Medicare, Medicaid and SCHIP – Benefits Improvement and Protection Act of 2000

On December 21, 2000, President Clinton signed into law an approximately $35 billion Medicare "giveback" package as part of H.R. 4577, the "Consolidated Appropriations Act, 2001" (P.L. 106-554) ("the Act"). Specifically, the Act incorporates by reference the text of H.R. 5661, the "Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000" ("BIPA"), which includes sweeping reimbursement and other policy changes that are intended to mitigate the effects of reimbursement cuts contained in the Balanced Budget Act of 1997 ("BBA").

Among other things, BIPA:

• Increases Medicare reimbursement for inpatient and outpatient hospital services, home health agencies ("HHAs"), skilled nursing facilities ("SNFs"), Medicare+Choice plans, dialysis facilities, hospice providers, durable medical equipment ("DME") and orthotics and prosthetics suppliers, ambulance providers, and various rural health care providers;
• Limits SNF consolidated billing to items and services furnished to SNF residents in a Part A covered stay and to therapy services furnished in Part A and Part B covered stays, and increases SNF prospective payment system ("PPS") payments for residents with "ultra high" and "high" rehabilitation therapy needs;
• Delays for another year the scheduled 15 percent cut in Medicare home health payments;
• Modifies the procedures for determining eligibility for pass-through payments under the Medicare hospital outpatient PPS;
• Provides a "grandfather" provision under the rules for determining whether a facility is "provider based," and modifies the geographic location criteria used in determining provider-based status;
• Suspends for an additional year the $1,500 payment caps on Medicare Part B therapy services;
• Requires the Secretary of the Department of Health and Human Services ("Secretary" or "HHS") to develop improved Medicare reimbursement and coding policies for new DME and clinical laboratory services, along with a mechanism for adequately recognizing the costs of new medical services and technologies under the hospital inpatient reimbursement system;
• Expands Medicare Part B coverage of drugs and biologicals when they are not usually self-administered by the patient, requires a report on revised Medicare payment methods for drugs and biologicals and related services, and imposes a temporary moratorium on reductions in Medicare reimbursement for drugs and biologicals;
• Makes permanent the authority of the HHS Office of Inspector General ("OIG") to issue advisory opinions;
• Reforms the Medicare appeals process and expands the rights of Medicare beneficiaries to appeal coverage decisions;
• Expands Medicare coverage of certain preventive benefits; and
• Reforms the Medicaid upper payment limit rules and increases Medicaid disproportionate share hospital ("DSH") payments.

Due to the length and complexity of the legislation, this Memorandum offers a summary of the BIPA provisions we expect to be of most interest to our clients. Our Memorandum does not catalogue the extensive number of health-related spending and policy provisions sprinkled throughout the Act. Please do not hesitate to contact us if you require additional information.

BIPA includes a number of provisions that expand Medicare coverage of preventive benefits. Specifically, BIPA:

• Authorizes coverage of a screening Pap smear and screening pelvic exam once every two years (rather than three years), effective July 1, 2001.
• Adds Medicare coverage for annual glaucoma screenings , beginning January 1, 2002, for persons determined to be at high risk for glaucoma, individuals with a family history of glaucoma, and individuals with diabetes. The service must be furnished by or under the supervision of an optometrist or ophthalmologist who is legally authorized to perform such services.
• Authorizes coverage for screening colonoscopies for all individuals (not just those at high risk), beginning July 1, 2001. For persons not at high risk, payments cannot be made for such procedures if performed within 10 years of a previous screening colonoscopy or within four years of a screening flexible sigmoidoscopy.
• Eliminates the statutorily prescribed payment rate for screening mammography payments and specifies that such services are to be paid under the physician fee schedule. BIPA also provides two new temporary payment rates for mammography procedures that utilize advanced new technology, effective April 1, 2001 to December 31, 2001. Specifically, payment for technologies that directly take digital images will equal 150 percent of what otherwise would be paid for a bilateral diagnostic mammography. For technologies that convert standard film images to digital form, an additional payment of $15 is authorized. Moreover, the Secretary must determine whether a new HCFA Common Procedure Coding System ("HCPCS") code is required for tests furnished after 2001.
• Establishes Medicare coverage for medical nutrition therapy services for beneficiaries who have diabetes or a renal disease and meet certain specified criteria, effective January 1, 2002. Medical nutrition therapy services is defined as nutritional diagnostic, therapy, and counseling services for the purpose of disease management that are furnished by a registered dietician or nutrition professional, pursuant to a referral by a physician. Payment for such services will equal the lesser of the actual charge for the service or 85 percent of the physician fee schedule amount. Assignment will be required for all claims. The Secretary also must report to Congress regarding the expansion of this benefit.

