Deficit Reduction Act of 2005 Cuts Medicaid and Medicare Spending

The House on February 1 gave final approval to legislation that will reduce federal spending by $39 billion over the next five years. The Deficit Reduction Act of 2005 (DRA) would reduce Medicare spending by $6.4 billion and Medicaid spending by $4.7 billion from 2006 to 2010.

Zero Market Basket Increase

As the President is looking at ways to foster productivity and increase the efficiency of the Medicare Program, he has proposed a zero market basket update for the 2007 Medicare rates. This is based on the most recent recommendation from the Medicare Payment Advisory Commission (MedPAC). According to the American Health Care Association, a “zero” market basket change would result in a $10 per day decrease compared to the normal market basket increase. In addition, an update of the market basket minus .4 percent was recommended for 2008 and 2009. The cost savings of these two recommendations would be $660 million in 2007 and $5.1 billion over the next five years. These recommendations require Congressional action and approval. However, over the last two years, Congress has ignored similar recommendations from MedPAC. Therefore, additional lobbying efforts will take place by the nursing home associations to maintain a full market basket increase. If a full market basket increase is sustained, it is currently anticipated to be 3.4%.

Proposed Provider Tax Reduction

The Provider Tax Program has provided many states with increased funding through a tax assessed by the state and then matched by the federal government. Currently, states are not allowed to tax nursing homes more than 6% of total revenues under this program. The Fiscal Year 2007 budget proposes to phase down the percentage limit over the next four years from 6% to 3%. Many states, including Michigan, have maxed out the benefit of the program and are taxed up to the 6% cap. In Ohio, the current tax is around 4%. Therefore, under the phase down, states currently at the maximum tax rate would see a decrease in federal Medicaid revenue due to reduced federal matching. It is likely states will be unable to absorb such a reduction, so we would expect much of the impact to be passed along to the providers in some way. There will be no savings for the federal government in the current year, but over the next five years, they will see a savings of $2.1 billion. In addition, it should be noted that Health & Human Services has recommended releasing regulations to clarify the policies used to determine compliance under the program.

Bad Debt Phase Out

The Deficit Reduction Act calls for a 30% decrease in "collectible" bad debt for private pay residents for long-term care facilities in 2006, with a proposal to eliminate any allowance for bad debt for all Medicare providers over the next four years. Bad debt payments for the Medicare and Medicaid dual eligible patients will remain at 100 percent for 2006.

Home Health Agencies

Because of DRA-95, the home health payment rate for 2006 would be frozen under the legislation, and beginning in 2007, home health agencies (HHAs) would be required to report quality data and receive an incentive payment for provision of high quality care. HHAs serving rural beneficiaries would see a one-year five percent add-on payment under the legislation. These provisions will decrease Medicare spending by $2 billion from 2006 to 2010.

Therapy Caps and Exception Process

Medicare outpatient therapy caps went into effect January 1, 2006. The Centers for Medicare and Medicaid Services (CMS) issued instructions to its providers on February 13, 2006, outlining the exception process. Providers will have 30 days in which to implement the exception process.

CMS has outlined two methods to implement the Medicare therapy cap exception process, automatic exceptions and manual exceptions. CMS does anticipate that the majority of beneficiaries who require services in excess of the caps will qualify for the automatic exceptions. Please refer to the attached CMS fact sheet for further details regarding the exception process. In addition, the fact sheet does provide the excepted diagnoses for the automatic method. We have also attached the updated portion of the CMS manual to address exceptions and the process for manual exceptions.

2006 Medicare Part B Fee Schedule Updated

Medicare reimbursement rates for Part B are frozen at the 2005 levels, avoiding the 4.4% cut. CMS has reported that they will begin reprocessing any claims for 2006 services that were submitted prior to the bill's enactment. The fee screen amounts vary slightly from 2005 amounts due to the conversion factor. We have attached the updated 2006 Medicare Part B Fee Schedule for Outpatient Rehabilitation services. Please forward this schedule to your business office as these updated Part B fee screens are effective for January 2006 billings.