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Washington Outlook

May 15, 2009

Congressional committees continue to set stage for drafting healthcare reform legislation; In flurry of activity, CMS releases five proposed payment system rules

Work continues in earnest on the crafting of comprehensive healthcare reform legislation, with the Senate Finance Committee releasing the second document in the committee’s three-pronged approach for addressing healthcare reform.  The committee released a proposal on expanding healthcare coverage this week, following the April 28 release of a plan outlining proposals addressing healthcare delivery system reforms.  A May 12 Finance Committee roundtable focused on the final part, which will tackle how to finance the targeted reforms. 

The Health, Education, Labor and Pensions (HELP) Committee is also expected to release a healthcare reform plan summary in the next few days, which Premier has heard will be an outline of what their bill will contain, and will come up with actual legislative language for the committee members to study when they return in early June.  The committee is expected to mark-up legislation the second week of June.

Across the Capitol, the House Energy and Commerce Committee majority staff held a closed-door member session on May 13 to walk through its current draft of healthcare reform legislation. During a House Ways and Means Committee hearing on May 6—the fifth in a series of health reform hearings convened by the committee this year—Chairman Charlie Rangel (D-NY) indicated at the hearing outset that he intends to move forward and will convene, alongside Ranking Member Dave Camp (R-MI), a “working caucus” of the committee next week “to evaluate differences and to see what can be worked out to produce a bipartisan bill.”  Rangel, joined by two other chairmen of House committees with jurisdiction over healthcare and House Democratic leadership, pledged this week to President Obama that Congress will pass a comprehensive overhaul of the healthcare system before the August recess.

On the regulatory front, the Centers for Medicare & Medicaid Services released the fiscal year (FY) 2010 Medicare inpatient payment proposed rule, as well as proposed rules for long term care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities and skilled nursing facilities. 

Premier urges Senate Finance Committee to modify proposal on delivery system reforms

Premier today urged the Senate Finance committee to make several substantial changes to the proposals on Medicare hospital value-based purchasing (VBP) , readmissions, bundling payments and Accountable Care Organizations that are contained in its April 28 policy options paper on delivery system reforms.  

In the May 15 letter, Premier commended the committee for setting forth delivery system transformation as a centerpiece of health reform, but highlighted a number of concerns with the VBP proposal based on its experience with the Centers for Medicare & Medicaid Services (CMS)/Premier Hospital Quality Incentive Demonstration and principles developed by the hospital community.  Specifically, Premier asked the committee to make the program budget-neutral and keep any savings and unallocated funds within the program, rather than returning the money to the Medicare Trust Fund, as the committee has proposed. Among other comments on VBP, Premier underscored the importance of setting the incentive threshold at a level that all hospitals can reasonably achieve, rather than the proposed sliding scale that would penalize a set number of hospitals. 

Premier also addressed the policy the committee proposed for reducing readmissions, stating that sharing readmissions data as proposed would help hospitals understand where they fall relative to their peers, but that it is deeply concerned with the punitive approach proposed.  Premier suggested that a better approach would be to integrate policies that incentivize the reduction of preventable readmissions into broader payment reforms, such as VBP, bundling or Accountable Care Organization models, rather than as a case-by-case cut within the current system.  Premier indicated general support for bundling payments, but emphasized that testing of alternative methods is needed before national implementation.

Senate Finance Committee releases policy options for expanding healthcare coverage

The Senate Finance Committee released a document on May 11 describing policy options to make healthcare coverage available and affordable to all Americans.  The 61- page proposal includes three options for designing a public plan; discusses a number of ways to expand coverage for Medicaid beneficiaries; and discusses both individual and employer mandates.   The committee held a closed-door session to discuss the proposals on May 14. 

In proposing a public plan, the committee presents the following three alternatives: a state-run public health insurance option; a Medicare-like option that would be administered by the Department of Health and Human Services in which Medicare providers would participate; and a public health insurance option that would be administered through multiple, regional, third-party administrators (TPAs).  The TPAs would establish networks of participating medical providers and would negotiate payments for providers participating in the option. The policy paper also presents the option of not creating a public health insurance program, but expanding coverage through a reformed and better regulated private market. 

The policy options include a Health Insurance Exchange—or multiple exchanges—through which individuals and micro-groups could purchase health insurance. The Web-based exchange direct consumers to every health coverage option available in their area and help users determine if they are eligible for health insurance subsidies or public programs. 

