The American Tax Relief Act of 2012 Summary of Health Care Related Provisions January 2013

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1 of 2012 Summary of Health Care Related Provisions On January 3, President Obama signed the American Tax Relief Act of 2012 (ATRA) to partially avert the so-called fiscal cliff, which would have resulted in tax increases and drastic federal spending reductions. The ATRA resolves several tax issues, delays sequestration for two months and addresses the pending 27 percent reduction in Medicare physician payments as well as other health care related issues. CHA strongly supports the need to address spending cuts to Medicare physician payments; however, we are very disappointed the physician fix price tag of $25 billion is offset by substantial cuts to hospital payments and to the state s safety net. The health care related provisions in the ATRA are outlined below, along with national and statewide financial impact estimates. While the compromise resolves the most imminent tax issues, it does not address the fact that the federal government has reached its statutory borrowing limit known as the debt ceiling which will need to be addressed within the next six weeks. It also creates additional fiscal cliffs. The short-term delay in sequestration expires February 28 and the federal budget expires March 27, setting the stage for a government shutdown if a new budget agreement is not reached. Additional cuts to Medicare and Medicaid will continue to be among the options on the table to address the next set of fiscal challenges, and a concerted effort by all hospitals will be necessary to articulate the impact those cuts could have on patient care. CHA will continue to advocate against additional hospital cuts and to partner with the American Hospital Association to host advocacy days in Washington, D.C., in the months to come. Provisions Impacting Hospital Payments Documentation and Coding Adjustment. This provision requires the U.S. Department of Health and Human Services (HHS) secretary to recoup past overpayments to hospitals made as a result of the transition to Medicare-severity diagnosis-related groups (MS-DRGs) in The Centers for Medicare & Medicaid Services (CMS) and the Medicare Payment Advisory Commission (MedPAC) believe that implementing MS-DRGs has led to coding and classification changes that increase hospital payments without corresponding increases in actual patient severity of illness. However, there is uncertainty and disagreement about the magnitude of these increases. CMS has previously made retroactive cuts to the payment system that result in a one-time reduction to the base rate that is returned the following year. In addition, CMS has made prospective cuts to payment rates that are permanent and not returned to the system. Current law allows CMS to continue prospective cuts going forward but limits retroactive recoupments. In the recent federal fiscal year (FFY) 2013 hospital inpatient prospective payment system (IPPS) proposed rule, CMS proposed a 0.8 percent

2 Page 2 reduction in payments to permanently remove what the agency believes are overpayments from FFY CHA opposed this proposal, as it would have cut payments to California hospitals by an estimated $227 million in FFY 2013 and $850 million nationally. Due to CHA s effort, CMS withdrew its proposal. This ATRA provision gives CMS new authority to make additional retrospective one-time cuts for FFY 2010, 2011, 2012 and MedPAC estimates these overpayments at $11 billion. The provision allows HHS to distribute the cuts across four years FFY The Congressional Budget Office (CBO) estimates the savings at $10.5 billion. CHA estimates that the resulting cuts for California hospitals will be approximately $1 billion. Additional information regarding previous coding and documentation cuts made to date is available in CHA s FFY 2013 IPPS final rule summary available at CHA anticipates that CMS will issue a detailed proposal to implement the coding and documentation cuts in the FFY 2014 IPPS proposed rule scheduled for release in April. Rebase Medicaid disproportionate share hospital (DSH) payments to extend changes from the Affordable Care Act (ACA) for an additional year. The ATRA achieves savings from rebasing the Medicaid DSH allotments as prescribed in ACA for one additional year through FFY The ACA reduces states Medicaid DSH allotments beginning October 1, 2013 (FFY 2014). The ACA instructs HHS to impose smaller percentage reductions for those states receiving a lower amount of DSH dollars and consider two additional factors when establishing the methodology for distributing DSH payment reductions: 1) the state s percentage of remaining uninsured 2) whether the state targets DSH payments to hospitals that serve a high volume of Medicaid inpatients and have high levels of uncompensated care (excluding bad debt). CMS has yet to release a proposed rule implementing these provisions, so it is impossible to know the specific impact of the reductions at this time. CHA anticipates CMS will release a proposed rule in the spring. CBO estimates the savings at $4.2 billion nationwide in FFY CHA estimates that the resulting cuts for California hospitals will be approximately $400 million. Payment for outpatient therapy services. Effective January 1, 2013, therapy cap amounts for benefits provided to Medicare beneficiaries will be $1,900 for occupational therapy (OT) services, and $1,900 for combined physical therapy (PT) and speech-language pathology services (SLP). Congress allows for an exceptions process for cases in which additional therapy services are determined to be medically necessary. This provision had been set to expire on December 31, 2012, and has now been extended an additional 12 months, through December 31, In addition, the Middle Class Tax Relief and Job Creation Act of 2012 applied, for the first time, therapy caps to services received in hospital outpatient departments from October 1, 2012 through December 31, This provision extends the cap to services received in hospital outpatient departments an additional 12 months, through December 31, Further, the provision extends the cap to Critical Access Hospitals, previously not subject to the caps. Finally, any spending above $3,700 for PT/SLP or OT will trigger an automatic manual medical review by the Medicare Administrative Contractor, and

