Medicare Prescription Drug, Improvement, and Modernization Act

On December 8, 2003, President George W. Bush signed into law P.L. 108-173, landmark legislation that will provide prescription drug benefits for approximately 40 million seniors and disabled Americans beginning in 2006 and approximately $25 billion in relief to hospitals over the next 10 years.  P.L. 108-173, Section 405, contains important provisions for CAHs that enhance reimbursement, expand bed-size flexibility, and provide continued funding of the Medicare Rural Hospital Flexibility Program grants (Flex Grants).

Increased Payment Amounts

Under previous law, CAHs received reasonable cost reimbursement and could elect either a cost-based hospital outpatient service reimbursement or an all-inclusive rate (Method II), equal to a reasonable cost reimbursement for facility services plus 115 percent of the fee schedule for professional services.The new legislation pays CAHs at 101 percent of reasonable costs for Medicare inpatient, outpatient, and skilled nursing facility services furnished during cost reporting periods beginning on or after January 1, 2004.  (Section 405 (a))

Coverage of Costs for Certain Emergency On-Call Providers

Under previous law, the secretary of the Department of Health and Human Services was required 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, not otherwise furnishing services, and not on-call at any other provider or facility when determining the allowable, reasonable cost of outpatient CAH services.

The new legislation expands cost-based reimbursement of on-call emergency room physicians to include physician assistants, nurse practitioners, and clinical nurse specialists for costs incurred for covered Medicare services furnished on or after January 1, 2005.  (Section 405(b))

Periodic Interim Payments

Under previous law, CAHs were not eligible for periodic interim payments (PIP). 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 differences between the estimated PIP payment and the actual amount owed.

New legislation allows CAHs to receive periodic interim payments for inpatient services, effective for payments made on or after July 1, 2004.  Alternative methods for the timing of PIP payments to CAHs are to be developed but have not yet been specified.  (Section 405(c))

Special Professional Service Payment Adjustment

Under previous law, a CAH could elect to be paid for outpatient services either using cost-based reimbursement for its facility fee or at 115 percent of the fee schedule (Method II) for professional services otherwise included within its outpatient services for cost reporting periods starting on or after October 1, 2000.

Under the new legislation, the HHS secretary cannot require that all physicians or practitioners providing services in a CAH assign their billing rights with respect to such services.  For those who elect Method II, CAHs will be paid for outpatient services at 115 percent of the fee schedule for professional services otherwise included within their outpatient services.  This amendment applies to cost reporting periods beginning on or after July 1, 2004.  In the case of CAHs that made an election before November 1, 2003, the amendment applies to cost reporting periods beginning on or after July 1, 2001.  (Section 405(d))

Revision of Bed Limitation for Hospitals

Under previous law, a CAH could operate only 25 beds and was limited to 15 acute care beds and 10 swing beds.

New legislation removes this limitation and permits CAHs to operate up to 25 swing beds or acute care beds.  The provision applies to CAH designations made before, on or after January 1, 2004.  However, the provision will apply prospectively for any election made after regulations for this provision have been promulgated. (Section 405(e))

FLEX Grants

Current law allows the HHS secretary to administer the Medicare Rural Hospital Flexibility Program grants (Flex Grants) to states for rural health care planning and implementation activities, for rural network development and implementation, to establish or expand rural emergency medical services, and for CAH designations.

The new legislation extends funding of Flex Grants of $35 million each year from FY 2005 through FY 2008. It also requires states receiving the grants to consult with the state hospital association and rural hospitals on the most appropriate ways to use grant funds.  It imposes limitations on use of grant funds for administrative expenses. Under the new grant guidelines, a state may expend up to the lesser of 15 percent of the grant amount or the state’s federally negotiated indirect rate for administering the grant.  Beginning with FY 2005, up to 5 percent of the total amount appropriated for grants will be available to the Health Resources and Services Administration for administering these grants.  (Section 405 (f))

Psychiatric and Rehabilitation Distinct Part Units

Under previous law, beds in distinct part psychiatric or rehabilitation units (DPUs) operated by an entity seeking to become a CAH would count toward the bed limit.

The new legislation allows CAHs to operate up to 10 psychiatric or rehabilitation distinct part beds for cost reporting periods beginning on or after October 1, 2004.  Beds in the distinct part units shall not count toward the CAH bed limit of 25.  The amount of payment for inpatient CAH services shall be equal to that which otherwise would be made if such services were inpatient services of a hospital DPU.  Therefore, psych services will be paid under TEFRA (until Medicare converts to prospective payment), and rehab services will be paid under PPS. (Section 405 (g))

Waiver Authority – 35-mile Rule

Under previous law, a CAH had to be located more than 35 miles from another hospital, or 15 miles in areas with mountainous terrain or areas where only secondary roads are available. The mileage standards could be waived if the hospital had been designated by the state as a “necessary provider” of health care.

Under the new law, beginning January 1, 2006, states no longer have the authority to “certify” hospitals as necessary providers.  Hospitals so designated prior to January 1, 2006, are grandfathered.  (Section 405 (h))

 

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