub L. 113-67) made several fundamental changes to the way Medicare pays hospitals with long-term care hospital (LTCH) status beginning in fiscal year (FY) 2016.  The Act would make several technical changes to those previously enacted changes, including a clarification that the LTCH discharge payment percentage is calculated by looking at total Medicare fee-for-service discharges, instead of all discharges.  In addition, the provision moves up the date of the moratorium on the establishment of new LTCHs or LTCH satellite facilities, and on the increase of LTCH beds in existing LTCHs or satellite facilities, from January 1, 2015, to the date of enactment of this Act.  This Act also would create three new avenues for an LTCH to qualify for an exception to this moratorium.

Revisions to Valuation of Services under the Physician Fee Schedule

The legislation substantially increases the Secretary of the Department of Health and Human Services’ (Secretary) authority and ability to review and revalue services reimbursed under the Medicare Physician Fee Schedule.  Specifically, Congress provides the Secretary with authority to collect detailed information from “eligible professionals or any other source” on—among other things—time involved in furnishing services, prices (net of any discounts) for practice expense inputs, and overhead and accounting information for physician practices.  The Secretary then is given the authority to establish or adjust practice expense relative values based on the information collected.  Congress also significantly expands the bases under which individual codes could be subject to review under the mis-valued code review process, adding nine new criteria that trigger review of codes.

Clinical Laboratory Services

One of the most sweeping changes included in the Act involves how Medicare determines payment amounts for laboratory services paid under the Clinical Laboratory Fee Schedule.  Beginning January 1, 2016, laboratories that receive a majority of their Medicare revenue from payments made under the Medicare Clinical Laboratory or the Physician Fee Schedules must report every three years (or every year in the case of advanced diagnostic laboratory tests) test volume and payment amounts received from private payors.  Most hospital-based labs presumably will be exempt from this reporting requirement as they likely do not derive a majority of their Medicare laboratory service revenue from payments made under the Clinical Laboratory or the Physician Fee Schedules.

Beginning in 2017, Medicare payment rates for existing laboratory tests would be 100 percent (or 80 percent in the case of tests for which payment is not made on an assignment-related basis) of the weighted median of the price information reported in the most recent data collection period.  New market rate payment amounts for tests other than advanced laboratory diagnostics would be phased in such that the reduction in payment for a test could not exceed a fixed percent: 10 percent for 2017 through 2019, and 15 percent for 2020 through 2022, compared to the payment for the test in the preceding year.  Payment amounts determined in this manner remain effective until the year after the next data collection period (one year for advanced diagnostic laboratory tests, and three years for all other tests).

New tests that are not advanced diagnostic laboratory tests will have payment determined using existing cross-walk methodologies or gap-filling processes, as appropriate, and based on recommendations from an expert advisory panel established for this purpose. 

Medicare payments for new advanced diagnostic laboratory tests will equal the actual list charge for the test set as of the first day on which the test is available for purchase for the first nine months.  Following this initial period, the payment amount would be set at the volume-weighted median of the private market payment rates for the tests.  If CMS determines that the payment amount for the test during the initial period was greater than 130 percent of the weighted median of the private sector payment, the agency will recoup the difference between such payment amounts for payments made during the initial period. 

Advanced diagnostic laboratory tests are tests offered and furnished by a single laboratory and which are either: (1) an analysis of multiple biomarkers with a unique algorithm or (2) cleared or approved by the Food and Drug Administration (FDA).  The Secretary may expand the category of advanced diagnostic laboratory tests to include other similar types of single laboratory services.

CMS is required to adopt temporary HCPCS codes to identify new advanced diagnostic laboratory tests and new laboratory tests that are cleared or approved by the FDA, with each code effective for a period not to exceed two years, unless extended by CMS.  In addition, by January 1, 2016, all existing advanced diagnostic laboratory tests and clinical diagnostic laboratory tests must be assigned a unique HCPCS code.  Laboratories and manufacturers can also request unique identifiers to track or monitor advanced diagnostic laboratory tests or FDA-cleared or approved tests.

Medicare Administrative Contractors (MACs) may issue coverage policies for clinical diagnostic laboratory tests only by following the Local Coverage Determination process.  CMS is authorized to designate up to four MACs to establish coverage policies for clinical diagnostic laboratory tests (CMS may also have those MACs process laboratory claims for payment).

Medicaid DSH Allotments

Under the Affordable Care Act (ACA), Congress established a new methodology for allocating Medicaid Disproportionate Share (DSH) dollars among the states.  Under the ACA, the changes were to become effective in 2014 and last through 2021.  Subsequent legislation delayed implementation to 2016, but increased the amount of the reduction in 2016 and extended the effective period to 2022.  Under the Act, implementation of the Medicaid DSH changes is further delayed to 2017, but the revised methodology and allocations are extended through 2024, an additional two years.  After 2024, a new provision would revert the calculation of DSH allotments back to the previous methodology, without regard to the provisions governing reductions. 

