After weeks of political wrangling that included a filibuster in the Senate, a veto by the President, and a veto override by Congress, the Medicare Improvements for Patients and Providers Act of 2008 [Public Law 110-275] (hereinafter called MIPPA) finally limped across the finish line and became law without the President's signature on July 15, 2008.

A substantial reduction in payments to Medicare Advantage (MA) plans was perhaps the most controversial aspect of the newly enacted legislation and certainly the one that prompted the greatest ire from the President and many Republicans in Congress. To offset the cost of the new law, Congress rescinded all but $1 of the $1.79 billion stabilization fund for regional MA plans and phased out payments to MA organizations for the costs of indirect medical education expenses.

While the central focus of the newly enacted legislation cancels the scheduled 10.6 percent reduction to the physician fee schedule, MIPPA also provides for a number of noteworthy changes to the Medicare program. Chief among these are a delay in competitive bidding for durable medical equipment; the inclusion of Medicare providers and suppliers in the Federal Payment Levy Program; financial incentives for physicians to implement e-prescribing; the imposition of new requirements for diagnostic imaging services; expanded access to mental health programs and preventative care; and extensions of a number of expiring programs. Existing programs also were revised and expanded, including the Part D low-income benefit, and several new programs were created.

The following report offers a brief summary of the highlights from the new law. Additional reports, headlines, and alerts to supplement the information contained in the report may be forthcoming in future months as statutory and rulemaking changes warrant.

Part A

The new law revokes the unique authority of the Joint Commission as a national accrediting body to deem hospitals in compliance with Medicare "conditions of participation," effective two years after enactment. As a result, the Joint Commission will be required to both periodically reapply to CMS and compete with other accrediting organizations for this approval.

MIPPA also extends the provisions of Section 508 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) related to wage index reclassifications for certain hospitals through September 30, 2009, and includes a new rebasing option for sole community hospitals effective January 1, 2009.

With respect to rural hospitals, the new law extends the Medicare Rural Hospital Flexibility (FLEX) Program through September 30, 2010, and expands it to make grants available to states for mental health and other services for returning veterans and residents in rural areas. The legislation also makes financial assistance available to critical access hospitals transitioning to skilled nursing and assisted living facilities. Additionally, a three-year demonstration project on community health integration models geared toward coordinating hospital, nursing home, home health, and other critical healthcare services in rural areas was authorized effective October 1, 2009.

Part B

Physicians' Services

The legislation cancels a 10.6 percent payment reduction under current law to the Medicare physician fee schedule that was slated to take effect after the CMS-imposed claims hold ended July 15, 2008. As a result, Medicare physician payment will remain at current levels for the remainder of 2008 and increase by 1.1 percent in January 2009.

CMS has instructed its contractors to implement the physician fee schedule changes effective immediately; however, according to the agency, these changes may take as long as ten business days to become fully effective. To minimize physician disruption during the transition, CMS will continue its rolling ten-day hold and release of claims. This means that, until the new fee schedule rates are fully implemented, some claims may still be paid at the lower rates that were in effect between July 1 and July 15. To the extent possible, contractors will begin to automatically reprocess any claims paid at the lower rates in a timely manner, according to CMS. The agency says that it intends to issue guidance about the collection of corrected co-insurance payments within the next few days. Additionally, on July 24, 2008, the U.S. Department of Health and Human Services (HHS) Office of Inspector General issued a policy statement that generally assures Medicare providers, practitioners, and suppliers that they will not be subject to administrative sanctions for waiving retroactive beneficiary cost-sharing amounts attributable to the increased payment rates under MIPPA, subject to the conditions noted in the policy statement.

Future payments to physicians beyond 2009 will revert to levels under current law, necessitating a 21 percent reduction in payments under the physician fee schedule in 2010.

The physician quality reporting initiative (PQRI) is extended for another two years through December 31, 2010, and the PQRI bonus is increased from 1.5 percent to 2.0 percent for 2009 and 2010. Other changes to the PQRI include a requirement for the endorsement of measures by a consensus-based, standard-setting entity and permitting group practices to report, using a sampling methodology, on measures targeting high-cost chronic conditions. Additionally, the legislation requires the Secretary of HHS to provide confidential feedback to providers regarding resource use and to submit a plan to Congress for transitioning to a value-based purchasing program for physicians.