1. Other Beneficiary Improvements
   1. Accelerated Reduction of Beneficiary Hospital Outpatient Services Copayment BIPA reflects Congress’ continued efforts to reign in the amount for which a Medicare beneficiary can be billed for an outpatient procedure. As in current law, the beneficiary’s copayment for a procedure in a hospital outpatient department is limited to the hospital inpatient deductible applicable in that year. In addition, effective April 1, 2001, BIPA adds a new provision requiring the Secretary to reduce the effective copayment rate for outpatient services to a maximum rate of 57 percent for the remainder of 2001, gradually descending to a 40 percent effective copayment rate in 2006 and subsequent years. Hospitals may continue to waive any increase in coinsurance that may have arisen from the implementation of the hospital outpatient PPS ("HOPPS"). Moreover, the U.S. General Accounting Office ("GAO") is required to work with the National Association of Insurance Commissioners to evaluate the extent to which premiums for supplemental policies reflect the acceleration of the reduction in beneficiary coinsurance for hospital outpatient services and result in savings to beneficiaries. The GAO must report its findings to Congress by April 1, 2004.
   2. Self-Administered Drugs and Biologicals, Balanced Billing Restriction By way of background, Part B Medicare coverage historically has been limited to drugs and biologicals which could not be self-administered. In recent years, however, a controversy has arisen regarding whether Medicare carriers could take into account an individual patient’s ability to administer the drug or biologic in making coverage determinations. In 1997, HCFA issued a program memo stating that an "individual patient’s mental or physical ability to administer any drug" may not be taken into consideration in coverage decisions. As a result, carriers no longer had flexibility to provide drug coverage to certain patients, such as those with multiple sclerosis, based on their subjective ability to administer the medication. Congress blocked implementation of this policy in 1999. Section 112 of BIPA clarifies Medicare coverage of drugs and biologicals, provided incident to physicians services, that cannot be self-administered. The provision specifies that such drugs and biologicals are covered when they are not usually self-administered by the patient. The provision is effective upon enactment (December 21, 2000). In addition, section 114 specifies that payment for drugs under Part B must be made on the basis of assignment. In other words, the provider must bill for and accept the Medicare fee schedule amount as payment in full; beneficiaries are not liable for any out-of-pocket costs other than standard deductible and coinsurance amounts.
   3. Elimination of Time Limit on Medicare Immunosuppressive Drugs Benefit Section 113 of BIPA eliminates current time limits on the coverage of immunosuppressive drugs for beneficiaries who have received a covered organ transplant, effective for drugs furnished on or after the date enactment.
   4. Waiver of 24-Month Waiting Period for Medicare Coverage of Individuals Disabled with Amyotrophic Lateral Sclerosis

   Section 115 of BIPA waives the 24-month waiting period (otherwise required to establish Medicare eligibility on the basis of a disability) for persons medically determined to have amyotrophic lateral sclerosis ("ALS"), effective July 1, 2001.

