Medicare Prescription Drug, Improvement, and Modernization Act
of 2003
The "Medicare Prescription Drug, Improvement, and Modernization
Act, was passed by the House of Representatives on November 22,
2003, and the Senate on November 25, 2003. President Bush signed
it into law on December 8, 2003 (Public Law 108-173). The bill is
the largest expansion of Medicare in the program’s history.
In addition to adding outpatient prescription drug coverage, the
bill contains significant changes to the Medicare program affecting
all stakeholders as well as some related non-Medicare provisions.
One provision of particular interest
to geriatric psychiatry gives the Secretary of HHS the authority
to clarify that geriatric training programs are eligible for two
years of fellowship support under Medicare.
The following is a summary of the
highlights of major provisions of the legislation.
Medicare Prescription Drug Benefit
The bill establishes a new Medicare
Part D for outpatient prescription drug coverage, effective in
2006. Part D will be voluntary in a manner similar to Part B (i.e.,
there is a limited window of opportunity at the time of initial
Medicare eligibility for enrolling without penalty). The drug benefits
will be provided through risk-bearing private plans contracting
with the government (including plans offering only the Part D coverage
as well as integrated plans offering all Medicare benefits). There
will be an annual open season during which Medicare beneficiaries
will choose their drug plan from among those available in their
area of residence. In any areas where there are fewer than two
private plan choices, the government will make a drug plan available
directly.
The standard outpatient drug
benefit will have a $250 annual deductible, 25 percent coinsurance
requirement between the deductible and an initial benefit cap of
$2,250 in drug spending. Then there will be a coverage gap until
catastrophic coverage with a five percent copayment begins at $3,600
in out-of-pocket costs ($5,100 in drug spending). Benefit thresholds
will be indexed to grow each year at the same rate as growth in drug
expenditures by Medicare beneficiaries. Thus, it is estimated that
in 2013 the deductible will be $445, the initial benefit cap will
be $4,000, and the out-of-pocket limit will be $6,400 ($9,066 in
drug spending). The monthly premium will be determined by the plan
chosen but is estimated to average $35 in the first year (2006),
and rise to $58 by 2013. Some benefit variation is allowed within
certain actuarial boundaries. Plans could employ formularies, tiered
copayment structures, and other cost management techniques. Subsidies
will be available for employers to encourage them to retain their
retiree drug benefits. Additional premium and cost-sharing subsidies
will be provided to beneficiaries with incomes under 150 percent
of the poverty level. However, no Federal matching funds will be
available for Medicaid payment of out-of-pocket costs.
Medicare Prescription Drug Discount Card
Beginning within six months of enactment, and continuing until the Part D benefit
is effective in 2006, a Medicare Prescription Drug Discount Card program will
be implemented. Private card programs meeting government standards will be
offered to Medicare beneficiaries. Sponsors could charge enrollees an annual
fee of up to $30. Programs are expected to provide savings to enrollees in
the neighborhood of 15 percent below retail pharmacy prices. Enrollees with
incomes below 135 percent of poverty who do not have other prescription drug
coverage will have $600 per year in government subsidies credited to their
card account to be applied to prescription drug purchases through their discount
card program.
Other Provisions Regarding Pharmaceuticals
Access to generic drugs--The agreement makes a number of changes to current laws
that are intended to close "loopholes" in the provisions of the Hatch-Waxman
law with regard to expediting the availability of generic drugs in the U.S.
Drug importation--The agreement permits (but does not require) the importation
of drugs from Canada but only if the Secretary of HHS certifies that such drugs
will be safe and will reduce the cost of drugs in the U.S.
Medicare Advantage (Formerly Medicare+Choice)
Medicare Advantage program--Part C, the Medicare+Choice (M+C) program, is renamed
Medicare Advantage (MA). All MA plan sponsors must also offer a plan with the
Part D drug coverage. All MA plans will receive higher payments than provided
under current M+C rules. Beginning in 2006, MA plans will be paid under a new
competitive method. Plan bids will be compared to benchmarks calculated for each
area based on the costs of fee-for-service Medicare. If a plan bid is higher
than the benchmark, the enrollee will pay the difference. If it is lower, 75
percent of the difference will go to the enrollee as extra benefits or as a rebate;
the remaining 25 percent will be retained by the government.
