Today the House of Representatives passed H.R. 2, legislation to create a permanent fix to the Sustained Growth Rate (SGR) formula and includes a number of other important health-related policies, including funding for the Children’s Health Insurance Program (CHIP), provisions known as “extenders,” the Protecting the Integrity of Medicare Act and an extension of the Secure Rural Schools and Community Self Determination Act of 2000. The legislation passed by a vote of 392-37 with 212 Republicans and 180 Democrats supporting the proposal.

The Balanced Budget Act of 1997 established the SGR formula to control Medicare spending for physicians’ services. The formula set an overall target of how much that spending should be and measured spending on both annual and cumulative bases. Since 2002, the formula triggered reductions in physician payment and only the continued intervention of the U.S. Congress has prevented these cuts from being implemented. To avert these cuts, Congress has “patched” the problem, because determining how to pay for a permanent fix was a stumbling block. H.R. 2 only partially pays for the cost of the package, relying in part on the upcoming Congressional budget resolution to accommodate funding. However, part of the funding in the legislation comes from beneficiaries themselves. The current patch expires March 31, creating an impetus for Congress to act now.

Attached to the bill is funding for two years for CHIP. Senate Democrats had wanted four years. Funding for the program runs out at the end of September 2015. If the Senate does not act by March 31, in time to avoid current law’s reduction in physician payment, the Centers for Medicare and Medicaid Services (CMS) will hold claims until Congress does act, as the agency has done in the past.

The SGR Fix

To fix the SGR, the legislation repeals the formula and then ensures a five-year period of annual updates of 0.5 percent each year for physician services. The legislation then puts in place steps to move Medicare away from a volume-based system toward one that rewards value and improves quality of care. These steps include the following:

  1. Consolidating the existing quality programs into one program that rewards providers in fee-for-service that meet performance thresholds and improves quality of care
  2. Implementing a process to improve payment accuracy for individual providers
  3. Incentivizing care coordination for patients with chronic care needs
  4. Introducing physician-developed clinical care guidelines to reduce inappropriate care
  5. Requiring the development of quality measures and ensuring close collaboration with physicians and other stakeholders regarding the measures used in the performance program

The legislation also seeks to move Medicare toward the use of more alternate payment models.

  1. It provides a 5 percent bonus to providers who receive a significant portion of revenue from an alternate payment model, such as an Accountable Care Organization (ACO) or patient-centered medical home.
  2. Participants in an alternative payment model need to receive at least 25 percent of their Medicare revenue through an alternative payment model in 2018 -2019; this threshold increases over time.
  3. It establishes a technical advisory committee to review and recommend physician-developed APMs based on criteria developed through an open comment process.

Medicare data concerning quality and utilization also would be posted on the Physician Compare website to enable patients to make decisions about their care. The provision also allows qualified clinical data registries to purchase claims data for purposes of quality improvement and safety.

The Children’s Health Insurance Program (CHIP)

CHIP, a program that provides insurance for low-income children whose families earn too much to qualify for Medicaid, was authorized through 2019. However, funding was provided only through September 2015. This legislation provides two more years of funding with a federal funds-matching rate of 23 percent.

Health Extenders

Geographic Practice Cost Index (GPCI): The provision extends the existing 1.0 floor on the physician work cost index until January 1, 2018.

Therapy cap exceptions process: The Medicare program limits the amount of annual per-patient therapy expenditures, but an exceptions process may be used. The exceptions process is extended until January 1, 2018.

Ambulance add-on: The add-on payment for ground ambulance services, including in “super-rural” areas, is extended until January 2018.

Increased inpatient hospital payment adjustment for certain low-volume hospitals: This program accounts for higher costs associated with operating a hospital with a low volume of discharges. This is extended until October 1, 2017.

Medicare dependent hospital program: Rural hospitals with no more than 100 beds each and have a high percentage of Medicare beneficiaries are paid based on a blend of current prospective payment system rates and costs. This program is extended until October 1, 2017.

Specialized Medicare Advantage Plans (Special Needs Plans): These plans may limit enrollment to certain populations, such as those who are dually eligible, and are extended until December 31, 2018.

Quality Measure Endorsement, Input and Selection: This provision funds the National Quality Forum review, endorsement, and maintenance of quality and resources use measures for each of fiscal years 2016 and 2017.

