On July 15, Congress overrode President Bush’s veto of the Medicare Improvements for Patients and Providers Act of 2008 (“Act”) to reverse a 10.6% cut in Medicare physician reimbursement that took effect July 1, 2008.

The Act does much more than repeal the physician reimbursement cut—it also enacts a variety of measures that, starting no later than November 15, 2008, will affect sponsors of Medicare Advantage (“MA”) and Medicare Part D prescription drug (“Part D”) plans. The most significant provisions that affect MA and Part D plan sponsors (“Medicare plan sponsors”) address provider relations, marketing and payments from the Centers for Medicare and Medicaid Services (“CMS”). The Act further directs CMS to make incentive payments, starting in 2009, to Medicare participating physicians who prescribe electronically—and to extract payment penalties starting in 2012 from Medicare participating physicians who don’t.

Reduced MA Plan Payments

IME Elimination. CMS pays MA plan sponsors a per capita amount based on a “benchmark” established for each MA service area. The benchmark currently includes a component intended to help cover indirect medical education (“IME”) costs incurred by teaching hospitals that treat Medicare beneficiaries.

Beginning in 2010 and based on a complicated formula, the Act gradually phases out IME reimbursement to MA plan sponsors by annually reducing the benchmark in each geographic area until the IME component is completely eliminated. The Congressional Budget Office estimates that the IME component phase out will reduce Government payments to MA plan sponsors by $700 million in 2010, $2.9 billion in 2011, ultimately reaching $7.9 billion per year in 2016 and thereafter.[1]

Stabilization Fund Reduction. The Act effectively eliminates the stabilization funding that was intended to promote and retain MA regional preferred provider organization plans. The Act reduces the scheduled 2013 contribution of $1.8 billion to the Medicare Advantage Stabilization Fund to $1.

Tighter Requirements for MA PFFS Plans

Mandatory Provider Contracting. Sponsors of MA private fee-for-service (“PFFS”) plans may currently “deem” providers part of their networks, rather than contract with providers, to satisfy network adequacy requirements. That will change in 2011.

Sponsors of MA PFFS plans will then be required to contract with providers to establish adequate networks, except in geographic areas that CMS determines have fewer than two network-based MA plans. Network-based MA plans include Medicare medical savings account (“MSA”) plans with contracted provider networks, Medicare cost plans and most MA coordinated care plans. MA coordinated care plans that are regional preferred provider organizations do not qualify as network-based MA plans in those geographic areas for which CMS has deemed them to have met network adequacy standards without written provider contracts.

The Act will further require, in 2011, that sponsors of MA PFFS plans offered to employer and union groups (“800 series” plans) must contract with providers to establish adequate networks in all geographic areas in which the MA PFFS plans serve the groups. This includes geographic areas with fewer than two network-based MA plans.

Mandatory Quality Improvement Programs. By 2010, MA PFFS plan sponsors (as well as MSA plan sponsors) will have to implement quality improvement programs. These programs must include the “collection, analysis and reporting of data” to allow for health outcome and quality measurements.

Tougher Marketing Restrictions for Medicare Plan Sponsors

Congress adopted most of the restrictions on MA and Part D plan marketing that CMS proposed by rulemaking published on May 16 at 73 Federal Register 28555. (See Neal Gerber Eisenberg May 16, 2008 Health Law Alert, available at http://www.ngelaw.com/files/tbl_s47Details/FileUpload265/502/healthlawalert051608mkt.pdf.)  

Prohibitions on Marketing Activities. The Act prohibits the following marketing activities by Medicare plan sponsors and their brokers beginning 2009:

  • Direct, Unsolicited Contact. Current CMS guidance prohibits Medicare plan sponsors from selling MA and Part D plan products door-to-door. The Act expands this prohibition to “[a]ny unsolicited means of direct contact of prospective enrollees, including . . . any outbound telemarketing without the prospective enrollee initiating contact.”
  • Cross-Selling. The Act prohibits “cross-selling” of non-health-related products during sales activities or presentations for MA and Part D plan products.
  • Meals. The Act prohibits the provision of meals to prospective enrollees during any promotional or sales activity, regardless of the meal’s value. The Act does not define “meal.”
  • Marketing at Educational Events or in Health Settings. The Act prohibits sales presentations and distribution or collection of MA and Part D plan enrollment applications at educational events, such as health fairs, conferences and government- or community-sponsored programs. The Act further prohibits these activities in any health care delivery setting, such as physician offices, hospitals or pharmacies, unless conducted in a common area not intended for delivery of health care, such as a hospital cafeteria or a physician waiting room.

Limits on Marketing Activities. The Act requires CMS to limit the following marketing activities. The Act does not prescribe how CMS is to impose these limits, but decrees that the limitations must take effect on a date to be established by CMS that is no later than November 15, 2008—the start of the annual MA and Part D plan coordinated enrollment election period.

