Congress Approves Major Health Care Legislation

With the Democrats now in control of Congress, there is a renewed focus on health care issues that culminated in the last week of July with the House Democrats approving an agreement on a $90 billion legislative package entitled the Children’s Health and Medicare Protection Act of 2007 (The CHAMP Act). The Senate also passed a bipartisan children’s health bill in July but did not include Medicare provisions in its legislation at this time.

Expansion and reauthorization

As expected, the main drivers of the House package are a $50 billion expansion and reauthorization of the State Child Health Insurance Program (SCHIP) and a $20 billion, 2-year “fix” for the Medicare physician payment update (averting a pending 10% cut in 2008 and projected 5% cut in 2009). The bill also includes initial provisions for a multi-pronged expenditure target system to replace the sustainable growth rate (SGR) formula in out years and contains various rural, Medicare and low-income proposals, a freeze at 60% for the 75% rule that governs inpatient rehabilitation hospitals, and a 2-year extension of the outpatient therapy caps exceptions process.

To help finance the package, the legislation includes a $0.45 increase in the tobacco tax generating approximately $27 billion in off-setting revenue to pay for the bill. Additionally, the bill includes a 4-year plan to cut Medicare Advantage (managed care plan) payments beginning in 2009 by about $47 billion to bring payments to managed care plans more in line with what it costs Medicare to cover beneficiaries under fee-for-service health care.

Other revenue generators to pay for the bill include fee-for-service provider payment reductions (only for fiscal year 2008) such as a freeze in the annual updates for skilled nursing facilities, home health agencies, and long-term acute care facilities. But it is what the bill does not contain that is of particular importance to the orthotic and prosthetic field.

The House legislation does not target the Medicare orthotic and prosthetic fee schedule in order to pay for major “cost-ers” in the bill. Having received a significant 4.3% increase to the Medicare orthotic and prosthetic fee schedule on Jan. 1, the O&P field was strongly advocating to avoid cuts to next year’s CPI update. However, the House legislation does not include such cuts and it is possible that the O&P field may be spared in the final bill. However, is far too early to presume the final outcome of this mammoth bill.

As expected, the main drivers of the House package are a $50 billion expansion and reauthorization of the State Child Health Insurance Program and a $20 billion, 2-year “fix” for the Medicare physician payment update.
© 2007/ Monino

State Child Health Insurance Program

The intent of the SCHIP provisions is to reauthorize the SCHIP program and cover all currently enrolled children, as well as 5 million of the 6 million eligible for Medicaid and SCHIP but not yet enrolled. Failure to act is not considered a viable option for many Members of Congress as SCHIP funding is set to expire on Sept. 30 and if Congress does not act, the number of uninsured children will increase dramatically.

Under the House bill, states would receive overall grants for 2008 based on the 2007 spending estimates they submit to the Department of Health and Human Services (HHS). This would be modified in future years by the national health care cost increase and population growth and states would have 2 years to spend these funds, not 3 years as with the previous program.

States that have eligible children who are not enrolled by the date of enactment will receive an enrollment adjustment equal to the federal share of a state’s average per capita cost per child. States that use four of six outreach and enrollment best practices and can enroll eligible, but uninsured, children will earn performance bonuses.

The bill also includes a number of specific new SCHIP benefits including: dental care, mental health treatment and coverage on a par with medical coverage, and flexibility to provide care via an HMO or PPO. Federally Qualified Health Centers and rural health center services would be guaranteed for children and paid similar to Medicaid rates. And a new Children’s Access, Payment and Equality Commission, to be modeled after MedPAC, would be established to monitor children’s access to care and provider payment adequacy.

Physician payments

The legislation will implement an interim policy for the next 2 to 3 years to prevent impending cuts and assure stability in physician and other practitioner reimbursement. As expected, the bill includes a modest 0.5% update in Medicare payments to physicians for each of 2008 and 2009, replacing a scheduled 10% cut scheduled for 2008 and approximately 5% for 2009.

The SGR formula would be repealed and replaced with separate categories of physician services each with its own separate expenditure target and conversion factor including primary care and preventative services, imaging, major procedures, minor procedures and other services, and anesthesia. Beginning in 2010, the cumulative cost of past SGR fixes (about $54 billion) would begin to be paid proportionately among the six expenditure categories. Each service would be required to pay back its share with that share to be largely based on growth in utilization in that category. This would mean separate conversion factors for each category.

It would be left to the Centers for Medicare and Medicaid Services (CMS) to determine what is included in each target. The targets would be based on the gross domestic product (GDP) and would allow for growth in a manner similar to the current system. Drugs administered in the office and laboratory tests would be removed from the formula. Consistent with the current SGR formula, no target area could be cut by more than 7% below the Medicare Economic Index (MEI ) each year.

