1. Congress

House of Representatives

Bipartisan Physician Payment Proposal Released

Last week, a bipartisan group of members of the House Energy and Commerce Committee released a legislative framework for fixing Medicare's physician payment system, with a markup scheduled to take place in their committee on July 22. The draft bill would replace Medicare's Sustainable Growth Rate, or SGR, which has called for repeated cuts to doctors' pay, which have been averted on a temporary basis by lawmakers. Specifically, the bill would update Medicare physician payments by 0.5 percent each year between 2014 and 2018 in the run-up to the new payment system. It also encourages the development of medical homes and slashes reimbursement by 5 percent for doctors who don't submit required quality data. "After over 10 years of patches and last-minute rescues, the 'Doc fix' is closer than ever to becoming a relic of the past," Health Subcommittee Vice Chairman Michael C. Burgess (R-Texas) said in a statement. The latest release follows the Energy and Commerce Committee's release in late June of its second legislative draft of a proposal to reform Medicare's physician payment system.

Ways and Means Releases Medicare Reform Proposal

Following several hearings on Medicare reforms in the Ways and Means Health Subcommittee, last week, the full committee released bipartisan proposals to reform Medicare. The proposal outlines three key policies to modernize cost sharing within the Medicare program: (1) reducing premium subsidies for wealthier seniors in Medicare Parts B & D; (2) increasing the annual Medicare Part B deductible; and (3) establishing a home health copay. The public is encouraged to submit comments to any of the proposals by email at entitlementreform@mail.house.gov by the due date listed for each proposal. You can view the proposals, fact sheets, summaries and draft language at www.waysandmeans.house.gov/entitlementreform.

House Passes Bill to Delay ACA's Individual, Employer Mandates

In response to a recent announcement from to delay, for one year, the ACA's requirement that employers make qualified health insurance available to employees, House Republicans last week passed two bills that would statutorily delay, also for one year, both the employer and individual mandates provided for by the ACA. H.R. 2667, the Authority for Mandate Delay Act, would delay until 2015 enforcement of requirements that large employers offer their full-time employees the opportunity to enroll in minimum essential coverage. The bill was passed by a vote of 264-161. Thirty-five Democrats joined a nearly united GOP caucus in support of the delay. The second measure was H.R. 2668, the Fairness for American Families Act, which would delay until 2015 the requirement that individuals maintain minimal essential health care coverage. It was passed by a vote of 251-174, with 22 Democrats voting in favor of the individual mandate delay. Rep. Griffith (R-VA) was the only Republican to oppose the measures, saying that delaying such provisions would only prolong the life of the ACA.

Energy and Commerce Holds Hearing to Examine Drug Compounding

On July 16, the Energy and Commerce Health Subcommittee under Chairman Pitts (R-PA) examined various legislative options for reforming the regulation of drug compounding and clarifying the authority of state and federal regulators. The subcommittee previously examined drug compounding on May 23, and the ongoing effort builds on the Oversight and Investigations Subcommittee's investigation into the 2012 deadly fungal meningitis outbreak stemming from tainted steroid injections produced by the New England Compounding Center (NECC). Among the legislative proposals discussed at the hearing was a discussion draft by Rep. Morgan Griffith (R-VA) that would clarify the Food and Drug Administration's (FDA) authority to oversee compounding pharmacies that operate in manufacturing capacity.  


Panel I

Janet Woodcock, M.D.


Center for Drug Evaluation and Research

Food and Drug Administration (FDA)

Panel II

Jeffrey Francer

Assistant General Counsel

Pharmaceutical Research and Manufacturers of America

David Gaugh

Senior Vice President for Sciences and Regulatory Affairs

Generic Pharmaceutical Association

B. Douglas Hoey

Chief Executive Officer

National Community Pharmacists Association

David G. Miller

Executive Vice President and CEO

International Academy of Compounding Pharmacists

Carmen Catizone

Executive Director

National Association of Boards of Pharmacy

Kasey Thompson

Vice President

American Society of Health-System Pharmacists

Allan Coukell

Senior Director, Drug and Medical Devices

The Pew Charitable Trusts

For more information, or to view the hearing, please visit: energycommerce.house.gov