The options for reforming the individual and small group markets aim to modify the competitive insurance market so that plans compete on price and quality rather than on their ability to exclude high-risk and high-cost individuals.  As a mechanism to address affordability, the committee proposes providing targeted tax credits for low-income individuals and small businesses. 

To provide input into developing the plan, the committee held a roundtable the week prior to its release to explore the options proposed to expand health insurance coverage. The May 5 roundtable was dominated by discussion of a public plan option that would compete alongside private plans. The idea won support from coverage advocates but opposition from health insurers and large businesses. Insurers said a public plan would have a competitive advantage and would lead to erosion of private coverage. Democrats on the Committee countered that a public plan could be constructed with fair rules that allow private insurers to compete. The session also touched on individual insurance markets and expansion of Medicaid.

Senate Finance holds third session in roundtable series, focusing on funding healthcare reform; HELP committee examines innovative new delivery models

On the heels of its coverage policy proposal release, the Senate Finance Committee convened another roundtable on May 12 to consider its third reform plan, which will focus on financing the cost of comprehensive reform. 

Panelists discussed modifications to the current tax exclusion on health benefits, with some saying they are appropriate and would generate needed revenue while representatives of business and labor groups arguing that it would undermine the employer-based system. Chairman Max Baucus (D-MT) said he does not favor eliminating the tax exclusion, but wants to explore ways to make it more equitable and encourage proper incentives. Other topics included geographic variation in care, payment reforms to Medicare, and whether hospitals should continue to be tax-exempt if uncompensated care falls as a result of universal coverage.

Grassley took the opportunity to question the need for continuing tax-exemption for hospitals if universal coverage eventually reduces the level of uncompensated care.  While several panelists acknowledged that uncompensated care would drop, other panelists responded that nonprofit hospitals provide additional benefits beyond uncompensated care and perhaps the missions would have to be altered, but it would be a mistake to completely repeal the tax exemption at this time. 

On May 14, the HELP Committee held a hearing titled “Delivery Reform: The Roles of Primary and Specialty Care in Innovative New Delivery Models.” Senator Sherrod Brown (D-OH), who chaired the hearing, noted that the current U.S. healthcare system has been faulted for lacking coordination of care and cost-effectiveness. While concepts like the patient-centered medical home have been suggested, Brown noted that there are design and implementation challenges, and that some have questioned whether the model will increase spending in some cases, as well as whether a primary care physician is the best provider for all patients.  Witnesses offered a number of recommendations including Ken Thorpe, a professor of health policy at Emory University, who said prevention and care coordination must be built into fee-for-service Medicare to drive change throughout the healthcare system. Thorpe said there is good data on how to do care coordination well from integrated systems such as Geisinger and Intermountain Healthcare.

Obama Administration releases detailed HHS budget

The Obama Administration released on May 7 the FY 2010 Department of Health and Human Services (HHS) budget, which provides additional details of the president’s budget outline released in February.  The release of the budget, which would achieve significant savings in healthcare, preceded a May 11 pledge to the president by major healthcare industry stakeholders that they would squeeze $2 trillion in savings from the healthcare system over the next decade. 

As indicated in the president’s FY 2010 budget proposal from February, the budget establishes a Health Reform Reserve Fund of $635 billion over 10 years to bring down costs and expand coverage. The Fund will be supported by new revenue and savings from Medicare and Medicaid.  The administration acknowledges that while the reserve fund is a significant commitment, it is not sufficient to fully fund comprehensive reform, and indicates that it will work with Congress to identify additional resources.

The budget includes Medicare hospital-related proposals that would produce savings and contribute $520 million in 2010 and $287.5 billion over 10 years toward the reserve fund, including:

Hospital value-based purchasing program: Hospitals would have 5 percent of their base operating payment linked to performance on specified quality measures, phasing to 15 percent by 2015.  Payments not earned back would be split equally between a pool to fund additional hospital quality incentive payments and the Medicare Trust Fund.

Reduce Hospital Readmissions: Adjust payments for targeted conditions and procedures by 30 percent for hospitals with readmission rates exceeding the 75th percentile, if the patient is readmitted within 30 days of discharge due to complication or related diagnosis, beginning in 2012. Public reporting of readmission rates would start in 2013.  

