New Obama Administration Plans to Usher in Health Care Reform

Sen. Barack Obama’s victory in the presidential election, combined with the increase of Democratic seats in both the House of Representatives and the Senate, have significant implications for national efforts to reform the health care system and other health care matters. President-elect Obama’s plan to restructure the health care system includes requiring health coverage for children; creating a National Insurance Health Exchange through which qualified private insurance plans or the public plan may be purchased by individuals and small businesses; guaranteeing eligibility of individuals for all health insurance plans, regardless of preexisting conditions; and providing tax credits to small businesses and subsidies to families for the purchase of health insurance.

CMS Issues Final Rule for Outpatient Prospective Payment System/Ambulatory Surgical Center Payment System

On Oct. 30, 2008, the Centers for Medicare and Medicaid Services (CMS) issued a final Outpatient Prospective Payment System (OPPS)/Ambulatory Surgical Center (ASC) Payment System rule with comment period, updating payment policies and rates for hospital outpatient departments (HOPD) and ASCs for calendar year (CY) 2009. CMS projects that the final CY 2009 payment rates under the OPPS will result in a 3.9 percent increase in Medicare payments for providers paid under the OPPS. Among other things, the Rule makes changes to the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), and establishes new conditions for coverage for ASCs. CMS also proposes a health care-associated conditions payment policy that will not reimburse for medical care in a hospital outpatient department that harms patients or leads to complications that could have been prevented. In addition, the Agency is seeking public comment regarding potential changes to the revenue code-to-cost center crosswalk upon which OPPS cost estimation is based.

Outpatient Prospective Payment System

CMS will focus on strengthening ties between payment and quality by: (1) reducing the CY 2009 payment update factor by two percentage points for most services for hospitals that were required to report quality measures but failed to meet the requirements of the HOP QDRP for CY 2009; (2) increasing the number of measures that hospitals are required to report to receive the full CY 2010 market basket update from seven measures in CY 2008 to 11 measures in CY 2009 (CMS added four imaging efficiency measures that will be calculated using Medicare claims data); (3) implementing a voluntary test validation program beginning with January 2009 encounters; and (4) analyzing ways to align payment incentives for high quality of care across settings.

CMS is also making changes to Ambulatory Patient Classifications (APCs) by: (1) establishing five imaging composite APCs that provide a single APC payment when multiple imaging procedures are provided in a single session using the same imaging modality; (2) adopting four new APCs for certain Type B emergency department visits; and (3) adopting two separate Partial Hospital Program rates calculated using cost data from hospitals.

Other Payment Provisions

There are a number of other payment provisions contained in the Rule. First, CMS will pay for separately payable drugs and biologicals under the OPPS at the average sales price (ASP) plus 4 percent. Based on hospitals’ claims and cost report data, CMS calculated hospitals’ average costs for drugs and biologicals to be equivalent to ASP plus 2 percent. Second, CMS is extending payment for therapeutic radiopharmaceuticals and brachytherapy sources provided in HOPDs based on individual hospital charges adjusted to cost until Dec. 31, 2009. Third, CMS is focusing on long-term approaches, including improved and more precise cost reporting, to improve the accuracy of OPPS cost-based payment weights.

Ambulatory Surgical Center Provisions

The Rule also modernizes Medicare’s ASC Conditions for Coverage. Specific changes include:

  • Defining an ASC as a distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which the expected duration of services would not exceed 24 hours following admission;
  • Strengthening patients’ rights regarding disclosure of physician financial interests in the ASC, advanced directives, the grievance process and confidentiality of clinical records;
  • Imposing stronger obligations on the governing body of an ASC to oversee its quality assessment and performance improvement (QAPI) program, while allowing ASCs flexibility to use their own information to assess and improve patient services, outcomes and satisfaction; and
  • Requiring the ASC to adopt a disaster-preparedness plan.

The Final Rule will not be published in the Federal Register until Nov. 18, 2008. Comments are due by 5 p.m. EST, Dec. 29, 2008. For more information, please click here.

Final 2009 Changes To Payment Policies And Rates Under Medicare Physician Fee Schedule

On Oct. 30, 2008, the CMS issued a final rule for the Medicare Physician Fee Schedule (MPFS) for CY 2009. The final rule establishes payment rates and policy changes that will go into effect for services furnished by physicians and non-physician practitioners to Medicare beneficiaries on or after Jan.1, 2009. The final rule also details changes to payment rates for end-stage renal disease facilities, and improvements to enrollment and billing rules.