Medicare Advantage regional plans--New MA regional preferred-provider organization
(PPO) plans are established to compete with local MA plans. Regional PPO plans
must serve entire regions (between 10 and 50 regions will be defined by CMS).
The regional PPO plans must offer at least the Medicare Part A and Part B benefits,
and also must apply a single deductible and a limit on out-of-pocket expenses
for Part A and Part B benefits. Shared risk arrangements and bonus payments will
be available to encourage plan market entry and retention. Otherwise, MA rules
and payment methods apply on a regional basis. The special risk and bonus provisions
will likely increase Medicare payments to regional PPOs compared to MA plans
in local areas.
Defined contribution demonstration--In 2010, a six-year experiment will begin
to test a defined contribution approach called the "Comparative Cost Adjustment
Program" (formerly called "premium support"). The demonstration
will be conducted in up to six metropolitan areas that meet certain criteria.
In the selected areas, the per capita costs for traditional fee-for-service (FFS)
Medicare will be averaged with MA plan premium bids to arrive at a government
contribution (benchmark) per Medicare beneficiary. Enrollees in plans (including
traditional Medicare) with bids below the average will receive rebates (through
cash or extra benefits) equal to 75 percent of the difference; those in plans
costing more than the government contribution will pay the difference through
an increase in their Part B premium. The impact on Part B premiums will be phased-in
and in no case could be greater than five percent per year; Part B premiums for
low-income beneficiaries will not be affected. The demonstration could not be
extended or expanded without Congressional action.
Changes in Medicare Benefits and Beneficiary Cost-sharing
Part B deductible--The annual deductible for Part B services, which has been
set at $100 since 1991, will increase to $110 in 2005 and, in years thereafter,
by the estimated annual percentage increase in Part B expenditures.
Income-related part B premium--The Part B premium, which is currently uniform
for all beneficiaries and set at a level that covers 25 percent of estimated
Part B costs, will vary based on beneficiary income. The change, phased in over
a five-year period beginning in 2007, will provide that the Federal premium subsidy,
which currently covers 75 percent of program costs, will decrease to 65 percent
for those making between $80,000 and $100,000; 50 percent for those with incomes
between $100,000 and $150,000; 35 percent for those with incomes between $150,000
and $200,000; and 20 percent for those with incomes over $200,000. The income
thresholds for couples will be twice that for individuals. Thresholds will grow
annually by the consumer price index (CPI).
Preventive benefits--Beginning in 2005, all newly enrolled beneficiaries will
be eligible for an initial routine physical examination, which will include measurement
of height, weight, and blood pressure, and an electrocardiogram, as well as education,
counseling and referral for other preventive services covered by Medicare. Also
beginning in 2005, all beneficiaries will be eligible for cardiovascular blood
screening tests and beneficiaries at risk for diabetes will be eligible for diabetes
screening tests and services.
Chronic care improvement programs--Voluntary chronic care improvement programs
will be established for beneficiaries who have chronic conditions, such as congestive
heart failure, diabetes, chronic obstructive pulmonary disease, stroke, prostate
and colon cancer, hypertension, and other appropriate conditions. The programs
will include: beneficiary education; education for providers, care givers, and
family members; coordination of health care services; clinical collaboration
among physicians and other providers; use of monitoring technologies; and provision
of information about hospice care, pain and palliative care, and end-of-life
care. Initially, these programs will be tested in a limited number of geographic
localities for a period of three years; if an evaluation of these sites indicates
that specified goals (including cost savings to the Medicare program) are being
achieved, the benefit will be expanded to apply nationally.
