Health Reform and Medicare: Overview of Key Provisions

1. Health Reform and Medicare:Overview of Key Provisions Tom Ault Principal, Health Policy Alternatives For The Alliance for Health Reform Washington DC May 7, 2010

2. Delivery System Reform: “Bending the Health Care Cost Curve”

3. Delivery System Reforms Enacted Previously Some pieces previously enacted in the February stimulus package (American Recovery and Reinvestment Act of 2009, P.L. 111-5) Comparative effectiveness research funding ($1.1 billion) Health Information Technology funding (net $19 billion) Promises Medicare & Medicaid financial incentives totaling a net $14 to $27 billion over 10 years for eligible professionals and eligible hospitals

4. Delivery System Reforms Through Medicare Higher payment for primary care physicians Payments to medical homes Voluntary pilot program for bundling Accountable care organizations Lower payment for preventable hospital readmissions Payment reduction for healthcare-acquired conditions Value-based purchasing Addressing geographic variation Medicare and Medicaid Innovation Center

5. Potential Dollars at Risk for Hospital Quality Provisions (percent reduction in DRG payments) Potential to Have 6% of Base DRG Payments At Risk by 2017 VBP Readmissions Hospital Acquired Conditions • Begin FY 2013 • 1-2% reduction • (phased in over 4 years) • Opportunity to recoup • full amount and more • Begin FY 2013 • 1-3% reduction • (phased in over 3 years) • Begin FY 2015 • 1% reduction

6. Quality Reporting for Physicians Makes Physician Quality Incentive Program (PQRI) permanent Provides 1% bonus in 2011 based on successful reporting and provides a bonus of 0.5% in 2012-2014 Imposes 1.5% penalty in 2015 for failure to report successfully; penalty increased to 2% beginning in 2016 Requires plan from Secretary to integrate clinical reporting with electronic health records (EHR) Physician Compare website Physician feedback program VBP for physicians

7. Medicare Delivery System ReformsCenter for Medicare and Medicaid Innovation Test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care Medicare, Medicaid, and CHIP Secretary must select models for testing where there is evidence that the model addresses a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures Statute includes a menu of 20 possible models Secretary may limit model testing to certain geographic areas $10 billion available 2011-2019 through direct appropriation; $5 million in 2010 Secretary may, through rulemaking, expand the duration and scope of a model (even go nationwide) if: Model reduces spending without reducing quality, or model improves care without increasing spending No waiver authority for expansion phase

8. Observations on Delivery System Reforms Delivery system changes are key element of health reform legislation Focus generally on setting up long-term shifts rather than short-term budget savings Cautious CBO scoring due to lack of experience Experimentation with specifics – demonstrations, pilot projects with regulatory authority to move forward Implementation details to be worked out; very broad agency discretion – regulations will be key Challenges and opportunities for providers

9. Other Medicare Payment Changes

10. Medicare Payment Reductions Update reductions for hospitals, skilled nursing facilities, home health agencies, hospice programs, laboratory services, dialysis facilities Reductions can cause a negative update Productivity offset will apply to all payment updates beginning 2012 Reduction in Medicare hospital disproportionate share adjustment New standards for the tax exemption of nonprofit hospitals

11. Effective Dates for Key Medicare Provisions Note: policy development and proposed rules will commence at least a year before each provision’s effective date.

12. Other Provisions • Independent Payment Advisory Board(IPAB) • Comparative Effectiveness – “Patient-Centered Outcomes Research” • Alternatives to malpractice mitigation: $50 million authorized for 5 years beginning FY 2011 for demonstration grants to states • HHS will license a biological product as a biosimilar if FDA determines it and the reference product to be biosimilar or interchangeable • Physician Ownership and Referral • Physician Ownership/Investment Transparency • Enhanced Program Integrity

13. Implications of Delivery System Reform and Medicare Changes • Physician updates may continue to be year to year • Prospect of low (or negative) inpatient hospital updates for FY 2011-2015 • Quality of care will affect payments and public perception • Significant increase in regulations to implement Medicare changes and delivery system reforms • Extremely broad administrative discretion • Unknown participation in, and effectiveness of, pilot and voluntary programs • And other changes like comparative effectiveness and expanded fraud and abuse enforcement