Outreach and Assistance: Funding for outreach and assistance for low-income programs − including State Health Insurance Programs, Areas Agencies on Aging, Aging and Disability Centers and the National Center for Benefits Outreach and Enrollment – is extended through September 30, 2017.

Medicare Reasonable Cost Contracts: This provision allows for a transition policy for cost plans that no longer meet statutory requirements to operate under Medicare in their service area. This policy outlines rules and beneficiary protections for cost plans to transition to Medicare Advantage plans.

Medicare Home Health Rural Add-on: Extends a 3 percent add-on to payments made for home health services provided to patients in rural areas through January 1, 2018.

Qualifying Individual (Q1) program: Extends permanently the Q1 program that assists Medicare beneficiaries with incomes between 120 percent and 135 percent of poverty in paying for their Part B premium.

Transitional Medical Assistance (TMA): Extends permanently TMA, which low-income families receive to maintain Medicaid coverage for up to one year as they transition from welfare to work.

Diabetes: Extends the Type 1 Diabetes and Type 2 Indian Health Service programs through FY 2017.

Abstinence Education: Extends abstinence-only programs and associated funding through FY 2017.

Personal Responsibility Education Program (PREP): Extends PREP through FY 2017. This program provides states, community groups, tribes and tribal organizations with grants to implement innovative strategies for teen pregnancy and HIV STD prevention.

Family-to-Family Health Information Centers: Funds Family-to-Family Health Information centers through FY 2017. This program provides support to family-staffed organizations in each state to assist families of children with disabilities or special health needs.

Health Workforce Demonstration Project: Funds at current levels the health workforce demonstration project for low-income individuals through FY 2017.

The Maternal Infant and Early Childhood Visiting Programs: This program is extended through FY 2017 and provides states, territories and tribes funds to support in home visiting programs for at risk families.

Tennessee Disproportionate Share (DSH): Extends the Tennessee DSH hospital allotment for FY 2015 through 2025. This legislation provides parity by treating Tennessee like other states. Their DSH allotments had been different due to unique past circumstances.

Delay in effective date for Medicaid amendments relating to beneficiary liability settlements: In December 2013, the Bipartisan Budget Act of 2013 overturned a circuit court case dealing with Medicaid estate recovery, allowing a state to recover medical expenses from any portion of Medicaid beneficiary settlement, and potentially allowing a state to commandeer money set aside for a beneficiary’s future care or living expenses. This legislation provides a delay in this provision until October 1, 2017.

Community Health Centers, National Health Service Corps Fund and Teaching Health Centers: Funding for the Community Health Center Program, the National Health Service Corps Fund, and Teaching Health Centers is extended through FY 20017.

Offsetting the cost of the legislation:

The total cost of the legislation is $213 billion. Beneficiaries and post-acute providers bear the burden of paying for the legislation.

Medigap changes: Beginning in 2020, new enrollees in Medigap plans would no longer provide coverage for the Part B deductible. By eliminating first dollar coverage for beneficiaries, Congress believes physician services will be used more judiciously.

Adjustments to the income-related premium for Part B and Part D: A portion of the Medicare Part B and D premium that a beneficiary pays is based on the beneficiary’s income. This provision increases the percentage that a Medicare beneficiary with a modified adjusted gross income would pay, beginning with $133,501 of income for a single or $267,000 for a couple. It also changes current law, which freezes the income thresholds through 2019, at which point the income thresholds would be indexed in inflation as if they had been frozen. Starting in 2018, the policy would update the threshold for inflation based on where they are in 2019. This provision also would apply to Part D premiums, meaning that beneficiaries with incomes above the set threshold are assessed an income-related monthly adjustment amount in addition to the base Part D monthly premium.

Market basket reductions : Post-acute providers − such as long-term care and inpatient rehabilitation hospitals, skilled nursing facilities and home health and hospice organizations − would help finance the repeal, by receiving base pay increases of no more than 1 percent in 2018, about half of what previously was expected.

Adjustments to inpatient hospital payment rates: Other changes include phasing in a one-time 3.2 percentage-point boost in the base payment rate for hospitals currently scheduled to take effect in FY 2018. The phase-in would occur over a six-year period.

Scheduled reductions in Medicaid “disproportionate share” payments to hospitals: Currently reductions in state DSH allotments are scheduled to begin in FY 2017. This provision delays Medicaid DSGH cuts until FY 2018 and adds another year of DH cuts in 2025.