Provisions Relating to Hospitals, Skilled Nursing Facilities,
and Home Health
Acute care hospitals--The
Medicare inpatient hospital update
will remain at the full market
basket for the remainder of FY
2004; hospital market basket
updates
will be reduced 0.4 percentage points for FY 2005 through FY 2007 for hospitals
not participating in the ongoing voluntary CMS-sponsored Hospital Quality Initiative.
The indirect medical education (IME)
adjustment factor will be increased from 5.5 percent to 6.0 percent for the last
half of FY 2004, 5.8 percent in FY 2005, 5.55 percent in FY 2006, 5.35 in FY
2007 and 5.5 percent for FY 2008
and beyond. New technology payments
for inpatient services will increase
and will not be subject to budget
neutrality requirements effective in FY 2005. The wage index classification methodology
will be revised to recognize
the out-migration of hospital
employees who reside in a county
and work in a
different area with a higher wage index. Effective FY 2005.
Specialty hospitals--The "whole hospital" exception to Medicare limits
on physician self-referrals will be amended to exclude for 18 months facilities
with physician owners that are devoted primarily to cardiac, orthopedic surgical,
or other specialties designated by the Secretary. Specialty hospitals in operation
or under development as of the date of enactment will be exempt from the provision.
Cancer hospital capital grants--The agreement establishes a $200 million loan
program for cancer hospitals to meet the costs of construction, renovation, or
other capital improvements for the period July 2004 through September 2008. The
Secretary may forgive loans if the institution initiates an outreach program
for cancer prevention, early diagnosis, or treatment benefiting a substantial
majority of a state or region.
Rural hospital provisions--The standardized amounts (for operating costs) for
rural and small urban area hospitals is permanently increased to equal the amount
for large urban areas (1.6 percent increase); the labor share of the standardized
amount is reduced from 71 percent to 62 percent for areas with a wage index of
less than 1.0; the cap on Medicare disproportionate share (DSH) payments for
rural and small urban hospitals is increased from 5.7 percent to 12 percent of
total payments; payment adjustments of up to 25 percent are provided for low
volume hospitals (less than 800 total discharges per year) that are 25 miles
or more from another hospital; unused large urban teaching hospital resident
positions are redistributed to rural/small city hospitals; rural hospital outpatient
department payment protections are extended; qualification requirements for sole
community hospitals and critical access hospitals are eased.
Skilled nursing facilities (SNF)--The per diem payment rate for a SNF resident
with AIDS will increase 128 percent effective FY 2005. This provision will
terminate when the Secretary certifies that the SNF case mix adjustment adequately
compensates
for the facility’s increased cost associated with caring for AIDS residents.
Home health services--Home health payment rates will increase by the full market
basket for the last quarter of 2003 and the first quarter 2004. The update for
the remainder of 2004 and for 2005 and 2006 will be the market basket less 0.8
percentage points. The aggregate size of the outlier pool is reduced from five
percent to three percent. Payments to rural home health agencies are increased
five percent for one year effective April 1, 2004. The time frame for home health
updates is changed from the federal fiscal year to the calendar year beginning
with 2004. The requirement that home health agencies collect OASIS data on non-Medicare
patient is suspended pending a study by CMS. While proposed, the final agreement
did not include beneficiary co-payments for home health.
Provisions Relating to Physicians and Outpatient Services
Physician fee schedule--Physicians will see a 1.5 percent payment rate (conversion
factor) increase instead of the expected 4.5 percent payment cut in 2004. An
additional 1.5 percent increase will replace another projected cut in 2005.
CBO estimates a cost of $600 million in 2004 and $1.2 billion in 2005. To address
the volatility in physician payment updates over time, the formula for calculating
the annual update will be changed to use a 10-year rolling average measure
of GDP instead of the current single year measure. Payments for drug administration
services by oncologists and other specialties are increased as part of the
payment reform for Part B covered outpatient drugs. To help rural and other
areas with few physicians recruit and retain more physicians, Medicare will
pay a five percent bonus to physicians providing care in scarcity areas from
2005 through 2007. CBO estimates a total cost of $700 million. Geographic adjusters
will be changed in 2004 through 2006 to increase Medicare payments to physicians
in areas with work adjusters less than 1.00. CBO estimates a total cost of
$1.0 billion.