MIPPA provides a 2 percent incentive bonus for physicians who use a qualified e-prescribing system in 2009 and 2010, 1 percent in 2011 and 2012 and 0.5 percent in 2013. Physicians who are not successfully e-prescribing by 2012 will receive a reduction in their Medicare payments of 1 percent in 2012, 1.5 percent in 2013, and 2 percent in 2014 and each year thereafter. However, the legislation permits the Secretary of HHS to grant a hardship exception to this requirement under certain circumstances.

With respect to "advanced diagnostic imaging services" (defined as computerized tomography, diagnostic magnetic resonance imaging and nuclear medicine -- including positron emission tomography -- but excluding X-ray, ultrasound and fluoroscopy), beginning January 1, 2102, the new law limits Medicare payment for the technical component of such services to physicians and other suppliers who have been accredited by an accrediting organization approved by the Secretary of HHS. MIPPA also requires the Secretary of HHS to implement a two-year voluntary demonstration program by January 1, 2010, for purposes of assessing compliance with appropriateness criteria for advanced diagnostic imaging services.

Other changes to physician services made by the new law include (1) reversing the CMS payment rule for teaching anesthesiologists and teaching certified registered nurse anesthetists so that they will now receive 100 percent of payment for services furnished on or after January 1, 2010; (2) extending the 1.0 floor set by the MMA on the work geographic practice cost index (GPCI) through December 31, 2009; (3) extending for 18 months, the provision under Section 542 of the Benefits Improvement and Protection Act of 2000 (BIPA) that allows an independent laboratory with an arrangement with a hospital that was in effect as of July 22, 1999, to continue billing Medicare directly for the technical component of physician pathology services provided to the hospital's inpatients and outpatients; (4) restoring a portion of the payment reductions recently applied to psychotherapy and related services for the period of July 1, 2008, through December 31, 2009; (5) making permanent a provision that allows physicians in the Armed Services to engage in substitute billing arrangements for longer than 60 days when they are ordered to active duty; and (6) authorizing an increase in the funding, duration and scope of the "Medical Home" demonstration project, if certain quality and/or savings targets are achieved.

Other Payment and Coverage Changes

The legislation imposes an 18-month delay on the implementation of the Durable Medical Equipment (DME) competitive acquisition program (CAP). As a result, all contracts previously awarded under the initial bidding round will be voided. A new competition will be conducted by the Secretary of HHS in 2009 with the second round of bidding slated for 2011. To offset the cost of the implementation delay, Congress imposed a nationwide 9.5 percent payment reduction in 2009 for items and services originally selected in the initial round.

MIPPA repeals the competitive bidding demonstration project for clinical laboratory services and reduces the payment update for such services by 0.5 percent for the years 2009 through 2013. It also extends the current provision that mandates the "charge to cost" payment methodology for certain brachytherapy and radioimmunotherapy services through December 31, 2009.

The current exceptions process relating to Medicare therapy caps is extended through December 31, 2009. According to CMS (1) claims submitted with the therapy cap exception modifier will be processed as soon as the payment rates have been activated; (2) claims submitted with the modifier, and rejected or denied, can be resubmitted with the modifier for reimbursement; and (3) to the extent possible, claims under the therapy cap limit that were paid at the lower rate, will be reprocessed automatically.

Regarding patients with chronic obstructive pulmonary disease and other conditions, the new law includes coverage of cardiac (or intensive cardiac) rehabilitation programs effective January 1, 2010. Covered services include physician-prescribed exercise, psychosocial assessment and outcomes assessment; cardiac risk factor modification, including education, counseling and behavioral intervention for cardiac rehabilitation programs; and education or training for pulmonary rehabilitation programs.

Dialysis providers will receive a 1 percent update to the composite rate for renal dialysis services for each of 2009 and 2010. The new legislation creates a site neutral composite rate for dialysis services effective in 2009 and directs the Secretary of HHS to establish a fully-bundled payment system for the treatment of end-stage renal disease (ESRD) by January 1, 2011. The new payment system, with the initial payment rate set to produce 2 percent savings compared to what would otherwise have been paid, is slated to be phased in over a four-year period (i.e., full implementation in 2014).