In addition, Congress would create a new process by which the Medicaid and CHIP Payment and Access Commission (MACPAC) would be responsible for reviewing and submitting an annual report on Medicaid DSH payments.  This report must include, among other things, (1) data relating to changes in the number of uninsured individuals; (2) data relating to the amount and sources of hospitals’ uncompensated care costs; (3) data identifying hospitals with high levels of uncompensated care that provide essential community services for low-income, uninsured and vulnerable populations; and (4) state-specific analyses of the comparison between the most recent state DSH allotment and the projected state DSH allotment for the succeeding year.  The first report would be due no later than February 1, 2016.

Delay in Implementation of ICD-10 Coding

Among the more noteworthy and indeed controversial changes made by the Act is a one-year delay in the required adoption of the ICD-10 code set.  ICD-10 will now be implemented on October 1, 2015, rather than October 1, 2014.

Value-Based Purchasing Program for Skilled Nursing Facilities

Beginning with fiscal year 2019, the Secretary must implement a Value-Based Purchasing (VBP) program for Skilled Nursing Facilities (SNFs) using readmission and resource measures also required to be developed by this Act.  Similar to the Hospital VBP program, the SNF VBP program creates performance standards based on these measures, and assigns a performance score for each SNF based on these standards.

In order to calculate the value-based incentive payment for each SNF, the Secretary must multiply the adjusted per diem rate for SNFs for the applicable fiscal year by the value-based incentive payment percentage (which is based on the performance score for each facility).  To create the pool for funding of the SNF VBP program, the Secretary would reduce the per diem rate by 2 percent for each fiscal year.

Once the value-based incentive payments for each SNF have been calculated, the Secretary must post on the Nursing Home Compare Medicare website information specific to the performance of each SNF, including its ranking compared to other SNFs, as well as aggregate data on the range of performance scores and the number of SNFs receiving incentive payments.

Dialysis Services

The Act makes several modifications to the End Stage Renal Disease (ESRD) Prospective Payment System (PPS), including the following:

• Delaying incorporation of oral-only drugs into the bundled payment for renal dialysis services from 2016 to 2024

• Implementing an end date of January 1, 2016, to the statutory requirement to compare 2007 and 2012 patient utilization data and make corresponding reductions to the single ESRD PPS payment for renal dialysis services

• Reducing the ESRD market basket increase factor in each year from 2016 to 2018

• Incorporating quality measures for conditions treated with oral-only drugs into the ESRD quality incentives program

• Mandating that the Secretary conduct audits of Medicare cost reports (beginning with 2012 cost reports) for a representative sample of ESRD providers

Advanced Imaging Services

Congress also included changes intended to encourage transition to and use of advanced CT imaging equipment that limits patient  exposure to ionizing radiation.  Effective in 2016, imaging services furnished with equipment that does not meet National Electrical Manufacturers Association Standard XR–29–2013 is subject to a 5 percent payment reduction, which will increase to 15 percent in 2017.  The legislation also requires the Secretary to establish a program to promote the utilization of appropriate use criteria to guide physicians in the use of advanced imaging modalities.

As significant and sweeping as this legislation is, it falls well short of the expectations and hopes of the physician community, among others, which lobbied to make 2014 the year Congress would finally repeal the Sustainable Growth Rate and end the annual threat to Medicare physician payments once and for all.  Given the timeframes established by this legislation—reauthorizing most programs through March 31, 2015—Congress seems to have deferred on taking that step for at least another year.

While America’s physicians are disappointed, other health industry stakeholders, perhaps most notably the hospital community, breathed a sigh of relief at what could have been.  The projected cost of SGR repeal legislation is between $140 billion (for SGR repeal alone) and $180 billion (to also extend other expiring provisions and make other desired changes).  If Congress were to offset that price tag with commensurate reductions to Medicare spending, most stakeholders would see Medicare payments drop in one form or another.  Every year that Congress delays repealing the SGR is another year of avoiding a day of reckoning for virtually every other health industry stakeholder.

Nonetheless, Congress is likely to eventually consider and approve SGR repeal legislation.  A bipartisan, bicameral repeal policy has been agreed to by the three congressional committees with jurisdiction over the issue.  Moreover, the cost of fully repealing the SGR is the lowest it has been in the 10-plus years that this issue has bedeviled Congress.  Congressional leaders want to get the SGR monkey off their back.  They just prefer to do so after, rather than just before, an election.