   BIPA authorizes a number of demonstration projects and studies, such as:

   • A new demonstration project designed to illustrate the impact on costs and health outcomes of applying disease management services to Medicare beneficiaries with diagnosed, advanced-stage congestive heart failure, diabetes, or coronary heart disease. Contractors providing disease management services will be responsible for providing beneficiaries enrolled in the project with prescription drugs.
   • A series of at least nine demonstration projects designed to develop models and evaluate methods that improve the quality of cancer prevention services, improve clinical outcomes, eliminate disparities in the rate of preventive screening measures, and promote collaboration with community-based organizations for ethnic and racial minorities.
   • A study by the National Academy of Sciences, in conjunction with the United States Preventive Services Task Force, to analyze the addition of routine thyroid screening under Medicare.
   • A study by the Secretary regarding whether access to certain services (including mental health services) has been affected by limitations on a state’s payments for Medicare cost-sharing for qualified Medicare beneficiaries.
   • A series of studies by the Secretary, acting through the United States Preventive Services Task Force, to identify preventive interventions in primary care for older Americans.
   • A Medicare Payment Advisory Committee ("MedPAC") study regarding Medicare coverage of cardiac and pulmonary rehabilitation therapy services.
   1. Inpatient Hospital Services
      1. Acute Care Payment Update Section 301 of BIPA provides all hospitals with a full market basket index ("MBI") increase for fiscal year ("FY") 2001. For hospitals other than sole community hospitals, the MBI will be implemented in two phases during the fiscal year to result in an average increase of the full MBI. As provided under section 547 of BIPA, this payment increase will not be taken into account in calculating payment amounts after FY 2001. For FYs 2002 and 2003, hospitals will receive the MBI minus 0.55 percentage points, and in FY 2004 and subsequently hospitals will receive the full MBI. In addition, BIPA directs the Secretary to consider the prices of blood and blood products purchased by hospitals in the next rebasing and revision of the hospital market basket to determine whether those prices are adequately reflected in the MBI. Moreover, MedPAC is directed to conduct a study on increased hospital costs attributable to complying with new blood safety measures and providing such services using new technologies. BIPA also allows the Secretary to adjust payments to hospitals to account for coding or classification changes that do not reflect real changes in case mix, effective for discharges occurring on or after October 1, 2001. Specifically, the Secretary is authorized to adjust the standardized amount in future fiscal years to correct changes in aggregate Medicare payments caused by adjustments to the diagnosis related group ("DRG") weighting factors that did not take into account coding improvements or changes in discharge classifications and did not accurately represent increases in the resource intensity of patients treated by PPS hospitals.
      2. Indirect Medical Education Under Section 302 of BIPA, teaching hospitals are provided with a 6.5 percent indirect medical education ("IME") payment adjustment in FY 2001, implemented in two phases. This payment increase will not be taken into account in calculating payment amounts after FY 2001. The IME adjustment will be 6.5 percent in FY 2002 and 5.5 percent in FY 2003 and in subsequent years.
      3. Disproportionate Share Hospital Payments Section 303 of BIPA decreases scheduled DSH reimbursement reductions. Specifically, reductions in the DSH amounts will be 2 percent in FY 2001 (instead of a 3 percent reduction), 3 percent in FY 2002 (instead of 4 percent), and 0 percent in FY 2003 and thereafter. Special rules are adopted to phase in the payment changes in FY 2001. As provided under section 547, these payment rules will not be taken into account in calculating payment amounts after FY 2001.
      4. Wage Index Improvements Section 304 of BIPA makes a series of changes to improve the process used by the Medicare Geographic Classification Review Board ("MGCRB") to reclassify a hospital from one geographic area to another. Specifically, for FY 2001 and thereafter, a MGCRB decision to reclassify a PPS hospital for use of a different area’s wage index will be effective for three fiscal years (although the Secretary is directed to establish procedures whereby a hospital could elect to terminate this reclassification decision before the end of this period). Moreover, for FY 2003 and subsequently, BIPA requires the MGCRB to base any comparison of the average hourly wage of the hospital with the average hourly wage for hospitals in the area using data from the each of the two immediately preceding surveys as well as data from the most recently-published hospital wage survey. In addition, BIPA directs the Secretary to establish a process under which a single wage index will be computed for all geographic areas in a state. The process must be established by October 1, 2001 for reclassifications beginning in FY 2003. If the Secretary applies a statewide geographic index, an application for geographic reclassification by an individual hospital will not be considered. BIPA also requires the Secretary to collect occupational data every three years in order to construct an occupational mix adjustment for the hospital area wage index. The first complete data collection effort must occur no later than September 30, 2003 for application beginning October 1, 2004.
      5. Rehabilitation Hospitals The BBA required HCFA to implement a PPS for inpatient rehabilitation hospitals and rehabilitation units (referred to as inpatient rehabilitation facilities or IRFs). On November 3, 2000, HCFA published a proposed rule to establish the IRF PPS, to be phased in beginning with cost reporting periods beginning on or after April 1, 2001. Section 305 of BIPA provides that total payments for rehabilitation hospitals in FY 2002 will equal the amounts of payments that would have been made if the IRF PPS had not been enacted (rather than 98 percent of payments). In addition, BIPA allows a rehabilitation facility to make a one-time election before the start of the PPS to be paid based on a fully phased-in PPS rate.
      6. Psychiatric Hospital Inpatient Services Section 306 increases incentive payments for psychiatric hospitals and distinct part units from 2 percent to 3 percent for cost reporting periods beginning on or after October 1, 2000 and before October 1, 2001.
      7. Long-Term Care Hospital Inpatient Services

