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The Health Care Reform Act: What Is Imminent And Immediate For Health Care Providers?

The Health Care Reform Act: What Is Imminent And Immediate For Health Care Providers?

Health Care Law Note
(May 2010)

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the "Health Care Reform Act" or the "Act"), was signed into law in March of this year. While much about this overhaul legislation remains unknown, largely because it imparts substantial responsibility and rulemaking authority to various federal agencies, including the Centers for Medicare & Medicaid Services ("CMS"), the Department of Labor ("DOL"), the Department of Treasury ("IRS"), and the Department of Health and Human Services ("DHHS"), a number of changes became effective on the enactment date of the Health Care Reform Act or will be implemented within the next two years, and therefore, command health care providers' immediate attention.

Given the broad scope of the Health Care Reform Act, which is comprised of ten titles over 2,500 pages in length, this article provides only a brief, introductory overview of pertinent provisions that will be implemented in 2010 and 2011. These provisions relate to Medicaid (as discussed in Title II: Role of Public Programs); Medicare (as discussed in Title III: Improving the Quality and Efficiency of Health Care); physician ownership, fraud and abuse issues, and additional integrity initiatives aimed at Medicare, Medicaid and the Children's Health Insurance Program (as discussed in Title VI: Transparency and Program Integrity); and nonprofit hospitals (as discussed in Title IX: Revenue Provisions).

Title II – Medicaid

Providing Federal coverage and payment coordination for dual eligible beneficiaries. The Health Care Reform Act requires the Secretary of DHHS (the "Secretary") to establish a Federal Coordinated Health Care Office ("CHCO") within CMS by March 1, 2010. CHCO is charged with the following responsibilities: (1) to more effectively integrate benefits paid under the Medicaid and Medicare programs; and (2) to improve the coordination between the Federal and State governments for dual eligible beneficiaries (individuals eligible for benefits under both Medicare and Medicaid).

Prescription drug rebates. The Health Care Reform Act increases the Medicaid drug rebate percentage for brand name drugs to 23.1%; provided, however, the rebate for clotting factors and drugs approved exclusively for pediatric use increases to 17.1%. The Act also increases the Medicaid rebate for non-innovator, multiple source drugs to 13% of the average manufacturer price.

Disproportionate share hospital payments. To achieve the mandated reductions set forth in the Act, the Health Care Reform Act directs the Secretary to develop a methodology for reducing disproportionate share hospital allotments to all states. The federal disproportionate share hospital allotment for a state that has a $0 allotment after Fiscal Year 2011 is extended through Fiscal Year 2013. Moreover, commencing in 2014, the Health Care Reform Act provides for the reduction in federal Medicaid disproportionate share hospital payments from $18.1 billion to $14.1 billion.

Payment adjustment for health care acquired conditions. Effective July 1, 2011, the Health Care Reform Act prohibits federal payments to states for Medicaid services related to health care acquired conditions. The Secretary is responsible for developing a list of health care acquired conditions for Medicaid.

Medicaid demonstration projects. The Health Care Reform Act creates new demonstration projects aimed at achieving lower costs under the Medicaid program while improving care for beneficiaries. The demonstration projects will evaluate the use of bundled payments for episodes of care that include hospitalizations (effective January 1, 2012 through December 31, 2016); evaluate the potential benefit of making global capitated payments to safety net hospital systems (effective Fiscal Years 2010 through 2012); allow pediatric medical providers organized as accountable care organizations to share in cost-savings (effective January 1, 2012 through December 31, 2016); and provide Medicaid payments to mental health institutions that provide services to adult enrollees who require stabilization of an emergency condition (effective October 1, 2011 through December 31, 2015).

Title III - Medicare

Improvements to the physician quality reporting initiative. The Health Care Reform Act extends through 2014 the physician quality reporting initiative ("PQRI") program, which provides incentives to physicians who report quality data to Medicare. Beginning in 2014, physicians who do not submit measures to PQRI will have their Medicare payments reduced. The Act also directs the Secretary to develop a plan to integrate reporting on quality measures with reporting requirements relating to meaningful use of electronic health records.

Value-based purchasing program for skilled nursing facilities, home health agencies, and ambulatory surgery centers. The Secretary is charged with the responsibility of developing a plan to implement a value-based purchasing payment system for Medicare payments paid to skilled nursing facilities, home health agencies, and ambulatory surgery centers.

Payment adjustments for conditions acquired in hospitals. By January 1, 2012, the Secretary is charged with the responsibility of conducting a study and reporting to Congress on the appropriateness expanding the "health care acquired conditions" policy to other health care facilities, including nursing homes, inpatient rehabilitation facilities, long-term care hospitals, outpatient hospital departments, ambulatory surgical centers, and health clinics. Commencing in 2015, hospitals with high rates of "hospital acquired conditions" will be subject to a payment penalty under Medicare.