Oversight Subcommittee Hearing on ACA Mandate Delays

On July 18, the Energy and Commerce Oversight and Investigations Subcommittee held a hearing entitled "Patient Protection and Affordable Care Act: Implementation in the Wake of Administrative Delay." The hearing focused on a recent announcement by the Department of Treasury that it would provide an additional year "before the ACA mandatory employer and insurer reporting requirements begin." Specifically, Oversight Chairman Murphy (R-PA) wanted to know if Treasury ever received an analysis from HHS of what the employer mandate delay would mean. The sole witness at the hearing, Senior Treasury Advisor J. Mark Iwry, told the panel he doesn't "recall" getting any feedback from HHS before Treasury announced delay of the employer mandate.


J. Mark Iwry

Senior Advisor to the Secretary

Deputy Assistant Secretary for Retirement and Health Policy

U.S. Department of Treasury

For more information, or to view the hearing, please visit: energycommerce.house.gov


Finance Committee Hearing on Health Information Technology

In a July 17 Senate Finance Committee hearing, Chairman Max Baucus (D-MT) pushed for expanded application of health information technology (HIT) to improve care, promote efficiency and reduce costs. "Use of this technology must expand and become part of the culture of health care delivery. We can encourage this culture change by adopting new payment models that hold providers responsible for providing high-quality, low-cost care," Baucus said. According to Medicare and Medicaid, the number of hospitals using electronic health records has boomed by more than 700 percent since HITECH was enacted. Physicians' use has also jumped. Less than 20 percent of physicians used electronic records prior to HITECH, but more than 50 percent do today. Senator Baucus said new payment models in Medicare and Medicaid designed to promote coordination among providers will help drive them to adopt HIT, but that rural hospitals and providers lag behind in adopting HIT.

Farzad Mostashari, M.D., Sc.M.

National Coordinator for Health Information Technology

Department of Health and Human Services

Patrick Conway, M.D., M.Sc.

Chief Medical Officer and Director, Center for Clinical Standards and Quality

Acting Director

Center for Medicare and Medicaid Innovation

For more information, or to view the hearing, please visit: www.finance.senate.gov

Also happening last week in the health information technology world: at the National Press Club, the Healthcare Information and Management Systems Society (HIMSS) introduced its Health IT Value Suite to help the health care world to assess the clinical, financial and business impact of IT investments. "As the health sector strives to improve health and health care through the optimal use of IT, measuring technology's impact and value to patients and caregivers becomes critical," the group says. It looks at patient experience, physicians' use of health IT and how it helps the providers chase the holy grail of lower-cost but higher-quality care. The summary: www.himss.org/ValueSuite

Upcoming Finance Committee Hearing on Health Information Technology

Senate Finance Committee Chairman Baucus (D-MT) has announced a hearing entitled "Health Information Technology: Using it to Improve Care" will take place on Wednesday, July 24, 2013, at 10:30 a.m. in 215 Dirksen Senate Office Building.  


Janet Marchibroda

Director, Health Innovation Initiative

Bipartisan Policy Center, Washington, DC

John Glaser, Ph.D.

Chief Executive Officer, Health Services

Siemens Healthcare, Malvern, PA

Marty Fattig

Administrator and Chief Executive Officer

Nemaha County Hospital, Auburn, NE

Colin Banas, M.D.