Levy on Medicare providers for nonpayment of taxes: Permits Treasury to impose a levy of up to 100 percent on tax-delinquent Medicare service providers

Protecting the Integrity of Medicare Act: This legislation had been reported out of the House Ways and Means Committee, and was expected to be considered by the full House of Representatives when it was attached to the SGR package. It does the following:

  1. Prohibits inclusion of Social Security Account numbers on Medicare Cards
  2. Prevents wrongful payments for items and services furnished to incarcerated individuals, individuals not lawfully present and deceased individuals
  3. Requires the Secretary of Health and Human Services (HHS), to the extent the Secretary finds it cost-effective and technologically viable, to use electronic Medicare beneficiary and provider cards
  4. Modifies Medicare Durable Medical Equipment Face-to-Face Encounter Documentation requirement by permitting other providers − including physician assistants, nurse practitioners or specialists − to provide documentation if they have had a face-to-face encounter
  5. Requires an “Improper Payment Outreach and Education Program” to be implemented to provide outreach education, training, and technical assistance to providers and suppliers; to provide a list of the providers’ or suppliers’ most frequent and expensive payment errors over the last quarter; to provide specific instructions concerning how to correct such errors or avoid them; to provide a notice of new topics that have been approved for audits; and provide instructions to prevent future issues related to new audits
  6. Requires the Secretary of HHS to develop a revised incentive program to encourage greater participation by individuals to report fraud and abuse in the Medicare program
  7. Requires valid prescriber national provider identifiers on pharmacy claims
  8. Renews MAC contracts
  9. Provides for a study on incentives for States to participate in the Medicaid Data Match program
  10. Requires the Secretary of HHS to issue a clarification or modification concerning protection of human subjects in research activities related to clinical data registries
  11. Eliminates Certain Civil Money Penalties for inducement of physicians to limit services that are not medically necessary
  12. Requires the Secretary to submit to Congress a study with options for amending existing fraud and abuse laws related to gainsharing
  13. Modifies the Medicare home health surety bond condition of participation requirements
  14. Provides for oversight of Medicare coverage of manual manipulation of the spine to correct subluxation
  15. Expansion of Prior Authorization Model for repetitive scheduled non-emergency ambulance transport

Other provisions of H.R.2 include the following:

Delay of two-midnight: CMS regulation requires a patient stay of two-midnights in a hospital to qualify for inpatient status and, in most instances, for a stay to be paid as an outpatient visit. This provision allows CMS to continue use of the Medicare Administrative Contractor “probe and educate” program to assess provider understanding and compliance with the “two midnight rule” on a prepayment basis through September 30, 2015.

Requiring Bid Surety Bonds and State licensure for entities submitting bids under the Medicare DMEPOS Competitive Bidding Acquisition Program: CMS cannot accept a bid from a DMEPOS entity for bidding areas unless the entity meets state licensure requirements applicable within a product category and has obtained a bid surety bond of between $50,000 and $100,000 for reach geographic area. Suppliers whose bids are at or below the median price but do not accept a contract forfeit their surety bonds.

Payment for global surgical packages: This provision directs the Secretary to not implement policy established in the final rule published on November 13, 2014, which would have eliminated the bundled payment for surgical services that span 10- and 90-day periods. It requires CMS to periodically collect information on the services that surgeons furnish during these global periods, beginning no later than 2017, and use that information to ensure that the bundled payment amount for surgical services is accurate. The Secretary has the authority to delay a portion of payment for services with 10- and 90-day global periods to incentivize reporting of information. The Secretary can cease collecting information once the needed information can be obtained through other mechanisms.

Secure Rural Schools and Community Self Determination Act of 2000 Extension: The legislation extends for two years this legislation that allows for payments to mitigate impacts on counties containing national forested public lands with declining timer revenues. It enables flexibility for county elections to spend payments over two years of the normal timeframe at a 5 percent reduction from FY 2013 funding levels.

Exclusion from PAYGO Scorecard: PAYGO is a budget rule that requires new spending or tax changes not to add to the federal deficit. Under PAYGO, the legislation must be budget-neutral or offset with savings. By affirmatively excluding this legislation from the PAYGO scorecard, the legislation would not have to meet the PAYGO rules and a budget point of order against it could not be raised. It is assumed that when a final budget resolution is crafted, it would account for the spending not paid for in HR 2.