  • Scope of Marketing Appointments. CMS must require Medicare plan sponsors (or their brokers) to agree with prospective enrollees—before any appointment occurs—on the types of MA and Part D plan products that may be discussed during a marketing appointment, including appointments by telephone. Medicare plan sponsors will be required to document the prior agreement for each appointment.
  • Provider Name on Marketing Materials. CMS must limit the use of network provider names on membership and marketing materials for MA and Part D plan products.
  • Promotional Items. CMS must limit the promotional items that Medicare plan sponsors may give to prospective enrollees to those of “nominal value.” CMS currently defines “nominal value” as worth not more than $15 retail per prospective enrollee per sales or educational event. The current prohibition on offering prospective enrollees any cash or cash equivalent, regardless of value, remains in effect.
  • Broker Compensation. CMS must regulate Medicare plan sponsors’ broker compensation so as to ensure “incentives for [brokers] to enroll individuals in the [MA or Part D plan] intended to best meet their health care needs.” The Act does not otherwise prescribe requirements for broker compensation; CMS’s proposed marketing regulations published on May 16 detail various types of restrictions that CMS would impose on broker compensation.
  • Broker Training and Testing. CMS must require Medicare plan sponsors to provide initial and annual training and testing of their brokers. The Act does not detail the types of training and testing required.

Descriptive Product Names. Effective 2010, the names that Medicare plan sponsors use for their MA and Part D plan products must describe the plan type. The Act directs CMS to establish standard terminology for plan types.

Increased State Supervision. The Act requires Medicare plan sponsors by 2010 to use only state-licensed brokers to sell their MA and Part D plan products. The Act also requires Medicare plan sponsors to “abide by [state broker appointment] law[s],” meaning that sponsors must appoint their brokers if state law requires. Whereas CMS’s proposed marketing regulations published on May 16 would prevent state collection of broker appointment fees, the Act does not, leaving unclear whether states may impose such fees on Medicare plan sponsors. Medicare plan sponsors will be required to report to the state all broker terminations, including the reasons. Medicare plan sponsors will be further required to comply with any state request for information regarding broker performance.

Part D Prompt Payment and Other Provisions Designed to Improve Pharmacy Access

Prompt Payment Requirements. Beginning 2010, Part D plan sponsors (including sponsors of MA plans offering Part D prescription drug coverage) will be required to pay pharmacy “clean claims” submitted electronically within 14 calendar days of receipt and pharmacy “clean claims” submitted on paper within 30 calendar days of receipt. Part D plan sponsors will be required to pay interest on all pharmacy clean claims not paid within the prompt pay timelines.

A pharmacy claim will be deemed “clean” unless the Part D plan sponsor notifies the claimant in writing of a defect or impropriety within 10 calendar days of an electronic claim’s receipt, or 15 calendar days of a paper claim’s receipt. The Act exempts from the prompt pay requirements claims submitted to Part D plan sponsors by mail-order pharmacies and by long-term care pharmacies located in, or contracted with, long-term care facilities.

Claim Submission for Long-Term Care Pharmacies. By 2010, Part D plan sponsors must ensure that their contracts with long-term care pharmacies allow the pharmacies at least 30 calendar days, but no more than 90 calendar days, to submit claims for reimbursement.

Mandatory Weekly Update for Part D Pricing. Beginning 2009, Part D plan sponsors that rely on a prescription drug pricing standard, such as average wholesale price, or AWP, will be required to update the standard on January 1 each year, and at least once every seven calendar days thereafter.

e-Prescribing Payments for Medicare Participating Physicians

The Act encourages e-prescribing by authorizing CMS to pay physicians participating in traditional Medicare incentives beginning in 2009. The e-prescribing incentive payments will be 2% of a physician’s total Medicare Part B reimbursement in each of 2009 and 2010, 1% in each of 2011 and 2012 and 0.5% in 2013. The incentive payments stop after 2013.

Medicare participating physicians who do not e-prescribe will face reduction of their Medicare Part B reimbursement starting in 2012. The reduction will be 1% of the physician’s total Medicare Part B reimbursement in 2012, 1.5% in 2013 and 2% in 2014 and each year thereafter. A Medicare participating physician who can demonstrate to CMS that e-prescribing would cause significant hardship will be exempt from these reductions in reimbursement.

To qualify for the e-prescribing incentive payments, at least 10% of the participating physician’s annual Medicare Part B reimbursement must derive from “codes to which the electronic prescribing quality measure [under the CMS Physician Quality Reporting Initiative] applies.” The physician must further (a) comply with the Medicare Part D e-prescribing standards, (b) submit data to CMS on e-prescribing quality measures for at least half of the covered professional services to which e-prescribing quality measures apply, and (c) transmit a “sufficient number” of electronic prescriptions during the applicable reporting period as determined by CMS.