The wait for Medicare reform legislation is over, but for many physicians and facility administrators, a complete understanding of its true impact is still a long way off. The landmark Medicare Reform Bill was signed by President Bush on December 8, 2003, after much heated debate and close votes in the House and Senate.

Of the features included in the 680-page reform bill, those of primary interest and importance to physicians and hospitals are immediate changes to provider payments; regulatory, contracting, and appeals reform; and increased reliance on new private managed care health plans.

Those who will be affected immediately by the provider payment changes include hospitals, pharmacies, home health care givers, outpatient laboratories, kidney dialysis providers, physicians, durable medical equipment providers, ambulatory surgical centers, skilled nursing facilities, physical therapists, and occupational therapists.

Hospital Provisions

Legal Eagles Weigh In on the Reforms

The provisions of the Medicare Reform Act are so diverse and lengthy that it can be difficult for radiologists to determine what the impact will be on their field. Diane Millman, JD, of Powers, Pyle, Sutter, & Verville, Washington, DC, says that her general impressions of the Medicare reforms are both good and bad.

“In general, the Medicare reform bill is good for health care providers, certainly in terms of inflation updates for hospitals and rural health care centers. And radiologists, like all specialists, will benefit from some of the provisions of the legislation. The bill itself is not problematic, but it is a little difficult to predict the costs associated with it.”

Millman sees some benefit for radiologists in the hospital outpatient reimbursement reforms, which will affect payments for radiopharmaceuticals and potentially lead to modifications for contrast agents. “Of course, the Medicare reimbursement for outpatient mammography services is a big plus,” Millman adds.

“The primary problems with the legislation relate to its general endorsement of a managed care approach to delivery of health care and the potential costs of the new drug benefit. The budget for this provision has already been revised upward by the administration, and potentially there will be further revisions. Traditional providers will be squeezed by the Medicare budget problems, as has been the case; Congress must somehow get the prescription provision costs down.”

Thomas Greeson, JD, a partner at Reed Smith LLP (Falls Church, Va), sees benefit in the new law, but he also has questions about the overall consequences of the legislation. Foremost, Greeson notes that the act helped prevent a significant reduction in payments under the Medicare physician fee schedule as had been proposed by the CMS; to the contrary, the new law averted an overall 4.5% reduction in the fee schedule and established an increase in reimbursement of 1.5% for 2004 and a like amount in 2005. He notes that the increase in the fee schedule helped garner support for the measure from organized medicine.

“With respect to this issue,” Greeson explains, “Tom Scully and the Congressional leadership played the issue very skillfully. In large part because of the provision that increased the fee schedule, the administration and Republican leaders were able to gain widespread support for the bill from the American Medical Association, the American College of Radiology, and other national medical specialty societies.”

But the act did more than increase physician fees. One of the most significant changes to the Medicare program, he notes, is the new Medicare Advantage care program, which offers an incentive for beneficiaries to move into privately managed, nongovernmental programs. Despite broad support from organized medicine for the act, the impact of the privatization of the Medicare program may be dramatic. Some physicians may not be pleased with the ultimate outcome.

For instance, with the establishment of new private regional and local carriers, existing Medicare coverage and local and national coverage policies may be replaced, as the new carriers adopt their own payment and reimbursement policies. What some physicians may wonder, says Greeson, is “What will Medicare look like and what sort of services will it pay for by 2006?”

Theoretically, he notes, a significant percentage of beneficiaries could move from part B to part C Medicare coverage. More will be learned about Medicare Advantage as regulations are developed over the next couple of years.

Another significant change brought about by the law, notes Greeson, is the liberalization of Medicare reassignment rules. Under the revised rules, radiology groups will be permitted to bring in independent contractors without having to follow the stringent locum tenens requirements. The new rules will also allow radiologists to provide contract services for other groups and reassign Medicare benefits without being on the premises of those groups.

“Ultimately,” Greeson says, “the big question about the new law is whether, despite the increase in reimbursement, the changes brought about will result in a Medicare program that radiologists will be happy with. We can anticipate that the CMS will offer the new private payors more freedom with regard to coverage and reimbursement policies: thus the question, will the new private plans treat radiologists fairly?”