Chief Medical Information Officer and Associate Professor

Virginia Commonwealth University, Richmond, VA

For more information, or to view the hearing, please visit: www.finance.senate.gov

2. Administration


$12 Million in Primary Care Training Grants Announced

On July 19, HHS announced $12 million in Affordable Care Act funding, as part of the Teaching Health Center Graduate Medical Education Payment Program, to support primary care residency programs in 32 Teaching Health Centers across the nation. Funding will help train more than 300 residents during the 2013-2014 academic year, doubling the number of residents trained in the previous academic year. Administered by the Health Resources and Services Administration (HRSA), the Teaching Health Center Graduate Medical Education Payment Program, created by the Affordable Care Act, expands residency training in community-based settings. Residents will be trained in family and internal medicine, pediatrics, obstetrics and gynecology, psychiatry, and general and pediatric dentistry. The awards will expand the number of states with Teaching Health Centers to 21, from 14 in 2012. Teaching Health Centers are located in a variety of settings, including urban, rural and tribal communities, and serve populations such as veterans and their families, minority communities, older adults, children and adolescents.


CMS Announces Results of Pioneer ACO Program

Last week, CMS announced the results from the first year of their Pioneer Accountable Care Organization (ACO) program, in which all 32 of the participants achieved improved quality performance, therefore qualifying for an incentive payment. In terms of cost savings, however, only 13 participants performed well enough to produce savings, combining to save Medicare nearly $33 million. CMS said Pioneer ACOs performed better on clinical quality measures that assess hypertension control for patients. The median rate among Pioneer ACOs on blood pressure control among beneficiaries with diabetes was 68 percent, compared with the comparison value of 55 percent as measured in the adult diabetic population in 10 managed care plans across seven states from 2000 to 2001. Pioneer ACOs, launched by the CMS Innovation Center, are part of the ACA's attempt to realign payment incentives, promoting high-quality, efficient care for Medicare beneficiaries. ACOs, including the Pioneer ACO Model and the Medicare Shared Savings Program, are one way CMS is providing options to providers looking to better coordinate care for patients and use health care dollars more wisely. CMS also announced changes to the makeup of the program -- nine of the Pioneers will not be participating in Round Two, and another two will be dropping out completely.

3. State Activities

New York Fed Survey Finds 75 Percent of Businesses Will Keep Health Plans

According to the recent Empire State Manufacturing Survey, published by the Federal Reserve Bank of New York, roughly three in four business respondents did not have plans to change their health insurance offerings to employees. "In a series of supplementary survey questions, firms were asked how they expected the ACA to affect them and how they were responding to its provisions. Three in four respondents said that they had not made, and did not plan to make, changes in their health plans. Roughly the same proportion indicated that they had made minimal or no changes in their workforces; a somewhat smaller majority (65 percent) said they did not anticipate making any major changes over the next year. Nearly 15 percent of those surveyed indicated that they would outsource more work. A large majority of manufacturers, more than 85 percent, reported that they expected their health insurance costs to increase as a result of the ACA; none anticipated a decrease," the report found.

New Mexico Medicaid Plan Approved

According to New Mexico's Health Services Department, CMS has approved the state's request to overhaul its Medicaid program, implementing changes including the addition of new copays and efforts to better track medical services. Eligibility and reimbursement rates will remain the same, while some patients will pay $3 for brand-name drugs and could pay up to $50 for each emergency room visit. New Mexico will implement the changes at the same time it expands the program to cover an additional 170,000 low-income adults under terms of the federal Affordable Care Act. The program currently offers services to about 550,000 New Mexicans, mostly uninsured children in lower-income families, the disabled, elderly in nursing homes and low-income pregnant women.

West Virginia Has More Questions About ACA Implementation

Last week, West Virginia Gov. Earl Ray Tomblin sent HHS 10 more ACA questions on Monday, citing tight deadlines and incomplete guidance as a source of anxiety. "It remains a critical concern that the currently incomplete rules and guidance will not support a successful implementation of the federal mandated PPACA," Gov. Tomblin wrote.

Delaware Law Aims to Expand Medicare Supplemental Offerings

Legislation signed July 15 by Delaware Governor Jack A. Markell (D) requires insurers that sell Medicare supplement policies to make them available to people younger than 65 who are Medicare-eligible because of a disability, including end-stage renal disease.

