Medicare Fee-for-Service Modifications and Medicaid Provisions of H.R. 1 as Enacted

Order Code RL32005

CRS Report for Congress

Received through the CRS Web

Medicare Fee-for-Service Modifications and

Medicaid Provisions of H.R. 1 as Enacted

Updated January 16, 2004

-name redacted-, Jennifer Boulanger, -name redacted

Steve Redhead, Evelyne Baumrucker, -name redacted-,

-name redacted-, and -name redactedSpecialists and Analysts in Social Legislation

Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

Medicare Fee-for-Service Modifications and

Medicaid Provisions of H.R. 1 as Enacted

Summary

On November 22, the House of Representatives voted 220 to 215 to approve

the conference report on H.R. 1, the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003. The Senate, on November 24, voted 54 to 44 to approve

the conference report. Earlier, the conferees of the Medicare prescription drug and

modernization legislation announced an agreement on November 16 and the

legislative text was released November 20. The legislative language can be

downloaded from the House Committee on Ways and Means website at:

[http://waysandmeans.house.gov]. The bill was signed into law by the President on

December 8, 2003.

As well as establishing a prescription drug benefit for Medicare beneficiaries,

the legislation contains provisions that involving significant payment increases,

payment reductions, an expansion of covered benefits, new demonstration projects

and new beneficiary cost-sharing provisions for the traditional Medicare fee-forservice (FFS) program. The bill includes a measure that would require congressional

consideration of legislation if general revenue funding for the entire Medicare

program exceeds 45%. Provisions affecting the State Childrens’ Health Insurance

Program (SCHIP) and Medicaid programs are included in the legislation as well.

Earlier this year, under Congress’ FY2004 budget resolution, $400 billion was

reserved for Medicare modernization, creation of a prescription drug benefit, and, in

the Senate, to promote geographic equity payment. The Congressional Budget Office

(CBO) has estimated that the legislation for H.R. 1 would increase direct (or

mandatory) spending by $394.3 billion from FY2004 through FY2013. Prescription

drug spending is estimated at $409.8 billion over the 10-year period and Medicare

Advantage spending at $14.2 billion. Overall, the fee-for-service provisions which

change traditional Medicare are estimated to save $21.5 billion over the 10-year

period and adjusting the Part B premium to beneficiaries’ income is estimated to save

$13.3 billion over the period. Some fee-for-service provisions will increase spending

over this 10-year period including the provisions affecting hospitals and physician.

Other fee-for-service provisions are projected to save money over the period

including those affecting durable medical equipment, clinical laboratories and home

health agencies. The CBO estimate is available on the CBO website at

[ftp://ftp.cbo.gov/48xx/doc4808/11-20-MedicareLetter.pdf].

Contents

Changes to Medicare’s Fee for Service Program . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Selected Rural Provider Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Selected Acute Hospital Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Selected Physician Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Selected Provisions Affecting Other Providers and Practitioners . . . . . 5

Selected Fee-for Service Demonstration Projects . . . . . . . . . . . . . . . . . 6

Expansion of Covered Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Beneficiary Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Income-Relating the Part B Premium . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Indexing the Part B Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Medicaid and Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Modifications to Fee-for-Service Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Provisions Relating to Part A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Hospital Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Allied Health and Graduate Medical Education Payments . . . . . . . . . 22

Skilled Nursing Facility (SNF) and Hospice Services . . . . . . . . . . . . . 25

Other Part A Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Provisions Relating to Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Physician and Practitioner Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Hospital Outpatient Department (HOPD), Ambulatory Surgery

Center (ASC), and Clinic Services . . . . . . . . . . . . . . . . . . . . . . . 42

Covered Part B Outpatient Drugs (Not Provided by a HOPD) . . . . . . 48

Covered Drugs and Services at a Dialysis Facility . . . . . . . . . . . . . . . 57

Durable Medical Equipment (DME) and Related Outpatient Drugs . . 58

Ambulance Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Other Part B Services and Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 65

Provisions Relating to Parts A and B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Home Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Chronic Care Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Medicare Secondary Payor (MSP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Other Medicare A and B Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Medicare Demonstration Projects and Studies . . . . . . . . . . . . . . . . . . 82

Beneficiary Issues: Cost-Sharing Amounts and Provision of Information . 90

Other Health-Related Studies, Commissions or Committees . . . . . . . . . . . 94

Medicaid and State Children’s Health Insurance Program (SCHIP)

Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Cost Containment and Miscellaneous Financial Provisions . . . . . . . . . . . 106

Medicare Fee-for-Service Modifications

and Medicaid Provisions of

H.R. 1 as Enacted

On November 22, 2003, the House of Representatives voted 220 to 215 to

approve the conference report on H.R. 1, the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003. The Senate, on November 24th,

voted 54 to 44 to approve the conference report. The bill was signed by the President

in a ceremony on December 8th. The legislation adds a prescription drug benefit to

Medicare and replaces the existing Medicare+Choice program with a new

MedicareAdvantage program that establishes managed care payments based on a

system of bids and benchmarks. The bill also contains numerous provisions that

would generally increase fee-for-service payments within Medicare’s Part A and Part

B program (also known as traditional Medicare), especially for rural health care

providers; numerous regulatory and administrative practices will also be modified.

This report discusses the fee-for-service (FFS) provisions of the legislation, those

affecting Medicaid as well as the Medicare cost containment provisions1. It

compares the provisions in the bill as enacted with those in the Medicare reform bills

that were originally passed by the Senate and the House.

The Medicare FFS provisions in the bill are found primarily in Titles GGIII

through VIII; some FFS provisions are included in Titles VIII through X as noted.

The cost containment provisions are in Title VIII and the Medicaid and other

provisions are in Title X. An overview of the entire legislation can be found in CRS

Report RL31966.

Changes to Medicare’s Fee for Service Program

The legislation contains extensive changes to Medicare’s FFS program,

including payment increases and, in certain instances, decreases; development of

competitive acquisition programs; implementation or refinement of other prospective

payment systems (notably, the development of an end-stage renal disease (ESRD)

basic payment system); expansion of covered preventive benefits; establishment of

demonstration programs; and required studies. The anticipated financial impact of

these changes on any individual provider, physician, or supplier will vary depending

on many factors, such as the unique characteristics of the individual or entity

participating in Medicare as well as the number and type of services provided to the

1

Cost containment provisions require an analysis of general tax revenue financing of the

Medicare program as well as a Presidential and Congressional response when “excess

general revenue financing of Medicare” exceeds a threshold of 45%.

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Medicare beneficiaries they serve. Selected highlights of the FFS payment

provisions and those establishing preventive care benefits and demonstration

programs will be briefly described.

Selected Rural Provider Provisions.

Generally, Medicare payments to certain rural providers are expected to

increase; many of the rural provisions will benefit urban providers as well. CBO

estimates that the rural provisions in Title IV of the bill will increase Medicare’s

direct spending by $9.3 billion from 2004 through 2008 and by $19.9 billion from

2004 though 2013. It should be noted that other provider payment provisions in H.R.

1 can impact rural providers, but their effect on Medicare payments to rural providers

has not been specifically identified.

Hospitals in rural areas and those in small urban areas will receive

a permanent 1.6% increase to Medicare’s base rate or per discharge

payment; the payment limit for rural and small urban hospitals that

qualify for disproportionate share hospital (DSH) adjustment will

increase from 5.25% to 12%; hospitals in low-wage areas (those

with wage index values below 1) will receive additional payments

through a decrease from 71% to 62% in the labor-related portion of

the base payment rate; and small rural hospitals with less than 50

beds will receive cost reimbursement for outpatient clinical

laboratory tests. In addition, rural hospitals with less than 100 beds

will be protected from payment declines associated with the hospital

outpatient prospective payment system (OPPS) for an additional 2

years; these OPPS hold harmless provisions will be extended to sole

community hospitals for services from 2004 through 2006. CBO

estimates that these provisions will increase direct Medicare

spending by $15.6 billion over the 10-year period.

! Critical access hospitals (CAHs) will have their bed limit increased

from 15 to 25; there will be no restriction on the number of these

beds that can be used for acute care services at any one time. CAHs

will be able to establish distinct part rehabilitation and psychiatric

units of up to 10 beds that will not be included in the CAH bed

count. Cost reimbursement of CAH services will increase to 101%

of reasonable costs, starting January 1, 2004. Periodic interim

payments for CAHs will be authorized. State authority to waive the

35-mile requirement for new entities to qualify as a CAH will be

eliminated as of January 1, 2006. CBO estimates that these

provisions will increase direct Medicare spending by $900 million

over the 10-year period.

! Physicians in newly established scarcity areas will receive a 5%

increase in Medicare payments. Physicians in certain low-cost areas

with geographic adjustment factors below 1 will receive payment

increases so as to increase this factor to 1, starting in 2004 through

2006. CBO estimates that these provisions will increase direct

Medicare spending by $1.7 billion over the 10-year period.

! Practitioners in rural health clinics and federally qualified health

centers will be able to bill separately for services provided to

!

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beneficiaries in skilled nursing facilities. CBO estimates that these

provisions will increase direct Medicare spending by $100 million

over the 10-year period.

! Home health providers in rural areas will receive a 5% increase in

Medicare payments for one year beginning April 1, 2004. CBO

estimates that this one-year increase will increase direct Medicare

spending by $100 million over the 10-year period.

Selected Acute Hospital Provisions.

Generally, Medicare payments to hospitals will increase under the conference

report. Specifically,

Acute hospitals paid under the inpatient prospective payment system

(IPPS) will receive the full increase in the market basket (MB) index

as an update in 2004. From 2005 through 2007, hospitals that

submit data on specified quality indicators will receive the MB as an

update; those hospitals that do not submit such data will receive the

MB minus 0.4 percentage points for the year in question. CBO

expects that this provision will reduce direct spending 0.2 billion

from 2004 through 2008.

! Teaching hospitals will receive an increase in their indirect medical

education adjustment from 2004 through 2006 that CBO projects

will increase spending by $400 million.

! A one-time, geographic reclassification process to increase

hospitals’ wage index values for 3 years that is expected to increase

payments by $900 million from 2004 through 2008 is established.

! Low volume hospitals with fewer than 800 discharges that are 25

road miles away from similar hospitals may qualify for up to a 25%

increase in Medicare payments for an expected cost of $100 million

from 2004-2013.

! Changes in payment methods for covered prescription drugs

provided in outpatient hospital departments is expected to increase

payments by $700 million from FY2004 through FY2008.

! A redistribution of unused resident positions will increase both

direct and indirect graduate medical education spending by an

anticipated $200 million from FY2004 thought FY2008 and by $600

million from FY2004 through FY2013.

! Certain teaching hospitals with high per resident payments will not

receive a payment increase from FY2004 through FY2013; this

provision was scored by CBO as a reduction in Medicare spending

of $500 million from FY2004 through FY2008 and $1.3 billion from

FY2004 through FY2013.

! For 18 months from the date of enactment, physicians will not be

able to refer Medicare patients to specialty hospitals in which they

have an investment interest. This provision will not apply to

hospitals that are in operation or under development before

November 18, 2003. Both MedPAC and HHS are to complete

required studies on specialty hospitals within 15 months of

enactment.

!

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Selected Physician Provisions.

The impact of the legislation on Medicare’s spending for physician spending is

difficult to determine. Although physicians will receive a 1.5% update in 2004 and

2005 which is expected to increase spending by $2.8 billion from FY2004 through

FY2007; subsequently, from FY2008 through FY2012, the provision is expected to

result in a decline of $2.8 billion in Medicare spending. Over the 10 year period

from 2004 through 2013, CBO expects the update provisions to increase Medicare

spending by $200 million.

Medicare’s payments for some practice expenses, particularly the administration

of covered drugs, will increase starting in 2004. A transitional adjustment to the drug

administration payments of 32% in 2004 and 3% in 2005 is also established. These

payment increases are expected to be counterbalanced by a decrease in Medicare’s

payments for covered outpatient drugs provided in a doctor’s office.

Medicare’s payment for covered outpatient drugs furnished incident to a

physician’s service will change during 2004 as follows:

Many covered outpatient drugs furnished in 2004 will be reimbursed

at 85% of the average wholesale price (AWP). Certain of these

drugs may be paid as low as 80% of the AWP (in effect as of April

1, 2003).

! Blood clotting factors and other blood products, drugs or biologicals

(drug products) that were not available for payment by April 1,

2003, covered vaccinations, drug products furnished in during 2004

in connection with renal dialysis services, drugs provided through

covered durable medical equipment will be paid at a higher rate

during 2004.

!

The decline in payments for covered outpatient drugs in 2004 can only be

implemented concurrently with the increased payments for the administration of the

drugs.

Starting in 2005, Medicare’s payment for many covered outpatient drugs will

be based on average sales price methodology, that uses different pricing and cost

data, depending on the prescription drug. Generally, multiple source drugs will be

paid 106% of the average sales price; single source drugs will be paid 106% of the

lower of the average sales price or the wholesale acquisition costs, unless the widely

available market price or the average manufacturer price for those drugs exceeds a

certain threshold. Starting in 2006, physicians will have the option of obtaining

covered Part B drugs from selected entities awarded contracts for competitively

biddable drug products under a newly established competitive acquisition program.

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Selected Provisions Affecting Other Providers and Practitioners.

The follow provisions affecting other providers and practitioners are included

in the legislation:

Ambulatory Surgical Centers. Payments to ambulatory surgical centers

(ASCs) are expected to be lower by $800 million from FY2004 through FY2008 and

by $3.1 billion from FY2004 through FY2013 as a result of the legislation. ASCs

will receive an update of the consumer price index for all urban consumers (CPI-U)

minus 3.0 percentage points starting April 1, 2004 and will receive a O percent

update for services provided starting October 1, 2004 through December 31, 2009.

Therapy Caps. Application of the caps on outpatient therapy services

provided by non-hospital providers is suspended from the date of enactment and for

the remainder of 2003, in 2004 and 2005. CBO estimates that the therapy cap

moratorium will increase direct Medicare spending by $700 million over the 10-year

period.

Durable Medical Equipment (DME). Competitive bidding for DME will

be phased-in beginning in 2007 in 10 of the largest metropolitan statistical areas and

may be phased in first for the highest cost and highest volume items and services.

The update for most DME items and services and for prosthetics and orthotics is 0

in 2004, 2005, 2006, 2007, and 2008. For 2005, payment for certain items, oxygen

and oxygen equipment, standard wheelchairs, nebulizers, diabetic lancets and testing

strips, hospital beds and air mattresses will be reduced by an amount calculated using

2002 payment amounts and the median price paid by the Federal Employees Health

Benefit Program.2 Beginning January 1, 2009, items and services included in the

competitive acquisition program will be paid as determined under that program and

the Secretary can use this information to adjust the payment amounts for DME, offthe-shelf orthotics, and other items and services that are supplied in an area that is not

a competitive acquisition area. Class III items (devices that sustain or support life,

are implanted, or present potential unreasonable risk, e.g., implantable infusion

pumps and heart valve replacements, and are subject to premarket approval, the most

stringent regulatory control) receive the full increase in the consumer price index for

all urban consumers (CPI-U) in 2004, 2005, 2006 , 2008 and subsequent years. The

Secretary will determine the update in 2007. CBO scored the DME provisions of

the bill as reducing spending by $6.8 billion over the 10-year period.

Home Health. Home health agency payments are increased by the full market

basket percentage for the last quarter of 2003 (October, November, and December)

and for the first quarter of 2004 (January, February, and March). The update for the

remainder of 2004 and for 2005 and 2006 is the home health market basket

percentage increase minus 0.8 percentage points. CBO estimates that this provision

2

Section 302 specifies that the reduction uses the “Median FEHP Price” in the table entitled

“Summary of Medicare Prices Compared to VA, Medicaid, Retail, and FEHB Prices for 16

Items” that was included in testimony of the Health and Human Services Inspector General

before the Senate Committee on Appropriations, June 12, 2002, or any subsequent report

by the Inspector General.

