Washington Report - April, 2002

Washington Report - April, 2002

Bill Finerfrock

Capitol Associates

Budget Debate Continues

Congress continues to struggle to adopt a budget for Fiscal Year 2003 (October 1, 2002 through September 30, 2003). Prospects for an agreement on overall spending for the next fiscal year are no brighter now than they were when I wrote the last Washington report.

It appears virtually certain that Republicans and Democrats in Congress will be unable to resolve major differences in their budget documents prior to the commencement of the annual appropriations process.

It should be noted that the President plays no formal role in the budget setting process. As the Constitution provides that the Congress has sole authority to spend money, the Budget is exclusively a Congressional document. The budget resolution that is supposed to be adopted by Congress does not require Presidential signature and does not carry the force of law. As with the budget the President submits in early February, it is a blueprint outlining overall spending goals and objectives.

While failure to adopt a budget resolution is not unprecedented, it is unusual.

Unlike the failure to pass an appropriations bill, failure to adopt the budget resolution does not shut down the government. But while the failure to adopt a budget does not affect the overall functioning of government, it does have an affect on the legislative process and could affect the prospects for Medicare reform for this year.

Medicare Reform

Congressional leaders continue to state that enactment of Medicare reform is a major priority for 2002. Unfortunately, that appears to be the only area of agreement between the respective parties.

House of Representatives

The House of Representatives will most likely adopt a Medicare reform package that incorporates a prescription drug benefit, as well as restoration of some of the 5.4 percent physician fee schedule reduction that took effect this past January. House leaders have also indicated a desire to improve payments for Medicare + Choice managed care contractors.

Because the cost of these reforms will, in all likelihood, cost more than is available from current Medicare dollars, provider cuts or “offsets” are also expected. Most likely will be cuts in hospital payments and changes in the way Medicare determines the reasonable price for Medicare covered drugs.

The most likely target for hospital “cuts” would be a reduction in the amount of the inflationary increase hospitals are expecting. Under this scenario, if the hospital inflationary adjustment is projected to be 4%, then Congress would reduce that to 3%. Hospitals would still get an inflationary adjustment, it just wouldn’t be as large as the formulas would suggest. This type of inflationary adjustment has been used by previous Congresses and has typically saved Medicare billions of dollars over the past several years.

Congress is also considering a proposal to create a competitive bidding process for establishing payments for Medicare covered drugs. Currently, Medicare uses an Average Wholesale Price (AWP) mechanism for determining the “reasonable” costs for physician administered drugs covered by Medicare. Medicare pays 95% of the AWP. Congressional hearings, however, have uncovered flaws in this method of determining the Medicare covered costs that have resulted in payments being considerably higher than market pricing might suggest. According to the Oversight and Investigations Committee, drug manufacturers have artificially inflated the costs of their drugs thereby raising the average price. Thus, when Medicare sets it’s payment at 95% of the AWP, the “average” is higher than it would have been had the pricing been reported accurately. In response to this investigation, some senior Members of Congress are recommending competitive bidding as a means for determining the reasonable costs. The competitive bidding idea stems from an on-going demonstration project looking at using competitive bidding in the Durable Medical Equipment (DME) market.

Through a demonstration project, Medicare has been using a competitive bidding process for determining the cost of selected DME equipment in certain markets. According to preliminary reports, the effect of this demonstration has been to dramatically reduce the cost of certain DME without having any adverse affect on access or quality. While many in the DME industry disagree with these preliminary findings, some Members of Congress believe that competitive bidding holds great promise for reducing costs while maintaining access.

Any “savings” achieved from reforming the drug pricing system or reducing hospital payments will be used to either restore the 5.4% physician fee schedule reduction or provide a better prescription drug benefit.

Other provider cuts could be considered if additional money is needed to close the gap between projected new spending and the Medicare Trust Fund dollars available to pay for those expansions.

Senate

The rules of the Senate will make it extremely difficult to pass legislation without a significant majority. The task confronting Senate Majority Leader Tom Daschle (D-SD) is particularly daunting given the narrow majority enjoyed by Senate Democrats (50 Democrats, 49 Republicans, 1 Independent).

