Life Sciences Legal Update : Life Sciences Lawyers & Attorneys : Reed Smith Law Firm : Healthcare, Food and Drug Law, Biotechnology, Privacy, Product Liability

Based on this statutory express preemption clause, the Ninth Circuit affirmed that the "plain language of the statute" meant that CMS "standards" will supercede state law or regulations that are " 'with respect to' a 'prescription drug plan' offered by a '[prescription drug plan] sponsor.' " Id. at p. 11557-58. Because the plaintiffs' claims boiled down to a question of whether they were properly enrolled in the insurer's prescription drug plan and then afforded the promised coverage, their claims were explicitly governed by procedures and remedies contained in the Act only, and their civil lawsuit was preempted. 

Notwithstanding the relatively straightforward statutory analysis employed by the court, the case contains additional observations with implications for preemption in other contexts. 

For one, the court noted that while express preemption provisions may reach beyond positive enactments to embrace common law duties (see, e.g., Bates v. Dow Agrosciences L.L.C., 544 U.S. 431, 443 (2005)), the court noted that it also was not "categorically precluded" from applying implied preemption principles to determine what Congress intended to preempt - in other words, would the state law action differing from federal standards stand as an obstacle to the accomplishment and execution of a federal scheme? Id. at p. 11559. At the same time, the court discounted the possibility of field preemption since the express preemption provision itself contains reference to exceptions to the Act's preemption reach (i.e., state licensing laws or state laws relating to plan solvency).

In addition, the court's analysis of the claims involving deceptive marketing could be relevant to other preemption contexts, such as with prescription drug advertising where the FDA's Division of Drug Marketing, Advertising, and Communications often pre-screen drug promotional materials to ensure they are not false and misleading. In Uhm, the plaintiffs' deceptive marketing claims centered on the alleged deceptive marketing and advertising that allegedly induced the plaintiffs to enroll in the prescription drug plan. Id. at p. 11570. The Ninth Circuit held that these claims were preempted, noting that "the Act provides that [the agency overseeing the Medicare and Medicaid Services] must approve all [prescription drug plan] marketing materials before they are made available to [M]edicare beneficiaries."  Therefore, because the regulations will not permit approval of marketing materials or enrollment forms that are "materially inaccurate or misleading or otherwise make material misrepresentations," claims based on the materials' alleged deceptiveness were preempted. Id.

II.  MEDICARE PROVISIONS

A.  Beneficiary Improvements

1.  Preventive Services

MIPPA authorizes the Secretary of the Department of Health and Human Services (“the Secretary”) to expand Medicare coverage to additional preventive services that (1) identify medical conditions or risk factors classified as grade A or B by the United States Preventive Services Task Force, (2) are reasonable and necessary for prevention or early detection, and (3) are appropriate for Medicare beneficiaries. The Secretary is required to use the national coverage determination (“NCD”) process to make such coverage decisions, and the NCD process may consider the relationship between predicted outcomes and expenses for a service. 

In addition, MIPPA updates the list of services covered under the Medicare initial preventative physical exam to include body mass index and end-of-life planning (defined as verbal or written information regarding an individual’s ability to prepare an advance directive and whether the physician is willing to follow the advance directive). Moreover, the provision waives the beneficiary deductible for the initial screening exam and extending the eligibility period for this service from six months to one year after Medicare part B enrollment. 

These changes are effective January 1, 2009.

2.  Copayment Rates for Medicare Outpatient Psychiatric Services

MIPPA reduces the coinsurance amounts that Medicare beneficiaries must pay for outpatient treatment of mental, psychoneurotic, and personality disorders beginning in 2010. Under this provision, outpatient psychiatric service copayments gradually will be reduced over six years so that they will achieve parity with copayment levels for other outpatient medical care by 2014. Brief office visits for the sole purpose of monitoring or changing drug prescriptions and partial hospitalization services not directly provided by a physician are not included under this provision. 

3.  Medicare Advantage/Part D Drug Plan Sales and Marketing Activities

Effective for plan years beginning on or after January 1, 2009, MIPPA prohibits various sales and marketing activities by Medicare Advantage (“MA”) and Part D drug plans (“PDPs”). Specifically, MIPPA prohibits: unsolicited direct contact (such as door-to-door sales and outbound telemarketing calls); cross selling of non-health-related products (such as annuities and life insurance); free meals; and activities conducted at educational events or in areas where health care is delivered to individuals (such as doctor offices and pharmacies) except when conducted in common areas. 

In addition, by November 15, 2008, the Secretary must establish limits on: the scope of MA and PDP marketing appointments with prospective enrollees; the use of co-branding; the offering of gifts and promotional items; the use of certain types of compensation; and the use of agents, brokers, or other representatives who have not completed specified training and testing. 

MIPPA also requires that for plan years beginning on or after January 1, 2010, the name of any MA or PDP plan must include the plan type. Finally, in an effort to strengthen states’ abilities to address fraudulent or inappropriate marketing of plans, effective for plan years beginning on or after January 1, 2009, MIPPA requires plans to: use only agents and brokers licensed under state law; abide by state appointment laws; report any agent terminations to the state; and comply with state requests for information regarding the performance of agents, brokers, and other third parties representing the plans. 

4.  Improvements to the Medigap Program

MIPPA directs the Secretary to implement the changes to the Medigap program found in the National Association of Insurance Commissioners’ Model Regulation #651, including eliminating certain redundant Medigap plans, modernizing Medigap plan benefits, and adding two new plans with new cost-sharing structures. MIPPA also clarifies existing requirements that supplemental policies for MA and private fee-for-service plans offered to Medicare beneficiaries must meet Medigap standards. 

5.   Part D Low-Income Subsidy Program and Low-Income Assistance Provisions

The low-income subsidy (“LIS”) program provides Medicare/Medicaid dual eligibles and other Medicare beneficiaries who have limited income and resources with subsidized Part D prescription drug coverage if they meet certain eligibility criteria. MIPPA includes a number of reforms intended to improve LIS-eligible beneficiaries’ access to the Medicare Part D prescription drug benefit. First, MIPPA provides that LIS-eligible beneficiaries will not be subject to late enrollment penalties. Second, MIPPA exempts the value of life insurance policies and certain “in-kind” support and maintenance (i.e., assistance from a family member or church) from the definition of income for the purpose of the LIS asset requirements. Third, MIPPA provides for judicial review of LIS denials. 

MIPPA also extends funding through 2009 for the Qualifying Individual program, through which Medicaid programs subsidizes Medicare Part B premiums for low-income individuals. The law also authorizes funding for State Health Insurance Assistance Programs (“SHIPs”) and Area Agencies on Aging to provide outreach to individuals who may be eligible for low-income assistance programs and to provide information regarding Medicare benefits. Moreover, effective January 1, 2010, MIPPA: 

• Increases the level of savings that Medicare Savings Program (“MSP”) applicants may have and still qualify for help with Medicare out-of-pocket costs, excludes the value of life insurance policies from consideration of resources, and requires CMS to translate the MSP application form into the most frequently-used languages;
• Requires the Commissioner of Social Security to assist MSP and LIS applicants with obtaining and completing applications and transmitting application data to state Medicaid agencies; and
• Modifies estate recovery rules to prohibit states from recovering amounts paid for Medicare cost-sharing on behalf of Medicare/Medicaid dual eligibles.

B.  Rural Hospitals and Other Part A Provisions

MIPPA extends the Medicare Rural Hospital Flexibility (“FLEX”) Program through fiscal year (“FY”) 2010. It also expands the FLEX program to provide grants to states increase access to mental health services for veterans and other residents of rural areas, and provides grants to assist eligible critical access hospitals (“CAHs”) transitioning to skilled nursing facility (“SNF”) or assisted living facility status. Moreover, MIPPA: rebases Medicare payments for sole community hospitals for cost reporting periods beginning on or after January 1, 2009; authorizes a demonstration project to test ways to better integrate the delivery of acute care, extended care, and other health care services in rural areas; and extends through September 30, 2009 a number of expiring provisions related to wage index reclassification of certain hospitals. 

MIPPA also ends the unique statutory authority of the Joint Commission on Accreditation of Hospitals to deem hospitals in compliance with the Medicare conditions of participation (although the Joint Commission may be recognized as a national accreditation body in accordance with terms established by the Secretary).

C.   Part B Provisions

1.   Physicians’ Services

a)  Fee Schedule Revisions

The driving force behind enactment of MIPPA was a 10.6 percent cut in Medicare physician fee schedule payments that briefly went info effect July 1, 2008 as a result of the expiration of a temporary boost provided in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”). 