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will reduce direct Medicare spending by $6.5 billion over the 10-year period. The

legislation suspends the requirement that home health agencies must collect the

Outcome and Assessment Information Set (OASIS) data on private pay (nonMedicare, non-Medicaid) until the Secretary reports to Congress and publishes final

regulations regarding the collection and use of OASIS.

Selected Fee-for Service Demonstration Projects.

The legislation establishes numerous demonstration projects for the Medicare

program. Several demonstrations address aspects of disease management for

beneficiaries with chronic conditions.

Chronic Care Improvement under Fee-For-Service. The legislation

requires the Secretary to establish and implement chronic care improvement

programs under fee-for-service Medicare to improve clinical quality and beneficiary

satisfaction and achieve spending targets specified by the Secretary for Medicare for

beneficiaries with certain chronic health conditions. Participation by beneficiaries

is voluntary. The contractors are required to assume financial risk for performance

under the contract. CBO has estimated that this demonstration will increase direct

Medicare spending by $500 million over the 10-year period.

Chronically Ill Beneficiary Research, Demonstration. The legislation

requires the Secretary to develop a plan to improve quality of care and to reduce the

cost of care for chronically ill Medicare beneficiaries within 6 months after

enactment. The plan is required to use existing data and identify data gaps, develop

research initiatives, and propose intervention demonstration programs to provide

better health care for chronically ill Medicare beneficiaries. The Secretary is required

to implement the plan no later than 2 years after enactment.

Coverage of Certain Drugs and Biologicals Demonstration. The

Secretary is required to conduct a 2-year demonstration where payment is made for

certain drugs and biologicals that are currently provided as “incident to” a physician’s

services under Part B. The demonstration is required to provide for cost-sharing in

the same manner as applies under Part D of Medicare. The demonstration is required

to begin within 90 days of enactment and is limited to 50,000 Medicare beneficiaries

in sites selected by the Secretary.

Homebound Demonstration. The Secretary is required to conduct a 2-year

demonstration project where beneficiaries with chronic conditions would be deemed

to be homebound in order to receive home health services under Medicare.

Adult Day Care. The Secretary is required to establish a demonstration where

beneficiaries could receive adult day care services as a substitute for a portion of

home health services otherwise provided in a beneficiary’s home.

Expansion of Covered Benefits.

The legislation contains a number of provisions that expand coverage beginning

January 1, 2005, including the following:

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Initial Physical Examination. Medicare coverage of an initial preventive

physical examination is authorized for those individuals whose Medicare coverage

begins on or after January 1, 2005. CBO estimates that this provision will increase

direct Medicare spending by $1.7 billion over the 10-year period.

Cardiovascular Screening Blood Tests. Medicare coverage of

cardiovascular screening blood tests is authorized. CBO estimates that this provision

will increase direct Medicare spending by $300 million over the 10-year period.

Diabetes Screening Tests. Diabetes screening tests furnished to an

individual at risk for diabetes for the purpose of early detection of diabetes are

included as a covered medical service. In this instance, diabetes screening tests

include fasting plasma glucose tests as well as other tests and modifications to those

tests deemed appropriate by the Secretary. CBO estimates that this provision will

increase direct Medicare spending less than $50 million over the 10-year period.

Screening and Diagnostic Mammography. Screening mammography

and diagnostic mammography will be excluded from OPPS and paid separately.

CBO estimates that this provision will increase direct Medicare spending by $200

million over the 10-year period.

Intravenous Immune Globulin. The bill includes intravenous immune

globulin for the treatment in the home of primary immune deficiency diseases as a

covered medical service under Medicare. CBO estimates that this provision will

increase direct Medicare spending by $100 million over the 10-year period.

Beneficiary Payments

The bill contains two provisions which change the beneficiary premiums and

deductibles.

Income-Relating the Part B Premium.

The legislation increases the monthly Part B premiums for higher income

enrollees beginning in 2007. Beneficiaries whose modified adjusted gross income

exceed $80,000 and couples filing joint returns whose modified adjusted gross

income exceeds $160,000 will be subject to higher premium amounts. The increase

will be calculated on a sliding scale basis and will be phased-in over a five-year

period. The highest category on the sliding scale is for beneficiaries whose modified

adjusted gross income is more than $200,000 ($400,000 for a couple filing jointly).

Those amounts are increased beginning in 2007 by the percentage change in the

consumer price index. CBO estimates that direct Medicare spending will be reduced

by $13.3 billion over the 10-year period 2004 through 2013.

Indexing the Part B Deductible.

The Medicare Part B deductible will remain $100 through 2004, increase to

$110 for 2005, and in subsequent years the deductible will be increased by the same

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percentage as the Part B premium increase. Specifically, the annual percentage

increase in the monthly actuarial value of benefits payable from the Federal

Supplementary Medical Insurance Trust Fund will be used as the index.

Medicaid and Miscellaneous Provisions

Title X of the legislation makes some changes to Medicaid and other programs.

Omitted from the agreement were two provisions contained in S. 1, including a

provision to amend the Age Discrimination in Employment Act of 1967 to allow an

employee benefit plan to offer different benefits to their Medicare eligible employees

than to their non-Medicare eligible employees, and a provision to allow states to

cover certain lawfully residing aliens under the Medicaid program.

CBO estimates the Medicaid and other provisions included in the bill to increase

direct spending by $5.7 billion between FY2004 and FY2013. The following general

points can be made about the Medicaid and Miscellaneous provisions included in

Title X of the bill:

The legislation temporarily increases states’ disproportionate share

hospital (DSH) allotments to erase the decline in these Medicaid

amounts that occurred after a special rule for their calculation

expired.

! The legislation includes several other Medicaid provisions, including

raising the floor on DSH allotments for “extremely low DSH states,”

providing DSH allotment adjustments impacting Hawaii and/or

Tennessee, increasing reporting requirements for DSH hospitals, and

exempting prices of drugs provided to certain safety net hospitals

from Medicaid’s best price drug program.

! Miscellaneous provisions in Title X of the legislation include

funding federal reimbursement of emergency health services

furnished to undocumented aliens, and funding administrative startup costs for Medicare reform, various research projects, work groups

and infrastructure improvement programs for the health care system.

!

This report contains a detailed side-by-side comparison of the relevant

provisions of the legislation, S. 1, as passed the Senate, and H.R. 1, as passed the

House. Certain of the provisions can be found in one or more of the sections. For

example, the home health homebound demonstration (section 702) is listed in the

home health section and the demonstration projects section. Also included in this

side-by-side, are provision that were included in the House and/or Senate bill which

were dropped in conference.

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Modifications to Fee-for-Service Medicare

Provisions Relating to Part A

Hospital Services.

Provision and Current Law Description

Increase standardized amounts for small

urban and rural hospitals in Medicare’s

inpatient hospital prospective payment

system (IPPS).

Medicare pays for

inpatient services in acute hospitals in

large urban areas using a standardized

amount that is 1.6% larger than the

standardized amount used to reimburse

hospitals in other areas (both rural areas

and smaller urban areas). P.L. 108-7

provided that all Medicare discharges from

April 1, 2003 to September 30, 2003, will

be paid on the basis of the large urban area

amount. The Secretary is authorized to

delay implementation of this payment

increase until November 1, 2003, if

necessary.

Under Medicare’s IPPS, two

different standardized amounts are used for

hospitals in Puerto Rico, one for hospitals

in large urban areas and one for other

hospitals.

Increase payments to hospitals in areas

with wage index values below one (by

lowering Medicare’s IPPS labor-related

share which is the proportion of the

standardized amount multiplied by the

wage index). IPPS payments are adjusted,

H.R. 1 as enacted

S. 1 (as passed the Senate)

Inpatient Prospective Payment System (IPPS) Hospitals

Medicare would pay

Section 401. Medicare will pay hospitals Section 401.

in rural and small urban areas in the 50 hospitals in rural and small urban areas in

states using the standardized amount that the fifty states using the standardized

would be used to pay hospitals in large amount used to pay hospitals in large

urban areas starting for discharges in urban areas starting for discharges in

FY2004. The existing authority of the FY2004. The Secretary would compute

Secretary to delay implementation of this one standardized amount for hospitals in

increase until November 1, 2003 for Puerto Rico equal to that for other areas.

hospitals that are not in Puerto Rico is not

affected. The Secretary will compute one

local standardized amount for all hospitals

in Puerto Rico equal to that for hospitals in

large urban areas in Puerto Rico starting

for discharges in FY2004. Hospitals in

Puerto Rico will receive the legislated

payment increase starting for discharges on

April 1, 2004.

Section 403. For discharges on or after

October 1, 2004, the Secretary is required

to decrease the labor-related share to 62%

of the standardized amount when such

change will result in higher total payments

to the hospital. This provision is to be

Section 402. For cost reporting periods

beginning October 1, 2004, the Secretary

would be required to decrease the laborrelated share to 62% of the standardized

amount only if such change would result in

higher total payments to the hospital. This

H.R. 1 (as passed the House)

Section 402.

Similar provision with

respect to discharges in the fifty states.

Two standardized amounts would still be

used for hospitals in Puerto Rico; one

federal amount would be used in the

calculation of these 2 rates.

Section 416. Same provision except that

the effective date is October 1, 2003.

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Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

either increased or decreased as

appropriate, by the hospital wage index of

the area where the hospital is located or

where it has been reassigned. Presently,

approximately 71% of the standardized

amount is adjusted by the area wage index.

applied without regard to certain budgetneutrality requirements. For discharges on

or after October 1, 2004, the Secretary is

also required to decrease the labor-related

share to 62% of the standardized amount

for hospitals in Puerto Rico when such

change results in higher total payments to

the hospital.

Section 406. The Secretary is required to

provide for a graduated adjustment of up to

25% of Medicare’s inpatient payment rates

to account for the empirically established

higher unit costs associated with lowvolume hospitals starting for discharges

occurring in FY2005. A low-volume

hospital is a short-term general hospital

that is located more than 25 road miles

from another such hospital and that has

less than 800 discharges during the fiscal

year. Certain budget neutrality

requirements would not apply to this

provision. The determination of the

percentage payment increase is not subject

to administrative or judicial review.

provision would be applied without regard

to certain budget neutrality requirements.

Increase Medicare IPPS payments for

low-volume hospitals. Medicare pays

inpatient acute hospital services for each

discharge from the hospital without regard

to the number of beneficiaries discharged

from any given hospital. Under certain

circumstances, however, sole community

hospitals (SCHs) and Medicare dependent

hospitals with more than a 5% decline in

total discharges from one period to the

next may apply for an adjustment to their

payment rates to partially account for

higher costs associated with a drop in

patient volume due to circumstances

beyond their control.

Increase disproportionate share hospital

(DSH) payments for small urban and

rural hospitals.

Medicare makes

additional payments to certain acute

hospitals that serve a large number of lowincome Medicare and Medicaid patients.

Although a SCH or rural referral center

(RRC) can qualify for a higher DSH

adjustment, generally, the DSH adjustment

Section 402. Starting for discharges after

April 1, 2004, a hospital that is not a large

urban hospital that qualifies for a DSH

adjustment will receive its DSH payments

using the current DSH adjustment formula

for large urban hospitals, subject to a limit.

The DSH adjustment for any of these

hospitals, except for rural referral centers,

will be capped at 12%. A Pickle hospital

Section 403. The Secretary would be

required to develop a graduated adjustment

of up to 25% of Medicare’s inpatient

payment rates to account for the higher

unit costs in low-volume hospitals. Certain

hospitals with fewer than 2,000 total

discharges during the three most recent

cost reporting periods would be eligible for

up to a 25% increase in their Medicare

payment amount starting with cost reports

that begin during FY2005.

Eligible

hospitals would be located at least 15 miles

from a similar hospital or those determined

by the Secretary to be so located due to

factors such as weather conditions, travel

conditions, or travel time to the nearest

alternative source of appropriate inpatient

care. Certain budget neutrality

requirements would not apply.

Section 404. Starting for discharges after

October 1, 2004, a hospital that qualifies

for a DSH adjustment when its DSH

patient percentage exceeds the 15% DSH

threshold would receive the DSH payments

using the current formula that establishes

the DSH adjustment for a large urban

hospital.

H.R. 1 (as passed the House)

No provision.

Section 401. Starting for discharges after

October 1, 2003, a hospital that is not a

large urban hospital that qualifies for a

DSH adjustment would receive its DSH

payments using the current DSH

adjustment formula for large urban

hospitals, subject to a limit. The DSH

adjustment for any of these hospitals,

except for RRCs, would be capped at 10%.

CRS-11

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

that a small urban or rural hospital can

receive is limited to a maximum of a

5.25% increase to its IPPS payment. Large

(100 beds and more) urban hospitals and

large rural hospitals (500 beds and more)

are eligible for a higher adjustment that

can be significantly greater; the amount of

the DSH adjustment received by these

larger hospitals will depend upon its DSH

patient percentage (the percentage of lowincome Medicare or Medicaid patients

served).

Require MedPAC report on Medicare

DSH adjustments.

No provision in

current law.

receiving a DSH adjustment under the

alternative formula will not be affected by

this provision. (For a description of Pickle

hospitals, see page 12 column 1.)

No provision.

Section 404A.

MedPAC would be

required to conduct a study to determine

(1) whether DSH payments should be

made in the same manner as Medicare’s

graduate medical education payments; (2)

the extent that hospitals receiving

Medicaid DSH payments also receive

Medicare DSH payments; and (3) whether

uncompensated care costs should be added

to the Medicare DSH formula. The report,

including recommendations, would be due

to Congress within 1 year from enactment.

No provision.

Exclude wage data of hospitals that

convert to critical access hospitals

(CAHs) from IPPS wage index. Certain

qualified small hospitals are converting to

CAHs. After conversion, these facilities

are paid on a reasonable cost basis and are

not paid under IPPS. Medicare’s IPPS

payments to acute hospitals are adjusted by

the wage index of the area where the

hospital is located or has been reassigned.

Although the hospital wage index is

No provision.

Section 405(e). The Secretary would be

required to exclude wage data from

hospitals that have converted to CAHs

from the IPPS wage index calculation

starting for cost reporting periods

beginning January 1, 2004.

No provision.

CRS-12

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

recalculated annually, the wage index for

any given fiscal year is based on data

submitted as part of a hospital’s cost report

from 4 years previously. As of FY2004,

wage data from hospitals that have

converted to CAHs were excluded from

the IPPS wage index calculation.

Increase DSH for “Pickle” hospitals.

Most DSH hospitals receive additional

Medicare payments because they serve a

disproportionate share of poor Medicare

and Medicaid patients. A few urban

hospitals receive DSH payments under an

alternative Pickle formula. If a hospital

receives at least 30% of its patient care

revenue from indigent care funds, it will

get a 35% increase in its Medicare

operating payments. The Pickle hospitals

receive a capital DSH adjustment of

14.16%, the amount that other non-Pickle

hospitals with a 35% operating DSH

adjustment would receive.

No provision.

Section 420A. Hospitals that qualify for

the DSH adjustment under the Pickle

amendment would receive a DSH

operating and capital adjustment of 40%

for discharges beginning October 1, 2003.

No provision.

Increase payments for hospitals in

Puerto Rico. Under Medicare’s IPPS,

separate standardized amounts are used to

pay short-term general hospitals in Puerto

Rico. The Balanced Budget Act of 1997

(BBA 97) provides for an adjustment of

the Puerto Rico rates from blended

amounts based on 25% of the national

amounts and 75% of the local amounts to

blended amounts based on a 50/50 split

between national and local amounts.

Section 504. Hospitals in Puerto Rico will

receive Medicare payments based on a

50/50 split between federal and local

amounts before April 1, 2004. Starting

April 1, 2004 through September 30, 2004,

payment will be based on 62.5% national

amount and 37.5% local amount; this will

change to 75% national and 25% local

after October 1, 2004 and in subsequent

years.