It appears that there are three separate groups in the Senate attempting to draft Medicare reform legislation:

Senate Democrats

Senate Republicans

Tripartisan Coalition (democrats/republicans/independent)

On any given day, each group claims about a 1/3 or more of the Senate among its allies. Specifics are difficult to pin down as Senators appear to shift back and forth among the groups on any given day. Suffice it to say that none of the groups commands the 60 vote majority that will be needed to pass Medicare reform legislation out of the United States Senate. The principle difference between the three groups appears to be the size or “cost” of the prescription drug benefit. Reports suggest that the Senate Democrats want to adopt the most generous prescription drug benefit whereas the Republicans want the least generous package. The Tripartisan Coalition is promoting a prescription drug benefit that falls somewhere in the middle of the two.

There are also significant differences between what the House and Senate leadership consider key components of a Medicare reform package. As previously mentioned, House Republican leaders have indicated a desire to improve Medicare + Choice payments as part of a reform package. Senate leaders are not nearly as supportive of this reform. Senate leaders have indicated that if there is additional money to pay for reforms beyond prescription drug coverage, they would like to see some of that money go to improving payments for rural providers.

In order to understand the differences in focus between the House and Senate, one need only look at the volume of managed care penetration (or potential penetration) in the Districts represented by some of the key health policy leaders in the House compared to the Senate. The House leadership (both Republican and Democrat) has a decidedly more urban perspective than do the Senate health leadership. The Districts represented by Bill Thomas (R-CA) and Charlie Rangel (D-NY) the Chair and ranking Democrat on the Ways and Means Committee are very different from the districts represented by Max Baucus (D-MT) and Charles Grassley (R-IA) their Senate counterparts respectively.

Prospects for Reform

While the President, for his part, has indicated a willingness to accept a larger Medicare reform package than he agreed to last year ($350 Billion in new spending over 10 years), it is still not clear whether this will be enough to enact all of the reforms various key players have indicated are “must pass” reforms.

This does not mean that Congress cannot pass a Medicare reform bill, only that this end will not be achieved through any mechanism you will remember from your high school civics class.

In terms of timing, I expect that the House will move first to adopt a reform and could pass a bill by late May or early June. The Senate, for its part, will not begin any formal Committee consideration of a Medicare reform bill until July. Barring a major shift in positions, it is not likely that the Senate Finance Committee will be able to achieve consensus on a bill that the Democrat leadership will allow to be brought up for consideration.

It is entirely possible that the full Senate may not even debate a stand alone Medicare reform bill and will only have an opportunity to vote on this important legislation as part of a large end-of-session piece of legislation that blends together a number of controversial pieces of legislation covering a wide range of areas.

HBMA Submits HIPAA Comments

The Healthcare Billing and Management Association submitted formal comments to the Department of Health and Human Services (HHS) on the proposed rule covering the “Standards for Privacy of Individually Indentifiable Health Information”. This proposed rule was published in the Federal Register on March 27th.

While expressing the Association’s strong support for “appropriate, practical and cost-effective safeguards” the comments also noted HBMA’s strong desire to obtain clarification of the HIPAA classification of billing companies.

For the past several months, HBMA leaders have been engaged in high level discussions with senior HHS and CMS officials regarding the classification of billing companies. Under the HIPAA standards, there are two types of entities involved in the transmittal of a claim from the provider to the payer: Business Associates and Clearinghouses.

It has been HBMA’s position that billing companies are agents of the physician and therefore should appropriately be classified as a business associate. However recent communications with both the Office of Civil Rights within HHS and the Center for Medicare and Medicaid Services (CMS) have raised doubts about that conclusion.

CMS staff have agreed to research this issue and provide HBMA with an official interpretation. In the Association’s comments, HBMA reiterated it’s desire to get an answer to this question so that billing companies know their obligations once the transaction standards go into effect later this year.

In addition to seeking clarification of the classification of billing companies, the Association’s comments:

1. Supported HHS efforts to modify the consent requrements to make them more practical and manageable.

2Expressed concern over the failure of the proposed modifications to simplify the HIPAA standards so that communication among providers, agents, payers, clearinghouses, billing companies, software vendors, coding services and collection agencies is not impeded. Current standards could unnecessarily prevent communication between billing companies and collection agencies to work together to resolve payment problems.

Finally, HBMA commended the Secretary for extending the time companies will have to modify existing contracts to be HIPAA compliant, as well as the inclusion of sample contract language.

To view a copy of the HBMA comments, go to the HBMA website.

In a related development, Senator Edward Kennedy (D-MA) has announced plans to introduce new HIPAA legislation to prevent some of the Bush Adminsitration’s revisions from going into effect. As Chairman of the Senate Health Education Labor and Pensions Committee, Kennedy is in a strong position to move legislation in this area, however, until he actually introduces a bill, it will not be clear how much support he will have among his colleagues.