By way of background, under the statutory “sustainable growth rate” (“SGR”) formula, CMS must adjust the Medicare physician fee schedule update depending on how actual expenditures compare to a target for Medicare spending growth. In recent years, this would have resulted in a series of negative updates, but Congress has repeatedly overridden the formula by specifying separate update factors to avoid payment cuts. In the absence of a change to the SGR formula, negative physician payment updates are forecast into the next decade. MMSEA temporarily replaced the 10.1 percent cut with a 0.5 percent increase, effective for services provided from January 1 through June 30, 2008. During this period, the conversion factor was $38.0870, compared to the conversion factor of $34.0682 applicable to services provided from July 1 through December 31, 2008 in the absence of further statutory change.

MIPPA maintains physician payment rates for 2008 at the boosted levels applicable for the first half of 2008, thus retroactively canceling the 10.6 percent cut that was triggered on July 1, 2008. [2] Moreover, MIPPA provides a 1.1 percent increase for 2009, rather than the 5.4 percent cut that CMS has estimated would result from the SGR formula. The law does not amend the underlying SGR formula or modify payments for years after 2009. The Congressional Budget Office estimates, however, that the current law will necessitate a 21 percent reduction in payment rates under the physician fee schedule in 2010 in the absence of further legislative action. [3]

b)  Physician Quality Reporting Initiative

MIPPA extends and modifies the Physician Quality Reporting Initiative (“PQRI”), under which eligible professionals who satisfactorily report on certain quality measures as specified by the Secretary are eligible for an incentive payment equaling a percentage of their total allowed charges for physician fee schedule-covered professional services furnished during the same period. [4] 

Specifically, MIPPA extends the PQRI program through 2010 and increases the PQRI bonus from 1.5 percent to 2.0 percent for 2009 and 2010. MIPPA also modifies the standards for selection of quality measures. The Secretary is directed to select measures endorsed by a consensus-based entity, such as the National Quality Forum, under contract with the Secretary to review performance measures (as authorized under a separate provision of MIPPA). To the extent the contracted entity has not endorsed a measure for a specified area, the Secretary must give “due consideration” to measures that have been endorsed by another consensus organization. In either case, the Secretary must ensure that eligible professionals have the opportunity to provide input on the selection of PQRI measures. 

Moreover, MIPPA requires the Secretary to establish an alternative process allowing group practices to report on measures targeting high-cost, chronic conditions and preventive care using a statistical sampling methodology (in lieu of payments that otherwise would be made under the PQRI). The Secretary is authorized to revise the criteria for satisfactorily submitting data on quality measures and the reporting periods for years after 2009. MIPPA also directs the Secretary to post on its internet site a list of eligible professionals who successfully report quality measures and who are successful electronic prescribers. In addition, MIPPA includes qualified audiologists in the PQRI program, beginning with 2009.

MIPPA also includes a requirement for the Secretary to establish a “Physician Feedback Program,” under which the Secretary will use Medicare claims data to provide physicians with confidential reports regarding their resource use in treating Medicare patients. The program must be implemented by January 1, 2009. The Secretary may focus the program on specific areas, such as: high-cost specialties; physicians who treat high-cost or high-volume conditions; physicians who use a high amount of resources compared to other physicians; physicians practicing in certain geographic areas; or physicians who treat a minimum number of Medicare patients. To the extent possible, the data should be adjusted to account for variations in health status and other patient characteristics. The Government Accountability Office (“GAO”) must study the implementation of the program and offer recommendations as appropriate.

Finally, MIPPA requires the Secretary to submit a plan to Congress by May 1, 2010 regarding transition to a value-based purchasing program for Medicare physician services.

c)  Electronic Prescribing

MIPPA includes a combination of incentives and penalties to promote the adoption of electronic prescribing (“e-prescribing”). First, the law provides positive incentives for practitioners who are “successful electronic prescribers” in 2009 through 2013. The bonus payment for electronic prescribing will be 2.0 percent of allowed charges for all covered professional services furnished by the physician or eligible group practice, dropping to 1.0 percent for 2011 and 2012 and 0.5 percent for 2013. A “successful electronic prescriber” is to be defined by the Secretary as a physician who: (1) reports any applicable electronic prescribing quality measures in at least 50 percent of cases, or (2) electronically submits a sufficient number of prescriptions under Medicare Part D (as determined by the Secretary). In determining eligibility for bonus payments, MIPPA directs the Secretary to consider to the extent possible whether professionals use e-prescribing systems that comply with federal standards.

Beginning in 2012, Medicare physician fee schedule payments to physicians who are not successful prescribers will be reduced by up to 2 percent. Specifically, payments will be reduced by 1 percent in 2012, by 1.5 percent in 2013, and by 2 percent thereafter.  MIPPA provides a “significant hardship exception” from the e-prescribing mandate, such as in cases where a rural professional does not have sufficient internet access to comply.

The GAO must report to Congress by September 1, 2012 on implementation of the e-prescribing program.

d)   Imaging Provisions

MIPPA requires non-hospital advanced diagnostic imaging providers to be accredited by an accreditation organization designated by the Secretary by January 1, 2012, or Medicare will not make a payment for the technical component of the service under the physician fee schedule. Advanced diagnostic imaging services covered by the provision include: diagnostic magnetic resonance imaging, computed tomography, and nuclear medicine (including positron emission tomography), and other diagnostic imaging services (excluding X-ray, ultrasound, and fluoroscopy) specified by the Secretary in consultation with physician specialty organizations and other stakeholders. 

The Secretary must designate the accreditation organizations by January 1, 2010 based on a number of factors enumerated in the law. The accreditation organizations must evaluate the supplier of the technical component of advanced diagnostic imaging services based on criteria established by the Secretary that is specific to each imaging modality. Such criteria must include standards for: 

• Qualifications of non-physician medical personnel who furnish the technical component of advanced diagnostic imaging services;
• Qualifications and responsibilities of medical directors and supervising physicians, including standards that recognize whether the medical director or supervising physician in a particular specialty: receives training in advanced diagnostic imaging services in a residency program; has the experience necessary to be a medical director or a supervising physician; or has completed any continuing medical education courses relating to such services;
• Procedures to ensure that advanced diagnostic imaging services equipment meets performance specifications;
• Ensuring that advanced diagnostic imaging services supplier have safety procedures in place;
• The establishment and maintenance of a quality assurance and quality control program that is adequate to ensure the reliability, clarity, and accuracy of the technical quality of diagnostic images produced by such supplier; and
•  Any other standards or procedures the Secretary determines to be appropriate.

In a related provision, MIPPA requires the Secretary to establish, by January 1, 2010, a two-year, voluntary demonstration program to test the use of appropriateness criteria for advanced diagnostic imaging services. The Secretary may provide “reasonable incentives” to physicians to encourage participation, and physicians will be reimbursed for reasonable administrative costs. The demonstration could be limited to imaging services that account for high Medicare expenditures, fast-growing services, or those for which appropriateness criteria exists. The Secretary is directed to consult with medical specialty societies and other stakeholders to select appropriate criteria, which must developed or endorsed by a medical specialty society and developed in adherence with principles developed by a consensus organization. MIPPA specifies the models that the Secretary must use to collect data regarding physician compliance with the appropriateness criteria, and prevents the use of prior authorization to collect data under the demonstration. Participating physicians will receive feedback reports on their compliance compared to their peers. The Secretary is required to evaluate the demonstration and report to Congress on its findings, including its assessment of whether the use of appropriateness criteria should be expanded. MIPPA provides $10 million to fund the demonstration. 

MIPPA also requires the GAO to conduct a study on the impact of accreditation and other issues related to access to and the value of advanced diagnostic imaging services.

e)    Other Physician Services Provisions

MIPPA includes a variety of other physician payment policy changes. Among other things, MIPPA:

• Increases funding for the Medicare Medical Home Demonstration Project established in the TRHCA, which provides targeted, coordinated, family-centered care to high-need populations, and authorizes expansion of the program if quality and savings targets are met.
• Applies the budget neutrality adjustment to the conversion factor, rather than to work relative value units, effective January 1, 2009.
• Extends through December 31, 2009 the 1.0 floor on the Medicare work geographic adjustment, which has the effect of increasing physician payments in certain rural areas.
• Extends through December 31, 2009 a provision allowing independent laboratories to bill directly for the technical component of certain physician pathology services provided to hospitals. [5]
• Makes permanent a current exception to the 60-day limit on Medicare reciprocal billing arrangements between two physicians during periods in which one of the physicians is ordered to active duty as a member of a reserve component of the Armed Forces. 
• Increases Medicare physician fee schedule payments for certain psychotherapy services by 5 percent for the period of July 1, 2008 through December 31, 2009.
• Provides full (rather that 50 percent) payment for teaching anesthesiologists involved in the training of physician residents in a single anesthesia case or two concurrent anesthesia cases and provides payment parity for certified registered nurse anesthetists, effective for services furnished on or after January 1, 2010.