Section 409. Hospitals in Puerto Rico

would receive Medicare payments based

on a 50/50 split between national and local

amounts before October 1, 2004. These

hospitals would receive Medicare

payments based on 100% of the federal

rate for discharges beginning October 1,

2004 and before October 1, 2009. The rate

for hospitals in Puerto Rico would revert to

a 50/50 split after October 1, 2009.

Section 503. From FY2004 though

FY2007, hospitals in Puerto Rico would

receive an increasing amount of the

payment rate based on national rates as

follows: during FY2004, payment would

be 59% national and 41% local; during

2005, payment would be 67% national

and 33% local and 75% national and 25%

local during FY2006 and subsequently.

CRS-13

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Require GAO report on appropriateness

of IPPS payments. No provision in

current law.

No provision.

Section 413. Using the most current data,

the Comptroller General (GAO) would be

required to report to Congress within 18

months of enactment on:

(1) the

appropriate level and distribution of IPPS

Medicare payments to short-term general

hospitals; and (2) the need for geographic

adjustments to reflect legitimate

differences in hospital costs.

No provision.

Calculate wage indices for hospitals.

IPPS hospitals may apply to the Medicare

Geographic Classification Review Board

(MGCRB) for a change in classification to

a different area. If reclassification is

granted, the new wage index will be used

to calculating Medicare’s payment for

inpatient and outpatient services. The

reclassification standards are established

by regulation.

Section 508. The Secretary will establish

a wage index appeals process by January 1,

2004. A hospital seeking to be reclassified

must submit an appeal to the MGCRB no

later than February 15, 2004.

Reclassifications will be effective for a 3year period starting April 1, 2004. There

will be no further administrative or judicial

review of these decisions. The additional

spending associated with this provision

cannot exceed $900 million.

Section 404. The Secretary is required to

revise the market basket weights to reflect

the most currently available data and to

establish a schedule for revising the cost

category weights more often than once

every 5 years. The Secretary is required to

publish the reasons for and the options

considered in establishing such a schedule

in the final rule establishing FY2006

inpatient hospital payments.

Section 419. The Secretary would be able

to waive established reclassification

criteria in calculating the wage index in a

state when making payments for hospital

discharges in FY2004.

No provision.

No provision

Section 404. The Secretary would be

required to revise the market basket cost

weights to reflect the most currently

available data and to establish a schedule

for revising the weights more often than

once every 5 years. The Secretary would

be required to submit a report to Congress

by October 1, 2004 on the reasons for and

the options considered in establishing such

a schedule.

Update hospital market basket more

frequently. IPPS standardized amounts

are increased annually using an update

factor which is determined in part by the

projected increase in the hospital market

basket (MB), an input price index which

measures the average change in the price

of goods and services hospitals purchased

in order to furnish inpatient care. Centers

for Medicare and Medicaid Services

(CMS) revises the category weights,

reevaluates the price proxies for such

categories, and rebases the MB every 5

years.

CRS-14

Provision and Current Law Description

H.R. 1 as enacted

Reduce hospital update factor. Each

year, Medicare’s operating payments to

hospitals are increased or updated by a

factor that is determined in part by the

projected annual change in the hospital

MB. Congress establishes the update for

Medicare’s IPPS for operating costs, often

several years in advance. Currently, acute

care hospitals will receive the MB as an

update for FY2004 and subsequently.

Section 501. Acute hospitals will receive

the MB as the operating update for

FY2004. From FY2005 through FY2007,

hospitals that submit required quality data

will receive the MB as an update;

hospitals that do not submit such data will

receive the MB minus 0.4 percentage

points. The reduction would apply to the

year in question only and would not be

taken into account in subsequent years.

The operating update will be the MB in

FY2008 and in subsequent years.

Section 503. The Secretary is required to

add new diagnosis and procedure codes in

April 1 of each year but is not required to

change Medicare’s payment or DRG

classification as a result of these additions

until the fiscal year that begins after that

date. When establishing whether DRG

payments are inadequate, the Secretary is

required to apply a threshold that is the

lesser of 75% of the standardized amount

(increased to reflect the difference between

costs and charges) or 75% of one standard

deviation for the DRG involved. The

Secretary is required to: (1) maintain a

current public list of pending applications

for this additional payment; (2) accept

public comment, recommendations, and

data regarding whether a service or

technology represents a substantial

improvement; and (3) provide for a public

meeting with the clinical staff at CMS and

organizations representing physicians,

beneficiaries, manufacturers or other

interested parties. These actions will occur

Increase pass-through payments for new

inpatient technology. The Medicare,

Medicaid, and SCHIP Benefits

Improvement and Protection Act of 2000

(BIPA) established that Medicare’s IPPS

should recognize the costs of new medical

services and technologies beginning

October 1, 2001. The additional hospital

payments can be made by the means of

new technology groups, an add-on

payment, a payment adjustment, or other

mechanism, but cannot be a separate fee

schedule and must be budget neutral. CMS

established that a technology that provided

a substantial improvement to existing

treatments would qualify for additional

payments. The add-on payment for an

eligible new technology would occur when

the standard diagnosis related group

(DRG) payment was inadequate. This

threshold was established as one standard

deviation above the mean standardized

DRG; the add-on payment for new

technology would be the lesser of: (a) 50%

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

No provision.

Section 501. Acute hospitals would

receive an operating update of the MB

minus 0.4 percentage points for FY2004

through FY2006. The operating update

would be the MB increase in FY2007 and

subsequently.

No provision.

Section 502. New diagnosis and procedure

codes would be added in April 1 of each

year that would affect Medicare’s IPPS

starting the following October. The

Secretary would not be able to deny new

technology status because an item has been

used prior to the 2-to-3 year period before

it was issued a billing code. When

establishing whether DRG payments are

inadequate, the Secretary would be

required to apply a threshold that is the

lesser of 75% of the standardized amount

(adjusted to reflect the difference between

costs and charges) or 75% of one standard

deviation for DRG involved.

The

Secretary would be required to provide

additional regulatory guidance on the new

technology criteria. The Secretary would

be required to deem that a technology

provides a substantial improvement on an

existing treatment if it is designated under

section 506 of the FDA Act, approved

under certain sections of Title 21,

designated for priority review, is an

CRS-15

Provision and Current Law Description

H.R. 1 as enacted

of the costs of the new technology; or (b)

50% of the amount by which the costs

exceeded the standard DRG payment.

However, if the new technology payments

are estimated to exceed the budgeted target

amount of 1% of the total operating

inpatient payments, the add-on payments

are reduced prospectively. CMS has

proposed to reduce the threshold to 75% of

one standard deviation beyond the

geometric mean standardized charge for all

cases in the DRG to which the new service

is assigned.

prior to the publication of a proposed

regulation. Before establishing an add-on

payment as the appropriate reimbursement

mechanism, the Secretary is directed to

identify one or more DRGs and assign the

technology to that DRG. When such

assignment to a DRG occurs, no add-on

payment would be made; the budgetneutrality requirement with respect to

annual DRG reclassifications and

recalculation will apply. Funding for new

technology is no longer required to be

budget neutral. The provisions will apply

to new technology determinations

beginning in FY2005. Applications that

were denied in FY2005 will be

reconsidered under these provisions; if

granted, the maximum time period

otherwise permitted for such classification

as a new technology is extended by 12

months.

Section 505. The Secretary is required to

establish an application process and 3-year

payment adjustment to recognize the outmigration of hospital employees who

reside in a county and work in a different

area with a higher wage index. A hospital

that receives such a payment adjustment

will be located in a qualifying county that

meets certain criteria including (1) a

threshold of no less than 10% for

minimum out-migration to a higher wage

index area or areas, and (2) a requirement

that the average hourly wage of the

hospitals in the qualifying county equals or

exceeds the average hourly wage of all the

Increase hospitals’ wage index values to

reflect commuting patterns from higher

wage index areas. Unlike other providers,

IPPS hospitals may apply to the Medicare

Geographic Classification Review Board

(MGCRB) for reassignment to another

area. The MGCRB was created to

determine whether a hospital should be

redesignated to an area with which it has

close proximity for purposes of using the

other area’s wage index. A hospital can

establish proximity to the new area by

documenting that at least 50% of its

employees reside there. Other cost criteria

must be met before a hospital will be

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

exempt medical device under section

520(m) of such Act, or receives expedited

review under section 515(d)(5). Other

requirements requiring the process for

public input would be imposed. A

preference fo use of a DRG adjustment

would be established. Add-on payments

would be increased to the percentage that

Medicare reimburses inpatient outlier

cases. Funding for this new technology

would no longer be budget neutral.

No provision.

Section 504. The Secretary would be

required to establish an application process

and payment adjustment to recognize the

commuting patterns of hospital employees.

A hospital that qualified for such a

payment adjustment would have average

hourly wages that exceed the average

wages of the area in which it is located and

have at least 10% of its employees living

in one or more areas that have higher wage

index values. The process would be based

on the MGCRB reclassification process

and schedule with respect to data

submitted. Such an adjustment would be

effective for 3 years unless a hospital

CRS-16

Provision and Current Law Description

H.R. 1 as enacted

reclassified. If reclassification is granted,

the wage index for the new area will be

used to calculate Medicare’s payment for

inpatient and outpatient services provided

by the hospital.

hospitals in the area where the county is

located. The Secretary may require acute

hospitals and other hospitals as well as

critical access hospitals to submit data

regarding the location of their employees’

residence or the Secretary may use data

from other sources. A hospital that receives

a commuting wage adjustment is not

eligible for reclassification into another

area by the MCGRB. This adjustment is

exempt from certain budget neutrality

requirements. The thresholds and other

qualifying criteria for the commuting wage

adjustment are not subject to judicial

review. The provisions apply to discharges

on or after October 1, 2004.

Section 407. A hospital will not be able to

be denied treatment as a SCH or receive

payment as a SCH because data are

unavailable for any cost reporting period

due to changes in ownership, changes in

fiscal intermediaries, or other

extraordinary circumstances, so long as

data from at least one applicable base cost

reporting period is available. The provision

applies to cost reporting periods beginning

on or after January 1, 2004.

Permit hospitals with missing cost

reports to be SCHs. SCHs are hospitals

that, because of factors such as isolated

location, weather conditions, travel

conditions, or absence of other hospitals,

are the sole source of inpatient services

reasonably available in a geographic area,

or are located more than 35 road miles

from another hospital. An SCH receives

the higher of the following payment rates:

the current IPPS base payment rate, or its

hospital-specific per discharge costs from

either FY 1982, 1987 or 1996 updated to

the current year. The FY1996 base year

option will be fully implemented

beginning in FY2004.

Provide hospitals with data on patient

days for DSH adjustment. A hospital’s

DSH payments under IPPS are calculated

using a formula that includes data on the

Section 951. The Secretary is required to

provide information that hospitals need to

calculate the number of Medicaid patient

days used in the Medicare DSH payment

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

withdraws or elects to terminate its

payment. It would also be exempt from

certain budget neutrality requirements.

No provision.

Section 414. Beginning January 1, 2004,

a hospital would not be able to be denied

treatment as a SCH or receive payment as

a SCH because data are unavailable for any

cost reporting period due to changes in

o wn e r s h i p , c h a n g e s i n f i s c a l

intermediaries, or other extraordinary

circumstances, so long as data from at least

one applicable base cost reporting period is

available.

No provision.

Section 951. The Secretary would arrange

to furnish necessary patient day

information for the Medicare DSH

computation for the current cost reporting

CRS-17

Provision and Current Law Description

H.R. 1 as enacted

number of total patient days as well as

days provided to those eligible for

Medicaid and to Medicare beneficiaries

who receive Supplemental Security

Income.

Permit adoption of new coding standard.

The Secretary is required to rely on the

recommendations from the National

Committee on Vital and Health Statistics

(NCVHS) before adopting health

information standards and codes.

Require GAO report on use of external

data for IPPS payments. No provision in

current law.

formula not later than 1 year after

enactment.

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

year.

No provision.

No provision.

Section 942(c). GAO is required to study

which external data can be collected in a

shorter time frame by CMS to use in

calculating IPPS payments. GAO may

evaluate feasibility and appropriateness of

using quarterly samples or special surveys

and would include an analysis of whether

other executive agencies are best suited to

collect this information. The report is due

to Congress no later than October 1, 2004.

No provision.

Se c t io n 9 4 2 ( d) . T he new co d ing

standards, International Classification of

Diseases 10th Revision (IDC-10) could be

adopted within 1-year of enactment

without receiving a recommendation from

NCVHS.

Section 942(c). GAO would study which

external data can be collected in a shorter

time frame by CMS to use in calculating

IPPS payments. GAO could evaluate

feasibility and appropriateness of using

quarterly samples or special surveys and

would include an analysis of whether other

executive agencies are best suited to

collect this information. The report would

be due to Congress no later than October 1,

2004.

Critical Access Hospital Services

Increase payments to CAHs. Generally,

a critical access hospital (CAH) receives

reasonable cost reimbursement for care

rendered to Medicare beneficiaries. CAHs

may elect either a cost-based hospital

outpatient service reimbursement or an allinclusive rate which is equal to a

reasonable cost reimbursement for facility

services plus 115% of the fee schedule

payment for professional services.

Section 405(a). Inpatient, outpatient, and

covered skilled nursing facility services

provided by a CAH in its swing beds will

be reimbursed at 101% of reasonable costs

of services furnished to Medicare

beneficiaries. This provision applies to

cost reporting periods beginning on or

after January 1, 2004.

No provision.

Section 405(a). Inpatient, outpatient, and

covered skilled nursing facility services

provided by a CAH in its swing beds

would be reimbursed at 102% of

reasonable costs of services furnished to

Medicare beneficiaries. This provision

would apply to cost reporting periods

beginning on or after October 1, 2003.

CRS-18

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Eliminate 35-mile requirement for costbased reimbursement of CAH

ambulance services. Ambulance services

provided by a CAH or provided by an

entity that is owned or operated by a CAH

are paid on a reasonable cost basis and not

the ambulance fee schedule, if the CAH or

entity is the only provider or supplier of

ambulance services that is located within a

35-mile drive of the CAH.

No provision.

Section 405(b). The requirement that the

CAH or the related entity be the only

ambulance provider within a 35-mile drive

in order to receive reasonable cost

reimbursement for the ambulance services

would be dropped for services furnished

beginning January 1, 2005.

Section 405(c). The 35-mile requirement

would not apply to a provider or supplier

of ambulance services who is a first

responder to emergencies for services

furnished after the first cost reporting

period beginning after the date of

enactment.

Expand payment for emergency room

on-call providers. BIPA required the

Secretary to include the costs of

compensation (and related costs) of on-call

emergency room physicians who are not

present on the premises of a CAH, are not

otherwise furnishing services, and are not

on-call at any other provider or facility

when determining the allowable,

reasonable cost of outpatient CAH

services.

Section 405(b). The provision expands

reimbursement of on-call emergency room

providers to include not just emergency

room physicians but also physician

assistants, nurse practitioners, and clinical

nurse specialists for the costs associated

with covered Medicare services provided

beginning January 1, 2005.

Section 405(c). Reimbursement for on-call

emergency room providers would be

expanded to include physician assistants,

nurse practitioners, and clinical nurse

specialists as well as emergency room

physicians for covered Medicare services

provided beginning January 1, 2005.

Section 405(b). Same provision but would

be effective January 1, 2004.

Increase critical access hospital (CAH)

bed limit. A CAH is a limited service

facility that

must provide 24-hour

emergency services and operate a limited

number of inpatient beds in which hospital

stays can average no more than 96 hours.

A CAH is limited to 15 acute-care beds,

but can have an additional 10 swing beds

that are set up for skilled nursing facility

level care. While all 25 beds in a CAH can

be used as swing beds, only 15 of the 25

can be used for acute care at any time.

Section 405(e). A CAH will be able to

operate up to 25 beds. The requirement

that only 15 of the 25 beds be used for

acute care at any time is dropped. The

provision applies to CAH designations

made before, on, or after January 1, 2004,

but any election made pursuant to the

regulations promulgated to implement this

provision will only apply prospectively.