For 2004, an inpatient payment update of 3.4% will be extended to all hospitals. However, for 2005 through 2007, only hospitals that submit data on 10 quality indicators established by the Centers for Medicare and Medicaid Services (CMS) in 2003 (involving information on heart attacks, heart failure, and pneumonia) will be given the full update each year. The update will enable hospitals to keep pace with the rising costs of health care worker salaries, pharmaceuticals, and new technology.

Payment for care to illegal immigrants will total $250 million for fiscal years 2005 through 2008; allocations to hospitals will be based on the percentage of undocumented residents in the state. Medicaid DSH (disproportionate share hospital) state allotments will increase in fiscal year 2004 by 116% of the previous year’s allotment but then will remain the same until approximately 2010; this provision will help alleviate the expenses incurred by hospitals that treat large numbers of Medicaid and uninsured patients.

In addition, the standardized provisions to large urban hospitals that were due to expire in March 2004 will be extended. As of April 1, 2004, rural hospitals and urban hospitals with fewer than 100 beds will receive a Medicare DSH allocation according to the same calculations applicable to large urban hospitals. The allocation will be capped at 12% for hospitals that are not Rural Referral Centers (RRCs). In a move to reduce the geographic disparity of reimbursement rates, approximately $700 million was provided by the new law to enhance the supply of physicians in rural and underserved areas. A boost in reimbursements to rural hospitals will help them compete with urban facilities, in terms of both updating technology and attracting health care workers.

In a statement released by the American Hospital Association (AHA) after the Medicare reform bill was signed, executive vice president Rick Pollack described the legislation. “We consider it a major achievement. You have a package that helps both urban and rural hospitals.”

Specialty hospitals were hit by a new rule in the reform legislation that places a moratorium on expansion or development of new facilities, which that industry views as an unwarranted effort to reduce patients’ provider choices and options for better care. The AHA, which endorsed this provision, has stated that specialty facilities threaten the survival of community hospitals because they pose financial competition and conflicts of interest on the part of physician-partners who refer their patients to their own specialty hospitals. Pollack, of the AHA, says that the Medicare Payment Advisory Commission and the US Department of Health and Human Services will continue to study the issue of self-referral to physician-owned specialty facilities.

However, another provision in the bill is for the establishment of a federal loan program to assist in the construction, renovation, or capital improvement of facilities for cancer research and treatment, a feature promoted heavily by lawmakers.

Added Provisions

Graduate Medical Education (GME). The IME (indirect medical education) rate provision currently in effect (5.5%) will increase slightly from the second half of 2004 (6.0%) through fiscal year 2006 (5.55%). However, the freeze for hospitals with per-resident amounts greater than 140% of the national GME average will continue through fiscal year 2013. Family-practice GME programs at nonhospital sites can be counted for the provision for 1 year.

Practitioner Payments. There will be immediate statutory adjustments to provider payments, beginning in 2004, and further regulations are proposed for initiation in 2004 through 2005.

Part B practitioner payments, rather than being reduced, will be increased by a 1.5% update in 2004 and 2005. However, a cut in this rate may occur in 2006. The sustainable growth rate formula will be adjusted to counteract large fluctuations in payments. Medicare will now reimburse practitioners for an initial physical examination for persons who are just becoming Medicare beneficiaries. Payment for mammography services also will improve (see sidebar, page 24).

Other. Both rural and urban ambulance services will be given increases (2% and 1%, respectively) from mid 2004 through 2007, but there will be a 1% reduction in payments to ambulatory surgical centers, beginning in April 2004. This will be followed by a 5-year freeze in the payment rate while a new payment system for such facilities is developed.

The composite rate for renal dialysis will be updated with a 1.5% increase in 2005, but the rate will undergo reformulation that year. For rehabilitation providers, there will be a 2-year moratorium on the current $1,500-per-patient cap on physical, occupational, and speech therapy. For diagnostic laboratory services, a 5-year freeze will be imposed on payments during the period of 2005 through 2009. In addition, beneficiaries will be responsible for a 20% co-payment.

Payment-provision studies outlined by the reform bill will involve Medicare health care quality and coverage for vision rehabilitation, chiropractic services, and chronic outpatient services.

Managed Care

The provision of Medicare benefits through managed care plans will have an impact on providers and patients in several respects. In a step toward privatizing the Medicare program, a reimbursement rate increase of 10.6% was established for private health plans such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Members of the administration and Congress reported that this provision would not only stop the withdrawal of private plans from the Medicare program but also entice more beneficiaries to enroll in these private plans. Administrators hope that this will lead to the enhancement of benefits, more treatment options, and better service for seniors enrolled in the private health plans.