MIPPA also establishes a quality incentive payment program for ESRD providers. Effective January 1, 2012, dialysis facilities that fail to meet a "total performance score" set by the Secretary of HHS will receive a 2 percent payment reduction for that year.

The new law also directs the Secretary of HHS to establish pilot projects to increase awareness, screening and surveillance systems addressing the prevalence of chronic kidney disease in at least three states beginning January 1, 2009, and requires coverage of kidney disease education services furnished by qualified providers to individuals with stage IV chronic kidney disease effective January 1, 2010.

Other Part B payment and coverage changes include (1) permitting speech language pathologists to bill Medicare directly for their services beginning January 1, 2009; (2) increasing the existing per visit cap on Medicare payments to community health clinics; (3) clarifying payment for clinical laboratory tests furnished by critical access hospitals; (4) adding hospital-based renal dialysis facilities, skilled nursing facilities and community mental health centers as originating sites for the payment of telehealth services; (5) extending and expanding the Medicare hold harmless provision under the Hospital Outpatient Prospective Payment System for small rural hospitals and sole community hospitals under 100 beds through 2009; (6) repealing an existing provision that provides for the transfer of ownership of oxygen equipment from a supplier to a beneficiary after 36 months of rental; (7) directing the Medicare Payment Advisory Commission (MedPAC) to study and report on the feasibility of establishing a Medicare Chronic Care Practice Research Network that would serve as a standing network of providers testing new models of care coordination and other care approaches for chronically ill beneficiaries; and (8) reinstating the add-on payment for ground ambulance services at 3 percent for rural services and 2 percent for urban services for the period July 1, 2008 through December 31, 2009. The new law also provides an 18-month hold harmless provision for air ambulance regions recently reclassified from rural to urban and clarifies the medical review standard for air ambulance services.

Part C (Medicare Advantage)

To offset the cost of the new law, funds available for expenditure from the $1.79 billion Medicare Advantage (MA) stabilization fund will be reduced to $1 in 2014. MIPPA also phases out the indirect medical education (IME) adjustment to the MA plan payment rate beginning in 2010.

Additional requirements are placed on MA private fee-for-service (PFFS) plans. Currently, Medicare beneficiaries enrolled in PFFS plans are not restricted to a specific network. Beginning in plan year 2011, PFFS plans operating in areas that have at least two network-based plans will no longer be able to "deem" providers into the plan. Instead, they will be required to meet access standards for that area through written contracts with providers. The new law also requires PFFS plans and Medicare Savings Account (MSA) plans to have a quality improvement program effective for plan years beginning on or after January 1, 2010.

Changes made by the new law relating to specialized MA plans for special needs individuals include (1) extending the authority of specialized MA plans to target enrollment to certain special needs populations through December 31, 2010; (2) revising definitions, care management requirements, and quality reporting standards; (3) maintaining a moratorium on new specialized MA plans through December 31, 2010; and (4) limiting cost sharing for full-benefit dual eligibles and Qualified Medicare Beneficiaries enrolled in specialized MA plans to what they would otherwise pay if they were not enrolled in the plan.

MIPPA changes the conditions under which section 1876 reasonable cost contracts may be extended or renewed effective January 1, 2010, and requires the Government Accountability Office to report on reasons why section 1876 plans are unable to become Medicare Advantage plans by December 31, 2009. It also directs MedPAC to study alternative payment formulas for MA plans as well as how comparable measures of performance and patient experience can be collected and reported in MA and fee-for-service programs.

New prohibitions placed on the sales activities of MA plans (and Part D prescription drug plans) effective for the 2010 plan year include door-to-door sales, cold calling, free meals, cross-selling of non-health-related products and solicitation at certain healthcare settings and educational events. MIPPA also requires the Secretary of HHS to limit co-branding, gifts, and commissions and requires plans to abide by state appointment laws affecting agents and brokers.

Part D

The new law requires the "prompt pay" of pharmacies by MA prescription drug plans (PDPs) -- within 14 days for "clean claims" submitted electronically and 30 days for claims submitted otherwise -- and requires PDPs to pay interest to the pharmacy on claims that are not paid within the applicable number of calendar days. It also requires long-term care pharmacies to submit claims to a PDP between 30 and 90 days. Both provisions are effective for plan years beginning on or after January 1, 2010.