3 Page 3 this will continue through December 31, CBO estimates the costs of the therapy provisions at $1 billion. For additional information regarding new processes for payment and coding of outpatient therapy services finalized in the calendar year (CY) 2013 physician fee schedule, please see CHA s final rule summary available at Look for additional educational opportunities to be provided in the future. Therapy multiple procedure payment reduction. In the CY 2011 Medicare physician fee schedule, CMS finalized a multiple procedure payment reduction (MPPR) of 25 percent to the practice expense (PE) component of payment for select therapy services provided in institutional settings like hospital outpatient departments. This provision increases the MPPR from 25 percent to 50 percent for subsequent therapies when they are provided on the same day. CBO estimates nationwide savings of $1.8 billion. Extension of the Medicare dependent hospital (MDH) program. The MDH program provides enhanced reimbursement for small rural hospitals where Medicare patients make up a significant percentage of inpatient days or discharges. California has two MDHs, and this provision extends the MDH program until October 1, CBO estimates the cost of the MDH program at $0.1 billion. Extension of Medicare inpatient hospital payment adjustment for low volume hospitals. Qualifying low volume hospitals receive add on payments based on the number of Medicare discharges. To qualify, the hospital must have fewer than 1,600 Medicare discharges and be 15 miles or more from the nearest like hospital. This provision extends the payment adjustment until December 31, According to the most recent data available from CMS, 22 California hospitals qualified for this adjustment in CBO estimates the cost of this provision at $0.3 billion Performance improvement. Under the Medicare Improvement for Patients and Providers Act of 2008, HHS entered into a five-year contract with the National Quality Forum (NQF), a consensus based entity for activities related to stakeholder engagement and performance improvement. This provision extends NQF funding through In addition, this provision requires HHS to develop a strategy for sharing data in a timely way with providers, including hospitals and physicians, for purposes of performance improvement. Performance improvement is defined as improvements in quality, reducing per capita costs, and other criteria HHS determines appropriate. Such a strategy must be presented to Congress by January 1, 2014, and posted on the CMS website for stakeholder comment. The strategy must then be updated 18 months following its initial release. Data would include utilization data for items and services under Medicare Parts A, B and D. Finally, the provision instructs the U.S. Government Accountability Office (GAO) to study and report on private sector information sharing activities by August of These provisions have no scoring implications. Having additional relevant, timely and transparent data from Medicare will assist hospitals in their continued effort to improve quality and patient care, and further the goals CMS has established as part of the Partnership for Patients initiative and Hospital Engagement Network.

