SPECIAL BULLETIN

Congressional Negotiators Agree on Health Care Package

December 7 , 2006

House and Senate negotiators agreed last night on a package of health care items that may be attached to tax legislation that includes prevention of a 2007 cut in Medicare physician payments. The House is expected to vote tonight, while the Senate may vote tonight or tomorrow. Here is a quick summary of how the package affects hospitals:

• Medicaid provider tax rate - Establishes the maximum Medicaid provider tax rate at 5.5%. Medicaid regulations currently allow states to tax hospitals, nursing homes, and pharmacies up to 6% of their gross revenue. The Administration has proposed reducing the maximum tax rate from 6% to 3%.
• Rural hospitals - Extends for one year a provision that requires Medicare to continue paying labs directly for the technical component of physician pathology services furnished to hospital patients; also extends reasonable cost reimbursement for outpatient lab payments for rural hospitals under 50 beds.
• Section 508 - Extends Section 508 of the Medicare Modernization Act that allows for geographic reclassification for 6 months.
• Hospital outpatient department quality reporting - Reduces the annual update by 2 percentage points for outpatient services provided by hospitals and ambulatory service centers that fail to report certain quality measures, starting in 2009. CMS would develop consensus-based measures of outpatient quality of care.
• Physician payment update - Provides a zero percent update for physicians in 2007 and implements a voluntary quality reporting system. Those eligible professionals who report quality measures, as identified under the CMS Physician Voluntary Reporting System starting July 1, 2007, would receive a bonus incentive payment of 1.5 percent. For 2008, establishes a fund to promote physician payment stability and quality initiatives.
• MedPAC wage index study - Requires CMS to propose area wage index changes for FY 2009 inpatient PPS based on a mandated MedPAC report on recommended revisions to the wage index. The report is due June 30, 2007.
• Outpatient therapy services - Extends until Dec. 31, 2007, an exception allowing additional reimbursement for outpatient therapy services not performed in a hospital setting that exceed the $1,740 per-beneficiary.
• Recovery audit contractor (RAC) extension - Extends and expands the use of RACs to identify both under- and overpayments made under Medicare Parts A and B and recoup any overpayments to providers. The Secretary must contract with RACs in all states by January 1, 2010.
• OIG study of never events - Requires the Office of the Inspector General to submit a report to Congress on the incidence of "never events" for Medicare beneficiaries, which are listed and endorsed as "serious reportable events" by the National Quality Forum as of November 16, 2006. The study also would include the extent to which Medicare paid, denied or recouped payment for these events.
• End stage renal disease (ESRD) facilities update - Provides a 1.6 percent update to ESRD composite rate for 2007.
• Offsetting adjustment of stabilization fund - Partially offsets the cost of the health-related provisions in the bill by reducing the funds in the Medicare Advantage stabilization fund.