Summary of Major Provisions in P.L. 110-275: Medicare Improvements for Patients and Providers Act of 2008

Summary of Major Provisions in P.L. 110-275: Medicare Improvements for Patients and Providers Act of 2008

Order Code RS22904
Updated July 17, 2008
Summary of Major Provisions in
P.L. 110-275: Medicare Improvements for
Patients and Providers Act of 2008
Hinda Chaikind, Jim Hahn, Paulette C. Morgan, and Jennifer O’Sullivan
Domestic Social Policy Division
Summary
P.L. 110-275, the Medicare Improvements for Patients and Providers Act (MPPA)
became law on July 15, 2008, after Congress overrode a presidential veto on H.R. 6331.
The Act is designed to avert a statutory Medicare reduction in payments for physicians
and make other changes. The bill freezes physician fees at the June 2008 level until
January 2009. In January 2009, fees will increase by 1.1%. In 2010, fees will revert
back to current law levels, resulting in a 21% reduction in Medicare physician payments,
according to the Congressional Budget Office (CBO). CBO estimates that the physician
payments provision cost $9.7 billion (over the 2008-2010 period). Other provisions in
the bill will offset these and other costs, so that in total, the provisions in MPPA will
reduce deficits (or increase surpluses) by an estimated $0.1 billion over the 2008-2013
period and by less than an estimated $50 million over the 2008-2018 period.1 The main
source for these offsets comes from reductions in spending for (1) the Medicare
Advantage program and (2) the physician assistance and quality initiative (PAQI) fund.
The Act also makes further changes to Medicare, Medicaid, and other programs under
the Social Security Act. This report focuses on the major provisions of MPPA, with the
most significant budgetary impacts, and is not meant to reflect all of the provisions.
Physician Payments and Other Physician Issues
MPPA is designed to avert the Medicare reduction in payments for physicians, which
was otherwise required by law beginning on July 1, 2008.2 Annual payment updates for
1 The CBO cost estimate for H.R. 6331 (now P.L. 110-275) is available at [http://cbo.gov/
ftpdocs/94xx/doc9494/RangelLtrHR6331.pdf]. The total budgetary effect is estimated in the
memorandum of the cost estimate, which assumed passage of the Supplemental Appropriations
Act of 2008, now P.L. 110-252.
2 On June 27, 2008, the Centers for Medicare and Medicaid Services (CMS) announced plans
to instruct its contractors not to process any physician and non-physician practitioner claims for
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physicians are linked to a formula (typically referred to as the Sustainable Growth Rate,
or SGR formula).3 Under the formula, if cumulative spending on Medicare physician
services since April 1996 exceeds cumulative target expenditures over the same period,
a reduction in the update for physician payments is required (i.e., a reduction in the
conversion factor). This has been the case since 2002; however, Congress has overridden
the reduction since 2003.
The previous override, included in the Medicare, Medicaid, and SCHIP Extension
Act of 2007 (P.L. 110-173, MMSEA), increased the update to the conversion factor for
Medicare physician payment by 0.5% (compared with 2007 rates) for the first six months
of 2008. Prior to the passage of MPPA, the formula would have required a reduction in
the fee schedule of 10.6% for physician reimbursement for services provided between
July 1 and December 31, 2008, and by additional amounts annually for at least several
years thereafter. MPPA temporarily averts this reduction by extending the 0.5% increase
in the physician fee schedule that was set to expire on June 30, 2008, through the end of
2008. Also, for 2009 the update to the conversion factor will be 1.1%. The conversion
factor for 2010 and subsequent years will be computed as if these modifications had never
applied, resulting in a 21% reduction in the conversion factor in 2010, according to CBO.
CBO estimates that these changes will cost $9.7 billion over the 2008-2010 period.
MPPA modifies the funding for the physician assistance and quality initiative
(PAQI) Fund (originally created by the Tax Relief and Health Care Act of 2006 — P.L.
109-432, TRHCA), effectively eliminating monies from the fund in 2013 and 2014. As
modified by the Supplemental Appropriations Act, 2008 (P.L. 110-252), $4.96 billion are
removed from the fund in 2013-2015 and returned to the Medicare Part A and Part B
Trust Funds, to be made available for other purposes.
The physician quality reporting system, which currently runs through 2009, will be
extended through 2010 and beyond. Under current law, eligible professionals who
provide covered professional services are eligible for the incentive payment if (1) there
are quality measures that have been established under the physician reporting system that
are applicable to any services furnished by such professional for the reporting period, and
(2) the eligible professional satisfactorily submits data to the Secretary on the quality
measures.
2 (...continued)
the first 10 business days of July. According to existing law, electronic claims are not to be paid
any sooner than 14 days (29 days for paper claims) and not later than the 30th day they are
submitted (otherwise, CMS must pay interest on those claims). CMS stated that by holding
claims for services that were delivered on or after July 1, it would not be making any payments
on the 10.6% reduction until July 15, at the earliest. On July 16, 2008, following enactment of
MPPA, CMS announced that it had instructed its contractors to implement the changes, but that
it might take up to 10 days. Contractors will begin to automatically reprocess any claims paid
at a lower rate, in a timely manner.
3 For a further explanation of how physicians are paid under Medicare and why this reduction
would occur, see CRS Report RL31199, Medicare: Payments to Physicians, by Jennifer
O’Sullivan.