Primary care/preventative services would be allowed to grow at a rate of 3% above GDP. Primary care is defined as care provided by physicians whom the secretary determines provide accessible, continuous, coordinated and comprehensive care for Medicare beneficiaries. It would include emergency department visits and home visits.

The bill would also implement a 3-year medical home demonstration project. Physician groups who qualify as a medical home would be eligible for an additional monthly medical home payment, to be determined by CMS. There is special emphasis on recruitment of small practices (four physicians or less). The physician groups could include specialists who care for individuals with chronic conditions or prolonged illnesses.

There would be no new incentives for quality measure reporting and the Physician Quality Reporting Initiative would revert again to a voluntary only program. Separately, the Government Accountability Office would be asked to analyze services frequently performed together and that could be bundled for more cost-effective payment.

Finally, a number of other provisions are addressed including requiring CMS to develop a plan to implement a health care information technology system for Medicare, repealing the Practicing Physicians Advisory Council, and establishing a Center for Comparative Effectiveness Research within the Agency for Healthcare Research and Quality.

Other Medicare provisions

Under the House bill, states would receive overall grants for 2008 based on 2007 spending estimates they submit to the Department of Health and Human Services.The package also includes a number of other provisions including a 2-year extension of the exceptions process for Medicare’s outpatient therapy caps on physical therapy, speech therapy and occupational therapy. In addition, a study is included in the bill on alternatives to include the development of an outpatient therapy prospective payment system and the potential creation of multiple payment caps.

The legislation would also freeze Medicare updates for payments in 2008 for nursing homes, home health agencies and long-term care hospitals, and would provide a 1% update for inpatient rehabilitation hospitals. The hospital market basket would be shaved by a percentage point next year (to a negative 0.25% update) to help finance the physician fee fix. There would also be a moratorium on construction of long-term acute care hospitals and an elimination of the 25% rule for stand-alone LTACHs.

Despite substantial cuts to many other Medicare provider groups, as mentioned above, the House bill contains no proposed cuts to the O&P Medicare fee schedule for fiscal year 2008. Although the O&P field is relatively small compared to other Medicare provider groups, a sizable 4.3% increase in fiscal year 2007 made the field a fairly attractive target for payment cuts. Nevertheless, the House bill as passed, does not attempt to reduce O&P providers’ payments, presumably in light of the fact that the O&P fee schedule was frozen for the 3 years prior to 2007.

However, that does not mean the field is out of the woods yet. With a likely Senate Medicare bill pending and subsequent conference negotiations, the O&P fee schedule could still be vulnerable to cuts as other costly provisions make their way into the legislation.

This bill greatly impacts inpatient rehabilitation hospitals by freezing indefinitely the so-called “75 Percent Rule” at 60%. The bill also would cut payments to knee and hip replacement diagnosis related groups in part to fund the freeze. The 75 Percent Rule requires that 75% (now 60%) of patients admitted to an inpatient rehab facility meet one of 13 conditions. In addition, the bill would continue to allow for the inclusion of patient comorbidities with regard to the targeted percentage.

A variety of rural access protections are given 2-year extensions including the work geographic adjustment floor, certain physician pathology services, hospital payments for clinical diagnostic lab tests, incentives for physicians to practice in rural areas, and others.

A variety of racial and ethnic health care disparity issues are addressed including requiring CMS to collect data to better track and address disparities in health care. Demonstration projects would be created to test “methods for Medicare reimbursement for limited English proficiency services” and to provide additional outreach and support for previously uninsured beneficiaries.

Other key issues addressed in the bill are a revocation of the unique deeming authority of the Joint Commission on Accreditation of Healthcare Organizations, a permanent moratorium on the creation of specialty hospitals, a reduction in co-insurance for Medicare patients treated for mental health-related illnesses, a reduction in the oxygen rental agreement from 36 months to 18 months and an elimination of the first-month purchase option for power-driven wheelchairs. In addition, there is codification of HHS guidance on six protected classes of Part D drugs including immunosuppressive drugs plus the removal of the previous benzodiazepine exclusion from the Part D Medicare drug program.

Finally, the bill repeals the 45% budgetary trigger that artificially imposed financing limits on the Medicare program, thereby removing a future statutory driver of artificial savings to the Medicare program.


A number of Medicaid provisions are also addressed in the legislation, generally benefiting individuals with disabilities.

It is expected that CMS will soon release regulations that would restrict allowable services under the Medicaid “Rehabilitative Services option.” In response, the House is proposing to place a one-year moratorium on CMS from taking any action to restrict coverage or payment for rehabilitation services, or school-based administration, transportation, or medical services if such provisions are more restrictive in any aspect than those applied to such coverage or payment as of July 1, 2007.