2.  Therapy Cap Exceptions Process

The Balanced Budget Act of 1997 (“BBA”) established two types of annual per-beneficiary limitations on outpatient therapy services: (1) a $1,500 cap for all outpatient physical therapy (“PT”) services and speech language pathology (“SLP”) services; and (2) a $1,500 cap for all outpatient occupational therapy (“OT”) services, with both of these amounts indexed for inflation. Although enforcement of the caps has been suspended periodically, the caps are currently in place. In 2008, the cap amount is $1,810 for PT and SLP services combined, and a separate $1,810 cap for OT services.

The Deficit Reduction Act of 2005 (“DRA”) required CMS to implement an exceptions process for therapy expenses incurred in 2006. Under this process, a Medicare enrollee (or person acting on behalf of the enrollee) could request an exception from the therapy caps. The individual could obtain an exception if the provision of services was determined medically necessary; CMS established an automatic process to facilitate exceptions. The Tax Relief and Health Care Act of 2006 (“TRHCA”) extended the therapy cap exceptions process through 2007, and the MMSEA further extended the exceptions process through June 30, 2008. MIPPA extends the therapy cap exception process through December 31, 2009.

3.   Speech Language Pathology Services

MIPPA establishes a statutory definition for outpatient speech-language pathology services, separate from the definition of outpatient physical therapy services. The law also allows outpatient speech-language pathologists to bill Medicare directly for their services subject to the same conditions as physical therapists, beginning July 1, 2009. MIPPA specifies that this provision may not be construed to affect existing CMS regulations or policies that require physician oversight of care as a condition of Medicare Part B payment for speech-language pathology services.

4.   Brachytherapy and Therapeutic Radiopharmaceuticals

MIPPA extends current policy basing Medicare payment for brachytherapy devices/sources in the hospital outpatient setting on hospital charges reduced to cost until December 31, 2009. It also continues the hospital charges reduced to costs methodology for therapeutic radiopharmaceuticals under the hospital outpatient prospective payment system (“OPPS”) until December 31, 2009.

5.   Chronic Obstructive Pulmonary Disease Coverage/Oxygen Ownership

MIPPA provides Medicare coverage of certain items and services furnished under an intensive cardiac rehabilitation program or pulmonary rehabilitation program meeting specified criteria, effective January 1, 2010. Covered services include, among other things: physician-prescribed exercise; education; psychosocial assessment; outcomes assessment; and other reasonable and necessary items identified by the Secretary. The services must be part of a physician-supervised program and meet certain performance standards. The law sets forth specific criteria for intensive cardiac rehabilitation services, including beneficiary eligibility standards, authorization of a total of 72 one-hour sessions, and payment under the physician fee schedule based on the OPPS payment for certain cardiac rehabilitation codes.

In addition, the new law repeals a provision of the DRA that required medical equipment suppliers to transfer the title for oxygen equipment to the beneficiary after 36 months of rental. While the supplier retains the title to the equipment, the supplier must continue to furnish the equipment to the beneficiary during the period of medical need for the remainder of the reasonable useful life of the equipment. As under the DRA, separate rental payments still will be made for the oxygen contents, and maintenance and servicing payments will be made if determined by the Secretary to be reasonable and necessary and not otherwise covered under warranty. This provision is effective January 1, 2009. 

6.   Clinical Laboratory Tests

The MMA required the Secretary to institute a competitive bidding demonstration program for Medicare Part B clinical laboratory services. In October 2007, CMS announced that it intended to launch the first Medicare clinical laboratory demonstration in the San Diego-Carlsbad-San Marcos, California metropolitan statistical area in early 2008. Implementation initially was blocked by a court injunction, however. MIPPA repeals the statutory authority for the Secretary to conduct the clinical laboratory competitive bidding demonstration project. Instead, MIPPA reduces the Medicare fee schedule update for clinical lab services by 0.5 percent in 2009 through 2013.

Separately, MIPPA clarifies that clinical diagnostic laboratory services furnished by a CAH will be treated as being furnished as part of outpatient critical access service (and reimbursed based on reasonable cost), regardless of whether the beneficiary is physically present in the CAH or in a CAH-operated SNF or clinic at the time the specimen is collected. This provision is effective for services furnished on or after July 1, 2009.

7.   Ambulance Services

MIPPA provides increased Medicare add-on payments for ground ambulance services. Specifically, payments are increased by 3 percent in rural areas and 2 percent in other areas for services furnished on or after July 1, 2008 and before January 1, 2010. The law also provides an 18-month hold harmless payment provision for air ambulance regions recently reclassified from rural to urban, and it clarifies the medical review standard for air ambulance services.

8.   OPPS Hold Harmless Provision

MIPPA extends through December 31, 2009, a statutory provision allowing certain small rural hospitals to receive additional Medicare payments if their OPPS payments are less than under the prior reimbursement system. In 2008 and 2009, these hospitals will receive 85 percent of the difference between the payment under OPPS and under the prior reimbursement system. MIPPA also extends this provision to sole community hospitals with fewer than 100 beds.

9.   Telehealth Services

MIPPA provides that additional types of entities can be considered as originating sites for Medicare payment of telehealth services. Specifically, hospital-based or CAH-based renal dialysis facilities, SNFs, and community mental health centers are added to the list of sites where Medicare beneficiaries can receive telehealth services, effective January 1, 2009. 

10.   Chronic Care Demonstration Programs

MIPPA requires the Medicare Payment Advisory Commission (“MedPAC”) to report to Congress by June 15, 2009 on the possibility of using a standing network of providers to test new approaches to care coordination and other chronic care delivered to Medicare patients. In conducting the study, MedPAC is directed to consider the results of the Medicare Coordinated Care Demonstration and Medicare Health Support pilot program. 

11.  Federally-Qualified Health Center Payments

MIPPA increases the per visit cap on Medicare payments to federally-qualified health centers (“FQHCs”) by $5 in 2010 and by an inflation update in subsequent years. The GAO also is directed to study whether the payment structure for FQHC services is adequate.

12.  Kidney Disease Education and Awareness

MIPPA requires the Secretary to establish pilot projects in at least three states to increase public/medical community awareness of chronic kidney disease (“CKD”), focusing on increasing CKD awareness, screening, and surveillance systems. The projects must begin by January 1, 2009 and can last for up to five years. 

In addition, MIPPA expands Medicare coverage to include up to six sessions of kidney disease education services, effective January 1, 2010. Services must be furnished to beneficiaries with stage IV CKD who have been identified as requiring dialysis or a kidney transplant. The services must be designed to help beneficiaries manage comorbidities to delay dialysis, prevent uremic complications, and understand treatment options. In establishing the standards for the education content under this benefit, the Secretary is directed to consult with stakeholders who have not received funding from drug manufacturers or dialysis facilities to the extent possible. This benefit may be furnished by a physician, physician assistant, nurse practitioner, clinical nurse specialist, or rural providers, but not other hospital-based dialysis providers or renal dialysis facilities. Payment to providers will be made under the physician fee schedule.

13.   Renal Dialysis Provisions

MIPPA makes a series of significant changes to Medicare end-stage renal disease (“ESRD”) payment policy. First, the law provides a 1.0 percent update to the composite rate for renal dialysis services for each of 2009 and 2010. It also provides for a “site-neutral,” composite rate for dialysis services under which payment to hospital-based facilities will be the same as payment to independent dialysis facilities, effective January 1, 2009. Likewise, any area wage adjustments for hospital-based facilities must be based on the area wage adjustment for independent facilities.

More significant changes will go into effect by January 1, 2011, when the Secretary is required to establish a fully-bundled ESRD payment system under which a single payment will be made to ESRD providers for renal dialysis services (the Secretary will determine the unit of payment). The single payment must include the following items and services: items and services currently included in the composite rate; erythropoiesis stimulating agents (“ESAs”); drugs and biologicals that are now separately-payable and their oral equivalents; and (4) laboratory tests and other items and services that are currently paid for that are furnished for the treatment of ESRD. Vaccines are not included in the bundle. The Secretary must adjust payments under the new system for such factors as case mix, exceptionally high-cost patients, and low-volume providers (which will receive a temporary add-on payment of at least 10 percent).

The new system must be phased in over four years, with full implementation by January 1, 2014, although providers may elect to forego the phase-in period. Estimated payments under the new system for 2011 must equal 98 percent of payments that would have been made under the current system (including the drug add-on payment), using the lowest patient utilization data from 2007 through 2009. Beginning in 2012, an annual inflation update will be provided equaling the increase in ESRD market basket minus 1.0 percentage point. The GAO must report to Congress by March 1, 2013 on the implementation of the bundled ESRD payment system. 