The mandate applies as long as the person applying for coverage does so during the first six months after enrolling in Medicare Part B or within six months after the effective date of the bill, whichever is later. The measure, S.B. 42, applies to individual and group Medicare supplement contracts issued or renewed after Jan. 1, 2014. Under the law, Medicare supplement policies sold to people younger than 65 who qualify for Medicare because of disability must be underwritten separately from other Medicare supplement policies and cannot be subsidized by over-65 purchasers of Medicare supplement insurance. The legislation was approved unanimously in the Senate June 11 and in the House June 25.

4. Regulations Open for Comment

Proposed Rule, Medicare Physician Fee Schedule (PFS) and Hospital Outpatient Prospective Payment System (OPPS)

CMS has issued the calendar year (CY) 2014 Medicare Physician Fee Schedule (PFS), Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System proposed rules. The proposed PFS regulation would continue to expand access to primary care services by proposing to provide payment for complex chronic care coordination services, beginning in CY 2015. It proposes to adjust payment rates for over 200 codes where Medicare pays more for services furnished in an office than in a hospital outpatient department or ASC, as part of the misvalued codes initiative. It also would make refinements to the Physician Quality Reporting System (PQRS) program, the Medicare Shared Savings Program and the Medicare EHR Incentive Program.

PFS: CMS projects an across-the-board reduction in payment rates based on the Sustainable Growth Rate (SGR) formula. If the SGR goes into effect, Medicare payment rates are projected to be reduced by 24.4 percent for services in 2014. The final projection, based on more recent data, will be made available in the final rule.

OPPS: CMS proposes to update the OPPS market basket by 1.8 percent for CY 2014. The proposed hospital market basket increase published in the fiscal year (FY) 2014 Inpatient Prospective Payment System (IPPS)/Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule is 2.5 percent. The Medicare statute requires a productivity adjustment reduction of 0.4 percentage points and a 0.3 percentage point reduction to the CY 2014 OPPS market basket, so the proposed CY 2014 OPPS market basket update would be 1.8 percent.

ASC: ASC payments are annually updated for inflation by the percentage increase in the consumer price index for all urban consumers (CPI-U). The Medicare statute specifies a multifactor productivity (MFP) adjustment to the ASC annual update. For CY 2014, the CPI-U update is projected to be 1.4 percent. The MFP adjustment is projected to be 0.5 percent, resulting in an MFP-adjusted CPI-U update of 0.9 percent for CY 2014. In addition, CMS is proposing that certain ancillary or adjunctive services that would be packaged under the OPPS for CY 2014 also would be packaged under the ASC payment system for CY 2014.

In the OPPS/ASC proposed rule, total CY 2014 OPPS payments are projected to increase by $4.37 billion or 9.5 percent, and CY 2014 Medicare payments to ASCs are projected to increase by approximately $133 million or 3.51 percent as compared to CY 2013. The CY 2014 OPPS/ASC proposed rule would also expand the categories of related items and services packaged into a single payment for a primary service under the OPPS; create 29 comprehensive APCs to replace 29 existing device-dependent APCs; streamline the current five levels of outpatient visit codes; and continue paying at ASP+6 percent for non-pass-through drugs and biologicals that are covered separately under the OPPS.

The proposed rule would add five new measures for the Hospital Outpatient Quality Reporting (OQR) program, affecting payment in CY 2016, with data collection beginning in CY 2014. It seeks comment on proposed changes to the Quality Improvement Organization regulations.

CMS will accept comments on these proposed rules until Sept. 6, 2013, and will respond to comments in final rules to be issued by Nov. 1, 2013.

IRS Proposed Rule For Tax Credits Issued on Exchanges

On June 28, the IRS issued a proposed rule on specific information regarding premium tax credits the insurance exchanges must report to IRS and to the person receiving the tax credit. Under the proposed rule, IRS explains what specific information regarding the tax credits the exchanges must report to IRS and to the person receiving the tax credit. Under ACA, tax credits can be made available to eligible recipients each month. The proposed rule would require the exchanges to report the required information to the IRS on a monthly basis and to the recipient on an annual basis. The information the exchanges must report would include, among other things, the name, address, taxpayer identification -- i.e., Social Security -- number (or date of birth if a taxpayer ID number is not available), the monthly premium for the applicable benchmark plan used to compute the tax credit and the monthly premium for the plan or plans in which a taxpayer, responsible adult or family member enrolls, without reduction for advance credit payments. According to the proposed rules, the exchange would report the information to the IRS on or before the 15th day following each month of coverage. The exchange must also send the tax credit recipient an annual statement including the same information on or before Jan. 31 of the year following the calendar year of coverage. Comments are due Aug. 31.