Managed care plan premiums for beneficiaries will be variable, and payments to Medicare managed care and fee-for-service providers will be based on the demographic characteristics and health risks of enrollees.

Regulatory Reform

College Credits Reform Bill

Josh Cooper, director of congressional relations for the American College of Radiology (ACR), says the ACR was supportive of the bill not only because of the benefits for radiologists and their patients but also because administrators and Congress recognized that changes were needed to ensure access to Medicare. With passage of the reforms, a 4.4% cut in the Medicare conversion factor for all physicians, which would have been the second cut in 3 years, was avoided. However, Congress raised the conversion factor for 2004 and 2005 by 1.5% each year.

Access to providers is a key issue, says Cooper. “The prescription drug benefit is no good if you can’t get in to see a physician. But with the passage of the bill, physicians won’t be leaving Medicare in mass numbers as they would have if the cuts had gone through.”

For radiologists, the provisions included in the reform bill raise the technical reimbursement for diagnostic mammograms in the hospital. “The ACR has worked hard for the last several years to highlight the inadequacy of coverage for screening and diagnostic mammograms,” Cooper notes, “and it has been fairly successful in both the regulatory and legislative arenas. For instance, through Congressional pressure and compelling regulatory comments written by the ACR, Medicare reimbursement for screening mammography has risen to $83.”

The ACR knew that it needed to stem the closing of mammography facilities throughout the country: approximately 700 have closed in the past 2 years because of problems with reimbursement and litigation. “This is a high-volume procedure, and for some facilities it was a huge money loser,” explains Cooper. “As a result, we were headed toward access problems and a potential decline in women’s compliance with published mammogram guidelines, after seeing the compliance rate rise in the past 15 years.” Cooper says that the ACR also was eager to avoid longer delays in diagnostic mammography. The college estimates that the recent regulatory reforms, combined with the latest legislative actions, will add close to $1 billion to mammography programs over the next 10 years. Thus, says Cooper, “The latest Congressional action, in the form of the Medicare reform bill, will stem these concerns.”

The new bill establishes a center within the CMS to administer the drug benefit and Medicare managed care plans. It also includes a definition of a supplier as a physician or other practitioner, a facility, or another entity that furnishes items or services. An important new regulatory feature is that a provider who relies on written guidance from the government or governmental agents that is erroneous cannot be sanctioned. In addition, providers are prohibited from retroactively applying or extrapolating the new regulations and policies set forth in the reform bill.

To update the appeals process, a Medicare beneficiary ombudsman position has been created within the CMS. Legal and regulatory issues that cannot be resolved administratively will have expedited access to judicial review, but providers are prohibited from offering evidence in an appeal that has not been offered during the reconsideration process (except for “good cause”). Instances of overuse of a particular code will prompt notification of the provider, who will be given an opportunity to correct errors before any repayment is demanded. Most important, an independent party must evaluate cases of suspected overpayment before recovery of such overpayments can be initiated.

For J. Randall Richards, an associate at Geoffrey E. Webster & Associates, in Columbus, Ohio, any federal action on the appeals process is welcome. He and his colleagues assist institutional and ancillary health care providers with litigation and appeals involving Medicaid and Medicare. “Medicare is tweaking reimbursement rates all the time, but the appeals process is still very challenging,” he reports.

Richards says that because appeals for providers and beneficiaries used to be grouped together for consideration, the process was drawn out unnecessarily. “At least now the fair-hearing process has been streamlined,” he says, but there is still much room for improvement. “Because these appeals can take years to resolve, they represent a real burden for the provider with regard to not only the amount in dispute but also the costs involved in the legal proceedings, in terms of both time and money.”

Acknowledgments: Sources of data for this article included a national teleconference (Medicare Reform and Prescription Drugs: Immediate Impacts, Long-Term Challenges, Potential Opportunities) presented by the legislative practice group of Powers, Pyle, Sutter & Verville, PC, on December 15, 2003, and a Medicare reform provisions memo produced by Reed Smith LLP (Falls Church, Va) and kindly provided by partner Thomas Greeson, JD.

Seleen Street Collins is a contributing writer for Decisions in Axis Imaging News.