In addition, MIPPA establishes a quality incentive payment program for ESRD providers. Medicare payments to providers that do not meet the quality standards will be reduced by up to 2.0 percent, as determined by the Secretary, beginning January 1, 2012. Any payment reduction will apply only to one year of payments and will have no impact on reimbursement in subsequent years. The quality measures must address anemia management, patient satisfaction, and other measures at the Secretary’s discretion, with preference given to measures endorsed by a consensus-based entity, and they must address the unique needs of children and young adults. The methodology for assessing each ESRD provider’s quality performance should be weighed to reflect the Secretary’s quality improvement priorities, and the level of payment reductions for not meeting the quality threshold should vary based on performance score. The Secretary must make the ESRD performance scores public, including through an internet site. 

14.   Medicare DMEPOS Competitive Acquisition Program

The MMA required the Secretary to implement competitive acquisition programs for DMEPOS, under which only suppliers who are successful bidders in specified regions and who meet program standards will be eligible to furnish certain categories of DMEPOS to Medicare beneficiaries. Under competitive bidding, successful bidders are paid based on the median of the winning suppliers’ bids for each of the selected items in the region, rather than the Medicare fee schedule or supplier bid amount.

The initial round of the program had gone into effect in the following 10 geographic areas on July 1, 2008: (1) Charlotte-Gastonia-Concord, NC-SC; (2) Cincinnati-Middletown, OH-KY-IN; (3) Cleveland-Elyria-Mentor, OH; (4) Dallas-Fort Worth-Arlington, TX; (5) Kansas City, MO-KS; (6) Miami-Fort Lauderdale-Miami Beach, FL; (7) Orlando-Kissimmee, FL; (8) Pittsburgh, PA; (9) Riverside-San Bernardino-Ontario, CA; and (10) San Juan-Caguas-Guaynabo, PR. Ten categories of DMEPOS were included in phase one: (1) Oxygen Supplies and Equipment; (2) Standard Power Wheelchairs, Scooters, and Related Accessories; (3) Complex Rehabilitative Power Wheelchairs and Related Accessories; (4) Mail-Order Diabetic Supplies; (5) Enteral Nutrients, Equipment, and Supplies; (6) Continuous Positive Airway Pressure Devices, Respiratory Assist Devices, and Related Supplies and Accessories; (7) Hospital Beds and Related Accessories; (8) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; (9) Walkers and Related Accessories; and (10) Support Surfaces (Group 2 mattresses and overlays), although this category was subject to bidding only in Miami-Fort Lauderdale-Miami Beach, FL and San Juan-Caguas-Guaynabo, Puerto Rico. Competitive bidding was slated to expand to 70 additional geographic areas next year. 

There were widespread concerns about the way CMS handled the first round of the DMEPOS competitive bidding program, including confusing and contradictory guidance provided to suppliers during the bidding process, the questionable disqualification of numerous suppliers due to allegedly missing financial data, the awarding of contracts to suppliers without established businesses in the particular geographic region (since technically a supplier did not have to be located in the CBA to submit a bid), the adequacy of beneficiary and supplier education efforts, and the potential negative impact of the program on beneficiary access to DMEPOS. These concerns prompted Congress to intervene to delay implementation of the first round of the program and make a series of changes to improve the process in the future. Specifically, MIPPA:

• Terminates contracts awarded under round one, requires CMS to rebid those areas in 2009, and delays bidding for round two until 2011;
• Finances the delay by cutting fee schedule payments for all items covered by round one of the bidding program by 9.5 percent nationwide beginning January 1, 2009, followed by a 2 percent increase (in addition to regular inflation updates) in 2014, except where bidding is in effect or CMS has otherwise adjusted rates;
• Adds a series of procedural improvements to the bidding process, including a requirement that CMS notify bidders in the case of certain missing financial documentation; and
• Addresses quality by, among other things: requiring subcontractor accreditation; excluding complex rehabilitation wheelchairs and negative pressure wound therapy from bidding; exempting certain rural and low-population areas from bidding; and requiring CMS to issue regulations before using its authority to adjust prices in non-bid areas.  

A detailed Reed Smith analysis of the MIPPA DMEPOS competitive bidding provisions is available at reedsmith.com.

15.   Cost-Sharing for Clinical Trials

In order to encourage beneficiary participation in clinical trials, MIPPA allows the Secretary to develop alternative methods of payment for items and services provided under clinical trials and comparative effectiveness studies that are sponsored or supported by an HHS agency. Such alternative payment methods are authorized if necessary to preserve the scientific validity of the trials or studies, such as in randomized controlled trials. 

16.   Performance Measures and Clinical Effectiveness

MIPPA requires the Secretary to enter into a contract with a private, nonprofit consensus-based standards setting organization to conduct certain performance measurement activities. The organization is tasked with compiling evidence and working with stakeholders to develop recommendations on an integrated national strategy and priorities for health care performance measurement in all applicable settings. The entity also will endorse standardized health care performance quality measures, which must be updated as new evidence is developed, and will promote the development and use of electronic health records containing performance measurement information. The entity must report to Congress and the Secretary annually, and the GAO must conduct two studies and report on the entity’s performance and costs. MIPPA provides $10 million for each of FYs 2009 through 2012 for the program. 

Separately, MIPPA requires the Secretary to contract with the Institute of Medicine (“IOM”) to conduct a study to identify methodological standards for conducting systematic reviews of clinical effectiveness research. In addition, the Secretary must contract with the IOM to review best practices in setting clinical decision-making protocols.

D.   Provisions Relating to Part C

1.   Phase-out of Indirect Medical Education from Capitation Payments

Payments for indirect medical education (“IME”) are presently included as a cost in the calculation of capitation payments for Medicare Advantage (“MA”) plans. However, there is no requirement that an MA organization pass-through the IME portion of the capitation payment in its payments to teaching hospitals. Because teaching hospitals already receive IME payments when a beneficiary is admitted, inclusion of these per capita costs in capitation payments has long been considered a “double payment.”

Over time, MIPPA eliminates the inclusion of IME in payments to MA plans. Beginning in 2010, the calculation that incorporates IME into the capitation rate calculation must be gradually adjusted to exclude these costs. The exclusion is in the form of a phased reduction that applies a maximum decrease of 0.6 percentage points for each year. Capitation rates applicable to the Program of All Inclusive Care for the Elderly (“PACE”) will, however, be unaffected by this change.

2.   MA Private Fee-for Service Plans – Network Requirements

MIPPA imposes significant changes for MA Private Fee-For-Service (“MA PFFS”) plans. Presently, MA PFFS plans are not required to develop a provider network through contracting, but are only required to establish uniform payment rates for all providers, whether they were contracted or “deemed” to be contracted. A non-contracted provider is “deemed” to participate in the MA PFFS plan (and required to accept the plan payment rates) if the provider furnished services other than emergency services to an MA PFFS enrollee, as long as the services were covered by Medicare and the provider was informed about the enrollee’s membership in the plan and was informed or “given a reasonable opportunity to obtain information” about the terms and conditions of payment under the plan. The present MA regulations also exempt MA PFFS plans from developing a defined quality improvement program (discussed below). The absence of these requirements for MA PFFS plans, along with a variety of other concerns about MA PFFS and a rapid rise in enrollment in these types of plans, began to raise concerns that the form and structure may be difficult for patients and providers to understand. The modifications imposed by MIPPA attempt to address these concerns and bring MA PFFS plan requirements into alignment with requirements for other MA plans.

Beginning in 2011 and applying to all subsequent years, most MA PFFS plans will be required to meet MA access standards only through written contracts with providers in order to meet the general access standards for MA plans. The amendment applies to MA PFFS plans sponsored by an employer, a labor organization or by trustees of a fund established by one or more employer. It also applies to plans operating in a “network area,” which is defined as an area identified by the Secretary to have at least two network-based plans with enrollment “as of the first day of the year in which such announcement is made.” A “network based plan” includes coordinated care MA plans, such as HMOs (with or without a point-of-service option), Provider Sponsored Organization plans, and regional or local Preferred Provider Organization plans. The only MA PFFS plans that are exempt from this requirement are those that operate in a network area in which there are not at least two operational network-based plans and those that have previously met access adequacy standards by obtaining prior CMS approval to use methods other than written agreements.

3.  Revised Requirements for MA Quality Improvement Programs

MA PFFS and Medical Savings Account (“MSA”) plans are presently exempt from the requirement that MA plans establish Quality Improvement programs, whereby MA PFFS and MSA plans implement a system to measure quality outcomes and then report such outcomes. MIPPA extends the requirement to have “an ongoing quality improvement program” to these plans, and also imposes requirements “to provide for the collection, analysis, and reporting of data” that will allow for measuring health outcomes and other quality of care indicators. This requirement applies to such plans beginning on or after January 1, 2010.