CMS Proposed Dialysis Payment Rule

CMS has issued the proposed End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) rule for renal dialysis services furnished to beneficiaries on or after Jan. 1, 2014. CMS projects the updated calendar year (CY) 2014 ESRD bundled market basket increase will be 2.9 percent, which is reduced by an estimated multi-factor productivity (MFP) adjustment for CY 2014 of 0.4 percent, for a projected update of 2.5 percent to the ESRD PPS base rate in CY 2014. Section 632(a) of the American Taxpayer Relief Act of 2012 requires the Secretary to make reductions to the ESRD PPS base rate to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals by comparing per patient utilization data from 2007 with such data from 2012. This adjustment results in an overall 12 percent reduction in Medicare payments for CY 2014. The rule seeks comment on whether this change should be phased in over more than one year.

As a result of the application of the ESRD bundled market basket update reduced by the MFP adjustment, the wage index budget-neutrality adjustment and the drug utilization adjustment, CMS projects the proposed updates for CY 2014 would decrease total payments to all ESRD facilities by 9.4 percent compared with CY 2013.

The rule also proposes changes to the ESRD Quality Incentive Program (QIP) for payment year (PY) 2016.

The proposed rule also addresses issues related to the coverage and payment of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS), including clarification of the definition of routinely purchased DME; clarification of the grandfathering provision related to the three-year minimum lifetime requirement; and implementation of budget-neutral fee schedules for splints, casts and intraocular lenses (IOLs) inserted in a physician's office.

View the proposed rule. CMS will accept comments on the proposed rule until Aug. 30, 2013.

Proposed Rule on Home Health Payments

On June 27, CMS published a proposed rule to update Medicare's Home Health Prospective Payment System (HH PPS) payment rates and wage index for calendar year (CY) 2014. The rule proposes rebasing adjustments, with a four-year phase-in, to the national, standardized 60-day episode payment rates, the national per-visit rates and the NRS conversion factor. Payments to home health agencies (HHAs) are estimated to decrease by approximately 1.5 percent, or $290 million in CY 2014, reflecting the combined effects of the 2.4 percent HH payment update percentage ($460 million increase); the rebasing adjustments to the national, standardized 60-day episode payment rate; the national per-visit payment rates; the NRS conversion factor ($650 million decrease); and the effects of ICD-9 coding adjustments ($100 million decrease). This proposed rule would also establish home health quality reporting requirements for CY 2014 payment and subsequent years and proposes to specify that Medicaid responsibilities for home health surveys be explicitly recognized in the State Medicaid Plan, which is similar to current regulations for surveys of Nursing Facilities (NF) and Intermediate Care Facilities for Individuals with Intellectual Disabilities (ICF-IID). Comments must be received by Aug. 26.

Final CMS Rule on Improving Coordination Between Long-Term Care Hospitals and Hospices

CMS issued a rule June 26 that aims to improve care coordination between long-term care (LTC) hospitals and hospice facilities; the new rule, which goes into effect Aug. 26, 2013, clearly defines the role of each provider in delivering and maintaining the continuity of care for each patient. Because LTC facilities and hospitals provide many of the same services, there is a high possibility that residents could receive duplicative and/or conflicting services. In general, LTC facilities are usually responsible for nursing services, dietary services, physician services, dental service, pharmacy services, specialized rehabilitative services and, when necessary, laboratory and social services. The new rule mandates that LTCs that choose to arrange for the provision of hospice care enter into written agreements with Medicare-certified hospice providers of the specific services to be provided by each entity in order to reduce overlap. "We believe that a clear division of responsibilities and increased communication required by this rule will help eliminate duplication of and/or missing services," CMS said in the rule. As the rule stands, the written agreement of care will unanimously be applied to all residents within the LTC facility, not individual patients. Criticisms of the new rule are largely based on the extra burden to providers, as it will take staff time to develop the language for the one written agreement describing the allocated care services. It is estimated that the burden associated with first-year implementation of this rule is 80,695 hours or $5.5 million for the 16,139 LTC facilities affected.

