WASHINGTON WIRE

In this issue, you'll find:

• CMS Issues Final Rule on Inpatient Hospitals
• Inpatient Rehabilitation Facilities Final Rule Issued by CMS
• CMS Issues Final Rule on Accreditation of DMEPOS Suppliers
• Power Mobility Suppliers Question Carrier Guidance
• No Hearings Scheduled - Congress in Recess Until September 5, 2006

Top Story

CMS Issues Final Rule on Inpatient Hospitals

On Tuesday, August 1, 2006, the Centers for Medicare and Medicaid Services (CMS) released the final rule on Medicare's hospital inpatient prospective payment system (IPPS) disregarding the request of House Ways & Means Health Subcommittee Chairwoman Nancy Johnson (R-CT) and Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT), amongst others, who asked for a one-year delay in implementation of the proposed changes.

Under the proposed rule, payments would be based on "cost-based payment weights" (the actual costs to treat a patient rather than what the hospital charges), which would be implemented in fiscal year (FY) 2007 and "severity-adjusted payments" (payments based on the patient's severity of illness), also phased in beginning in FY 2008. House Ways & Means Committee Chairman Bill Thomas supported a simultaneous implementation beginning in FY 2007.

The final rule will phase in the cost-based payment weight over a three-year period, beginning in October 2006, rather than applying the rule all at once. The severity-based payment weight will also be phased in beginning in October 2006 but only some of the diagnosis-related groups (DRGs) will be affected in FY 2007. CMS will refine and clarify severity for the remaining 500+ DRGs over the next year.

In addition, Medicare inpatient payment rates will increase 3.4 percent in FY 2007 as further incentive for hospitals to report quality data on performance based measures. Overall, CMS estimates that payments to acute care hospitals will increase by $3.4 billion next year.

Many in the industry, including the American Hospital Association, are pleased with the final rule stating that CMS modified the final rule to address the industry's concerns. Specialty hospitals--inpatient facilities in which a physician has partial ownership--were hardest hit by the final rule. The DRG changes reduce doctor incentive to recommend certain procedures performed at specialty hospitals.

The final rule will be published in the Federal Register on August 18, 2006 and goes into effect on October 2, 2006.

Health Care News

Inpatient Rehabilitation Facilities Final Rule Issued by CMS

On Tuesday, August 1, 2006, the Centers for Medicare and Medicaid Services (CMS) released the final rule on Medicare's inpatient rehabilitation facilities (IRFs). The final rule will give a market basket increase of 3.3 percent in fiscal year (FY) 2007 for IRF payments. CMS estimates that total payments to IRFs will increase by $50 million in fiscal year (FY) 2007.

In addition, the final rule implements a provision established under the Deficit Reduction Act of 2005 (DRA) that would delay the three-year phase in of the 75% Rule by one year. The 75% Rule requires that by July 1, 2007, 75% of patients within an IRF must meet one of thirteen criteria for the facility to receive Medicare payment as an IRF. The DRA delayed the phase in, freezing the compliance rate at 60% for an additional year and delaying the final 75% threshold to July 1, 2008.

The final rule also offsets (cuts) standard payments by 2.6 percent in FY 2007 to account for billing practices that do not show how sick a patient is. With the cut, the payment increase amounts to 0.7 percent, a payment that some in the industry state does not even cover the cost of care. The proposed rule recommended a 2.9 percent cut. One industry representative stated that CMS used incorrect data when factoring the new payment rates.

The final rule will be published in the Federal Register on August 18, 2006 and goes into effect on October 2, 2006.

CMS Issues Final Rule on Accreditation of DMEPOS Suppliers

On Tuesday, August 1, 2006, the Centers for Medicare and Medicaid Services (CMS) released their final rule on the accreditation standards for suppliers of durable medical equipment (e.g., walkers, hospital beds, mobility devices), prosthetics, orthotics, and supplies (DMEPOS).

The final rule states that it will consider current or previous nationally recognized certification, accreditation, or licensure indicating quality standards when surveying the supplier. Supplier quality standards will be released soon as those participating in the Medicare DMEPOS Competitive Bidding program next year will be surveyed first. CMS anticipates using multiple accreditation organizations for a uniform set of quality standards. In addition, site surveys will be unannounced to reduce survey preparation time and to keep costs at a minimum.

Also within the final rule was a brief overview of the upcoming competitive bidding education and outreach plan for beneficiaries. The Medicare Modernization Act of 2003 (MMA) mandated the implementation of a competitive bidding program to reduce Medicare payments for DMEPOS by replacing current DMEPOS fee schedules with competitively bid prices. The program would be segmented into metropolitan statistical areas (MSAs). Within each MSA, suppliers would submit bids for items with payment based on the median of "winning" suppliers' bids. Those suppliers whose bids are lower than the payment amounts set could offer a rebate to beneficiaries.

The final rule will be published in the Federal Register on August 18, 2006 and goes into effect on October 2, 2006.

Power Mobility Suppliers Question Carrier Guidance

On Wednesday, August 2, 2006, suppliers of power mobility devices (PMDs) expressed concerns with the guidance issued by four Durable Medical Equipment Regional Carriers (DMERCs) in July.

The final rule on prescription and documentation for PMDs, issued in April 2006, eliminated certificates of medical necessity (CMNs). However, under the DMERC guidance physicians will still be required to offer diagnostic detail justifying why they prescribed a PMD for a beneficiary. In return, physicians will receive additional payment for the extra data. In addition, suppliers must provide a detailed description of the device, including any accessories that may be billed separately and the Healthcare Common Procedure Coding System (HCPCS) code.

Many suppliers and physicians were also surprised that the guidance went further than the final rule, including requiring physicians to submit a face-to-face exam report and having suppliers deliver PMDs within 120 days of the face-to-face exam.

Suppliers are concerned that all of these changes will jeopardize access to vital equipment, further burden providers, and dilute the doctor's role in determining medical necessity.

Upcoming Events

No Hearings Scheduled - Congress in Recess Until September 5, 2006

For More Information

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