      Under Section 307, long-term care hospitals will have their national cap increased by 2 percent and their target amount increased by 25 percent for cost reporting periods beginning during FY 2001. Neither these payments nor the increased bonus payments provided by the Balanced Budget Refinement Act of 1999 ("BBRA") will be factored into the development of the PPS for long-term care hospitals (which was mandated by the BBA and further defined by the BBRA).

      The BBRA required the Secretary to implement a per-discharge long-term care hospital PPS. BIPA modifies the BBRA provisions by requiring the Secretary to examine the feasibility and impact of (1) basing payment on the existing (or refined) acute hospital DRGs that have been modified to account for different resource use of long-term care hospital patients, and (2) using the most recently available hospital discharge data. The Secretary is directed further to examine and provide for appropriate adjustments to the long-term care hospital payment system, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment.

      If the Secretary is unable to implement the per-discharge long-term care hospital PPS by October 1, 2002, the Secretary must implement a PPS for these hospitals using existing acute hospital DRGs that have been modified where feasible to account for resource use of long-term care hospital patients, using the most recently available hospital discharge data for such services furnished on or after that date.

      1. Market Basket Update Prior to enactment of BIPA, the unadjusted federal per diem rate under the SNF PPS was scheduled to be increased in FYs 2001 and 2002 by the SNF MBI increase minus 1 percentage point, with full SNF MBI updates in subsequent years. Section 311 of BIPA eliminates the scheduled reduction in the SNF market basket update in FY 2001, implemented in two phases. Specifically, the update rate for October 1, 2000, through March 31, 2001 is the MBI increase minus 1 percentage point (as was in effect prior to enactment of BIPA); the update rate for the period April 1, 2001 through September 30, 2001 is the MBI increase plus 1 percentage point. As provided under section 547 of BIPA, this payment increase will not be included when determining payment rates for subsequent years. In FYs 2002 and 2003, payment updates will equal the MBI increase minus 0.5 percentage point. Temporary increases in the federal per diem rates under the BBRA ( i.e. , the 4 percent increase for all resource utilization groups ("RUGs") and the 20 percent increase for 15 high-acuity RUGs) are in addition to the payment increases in BIPA, except for modifications to payments for certain rehabilitation RUGs discussed below. Moreover, BIPA requires the GAO to submit to Congress by July 1, 2002 a report on the adequacy of Medicare payments to SNFs and the extent to which Medicare contributes to the financial viability of SNFs, taking into account the role of private payers, Medicaid, and case mix on financial performance. The report also must analyze the number of SNFs and their characteristics, including information broken down by RUG classification. Additionally, the Secretary must report to Congress by January 1, 2005 on alternative systems for categorizing patients in Medicare SNFs in a manner that accounts for the relative resource utilization of different patient types. In other words, the Secretary is required to report on alternatives to the current RUG system used to calculate SNF payment rates.
      2. Increase in Nursing Component of PPS Federal Rate Section 312 of BIPA increases the nursing component of each RUG by 16.66 percent for SNF care furnished after April 1, 2001 and before October 1, 2002. In addition, the GAO is required to audit nurse staffing ratios in a representative sample of SNFs, including an examination of payroll records and Medicaid cost reports of individual facilities. The GAO must submit to Congress by August 1, 2002 a report on the audits, including an assessment of the impact of the increased payments on nursing staff ratios and the GAO’s recommendations as to whether the increased payment should be continued.
