Washington Report July, 2003

Washington Report – July, 2003

Bill Finerfrock

Capitol Associates

Medicare Reform

As the House and Senate began their traditional August “District Work Periods” efforts in Congress to reform the Medicare program continue to progress, although, the pace of that progress is so slow that some have suggested that it is stalled.

The House and Senate have appointed Senators and Representatives to a special Conference Committee and charged the committee with ironing out the differences between the two versions of Medicare reform (S. 1 and H.R. 1). The following Senators and Representatives make up the Conference committee:

Rep Tauzin – LA Co-Chair Senator Grassley - IA

Rep Thomas – CA Co-Chair Senator Hatch - UT

Rep Johnson – CT Senator Frist - TN

Rep Bilirakis – FL Senator Kyl – AZ

Rep DeLay – TX Senator Nickles – OK

Rep Rangel – NY Senator Baucus – MT

Rep Dingell – MI Senator Daschle – SD

Rep Berry – AR Senator Breaux – LA

Senator Rockefeller - WV

Although the number of Senators outnumbers the number of Representatives, this does not mean that Senators will have more influence over the outcome of the conference. Also, even though the Executive Branch has no formal vote in Conference, representatives of the President will play a major role in the details of the reform plan the conferees ultimately agree upon.

During the month of August, the Conferees will not meet in formal sessions but considerable work will be done behind the scenes by Congressional staff. Some of the more controversial issues that will have to be worked out during the Conference are:

The Role of Private Insurers in a Reformed Medicare program –

Although both the House and Senate plans envision a role for private insurers in a reformed Medicare program, the House plan would provide for a greater role than the Senate. Some have described the House proposal as the death knell for traditional Medicare. The House plan would also create a more competitive environment in which traditional Medicare would have to compete with private insurers for Medicare patients.

Many Democrats have argued that giving private insurers too much of a role in the reformed Medicare program will mean the end of Medicare as we know it. While some role for the private sector is assured, the extent of that role will be hotly debated by the Conferees.

Means Testing of the Medicare program –

As mentioned in last month’s report, there was an effort in the Senate to create a “means test” for the new prescription drug benefit. After considerable debate that occurred off-the-record, the Senate decided to reject means testing even though a majority of Senators (59) indicated their support for means testing. The House incorporated a form of means testing – they call it “income related” – of the prescription drug benefit. Whether you call it means testing or income-related, the end result is that the amount of prescription drug benefits an individual might enjoy would be directly related to their income. Higher income seniors would receive fewer benefits and low-income seniors would receive enhanced benefits.

Many have questioned over the years why the federal government subsidizes the Medicare benefit for those seniors who clearly have the ability to pay more for these services. Opponents of means testing argue that Medicare is an insurance program and not a social welfare program. They believe that while some general subsidization occurs, establishing a means test would truly make Medicare a social welfare program and thereby undermine broad public support for the program.

Disclosure of pricing strategies by Prescription Benefit Managers –

Senator Maria Cantwell was successful in adding a provision to the Senate bill that would require Pharmaceutical Benefit Managers (PBMs) to disclose the wholesale prices they negotiate with the drug manufacturer for prescription medication. Senator Cantwell argued that this disclosure was necessary to ensure that the PBMs passed along the discounts to the seniors rather than retaining them as unreasonable profits.

Interestingly, the Congressional Budget Office (CBO), the non-partisan budget analysts used by Congress to assess the cost of various policy changes, concluded that this provision adds $40 billion to the cost of the Medicare reform plan. CBO concluded that if the manufacturers discounts are fully disclosed, the manufacturers will not provide as big a discount as they would if that information were confidential. As a result, disclosure would result in higher drug prices to Seniors and Medicare. Although there appears to be strong political support for the Cantwell proposal, the CBO announcement of the fiscal impact will likely result in the provision being dropped out of the bill by the Conferees.

Drug Reimportation

As mentioned in last months report, numerous “deals” were cut with various House members in an effort to secure their votes on final passage of the Medicare bill. One of the more contentious issues had to do with efforts to ease the ability of individuals to obtain prescription drugs from Canada. Numerous reports have highlighted the fact that consumers are traveling across the northern border to Canada to obtain prescription medications at prices one-half to one-third of what the drugs cost in the U.S.