Bundled payments: Bundle payments for inpatient hospital services and post-acute care within 30 days of discharge, beginning in 2013. A single payment would be made to hospitals to cover the costs of both acute and post-acute care services.

Physician-Owned Hospital Conflict of Interest: Prohibit new physician-owned hospitals from seeking reimbursement for services furnished to beneficiaries referred to the hospital by a physician with a financial interest in the hospital. Existing physician-owned hospitals would be grandfathered if they meet certain criteria, but prohibited from expanding.

To improve access to care, the budget includes additional federal funding for the Health Resources and Services Administration (HRSA) to increase the healthcare workforce, particularly in rural and underserved areas.  In particular, the FY 2010 budget provides an additional $73 million to fund a new “Improve Rural Health Care Initiative.”  As stated by HHS in prepared press remarks, the initiative includes funding that addresses Rural Health Care Services Outreach, Network and Quality Improvement grants ($55 million); services provided by State Offices of Rural Health ($9 million); and tele-health grants for use in telecommunications technologies ($8 million).

The budget also accounts for all of the healthcare provisions included in the American Recovery and Reinvestment Act, such as those relating to health information technology, comparative effectiveness research and wellness and prevention, among others, as well as legislation expanding the Children’s Health Insurance Program (CHIP) signed by the president earlier this year.

In addition to the HHS-specific budget-related materials, the White House Office of Management and Budget (OMB) provided more detailed FY 2010 budget information in its release of the: (1) Appendix, which contains full programmatic detail across all agencies; and (2) a document titled Terminations, Reductions and Savings, which identifies more than 100 program terminations, reductions or other areas of savings that will save the federal government nearly $17 billion next year alone. 

All HHS budget-related materials, including the FY 2010 HHS Budget in Brief, are available at on the HHS Web site.

CMS releases FY 2010 hospital inpatient PPS proposed rule

The Centers for Medicare & Medicaid Services (CMS) on May 1 released its fiscal year (FY) 2010 Medicare inpatient prospective payment system (IPPS) proposed rule .  Comments are due to CMS by June 30, 2009.
For FY 2010, CMS applies the full market-basket update of 2.1 percent to payments for those hospitals reporting quality data and provides a 0.1 percent update for those not reporting.  However, hospitals will experience an average decrease in payments of -0.5 percent after outlier and wage index adjustments, as well as a -1.9 percent behavioral offset to payments to account for improved documentation and coding as a result of the Medicare-severity diagnosis-related groups (MS-DRGs) implementation. CMS also estimates that it will need to propose an additional -6.6 percent behavioral offset in future years to account for adjustments that were too low in previous years.

As required, CMS also proposes rebasing and revising of the acute care hospital operating and capital market basket update.  Related to the rebasing, CMS proposes changing the labor-related share of 69.7 percent to 67.1 percent for hospitals with an average area wage index above 1.0.  This will reduce payments for primarily urban areas.

For the Reporting Hospital Quality Data for Annual Payment Update, CMS proposes removing one measure, combining two measures and adding four measures as follows:

In summary, to receive a full payment update hospitals must report a total of 46 quality measures in FY 2011.  The proposal begins the discussion of measures for FY 2012, including requirements for quality reporting based on proprietary measures, which Premier voiced serious concern over in comments to last year’s proposed rule. 

In addition, CMS proposes testing electronic health records (EHR)-based submission of the emergency department efficiency, stroke and venous thromboembolism measures using the interoperable standards scheduled to be finalized in late calendar year 2009.  CMS anticipates having the technical ability to accept the EHR-based data by July 1, 2010.

Regarding the CMS’ hospital-acquired conditions (HAC) policy, the agency is not proposing to add or remove any of the current 10 HACs categories.  However, the agency “encourages public dialogue about refinements to the HAC list.”  CMS highlighted the number of comments received at its public listening sessions on this issue from attendees who urged CMS to gather information on the current list to conduct a robust evaluation of the program.  CMS is taking that advice, including Premier’s, and before preceding with additional HACs, is conducting an evaluation of the policy through a joint project with the Centers for Disease Control and Prevention and the Agency for Healthcare Research and Quality.

The rule is scheduled to be published in the May 22 Federal Register. A Premier detailed summary is available on the Premier Advocacy’s secure Web site .  Premier will be developing comments to the proposed rule and will share with its members to help in crafting their own response. 