      3. SNF Consolidated Billing Requirement Limited to Part A Covered Stays By way of background, the BBA instituted a consolidated billing requirement for SNFs, under which the SNF must submit Medicare claims to the fiscal intermediary for all the Part A and Part B services that its residents receive, except for certain specifically-excluded services. The intent was that for services and supplies furnished to a SNF resident, SNFs could not unbundle services and allow an outside provider to submit a separate bill directly to the Medicare carrier. Instead, the SNF must furnish the services or supplies either directly or under an arrangement with an outside provider, and the SNF must bill Medicare. On July 1, 1998, consolidated billing went into effect for (1) those services and items that were not specifically excluded by law that were furnished to residents of a SNF in a covered Part A stay, and (2) physical, occupational, and speech therapies in a Part B stay. Due to systems limitations, however, HCFA did not implement at that time consolidated billing for residents not in a Part A covered stay ( i.e. , Part A benefits exhausted, post-hospital or level of care requirements not met). The BBRA excluded certain additional items and services from Part A SNF consolidated billing. HCFA subsequently issued a series of program memoranda specifying certain services or supplies not subject to SNF Part A PPS consolidated billing, and postponing indefinitely consolidated billing for Part B services (except for physical, occupational, and speech-language therapy). BIPA further refines consolidated billing requirements for SNFs. Specifically, effective January 1, 2001, section 313 of BIPA limits consolidated billing requirements to services and items furnished to SNF residents in a Medicare Part A covered stay and to therapy services furnished in Part A and Part B covered stays. As a result, for residents not covered under a Part A stay, SNFs may choose to bill for non-therapy Part B services and supplies, or they may elect to have suppliers continue to bill Medicare directly for these services. BIPA does not modify the billing requirements for Part A-covered stays. In addition, BIPA directs the HHS Inspector General to monitor Part B payments to SNFs on behalf of residents who are not in a Part A covered stay to ensure that there is not duplicate billing for services or excessive services provided.
      4. Adjustment of Rehabilitation RUGS The BBRA temporarily increased the federal per diem payment rates under the SNF PPS by 20 percent for 15 RUGs to compensate SNFs for the provision of care to medically complex patients, pending appropriate refinements to the RUG system. The RUGs fall under the Extensive Care, Special Care, Clinically Complex, and Rehabilitation Major Patient Types, and the specific RUG categories affected are SE3, SE2, SE1, SSC, SSB, SSA, CC2, CC1, CB2, CB1, CA2, CA1, RHC, RMC, and RMB. Three RUGs falling within the "high" and "medium" rehabilitation category were selected for this increase, although Congress did not provide further insight into the selection of these three RUGs, as compared to the other 11 rehabilitation RUGs. The increased payments began April 1, 2000, and will end when HCFA implements a refined RUG system that better accounts for medically-complex patients. BIPA modifies the treatment of the rehabilitation RUGs in an attempt to ensure that Medicare payments for SNF residents with "ultra high" and "high" rehabilitation therapy needs are appropriate in relation to payments for residents needing "medium" or "low" levels of therapy. Specifically, effective for SNF services furnished on or after April 1, 2002 and before implementation of the refined RUG system, section 314 increases by 6.7 percent the federal per diem payments for 14 RUG categories (RUC, RUB, RUA, RVC, RVB, RVA, RHC, RHB, RHA, RMC, RMB, RMA, RLB, and RLA). The 20 percent additional payment under the BBRA for the three rehabilitation RUGs (RHC, RMC, and RMB) is removed to make this provision budget neutral. In addition, BIPA requires the HHS Inspector General to review and report to Congress by October 1, 2001 regarding whether the RUG payment structure as in effect under the BBRA includes incentives for the delivery of inadequate care.
      5. Establishment of Process for Geographic Reclassification

      Section 315 of BIPA permits the Secretary to establish a process for geographic reclassification of SNFs based upon the method used for inpatient hospitals. The provision may not be implemented until the Secretary has collected data from SNFs to calculate an area wage index for SNF workers.