CMS releases latest health care industry market update

The Center for Medicare and Medicaid services has developed a series of “Market Analysis” reports looking at various segments of the health sector. The initial document, released in November, looked at publicly traded managed care organizations. A subsequent report, released in February evaluated nursing facilities. The latest analysis, released on April 29th, looks at acute care hospitals. All of these reports are available on-line at: http://cms.hhs.gov/reports/hcimu/

The CMS analysis is drawn largely from research reports prepared by major Wall Street investment firms. These Wall Street reports have been prepared for equity investors interested in for-profit health care providers, as well as bond holders more concerned about the non-profit health care provider world. In releasing this report, CMS Administrator Tom Scully noted, “I have always been surprised at how little Wall Street and Washington interat - and how companies often provide different financial information to each.” Scully went on to note, “If health plans or providers need help, we should have a thorough understanding of their real financial status to assess the true level of need.”

Some of the findings highlighted in this latest report are:

The Balanced Budget Act of 1997, along with other market forces, destabilized many hospitals in the late 1990's.

Hospitals are recovering because of subsequent legislation that has led to a Medicare induced recovery in the hospital sector.

Current hospital profit margins are near their historical average.

Bond investors forecast increased revenue stability for nonprofit hospitals. However, financially strong hospitals are getting stronger and financially weak hospitals are getting weaker.

The financial performance of for-profit hospital companies is solid. Investors expect strong growth from the sector and the forecast is the brightest it has been in years.

Future market reports will look at home health agencies, DME suppliers, medical device manufacturers and pharmaceutical companies.

Medicare Regulatory Compendium available On-Line

On April 20th, the Center for Medicare and Medicaid Services released the Quarterly Regulatory Compendium. The following is an open letter from CMS Administrator Tom Scully to the Medicare beneficiary and provider communities announcing that availability of the on-line version of the Quarterly Compendium. You are encouraged to visit the new website and review this document. To view the Compendium: http://www.cms.hhs.gov/providerupdate/

“Welcome to the Centers for Medicare & Medicaid Services' (CMS) Quarterly Provider Update, A Source For National Medicare Provider Information. During this Pilot Phase, we will test the concepts as well as the structure of the information and expect to improve both the usefulness of the tool from the provider perspective and our internal procedures. Your feedback will assist us in pilot testing this tool. This is just one of a number of steps that we are taking to become a better business partner. Other steps include open listening forums across the country and open door policy forums. By providing a focus for our communications with providers, we are ensuring that providers are fully aware of new developments in the Medicare and Medicaid programs and have time to react and prepare for new requirements. By publishing this Update we intend to make it easier for providers to understand our programs and comply with Medicare regulations and instructions and to provide predictability to our communication of new or changing Medicare requirements.

In this pilot phase of this project, we have established several business objectives that we are testing with this release of the Update. First, we intend to publish the Update on the first business day of each Quarter on the CMS Website. Second, because of the complexity of the policy decisions associated with much of our regulatory work, we are taking an intermediate step towards enhancing the consistency of our regulatory publications. Specifically, we intend, to the extent practical, to publish regulations on a predictable cycle once a month. We plan to publish CMS business in the Federal Register on the fourth Friday of each month. fact, each issue of the Update will identify the specific days on which CMS business will be published in the Federal Register. It should be noted however, some of our regulatory work has statutory publication dates and we will continue to comply with the statutory requirements. In addition, the Update will include a listing of the regulations published in the previous quarter.

Third, the Update will include all non-regulatory changes to Medicare, including all Program Memoranda, manual changes and any other instructions that could affect providers. To the extent practical, all instructions will be implemented 90 days after they are included in the Update. However, some instructions and program changes have external dependencies that will necessitate a mid-Quarter publication and these instructions/changes will be clearly identified.

With this first release of the Update, we hope not only to test our ability to meet our business objectives, but also to assess your reaction. We hope that you will find the Update to be a useful tool for keeping informed about changes to Medicare's regulations and instructions. At the end of the Update you will find a "Feedback" form. We encourage you to use this form to provide your thoughts and comments on how we can further develop the utility of this tool, including its format, layout and presentation. We look forward to working with you to enhance the delivery of Medicare services to our beneficiaries.”

Thomas A. Scully

Administrator