Medicare Prescription Drug, Improvement and Modernization Act of 2003:
How Does It Affect Your Medical Practice?

Part 1: “Be Aware”

by
Sheryl T. Dacso, J.D., Dr.P.H. and Michael E. Sodolak, J.D.
Law Office of Sheryl Tatar Dacso, P.L.L.C., Houston, Texas

 On December 8th, 2003, the Medicare Prescription Drug, Improvement and Modernization Act, P.L. 108-173 (the “Act”) became law. With close to 200 major sections, the Act has been called the largest overhaul to the Medicare Program since its inception. Most of the media coverage and publicity surrounding the Act has focused on its historic prescription drug benefit provisions; however, there are a number of other provisions that will impact patient care and affect reimbursement to physicians.

 This is the first in a 2-part series wherein we will discuss the Act and its effect on the practicing physician. Part 1 will focus on specific reforms that affect physician reimbursement and business practices. Part 2 will address how the Act affects your own business organization and your employee health benefit plans.

The Act’s Report Card for Physicians

Physicians fared well in the bill, both in the short term with increased revenue provisions, and in the long term, with opportunities to participate in demonstration projects that will highlight their ability to deliver high quality and cost effective health care.  To begin, the bill provides a 1.5% increase to the Medicare physician fee schedule update, replacing the Centers for Medicare and Medicaid Services (CMS) imposed decrease of 4.5%.  The bill also eliminates the proposed laboratory beneficiary co-payment provision, and increases payments to hospitals, and provides more than $25 billion to rural providers.  The legislation modifies the existing Medicare+Choice (M+C) program and provides higher payments to M+C plans which could indirectly result in higher payments to physicians.  The bill’s prescription drug benefit may also provide an indirect financial benefit to medical groups as the government, as opposed to health plans, will begin to pay for drugs, beginning in 2006.    
 
Who are the “big winners”?

Rural providers and teaching hospitals are among the big winners. The Act provides a 5% bonus payment for physician’s services furnished between January 1, 2005 and December 31, 2007 by a primary care physician in a primary care scarcity county or by a specialist physician in a specialist scarcity county. Also, a safe harbor is provided for certain collaborative efforts between health centers serving a medically underserved population and entities providing services or supplies that enhance the quality of care or availability of services to this population.

Who will suffer the most losses?

Durable medical equipment (DME) suppliers, as well as drug suppliers are expected to suffer significant monetary losses. DME suppliers will see their reimbursement rates frozen through the year 2008 for most items and services. Rates will dramatically decrease for specific items including oxygen, oxygen equipment, wheelchairs, nebulizers, diabetic supplies, hospital beds and air mattresses.

Key Provisions Related to Physician Practice

1. Update to Physician Fee Schedule

The bill provides a 1.5% increase to the Medicare Physician fee schedule update for 2004 and 2005.  This replaces the 4.5% cut included in the CMS Final Rule on the 2004 Medicare Physician fee schedule (and another anticipated decrease in 2005).  The 1.5% update not only applies to physicians but also to physician extenders such as physician assistants, nurse practitioners, as well as occupational and physical therapists.  The legislation also modifies the formula for calculating the sustainable growth rate.  The Gross Domestic Product (GDP) factor will now be based on an annual average over the proceeding 10 years which replaces the current GDP factor that measures the 1 year change from the preceding year.  This 10 year rolling average should ease the current volatility of the update formula. The legislation also created a floor on the geographic adjuster for physician work.  Under the bill, all areas with geographic adjusters below 1.0 will have the adjuster raised to 1.0 for 2004 – 2006. 

2. New Preventive Services to be Covered by Medicare

A series of new preventive services will be covered under Medicare including: initial preventive physical exams, cardiovascular screening blood tests, diabetes screening tests, and screening mammography tests will be excluded from the outpatient prospective payment system (OPPS).  The tests will be covered beginning January 1, 2005.