CMS releases proposed rules for LTCHs, IRFs, SNFs and IPFs

In addition to the IPPS proposed rule, CMS has issued over the last two weeks proposed payment updates for long term care hospitals, inpatient rehabilitation facilities, skilled nursing facilities and inpatient psychiatric facilities.  Detailed summaries of these proposed rules are available on Premier Advocacy’s secure Web site

CMS released the rate year (RY) 2010 long term care hospital (LTCH) prospective payment system (PPS) as part of the IPPS proposed rule.  Using the proposed IPPS methodology, CMS estimates the documentation and coding increases that occurred in FY 2007 and FY 2008 as a result of the implementation of MS-DRGs were 0.5 percent and 1.3 percent, respectively.  Based on these estimates, CMS proposes to adjust the 2.4 percent estimated increase in the RY 2010 RPL market basket by -1.8 percent. Adjusting the estimated market basket increase of 2.4 percent by -1.8 percent produced a 0.6 percent adjustment for the RY 2010 standard federal rate.  CMS applied the 0.6 percent update to the RY 2009 standard federal rate of $39,114.36 to establish the proposed RY 2010 standard federal rate at $39,349.05. CMS proposes to adopt a fixed-loss amount of $16,059 for the RY 2010 LTCH PPS. The proposed rule is scheduled to be published on May 22, 2009 in the Federal Register. Comments are due to CMS by June 30, 2009.   

The proposed rule for the inpatient rehabilitation facility (IRF) would increase aggregate payments to inpatient rehabilitation facilities by about $150 million. The increase results from an estimated average annual increase of 2.6 percent per discharge, which reflects an estimated market basket increase of 2.4 percent and a reduction in the outlier payment threshold.  This increase follows the expiration of a congressionally mandated two-year rate freeze.   The proposed FY 2010 conversion factor for the period October 1, 2009 through September 30, 2010 is $13,587, about 4.9 percent above the FY 2009 conversion factor ($12,958).  The proposed rule calls for reducing the outlier threshold from $10,250 for FY 2009 to $9,976 for FY 2010 so that estimated outlier payments equal 3.0 percent of total estimated IRF payments in FY 2010.  Comments are due to CMS by June 29, 2009.

In its FY 2010 proposal for skilled nursing facilities (SNF), CMS reduces payments by $390 million, or 1.2 percent to account for an earlier adjustment to the case-mix indexes (CMIs). CMS proposes a 1.2 percent market basket update, coupled with a 3.3 percent reduction resulting from the recalibration of the CMIs for FY 2010.  CMS is accepting comments on the proposed rule until June 30, 2009. 

On May 1, CMS published in the Federal Register a Notice to update the RY 2010 federal per diem rate for the inpatient psychiatric facilities prospective payment system (IPF PPS).  The RY 2010 begins July 1, 2009 and runs through June 30, 2010.  The use of the Notice instead of using the normal rule making process reflects CMS’s decision not to initiate any policy changes with regard to the IPF PPS during RY 2010; rather it simply provides an update to the rates for RY 2010.  IRFs would, on average, receive a 2.0 percent increase in aggregate Medicare payments, which reflects a market basket increase of 2.1 percent offset by an approximate 0.1 percent decrease in RY 2009 payments for the fixed dollar loss threshold amount. For RY 2010, CMS is setting the fixed dollar lost threshold at $6,565, about a 7.4 percent increase over the RY 2009 amount of $6,113.  The 60-day comment period is scheduled to close on June 29, 2009. 

DoD moves ahead with converting TRICARE payments to Medicare OPPS payment rates

The Department of Defense (DoD) published a notice in the May 8 Federal Register stating that it would proceed with implementation of the final TRICARE rule that brings its reimbursement rates into alignment with rates under the Medicare outpatient prospective payment system (OPPS).  However, in response to the 300 comments it received from the hospital community during the additional comment period, the DoD is providing a phase-in period (four years for network hospitals and three years for non-network hospitals) with temporary transitional payment adjustments to cushion the reduction in payments that will occur in the new system. Also, DoD will provide a transitional payment adjustment to hospitals with at least $1.5 million of OPPS payments during the year for active duty service members and their families, in addition to the transitional payments to qualifying hospitals for emergency department and clinic visits that were originally included in the final rule.

