For non-urban hospitals, the Act permanently maintains the increase in the “standardized amount” previously applied only to large urban hospitals. (§401) The PPS payment is determined by the following formula: DRG weight X Standardized Amount. The “standardized amount” is a dollar amount that represents the average allowable operating cost per discharge, and consists of two components: labor and non-labor. Section 401 of the Act serves to reduce the disparity in payments between rural and urban hospitals. (Above change is expected to have a significant positive reimbursement impact.)

The Act creates further opportunities for low wage area hospitals to increase their PPS payments by expanding availability of wage index geographic classifications to hospitals if a certain number of hospital employees migrate out of the county to work in a neighboring county with a higher wage index, referred to as the “commuting” adjustment. The Secretary has discretion to determine criteria for the out-migrating county and the minimum out-migration threshold (which cannot be less than 10 percent). The increase in the wage index shall be based on the percentage of the hospital employees residing in the qualifying county who are employed in any higher wage index area. The increase shall be effective for 3 years, unless waived by the hospital. A hospital with this wage index adjustment may not be eligible for other reclassifications. (§505)

The Act calls for the creation of a one-time opportunity for a wage index reclassification for those hospitals unable to qualify under existing criteria (CMS to determine criteria by Jan. 1, 2004, and hospital must apply by Feb. 15, 2004). (§§505, 508)
(Above changes are expected to have significant positive reimbursement impacts.)

For family practice residents in programs in existence as of Jan. 1, 2002, the Act provides for a 1-year moratorium (for 2004) on a portion of the requirement that hospitals incur all or substantially all of the costs of training in a non-hospital site. The Act provides that the “Secretary shall allow all hospitals to count residents in osteopathic and allopathic family practice programs … who are training at non-hospital sites, without regard to the financial arrangement between the hospital and the teaching physician practicing in the non-hospital site to which the resident has been assigned.” (§713); this appears primarily intended to permit hospitals to count FTEs at non-hospitals sites where the supervisors are volunteering their time.

For geriatric specialty residents or fellows, the Act provides for an exception to the GME rule that reduces an FTE by 50 percent for the years the resident/fellow exceeds the minimum number of years required for board eligibility (or five years, which ever is less) for programs that require two years of training to become board eligible in a geriatric specialty. (§712)

The Act provides for a “redistribution” of FTEs and adjustment of 1996 FTE limits, which essentially reduces the resident limit for hospitals with FTE counts below their limits and redistributes those FTE slots to other hospitals for the purpose of increasing the resident limit. If a hospital’s “reference resident level,” which is defined as the total number of FTEs before the application of the weighting factor in the fields of allopathic and osteopathic medicine (for the most recent cost reporting period ending on or before Sept. 30, 2002) is less than the resident limit, then, effective July 1, 2005, the applicable resident limit shall be reduced by 75 percent of the difference between the applicable resident limit and the reference resident level. At the same time, other hospitals may apply to increase their resident limits, but the aggregate increase in residents may not exceed the Secretary’s “estimate of the aggregate reduction” in the limits. The Act does not specify criteria to qualify for the increase, so it is not clear which hospitals are eligible to increase their limits, but the Act requires the Secretary to take into account “the demonstrated likelihood of the hospital filling the positions within the first three cost reporting periods beginning on or after July 1, 2005” and to give priority first to hospitals located in rural areas, then to hospitals in urban areas that are not large urban areas, then to residency training programs in a specialty for which there are no other programs in the state. No one hospital may increase their limit by more than 25 FTEs. (§422)

The Act Eliminates the GME FTE per resident amount update of CPI minus two for hospitals with high-cost residency programs (140 percent above the geographically adjusted national average) through 2013. (§711)

For rural hospitals (except rural referral centers) and urban hospitals with less than 100 beds, the payment adjustment percentage is capped at 12 percent, up from 5.25 percent; this could double DSH payments for small hospitals that have high DSH patient percentages that were penalized under the old cap. (§402)
(Above changes are expected to have significant positive reimbursement impacts.)

Establishes a lower formula threshold for determining whether the DRG rate for a new technology is “inadequate” before a supplemental payment is available. (§503)

The Act increases reimbursement rates for inpatient, outpatient, and skilled nursing facility services furnished by CAHs up to 101 percent of reasonable costs, effective for services furnished during cost reporting periods beginning on or after Jan. 1, 2004. (§405)

The Act expands reimbursement of costs incurred for on-call emergency room services to such services furnished by physician assistants, nurse practitioners, and clinical nurse specialists, as well as physicians, beginning for costs incurred on or after Jan. 1, 2005. (§405)
(Above changes are expected to have significant positive reimbursement impacts.)

For physician services furnished in Alaska between Jan. 1, 2004 and Dec. 31, 2005, the Act establishes a floor of 1.67 percent for practice expense, malpractice and work geographic indices.