Payment Changes

Highlights of payment changes discussed in the final rule include:

  • Updating the fee schedule conversion factor by 1.1 percent, as required by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA);
  • Continuing to work with the American Medical Association Relative Value Update Committee (AMA RUC) and the specialty societies to analyze misvalued codes, and developing alternative approaches for identifying these misvalued codes. In addition, CMS plans to continue its review of services that could be bundled or made subject to a multiple procedure payment reduction; and
  • Adding three new facility types to the list of authorized telehealth originating sites: a hospital-based or CAH-based renal dialysis center (including satellites), a skilled nursing facility (SNF) and a community mental health center (CMHC).

Changes to Enrollment & Billing Rules

Many changes were made to enrollment and billing rules, including:

  • The effective date of billing for physicians and non-physician practitioners is the later of: (1) the date of filing of a Medicare enrollment application that was subsequently approved by a Medicare contractor, or (2) the date an enrolled physician or non-physician practitioner first started furnishing services at a new practice location;
  • A physician or non-physician practitioner is not allowed to bill for services furnished after certain reportable events, such as a felony conviction; and
  • Physicians and non-physician practitioners, and physician and non-physician practitioner organizations, are to notify their Medicare contractor of a change of ownership, final adverse action or change of location within 30 days of the reportable event.

For more information, please see here.

Final Rule Implements E-Prescribing

Physicians and other eligible professionals who use qualified electronic prescribing (e-prescribing) systems to transmit prescriptions to pharmacies may earn an incentive payment of 2 percent of their total Medicare allowed charges during 2009. This incentive is in addition to a 2 percent incentive payment for 2009 for physicians who successfully report measures under the Physician Quality Reporting Initiative (PQRI), and both incentive payments are in addition to the 1.1 percent fee schedule update required by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). In other words, a physician who successfully reports under both the e-prescribing and PQRI initiatives could receive up to a 5.1 percent pay boost for 2009.

To participate in the e-prescribing incentive program, physicians will need to have a qualified e-prescribing system that: (1) communicates with the patient’s pharmacy; (2) helps the physician identify appropriate drugs and provide information on lower cost alternatives for the patient; (3) provides information on formulary and tiered formulary medications; and (4) generates alerts about possible adverse events. The revised policies and payment rates will become effective Jan. 1, 2009. More detailed information may be accessed here.

Hospital May Share Percentage of Pay-For-Performance Program Bonuses with Physician-Owned Entity

The Office of Inspector General (OIG) has approved a pay-for-performance program among a hospital, insurer and physicians. In a recent Advisory Opinion, the OIG concluded that a hospital may share a percentage of the bonus payments it receives from a private insurer with a physician-owned entity.

In the proposed arrangement, a hospital would participate in a private insurer's pay-for-performance program, in which the insurer would pay the hospital base compensation for the care of certain patients over a year, along with a percentage of the base compensation if certain quality and efficiency standards were met. As proposed by the hospital, the hospital would enter into an agreement with a physician-owned entity, which would require its member physicians to perform tasks with the goal of achieving quality targets, such as creating policies and procedures, engaging in peer review and auditing medical records. The hospital would share a percentage of the incentive payments received from the private insurer with the physician-entity, which would then distribute the earnings to its members on a per capita basis.

While the OIG found that the program could trigger the Civil Monetary Penalty provision and the Anti-Kickback Statute, it determined that the program posed a low risk of fraud and abuse, so no sanctions would be imposed. The OIG found the following safeguards in the program that it concluded protected against fraud and abuse:

  • The program would improve patient care, and was unlikely to reduce the quality of care.
  • Bonus compensation would not be reduced for not meeting a quality standard in a situation in which the standard was not medically appropriate.
  • The hospital would monitor the quality standards so that patient care would not be compromised.
  • The program would be transparent, allowing for public awareness and physician accountability for any harmful effects of the program.

To mitigate the Anti-Kickback risks, the OIG found the following factors relevant:

  • Only physicians who had been on the hospital's medical staff for at least one year could be members of the physician entity.
  • The distribution of incentive payments on a per capita basis among the physicians would reduce the risk that the program would reward physicians for referring patients to the hospital.

To read Advisory Opinion 08-16, click here.