Now, many in Congress (both Republicans and Democrats) are asking: why? More importantly, they are proposing legislation that would allow U.S. pharmacists to re-import these drugs into the this country at the lower Canadian price for resale in the U.S. market. Pharmaceutical companies are understandably opposed to this re-importation. Elected officials opposed to the re-importation of drugs argue that the safety and efficacy standards in Canada are below U.S. standards, which partially accounts for the price differential. For these same reasons, it is argued, U.S. consumers may not be getting the same quality of medications, thereby raising liability issues for the drug manufacturers.

Both the House and Senate have included language in their respective bills to ease re-importation; however, the Senate’s language would not become operational until the Secretary of HHS asserts that re-importation “poses no new risk to public health and safety”. The significance of the addition of this language is found in a recent quote by Food and Drug Administration Commissioner Mark McClellan who said, “FDA cannot guarantee the safety of Canadian drugs.”

These are just some of the more contentious issues that Congress will grapple with over the next few months. And, I do mean months.

Despite efforts by President Bush to try and move the Medicare reform bill quickly it now appears that it will be at least October before the House and Senate can resolve their differences. Some have recently speculated that it could be December and still others are openly suggesting that the differences between the House and Senate are so great that no compromise is possible.

Medicare Issues Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates

On July 31st, the Centers for Medicare and Medicaid issued a Final Rule revising the Medicare hospital inpatient prospective payment systems (IPPS) “for operating and capital costs to implement changes arising from our continuing experience with these systems.” In addition, this final rule describes changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These changes are applicable to discharges occurring on or after October 1, 2003.

Among other changes that CMS is making are:

• changes to the classification of cases to the diagnosis-related groups (DRGS);
• changes to the long-term care (LTC)DRGs and relative weights;
• the introduction of updated wage data used to compute the wage index; the approval of new technologies for add-on payments;
• changes to the policies governing postacute care transfers;
• payments to hospitals for the direct and indirect costs of graduate medical education;
• pass-through payments for nursing and allied health education programs;
• determination of hospital beds and patient days for payment adjustment purposes; and,
• payments to critical access hospitals (CAHs).

In general, the provisions of this final rule are effective on October1,2003. If you would like to review the entire document, go to:

CMS Issues HIPAA Transaction Guidance

The Centers for Medicare and Medicaid Services has issued a guidance on enforcement actions it could take in the event that providers or health plans are not HIPAA compliant by the October 16th deadline. A copy of the new guidance can be obtained by going to:

According to the new document, “CMS will focus on obtaining voluntary compliance and use a complaint-driven approach for enforcement of HIPAA’s electronic transactions and code sets provisions. When CMS receives a complaint about a covered entity, it will notify the entity in writing that a complaint has been filed. Following notification from CMS, the entity will have the opportunity to 1) demonstrate compliance, 2) document its good faith efforts to comply with the standards, and/or 3) submit a corrective action plan.”

The following was previously issued by CMS. Many of the proposed questions you can pose to vendors are relevant to billing companies.

If you have determined you are a covered health care provider and must comply with HIPAA, it is

important to communicate often with your software vendor about their progress towards HIPAA

compliance. For instance, your vendor should supply you with upgraded software that will allow you to conduct electronic transactions according to HIPAA standards come October 16, 2003. They should also be testing their software with you and your payers. If you are using a clearinghouse or billing service or third party administrator (TPA), it is equally important to stay abreast of their HIPAA activities.

As the covered health care provider it is your responsibility to ensure that on or after October 16, 2003, the transactions you conduct electronically, or the TPA or clearinghouse conducts on your behalf, are compliant with HIPAA requirements.

Talk to your Vendor / TPA / Clearinghouse Now! Ask them these questions

1. Are you working on developing software to meet your HIPAA needs?

Specifically:

?What HIPAA transactions does your product support? Claims and encounter information? Payment and remittance? Claims status inquiry? Eligibility inquiry? Referral and authorization inquiry?

?Which products do you now sell or support currently, which will not be supported after October 16th deadline or will not be HIPAA compliant.

?What software updates are needed for HIPAA compliance?

?Does my office need a particular release of your software to implement the HIPAA transactions or is an entire upgrade from our current version required?

?Can I upgrade to the various electronic transactions incrementally?

?What is the minimum hardware requirement for servers and workstations to run the HIPAA compliant version?

?When will the software updates be available?

?What training, support and services are available to help my office?

?Do you charge extra for training and support services?

?How do you remain current on the latest HIPAA developments? Do you belong to any of the HIPAA-related workgroups?

?Who specifically can I contact for HIPAA electronic transactions questions?

2. Will your software be able to support HIPAA transactions and code set requirements?

Specifically:

?Do you use the official Implementation Guides for the HIPAA transactions? Is your software using the latest version of the guides (4010A)?