4.  MA Plans Designed for Special Needs Individuals

MMSEA allowed specialized Medicare Advantage plans for special needs individuals (“Special Needs Plans” or “SNPs”) to limit enrollment to certain populations until January 1, 2010. MIPPA extends this authority to restrict enrollment for an additional year, until 2011. MIPPA also places a one-year moratorium on the Secretary’s authority, granted under the MMSEA, to designate other plans as SNP plans and prohibits service area expansion from January 1, 2010 through December 31, 2010 for SNP plans providing services to members who are dually-eligible for Medicare and Medicaid.

MIPPA also amends several other SNP Plan requirements. These include: (i) requiring independent assessment by a state or other independent entity that a special needs individual living in the community is in need of an institutional level of care; (ii) requiring written disclosure requirements about the benefits and cost-sharing protections to which a beneficiary may be entitled under the state Medicaid program and which of these benefits are covered under the SNP Plan; (iii) imposing care management requirements, including an evidence-based model of care with appropriate networks of providers and specialists; (iv) conducting assessments of enrolled individuals and establishing case-based care plans; and (v) requiring that these plans collect and report data that may be used to measure health outcomes. These modifications generally apply on or after January 1, 2010.

Finally, MIPPA provides some financial protection for dual eligible and qualified Medicare beneficiaries by disallowing any cost-sharing for these enrollees if the amount would exceed the amount of cost-sharing permitted under the traditional Medicaid or Medicare program and the enrollee was not a member of the Medicare SNP. This provision applies to plan years beginning on or after January 1, 2010.

5.   Adjustment to the MA Stabilization Fund

The Medicare Advantage Stabilization Fund was designed to provide incentives to have an MA plan offered in each region and to retain plans in certain MA regions that had market penetration at less than the national average. The Fund, which was established by the MMA, originally included authorization to spend $10 billion between 2007 and 2013. This initial sum was reduced by $6.5 billion by the TRHCA, which also prohibited spending the remainder of the funds until 2012, with $1.6 billion to be made available that year and $1.79 billion to be made available in 2013. The MMSEA further reduced these amounts, eliminating those that were to be available in 2012, reducing the amount of the fund to $1.79 billion and extending the accessibility to the funds until 2013.

MIPPA again reduces the amounts available from the Fund and again extends the time frame as to when the funds will be accessible. Under MIPPA, the funds available will be reduced to $1 billion, and they will not become available until 2014.

6.  Access to Medicare Reasonable Cost Contract Plans

Medicare cost contract plans are reimbursed based on the reasonable cost of providing services to enrollees. Organizations seeking to enter into a cost, rather than risk, contract with CMS may be allowed to do so if the organization is found to be unable to bear the risk of potential losses under a risk-sharing contract or if the eligible organization elects or has an insufficient number of members to be eligible to enter into a risk-sharing contract.

In an effort to reduce the number of cost contract plans, the MMSEA prohibited reasonable cost reimbursement contracts from being extended or renewed after January 1, 2009 if there were two or more MA regional or local plans offered that met certain minimum enrollment requirements for the service area. MIPPA extends that time frame until January 1, 2010. The law also provides that the prerequisite of offering two or more plans in a service area will not apply if both plans are offered by the same MA organization. MIPPA also revises the plan requirements that are applied to determine whether the renewal/extension prohibition is applicable and directs the GAO to study the reasons, if any, why reasonable cost contracts are unable to become MA plans.

7.  Medicare Payment Advisory Commission Studies

MIPPA directs MedPAC to conduct two studies relating to the MA program. These studies focus on developing measurements and benchmarks relating to quality of health care for Medicare beneficiaries and the measurement of costs to provide care to MA enrollees.

The first study is to focus on whether comparable measures of performance and patient experience can be collected and reported so that the quality of care for beneficiaries enrolled in a MA plan can be compared with that for beneficiaries who receive care under original Medicare fee-for-service arrangements.

The second study requires an analysis of the correlation between the costs that MA organizations incur in providing coverage for items and services covered under the original Medicare fee-for-service program and county-level spending under the original Medicare program on a per capita basis. The results of this study may be used to determine appropriate alternate approaches to payment for Medicare beneficiaries enrolled in MA plans other than through county-level payment area equivalents, and to assess the accuracy and completeness of county-level estimates of per capita spending under the original Medicare fee-for-service program.

Both study reports are expected to be produced by March 31, 2010.

E.   Provisions Relating to Part D

1.   Prompt Payment Provisions

MIPPA requires prescription drug plans (“PDPs”) and Medicare Advantage Prescription Drug (“MA-PD”) plans to pay pharmacies for Part D drug claims within 14 days of receipt of “clean claims” submitted electronically, and within 30 days of receipt of clean claims submitted otherwise. A claim is considered to have been received on the date on which the claim is transferred (for claims submitted electronically), and on the fifth day after the postmark date or time stamp date (for claims submitted otherwise). This provision is effective for plan years beginning on or after January 1, 2010.

The term “clean claim” means a claim that has no defect, impropriety, or particular circumstance requiring special treatment that prevents timely payment of the claim. A claim is deemed to be a “clean claim” if the PDP sponsor does not provide notice to the pharmacy of any deficiency in the claim within 10 days of receipt of a clean claim submitted electronically, and within 15 days of receipt of a clean claim submitted otherwise. If a PDP sponsor determines that a claim is not a clean claim, it must notify the pharmacy of such determination, specify all defects or improprieties in the claim, and list the information or documents required for proper processing of the claim. Once additional information or documents are supplied, then a claim is deemed to be a clean claim if the PDP sponsor does not provide notice of any remaining defect or impropriety within 10 days.

If payment according to this section is not made on a timely basis, a PDP sponsor will be required to pay interest to the pharmacy. The Secretary of HHS may exempt a PDP sponsor from paying interest if there are exigent circumstances, such as natural disasters or other unique and unexpected events that prevent timely processing of claims.

Note that these time frames do not apply to mail order pharmacies or pharmacies that are located in, or contract with, a long-term care (“LTC”) facility. MIPPA contains a separate provision which requires pharmacies that are located in, or that contract with, LTC facilities to have not less than 30 days, or more than 90 days, to submit claims to a PDP sponsor or MA-PD plan. 

These requirements apply to plan years beginning on or after January 1, 2010.

2.   Regular Update of Prescription Drug Pricing Standard

MIPPA requires PDPs and MA-PD plans that base reimbursement of pharmacies on the cost of a drug to update their drug pricing standards (e.g., average wholesale prices) at least weekly, with an initial update on January 1 of each year. This amendment applies to plan years beginning on or after January 1, 2009, and its intent is for plans to accurately reflect the market price of acquiring the drugs.

3.   Inclusion of Barbiturates and Benzodiazepines as Covered Part D Drugs

MIPPA expands the definition of “covered Part D drug” to include barbiturates (if used in the treatment of epilepsy, cancer, or a chronic mental health disorder) and benzodiazepines. This provision applies to prescriptions dispensed on or after January 1, 2013.

4.   Formulary Requirements for Certain Categories or Classes of Drugs

The Part D statute generally requires PDPs and MA-PD plans to include drugs within each therapeutic category and class of covered Part D drugs, but not necessarily all drugs within the category or classes. Since the inception of the Part D program, however, CMS has issued subregulatory guidance requiring Part D plans cover all or substantially all drugs in certain “protected” classes due to concerns that interruption of therapy in these categories could cause significant negative outcomes to beneficiaries. The protected classes identified by CMS are: antineoplastics, antidepressants, antipsychotics, antiretrovirals, anticonvulsants and immunosuppressants.

MIPPA includes a provision which supporters describe as “codifying” the CMS protected class policy, although Administration officials has argued that the policy actually expands the Secretary’s authority in a way that could result in additional formulary mandates that eventually drive up prices. Specifically, beginning with plan year 2010, MIPPA requires the Secretary to identify categories and classes of drugs for which both of the following criteria are met:

• Restricted access to drugs in the category or class would have major or life threatening clinical consequences for individuals who have a disease or disorder treated by the drugs in such category or class, and
• There is significant clinical need for access to multiple drugs within a category or class due to unique chemical actions and pharmacological effects of the drugs within the category or class, such as drugs used in the treatment of cancer.

PDP sponsors will be required to include all covered Part D drugs in the categories and classes that the Secretary identifies. The Secretary may establish exceptions to this requirement, however, through a rulemaking process that (1) ensures that any exception is based on scientific evidence and medical standards of practice (with more specific guidelines for antiretroviral medications), and (2) includes a public notice and comment period.