In March 9 comments to DOD, Premier urged the DOD to re-issue a final TRICARE regulation that is budget neutral and gradually phase in any reductions in payment resulting from its implementation.  While the adjustments DoD have allowed in the notice are welcome, Premier will continue to work with the hospital community to advocate on policies that will alleviate the financial burden the new TRICARE payment system will impose on hospitals. 

Additional information on the TRICARE payment system, including the transitional payments, is available at

Premier supports bill to expand Medicare residency slots

In a May 15 letter to Senator Bill Nelson (D-FL), Premier expressed strong support for the “Resident Physician Shortage Reduction Act of 2009” (S. 973), which would increase the number of Medicare-supported training positions for medical residents resident slots by 15 percent. 

Currently, the number of Medicare-supported resident training slots in hospitals is held at 1996 levels.  S. 973 and the House companion bill, H.R. 2251, introduced by Representative Joseph Crowley (D-NY), would reallocate unused training slots and increase the cap by 15 percent to hospitals seeking to expand existing programs or establish new programs. Preference for the new and redistributed slots would go to hospitals that increase the number of residency programs in the area of primary care, general surgery and those that conduct training in non-hospital settings.  The bill would also allow residents to be trained in non-hospital settings such as physician offices, community health centers, and other ambulatory care sites.

“The Medicare resident caps have been in place for more than 10 years and these caps have restricted the ability of teaching hospitals and medical schools to increase the nation’s physician workforce, especially primary care physicians, and meet the needs of local communities,” said Blair Childs, senior vice president of Public Affairs. “As Congress moves toward enacting a health reform package that includes providing coverage options to the current 47 million Americans who are uninsured, it is critically important we ensure there are enough physicians to provide care.”

New Members Appointed to the Medicare Payment Advisory Committee

The Government Accountability Office (GAO) announced Friday that two new members have joined the Medicare Payment Advisory Commission (MedPAC) and five current members will stay for new terms.

Herb Kuhn, independent healthcare consultant and former deputy administrator of CMS and Robert Berenson, M.D., F.A.C.P, a senior fellow at the Urban Institute will be joining the commission. Kuhn will replace Jack Ebeler who resigned from the commission in March.

The announcement was made by Gene Dodaro, acting comptroller general of the GAO who said in a written statement “The two new individuals chosen will bring impressive credentials and valuable experiences and insights to the commission.”

The reappointed members, whose terms will expire in April 2012 are: Glenn Hackbarth, J.D. (chair); Mitra Behroozi, J.D., executive director of 1199 SEIU Benefit and Pension Funds; Karen R. Borman, M.D., professor of surgery at the University of Central Florida College of Medicine; Ronald D. Castellanos, M.D., a urologist at Southwest Florida Urologic Associates; and Bruce Stuart, Ph.D., a professor and executive director of the Peter Lamy Center on Drug Therapy and Aging at the University of Maryland Baltimore.

HHS Office of Health Reform Personnel Announced

Secretary of Health and Human Services Kathleen Sebelius announced Monday the establishment of the Department’s Office of Health Reform and its key staffers. This office will work closely with the White House Office of Health Reform to aggressively promote the advancement of health reform legislation.

“The HHS Office of Health Reform and the White House Office of Health Reform will work in tandem to advance legislation and take immediate actions to cut costs, assure quality and affordable health care for all Americans, and guarantee Americans can choose their doctor and their health plan,” said Secretary Sebelius. Both offices were created by an April 8 Executive Order.

The nine key staff members appointed to the HHS office include:

HHS Releases $50M in Stimulus Funding to Combat Healthcare-Associated Infections

Secretary of Health and Human Services Kathleen Sebelius announced the Department plans to make available $50 million in grants to states to combat healthcare-associated infections (HAI) funded by the American Recovery and Reinvestment Act of 2009. Specifically, $40 million will be made available to create or expand state-based HAI prevention and surveillance efforts, and to strengthen the public health workforce trained to prevent HAI. The other $10 million will be used to improve state inspections for ambulatory surgical centers. Sebelius also called on hospitals to commit to reducing central-line associated blood stream infections in ICUs by 75 percent over the next three years.

“Healthcare-associated infections can make illnesses worse, further debilitate patients who are already struggling and sometimes lead to death,” said Sebelius.  “Through the funding provided by the Recovery Act, we can help prevent these infections and improve the quality of care for all patients.”

Weekly legislative and regulatory round-up

The round-up for the week of May 9 - 15 is available here.

The round-up for the week of May 2 - 8 is available here.