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MPPA also makes other changes for physicians by establishing a physician feedback
program, with the intent to improve efficiency and to control costs, and requires the
Secretary of Health and Human Services to develop a plan to transition to a value-based
purchasing program for payment under the Medicare program for covered professional
services.
CBO estimates that changes in Section 131 of MPPA (including the changes to
physician payment, the PAQI Fund, and other changes described above) will cost $6.4
billion over the 2008-2013 period and $4.5 billion over the 2008-2018 period.
The Act establishes a Medicare Improvement Fund, available to the Secretary, to
make improvements under the original Medicare fee-for-service program under parts A
and B for Medicare beneficiaries. MPPA, together with a provision in the Supplemental
Appropriations Act, 2008 (P.L. 110-252), makes $2.22 billion from the Part A and B
Trust Funds available for services furnished during FY2014 and an additional $19.9
billion available for fiscal years 2014 through 2017. CBO estimates that these changes
and interactions will cost $0.1 billion over the 2008-2013 period and $24.2 billion over
the 2008-2018 period.
Medicare Advantage
MPPA phases out Medicare indirect medical education (IME) payments to private
health plans. IME payments account for a number of factors that may legitimately
increase costs in teaching hospitals. Currently under the statutory rules for Medicare
payments to Medicare Advantage (MA) plans, an MA plan whose payment is based on
Medicare fee-for-service rates also may be eligible to receive a payment for IME. In
addition, Medicare pays teaching hospitals directly for the cost of IME when an MA
enrollee is treated in the hospital.
Beginning in 2010, this Act requires that the Medicare Advantage benchmarks (the
maximum amount Medicare is willing to pay a private plan to provide required Medicare
benefits) for every county be adjusted to phase out the cost of indirect medical education
(IME). The amount phased-out each year will be based on a ratio of (1) a specified
percentage (0.60% in the first year), relative to (2) the proportion of per capita costs in
original Medicare in the county that IME costs represent. The effect of the ratio is to
phase out a higher proportion of IME costs in areas where IME makes up a smaller
percentage of per capita spending in original Medicare. After 2010, the numerator
phase-out percentage will be increased by 0.60 percentage points each year. This
provision does not apply to the benchmarks for MA plans in the PACE program
(Programs of All-Inclusive Care for the Elderly).
MPPA also changes access requirements for Private Fee-for-Service plans (PFFS).
Currently, PFFS, unlike most other MA plans, are not required to form networks of
medical providers to meet certain access requirements. PFFS plans (both non-employer-
and employer-sponsored) may fulfill access requirements by either establishing payment
rates for medical providers that are no less than the rates under original Medicare, or by
developing contracts and agreements with a sufficient number and range of providers
within a category to provide covered services under the terms and conditions of the plan.
Any provider who, before delivering a service, knows that a beneficiary is enrolled in the