Part B covered drugs in physician offices--New rules are established for payment
for drugs and biologicals administered in the physician office setting, which
are currently paid at 95 percent of average wholesale price (AWP). Generally,
payment in 2004 is based on 85 percent of AWP. Payment in 2005 will be 106 percent
of the Average Sales Price (ASP), as reported by manufacturers to CMS. Some exceptions
apply. In 2006, a competitive bidding program begins for certain categories of
drugs and biologicals established by the Secretary. Physicians in geographic
areas with a competitive bid option will make an annual election to receive payment
based on the competitively bid price for a category of drugs or on the ASP methodology.
CBO estimates the total savings associated with reduced payments for drugs and
increased payments to physicians for their administration to be $11.5 billion.
Part B covered drugs in durable medical equipment--Inhalation drugs furnished
through covered durable medical equipment will be paid in the same manner as
drugs in physician offices. Infusion drugs furnished through covered durable
medical equipment will be paid at 95 percent of AWP until competitive acquisition
programs begin in certain areas in 2007
Part B covered drugs in hospital outpatient departments--Through 2006, a drug
or biological administered in the hospital outpatient department will receive
separate payment and not be packaged with other services if its median cost per
administration is at least $50. Payment rates for drugs paid as separate APCs
will be determined based on median costs, the same as for other outpatient services,
but subject to floors and ceilings for 2004 and 2005. The ceilings will be 95
percent AWP (determined as of May 1, 2003) for sole-source drugs and 68 percent
and 46 percent, respectively, for innovator and non-innovator multiple source
drugs. In addition, APC rates for sole source drugs cannot be less than a floor
of 88 percent AWP in 2004 and 83 percent in 2005. Payment rates for drugs paid
as separate APCs in 2006 and subsequent years will be based on hospital acquisition
cost as determined initially by GAO surveys and later by HHS surveys, with a
possible adjustment for other pharmacy costs in a pending MedPAC study. Pass-through
drugs will be paid similarly to the physician office methodology.
Therapy services--Therapy caps for PT, OT and speech-language pathology services
will not apply in 2004 and 2005 while Congress and the Administration work to
devise an alternative to the caps. CBO estimates a total cost of $700 million.
Clinical laboratory services--Payments for clinical lab tests under the Medicare
lab fee schedule are frozen at 2003 levels for five years, not seven years. The
proposal to impose a 20 percent beneficiary copayment for laboratory services
was not included. CBO estimates 5-year savings of $2.2 billion.
Durable medical equipment (DME)--A competitive acquisition program is established,
with a phase-in so that competition occurs in 10 of the largest MSAs in 2007;
80 of the largest MSAs in 2009; and additional areas after 2009. The program
will
start with certain high-cost, high volume items and services. As a transition
to competitive acquisition, DME
payment rates will be frozen for three years from 2004 to 2006. During 2005,
the rates for specified items and supplies will be reduced to reflect prices
paid under the Federal Employees Health Benefit Plan (FEHBP) plans. CBO estimates
five-year and 10-year savings of $3.4 billion and $8.9 billion, respectively.
Cost Containment
Trustees alert--If the Medicare Trustees issue a warning in two consecutive years
that projected general revenues required for Medicare will exceed 45 percent
of program costs within the next seven-year projection period, a special congressional
procedure will be triggered for consideration of cost containment measures.
The procedure would not prevent a filibuster nor require offsets for Medicare
spending increases.