Section 405(a) A CAH would be able to

operate up to 25 swing beds or acute care

beds, subject to the 96-hour average length

of stay for acute care patients. The

requirement that only 15 of the 25 beds be

used for acute care at any time would be

dropped.

This provision would be

effective for designations made beginning

October 1, 2004.

Section 405(f).

For designations

beginning January 1, 2004, the Secretary

would specify standards for establishing

seasonal variations in a CAH’s patient

admissions that would justify a five-bed

increase in the number of beds it can

maintain (and still retain its classification

as a CAH). CAHs with swing beds would

be able to use up to 25 beds for acute care

services as long as no more than 10 beds at

any time are used for non-acute services.

Those CAHs with swing beds that made

this election would not be eligible for the

CRS-19

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

five-bed seasonal adjustment. A CAH

with swing beds that elects to operate 15 of

its 25 beds as acute care beds would be

eligible for the five-bed seasonal

adjustment.

Authorize periodic interim payments for

eligible CAHs. Eligible hospitals, skilled

nursing facilities, and hospices which meet

certain requirements receive Medicare

periodic interim payments (PIP) every 2

weeks; these payments are based on

estimated annual costs without regard to

the submission of individual claims. At

the end of the year, a settlement is made to

account for any difference between the

estimated PIP payment and the actual

amount owed. A CAH is not eligible for

PIP payments.

Section 405(c). An eligible CAH will be

able to receive payments made on a PIP

basis for its inpatient services. The

Secretary is required to develop alternative

methods for the timing of PIP payments to

these CAHs. This provision applies to

payments made on or after July 1, 2004.

Section 405(d). Starting with payments

made beginning January 1, 2005, an

eligible CAH would be able to receive

payments made on a PIP basis for inpatient

services.

Section 405(d). Same provision but would

be effective January 1, 2004. Also, the

Secretary would be required to develop

alternative methods based on the

expenditures of the hospital for these PIP

payments.

Exclude beds in distinct-part units from

CAH bed count Beds in distinct-part

skilled nursing facility units do not count

toward the CAH bed limit. Beds in

distinct-part psychiatric or rehabilitation

units operated by an entity seeking to

become a CAH count toward the bed limit.

Section 405(g). A CAH can establish a

distinct part psychiatric or rehabilitation

unit that meets the applicable requirements

for such beds. If the units do not meet

these requirements during a cost reporting

period, then no Medicare payment will be

made to the CAH for services furnished in

the unit during the period in question.

Payments for services provided in these

units will equal payments that are made on

a prospective payment basis to distinct part

units of short term general hospitals. The

beds in the distinct part psychiatric or

rehabilitation units will not count toward

the CAH bed limit. The total number of

beds in these distinct part units cannot

Section 405(g). The Secretary would not

be able to count any beds in a distinct-part

psychiatric or rehabilitation unit operated

by the entity seeking to become a CAH for

designations beginning October 1, 2003.

The total number of beds in these distinctpart units would not be able to exceed 25.

A CAH would be able to establish a such a

distinct-part unit.

No provision.

CRS-20

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

exceed 10. The provision will apply to cost

reporting periods starting October 1, 2004

Establish CAH improvement

demonstration program. No provision in

current law.

No provision.

Section 415. The Secretary would be

required to establish a budget neutral 5year CAH demonstration program in four

areas including Kansas and Nebraska to

test various methods to improve the CAH

program. Services would be paid either on

the basis of its reasonable costs (without

regard to customary charges) or using the

relevant PPS for those services. In this

instance, reasonable cost reimbursement of

capital would include a return on equity

payment of 150% of the average rate of

interest paid by the Hospital Insurance (HI)

Trust Fund.

No provision.

Modify CAHs’ billing requirements for

physician services. As specified by

Balanced Budget Refinement Act of 1999

(BBRA), CAHs can elect to be paid for

outpatient services using cost-based

reimbursement for its facility fee and at

115% of the fee schedule for professional

services otherwise included within its

outpatient critical access hospital services

for cost reporting periods starting October

1, 2000.

Section 405(d). The requirement that all

physicians or practitioners providing

services in a CAH assign their billing

rights to the entity in order for the CAH to

be able to be paid 115% of the fee

schedule cannot be imposed. However, a

CAH will not receive payment based on

115% of the fee schedule for any

individual who does not assign billing

rights to the CAH. This provision applies

to cost report periods starting on or after

July 1, 2004 except for those CAHs that

have already elected payment for physician

services on this basis before November 1,

2003; this provision will apply to those

CAHs starting for cost reporting periods on

or after July 1, 2003.

No provision.

Section 405(e). The Secretary would not

be able to require that all physicians

providing services in a CAH assign their

billing rights to the entity in order for the

CAH to be able to be paid on the basis of

115% of the fee schedule for the

professional services provided by the

physicians. However, a CAH would not

receive such payment for any physician

who did not assign billing rights to the

CAH.

CRS-21

Provision and Current Law Description

H.R. 1 as enacted

S. 1 (as passed the Senate)

Eliminate state authority to waive CAH

mileage requirements. Currently, to

qualify as a CAH, the rural, for-profit,

nonprofit, or public hospital must be

located more than 35 miles from another

hospital or 15 miles in areas with

mountainous terrain or those where only

secondary roads are available. These

mileage standards may be waived if the

hospital has been designated by the State

as a necessary provider of health care.

Section 405(h). The State will no longer

be able to waive the mileage standards and

designate a facility seeking to become a

CAH as a necessary provider of care after

January 1, 2004. A facility designated as

CAH before January 1, 2006 and certified

as a necessary provider of care will be able

retain such designation.

No provision.

H.R. 1 (as passed the House)

No provision.

Other Hospitals

Create essential rural hospital category.

Generally, a hospital designated as a CAH

is exempt from IPPS and receives

reasonable, cost-based reimbursement for

care rendered to Medicare beneficiaries.

Certain acute general hospitals receive

special treatment under IPPS, particularly

those facilities identified as isolated or

essential hospitals primarily located in

rural areas, including RRCs and SCHs.

No provision.

No provision.

Section 403. The definition of CAH

hospital and services would be amended to

add an essential rural hospital. An eligible

hospital would apply for such a

classification, have more than 25 licensed

acute care beds, and be located in a rural

area as defined by IPPS. The Secretary

would have to determine that the closure of

this hospital would significantly diminish

the ability of beneficiaries to obtain

essential health care services based on

certain criteria. Such hospitals would not

be able to change such classification and

would not be able to be treated as a SCH,

Medicare dependent hospital or RRC

under IPPS and would be reimbursed

102% of its reasonable costs for inpatient

and outpatient services beginning October

1, 2004. Beneficiary cost-sharing amounts

would not be affected and required billing

for such services would not be waived.

CRS-22

Allied Health and Graduate Medical Education Payments.

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Pay hospitals for training costs of

psychologists. Medicare pays hospitals

for its share of direct costs associated with

approved hospital-based training programs

for nurses and certain other allied health

professionals including inhalation

therapists, nurse anesthetists, occupational

and physical therapists. Medicare does

not pay for such costs associated with

psychologists’ training.

No provision. Discussion of congressional

intent regarding this payment can be found

on p. 276 of the Conference Report

Section 408. Beginning October 1, 2004,

Medicare would reimburse its share of the

reasonable costs of approved education

activities of psychologists under the allied

health professional training provisions.

No provision.

Increase initial residency period for

geriatricians. Medicare counts residents

in their initial residency period (the lesser

of the minimum number of years required

for board eligibility in the physician’s

specialty or 5 years) as 1.0 FTE. Residents

whose training has extended beyond their

initial residency period count as 0.5 FTE.

Geriatrics is a subspecialty of family

practice, internal medicine and psychiatry.

A 1-year fellowship is required for

certification in geriatrics, following an

initial residency in one of those three areas.

Section 712. The bill clarifies that

Congress intended to provide an exception

to the initial residency period for geriatric

fellowship programs to accommodate

programs that require 2 years of training to

initially become board eligible in the

geriatric specialty. The Secretary is

required to promulgate interim final

regulations consistent with this expressed

intent after notice and subject to public

comment. The regulations will be effective

for cost reporting periods on or after

October 1, 2003.

Section 410. The Secretary would be

required to promulgate interim final

regulations after notice and comment that

would establish full GME payment for 2

years as a 2-year initial residency program

for certain geriatric training programs

effective for cost reporting periods

beginning October 1, 2003.

No provision.

Increase indirect medical education

(IME) payments.

A hospital’s IME

payment is based on a percentage add-on

to its IPPS rate that is established by a

complicated curvilinear formula that

currently provides a payment increase of

approximately 5.5% for each 10% increase

in the hospital’s intern and resident-to-bed

(IRB) ratio. The statutory formula is

multiplied by a hospital’s base payment

Section 502. From April 1, 2004 until

September 30, 2004, the IME multiplier is

equal to 1.47; during FY2005, the IME

multiplier is 1.42; during FY2006, the

IME multiplier is 1.37; during FY2007, the

IME multiplier is 1.32; and, starting

October 1, 2007, the IME multiplier is

equal to 1.35. This provision applies to

discharges on or after April 1, 2004.

Section 418. The IME multiplier in

FY2004 and in FY 2005 would be 1.36;

the multiplier would be 1.355 in FY2006

and in subsequent years. This would

provide an IME adjustment of 5.508% for

each 10% increase in a hospital’s IRB ratio

for FY2004 and FY2005. This change has

been projected to increase payments to

teaching hospitals by $300 million over 10

years.

No provision.

CRS-23

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

Section 713. For a 12-month period

starting January 1, 2004 hospitals will be

able to count residents in osteopathic and

allopathic family practice programs in

existence as of January 1, 2002 who are

training at non-hospital setting without

regard to the financial arrangement

between the hospital and the teaching

physician practicing in the non hospital

site. The Inspector General of Health And

Human Services (HHS-IG) will submit a

study including recommendations on the

appropriateness of the payment

methodology for the volunteer supervision.

Section 411. The Secretary would be

required to reimburse teaching hospitals

for residents in non-hospital locations,

when hospitals incur all, or substantially

all, the costs of the training in that site

starting from the effective date of a written

agreement between the hospital and the

entity owning or operating the non-hospital

site. The effective date of the written

agreement would be determined according

to generally accepted accounting

principles. The Secretary would not be

able to take into account the fact that the

hospital costs incurred are lower than

actual Medicare reimbursement. Starting

with FY2005, dental and podiatric

residents would be removed from the 3year rolling average calculation for IME

and DGME reimbursements.

H.R. 1 (as passed the House)

rate for each Medicare discharge to

determine the IME payments: 1.35 X [(1+

IRB)0.405 - 1]. The multiplier of 1.35

increases the level of the IME adjustment

to the existing target level of 5.5%.

Congress has periodically changed the

multiplier to decrease or increase IME

payments to teaching hospitals.

Count residents in a non-provider

setting; drop dentists and podiatrists

from the 3-year rolling limit on IME

payments. Medicare has different resident

limits for the IME adjustment and direct

medical education (DGME) payment.

Generally, the resident counts for both

IME and DGME payments are based on

the number of residents in approved

allopathic and osteopathic teaching

programs reported by the hospital in

calendar year 1996. The DGME limit may

differ from the IME limit because in 1996

residents training in non-hospital sites were

eligible for DGME payments but not for

IME payments. Prior to BBA 1997, the

number of residents that could be counted

for IME purposes included only those in

the hospital inpatient and outpatient

departments. Effective October 1, 1997,

under certain circumstances, a hospital

may now count residents in non-hospital

sites for the purposes of IME. Subject to

these resident limits, a teaching hospital’s

IME and DGME payments are based on a

3-year rolling average of resident counts.

The rolling average calculation includes

No provision.

CRS-24

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

podiatry and dental residents. CMS has

proposed regulations that limit Medicare’s

medical education payments when existing

residents are transferred from a nonhospital entity to a teaching hospital,

particularly when the non-hospital entity

has historically paid for the training costs

without hospital funding.

Extend update limitation on high cost

programs. Hospitals with per resident

amounts between 85% and 140% of the

geographically-adjusted national average

would continue to receive payments based

on their hospital-specific per resident

amounts updated for inflation.

Section 711. Hospitals with per resident

amounts above 140% of the geographically

adjusted national average amount will not

get an update from FY2004 through

FY2013.

No provision.

Section 711. Hospitals with per resident

a mo u n t s a b o v e 1 4 0 % o f t h e

geographically-adjusted national average

amount would not get an update from

FY2004 through FY2013.

Redistribute unused residency positions.

Medicare has different resident limits for

the IME adjustment and DGME payment.

Generally, the resident counts for both

IME and DGME payments are based on

the number of residents in approved

allopathic and osteopathic teaching

programs that were reported by the

hospital for the cost reporting period

ending in calendar year 1996. The DGME

resident limit is based on the unweighted

resident counts. It may differ from the

IME limit because in 1996 residents

training in non-hospital sites were eligible

for DGME payments but not for IME

payments. Generally, a hospital’s IME

adjustment and increased IPPS payments

depends on a hospital’s teaching intensity

as measured by the ratio of the number of

Section 422. A teaching hospital’s total

number of resident positions will be

reduced for cost reporting periods starting

July 1, 2005 if its reference resident level

is less than its applicable resident limit.

Rural hospitals with less than 250 acute

care inpatient beds would be exempt from

these reductions. The reduction for other

hospitals will equal 75% of the difference

between the hospital’s limit and its

reference resident level. The reference

resident level is the highest number of

allopathic and osteopathic resident

positions (before the application of any

weighting factors) for the hospital during

the reference period. This reference period

is either (1) the resident level of the most

recent cost reporting period of the hospital

for which a cost report has been settled (or

No provision.

Section 406. A teaching hospital’s total

number of Medicare-reimbursed resident

positions would be reduced by a portion of

its unused residency slots for cost reporting

periods starting January 1, 2004 if its

resident reference level is less than its

applicable resident limit. If so, the

reduction would be equal to 75% of the

difference between the hospital’s limit and

its resident reference level upon the timely

request for such an adjustment, for the cost

reporting period that includes July 1, 2003.

A hospital’s reference period would be the

three most recent settled or submitted

consecutive cost reporting periods on or

before September 30, 2002. The need for

an increase in the physician specialty and

the location involved would be considered.

Positions would be distributed to programs

CRS-25

Provision and Current Law

H.R. 1 as enacted

interns and residents per bed. Medicare’s

DGME payment to teaching hospitals is

based on its updated cost per resident

(subject to a locality adjustment and

certain payment corridors), the weighted

number of approved full-time equivalent

(FTE) residents, and Medicare’s share of

inpatient days in the hospital.

submitted, subject to audit) on or before

September 30, 2002 or (2) the resident

level for the cost reporting period that

includes July 1, 2003 subject to audit. A

hospital’s reference level may be adjusted

under certain circumstances. The increase

in applicable resident limits applies to

portions of cost reporting periods

occurring on or after July 1, 2005. The

aggregate increase may not exceed the

overall reduction in such limits. The

Secretary is directed to take several factors

into account when distributing the resident

positions to hospitals. No more than 25

additional FTEs will be given to any

hospital. These hospitals will be

reimbursed for DGME for the increase in

resident positions at the locality adjusted

national average per resident amount and

will receive increased IME payments as

well for discharges after July 1, 2005.

The Secretary is required to submit a

report to Congress no later than July 1,

2005 on whether to extend the application

deadline for increases in resident limits.

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

in rural areas and those not in large urban

areas on a first-come-first-served basis.

The hospital would have to demonstrate

that the resident positions would be filled;

not more than 25 positions would be given

to any hospital. These hospitals would be

reimbursed for DGME for the increase in

resident positions at the locality-adjusted

national average per resident amount. IME

payments would also be affected. The

Secretary would be required to submit a

report to Congress, no later than July 1,

2005, on whether to extend the application

deadline for increases in resident limits.

Skilled Nursing Facility (SNF) and Hospice Services.