      Section 321 of BIPA provides a 5 percent increase in the base Medicare daily payment rates for hospice care for FY 2001, effective April 1, 2001. This increase will continue to apply after FY 2001. The temporary increase in payment rates provided in BBRA for FYs 2001 and 2002 will not be affected by this provision. BIPA also includes a change in the hospice wage index for Wichita, Kansas for FY 2000.

      In addition, BIPA modifies physician certification rules. Effective for certifications of terminal illness made on or after the date of enactment (December 21, 2000), a physician’s or hospice medical director’s certification of terminal illness must be based on his/her clinical judgment regarding the normal course of the individual’s illness. The Secretary must study and report to Congress within two years of enactment on the appropriateness of the process for certifying terminal illness and the effect of the new provision.

      Finally, BIPA requires MedPAC to examine the factors affecting the use of the Medicare hospice benefit, including delay of entry into hospice programs and urban and rural differences in utilization rates. MedPAC must report to Congress on the results of the study and any appropriate recommendations within 18 months of enactment.

      BIPA includes numerous provisions designed to assist hospitals and other providers in rural areas. Highlights of these provisions are noted below.

      1. Critical Access Hospital Provisions Section 201 of BIPA provides that, effective for services furnished on or after enactment of the BBRA (November 29, 1999), Medicare beneficiaries are not liable for any cost sharing amounts with respect to clinical diagnostic laboratory services furnished as an outpatient critical access hospital ("CAH") service. BIPA also clarifies that CAHs are reimbursed on a reasonable cost basis for outpatient clinical diagnostic laboratory services. In addition, Section 202 provides that, effective for items and services furnished on or after July 1, 2001, Medicare will pay a CAH for outpatient services based on reasonable costs or, at the election of an entity, Medicare will pay the CAH a facility fee based on reasonable costs plus an amount based on 115 percent of Medicare’s fee schedule for professional services. BIPA also exempts swing beds in a CAHs from the SNF PPS. Specifically, under section 203, CAHs will be paid for covered SNF services on a reasonable cost basis, effective for cost reporting periods beginning on or after the date of enactment. Moreover, when determining the reasonable cost of outpatient CAH services, section 204 requires the Secretary to recognize amounts for the compensation and related costs for on-call emergency room physicians who are not present on the premises, are not otherwise furnishing services, and are not on-call at any other provider or facility. The Secretary is directed to define reasonable compensation amounts and the meaning of the term "on-call." The provision is effective for cost reporting periods beginning on or after October 1, 2001. In addition, section 205 directs the Secretary to pay the reasonable costs incurred in furnishing ambulance services provided by a CAH or an entity that is owned or operated by a CAH, if the CAH or entity is the only provider or supplier of ambulance services that is located within a 35-mile drive of the CAH. The provision is effective for services furnished on or after enactment. Finally, section 206 requires the GAO to study the eligibility requirements for CAHs with respect to limitations on average length of stay and number of beds, including an analysis of the feasibility of having a distinct part unit as part of a CAH and the effect of seasonal variations in CAH eligibility requirements. The GAO is required to report its findings and recommendations to Congress within one year of enactment.
      2. Other Rural Hospitals Provisions Section 211 enables all hospitals to receive DSH payments when their DSH percentage (threshold amount) exceeds 15 percent, effective for discharges occurring on or after April 1, 2001. The DSH payment formulas for sole community hospitals ("SCHs"), rural referral centers ("RRCs"), rural hospitals that are both SCHs and RRCs, small rural hospitals, and urban hospitals with less than 100 beds also are modified. Furthermore, section 212 provides that an otherwise-qualifying small rural hospital can be classified as an Medicare dependent, small rural hospital if at least 60 percent of its days or discharges were attributable to Medicare Part A beneficiaries in at least

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