4 Page 4 Increased statute of limitations for recovering overpayments. This provision lengthens the statute of limitations to recover Medicare overpayments made to providers from 3 to 5 years. CBO estimates nationwide savings of $0.5 billion. TEMPORARY FIX FOR MEDICARE PHYSICIAN FEE SCHEDULE Medicare physician payment update. Medicare physician payment rates were scheduled to be reduced by 27 percent on December 31, This provision avoids that reduction and extends current Medicare payment rates through December 31, CBO estimates the provision will cost $25.2 billion in FFY Work geographic adjustment. Under current law, the Medicare physician fee schedule is adjusted geographically for three factors to reflect differences in the cost of resources needed to produce physician services. This provision extends the existing 1.0 percent floor on the physician work index through December 31, CBO estimates the total cost for this provision at $0.5 billion. OTHER MEDICARE CHANGES Ambulance add on payments. Under current law, ground ambulance transports receive an add on to their base rate payments of 2 percent for urban providers, 3 percent for rural providers, and 22.6 percent for super rural providers. This provision extends the add on payment for ground ambulance transport (including super-rural providers) through December 31, 2013, and the air ambulance add on until June 30, CBO estimates the total cost for this provision at $0.1 billion. Payment for certain radiology services. This provision would reduce outpatient payments for stereotactic radiosurgery by equalizing the payment amount between the services described by the Ambulatory Payment Classifications (APCs) 0127 and This equates to about a $4,600 reduction for the service described by APC Rural hospitals, rural referral centers and sole community hospitals are exempt from this provision. CBO estimates nationwide savings of $0.4 billion. Adjustment of equipment utilization rate for advanced imaging services. This provision will increase the utilization factor used in the setting of payment for imaging services in Medicare from 75 percent to 90 percent. CBO estimates nationwide savings of $0.8 billion. Rebase end-stage renal disease (ESRD) payments. This provision incorporates recommendations from the GAO by re-pricing the bundled payment to take into account changes in behavior and utilization of drugs for dialysis. CBO estimates nationwide savings of $4.9 billion. Payment adjustment for non-emergency ambulance transports for ESRD beneficiaries. This provision reduces the payment rates for ambulance services by 10 percent for individuals with ESRD obtaining non-emergency basic life support services involving transport, based on a recent GAO report. CBO estimates nationwide savings of $0.4 billion. Competitive prices for diabetic supplies. This provision will apply competitive bidding to diabetic test strips purchased at retail pharmacies. CBO estimates nationwide savings of $0.6 billion.

5 Page 5 Commission on long-term care. This provision establishes the Commission on Long Term Care to develop a plan for establishing, implementing, and financing a system that ensures the availability of long-term services and supports for individuals. This provision has no scoring implications and is slated to be implemented immediately. Repeal of the Community Living Assistance Services and Supports (CLASS) program. The provision repeals the CLASS program established by ACA. This provision has no scoring implications. MEDICARE ADVANTAGE CHANGES Coding intensity adjustment. Under current law, Medicare Advantage plans receive risk-adjustment payments that are further adjusted to reflect differences in coding practices between Medicare fee-forservice and Medicare Advantage. This provision increases this coding intensity adjustment. CBO estimates nationwide savings of $2.5 billion. Extension for specialized Medicare Advantage plans for special needs individuals. This provision extends the authority of specialized plans to target enrollment to certain populations through CBO estimates the costs of this provision at $0.3 billion. OTHER Medicare Improvement Fund. This provision eliminates the funding for the Medicare Improvement Fund. CBO estimates the nationwide savings of $1.7 billion. Consumer Operated and Oriented Plan (CO-OP). This provision will rescind all unobligated CO-OP funds under Section 1322(g) of the ACA. The provision also creates a contingency fund of 10 percent of currently obligated funds to be used to further assist the approved CO-OPs that have already been created. CBO estimates nationwide savings of $2 billion CONCLUSION Notably, ATRA does not include a CHA-supported provision to extend Medicare outpatient hold harmless payments to rural hospitals and SCHs with less than 100 beds. Despite much discussion, Congress did not include MedPAC s recommendation to equalize payment for several emergency and management codes across the hospital outpatient department and physician office setting; nor did it include reductions in states ability to use Medicaid provider taxes. Hospitals remain vulnerable to these and other additional cuts in the next round of negotiations to address the debt ceiling, sequestration and the federal budget. For additional questions regarding the provisions in the ATRA, please contact Anne O Rourke, senior vice president, federal relations, at (202) or Alyssa Keefe, vice president, federal regulatory affairs, at (202)

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