Provider reimbursement – reduction in market basket updates

05Jun10

Effective immediately, the annual market basket updates are being reduced for 15 different types of Medicare services.  The statute expressly provides, as to each of the following services that, as a result of these adjustments, a provider’s or supplier’s annual percentage increase,  may be less than zero percent in a fiscal year and thus may “result in payment rates … for a fiscal year being less than such payment rates for the preceding fiscal year.”

A major element of these reductions is the insertion of a “productivity adjustment.” This is designed to bring these providers’ payment updates more in line with those given physicians,  whose Medicare  fee schedule’s annual updates include a sustainable growth rate (SGR) formula incorporating adjustments for gains in physician productivity.

The new productivity adjustments will be equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity, as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or  other annual period.

The Health Reform statute (otherwise known as the “Patient Protection and Affordable Care Act,” or “PPACA”) applies this productivity adjustment by —

  • Including it in the annual updates for inpatient and outpatient acute-care hospital services, skilled nursing facility (“SNF”) services, inpatient rehabilitation facility services, dialysis, , ambulance services, and clinical laboratory services,  beginning in 2012;
  • Including it in the annual update for hospice care, beginning in 2013.
  • Applying it to the annual update of the base rates for long-term care hospitals (“LTCHs”) and for inpatient psychiatric hospital services, to the extent that either of those  base rates is subject to such an update, starting in 2012;
  • Applying it to the annual market basket increase for home health agency services, beginning in  2015; and
  • Including it in the annual percentage change factor applicable to ambulatory surgical center (“ASC”) services, to the extent such a factor applies, starting in 2011.
  • Using it to reduce the consumer price index-based covered item update for durable medical equipment (“DME”) and other similarly based fee schedule updates, beginning in 2011.

The reductions in the annual update factor for each of the 15 types of provider and supplier imposed by the PPACA are detailed below.

(1)  Inpatient hospital services

After the regular update (including the productivity adjustment) is calculated, it will be reduced further by:

  • 0.25 percentage point for each of fiscal years 2010 and 2011, and
  • 0.2 percentage point for each of fiscal years 2012 through 2019.

These changes (including the productivity adjustment) with regard to inpatient hospital services are effective for discharges on or after April 1, 2010.

(2)  Skilled nursing facility services

Beginning with FY 2012 , SNF market basket updates will be reduced by the productivity factor only.

(3) Long-term care hospital services

The standard Federal rate for discharges for the hospital during the rate year, will be reduced —

  • for rate year 2010, by 0.25 percentage point;
  • for rate year 2011, by 0.50 percentage point;
  • for each of the rate years beginning in 2012 and 2013, by 0.1 percentage point;
  • for rate year 2014,by  0.3 percentage point;
  • for each of rate years 2015 and 2016, by 0.2 percentage point; and
  • for each of rate years 2017, 2018, and 2019, by 0.75 percentage point.

LTCH rate changes (including the productivity adjustment) are effective for discharges on or after April 1, 2010.

(4)   Inpatient rehabilitation facility services

Inpatient rehabilitation fees are entitled to an “increase factor” set by the Secretary once a year. The increase factor for fiscal years 2008 and 2009 was zero. Starting in fiscal year 2012, the productivity adjustment will be applied to this factor.

Once the factor has been established and the productivity adjustment has been applied, the PPACA directs that the increase factor be reduced —

  • for each of fiscal years 2010 and 2011, by 0.25 percentage point;
  • for each of fiscal years 2012 and 2013, by 0.1 percentage point;
  • for fiscal year 2014, by 0.3 percentage point;
  • for each of fiscal years 2015 and 2016, by 0.2 percentage point; and
  • for each of fiscal years 2017, 2018, and 2019, by 0.75 percentage point.

Inpatient rehabilitation rate changes are effective for discharges on or after April 1, 2010.

(5)  Home health agency services

Starting in 2015, the otherwise-applicable market basket increase will be reduced (after the new HHA payment rates are calculated) by the productivity adjustment.   For each of 2011, 2012, and 2013, it will be reduced instead by 1 percentage point.

(6) Inpatient psychiatric hospital services

In addition to the productivity adjustment, any annual updates for inpatient psychiatric facility services will be reduced —

  • for each of the rate years beginning in 2012 and 2013, by 0.1 percentage point;
  • for the rate year beginning in 2014, by 0.3 percentage point;
  • for each of the rate years beginning in 2015 and 2016, by 0.2 percentage point; and
  • for each of the rate years beginning in 2017, 2018, and 2019, by 0.75 percentage point.

(7)  Hospice care

In addition to the productivity adjustment, which goes into effect for hospices in 2013, the hospice market basket rate will be reduced by 0.3 percentage point for each of fiscal years 2013 through 2019.

(8)  Dialysis

For dialysis services, the only cutback to the composite End-Stage Renal Disease (“ESRD’) market basket percentage increase factor will be the productivity adjustment, starting in 2012.

(9)  Outpatient hospital (“OPD”) services

In addition to the productivity adjustment, the OPD fee schedule increase factor will be reduced —

  • for each of 2010 and 2011, by 0.25 percentage point;
  • for each of 2012 and 2013, by 0.1 percentage point;
  • for 2014, by 0.3 percentage point;
  • for each of 2015 and 2016, by 0.2 percentage point; and
  • for each of 2017, 2018, and 2019, by 0.75 percentage point.

(10)  Ambulance services

The percentage increase to the fee schedule will be reduced by the productivity adjustment only, starting in 2012.

(11)  Ambulatory surgical center (“ASC”) services

The annual update for ASC services will be reduced starting in 2011 by the productivity adjustment only.

(12)  Clinical laboratory services

In addition to the productivity adjustment, which goes into effect for laboratories in 2011, the CPI-based annual fee schedule adjustment will be reduced by 1.75 percentage points for each year from 2011 through 2015.

(13)  Certain durable medical equipment (“DME”)

For 2011 and each subsequent year, the covered item update will be calculated by starting with the percentage increase in the consumer price index for all urban consumers (United States city average) for the 12-month period ending with June of the previous year (“CPI”), reduced by the productivity adjustment.

(14)  Prosthetic devices, orthotics, and prosthetics

In 2010, suppliers of these devices will continue to enjoy the annual CPI increase (with no deductions) they have received since 2007.  Beginning in 2011, the applicable percentage increase will be calculated by starting with CPI, reduced by the productivity adjustment.

(15)  Items subject to fee schedule

Titled “Other Items,” PPACA § 3401(o) applies to various items or services for which CMS has established a statewide or other areawide fee schedule to replace reasonable-charge reimbursement.  Such items and services may include medical supplies; home dialysis supplies; parenteral and enteral nutrients, equipment, and supplies; electromyogram devices; salivation devices; blood products; and transfusion medicine. The Medicare Act already calls for annual CPI updates to these fees for years prior to 2011 (except for parenteral and enteral nutrients, equipment, and supplies in 2009).  Starting in 2011, the annual CPI update will be reduced by the productivity factor.





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