Proposed Rule to Clarify Long-Term Care Ombudsman Program

The Administration on Aging (AoA) of the Administration for Community Living (ACL) within the Department of Health and Human Services (HHS) has issued a Notice of Proposed Rulemaking, with request for comments, to implement provisions of the Older Americans Act, the State Long-Term Care Ombudsman program. This proposed rule replaces AoA's 1994 Notice of Proposed Rulemaking. The proposed rule contains two main parts, both related to the ombudsman program:

An amendment to existing regulations promulgated under the Older Americans Act at 45 C.F.R. Part 1321, and a new Part 1327, which would be added to the existing regulations. The proposed amendment to existing regulations addresses responsibilities of state agencies housing long-term care ombudsman offices not to disclose the identity of any person sending a complaint to the ombudsman or the identity of any resident of a long-term care facility. In addition, the proposed amendment would extend the disclosure protections to include "files, records, and other information" instead of only "files" as the existing rule provides.

The newly proposed Part 1327 would define the following terms included in the Older Americans Act, including "immediate family," "office of the state long-term care ombudsman" and "representative of the office of the state long-term care ombudsman." Comments are due Aug. 19.

Program Integrity Guidelines for Exchanges, Premium Stabilization Program

CMS has released a proposed rule outlining program integrity guidelines for the Health Insurance Marketplace (Marketplace) and premium stabilization programs. The proposed rule sets forth financial integrity and oversight standards with respect to Affordable Insurance Exchanges; Qualified Health Plan (QHP) issuers in federally facilitated exchanges (FFEs); and states with regard to the operation of risk adjustment and reinsurance programs. It also proposes additional standards with respect to agents and brokers. These standards, which include financial integrity provisions and protections against fraud and abuse, are consistent with Title I of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010, referred to collectively as the Affordable Care Act. The proposed rule says that in states running only the SHOP exchange while HHS operates the exchange for the individual market, data sharing requirements between the SHOP and individual exchange won't apply. There's only one state that plans to have such an arrangement -- Utah -- and the data issue was a key concern. The rule would also allow the state to set up a navigator program for the SHOP exchange, exclusively for outreach to small businesses, that is completely separate from the one for the individual exchange. Comments must be submitted by July 15.

Tanning Bed Warning Label Proposal

The FDA issued a proposal that would elevate tanning beds from a low-risk to high-risk medical device and would add a warning label to them. If the order is finalized, manufacturers would have to submit a pre-market notification (510(k)) to the FDA for these devices, which are currently exempt from any pre-market review. Manufacturers would have to show that their products have met certain performance testing requirements, address certain product design characteristics and provide comprehensive labeling that presents consumers with clear information on the risks of use. The order proposes to include a contraindication against use on people under 18 years old, and the labeling would have to include a warning that frequent users of sunlamp products should be regularly screened for skin cancer.

The FDA will take comments on the proposed order until Aug. 7.

5. Reports


Report on ACA Individual Mandate, Penalties for Noncompliance

According to a July 16 CRS report, people who fail to secure health insurance required by the Affordable Care Act face a range of penalties beginning in 2014. Those who do not comply in time may be required to pay a penalty for each month of noncompliance, equal to either a share of their applicable income or a flat dollar amount. Unless the individual mandate is delayed, people will need to maintain minimum essential coverage for themselves and their dependents. If not, penalties loom. According to the CRS summary, it will be the greater of 1 percent of a person's applicable income or $95 in 2014, followed by 2 percent of that income or $325 in 2015, and 2.5 percent or $695 in 2016 and beyond. The amount is cut in half for dependents under the age of 18, and the total family penalty is capped at 300 percent of the annual flat dollar amount. However, the penalty for noncompliance cannot exceed the national average premium for bronze-level qualified health plans offered through exchanges for the relevant family size.