Increases drug administration portion of fee schedule payments. (§303) (This offsets the reduction in payments to physicians for drugs furnished to beneficiaries.)

Provides a 5 percent bonus payment for physician services furnished between January 1, 2005 and December 31, 2007 by a primary care physician in a primary care scarcity county or by a specialist physician in a specialist scarcity county. The Secretary is authorized to designate those rural areas where physicians can qualify for the bonus payment. (§ 413)

Also effective Jan. 1, 2005, Medicare will cover certain laboratory screening tests (such as fasting plasma glucose tests or other tests approved by the Secretary) for individuals with risk factors for diabetes. (§ 613)

Physicians and other practitioners may be reimbursed for an initial routine physical (including an EKG) for beneficiaries who become eligible for Part B coverage on or after Jan. 1, 2005, provided the examination occurs within the first six months of the beneficiary's eligibility. (§ 611)

For ground ambulance trips between July 1, 2004 and Jan. 1, 2009, suppliers will receive an increase on the mileage on trips in excess of 50 miles. (§414)

Effective Jan. 1, 2005, the Act provides coverage of rural air ambulance services. The Secretary is to establish equipment and crew requirements that must be met in order for air ambulance services to be covered. The Act prohibits reimbursement for air ambulance services if there is a financial or employment relationship between the person requesting the rural air ambulance service and the entity furnishing the ambulance service, or an entity under common ownership with the entity furnishing the air ambulance service, or a financial relationship between an immediate family member of such requester and such an entity. There is an exception to the prohibition, however, if a hospital and the entity furnishing rural air ambulance services are under common ownership and the remuneration paid by the hospital to the air ambulance service is for provider-based physician services furnished in a hospital that are reimbursed under part A and the amount of the remuneration is unrelated directly or indirectly to the provision of rural air ambulance services. (§415)

Reduces payment rates for selected items, which include oxygen, oxygen equipment, wheelchairs, nebulizers, diabetic supplies, hospital beds, and air mattresses, to be consistent with rates paid under the Federal Employees Health Benefits Program, which are generally lower than the Medicare rates.

Beginning in 2007, and starting with the largest statistical metropolitan areas and high cost items, establishes competitive bidding acquisition process to replace current fee schedules for most items except inhalation drugs, parenteral nutrients (and equipment and supplies), and Class III medical devices; the Secretary has discretion to exempt rural or noncompetitive areas and items for which competitive acquisition “is not likely to result in significant savings.” In addition, the Secretary must establish a process to continue certain rental agreements and oxygen arrangements. (§302)

(Note that §302 requires the secretary to establish “clinical conditions” for DME payment, including face-to-face patient examinations and prescriptions, before Medicare will pay for power wheelchairs and certain DMEs determined by the Secretary to be prone to abusive practices.)
(THE ABOVE CHANGES ARE EXPECTED TO HAVE SIGNIFICANT NEGATIVE REIMBURSEMENT IMPACTS FOR DME SUPPLIERS.)

Beginning in 2005, non-self administered drugs furnished in connection with other Medicare covered services will be set at 106 percent of the average sales price (ASP). (ASP will be determined quarterly and will be based on average sales prices for each drug, taking into account discounts, rebates, free goods, and chargebacks.)

Beginning in 2006, a competitive acquisition process will be phased in as an alternative to ASP reimbursement. Under the competitive acquisition program, a single payment amount for each drug in an area will be based upon bids submitted and accepted. On an annual basis, physicians and other providers will have to option to obtain covered drugs and biologicals and seek Medicare reimbursement under ASP, or to select a contractor responsible for delivering covered drugs and biologicals to the physician. The contractor supplying the physician will submit the claim for the drug after it is administered, with Medicare payment and beneficiary cost sharing amounts made directly to the contractor.
(THE ABOVE CHANGES ARE EXPECTED TO HAVE SIGNIFICANT NEGATIVE REIMBURSEMENT IMPACTS)

Reduces the threshold for separate APC payment from $150 to $50 to allow unbundling of more drugs.

Restores composite rate exception for facilities that treat primarily pediatric dialysis patients.

Diagnostic mammography services furnished in hospital outpatient departments are similarly excluded from the OPD fee schedule beginning Jan. 1, 2005.

The Act requires that the GAO conduct a study that compares the relative costs of procedures furnished in ambulatory surgical centers to the relative costs of procedures furnished in hospital outpatient departments and that examines how accurately ambulatory payment categories reflect procedures furnished in ambulatory surgical centers. This study is to be conducted in 2004, with the GAO's report due to Congress by Jan. 1, 2005.

Between Jan. 1, 2006 and Jan. 1, 2008, the Secretary is to implement a revised payment system for payment of surgical services furnished in ambulatory surgical centers after taking into account recommendations from the GAO study.

Imposes stricter reporting requirements to ensure state compliance with payment formulas.