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Skilled Nursing Facility Services (SNF)

Increase skilled nursing facility (SNF)

payments for AIDS patients. Under PPS,

SNFs are paid a daily rate that varies

depending on the care needs of the

Section 511. Starting October 1, 2004, the

per diem RUG payment for a SNF resident

with acquired immune deficiency

syndrome (AIDS) will be increased by

No provision.

Section 511. Starting October 1, 2003, the

per diem RUG payment for a SNF resident

with acquired immune deficiency

syndrome (AIDS) would be increased by

CRS-26

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

beneficiary. There are 44 resource

utilization groups (RUGs) used to adjust

payment for care needs; each group

reflects the intensity of services, such as

skilled nursing care and/or various therapy

and other services needed by a beneficiary.

128%. This increase does not apply after

the date that the Secretary certifies that the

case-mix adj ustment adequately

compensates for the increased costs

associated with caring for residents with

AIDS.

Exclude certain clinic visits from skilled

nursing facility (SNF) prospective

payment system (PPS) Under Medicare’s

PPS, SNFs are paid a predetermined

amount to cover all services provided in a

day adjusted for the care needs of the

patient. Certain services and items

provided a SNF resident, such as

physicians’ services, specified ambulance

services, specified chemotherapy items and

services, and certain outpatient services

provided by a Medicare-participating

hospital or CAH, are excluded from the

SNF-PPS and paid separately under Part B.

Section 410. Services provided to a SNF

resident by a rural health clinic (RHC) and

a federally qualified health center (FQHC)

after January 1, 2005 are excluded from

SNF-PPS if these services would have

been excluded if furnished by a physician

or practitioner who was not affiliated with

a RHC or FQHC.

Section 429. Services provided by a RHC

and a FQHC after January 1, 2005 would

be excluded from SNF-PPS if these

services would have been excluded if

furnished by a physician or practitioner

who was not affiliated with a RHC or

FQHC.

Outpatient services that are

beyond the general scope of SNF

comprehensive care plans that are provided

by an entity that is 100% owned as a joint

venture by two Medicare-participating

hospitals or critical access hospitals would

be excluded from the SNF-PPS.

Section 408. Provision is limited to RHCs

and FQHC services provided after January

1, 2004 and does not extend to outpatient

services that are beyond the general scope

of SNF comprehensive care plans.

Require background check on workers

for certain Medicare and Medicaid

health and long-term care providers.

Nursing homes and home health agencies

may request the Federal Bureau of

Investigation (FBI) to search its all-state

national data bank of arrest and

convictions for the criminal histories of

applicants who would provide direct

patient care, as long as states establish

mechanisms for processing these requests

(most states require checks for certain

groups of employees). Providers follow

certain procedures to conduct these checks.

Section 306. The Secretary, in consultation

with the Attorney General, is required to

establish pilot projects on background

checks for certain long-term care workers

with direct access to patients or residents in

no more than 10 states. The Secretary is

required to establish criteria for selecting

those states that volunteer to participate.

The bill specifies procedures for

conducting background checks, and

includes searches of state and FBI criminal

records. At least one state in the pilot

project would be allowed to establish

procedures for using employment agencies

Section 636. All providers of long-term

care services that participate in Medicare

and/or Medicaid would be required to

initiate background checks for certain

workers with access to a patient or

resident. Procedures for conducting

background checks would be specified,

and would include searches of state and

FBI criminal records. Violators of these

requirements would be subject to criminal

penalty fines and/or imprisonment.

Providers would be permitted to

provisionally employ workers pending

completion of the checks and would be

No provision.

128%. This increase would not apply after

the date that the Secretary certifies that the

case-mix adj ustment adequately

compensates for the increased costs

associated with caring for residents with

AIDS.

CRS-27

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

HHS maintains a national health care

fraud and abuse data base, the Healthcare

Integrity and Protection Data Bank

(HIPDB). Self-queries of HIPDB are

allowed by government agencies, health

plans, health care providers, suppliers and

practitioners. All states also maintain their

own registries of those persons that the

state determines meet the requirements to

work as nurse aides. Included in these

registries are data describing state findings

of resident neglect, abuse and/or the

misappropriation of resident property.

to conduct these checks. Providers may

provisionally employ workers pending

completion of the checks.

reimbursed for their costs of conducting

these checks.

The Secretary is required to pay those

states for the costs of conducting the pilot

program (reserving 4% of the payments for

the program’s evaluation). A sum of $25

million is appropriated from funds in the

Treasury not otherwise appropriated, for

fiscal years 2004 through 2007.

H.R. 1 (as passed the House)

The nurse aide registry would be expanded

to include all employees of long-term care

providers and renamed “employee

registry.” The investigatory responsibilities

of survey and certification agencies would

be expanded. $10.2 million would be

authorized to be appropriated for FY 2004,

with compliance deadlines varying by

provider group.

Grants would be available to develop

information on best practices in patient

abuse prevention training and for other

purposes.

State survey agencies are required to

investigate allegations of resident neglect,

abuse and/or the misappropriation of

resident property in nursing homes.

Long-term care providers could access the

HIPDB data bank and more information

would be required to be included. A report

on background checks would be due to

Congress no later than 2 years after

enactment.

Hospice Services

Permit hospices to provide core hospice

services under arrangement. Medicare

requires a hospice to provide certain core

services directly. These core services

include nursing care, medical social

services, and counseling services.

Section 946. Beginning with the date of

enactment, a hospice is permitted to enter

into arrangements with another hospice

program to provide core services in

extraordinary circumstances.

Section 406. Beginning with the date of

enactment, a hospice would be permitted

to enter into arrangements with another

hospice program to provide core service in

extraordinary circumstances.

Section 946. Same provision.

CRS-28

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Permit nurse practitioners, clinical

nurse specialists, and physician

assistants to attend hospice patients.

Medicare covers hospice services to care

for the terminal illness of a beneficiary.

Reasonable and necessary medical and

support services for the management of the

terminal illness are furnished under a

written plan-of-care established and

periodically reviewed by the patient’s

attending physician and the hospice. The

attending physician may be employed by

the hospice and is identified by the

beneficiary as having the most significant

role in the determination and delivery of

medical care to the beneficiary at the time

that hospice care is elected.

Section 408. The definition of an attending

physician in hospice is expanded to include

a nurse practitioner. A nurse practitioner is

not permitted to certify a beneficiary as

terminally ill for the purposes of receiving

the hospice benefit. The provision is

effective upon enactment.

Section 407. Beginning October 1, 2004,

a terminally ill beneficiary under hospice

care would be able to designate a physician

assistant, nurse practitioner, or clinical

nurse specialist (who is not an employee of

the hospice program) as his or her

attending physician. The written plan-ofcare would be able to be established by

these professionals who would be able to

periodically review the beneficiary’s

written plan-of-care.

Section 409. Nurse practitioners would be

permitted to be identified as a beneficiary’s

attending physician and would be able to

establish and review the written plan-ofcare as well as provide other services, but

would not be able to certify that a

beneficiary is terminally ill.

Pay for physician consultation services

in certain instances.

Current law

authorizes coverage of hospice services, in

lieu of certain other Medicare benefits, for

terminally ill beneficiaries who elect such

coverage. The hospice can be paid by

Medicare only after the beneficiary has

elected the hospice benefit

Section 512. Beginning January 1, 2005,

Medicare will pay for a hospice-employed

physician’s consultation with a terminally

ill beneficiary who has not elected the

hospice benefit.

No provision.

Section 512. As of January 1, 2004,

Medicare would pay for a hospiceemployed physician’s consultation with a

terminally ill beneficiary who has not

elected the hospice benefit.

Establish rural hospice demonstration

program. Medicare’s hospice services

are provided primarily in a patient’s home

to beneficiaries who are terminally ill and

who elect such services. Medicare law

prescribes that the aggregate number of

days of inpatient care provided to

Medicare beneficiaries who elect hospice

care in any 12-month period cannot

Section 409. The Secretary is required to

establish a demonstration project in 3

hospice programs to deliver hospice care to

Medicare beneficiaries in rural areas. A

project is not permitted to last longer than

5 years. Those Medicare beneficiaries who

lack an appropriate caregiver and are

unable to receive home-based hospice care

could receive hospice care in a facility of

No provision.

Section 418.

The Secretary would

establish a 5-year demonstration project in

three hospice programs to deliver hospice

care to Medicare beneficiaries in rural

areas. Those Medicare beneficiaries who

lack an appropriate caregiver and are

unable to receive home-based hospice care

would be able to receive hospice care in a

facility of 20 or fewer beds that offers a

CRS-29

Provision and Current Law

H.R. 1 as enacted

exceed 20% of the total number of days of

hospice coverage provided to these

persons.

20 or fewer beds that offers a full range of

hospice services within its walls.

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

full range of hospice services within its

walls. The facility would not be required

to offer services outside of the home and

the limit on the aggregate number of

inpatient days provided to Medicare

beneficiaries who elect hospice care would

be waived.

Other Part A Provisions.

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Make grants to States and certain

rural hospitals. The Secretary is able to

make grants for specified purposes to

States or eligible small rural hospitals

that apply for such awards under the

Medicare Hospital Flexibility Program.

The Secretary may also award grants to

hospitals to assist eligible small rural

hospitals (with less than 50 beds) in

implementing data systems required

under BBA 1997. Annual funding for the

Rural Hospital Flexibility Grant Program

was $25 million from 1999 through

2001; $40 million in FY2002; and $25

million in 2003. The authorization to

award the grants expired in FY2002.

Section 405(f). The rural hospital

flexibility grant program is authorized at

$35 million each year from FY2005

through FY2008. Starting in FY2005, a

state is required to consult with the hospital

association and rural hospitals in the state

on the most appropriate way to use such

funds. A state may not spend more than

the lesser of 15% of the grant amount or

the States’ federally negotiated indirect

rate for administrative purposes.

Beginning with FY2005, up to 5% of the

total amount appropriated for grants will

be available to the Health Resources and

Services Administration for administering

these grants.

Section 405(f). Under this program, the

Secretary would be able to award grants of

up to $50,000 to hospitals to assist eligible

small rural hospitals in reducing medical

errors and increasing patient safety under

the new Small Rural Hospital

Improvement Program. Appropriations of

$25 million each year from the Treasury

from FY2004 through FY2008 would be

authorized for this purpose.

Appropriations of $40 million each year

from FY2004 through FY2008 from the HI

Trust Fund for grants to states for specified

purposes would be authorized. States that

are awarded grants would be required to

consult with the hospital associations and

rural hospitals in the state.

Section 405(g). The authorization to

award grants under the existing Rural

Hospital Flexibility Program would be

established from FY2004 through FY2008

from the Federal HI Trust Fund at amounts

of up $25 million each year.

Establish health care infrastructure loan

program. No provision in current law.

Section 1016. A loan program will be

established to improve the cancer-related

health care infrastructure. In order to

receive assistance, the applicant will be

required to: (1) be engaged in cancer

research; and (2) be designated as a

Section 608. A loan program would be

established to improve the cancer-related

health care infrastructure in states with a

population of less than 3 million. In order

to receive assistance, the applicant would

be required to: (1) be engaged in cancer

No provision.

CRS-30

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

cancer center for the National Cancer

Institute (NCI) or be similarly designated

by the state. $200 million in budget

authority is authorized for July 1, 2004

through FY2008 to carry out the loan

program, $2 million for program

administration. By 4 years from enactment,

the Secretary will submit a report to

Congress on continuing the program.

research; and (2) be designated as a cancer

center for the NCI or be similarly

designated by the state. $49 million in

budget authority would be authorized for

July 1, 2004 through FY2008 to carry out

the loan program, $2 million for program

administration.

Establish capital infrastructure

revolving loan program The Public

Health Services Act establishes a fund in

the Treasury from which the Secretary of

HHS can make loans or loan guarantees in

the amounts that have been specified in

appropriations acts from time to time.

Under the Medicare Rural Hospital

Flexibility Program established as part of

Title XVIII, the Secretary may award

grants to rural hospitals to cover the

implementation costs associated with data

systems needed to meet the BBA 97

requirements.

No provision.

Section 609. The Secretary would be able

to make loans to any rural entity including

rural health clinics, a medical facility with

less than 50 beds in non- MSA counties or

in rural census tracts of MSAs, rural

referral centers or sole community

hospitals for various purposes. An

geographically reclassified entity would be

eligible for these loans and loan

guarantees.

The government’s total

exposure for this program would not

exceed $50 million per year and the

principal amount of all loans directly made

or guaranteed in any year is not to exceed

$250 million per year. In addition, rural

providers could apply to receive $50,000

planning grants to help assess capital and

infrastructure needs. The grants awarded

in any year would not exceed $2.5 million.

The program would expire after September

30, 2008.

No provision.

Establish rural community hospital

demonstration program. No provision

in current law.

Section 410A. The Secretary will establish

a 5-year rural community hospital (RCH)

demonstration program in selected rural

areas with low population densities. Under

Section 414. The Secretary would be

required to establish a 5-year RCH

demonstration program in 4 areas

including Kansas and Nebraska to pay for

No provision.

CRS-31

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

the program, up to 15 hospitals with 50

acute care beds will receive payment for

inpatient services either on the basis of its

reasonable costs (without regard to the

amount of customary charges) or using a

target amount.

The project will be

implemented not later than January 1, 2005

and not before October 1, 2004. The

project would be budget neutral. Certain

limits on beneficiary cost-sharing will be

imposed. The Secretary will submit a

report with recommendations to Congress

no later than 6 months after completion of

the project

acute inpatient services, outpatient

services, and certain home health services

in qualifying hospitals either on the basis

of its reasonable costs (without regard to

the amount of customary charges) or using

the respective prospective payment

systems for those services. In this instance,

reasonable cost reimbursement of capital

costs would include a return on equity

payment of 150% of the average rate of

interest paid by the HI Trust Fund. The

project would be budget neutral. Certain

limits on beneficiary cost-sharing would be

imposed.

Ensure status as long-term hospitals

for certain hospital-in-hospitals. A

hospital-in-a-hospital is a long-term care

hospital that is physically located in an

acute care hospital. CMS has established

certain requirements for these entities to

be excluded from the IPPS and be paid as

a long-term hospital. It exempted

existing entities (those that were in

existence on or before September 30,

1995) when these requirements were

established. On May 19, 2003, CMS

proposed that a grandfathered hospitalin-a hospital would only be exempt from

the existing requirements if it continues

to operate within the same terms and

conditions that were in effect as of

September 30, 1995.

No provision.

Section 416. The Secretary would not be

able to impose any special conditions on

the operation, size, number of beds, or

location of an existing long-term hospital

in order to continue participating in

Medicare or Medicaid or to continue being

classified as a long-term hospital. The

Secretary would not be able to adopt a

proposed regulation that would implement

such conditions or any revision to such

regulation that have a comparable effect.

[Duplicate provision is at Section 420B]

No provision.

Establish special treatment for certain

entities. Unlike other providers, acute

hospitals may apply to the Medicare

Section 508(f). Reclassifications of a

county or area made by an Act of Congress

that expired on September 30, 2003 shall

Section 417. Starting October 1, 2003,

Iredell County and Rowan County, North

Carolina would be deemed to be located in

No provision.

CRS-32

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

Geographic Classification Review Board

(MGCRB) for a change in classification

from a rural area to an urban area, or

reassignment from one urban area to

another urban area. Hospital

reclassifications are established on a

budget neutral basis so aggregate inpatient

prospective payment system expenditures

will not increase as a result. Aside from

reclassifications through the MGCRB,

hospitals have also been reclassified by

law.

be reinstated starting on January 1, 2004

through September 30, 2004.

Limit charges for contract health

services provided to Indians by

participating hospitals.

The Indian

Health Service (IHS) provides health care

both directly, through tribes and tribal

consortia, and through urban Indian

organizations.

Section 506. Hospitals that participate in

Medicare and that provide Medicare

covered inpatient hospital services under

the contract health services program

funded by the Indian Health Services and

operated by the Indian Health Service, an

Indian tribe, an Indian tribal organization,

or an urban Indian organization will be

paid in accordance with regulations

promulgated by the Secretary regarding

admission practices, payment

methodologies, and rates of payments.

