On Feb 8, the President signed the Deficit Reduction Act of 2005, which cuts the federal budget by $39 billion and Medicare and Medicaid by almost $11 billion over five years. The Act contains a number of provisions that affect medical group practices. Although MGMA appreciates the congressional action to freeze physicians’ payments as opposed to reducing them by the scheduled 4.4 percent, we remain concerned about many other provisions that will go into effect.

Physician Payment Update
The legislation provides for a 1-year, 0-percent update in payments for calendar year 2006 for physicians’ services. It freezes physician fee schedule payment rates at the 2005 levels; therefore, the conversion factor remains at the 2005 levels. The conversion factor rates, which are effective for services rendered on or after Jan 1 2006, are $37.8975 and $17.7594 for anesthesia. Individual provider specialties will experience updates between -3 percent and -6 percent as a result of changes in relative value units for services attributed to the specialty. The 2006 RVUs are shown on the Center for Medicaid Services web site at www.cms.hhs.gov.

Claims that were submitted before Feb 1, 2006, reflecting a 4.4 percent reduction will be reprocessed to reflect the update. The reprocessing of these claims will occur in phases depending on the volume of claims per contractor. CMS indicates that all of the reprocessing of claims will be complete by July 1, 2006. Implementation of the update and payment of claims with the update will occurred two business days past the enactment of the legislation.

Imaging Services
The physician fee schedule included a provision that reduces payment for the technical component of certain diagnostic imaging procedures that are furnished in a single session and occur on contiguous body parts. CMS reduced payment for the technical component when additional procedures in the same family of services are furnished during the same encounter. CMS will phase in the reduction over a two-year period, 2006 and 2007. This same provision is included in the Deficit Reduction Act. The Act also mandates that the payment rate for imaging services delivered in physician offices not exceed the payment rates for the identical imaging service delivered in hospital outpatient departments for 2007. MGMA intends to continue working with the Coalition for Patient Centered Imaging and other parties on solutions to the hospital outpatient provision, which would have a significant effect on particular specialties.

Therapy Services
The therapy caps, which are based on current law, will be implemented according to the legislation. Therefore the annual caps of $1740 for outpatient physical therapy and speech-language pathology as well as outpatient occupational therapy are effective as of Jan 1, 2006. The Act allows beneficiaries to apply for additional therapy if medically necessary when their treatment exceeds the cap. For CY 2006, if CMS does not extend benefits, the beneficiary automatically is eligible for Medicare coverage beyond the cap. The Act also requires CMS to improve coding to reduce inappropriate payments for therapy services that may lead to issues of fraud and abuse.

Ambulatory Surgical Centers
The Act ensures that beginning Jan 1, 2007, services delivered in ASCs do not exceed payment rates for the same services in hospital outpatient departments. ASC payment rates also are addressed in H. 4042, The Ambulatory Surgical Center Medicare Payment Modernization Act of 2005, which was introduced on Oct 7, 2005. This legislation set payment rates for ASCs based on 75 percent of the hospital outpatient department rate. The legislation includes transition and hold-harmless provisions for ASC procedures that would be hit particularly hard in transitioning to the new payment system. MGMA will continue to discuss ASC issues with MGMA members and affected national organizations.

Federally Qualified Health Centers
In addition to services already covered by Medicare under the all-inclusive per-visit payment rate for these centers, legislation includes diabetes self-management training and nutrition therapy benefits. The Act also allows FQHCs to consolidate billing of Medicare for services provided through contractors in order to simplify the billing process. The legislation states that there no longer will be restrictions on receiving grants to provide services for the homeless.

Specialty Hospitals
The most recent developments for specialty hospitals occurred with the Deficit Reduction Act suspending issuance of new provider numbers for six months or until HHS issues a strategic implementation plan regarding specialty hospitals to address investment, care for low-income individuals, and uncompensated care.

Inpatient Rehabilitation Facility Classification
The Act extends transition period for the 75 percent rule to Dec 31, 2006. This provision also retains the 60 percent threshold for 2006, but increases the threshold to 65 percent in 2007 and to 75 percent in 2008.

Skilled Nursing Facilities
The Act maintains the bad debt payment at 100 percent for dual-eligible beneficiaries, but decreases to 70 percent the Medicare program payments for unpaid coinsurance by individuals who are not dually eligible.

Home Health
The legislation provides a one-year freeze in payment rates for 2006 with a 5-percent rural add-on for rural home health agencies in 2006. It also implements in 2007 quality reporting for home health. Agencies that report will receive the market basket update; those that do not report will receive market basket minus 2 percentage points.

End Stage Renal Disease
The Act provides a 1.6-percent payment update to the composite rate for ESRD facilities.

Post-acute Care
The Act provides for the development of a three-year demonstration program by Jan 1, 2008, to survey cost and outcomes across different post-acute care settings after hospitalizations. This provision offers participating patients and providers standardized tools to evaluate and improve patient conditions for effective, focused post-acute care.

Medicare Advantage
The Deficit Reduction Act provides for no permanent changes to MA payment calculations. It does codify the Administration’s intent to phase out the budget neutrality adjustment by 2010. Also, the law requires a study to determine if there are differences in coding patterns between MA and fee-for-service plans. If differences are discovered, adjustments should be made to risk scores and the budget neutrality factor. If no differences are identified, no adjustments will be made.

For more information, visit www.mgma.com or email the MGMA Government Affairs Dept at govaff@mgma.com.