5.   Use of Part D Data

MIPPA clarifies that Part D data provided to the Secretary as part of a PDP or MA-PD plan’s contract with the Secretary may be used for research on the utilization, safety, effectiveness, quality, and efficiency of health care services, as well as for other purposes. This section also requires the Secretary to release Part D claims data to authorized Congressional support agencies for the purposes of conducting Congressional oversight, monitoring, making recommendations, and other analysis.

6.  Revision of Definition of Medically Accepted Indication for Drugs

MIPPA extends the Medicare Part B standard for determining medically-accepted indications of anti-cancer drugs to the Part D program, effective for plan years beginning on or after January 1, 2009. The Secretary is required to revise the list of Part D compendia as appropriate using the process under Part B. 

In addition, MIPPA provides that no compendium may be included on the list of approved compendia for determining medically-accepted indications of anti-cancer drugs under Parts B or D unless it has a publicly transparent process for evaluating therapies and for identifying potential conflicts of interest, effective January 1, 2010. 

Finally, MIPPA adds the DRUGDEX Information System to the list of authorized compendia under both Medicare Parts B and D effective January 1 2009, but this designation will apply on or after January 1, 2010 only if this compendia meets the new conflict-of-interest criteria.

III.  MEDICAID PROVISIONS

1.  Medicaid Pharmacy Reimbursement

By way of background, the DRA mandated a number of revisions to Medicaid drug pricing policy, including a adoption of new federal upper limit (“FUL”) calculation for multiple source drugs based on 250 percent of the lowest average manufacturer price (“AMP”) in a drug class, and requiring CMS to promote transparency in drug pricing by posting AMP amounts on the CMS web site. CMS issued a final rule to implement these provisions on July 17, 2007, but implementation subsequently was blocked by a court order. 

MIPPA delays the establishment of Medicaid payment limits using AMP for multiple source drugs through September 30, 2009. Moreover, CMS is blocked from disclosing AMP data until October 1, 2009. 

2.   Other Medicaid Provisions

MIPPA includes several other provisions impacting Medicaid policy. Specifically, MIPPA: 

• Extends the Transitional Medical Assistance program and abstinence-only education program through June 30, 2009;
• Extends the special Medicaid disproportionate share hospital allotment for Tennessee and Hawaii through December 31, 2009;
• Establishes statutory timelines and procedures for administrative review in cases where the Secretary disallows a state’s claim for federal financial participation under Medicaid; and
• Increases the percentage of enrollees who may enroll in county Medicaid health insuring organizations in California and adds two new counties to the program.

IV.   MISCELLANEOUS PROVISIONS

Finally, MIPPA addresses a number of other health policy issues. Among other things, the new law:

• Requires the Secretary to study and report to Congress on ways to improve the collection and evaluation of data on disparities in health care services and performance on the basis of race, ethnicity, and gender.
• Requires the Secretary to establish a demonstration project focused on determining the greatest needs and most effective methods of outreach to previously-uninsured Medicare beneficiaries. The demonstration must be established within one year, last for two years, occur at 10 or more sites, and include SHIPs, community health centers, community-based organizations, community health workers, and other service providers. 
• Directs the OIG to report to Congress on the extent to which Medicare providers and plans are adhering to non-discrimination requirements with respect to limited speakers of English and the Culturally and Linguistically Appropriate Services (“CLAS”) standards in health care. The report also must discuss the financial impact of providing language services and make recommendations to improve compliance with and enforcement of CLAS standards. Within one year of this report, HHS must institute changes to remedy any identified deficiencies.
• Replaces the current Physician Assistance and Quality Initiative Fund with a new “Medicare Improvement Fund” to be used to improve the fee-for-service program for Medicare beneficiaries. Funding is available during FYs 2014 through 2017.
• Directs CMS to participate in the Federal Payment Levy and Administrative Offset Program (“FPLP”), which authorizes the Internal Revenue Service to collect overdue taxes through a levy on federal payments made to delinquent taxpayers. By September 30, 2011, all Medicare Part A and Part B payments must be processed through the FPLP. 
• Extends the Temporary Assistance for Needy Families supplemental grants through FY 2009.
• Modifies the Federal Medical Assistance Percentage for District of Columbia foster care and adoption programs.
• Extends the Special Diabetes Grants Program and provides funding for diabetes research, treatment, and prevention programs for Native Americans and Alaska Natives.

* * *

Please contact our Senior Health Policy Analyst Debra A. McCurdy (703/641-4283, ) or any other member of the Reed Smith health care group with whom you work if you would like additional information or if you have any questions. For continuing news regarding major health policy legislative and regulatory developments, please visit Reed Smith’s Health Industry Washington Watch. 

The contents of this Memorandum are for informational purposes only and do not constitute legal advice.

Specifically, MIPPA:

• Terminates contracts awarded under round one, requires CMS to rebid those areas in 2009, and delays bidding for round two until 2011;
• Finances the delay by cutting fee schedule payments for all items covered by round one of the bidding program by 9.5 percent nationwide beginning January 1, 2009, followed by a 2 percent increase (in addition to regular inflation updates) in 2014, except where bidding is in effect or CMS has otherwise adjusted rates;
• Adds a series of procedural improvements to the bidding process, including a requirement that CMS notify bidders in the case of certain missing financial documentation; and
• Addresses quality by, among other things: requiring subcontractor accreditation; excluding complex rehabilitation wheelchairs and negative pressure wound therapy from bidding;; exempting certain rural and low-population areas from bidding; and requiring CMS to issue regulations before using its authority to adjust prices in non-bid areas.  

These provisions are effective June 30, 2008, unless otherwise noted.

CMS has instructed suppliers that as a result of the new law, items that had been included in the first round of the DMEPOS competitive bidding program can be furnished by any enrolled DMEPOS supplier in accordance with existing Medicare rules, and Medicare will pay for DMEPOS items in bidding areas using the standard DMEPOS fee schedule amounts, retroactive to June 30, 2008. Nevertheless, given that the program was in effect for two weeks before the legislation was enacted, certain operational and legal questions have been raised. 

This memorandum provides a summary of the DMEPOS bidding provisions of the new law and discusses CMS guidance issued to date. We would be pleased to answer any further questions you may have. 

II.  BACKGROUND ON DMEPOS COMPETITIVE BIDDING

A.  Statutory Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) required the Secretary of the Department of Health and Human Services (“HHS”) to implement competitive acquisition programs for DMEPOS beginning in 2007. Eligible products included: (1) DME (including DME used with infusion and drugs, other than inhalation drugs) and supplies used in conjunction with DME; (2) enteral nutrients, equipment, and supplies; and (3) off-the-shelf orthotics. The MMA excluded from competitive acquisition inhalation drugs; parenteral nutrients, equipment, and supplies; and Class III devices.  Moreover, the Secretary was permitted to exempt rural areas and areas with low population density in urban areas (unless there was a significant national market through mail order for particular items), and items and services unlikely to result in significant savings.

The statute directed the Secretary to establish competitive bidding areas (“CBAs”), which could differ for different items and services. Competitive acquisition was scheduled to be phased in geographically, applying to 10 of the largest metropolitan statistical areas (“MSAs”) in 2007, a total of 80 MSAs in 2009, and additional MSAs thereafter. The Secretary also could phase in competitive acquisition programs first among the highest cost and highest volume items and services or those that have the largest savings potential.

For each competitive acquisition area, the Secretary must solicit bids by suppliers to supply certain covered items. Only successful bidders could supply the covered items in the CBA, and they would be reimbursed based on the bid amount. The Secretary was required to ensure that small suppliers had the opportunity to be considered for participation under the program. 

In order to be awarded a contract, bidding entities had to meet quality standards for suppliers, along with financial standards specified by the Secretary. Total amounts paid under the contracts were expected to be less than would be paid otherwise, and beneficiary access to multiple suppliers would have to be maintained. The Secretary could limit the number of contractors in a competitive acquisition area to the number needed to meet projected demand. 

CMS published its final rule to implement the DMEPOS competitive bidding program on April 10, 2007. ²

B.  CMS Bidding Activities

CMS conducted the first round of DMEPOS competitive bidding last summer, and the deadline for bidding was September 25, 2007. The first round covered the following 10 MSAs: (1) Charlotte-Gastonia-Concord, NC-SC; (2) Cincinnati-Middletown, OH-KY-IN; (3) Cleveland-Elyria-Mentor, OH; (4) Dallas-Fort Worth-Arlington, TX; (5) Kansas City, MO-KS; (6) Miami-Fort Lauderdale-Miami Beach, FL; (7) Orlando-Kissimmee, FL; (8) Pittsburgh, PA; (9) Riverside-San Bernardino-Ontario, CA; and (10) San Juan-Caguas-Guaynabo, PR. 

