‘Doc Fix' Law Delays Two-Midnight Rule, Changes Clinical Lab Reimbursement

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By Nathaniel Weixel and Mindy Yochelson  

April 1 --A measure to extend Medicare physician pay rates for one year--approved by the Senate March 31 and signed into law by President Barack Obama April 1--will also extend the enforcement delay of the Centers for Medicare & Medicaid Services' “two-midnight” rule.

The new law also contains provisions welcomed by the broad medical device stakeholder community, including clinical labs and medical imaging professionals. In addition, it will establish a new value-based purchasing (VBP) program for skilled nursing facilities based on performance on hospital readmissions. The readmission scores of nursing homes will be posted to the Nursing Home Compare website beginning in 2017, and the VBP program will begin Oct. 1, 2018.

The Senate approved the bill (H.R. 4302) in a 64-35 vote one day before Medicare physician pay rates were due for a steep cut under Medicare's sustainable growth rate (SGR) formula . The SGR each year calls for deep physician pay cuts that are regularly canceled by Congress with a “doc fix,” also called an SGR “patch.”

The patch will extend the enforcement moratorium on the CMS two-midnight policy through March 2015. With the extension, Medicare Recovery Audit Contractors (RACs) won't be able to audit inpatient hospital claims from Oct. 1, 2013, through March 31, 2015.

The CMS's two-midnight rule was promulgated because of concerns that hospitals were overusing observation status. Under the two-midnight rule, a patient's status as an admitted inpatient is generally presumed “reasonable and necessary” if the patient stays at the hospital for at least two midnights.

The final two-midnight rule took effect on Oct. 1, 2013, but enforcement has been delayed; the most recent delay was announced Jan. 31 and extended the enforcement delay through Sept. 30 .

Prior to that, the agency had extended the audit-free transition period through March 31 .

The House approved H.R. 4302 on March 27 .

The American Coalition for Healthcare Claims Integrity (ACHCI), which represents RACs, blasted the two-midnight delay provision, saying it will absolve inpatient hospitals from RAC audits.

The measure “reinforces a precedent that in order to get buy-in from hospitals on Medicare legislation, Congress must first halt Medicare oversight,” the group said. “This decision represents the worst of budget gimmickry by lawmakers, and displays a profound disregard for seniors and taxpayers. By turning a blind eye to the top source of waste in Medicare, Congress has knowingly allowed rampant waste to persist, aided the Medicare Trust Fund's impending insolvency, and exacerbated our nation's ongoing budget woes.”

Diagnostic Reimbursement

According to the American Clinical Laboratory Association (ACLA) and AdvaMedDx, a division of the Advanced Medical Technology Association (AdvaMed) focused on diagnostics, the law will dramatically reform the clinical lab fee schedule (CLFS), which is how Medicare pays for diagnostics.

Andrew Fish, executive director of AdvaMedDx, told Bloomberg BNA April 1 the law is the first significant update to the CLFS since its inception in 1984. He said it will improve the transparency and predictability of a “flawed and outdated” payment system that has been overly opaque for too long.

Fish said the law will implement a number of improvements, including:

• formation of an independent board to advise Congress on diagnostic payment rates;

• creation of a mechanism to align Medicare payment rates with private sector market rates; and

• creation of a new set of identification codes to make it easier for payers to judge the efficacy of individual tests, rather than basing coverage and reimbursement decisions on broad categories.

According to the ACLA, the law also avoids across-the-board cuts to which clinical labs have been subjected repeatedly.

“When the president signs this bill, clinical labs will avoid another potential round of indiscriminate, across-the-board payment cuts and most importantly, seniors' access to diagnostic testing will be protected,” Alan Mertz, president of the ACLA, said in a statement prior to Obama signing the measure.

Imaging Quality

The law also includes imaging quality provisions backed by the American College of Radiology. Specifically, it will require providers to consult physician-developed appropriateness criteria when prescribing advanced medical imaging procedures for Medicare patients.