This will include the requirement to accept

these rates as payment in full except for the

payment rates for neonatal care. This

provision will apply to Medicare

participation agreements in effect or

entered into by a date specified by the

Secretary. In no case will this date be later

than 1 year after the date of enactment.

the Charlotte-Gastonia-Rock Hill, NC-SC

Metropolitan Statistical Area for the

purpose of Medicare’s inpatient and

outpatient acute hospital payments as well

as SNF and home health payments. The

Secretary would be required to adjust the

wage index values of all hospitals in North

Carolina to assure that aggregate payments

for hospital inpatient operating costs are

not greater than they would have been

without such a change: also aggregate

payments for SNF and home health

services in North Carolina would not be

greater than they would have been without

such a change.

Section 412. The amendment would

prohibit Medicare providers from charging

the Indian Health Service more than the

Medicare-established rates for inpatient

hospital services.

H.R. 1 (as passed the House)

No provision.

CRS-33

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

Pay interest on clerical error into HI

Trust Fund. An incorrect amount of

income was transferred into the HI Trust

Fund in April 2001, because of a clerical

error.

An additional amount was

transferred into the HI Trust Fund in

December, 2001 to correct for the principal

amount associated with the error.

Correction of the interest associated with

the clerical error requires legislation.

Section 734. The Secretary of the Treasury

is required to transfer into the HI Trust

Fund an amount that would have been held

by that fund if the clerical error had not

occurred. The appropriation is to be made

and transfer is required within 120 days of

enactment of this Act. In the case of a

clerical error that occurs after April 15,

2001, the Secretary of the Treasury is

required to notify the appropriate

committees of Congress about the error

and the actions to be taken, before such

action is taken.

Section 947. Public hospitals, not

otherwise subject to the Occupational

Safety and Health Act of 1970, are

required to comply with the Bloodborne

Pathogens standard under section

1910.1030 of title 29 of the Code of

Federal Regulations. A hospital that fails

to comply with the requirement will be

subject to a civil monetary penalty, but

cannot be terminated from participating in

Medicare.

The provision applies to

hospitals as of July 1, 2004.

Section 623. After consultation with the

Secretary of HHS, the Secretary of the

Treasury would be required to transfer into

the HI Trust fund an amount that would

have been held by that fund if the clerical

error had not occurred within 120 days of

enactment.

Section 513. Same provision.

No provision.

Section 947. As of July 1, 2004, public

hospitals that are not otherwise subject to

OSHA would be required to comply with

the Bloodborne Pathogens standard under

Section 1910.1030 of Title 29 of the Code

of Federal Regulations. A hospital that

fails to comply with the requirement would

be subject to a civil monetary penalty, but

would not be terminated from participating

in Medicare.

Apply the Occupational Safety and

Health Act of 1970 (OSHA) bloodborne

pathogens standard to public hospitals.

Section 1866 of the Social Security Act

establishes certain conditions of

participation that hospitals must meet in

order to participate in Medicare.

H.R. 1 (as passed the House)

CRS-34

Provisions Relating to Part B

Physician and Practitioner Services.

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Establish floor on geographic

adjustment for physician fee schedule.

Medicare’s payment for physicians’

services under a fee schedule has three

components: the relative value for the

service, geographic adjustment factors and

a conversion factor into a dollar amount.

The geographic adjustment factors are

indices that reflect the relative cost

difference in a given area in comparison to

the national average

Section 412. The Secretary is required to

increase the value of any work geographic

index that is below 1.0 to 1.0 for services

furnished on or after January 1, 2004 and

before January 1, 2007

Section 421. For services furnished after

January 1, 2004, the Secretary would be

required to increase the value of any work

geographic index that is below .980 to

.980. The values for work index would be

raised to 1.0 for services furnished in 2005,

2006, and 2007. The practice expense and

malpractice geographic indices in low

value localities areas would be raised to

1.00 for services furnished in 2005 until

2008.

Section 605(a). For services furnished

after January 1, 2004 and before January 1,

2006, the Secretary would be required to

increase the value of any work geographic

index that is below 1.00. to 1.00 unless the

Secretary determines, based on the

subsequent GAO study which is due by

September 1, 2004, that there is no sound

economic rationale for such change.

Increase practice expense payments for

certain specialists. The relative value

associated with a particular physician

service is the sum of three components one

of which is practice expense. Practice

expense includes both direct costs (such as

a clinician’s time and the medical supplies

to provide a specific service to a patient)

and indirect costs (such as rent and

utilities). BBRA required the Secretary to

establish a data collection process and

standards for determining practice expense

relative values as well as to use data

collected or developed outside HHS, to the

maximum extent practicable, consistent

with sound data collection practices. The

relative values are periodically reviewed

and adjusted to account for various factors;

changes that cause more than $20 million

in spending trigger a budget neutrality

adjustment.

Sections 303(a) and 304. Beginning in

2004, the practice expense relative value

units for oncology administration services

will be adjusted using survey data that was

collected as of January 1, 2003 (this data

was submitted by the American Society of

Clinical Oncologists); the additional

expenditures will be exempt from the

budget neutrality requirement in 2004. The

work relative value units for drug

administration services furnished on or

after January 1, 2004 will be equal to the

work relative value units for a level 1

office medical visit for an established

patient. Starting in 2005 through 2006, the

practice expense relative values for other

drug administration services will be

increased in the physician fee schedule

using appropriate supplemental survey data

submitted by March 1, 2004, for 2005, or

March 1, 2005 for 2006. Data will be

Section 432(b)(1). The Secretary would

establish the practice expense relative

values for the CY2004 fee schedule using

the survey data from a physician specialty

group as of January 1, 2003 if the data

appropriately covers the practice expenses

for oncology administration services. The

Secretary would review and appropriately

modify payments for the administration of

more than one anti-cancer agent to a

patient in a day. The resulting increase in

spending would be exempt from the

budget neutrality requirement. Also, the

Secretary would change the non-physician

work pool method so that associated

payments are not inordinately reduced.

These adjustments would not be

implemented unless other outpatient drug

pricing changes in the section are

implemented.

Section 303(a) The Secretary would

increase the practice expense relative

values for the physician fee schedule in

CY2005 using appropriate survey data on

the expenses associated with drug

administration provided by entities and

organizations that are submitted by

December 31, 2004. Using existing

processes for coding considerations, the

Secretary would evaluate existing codes

for drug administration to ensure accurate

reporting and billing for these services.

Any resulting CY2005 payment increase

would not be subject to budget neutrality

provisions, would be exempt from

administrative and judicial review, and

would be treated as a change in law and

regulation in the sustainable growth rate

determination.

Subsequent budget

neutrality adjustments would be permitted.

The same non-physician work pool

CRS-35

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

methodology provision as in S. 1 is

included.

accepted from those specialists who

received 40% or more of their Medicare

payments in 2002 from drugs and

b iologicals. The existing d r ug

administration codes will be evaluated

under existing processes after consultation

with interested parties. These adjustments

in practice expense relative value units for

certain drug administration services are

exempt from the budget neutrality

requirements in 2005, 2006, and 2007.

The Secretary can adjust practice expense

payments in subsequent years, subject to

the budget neutrality provisions. The

effect of the nonphysician workpool

methodology will not be changed.

Medicare’s payment policy in effect on

October 1, 2003, for the administration of

more than one drug or biological to an

individual on a single day through the push

technique will be modified and the

increased payments will be exempt from

the budget-neutrality requirement in 2004.

A transitional adjustment (or additional

payment) of 32% in 2004 and 3% in 2005

will be made.

Increase payments to physicians in

newly created scarcity areas; change

Medicare Incentive Program (MIP).

Physicians providing services in a health

professional shortage area (HPSA) are

entitled to an incentive payment from the

Medicare program.

This incentive

payment is a 10% increase over the

amount which would otherwise be paid

under the physician fee schedule.

Section 413. Certain physicians, both

primary care and specialists, in scarcity

areas are eligible for an additional 5%

increase in payments starting on January 1,

2005 and ending by January 1, 2008. To

determine the scarcity areas, the Secretary

will calculate ratios of practicing primary

care physicians and specialists to Medicare

beneficiaries, rank each county (or

equivalent area) according to each ratio,

H.R. 1 (as passed the House)

Section 422. The Secretary would be

required to establish procedures to

determine when a physician in a HPSA is

eligible for a bonus payment.

The

Secretary would also be required to

establish an ongoing education program,

an ongoing study and submit annual

reports. A GAO report would be required

no later than 1 year from enactment.

Section 417. Same provision with respect

to Secretary developing procedures to

identify physicians eligible for bonus

payments. Also, physicians in newlycreated scarcity areas as well as other

physicians would be eligible for an

additional 5% increase in their fee

schedule payment amounts. The Secretary

would also be required to publish a list of

all areas that qualify as a HPSA each year

CRS-36

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

in the proposed and final rule

implementing the physician fee schedule.

and then identify those areas with the

lowest ratios which collectively represent

20% of the total Medicare beneficiary

population in those areas. The list of

counties will be revised no less often than

once every 3 years unless there are no new

data. There will be no administrative or

judicial review of the designation of the

county or area as a scarcity area, the

designation of an individual physician’s

specialty, or the assignment of a postal zip

code to the county or other area. MIP

payments to physicians in HPSAs that

consist of entire counties will be made

without requiring the physician to identify

the HPSA when requesting payment.

Revise reassignment provisions.

Beneficiaries are the parties who are

entitled to receive Medicare payments

under the Medicare statute. However, most

beneficiaries assign these rights to

participating physicians, suppliers, and

other providers who directly provide the

care and then submit claims for Medicare

payment. Although Medicare permits

physicians to reassign their right to

payment to certain other entities, they

cannot reassign their right to payment to

staffing companies (entities that retain

physicians on a contractual basis).

Section 952. The bill permits Medicare

payment for Part B services to be made to

an entity, as defined by the Secretary, that

has a contractual arrangement with the

physician or other person who provided

the service. In order to bill for the service,

the entity and the contractual arrangement

will have to meet program integrity and

other safeguards specified by the

Secretary.

Section 434.

Staffing companies

(individuals or entities) would be able to

submit claims to Medicare for physician

services provided under contractual

arrangement between the company and the

physician, if the arrangement meets

appropriate program integrity and other

safeguards established by the Secretary.

Section 952. Same provision with some

drafting differences.

Extend provision for separate payments

of certain inpatient pathology services.

In general, independent laboratories cannot

directly bill for the technical component of

pathology services provided to Medicare

Section 732. Direct payments for the

technical component for these pathology

services will be made for services

furnished during 2005 and 2006.

Section 435. Direct payments for the

technical component for these pathology

services would be made for services

furnished during 2005.

Section 734. Similar provision except

Medicare would make direct payments for

the technical component of pathology

services from 2004 though 2008. Would

also specify that a change in hospital

CRS-37

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

ownership would not affect these direct

billing arrangements.

beneficiaries who are inpatients or

outpatients of acute care hospitals. BIPA

permitted certain independent laboratories

with existing arrangements with acute

hospitals to do so if the arrangement had

been in effect as of July 22, 1999. The

direct payments for these services apply to

services furnished during a 2-year period

starting on January 1, 2001 and ending

December 31, 2002.

Increase Medicare payments to

physicians in Alaska. Physicians that

provide services to Medicare beneficiaries

are paid based on Medicare’s physician fee

schedule that is adjusted to account for

geographic variations in practice expenses.

Section 602. Physicians in Alaska with

values of practice expense, malpractice,

and work geographic index below 1.67

will have these values raised to 1.67

starting January 1, 2004 and before

January 1, 2006.

Section 450K. For 2004, physicians in

Alaska would be paid 90% of the VA

physician fee schedule used for FY2001.

In 2005, this amount would be increased

by the update amount for the Medicare

physician fee schedule for 2005. If no VA

fee schedule amount exists for a service,

the payment amount would be an

adjustment to the Medicare payment. The

adjustment would equal 90% of the overall

percentage difference between the two fee

schedules weighted by the distribution of

Medicare claims in 2001.

No provision.

Establish update to physician fee

schedule. Medicare pays for services of

physicians and certain non-physician

practitioners on the basis of a fee schedule.

The law provides a specific formula for

calculating the annual update to the

conversion factor.

Section 601. The update to the conversion

factor for 2004 and 2005 will not be less

than 1.5% and will be exempt from the

budget neutrality adjustment.

No provision.

Section 601. The update to the conversion

factor for 2004 and 2005 would be not less

than 1.5% and would be exempt from the

budget neutrality adjustment.

CRS-38

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Change the sustainable growth rate

formula. Medicare pays for services of

physicians and certain non-physician

practitioners on the basis of a fee schedule.

The law provides a specific formula for

calculating the annual update to the

conversion factor which regulates overall

spending for physicians’ services. Several

factors enter into the calculation of the

formula. One of those factors is the

sustainable growth rate (SGR) which is

essentially a target for Medicare spending

growth in physicians’ services. One

measure used to calculate the SGR is the

annual percentage change in gross

domestic product (GDP). If expenditures

exceed the target, the update for a future

year is reduced. If expenditures are less

than the target, the update is increased.

The recent negative update adjustment

factors reflect the application of the SGR

system.

Section 601. The formula for calculating

the sustainable growth rate will be

modified. Starting in 2003, the GDP factor

will be based on the annual average change

over the preceding 10 years (a 10-year

rolling average). The 10-year rolling

average calculation of the GDP will apply

to computations of the SGR starting in

2003.

Section 464. The provision expresses a

sense of the Senate that Medicare

beneficiary access to quality care may be

compromised if Congress does not prevent

cuts in 2004 and following years that stem

from the SGR formula. [Duplicate of

Section 622]

Section 601. The formula for calculating

the sustainable growth rate would be

modified. Starting with the SGR for 2003,

the GDP factor would be based on the

annual average change over the preceding

10 years (a 10-year rolling average). This

calculation would replace the current GDP

factor which measures the 1-year change

from the preceding year.

Require GAO report on physician

compensation. No provision in current

law.

No provision.

Section 629. The provision provides a

sense of the Senate that the reductions in

Medicare’s physician fee schedule are

destabilizing, primarily caused by the

sustainable growth rate calculation, and

that CMS should use its discretion to make

certain exclusions and adjustments to the

SGR calculation.

No provision.

Section 953(a). No later than six months

from enactment, GAO would report to

Congress on the appropriateness of the

conversion factor updates and the SGR

formula for 2002 and subsequently; the

stability and the predictability of the

updates; and alternatives to the SGR in the

update. No later than 12 months from

enactment, GAO would be required to

report to Congress on all aspects of

physician compensation for Medicare

services.

The report would review

alternatives to the physician fee schedule.

CRS-39

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Extend Medicare’s private contracting

authority to dentists and podiatrists.

Private contracting allows a physician and

Medicare beneficiary not to submit a claim

for a service which would otherwise be

covered and paid for by Medicare. Under

private contracting, physicians (not

podiatrists or dentists) can bill patients at

their discretion without being subject to

upper payment limits specified by

Medicare. If a physician decides to enter a

private contract with a Medicare

beneficiary, that physician must agree to

forego any reimbursement by Medicare for

all Medicare beneficiaries for 2 years.

Section 603. Doctors of dental surgery or

of dental medicine, doctors of podiatric

medicine, and doctors of optometry will be

able to enter into private contracts with

Medicare beneficiaries. The provision will

be effective upon enactment.

No provision.

Section 604. Doctors of dental surgery or

of dental medicine and doctors of podiatric

medicine would be able to enter into

private contracts with Medicare

beneficiaries.

Require GAO report on geographic

differences in physician payments. No

provision in current law.

Section 413(c). GAO will study payment

differences under the physician fee

schedule for different geographic areas.

The study, including recommendations

concerning use of more current data and

use of cost data rather than price proxies, is

due to Congress within 1 year of the

enactment date.

