Outlook unclear for children’s health, Medicare legislation

September 2007

Two months ago, it would have been difficult to find a member of Congress — Democrat or Republican — who did not support the reauthorization of the State Children’s Health Insurance Program, which is set to expire Sept. 30.

The State Children’s Health Insurance Program (SCHIP) has enjoyed 10 years of strong bipartisan support, in part because it is not an entitlement like the Medicaid program, does not have the stigma many associate with Medicaid and has allowed states to exercise broad flexibility in providing health coverage to children. Given the broad support of Congress, most health care advocates expected the SCHIP program to sail through the House and Senate, and hoped it would have the effect of expanding health coverage to all low-income, uninsured children.

Legislative efforts

As summer set in, and as is normally the case, politics overshadowed the legislative efforts of the Senate Finance Committee, the House Energy and Commerce Committee, and the House Ways and Means Committee.

Democrats in charge used their majority status to craft legislation that made conservatives nervous about universal health care and the possibility of creating a government subsidy that would force middle-class families out of private health insurance and into government-run, government-subsidized coverage. By mid-July, the President had issued a veto threat against the House and Senate proposals, suggesting they were too broad, too expensive and too unwieldy.

The Senate moved slowly to craft a bipartisan SCHIP bill that would win the support of members on both sides of the political aisle. On Aug. 2, the Senate passed S. 1893 by a vote of 68-31. The bill increases spending on SCHIP by $35 billion during the next five years — a compromise to the Senate Budget Committee authorization of $50 billion that would allow for continued flexibility for states, as well as incentives for them to reach out and enroll low-income children without insurance. The bill does not include any extraneous, non-SCHIP provisions, though it would increase a federal excise tax on cigarettes to $1 a pack to pay for the program.

On Aug. 1, the House of Representatives passed H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act by a vote of 225-204. The House legislation was originally conceived to reauthorize and expand SCHIP; however, it was expanded to provide a two-year (0.5%) Medicare update for physician services by replacing the sustainable growth rate methodology with a system of separate updates for six categories of physician services based on gross domestic product growth. The Congressional Budget Office estimates the legislation would increase federal spending by $72.9 billion during a period of 10 years.

A different approach

House leaders took a markedly different approach than the Senate, relying on a host of Medicare provider policy changes to entice member support — the biggest being the physician fee fix, which most members agreed was a problem that would get more expensive every year it was ignored.

The legislation provides for a 45-cent increase in the federal tobacco tax and a payment reduction for insurance companies offering private health plans to Medicare beneficiaries, placing them equal with the fee-for-service payments of other Medicare programs. Many Democrats have argued that these plans, which serve nearly one-fifth of the 43 million Medicare beneficiaries, are overpaid. There are significant payment reductions to Medicare providers, as well.

Inpatient rehabilitation facilities provide $6.6 billion in savings by redetermining the standard payments for certain medical procedures, such as hip and knee replacements. The bill also calls for a clear definition of an inpatient rehabilitation facility to determine if the facility is qualified to treat certain groups of patients and, in turn, if they will receive Medicare reimbursement for that treatment.

Reimbursement for long-term care hospitals is increased by $100 million for 2008 and reduced by $200 million starting in 2010. Projected savings are the result of a reclassification and designation of a long-term care hospital and updating the prospective payment system. The savings projected to be garnered from long-term care hospitals are $1.3 billion. Payment reductions to skilled nursing facilities will begin in 2008 at a rate of $300 million and reach $900 million in 2017 for a total of $6.5 billion in savings.

To accomplish this goal, the bill ends the market basket percentage increase for skilled nursing facilities, allowing the reductions to accrue annually. Home health care payments are reduced by $7.2 billion by disallowing the market basket increase beginning in 2008. The original reduction is estimated at $300 million in the first year, with a final reduction of $1.1 billion in 2017. The legislation reduces the technical component for imaging services involving contiguous body parts by half for an impact of $1.2 billion.

New limits

In addition to Medicare payment changes, the House bill would place new limits on certain physician referrals to hospitals under the Stark law. In particular, the legislation no longer allows physicians to self-refer patients to any hospitals in which they have an ownership interest. The Stark law previously only applied to physicians self-referring to specialty hospitals in which they had an ownership interest. Hospitals that were in operation with Medicare provider agreements as of the date of introduction of the bill are provided 18 months to become compliant. The legislation allows affected physicians to maintain an ownership stake of up to 40% of the facility of a hospital that has been grandfathered in.

The bill would create an expert panel to identify physicians’ services whose relative value requires close review. It would allow the secretary to target physician services growing at an unusually high annual rate, for reductions to the work value of specific physician services after consulting with the panel and considering evidence regarding the clinical appropriateness of the growth.

The legislation would also implement a system that provides confidential feedback to physicians in the Medicare program on how their practice patterns compare with other physicians both locally and nationally.

When Congress returns from recess after Labor Day, House and Senate negotiators will have their work cut out for them to reach a compromise before the SCHIP program expires at the end of September. Although the stakes are high for states and the millions of children and families covered by SCHIP, Medicare providers will be closely watching Congress to see whether it can muster the political muscle to fix Medicare physician payments while not doing too much damage to other valuable health care providers and services.

It is unlikely because of procedural differences that either bill, in its current form, will be able to pass both houses of Congress. This increases the pressure on Congress and the President to set aside partisan politics and work together to figure out a solution to the complicated situation in which they now find themselves.

For more information:

• Amy Demske is an attorney at Arent Fox LLP. Paul Rudolf, MD, JD, and Allison Weber Shuren, MSN, JD, assigned, coordinated and edited this article prior to publication. They can be reached at Arent Fox LLP, 1050 Connecticut Ave. NW, Washington D.C. 20036; (202) 857-6000; fax (202) 857-6395; e-mail: Rudolf.Paul@arentfox.com and Shuren.Allison@arentfox.com.