It directs the health and human services secretary to identify mechanisms, such as clinical decision support tools, by which ordering professionals may consult these criteria. “This may be the first time that Medicare would require providers to use such point of care, evidence-based ordering for exams or procedures,” the ACR said.

According to the ACR, such ordering systems are shown to reduce duplicate and/or unnecessary scanning and associated costs.

“As medical imaging is the cutting edge of modern medicine, this requirement is a major step forward in health care reform. Providers will have the latest medical evidence at their fingertips before a scan is ordered, ensuring that patients get the right exam for their condition and avoid unnecessary care. This will reduce unnecessary costs and help pave the way for a more responsive and efficient health care system,” Paul H. Ellenbogen, chairman of the American College of Radiology Board of Chancellors, said in a March 31 statement.

The Access to Medical Imaging Coalition (AMIC) also praised the use of appropriateness criteria, saying in a statement, “the best way to support physicians in ordering the right diagnostic imaging scan at the right time is for Medicare to encourage physicians and patients to make treatment decisions that best suit individualized needs and circumstances.”

Therapy Caps

The law also extends to March 31, 2015, the exceptions process for outpatient therapy caps. Currently, Medicare imposes annual limits on the amount of expenses a patient can accrue for outpatient therapy in a certain year.

In 2006, Congress set up a process for providers to seek waivers on the caps based on a patient's medical needs. The policy, which has been extended a number of times throughout the years, was last extended from Dec. 31, 2013, to March 31, 2014.

Like the SGR provision, the additional year--to 2015--for the cap exception process will ensure that beneficiaries continue to have access to therapy services, Mandy Frohlich, senior director of government affairs for the American Physical Therapy Association, said.

However, Frohlich told Bloomberg BNA that APTA “urges Congress to return its focus to enacting permanent solutions for both of these issues.”

A bill that would permanently repeal and replace the SGR would also repeal the therapy caps and replace them with a new prior authorization system, she added.

Medicare Advantage

Another provision will extend for an additional year, to 2017, Medicare Advantage special needs plans (SNPs), which provide services to beneficiaries who are institutionalized (I-SNPs), have chronic conditions (C-SNPs) or who are dually eligible for Medicare and Medicaid (D-SNPs).

Initially authorized in the Medicare and Medicaid Modernization Act of 2003, SNPs have been reauthorized a number of times.

Of the three types, the heaviest populated SNPs are D-SNPs for dual eligibles.

Debra A. Donahue, a vice president with Mark Farrah Associates, said in a March 31 article that, of the 566 SNPs authorized in 2014, 353 were D-SNPs serving 1.5 million beneficiaries.

Since May 2007, when the CMS began reporting SNP data, total enrollment has more than doubled from 906,000 to nearly 1.9 million as of March 1, she said.

Jean LeMasurier, senior vice president for public policy at Gorman Health Group, said that although the Medicare Payment Advisory Commission “has raised a number of concerns” about SNPs, fully integrated D-SNPs, which provide integration across the two entitlement programs by contracting with state Medicaid agencies, “have generally wide support.”

LeMasurier told Bloomberg BNA that it “makes sense to extend the SNP program” while the policy and research communities seek ways to improve services for these populations over the “fragmented” care they have received from Medicare and Medicaid.

Among these efforts are the CMS's Financial Alignment Demonstration. D-SNPs, she said, “are a cornerstone in a number of these demos” in the various states that are a part of the demonstration, as well as separate state initiatives.

Similarly, Clare Krusing, deputy press secretary for America's Health Insurance Plans, told Bloomberg BNA that it's “important for Congress to permanently reauthorize SNPs because these health plans are demonstrating innovations in health-care practice, quality improvements and cost-effective strategies that maximize beneficiary care.”


To contact the reporters on this story: Nathaniel Weixel in Washington at nweixel@bna.com and Mindy Yochelson in Washington at myochelson@bna.com

To contact the editor responsible for this story: Ward Pimley at wpimley@bna.com

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