Section 444. GAO would be required to

study geographic differences in payment

amounts in the physician fee schedule and

report to Congress within 1 year of

enactment.

Section 413. Same provision.

Require GAO report on beneficiary

access to services including concierge

care and impact of these mandatory fees

and/or services on access Periodic

analyses by the Physician Payment Review

Commission, and subsequently MedPAC,

as well as CMS showed that access to

physicians’ services generally remained

good for most beneficiaries through 1999.

More recent surveys convey a more mixed

picture however.

Section 604. GAO is required to conduct

a study on access of Medicare beneficiaries

to physicians’ services under Medicare and

submit a report to Congress on this study

within 18 months of enactment.

Section 650. GAO would study concierge

care provided to Medicare beneficiaries

and its effect on their access to Medicare

covered services and submit a report to

Congress, including recommendations, no

later than 12 months from enactment.

Section 447. GAO would submit a report

to Congress, including recommendations,

regarding the effect of concierge care on

beneficiaries’ access to Medicare covered

services by 12 months from enactment. In

this instance, concierge care would be an

arrangement where a physician or

practitioner charges an individual a

membership fee or other fee or requires the

purchase of an item or service as a

prerequisite for providing the care.

Section 602(a). GAO would be required

to conduct a study on access of Medicare

beneficiaries to physicians’ services under

Medicare including beneficiaries’ use of

services through an analysis of claims data

and the extent to which physicians are not

accepting new Medicare beneficiaries as

patients.

CRS-40

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Require Institute of Medicine (IOM)

study on supply of physicians. No

provision in current law.

No provision.

No provision.

Section 602(b). The Secretary would be

required to request that IOM study the

adequacy of the supply of physicians

(including specialists) in the country and

the factors that affect supply.

The

Secretary would be required to submit the

results of the study in a report to Congress

no later than 2 years from the date of

enactment.

Require MedPAC report on payment

for physician services. No provision in

current law.

Section 303(a). MedPAC is required to

review the payment changes as they affect

payments for items and services furnished

by oncologists and for drug administration

services furnished by other specialists and

submit a report to the Secretary. The

MedPAC report on oncologists’ payments

is due to Congress by January 1, 2006 and

the report on drug administration services

furnished by other specialists is due by

January 1, 2007. The Secretary could

make appropriate adjustments to payments

as part of the rulemaking for physician

payments for 2006.

Section 606. MedPAC is required to

report to Congress on the effects of

refinements to the practice expense

component, by specialty within 1 year of

enactment. A MedPAC report on the

effect of increased physician services on

the well-being of Medicare beneficiaries

and other factors is due within 1 year of

enactment as well.

No provision.

Section 603. MedPAC would be required

to report to Congress on the effects of

refinements to the practice expense

component of payments for physicians’

services after full implementation of the

resource-based payment in 2002.

CRS-41

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Require consultative process before

establishing new evaluation and

management (E&M) codes. Initial E&M

documentation guidelines were issued in

1995 with revisions issued in 1997; both

remain in force today. Approximately 40%

of Medicare payments for physician

services are for services which are

classified as evaluation and management

services (i.e., physician visits). The

Secretary stopped work on the current redraft of E&M codes in order to reassess the

entire effort.

Section 941. The Secretary is prohibited

f r o m i mp le me nting n e w E & M

documentation guidelines unless the

Secretary developed the guidelines in

collaboration with practicing physicians,

established a plan with goals, conducted

pilot projects, and established and

implemented an education program on the

use of the guidelines with appropriate

outreach. Any changes to E&M guidelines

are required to reduce paperwork burden

on physicians.

Section 553.

The Secretary, before

making changes in documentation

guidelines for, providing clinical examples

of, or changing codes for reporting E&M

physician services, would be required to

ensure that the process used in developing

the guidelines, examples, or codes was

widely consultative among physicians,

reflects a broad consensus among

specialties, and would allow verification of

reported and furnished services.

Section 941. The Secretary would be

prohibited from implementing new E&M

documentation guidelines unless the

Secretary developed the guidelines in

collaboration with practicing physicians;

established a plan with goals; conducted

pilot projects;

established and

implemented an education program on the

use of the guidelines with appropriate

outreach. Changes to E&M guidelines

would be required to reduce paperwork

burden on physicians.

Pay for additional hospital outpatient

department (HOPD) mammography

services using physician fee schedule.

Screening mammography coverage

includes the radiological procedure as well

as the physician’s interpretation of the

results of the procedure. The usual Part B

deductible is waived for tests. Payment is

made under the physician fee schedule.

Certain services paid under fee schedules

or other payment systems are excluded

from Medicare’s OPPS-PPS. For

diagnostic mammography services

provided in an HOPD, the technical

component of the fee is paid under the

HOPD PPS.

Section 614. Screening mammography

and diagnostic mammography will be

excluded from OPPS. This provision will

apply to screening mammography services

furnished on or after the date of enactment

a n d will ap p ly to d ia g n o s t i c

mammography services furnished on or

after January 1, 2005.

Section 445. Unilateral and bilateral

diagnostic mammography as well as

screening mammography services would

be paid for under the physician fee

schedule beginning January 1, 2005.

Section 614. Same provision except

effective date would be January 1, 2004.

Pay the physician for

pharmacy

management services. No provision in

current law.

Section 303(e)(2). The Secretary will pay

a dispensing fee (less the applicable

deductible and coinsurance amounts) to

licensed approved pharmacies for covered

immunosuppressive drugs, oral anti-cancer

drugs, and oral anti-nausea drugs used as

part of a chemotherapeutic regimen.

No provision.

Section 303(g). The Secretary would be

required to provide for separate payments

in the physician fee schedule to cover the

administration and acquisition costs

associated with covered drugs and

biologicals furnished by a contractor under

the competitive acquisition program.

CRS-42

Hospital Outpatient Department (HOPD), Ambulatory Surgery Center (ASC), and Clinic Services.

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Hospital Outpatient Department (HOPD) Services

Extend hold-harmless provisions for

small rural hospitals. The outpatient

prospective payment system (OPPS) was

implemented in August 2000 for most

acute care hospitals. Under hold-harmless

provisions, rural hospitals with no more

than 100 beds are paid no less under this

PPS system than they would have received

under the prior reimbursement system for

covered HOPD services provided before

January 1, 2004.

Section 411. The hold-harmless provisions

governing OPPS for small rural hospitals

are extended to HOPD services provided

before January 1, 2006. The Secretary is

required to conduct a study to determine if

the costs, by ambulatory payment

classification (APC) groups, incurred by

rural providers exceed those costs incurred

by urban providers. If appropriate, the

Secretary will provide for a payment

adjustment to reflect the higher costs of

rural providers by January 1, 2006

Section 423. The hold-harmless provisions

governing OPPS reimbursement for small

rural hospitals would be re-established in

2006.

Section 407. The hold-harmless provision

would be extended to January 1, 2006.

The Secretary would be required to

conduct a study to determine if the costs by

ambulatory payment classification (APC)

groups incurred by rural providers exceeds

those costs incurred by urban providers

and provide an appropriate payment

adjustment to reflect the higher costs of

rural providers by January 1, 2005.

Establish hold-harmless provision for

sole community hospitals (SCHs). No

provision in current law.

Section 411. The hold harmless provisions

are extended to SCHs located in a rural

area starting for cost reporting periods

beginning on and after January 1, 2004 and

ending for HOPD services furnished

before January 1,2006.

Section 423.

OPPS hold-harmless

provisions would be extended to SCHs

located in rural areas for services provided

in 2006.

Section 407. The hold-harmless provisions

would be extended to SCHs for 2004 and

2005.

Change hold-harmless provision for

children’s hospitals. OPPS contains a

permanent hold-harmless for cancer

hospitals and children’s hospitals where

payments to these hospitals cannot fall

below what these hospitals would have

received under the payment system in

place before OPPS.

No provision.

Section 450J.

These provisions for

children’s hospitals would be modified so

that those in Maryland (which has a

Medicare waiver) that are paid less under

OPPS than what would have been received

under the prior system or using hospital’s

reasonable operating and capital costs

receive additional payments after October

1, 2003.

No provision.

Increase HOPD payments to small rural

hospitals. Under OPPS, which was

implemented in August, 2000, Medicare

No provision.

Section 424. Medicare’s fee schedule

payments would be increased by 5% for

covered outpatient clinic and emergency

No provision.

CRS-43

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

room visits that are provided by rural

hospitals with up to 100 beds beginning

January 1, 2005 and before January 1,

2008. Beneficiary copayment amounts

would not be affected. The increased

Medicare payments would not be

considered when calculating a rural

hospital’s hold-harmless payment. Budget

neutrality provisions for Medicare’s OPPS

would not apply. Finally, these increased

payments would not affect Medicare

payments for covered outpatient services

after January 1, 2008.

pays for covered services using a fee

schedule based on APCs. Beneficiary

copayments are established as a percentage

of Medicare’s fee schedule payment and

differ by APC. Certain hospitals, including

rural hospitals with no more than 100 beds,

are protected, either on a temporary or on

a permanent basis, from financial losses

that result from implementation of OPPS

under hold-harmless provisions

Increase payments to sole community

hospitals (SCHs) for clinical diagnostic

laboratory tests. Generally, hospitals that

provide clinical diagnostic laboratory tests

under Part B are reimbursed using a fee

schedule. SCHs that provide some clinical

diagnostic tests 24 hours a day qualify for

a 2% increase in the amounts established in

the outpatient laboratory fee schedule; no

beneficiary cost-sharing amounts are

imposed.

No provision.

Section 427. SCHs that provide clinical

diagnostic laboratory tests covered under

Part B in 2005 and 2006 would be

reimbursed their reasonable costs of

furnishing the tests. No beneficiary costsharing amounts would apply to these

services.

No provision.

Establish new payment method for

certain HOPD drugs and biologicals.

Under OPPS, Medicare pays for covered

outpatient drugs in one of three ways: (1)

as a transitional pass-through payment; (2)

as a separate APC payment; or (3) as

packaged APC payment with other

services.

Transitional pass-through

payments are extra payments to cover the

incremental cost associated with certain

Section 621. Starting January 1, 2004,

specified covered HOPD drugs will be

paid based on a percentage of the reference

average wholesale price for the drug. The

percentage of the reference price for solesource drugs manufactured by one entity

can be no less than 88% and no greater

than 95% in CY2004 and no less than 83%

and no greater than 95% in CY2005. The

percentage of the reference price for

Section 436. A new payment method for

certain HOPD drugs and biologicals would

be established for 2005 and 2006. The

drugs and biologicals would be those for

which hospitals received transitional passthrough payments prior to January 1, 2005

that have been assigned to drug-specific

APCs beginning the date of enactment. Or

those that would have been paid in such a

manner but for the application of this

Section 621(a). Starting for services

furnished beginning January 1, 2004,

certain covered HOPD drugs would be

paid no more than 95% of AWP or less

than the transition percentage of the AWP

from CY2004 through CY2006.

In

subsequent years, payment would be equal

to average price for the drug in the area

and year established by the competitive

acquisition program under 1847A. The

CRS-44

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

medical devices, drugs and biologicals that

are inputs to an existing service. The

additional payment for a given item is

established for 2 or 3 years and then the

costs are incorporated into the APC

relative weights.

BBRA specified that

pass-through payments would be made for

current orphan drugs; current cancer

therapy drugs, biologicals, and

brachytherapy; current radiophamaceutical

drugs and biological products; and new

drugs and biological agents. Generally,

CMS has established that a pass-through

payment for an eligible drug is based on

the difference between 95% of its average

wholesale price and the portion of the

otherwise applicable APC payment rate

attributable to the existing drug, subject to

a budget neutrality provision.

innovator multiple source drugs can be no

greater than 68% in CY2004 and CY2005.

The percentage of the reference price for

noninnovator multiple source drugs can be

no greater than 46% in CY2004 and

CY2005. The reference average wholesale

price is the average wholesale price for the

drug as of May 1, 2003. In subsequent

years, payment will equal to the average

acquisition cost for the drug for that year

(which may vary by hospital group taking

into account hospital volume or other

hospital characteristics) or if hospital

acquisition cost data are not available, the

average price for the drug in the year

established under Sections 1842(o), 1847A

or 1847B (which specify Medicare

payments for outpatient drugs covered

under Part B) as calculated and adjusted by

the Secretary. The covered HOPD drugs

affected by this provision are outpatient

drugs that were paid on a pass-through

basis on or before December 31, 2002.

These would not include drugs for which

pass-through payments are first made on or

after January 1, 2003; those drugs for

which a temporary HCPCS code has not

been assigned; or, during 2004 and 2005,

orphan drugs.

Drugs for which a

temporary HCPCS code has not been

assigned will be reimbursed at 95% of the

AWP. Orphan drugs during this 2-year

time period will be paid at an amount

specified by the Secretary.

provision. Payments made under this

provision would be exempt from the

budget neutrality requirement in FY2005

and FY2006. In 2005, these drugs would

be paid as follows: a single source or

orphan product would be paid at 94% of

the AWP existing on May 1, 2003; a

multiple source drug would be paid at 91%

of that existing average wholesale price

(AWP); and a drug with generic versions

would be paid at 71% of that existing

AWP. Those items furnished as part of

other HOPD services would be paid using

the same applicable percentage of the

AWP that would have been determined on

May 1, 2003 if such payment were to have

been made on that date. For 2006, these

payment amounts would be increased by

CPI-U. A private non-profit organization

under contract would determine the

hospital acquisition, pharmacy services,

and handling costs for each of the drugs

paid in this fashion to set payments in 2007

and beyond. This analysis would be

accurate within 3% of the true mean

hospital acquisition and handling costs at a

95% confidence level; begin by January 1,

2005; and be updated annually. Starting

January 1, 2006, a report would be due to

Congress each year.

covered HOPD drugs affected by this

provision are radiopharmaceuticals and

outpatient drugs that were paid on a passthrough basis on or before December 31,

2002. These would not include drugs for

which pass-through payments are first

made beginning January 1, 2003 or those

drugs for which a temporary HCPCS code

has not been assigned. Drugs for which a

temporary HCPCS code has not been

assigned would be reimbursed at 95% of

the AWP. The transition percentage to

AWP for sole-source drugs manufactured

by one entity is 83% in CY2004, 77% in

CY2005, and 71% in CY2006. The

transition percentage to AWP for innovator

multiple source drugs is 81.5% in CY2004,

75% in CY2005, and 68% in CY2006. The

transition percentage to AWP for multiple

source drugs with generic drug competitors

is 46% in CY2004 through CY2006. The

additional expenditures resulting from

these provisions would not be subject to

the budget neutrality requirement. Starting

in CY2004, the Secretary would be

required to lower the threshold for

establishing a separate APC group for

higher costs drugs from $150 to $50 per

administration. These separate drug APC

groups would not be eligible for outlier

payments.

Starting in CY2004,

Medicare’s transitional pass-through

payments for drugs and biologicals

covered under a competitive acquisition

contract would reflect the amount paid

under that contract, not 95% of AWP.

MedPAC will submit a report to the

CRS-45

Provision and Current Law

H.R. 1 as enacted

Secretary on the payment adjustment to

ambulatory payment classifications for

specified covered outpatient drugs that

takes into account overhead and related

expenses (such as pharmacy services and

handling costs). The Secretary is

authorized to adjust the weights for

ambulatory payment classification based

on such a recommendation. The additional

expenditures that result from the previous

changes will not be taken into account in

establishing the conversion, weighting and

other adjustment factors for 2004 and

2005, but will be taken into account in

subsequent years.

For drugs and biologicals furnished in

2005 and 2006, the Secretary is required

to lower the threshold for establishing a

separate APC group for higher cost drugs

from $150 to $50 per administration.

These separate drug APC groups are not

eligible for outlier payments. Starting in

CY2004, Medicare’s transitional passthrough payments for drugs and

biologicals covered under a competitive

acquisition contract will equal the average

price for the drug or biological for all

competitive acquisition areas calculated

and adjusted by the Secretary for that year.