Medicare shared savings program. The Health Care Reform Act directs the Secretary to establish a shared savings program no later than January 1, 2012, pursuant to which groups of health care professionals and providers (including hospitals, physicians, nurse practitioners, and physician assistants) who work together to manage and coordinate care through an accountable care organization will be eligible to share a portion of the savings to the Medicare program. The Secretary has the discretion to implement innovative payment models for such participating organizations, including, models currently employed in the private sector.

Hospital readmissions reduction program. To account for "excess readmissions" to hospitals, the Secretary is responsible for adjusting Medicare payments to hospitals based on potentially preventable readmissions, commencing in Fiscal Year 2012. The dollar value of each hospital's percentage of potentially preventable readmissions will be factored into the adjustment.

Extension of gainsharing demonstration. The Health Care Reform Act extends the gainsharing demonstration, originally authorized under the Deficit Reduction Act of 2005, through September 30, 2011. Moreover, an additional $1.6 million has been allocated to this demonstration project in Fiscal Year 2010, which is designed to evaluate arrangements between hospitals and physicians in order to improve the quality and efficiency of care provided to Medicare beneficiaries. The final report on this demonstration program is due to Congress on September 30, 2012.

Improving Medicare for patients and providers. To ensure beneficiary access to physician care and other services, the Health Care Reform Act extends the following through the end of 2010: (1) the work geographic index floor, which seeks to increase fess to physicians in rural areas; (2) the process allowing exceptions to limitations on medically necessary therapy services; (3) reimbursement to qualified rural hospitals for certain clinical laboratory services; and (4) bonus payments made by Medicare for ground and air ambulance services in rural and other areas. The Act also extends the existing outpatient hold harmless provision through the end of Fiscal Year 2010, and permits sole community hospitals (that operate more than 100 beds) to be eligible for the hold harmless adjustment through the end of Fiscal Year 2010.

Permitting physician assistants to order post-hospital extended care services. Beginning in 2011, the Health Care Reform Act authorizes physician assistants to order post-hospital extended care services for beneficiaries of the Medicare program.

Extension of Medicare payments for certain clinical diagnostic laboratory tests. From July 1, 2010 to July 1, 2011, the Health Care Reform Act permits reasonable cost reimbursement for clinical diagnostic laboratory services provided by certain small rural hospitals, as was originally provided for in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, as amended.

Extension of the rural community hospital demonstration program. In response to financial concerns of small rural hospitals and to test the feasibility of providing reasonable cost reimbursement to such providers, CMS commenced a rural community hospital demonstration program in 2004. The Health Care Reform Act extends this demonstration project for an additional one-year period, broadens the eligibility requirement for participation in the program, and provides for payment adjustments to participants.

Extension of the Medicare-dependent hospital program. Small rural hospitals that are designated by CMS as being "Medicare-dependent hospitals" are currently paid under the hospital inpatient prospective payment system, and the Health Care Reform Act extends this program through October 1, 2012. The Act also directs DHHS to study whether certain urban hospitals should be eligible for the "Medicare-dependent hospital" designation.

Medicare inpatient hospital payment adjustment for low-volume hospitals. Hospitals that: (1) are more than 25 miles from the nearest hospital; and (2) have fewer than 200 inpatient discharges from all payment sources currently receive a 25% add-on to their prospective payment rate from Medicare. The Health Care Reform Act extends this program and modifies the distance eligibility requirement.

Improvements to the community health integration demonstration program. The demonstration project on community health integration models in certain rural communities, which was originally authorized pursuant to the Medicare Improvements for Patients and Providers Act, was designed to allow eligible rural health care entities to test new models for the delivery of 13 health care services in rural areas. The Health Care Reform Act expands this demonstration program to permit physician participation and allow additional counties to participate.

Rural hospital flexibility program. States with certified "critical access hospitals" are eligible to participate in the Medicare Rural Hospital Flexibility Program, which was designed to sustain and improve access to high quality health care services in rural areas. The Health Care Reform Act extends the Medicare Rural Hospital Flexibility Program through 2012 and permits funding to be utilized by participants to implement delivery system reform programs.

Home health care payment adjustment. From April 1, 2010 through 2015, the Health Care Reform Act reinstates an add-on payment for rural home health providers and caps a home health provider's reimbursement from outlier payments at 10%. Additionally, the Act directs the Secretary to conduct a study on the development of home health payment reforms in order to ensure access to care and quality services for patients, including, those living in underserved areas and those with high-severity levels of illness.

Hospice reform. No later than January 1, 2011, the Health Care Reform Act directs the Secretary to collect data and information pertaining to the cost and provision of hospice services in order to update Medicare hospice claims forms and cost reports.