?Do you have the companion guides for my payers with whom I file directly?

?How does your product support collecting the required and situational claim data?

?Will your software support the required HIPAA code sets for Medical and Non-Medical?

?Is there a process for cross-walking from current codes to the HIPAA mandated codes?

?What new data will I need to start collecting?

?Are there any edits built into your software?

?Do you have a price list for the various upgrades, or new version of software?

?(For Clearinghouses) How can we submit transactions directly to you? Are there any changes in connectivity?

3. What are your electronic transactions and code set testing plans?

?How much lead time is required to install and test the software?

?How will current claims processing with existing formats proceed while testing new ones?

?Has your testing process included all of the seven types recommended by WEDI SNIP?

?Has the software received third-party certification that it can generate HIPAA compliant transactions?

?Will you send me a testing schedule that includes internal testing, testing with Medicare, testing with commercial payers, and testing with a clearinghouse (if applicable)?

?Have you tested successfully with any of my payers? Which ones?

?What are your contingency plans if you cannot be ready on time?

CMS Delays Therapy Cap

The Centers for Medicare and Medicaid announced in July that it was delaying implementation of the therapy caps until September 1, 2003. Arguing that the announcement of the caps came to late to adequately notify beneficiaries of the change, CMS agreed to delay the effective date in order to allow for proper notification. In a related announcement, Senate Finance Committee Chairman Chuck Grassley (R-IA) announced that he would support inclusion of a moratorium on the therapy caps in the Medicare reform legislation. The House included the moratorium language in it’s Medicare reform bill. Imposition of a moratorium would require Congressional action and it does not appear that Congress will complete the Medicare bill prior to September 1.

Health Insurance Company Compensation Questioned

A new study released by Families USA has raised questions about the compensation being received by health plan executives.

Given the increased role private health plans could play in a reformed Medicare program, the compensation of the highest paid executives in those plan has come under scrutiny. Advocates for a government-dominated Medicare program, such as Families USA, argue that money spent on executive compensation could be better spent on enhanced benefits.

According to the study, “the average compensation of the highest-paid executive in each of the 11 companies was approximately $15.1 million in 2002. This only accounts for actual compensation and does not include unexercised stock options available to these executives. The following chart highlights the 2002 compensation of the highest paid executive in each of the 11 companies reviewed. The Families USA report includes the name of the highest compensated executive. I have removed the name of the individual but included their title.

Company / Title / Compensation
Aetna / Chairman & CEO / $ 8,927,005
Anthem / President and CEO / $ 6,857,839
CIGNA / Chairman & CEO / $ 5,976,890
Coventry / President and CEO / $ 21,664,330
Health Net / Senior VP, General Counsel & Secretary / $ 6,150,970
Humana / President and CEO / $ 1,648,972
Oxford Health Plans / Former Chairman & CEO / $ 76,010,825
Pacificare / President and CEO / $ 3,005,781
Sierra Health / Chairman & CEO & President / $ 4,745,988
United Health / CEO, Uniprise / $ 9,588,699
WellPoint / Chairman & CEO / $ 21,765,532

If you would like to read the entire publication, you can obtain the document on-line at:

A New Medicare Prescription Drug Benefit: Is It Good for Seniors?

On July 17, 2003, the House Government Reform Subcommittee on Human Rights & Wellness held a hearing entitled “A New Medicare Prescription Drug Benefit: Is It Good for Seniors?”. The hearing was attended by Chairman Dan Burton (R-IN), Ranking Member Rep. Diane Watson (D-CA) and other members of the Subcommittee.

Some of the issues raised during the hearing were:

• The high pharmaceutical prices found in the United States are due to closed markets for these products.
• H.R. 2427, The Pharmaceutical Market Access Act, a bi-partisan bill, would open markets and thereby bring prescription drug prices down.
• Under this Act, the FDA would allow individuals, pharmacists and wholesalers in the U.S. access to FDA-approved drugs from FDA-approved facilities in industrialized nations abroad.
• The currently proposed Medicare Modernization Act may only make a bad situation worse by failing to address the rising costs of drugs.

Shortly after this hearing, H.R. 2427 was passed by the House by a vote of 243 – 186. Although the bill has been referred to the Senate Health Education and Labor and Pensions (HELP) Committee, it is expected that the substance of the legislation will be debated in the context of the Medicare reform legislation currently in a House-Senate Conference Committee.

More Physician Cuts Coming in 2004?