3, Coverage of Routine Costs for Qualifying Clinical Trials

The Act extends coverage of routine costs associated with “qualifying” clinical trials to trial of Experimental/Investigational (Category A) devices if certain conditions are met. (§731) One of the criteria for a qualifying clinical trial is that the device “has been determined by The Secretary” to be “intended for use in the diagnosis, monitoring, or treatment of an immediately life-threatening disease or condition.”

4. Expanded Reimbursement for “On-Call” ER Services and Cardiovascular Disease Screening

The Act expands reimbursement of costs incurred for on-call emergency room services to such services furnished by physician assistants, nurse practitioners, and clinical nurse specialists as well as physicians, beginning for costs incurred on or after January 1, 2005. These changes are expected to yield significant positive reimbursement impacts. Medicare will also cover certain screening tests for cardiovascular disease. It will also cover certain laboratory screening tests for individuals with risk factors for diabetes. For beneficiaries who become eligible for Part B coverage on or after January 1, 2005, physicians and other practitioners may be reimbursed for the initial routine physical examination.

Regulatory Relief

The Act includes significant regulatory relief provisions that should facilitate physicians’ submissions of Medicare claims and their interactions with Medicare contractors. 
 
1. Reliance on Medicare Contractor Guidance

The bill prohibits sanctions against providers (and suppliers) for the improper submission of claims if the provider relied on erroneous guidance provided by a Medicare contractor. 

2. GAO Study on Advisory Opinions

The bill requires GAO to study the feasibility of HHS providing binding advisory opinions interpreting Medicare regulations.  Moreover, HHS is required to report to the Congress on areas of inconsistency or conflict among Medicare regulations and make recommendations for legislative or administrative remedies.

3. Prompt Responses from Medicare Contractors

The bill requires Medicare contractors to provide clear, concise, and accurate responses within 45 business days to written questions from providers.  HHS is also required to monitor the accuracy, consistency, and timeliness of the information coming from the contractors.  HHS will evaluate contractors based on the information they provide to requesting parties. 

4. Prepayment Reviews

The bill permits Medicare contractors to conduct random pre-payment reviews only to develop a contractor-wide or program-wide error rate or such other reason as the Secretary may provide for in regulations that are developed in concert with providers.  Non-random prepayment reviews are allowed only when there is a likelihood of sustained or high levels of payment error. 

5. Overpayments Constituting Hardship and Post Payment Reviews

In situations where repaying overpayments would constitute a hardship for the provider or supplier, the bill requires HHS to enter into an extended repayment plan of at least 6 months (but no more than 3 years) with the provider.  Hardship is defined if the aggregate amount of the overpayment exceeds 10 percent of the amount paid by Medicare to the provider in the previous year.  Extrapolations are permitted only in circumstances where there is a sustained or high level of payment error.  If post payment audits are conducted, the Medicare contractor must provide the provider with written notice of the intent to conduct the audit, give a full explanation of the audit results, permit the development of an appropriate corrective action plan, and notify the provider of any appeals rights it may have. 

6. Evaluation and Management Documentation Guidelines

The legislation prohibits HHS from implementing any new or modified evaluation and management (E & M) documentation guidelines unless HHS has developed the guidelines in collaboration with practicing physicians and has provided for an assessment by the physician community.  The bill further requires HHS to modify the current E & M guidelines to reduce the paperwork burden on physicians.  A study of an alternative system for documenting physician claims is also mandated.  

But…..on a more somber note, the Act has imposed an 18 month moratorium on physician investment in specialty hospitals that are not already “under construction” or development as of November 18, 2003.  Beginning April 1, 2004, the ambulatory surgery center (ASC) update will increase by the consumer price index (urban) amount minus 3 points.  For FY2005, including the last quarter of 2005, and CY2006 -2009, the update will be 0%. This means that ASC reimbursement under Medicare will remain flat. Additionally, the U.S. Department of Health and Human Services (HHS) is required to implement a revised payment system for surgical services provided in ASCs.  The new system must be implemented between 2006 and 2008. Stay tuned for a future article on the “cost creep” in ASC charges for “out-of-network” services.