Hospital wage index improvement. The hospital reclassifications set forth under the Tax Relief and Health Care Act of 2006 (as amended by the Medicare, Medicaid, and SCHIP Extension Act of 2007, as amended by the Medicare Improvements for Patients and Providers Act of 2008), is extended by the Health Care Reform Act through the end of Fiscal Year 2010. Additionally, by December 31, 2011, the Secretary is charged with the responsibility of providing Congress with recommendations on how to comprehensively reform the Medicare wage index system.

National hospital wage index. Rather than a State-specific adjustment, for discharges occurring on or after October 1, 2010, the Health Care Reform Act provides that a uniform, national adjustment shall be applied to the area wage index.

Revision of market basket updates. The Health Care Reform Act directs market basket adjustments for various health care facilities and services, including inpatient acute hospitals; skilled nursing facilities; long-term care hospitals; inpatient rehabilitation facilities; home health agencies; psychiatric hospitals; hospice care; dialysis services; outpatient services; ambulance services; ambulatory surgical center services; and certain durable medical equipment. Such adjustments will be implemented in various years.

Orders for Durable Medical Equipment and Home Health Services. Medicare covers home health services and durable medical equipment, but only if a physician orders them and certifies that they are necessary. The Health Care Reform Act strengthens these requirements. A face-to-face patient encounter with the ordering physician or a nurse practitioner, physician assistant, or certified nurse specialist working in collaboration with the physician is required before Medicare or Medicaid durable medical equipment or home health services are ordered (effective for services ordered or certifications made after January 1, 2010 for home health services and March 23, 2010 for durable medical equipment).

For services ordered or physician certifications made after January 1, 2010, the ordering physician must maintain, and provide to DHHS as requested, documentation concerning orders or referrals for durable medical equipment, home health services, and other Medicare-covered services as determined by DHHS.

Effective for Medicare durable medical equipment or home health services ordered or certified after July 1, 2010, the ordering physician must be enrolled in Medicare.

Title VI - Fraud And Abuse

Limitations on physician ownership in hospitals. Physician-owned hospitals have been an issue of debate for Congress since the 18-month moratorium on physician ownership in specialty hospitals lapsed in 2005. The Health Care Reform Act prohibits physician ownership in hospitals unless both the physician-ownership is in place, and the hospital has a Medicare provider agreement prior to December 31, 2010. Such grandfathered hospitals may continue to participate in Medicare under tighter restrictions addressing conflict of interest, bona fide investments, patient safety, and expansion limitations.

New disclosure requirements for in-office ancillary services. Effective as of the enactment date of the Health Care Reform Act, referring physicians (or their practices) must inform patients in writing that the patients may obtain imaging services (MRI, CT, and PET) or certain other designated health services from a person other than the referring physician, a physician who is a member of the same group practice as the referring physician, or an individual who is directly supervised by physicians in the group practice. Additionally, the referring physician or practice must provide patients with a list of other suppliers of the service in the area. However, it is unclear until the rules are promulgated exactly what physician practices are required to disclose to patients regarding other suppliers.

Stark self-referral disclosure protocol. Within six months of the enactment of the Health Care Reform Act, DHHS must develop and implement a self-referral disclosure protocol to enable health care providers and suppliers to disclose actual or potential violations of the Stark Law. Under the self-referral disclosure protocol, DHHS will have the ability to negotiate a settlement for Stark Law violations for amounts less than the amounts outlined in the Stark Law.

Fraud funding. Beginning in 2011, the Health Care Reform Act provides additional funding for both the Health Care Fraud and Abuse Fund under Medicare and the Medicaid Integrity Program.

Title IX: Nonprofit Hospitals

Additional requirements for charitable hospitals. The Health Care Reform Act imposes additional requirements on nonprofit hospitals. Specifically, charitable hospitals are required to conduct a community needs assessment every three years and to adopt an implementation strategy to meet the identified needs of patients. Additionally, this assessment must be used to establish and publicize a financial assistance policy that indicates whether free or discounted care is available and how to apply for such care. Charitable hospitals are required to report to the IRS and DHHS regarding compliance with the new requirements, and failure to meet the new requirements will such hospitals to a fifty thousand dollar ($50,000.00) penalty tax.


The provisions as outlined above are only those that are found in Title II, Title III, Title VI, and Title IX of the Health Care Reform Act. Additionally, these provisions are either retroactive to the start of 2010 or have implementation dates in 2010 or 2011. Many of the Health Care Reform Act's provisions will not be effective until 2014. Therefore, it is critical to begin to understand the numerous provisions that require immediate compliance as well as the provisions that offer opportunities for health care providers in this new era of even more government regulation of the health care industry.

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