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PFFS plan, and has been given, or has reasonable access to, the PFFS plan’s terms and
conditions for participation, is a “deemed” provider.
Beginning in year 2011, this Act requires non-employer-sponsored MA PFFS plans
(operating in areas with at least two other plans that have provider networks) to meet
Medicare access requirements by establishing written contracts with providers. Non-
employer sponsored MA PFFS plans (operating in areas with less than two other plans
that have provider networks) may continue to meet Medicare access requirements through
deeming.
Beginning in year 2011, employer-sponsored MA PFFS plans will be required to
establish written contracts with providers. Employer-sponsored MA PFFS plans will no
longer be able to meet access requirements, in whole or in part, by establishing payment
rates that are equal to or greater than those under original Medicare.
Beginning in 2010, any PFFS plan that chooses to contract with providers is required
to meet the general access requirements applicable to MA coordinated care plans.
CBO combined the savings estimates for the changes to IME and PFFS. It estimated
that these provisions will save $12.5 billion over the 2008-2013 period and $47.5 billion
over the 2008-2018 period.
The Act also reduces the initial funding to the MA Regional Plan Stabilization Fund
to one dollar. When the fund was first established in the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (P.L. 108-173, MMA), it had an initial
funding level of $10 billion. Subsequent legislation reduced this amount to $1.79 billion.
The MMA also required that a portion of the savings accrued in the regional plan bidding
process be added to the Fund. This Act does not alter that funding stream, so that money
from the regional plan bidding process will continue to flow into the Fund. Expenditures
will be delayed one year, until 2014. CBO estimates that these MPPA changes save $1.3
billion over the 2008-2013 period and $1.8 billion over the 2008-2018 period.
Other Provisions
The sections of the Act described below are primarily other provisions with
significant costs or savings of at least $2 billion over the 10-year period (2008-2018), as
estimated by CBO.
MPPA adds “additional preventive services” to the list of Medicare-covered
preventive services. The term “additional preventive services” means services not
otherwise described in Medicare law that identify medical conditions or risk factors that
the Secretary determines meet certain specified conditions. The Act also waives the
deductible for the initial preventive physical exam (also known as “Welcome to
Medicare”) and extends the eligibility period for this service from the first six months to
the first year of Part B enrollment. CBO estimates that these changes cost $1.4 billion
over the 2008-2013 period and $5.9 billion over the 2008-2018 period.
MPPA increases the percentage that Medicare generally pays for mental health
services from 50% to 80% over the 2010-2014 period; when the provision is fully phased-
in in 2014, outpatient psychiatric services will be paid on the same basis as other Part B

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services. CBO estimates that these changes cost $0.5 billion over the 2008-2013 period
and $3 billion over the 2008-2018 period.
MPPA increases, effective January 1, 2010, the assets tests applicable under the
Medicare Savings program (MSP) to those applicable under the low-income subsidy
program under the Medicare Part D prescription drug program ($6,290 for an individual,
$9,440 for a couple in 2008, updated annually). CBO estimates that these changes cost
$1.6 billion over the 2008-2013 period and $7.0 billion over the 2008-2018 period.
The Act repeals the current law requirement for competitive bidding for clinical
laboratory services. In addition, it specifies that the clinical laboratory fee schedule
update otherwise slated to occur each year would be reduced each year from 2009 through
2013 by 0.5 percentage points. CBO estimates that these changes save $0.6 billion over
the 2008-2013 period and $2.0 billion over the 2008-2018 period.
The Act also makes changes to low-income programs for Medicare beneficiaries, as
well as Medicaid. It makes changes to Medicare provisions for hospitals, renal dialysis
coverage, and Medicare prescription drug coverage, among others. Finally, MPPA
terminates all contracts under the first round of the Durable Medical Equipment,
prosthetics, orthotics, and other medical supplies (DMEPOS) competitive acquisition
program, set to start July 1, 2008. It requires the Secretary to re-bid the first round in
2009 and delays the second round of bidding until 2011. To pay for the cost of the
program delay, the Act requires a 9.5% reduction in the fee schedule payments for all
round 1 DMEPOS items and services both inside and outside of competitive acquisition
areas. CBO estimates that the changes to the DEMPOS competitive bidding program will
have a negligible budgetary impact.