The legislation requires PDPs to update their prescription drug pricing standards used for reimbursing pharmacies at least weekly, beginning with an initial update on January 1 each year. This provision is effective for plan years beginning on or after January 1, 2009.

The new law permits PDPs to cover barbiturates (for certain conditions) and benzodiazepines effective for plan years beginning on or after January 1, 2013. It also codifies current guidance by the Secretary of HHS related to coverage of "protected classes" of drugs under Medicare Part D. Additionally, MIPPA conforms the Part D definition of "medically accepted indication" for anti-cancer drugs to that used under Medicare Part B effective January 1, 2009.

MIPPA increases the asset level required for enrollment under the Medicare Savings Program to equal that of the Medicare Part D Low-Income Subsidy (LIS) program effective January 1, 2010, and seeks to simplify the outreach and enrollment process for both programs. It also mandates a competitive bidding process for contracting with a consensus-based entity, such as the National Quality Forum, to prioritize, endorse, and maintain valid quality performance measures; and authorizes the use of Part D data for research and oversight purposes by the Secretary of HHS and Congressional support agencies (e.g., MedPAC).


MIPPA extends the Transitional Medical Assistance program (TMA) and Abstinence Education Program through June 30, 2009. It also delays the application of new Medicaid payment limits to retail pharmacies using the Average Manufacturer Price (AMP) for multiple source (generic) drugs and instructs the Secretary of HHS to suspend the publication of AMP data submissions to a public website through September 30, 2009. As a result, states may not switch to AMP-based pharmacy reimbursement prior to this time.

Other Provisions of Interest

The new law requires CMS to participate in the Federal Payment Levy and Administrative Offset Program (FPLP) and authorizes the Internal Revenue Service to offset a portion of a provider's or supplier's Medicare reimbursement against outstanding tax debt. One year after the enactment of MIPPA, 50 percent of all Medicare Part A and B payments will be processed through the FPLP. Two years after enactment, 75 percent of Part A and B payments are slated to be processed through the FPLP. Beginning September 30, 2011, all payments will be required to be processed through FPLP.

To enable Medicare beneficiaries to participate in randomized controlled trials, MIPPA directs the Secretary of HHS to develop alternative methods of payment for Medicare services provided to beneficiaries who participate in clinical trials. It further authorizes studies by the Institute of Medicine regarding best practices in setting clinical decision-making protocols and on methodological standards for conducting systematic reviews of clinical effectiveness research.

Improvements to coverage of preventative services for Medicare beneficiaries include (1) authorizing the Secretary of HHS to cover new preventative services recommended by the U.S. Preventative Services Task Force, an independent panel of experts that reviews medical literature and develops recommendations for clinical preventative services; and (2) revising the "Welcome to Medicare" physical, by waiving the Part B deductible, and extending the time beneficiaries are eligible for this benefit from six months to one year. Additionally, cost sharing for outpatient mental healthcare will be reduced from 50 percent to the same level as other outpatient medical care (i.e., 20 percent) on a phased-in basis over six years.

MIPPA repeals the requirement that states collect from the estate of deceased Medicaid beneficiaries the Medicare cost-sharing benefits that were paid while the deceased was enrolled in the Medicare Savings Program; and exempts the value of life insurance policies and in-kind support and maintenance (e.g., assistance provided by a family member or church) from low-income subsidy determinations. It also extends the Qualifying Individual program through December 2009 and codifies a beneficiary's right to federal court review of a denial for the low income subsidy.

The new law directs the Secretary of HHS to identify and evaluate data collection approaches for addressing healthcare disparities in the Medicare program and to establish a two-year, multi-site demonstration project for improving outreach to previously-uninsured Medicare beneficiaries. It also requires the HHS Office of Inspector General to complete a report on compliance with and enforcement of national standards on culturally and linguistically appropriate services (CLAS) in Medicare no later than two years after enactment.

MIPPA establishes a Medicare improvement fund which the Secretary of HHS may use to make improvements to the Medicare fee-for-service program (Part A and Part B) and provides $25 million to State Health Insurance Assistance Programs and Area Agencies on Aging to help enroll low-income seniors in assistance programs and help all seniors navigate the Medicare program.