Ten categories of DMEPOS were included in phase one: (1) Oxygen Supplies and Equipment; (2) Standard Power Wheelchairs, Scooters, and Related Accessories; (3) Complex Rehabilitative Power Wheelchairs and Related Accessories; (4) Mail-Order Diabetic Supplies; (5) Enteral Nutrients, Equipment, and Supplies; (6) Continuous Positive Airway Pressure Devices, Respiratory Assist Devices, and Related Supplies and Accessories; (7) Hospital Beds and Related Accessories; (8) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; (9) Walkers and Related Accessories; and (10) Support Surfaces (Group 2 mattresses and overlays), although this category was subject to bidding only in Miami-Fort Lauderdale-Miami Beach, FL and San Juan-Caguas-Guaynabo, Puerto Rico. 

Moreover, in January 2008, CMS announced the 70 MSAs (include the three largest MSAs ‑ New York, Los Angeles, and Chicago) and eight product categories that it intended to include in the second round of competitive bidding. CMS planned to bid eight of the 10 product categories from round one in the second round: (1) Oxygen Supplies and Equipment; (2) Standard Power Wheelchairs, Scooters, and Related Accessories; (3) Complex Rehabilitative Power Wheelchairs and Related Accessories; (4) Enteral Nutrients, Equipment, and Supplies; (5) Continuous Positive Airway Pressure Devices, Respiratory Assist Devices, and Related Supplies and Accessories; (6) Hospital Beds and Related Accessories; (7) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; and (8) Walkers and Related Accessories. Note that although diabetes supplies were not listed in this round of bidding, CMS officials indicated in a January 8, 2008 press conference that they were preparing to conduct nationwide competitive bidding for diabetes supplies in the future. ³

On March 20, 2008, CMS announced the winning bid prices for the first round of competitive bidding, with reimbursement averaging 26 percent below Medicare fee schedule amounts. Moreover, on May 19, 2008, CMS released the names of the 325 suppliers that had signed contracts with Medicare to provide competitively bid DMEPOS items in the first round of competitive bidding, effective July 1, 2008. There were widespread concerns about the way the bidding process was handled, however, including confusing and contradictory guidance provided to suppliers during the bidding process, the questionable disqualification of numerous suppliers due to missing financial data, the awarding of contracts to suppliers without established businesses in the particular geographic region (since technically a supplier did not have to be located in the CBA to submit a bid), the adequacy of beneficiary and supplier education efforts, and the potential negative impact of the program on beneficiary access to DMEPOS. These concerns prompted Congress to intervene to delay implementation of the first round of the program and make a series of changes to improve the process in the future.

III.  MIPPA DMEPOS COMPETITIVE BIDDING PROVISIONS

A.  New Timetable for Competitive Bidding Program

MIPPA terminates the contracts awarded under round one of the competitive bidding program, which had gone into effect July 1, 2008. Reimbursement to DMEPOS suppliers in the 10 CBAs reverts to the fee schedule amounts applicable prior to July 1, and all otherwise-eligible DMEPOS suppliers may furnish DMEPOS supplies in these areas regardless of whether they participated in the bidding process.  

The Secretary is directed to rebid the first round in 2009, covering the same geographic areas and same products as previously selected, subject to the following modifications: (1) the Secretary must exclude Puerto Rico (resulting in the “new” first round covering nine rather than 10 MSAs); and (2) negative pressure wound therapy items and services are excluded from round one. Note that the legislation is not specific as to when in 2009 the competition must occur or when bid prices will actually go into effect.

With regard to termination of winning round one contracts, MIPPA specifies that no Medicare payment will be made under those contracts on or after the date of the enactment (July 15, 2008). MIPPA provides that “to the extent that any damages may be applicable as a result of the termination of such contracts,” such damages will be paid from the Medicare trust fund. The law stipulates that this language should not be construed as providing an independent cause of action or right to administrative or judicial review with regard to the terminated contract. No guidance has yet been issued regarding how a supplier could petition for damages or the extent, if any, of financial relief. It is unclear at this time how viable it will be for suppliers to pursue relief under this provision or what CMS would consider to be reimbursement “damages.” CMS could be expected to argue that damages are not applicable because the standard contract included language noting that the contract was subject to changes in Medicare statute. This issue ultimately may be decided through litigation.

MIPPA delays round two bidding from 2009 to 2011, and clarifies the statutory language to specify that this competition shall take place in “an additional 70” areas, plus the nine MSAs in round one, rather than in 80 areas.   The MSAs in the second round must be those that the Secretary announced earlier in 2008, although the Secretary may subdivide MSAs with populations of at least 8 million into separate CBAs. 

MIPPA allows the Secretary to extend the program to additional areas after 2011, although national mail order bidding could take place after 2010.   In implementing these future rounds, the Secretary must exempt from bidding (except for a national mail order program) the following areas: (1) rural areas; (2) MSAs not selected under rounds one or two with a population of less than 250,000; and (3) certain low population density areas within an MSA that is otherwise selected for bidding.

B.  Reforms to the Competitive Bidding Program and Bidding Process

In light of widespread criticism regarding the way CMS and its contractor conducted the competitive bidding, including the methodology for establishing payments, the inclusion of complex medical equipment in bidding, the mechanics of bidding, the exclusion of numerous bidders for supposedly insufficient documentation, questions regarding the experience and qualifications of certain selected suppliers, and other aspects of the bidding program, MIPPA includes a series of provisions generally supported by industry designed to improve the bidding program.

1.  Supplier Feedback on Missing Financial Documentation

MIPPA establishes a process for CMS to notify a supplier regarding missing financial documentation if certain circumstances are met. Documents covered by this provision include financial, tax, or other such documents relating to supplier financial standards. The provision does not require notification regarding other documentation, such as the bid itself or accreditation documentation.

Under this provision, if a supplier submits a bid by the “covered document review date,” CMS must inform the supplier if a required financial document is missing within 45 days of the covered document review date (or within 90 days in subsequent rounds of bidding). The covered document review date is defined as the later of (1) 30 days before the bidding deadline; or (2) 30 days after the beginning of the bidding period. In such cases, CMS may not reject the bid on the basis of the missing documentation if all documents identified in the notice to the bidder are submitted within 10 business days after the notice date. 

This provision applies only to the timely submission of covered documents, and does not apply to any determination as to the accuracy or completeness of the submitted documents or whether such documents meet applicable requirements. It also does not prevent the Secretary from rejecting a bid for other reasons (i.e., on the basis of the bid amount), nor does it permit a bidder to change bidding amounts or to make other changes in a bid submission.

2.  Modification of Accreditation Requirements

By way of background, the MMA required the Secretary to establish and implement quality standards for Medicare DME suppliers, to be applied by recognized independent accreditation organizations. In August 2006, CMS released final supplier quality standards, and all suppliers eventually will be required to comply with these quality standards in order to furnish any Medicare Part B DMEPOS item or service and to receive and retain a supplier billing number.⁴ CMS generally has been phasing in the accreditation requirement in conjunction with implementation of the competitive bidding program and as new suppliers enroll in Medicare. CMS has previously announced that all existing DMEPOS suppliers will need to submit proof of accreditation by a deemed accreditation organization by September 30, 2009.⁵

MIPPA makes it a statutory requirement that all DMEPOS suppliers be accredited as meeting the DMEPOS quality standards in order to furnish DMEPOS items and services on or after October 1, 2009. Moreover, MIPPA extends the accreditation requirement to subcontractors who enter into arrangements with contract suppliers to assist in the furnishing of items and services under a competitive bidding contract; during the first round of competitive bidding, CMS had not required subcontractors to become accredited.⁶

MIPPA further amends the accreditation requirements as they apply to certain health care professionals (including orthotists and prosthetists as specified by the Secretary). Specifically, MIPPA provides that the accreditation requirements do not apply to such professionals unless the Secretary determines that the quality standards are designed specifically to be applied to such professionals. Likewise, the Secretary may exempt such professionals from the quality standards and accreditation requirement if the Secretary determines that licensing, accreditation, or other mandatory quality requirements apply to the professionals’ furnishing of DMEPOS items and services.

In light of the delay in bidding, CMS has announced the cancellation of the special accreditation deadlines previously established for the second round of bidding.⁷ All DMEPOS suppliers must nevertheless be accredited by September 30, 2009, whether or not they are furnishing services in a CBA. 

3.  Disclosure of Subcontracting Arrangements

MIPPA requires suppliers to disclose to the Secretary within 10 days of entering into a competitive bidding contract information regarding all subcontracting relationships the supplier has for furnishing items and services under the contract, including whether each subcontractor is accredited as applicable. Further, the supplier must notify the Secretary within 10 days of entering into any subsequent subcontracting arrangement.