Regulatory and Contracting Reforms
The legislation includes a number of provisions intended to educate beneficiaries
on their benefits and coverage, clarify program rules and provider rights,
and improve the contracting process for claims administration. Among the provisions
is establishment of an Ombudsman for Medicare beneficiaries and a requirement
that CMS use a central, toll-free number for beneficiary inquiries. The agreement
also requires that hospital discharge plans include information on Medicare
skilled nursing benefits and certified skilled nursing facilities. A competitive
bidding process for Medicare claims processing services is established and
companies other than insurers will be able to compete for contracts.
Regulatory reforms will prohibit Medicare policies and regulations from applying
retroactively; a 30-day waiting period will be required before substantive changes
are effective; new policies could not be introduced in final rules without opportunity
for public
comment; and providers could not be sanctioned for following written, erroneous
guidance from the government.
The legislation establishes new policies for providers regarding Medicare billing
disputes and overpayments, and expands provider appeals rights. It also establishes
a process, effective for five years, for prior determination of coverage for
services provided by participating physicians.
CMS administrative budget--The agreement makes available an additional $1 billion
from the Medicare Trust Funds to CMS to supplement its administrative budget
through September 2005.
Medicaid and Other Non-Medicare Provisions
Medicaid disproportionate
share (DSH) allotments--A temporary increase in state
allotments for payments to disproportionate share hospitals (DSH) is included.
Medicaid drug rebates--Drug prices for inpatients in public hospitals participating
in the federal Sec. 340B program are excluded from the Medicaid "best price" calculation
used to determine manufacturer rebates to state Medicaid programs. Also excluded
from the Medicaid "best price" requirements are drug prices negotiated
for Medicare enrollees by Medicare Prescription Discount Card Programs, Medicare
Part D prescription drug plans, and qualified employer retiree plans.
Emergency care for certain aliens--$250 million for each fiscal year beginning
with 2005 through 2008 is appropriated for allotments to the states to pay providers
for emergency services furnished to undocumented aliens. Of this amount, $167
million each year is distributed to states on the basis of their percentage of
the U.S. total of undocumented aliens. An additional $83 million is awarded to
the six states with the highest number of arrests of undocumented aliens.
Commission on Systemic Interoperability--The Secretary of HHS is to appoint an
11-member Commission on Systemic Interoperability to develop a comprehensive
strategy for the adoption and implementation of health care information technology
standards, including a timeline and prioritization for implementation. A report
to the Secretary and Congress no later than October 2005 is required.
Research on outcomes--The Agency for Healthcare Research and Quality (AHRQ) is
directed to initiate a program of research on the outcomes, comparative clinical
effectiveness and appropriateness of healthcare services, including strategies
for incorporating findings in the administration of Medicare, Medicaid, and SCHIP.
Findings of such research will also be disseminated to health plans, providers,
and the public. $50 million is authorized in 2004 to carry out these provisions.
Citizen’s Healthcare Working Group--A 15 member Citizen’s Healthcare
Working Group will be established to initiate a national debate on improving
the healthcare system and assuring all Americans access to quality, affordable
healthcare coverage. The working group will hold public hearings around the country
and issue a report to the public and Congress with recommendations.
Health Savings Accounts--Health Savings Accounts (HSAs), are established to replace
the existing Archer Medical Savings Accounts, which were created on a time-limited
basis and are restricted to employees of small businesses and the self-employed.
HSAs are open to everyone with a high deductible health insurance plan (at least
$1,000 for individual coverage and $2,000 for family coverage). Such plans must
limit total in-network out-of-pocket cost-sharing to $5,000 for an individual
and $10,000 for family coverage. Contributions to an HSA may be made by both
employers and taxpayers on a tax-favored basis. Total annual contributions to
an HSA are limited to the lesser of the annual deductible or $2,250 for individual
coverage ($4,500 for family coverage), indexed to the CPI. Individuals over age
55 can make extra contributions. Interest earned by an HSA and monies used from
an HSA to pay for qualified medical expenses are not taxable. Qualified expenses
include the wide range of medical and long-term care services now tax deductible.
HSA dollars used for nonqualified purposes are generally subject to a tax penalty.
March 2004
|