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

CRS-46

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Limit application of functional

equivalence standards when determining

a drug’s eligibility for transitional pass

though payments. Starting in 2003,

CMS decided that a new anemia treatment

for cancer patients was no longer eligible

for pass-though payments under OPPS,

because it was functionally equivalent

(although not structurally identical or

therapeutically equivalent) to an existing

treatment. The transitional pass-through

rate for the drug was reduced to zero

starting for services in 2003.

Section 622. The Secretary is prohibited

from publishing regulations that apply a

functional equivalence standard to a drug

or biological for transitional pass-through

payments under OPPS. This prohibition

applies to the application of the functional

equivalence standard on or after the date of

enactment, unless such application was

made prior to enactment and the Secretary

applies such standard to the drug only for

the purposes of transitional pass-through

payments. This provision does not affect

the Secretary’s authority to deem a

particular drug to be identical to another

drug if the 2 products are pharmaceutically

equivalent and bioequivalent, as

determined by the Commissioner of the

Food and Drug Administration.

Section 437. The Secretary would not be

able to apply this standard to a drug or

biological for transitional pass-through

payments under OPPS. This prohibition

would apply, unless such a standard was

made prior to enactment and only for the

purposes of transitional pass-through

payments. The Secretary would still be

able to deem a particular drug as identical

to another drug if the two products are

pharmaceutically equivalent and

bioequivalent, as determined by FDA.

Section 621(c). The Secretary would be

prohibited from applying a “functional

equivalence” standard or any similar

standard in order to deem a particular drug

or biological to be similar or functionally

equivalent to another drug unless the

Commissioner of FDA establishes such a

standard and certifies that the two products

are functionally equivalent. The Secretary

would be able to implement this standard

after meeting applicable rulemaking

requirements. The provision prohibits the

application of this standard to a drug or

biological prior to June 13, 2003.

Establish separate payments for certain

brachytherapy devices. In Medicare’s

OPPS, current drugs and biologicals that

were eligible for transitional pass-through

payments on or prior to January 1, 2000,

were removed from that payment status

effective January 1, 2003.

CMS

established separate APC payments for

certain of these drugs. Other drugs such as

brachytherapy seeds (radioactive isotopes

used in cancer treatments) were packaged

into payments for brachytherapy

procedures.

Section 421(b). From January 1, 2004

through December 31, 2006, Medicare’s

payments for brachytherapy devices will

equal the hospital’s charges adjusted to

cost. Charges for such devices will not be

included in determining any outlier

payments. The Secretary is required to

create separate APCs to pay for these

devices that reflect the number, isotope,

and radioactive intensity of such devices,

including separate groups for palladium103 and iodine-125 devices. GAO is

required to study the appropriateness of

payments for brachytherapy devices and

submit a report including

recommendations to Congress and to the

Secretary no later than January 1, 2005.

Section 450A. The Secretary would be

required to conduct a budget neutral, 3year demonstration project that would

exclude brachytherapy devices from the

OPPS and make payment on the basis of

the hospital’s charges for each device,

adjusted to cost. The Secretary would be

required to create separate, additional

groups of covered HOPD services for

brachytherapy devices to reflect the

number, isotope, and radioactive intensity

of such devices.

Section 621(b). From 2004 through

2006, payments for brachytherapy devices

would equal the hospital’s charges adjusted

to cost. The Secretary would be required

to create separate APCs to pay for these

devices that reflect the number, isotope,

and radioactive intensity of such devices.

This would include separate groups for

palladium-103 and iodine-125 devices.

GAO would submit a report to Congress

on the appropriateness of such payments

no later than January 1, 2005.

CRS-47

Provision and Current Law

H.R. 1 as enacted

Require hospital acquisition study. No

provision in current law

Section 621(a). GAO will conduct an

acquisition cost survey for each specified

covered drug in 2004 and 2005. No later

than April 1, 2005, GAO will furnish this

survey data to set 2006 payment rates.

GAO will submit a report to Congress on

2006 rates no later than 30 days after

issuance of the proposed rule setting forth

these rates.

GAO will submit

recommendations regarding the survey

methodology and

frequency to the

Secretary who will conduct periodic

surveys to set subsequent payment rates.

S. 1 (as passed the Senate)

No provision.

H.R. 1 (as passed the House)

Section 621(d). The Secretary would

study the hospital acquisition costs related

to covered outpatient drugs that cost $50

per administration and more that are

reimbursed under the OPPS.

Ambulatory Surgery Center Services (ASCs)

Reduce ambulatory surgery center

(ASC) update. Medicare uses a fee

schedule to pay for the facility services

related to a surgery provided in an ASC.

From FY1998 through FY2002, the update

was established as the CPI-U minus 2.0

percentage points, but not less than zero.

In 2003 and subsequent years, the update is

CPI-U.

Section 626. In FY2004, starting April 1,

2004, the ASC update will be the CPI-U

(estimated as of March 31, 2003) minus

3.0 percentage points. In FY2005, the last

quarter of calendar year 2005, and each of

the calendar years 2006 through 2009 the

update will be 0%. A revised payment

system for surgical services furnished in an

ASC will be implemented on or after

January 1, 2006 and not later than January

1, 2008. It will be budget neutral in its

implementation year. There will be no

administrative or judicial review of the

ASC classification system, relative

weights, payment amounts and any

geographic adjustments. GAO will study

the relative costs of ASC procedures.

No provision.

Section 625. The reduction in the update

would be reestablished for FY 2004 - FY

2008. ASCs would get an increase

calculated as the CPI-U minus 2.0

percentage points (but not less than zero)

in each of the fiscal years from 2004

through 2008.

CRS-48

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Rural Health Clinics (RHCs) and Federally Qualified Health Clinics (FQHCs) Services

Increase payments for rural health

clinics. BBA 1997 extended the per visit

payment limits that had existed for

independent rural health clinics to

provider-based rural health clinics (RHC)

except for those clinics based in small rural

hospitals with fewer than 50 beds. For

services rendered from January 1, 2003

through February 28, 2003, the RHC upper

payment limit is $66.46, which reflects a

2.6% increase in 2002 payment limit as

established by the 2002 Medicare

Economic Index (MEI). For services

rendered from March 1, 2003 through

December 31, 2003, the Medicare RHC

upper payment limit is $66.72, which

reflects a 3.0% increase in the 2002

payment limit as established by the 2003

MEI. The 2002 MEI was used as an

update for 3 months because of the delayed

implementation.

No provision.

Section 428. The RHC upper payment

would be increased to $80.00 for calendar

year 2005. The MEI applicable to primary

care services would be used to increase the

payment limit in subsequent years.

No provision.

Covered Part B Outpatient Drugs (Not Provided by a HOPD).

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Pay for existing outpatient drugs

provided incident to a physician’s

services. Although Medicare does not

currently have an outpatient prescription

drug benefit, it covers approximately 450

outpatient drugs and biologicals authorized

by statute, including those: (1) that are

Section 303(b) In general, payments for

most covered Part B drugs, including

intravenous immune globulin, furnished in

2004 will equal 85% of the average

wholesale price (determined as of April 1,

2003). Certain categories of drugs and

biologicals (drug products) will continue to

Section 432(a). In 2004, existing drugs

(available by April 1, 2003) would be paid

the lower of the widely available market

price or 85% of the listed AWP as of Apr.

1, 2003 as subsequently increased by the

CPI for medical care as of June. The

Secretary would be required to determine

Section 303(b). Physicians who opt out of

the competitive acquisition program

(which is described subsequently) would

be paid under a new, separate 1847B

payment method. Subject to the

beneficiary cost-sharing, non-generic drugs

would be paid 112% of the applicable

CRS-49

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

covered if they are usually not selfadministered and are provided incident to

a physician’s services; (2) those that are

necessary for the effective use of covered

durable medical equipment; (3) certain

self-administered oral cancer and antinausea drugs (those with injectable

equivalents; (4) erythropoietin (used to

treat anemia); (5) immunosuppressive

drugs after covered Medicare organ

transplants; (6) hemophilia clotting factors;

and (7) vaccines for influenza, pneumonia,

and hepatitis B. Payments are based on

95% of the average wholesale price (AWP)

published in industry reference

publications. AWP does not account for

discounts routinely offered to providers

and physicians.

Current Medicare

payment rates are 95% of AWP for brand

name drugs produced by a single

manufacturer (or single source drugs).

Medicare will pay 95% of the lower of (a)

the median AWP of all generic drugs or (b)

the lowest brand-name product AWP for

drugs with two or more competing brand

names (or multiple source drugs) or those

drugs with available generic equivalents.

Although Medicare uses the Healthcare

Common Procedure Coding System

(HCPCS) codes to pay for physician

administered drugs, the AWPs are

established for national drug codes (NDC)

which provides data on chemical molecule,

drug manufacturer, dosage, dosage form

and package size.

be paid at 95% of the AWP including

blood products and clotting factors

furnished during 2004; a drug product

furnished during 2004 that was not

available for Part B payment as of April 1,

2003; pneumococcal, influenza, and

hepatitis B vaccines; and a drug or

biological (other than erythropoietin)

furnished in connection with renal dialysis

services that are separately billed by renal

dialysis facilities. Drug products paid at

85% of AWP in 2004 may be paid a

different amount if the widely available

market price is different than the payment

amount for the year. Also payments may

be adjusted because of data submitted by

the manufacturer or by another entity by

October 15, 2003. In no case will payment

be less than 80% of AWP.

whether the widely available market price

is different from the AWP amounts using

any HHS-IG or GAO report issued in 2000

and later as well as other data from

purchaser, supplier and manufacturers. If

different, the widely available market price

would be treated as the AWP amount in

2004 and subsequently. However, if that

difference is more than 15%, payments

would be reduced in 15% increments of

Medicare’s prior year payment. This

transition would not apply to those with

generic versions in the market beginning

2004. After Jan. 1, 2004, payments for

covered vaccines would be equal to the

AWP.

price in 2005 and 2006 and 100% of the

price subsequently. The multiple source

drug applicable price would be the

reported volume-weighted average of the

average sales price; the applicable price for

a single source drug would be the lesser of

the manufacturer’s average sales price

(ASP) for the NDC code or the reported

wholesale acquisition cost (WAC).

Payments would not account for special

packaging, labeling or identifiers on the

dosage form or product or package. By

April 1, 2004, the ASP would be

calculated by NDC each calendar quarter

by dividing a manufacturer’s total sales by

the units sold in that quarter with certain

adjustments to account for volume

discounts and other rebates. Certain sales

would be exempt from the calculation.

The WAC would be the manufacturer’s list

price to wholesalers or direct purchasers

for the most recent available month, not

including discounts or other price

reductions, as reported in wholesale price

guides or other pricing publications.

Payment rates would be updated on a

quarterly basis. Certain contractors would

determine the payment amounts. Certain

standards would define multiple and single

source drugs and establish pharmaceutical

equivalence. There would be no

administrative or judicial review of the

ASP.

Section 303(c) Beginning in 2005, drug

products, except for pneumococcal,

influenza, and hepatitis B vaccines, those

associated with certain renal dialysis

services, blood products and clotting

factors and radiopharmaceuticals, will be

paid using either the average sales price

methodology or through the competitive

acquisition program. Medicare’s payment

under the average sales price (ASP)

methodology will equal 106% of the

applicable price for a multiple source drug

or single source drug subject to beneficiary

deductible and coinsurance amounts. The

applicable price for multiple source drugs

is the volume-weighted average of the

average sale price calculated by NDC code

CRS-50

Provision and Current Law

H.R. 1 as enacted

for each calendar quarter. The applicable

price for single source drugs is the lesser of

the average sales price or the wholesale

acquisition cost. Certain sales such as

those to the Medicaid drug rebate program

are exempt from the calculation, but the

ASP will take into account certain

discounts (not including Medicaid rebates).

After 2004, the Secretary may include

other price concessions recommended by

the HHS-IG who will conduct market

surveys. If the ASP exceeds the market

price or average manufacturer price by a

threshold percentage, the ASP may be

disregarded. In 2005 the threshold is 5%;

in 2006 and subsequent years, the

percentage threshold will be specified by

the Secretary. The payment amount will

then be equal to the lesser of the widely

available market price or 103% of the

average manufacturer price. For drugs

furnished in a year after 2004, the widely

available market price is the price that a

prudent physician or supplier would pay

for a drug product, taking into account

certain routinely available discounts. The

wholesale acquisition cost or other

reasonable measure may be used instead of

the manufacturer’s average sale price in

the case of certain public emergencies.

There will be no administrative or judicial

review of determinations of payment

amounts; the identification of units and

package size; or the method used to

allocate price concessions to a specific

quarter among other items.

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

CRS-51

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

H.R. 1 (as passed the House)

Pay for new outpatient drugs provided

incident to a physician’s services. See

above.

Section 303(c). Drug products during an

initial period (not to exceed a full calendar

quarter) when data on the prices for sales is

not sufficiently available to compute ASP

will be paid based on the wholesale

acquisition cost or on the payment methods

in effect as of November 1, 2003.

Section 432(a) continued. New drugs

(available after April 1, 2003) would be

paid based on the manufacturer’s estimated

price data. During the first and second

years, the manufacturer would provide data

on the actual market prices paid by

physicians or suppliers which would be

equal to the lesser of the AWP or the

original estimate. Subsequently, payments

would be equal to the lesser of the AWP or

the widely available market price

established for existing drugs. If no

market price exists, the prior year’s

payment is increased by June’s CPI for

medical care. Other payment changes for

the administration of drugs would be

contingent on the implementation of these

provisions.

Section 303(b) continued. New drugs.

The Secretary would be able to disregard

the average sales price during the first

quarter of a new drug’s sales if the price

data is not sufficient to determine an

average amount payable.

Establish competitive pricing program

as an establish alternative pricing

method for physicians who elect not to

participate in competitive bidding

program. See above

Section 303(d). Under the new Section

1847B, the Secretary is required to

establish a competitive acquisition

program to acquire and pay for

competitively biddable drug products. The

Secretary is required to compute an area

average of the bid prices submitted, in

contract offers accepted for the category

and the area, for each year or other

contract period. Medicare’s program

payment for these drugs will equal 80% of

the average bid price after the Medicare

beneficiary meets the applicable

deductible. Generally, coinsurance and

deductible amounts will be collected by the

contractor that supplies the drug product.

There shall be no administrative or judicial

review with respect to the establishment of

See above.

Section 303(b).

Under new section

1847A, the Secretary would establish a

competitive acquisition program to acquire

and pay for covered outpatient drugs.

Under this program, at least two

contractors would be established in each

competitive acquisition area (which would

be defined as an appropriate geographic

region) throughout the United States. Each

year, a physician would be able to select a

contractor who would deliver covered

drugs and biologicals to the physician; as

discussed above, a physician would be able

to elect payment under the ASP payment

methodology established by 1847B. Blood

clotting factors, drugs and biologicals

furnished as treatment for end-stage renal

disease (ESRD), radiopharmaceuticals, and

CRS-52

Provision and Current Law

H.R. 1 as enacted

S. 1 (as passed the Senate)

vaccines would not be considered covered

drugs under the competitive acquisition

program.

payment amounts, contract awards,

establishment of competitive acquisition

areas, the phased-in implementation, the

selection of categories of competitively

biddable drugs and biologicals for

competitive acquisition, or the bidding

structure or number of contractors who are

selected. No later than July 1, 2008, the

Secretary is required to report to Congress

on savings, reductions in cost-sharing,

access to competitively biddable drugs and

biologicals, the range of choices of

contractors available to providers as well

as beneficiary and provider satisfaction

under the competitive acquisition program.

Establish contracting requirements for

competitive acquisition program. No

provision in current law.

Section 303(d)

Certain contractor

selection and contracting requirements for

the competitive acquisition program are

established. Specifically, the Secretary is

required to establish an annual selection

process for a contractor in each area for

each category of drugs and biologicals.

The Secretary may not award the 3-year

contract to any entity that does not have

the capacity to supply the drug products or

does not meet established quality, service,

fi

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