Additionally, the legislation would allow states to continue providing adult day health care approved under their State Medicaid Plan to people with severe disabilities. In the past, the adult day services programs for people with intellectual and other developmental disabilities were covered under the Medicaid rehabilitative option. In 1989, the Congress imposed a moratorium on states adding rehabilitative services option coverage of adult day services for these populations, but permitted states with these programs to continue operating them. Recently, the ability of states with these programs to continue operating them has been challenged by CMS when they have sought to make other changes to their Medicaid state plan. These two Medicaid-related provisions were included in the House bill as a result of significant advocacy from disability and mental health organizations.

Senate SCHIP legislation

The Senate also approved SCHIP reauthorization legislation prior to the August recess. Funded entirely by a $0.61 increase in tobacco taxes, the Senate’s SCHIP bill would invest an additional $35 billion during the next 5 years into the program, covering an additional 3.2 million children.

The Senate’s bill contains no provisions impacting the Medicare program. While there has been speculation as to whether or not the Senate will draft its own Medicare bill or simply conference its SCHIP legislation with the House’s SCHIP/Medicare bill, the Senate Finance Committee was now expected to begin work on Medicare legislation in early September.

Next steps

The Bush Administration has issued a formal veto threat on both the Senate and House legislation on philosophical grounds, asserting that expansion of children’s health insurance represents a step toward government-run health care.

Strong bipartisan support in the Senate has rendered its SCHIP bill veto-proof (having more than two-thirds of the vote). However, many Senate Republicans who supported the Senate version on the floor have stated that they will not support a conference report that goes much beyond the $35 billion price tag. The House, however, approved its SCHIP/Medicare package by a vote of 225-204, a margin well under a two-thirds majority needed to override a veto. Many expect this means that either or both the SCHIP expansion and Medicare package will only be passed when the last, must-pass legislative items are considered for the year, probably around mid-December.

O&P regulatory news

The Centers for Medicare and Medicaid Services recently released a proposed rule that would require DMEPOS suppliers to post a $65,000 surety bond to participate in the Medicare program.The Centers for Medicare and Medicaid Services recently released a proposed rule that would require suppliers of Durable Medical Equipment, (e.g., wheelchairs, scooters, canes) and Prosthetics, Orthotics and other Supplies (DMEPOS) to post a $65,000 surety bond to participate in the Medicare program.

Each provider must obtain a surety bond for each national provider identification number and providers may have to increase the surety amount for each adverse action in the past 10 years. CMS is considering whether or not large, publicly traded companies will be exempt from posting the bond.

CMS states that the requirement for the surety bond would ensure that Medicare can recover erroneous payments up to $65,000 that result from fraudulent or abusive supplier billing practices and it is clear that these proposed changes are a direct result of recent fraud and abuse discovered in Florida and other parts of the United States. However, the impact of this surety bond could be detrimental to small O&P providers and is just another example of CMS unfortunately grouping O&P with DME in the Medicare program. NAAOP will be submitting comments to the agency commenting strongly about this proposal.

The proposed rule was published in the Federal Register on Aug. 1 and stakeholders have 60 days to comment.

Competitive bidding update

The Medicare Modernization Act of 2003 (MMA) authorized a Medicare competitive bidding program for DMEPOS. CMS took the first steps toward implementing the program last year and decided not to competitively bid off-the-shelf orthotics in the first round (in the first 10 metropolitan statistical areas). As a result, orthotics and prosthetics are essentially exempt from competitive bidding.

However, CMS continues to rollout the program for durable medical equipment and supplies and, initially, the first bids were due in July. However, that deadline has been delayed three times resulting in a 2-month total delay. The deadline for submitting bids is now Sept. 25, 2007. CMS also extended the deadline for accreditation for suppliers participating in competitive bidding to Oct. 31, 2007. It now appears that the agency will begin the program on July 1, 2008.

The DME industry continues to turn to Congress for help to make changes to the competitive bidding program before it is even implemented. In a July 13 letter to Leslie Norwalk, then acting administrator of CMS, 14 senators lead by Kent Conrad (D-ND) and Pat Roberts (R-KS) requested that CMS that take specific steps to ensure that the competitive bidding program does not restrict consumer access to and quality of durable medical equipment.

Congress has also introduced legislation – The Medicare Durable Medical Equipment Access Act of 2007 – which would, among other provisions, protect high-end rehab products (complex wheelchairs) from competitive bidding by requiring that items and services be exempt unless savings of at least 10% can be demonstrated. The legislation currently has 110 cosponsors in the House and 13 in the Senate but no competitive bidding provisions were included in the House Medicare bill and the Senate has not yet acted.

NAAOP, in concert with the other O&P organizations, will continue to closely monitor Congress and the federal agencies and advocate for the interests of the O&P patient and the providers who serve them.

Peter Thomas

Peter W. Thomas, JD, is general counsel for the National
Association for the Advancement of Orthotics and Prosthetics.

Emily Niederman is the legislative director of Powers, Pyles, Sutter and Verville, P.C. in Washington, D.C.

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