CMS Awards RAC Contracts and Then Suspends Them

In early October, the CMS announced the permanent Recovery Audit Contractor (RAC) program. The demonstration RAC program has resulted in the collection of almost $1 billion in overpayments and the return of almost $38 million in underpayments. Providers, such as hospitals, nursing homes, suppliers and physician practice groups that bill Medicare Parts A and B will be subject to RAC audits. Each RAC will have exclusive jurisdiction in its region for the RAC audits of Medicare claims that have not been reviewed by other Medicare contractors for payment issues. The new permanent RACs will continue to be paid on a contingency fee basis for both overpayments and underpayments.

RAC contracts were awarded as follows:

  • Diversified Collection Services, Inc. for Region A: Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont;
  • CGI Technologies and Solutions, Inc. for Region B: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio and Wisconsin;
  • Connolly Consulting Associates, Inc. for Region C: Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, New Mexico, North and South Carolina, Oklahoma, Tennessee, Texas, Virginia and West Virginia; and
  • HealthDataInsights, Inc. for Region D: Alaska, Arizona, California, Hawaii, Idaho, Iowa, Kansas, Missouri, Montana, Wyoming, Nebraska, Nevada, North and South Dakota, Oregon, Utah and Washington.

Protests by two contractors that unsuccessfully bid to be part of the RAC program have resulted in the temporary suspension of all RAC activities, however. The Government Accountability Office is the agency tasked with resolving the protests and has 100 days within which to issue its decision.

Hospitals Have Broad Latitude in Defining Community Benefit

According to a recent government report, nonprofit hospitals have wide latitude in determining the services and activities they provide as community benefit under the Internal Revenue Service's (IRS) community benefit standard. The Government Accountability Office report “makes clear that tax-exempt hospitals are free to define community benefit as they see fit,” according to Sen. Charles Grassley, R-Iowa. The report was prepared at Senator Grassley's request.

Nonprofit hospitals have not defined community benefit in a consistent manner, according to studies cited in the report, which hinders the government from determining whether they are providing an appropriate level of benefit to justify their tax-exempt status. The report found a consensus for defining certain items, such as charity care, but found a lack of consensus for other items, such as bad debt and the unreimbursed cost of Medicare. Differences in the definitions of these items result in differences in the amount of community benefits reported, according to the report. Requirements for community benefit at the state level also vary considerably. Sen. Grassley argues that the IRS should have "a bright line test to be able to determine whether hospitals are meeting the standard necessary to maintain their tax exemption.” The full report, Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements, may be accessed here.

New Jersey Appellate Division Opens Door to Malpractice Liability for Hospitals that Use Contract Physicians

The New Jersey Appellate Division has held that a hospital that vests a contractor physician with apparent authority may be held liable for the physician’s negligence in Estate of Cordero v. Christ Hospital et al., A-1289-07T1.

The Appellate Division reversed the summary judgment granted to the hospital by the trial court and applied a totality of the circumstances test that considers the hospital’s actions and inactions that would lead a patient to reasonably believe a physician’s care is rendered on behalf of the hospital. When a patient accepts a physician’s care under such circumstances, a rebuttable presumption is created that the treatment is on behalf of the hospital and the independent contractor is vested with apparent authority from the hospital.

The court outlined six factors to decide whether a physician is acting under apparent authority:

  • Whether the hospital supplied the physician;
  • The nature of the treatment, and whether the specialty is typically provided in and an integral part of medical treatment received in a hospital;
  • The patient’s opportunity to reject the care or select a different physician;
  • Whether there were any notices of the physician’s independence from the hospital or hospital disclaimers of responsibility for the physician’s actions;
  • Whether there had been any prior contact between the physician and patient; and
  • Whether the patient had any special knowledge about the relationship between the hospital and physician.

In this case, the Appellate Division ruled that there was sufficient evidence that the patient would reasonably believe the treating anesthesiologist was providing care on behalf of the hospital. The anesthesiologist had never met the patient before administering anesthesia, did not disclose her affiliation with the anesthesiology group contracted with the hospital and wore no identification to disclose her employment status.

In light of the Cordero opinion, New Jersey hospitals should consider adopting several measures to ensure independent contractors are not cloaked with the apparent authority to administer care on behalf of the hospital, including:

  • Providing name tags or badges for physicians that clearly state their affiliated physician group;
  • Requiring physicians involved in the patient’s treatment to meet the patient and fully disclose their employment status;
  • Providing patients a written disclosure/consent form that states the hospital does not assumes responsibility for the care provided by independent contractors and clearly identifying independent contractor physicians involved in a patient’s treatment; and
  • Identify the physician group affiliation for each physician on the hospital website.

To read the full text of the case, please click here.