4. Products Excluded from Competitive Bidding

MIPPA excludes from competitive bidding certain power wheelchairs and certain items furnished by physicians and hospitals. Specifically, MIPPA excludes from bidding: 

(1)        Complex rehabilitative power wheelchairs classified as group 3 or higher, along with related accessories;

(2)        Certain off-the-shelf orthotics if furnished by physicians or other practitioners to their own patients as part of their professional service, or if furnished by a hospital to the hospital’s own patients during an admission or on the date of discharge.

(3)        DME and supplies furnished by a hospital to the hospital’s own patients during an admission or on the date of discharge, under certain circumstances.

5.  Special Rule for Mail-Order Competition for Diabetic Testing Strips

CMS included mail-order diabetes supplies in the first round of competitive bidding, and indicated earlier this year that the agency intends to conduct nationwide competitive bidding for diabetes supplies in the future. 

MIPPA provides that after the first round of bidding, a bidder seeking to furnish diabetes supplies must demonstrate to the Secretary that its bid covers a wide range of popular brands of diabetes supplies. That is, the bid must include 50 percent (or more as the Secretary may specify) of the types of diabetic testing strip products available (on an aggregate basis and taking into account volume for the different products).   The HHS Office of Inspector General (“OIG”) is required to conduct a study by 2011 to identify the types of diabetic testing strip products by volume that could be used to determine whether this standard is met, and to update the report for subsequent rounds of bidding. 

6. OIG Pricing Verification

The OIG is directed to conduct a post-award audit or survey to assess the process used by CMS to conduct competitive bidding and its method for determining pivotal bid amounts and single payment amounts in rounds one and two. The OIG may continue to verify such calculations for subsequent rounds of the program.

C.  Changes to DMEPOS Fee Schedule Payments

MIPPA finances the delay in DMEPOS competitive bidding by reducing standard fee schedule payments by 9.5 percent nationwide for all items covered by round one bidding program (including related accessories if furnished with the competitively-bid item), beginning January 1, 2009. The law clarifies that the fee schedule reduction also applies to diabetic supplies, but only if furnished through mail order. Items that were not subject to competitive bidding will receive an inflation update for 2009 equal to the percentage increase in the consumer price index for all urban consumers (“CPI-U”) for the 12-month period ending with June 2008.

For 2010 through 2013, fee schedules will be increased annually to reflect the CPI-U increase (although in areas where competitive bidding is implemented, contract pricing will apply).

In 2014, the fee schedule for items not furnished in a CBA will again be updated for inflation. Additionally, the payment amounts for those items included in round one and subject to the 9.5 percent cut in 2009 will be increased by 2 percent, unless the Secretary has otherwise adjusted the rate for the item (under the Secretary’s authority to use payment information obtained through the competitive bidding program to adjust rates outside of a CBA), or if the item is being furnished in a CBA.

D.  Other DMEPOS Bidding Provision

In addition to the provisions described above, MIPPA includes the following provisions modifying the DMEPOS competitive bidding program and related requirements: 

• Adjustments to Rates Outside of CBAs – The MMA authorized CMS to use payment information determined under competitive bidding to adjust fee schedule payments for items that are not in a CBA. CMS has not yet established a methodology for exercising this authority. MIPPA requires the Secretary to promulgate rules to specify the methodology to be used to make any such payment adjustment. The methodology must take into account the costs of items and services in areas in which such provisions would be applied compared to payment rates for those items and services in CBAs.
• Competitive Acquisition Ombudsman – MIPPA requires the Secretary to establish a competitive acquisition ombudsman to respond to complaints and inquiries made by suppliers and individuals regarding the competitive acquisition program.
• Negative Pressure Wound Therapy Codes – MIPPA directs the Secretary to evaluate the existing Health Care Common Procedure Coding System (“HCPCS”) codes for negative pressure wound therapy to ensure accurate reporting and billing for such items and services. 
• Report Deadlines and Scope – MIPPA modifies the deadline and scope of a mandated Government Accountability Office (“GAO”) report on the competitive bidding program, including requiring the GAO to examine, among other things: beneficiary access to DMEPOS resulting from awarding contracts to bidders without a physical presence in a CBA and who had no previous experience providing their contracted product category; beneficiary satisfaction; costs to suppliers participating in the program; the impact on small business suppliers; the impact on utilization of different items and services paid within the same HCPCS code; CMS administrative costs associated with the program; and the impact of the program on the provision of diabetic testing supplies. MIPPA also delays related mandated reports by the Program Advisory and Oversight Committee, the HHS Secretary, and the OIG.
• Implementation Funding – MIPPA provides $20 million in funding for the DMEPOS bidding provisions in fiscal year (“FY”) 2008, and $25 million in each of FYs 2009 through 2012.

IV.  CMS AND OIG IMPLEMENTATION GUIDANCE

The retroactive cancellation of round one DMEPOS bidding contracts and changes in supplier eligibility and pricing policy effective July 1, 2008 has prompted CMS to issue a number of brief updates to suppliers on MIPPA implementation issues.⁸  CMS has confirmed that items that had been included in the first round of the competitive bidding program can be furnished by any enrolled DMEPOS supplier in accordance with existing Medicare rules.  Medicare payment for these items will be made under the standard fee schedule, rather than at contract prices. 

With regard to claims processing, CMS will begin processing all incoming claims under standard fee-for-service rules by July 28, 2008, and any claims that were held will be processed no later than August 4, 2008.  To the extent possible, CMS will automatically reprocess claims that were paid under the bidding program and those claims whose denial was based solely on competitive bidding program rules.  Nevertheless, there may be instances in which suppliers in CBAs will need to alert their contractor to claims that should be adjusted. 

Moreover, the delay of competitive bidding retroactively increased beneficiary copayment amounts for DMEPOS items furnished for the brief period while the competitive bidding program was in effect.  As a result, beneficiaries who already paid or were billed for cost-sharing amounts based on lower contract prices temporarily in effect since July I, 2008, are liable for additional cost-sharing amounts based on the higher fee schedule amounts.  The OIG issued a policy statement⁹ on July 24, 2008 assuring suppliers and providers affected by retroactive increases in payment rates under MIPPA (including DMEPOS suppliers in the initial CBAs) that they will not be subject to OIG administrative sanctions¹⁰ if they waive retroactive beneficiary cost-sharing amounts attributable to those increased payment rates (subject to certain conditions). Note, however, that suppliers are not required to waive retroactive beneficiary liability, and they may instead choose to bill the beneficiary for the additional copayment obligation.  CMS has confirmed that items that had been included in the first round of the competitive bidding program can be furnished by any enrolled DMEPOS supplier in accordance with existing Medicare rules. Medicare payment for these items will be made under the standard fee schedule, rather than at contract prices. 

With regard to claims processing, CMS will begin processing all incoming claims under standard fee-for-service rules by July 28, 2008, and any claims that were held will be processed no later than August 4, 2008.  To the extent possible, CMS will automatically reprocess claims that were paid under the bidding program and those claims whose denial was based solely on competitive bidding program rules.  Nevertheless, there may be instances in which suppliers in CBAs will need to alert their contractor to claims that should be adjusted.  

Moreover, the delay of competitive bidding retroactively increased beneficiary copayment amounts for DMEPOS items furnished for the brief period while the competitive bidding program was in effect. As a result, beneficiaries who already paid or were billed for cost-sharing amounts based on lower contract prices temporarily in effect since July I, 2008, are liable for additional cost-sharing amounts based on the higher fee schedule amounts. The OIG issued a policy statement

V.  CONCLUSION

The MIPPA provisions delaying and reforming the DMEPOS competitive bidding program cap off a long and often frustrating period for suppliers in the initial competitive bidding areas. It can be hoped that CMS has learned from the numerous problems in the first round and will improve the mechanics of the bidding process, enhance the clarity of guidance offered to suppliers, and take other steps to prevent implementation of the program from adversely impacting beneficiary access to quality DMEPOS items in the bid areas.

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Please contact our Senior Health Policy Analyst Debra A. McCurdy (703/641-4283, dmccurdy@reedsmith.com), Carol Loepere (202/414-9216, cloepere@reedsmith.com), Elizabeth Carder-Thompson (202/414-9213, ecarder@reedsmith.com), Robert J. Hill (202/414-9402, rhill@reedsmith.com), Kathleen McGuan (202/414-9278, kmcguan@reedsmith.com) or any other member of the Reed Smith health care group with whom you work if you would like additional information or if you have any questions.

The contents of this Memorandum are for informational purposes only and do not constitute legal advice.