Report on Impact of Employer Mandate Delay

According to a July 17 CRS report, delaying the employer mandate under the Affordable Care Act could lead to a lower-than-projected number of large employers offering health insurance coverage. The result could be a bigger increase than expected in the number of workers eligible for premium tax credits in the exchanges in 2014 and an increase in the number of uninsured, the report said. And that could cause more to face penalties under the individual mandate. "If the delay in enforcement of the employer penalty reduces the offer of employer-sponsored coverage, this may lead to an increase in the number of uninsured who may be potentially subject to the individual mandate's penalty," the report said. Large employers are defined as companies with 50 or more full-time equivalent employees, and they will face potential tax penalties if they do not play a part in providing health insurance coverage.


Medicaid Demonstration Waivers: Approval Process Raises Cost Concerns and Lacks Transparency

The Government Accountability Office (GAO) examined 10 new Medicaid demonstrations and found that the approval process raises cost concerns and lacks transparency. The Secretary of Health and Human Services is authorized to vet demonstrations and ensure they are budget-neutral. The 10 new demonstrations that the GAO examined were approved by HHS to use different coverage strategies or impose new cost-sharing requirements. However, the GAO found that not all the demonstrations were budget-neutral. According to the report, for almost half of the demonstrations, HHS "approved spending limits based on assumptions of cost growth that were higher than its benchmark rates, and that, in some cases, included costs states never incurred in their base year spending." For the other six demonstrations, HHS used approved spending limits that "reflected the states' actual historical costs or criteria that were specified in law." GAO found this policy to be outdated. It has previously suggested that Congress require HHS to update their approval process, and still encourages Congress to do so.

Medicare: Action Needed to Address Higher Use of Anatomic Pathology Services by Providers Who Self-Refer

Self-referring providers referred anatomic pathology services in 2010 at a higher rate than those that didn't self-refer, leading to an additional $69 million in Medicare costs, according to a report from GAO, released July 15. Three provider specialties -- dermatology, gastroenterology and urology -- accounted for 90 percent of self-referrals, the report found. A self-referral occurs when a provider refers patients to entities with which the provider or his or her immediate family members have a financial relationship. Although the Stark law prohibits provider self-referrals of Medicare and Medicaid patients, there are certain exceptions, GAO said, including anatomic pathology services. Anatomic pathology services refer to preparing and examining tissue samples to diagnose diseases, such as in a biopsy. Non-self-referred anatomic pathology services grew from $473 million in 2004 to roughly $741 million, an increase of 57 percent in 2010.


Early Implementation of the Consumer Operated and Oriented Plan (CO-OP) Loan Program

OIG released a report this week outlining progress on established CO-OP exchanges, a loan program established under the ACA to promote the development of nonprofit, consumer-governed health insurance issuers that will offer qualified health plans in the individual and small group markets. The applicants that were reviewed for funding are new entities that may face financial and operational challenges in a competitive insurance market. As of June 2013, OIG reported, 19 of the 24 CO-OPs obtained official licensure, with only one being denied; OIG monitoring looked at 18 of the 24 submitted CO-OPs from February 2012 to September 2012 and found that 90 percent had achieved their milestones. CMS will continue its oversight strategy on CO-OPs, utilizing frequent monitoring and early intervention to ensure that CO-OPs adhere to program requirements and goals. The report concluded that while CO-OPs do in fact appear to be making progress, at the time of the review CO-OPs were still hiring staff, obtaining licensure and building necessary infrastructure, so estimates could have been underestimated. Other varying/unpredictable factors impacting CO-OPs' achieving program goals include the effectiveness of states' exchange operations, market competition and enrollment.