The Senate will take up Medicare contractor and inpatient prospective payment reform proposals within the "Medicare Modernization and Prescription Drug Act" of 2002 (HR 4954) after the July 4 recess.

HR 4954 passed the House Ways & Means Committee June 19 and Energy & Commerce Committee June 20-21. A full House vote is expected the week of June 24.

The measure, introduced by Ways & Means/Health Subcommittee Chair Nancy Johnson (R-Conn.), incorporates several provisions of the "Medicare Regulatory and Contracting Reform Act" of 2001 (HR 3391), also sponsored by Johnson. HR 3391 cleared the House in December.

For instance, HR 4954 creates a CMS council for technology and innovation to coordinate coverage, coding and payment decisions on new technologies. The council will be comprised of CMS staff and clinicians and will be headed by a non-career appointee who will serve as executive coordinator.

AdvaMed, a supporter of HR 3391, is seeking to have language requiring local Medicare contractor advisory committees in every state adopted by the House/Senate conference committee.

Under HR 4954, the advantages and disadvantages of maintaining local contractor advisory committees will be assessed by an Institute of Medicine study. The report on local coverage determinations also would review the "consistency of definitions used in" determinations, the types of evidence used in determinations and the timeliness of decisions.

Recently, CMS Administrator Tom Scully emphasized to HHS Regulatory Reform Advisory Committee members the agency's goal in promoting consistency of Medicare carrier policy, while stressing the need to leave local coverage determination processes intact (¹ Also see "Medicare Contractor Reform Plans Preclude Shift To More National Coverage" - Medtech Insight, 17 June, 2002., p. 5).

The bill also provides flexibility to CMS in choosing contractors, stating that the agency may contract with any "eligible entity to serve as a Medicare administrative contractor." In selecting contractors, HR 4954 directs CMS to use competitive procedures, "taking into account performance quality as well as price and other factors." The agency also should provide incentives to contractors to promote quality and efficiency. Further, CMS must develop performance requirements that will be specified in its contract with the Medicare administrative contractor.

By Oct. 1, 2007, CMS must report to Congress on the status of implementing HR 4954 contractor provisions, including: the number of contracts competitively bid to date; distribution of functions among contracts and contractors; a timeline for complete transition to a fully competitive system; and a description of the modifications to oversight and management of contractors to adapt to full competition.

In addition to contractor reform, HR 4954 revises the Medicare appeals process, requiring a "full and early presentation of evidence by providers." The bill also requires that notices of determinations and redeterminations contain the reason for the determination, how to obtain further information about the determination and a notice of a right to appeal.

The bill further requires "improved coordination between FDA and CMS" on coverage of Class III medical devices by the sharing of "appropriate" information from the premarket review with CMS. The agencies are expected to submit a plan to Congress no later than six months after the bill becomes law outlining how they will improve coordination and "shorten the time lag between the premarket approval...and coding and coverage decisions."

Among other provisions adapted from HR 3391 (formerly HR 2768), the bill establishes a more predictable reimbursement process for in vitro diagnostics. Those provisions originated with bills sponsored in 2001 by Reps. Jennifer Dunn (R-Wash.) and Jim McDermott (D-Wash.) and Sens. Orrin Hatch (R-Utah) and John Kerry (D-Mass.) (² Also see "CMS Determination Of Diagnostic Lab Test Payments Required Under HR 2768" - Medtech Insight, 15 October, 2001., p. 14).

HR 4954 also adjusts the physician fee schedule, under which payments were reduced 5.4% in 2002. According to the American Medical Association, the legislation would avert further cuts and increase payments 6% over the next five years. Earlier this year, House Energy & Commerce Committee members indicated they would overhaul the update formula (³ Also see "Physician Fee Update Methodology Is Target For Congress, HHS In 2002" - Medtech Insight, 18 March, 2002., p. 6).

The Medicare Payment Advisory Commission concluded at its January meeting that Congress should fix the physician fee schedule by repealing the sustainable growth rate (SGR) used in the formula and replacing it with the Medicare economic index over 10 years, a solution costing $127.7 bil. However, HR 4954 does not address a long-term adjustment to the formula, nor does it repeal the SGR.

Regarding inpatient payment and coding reforms, HR 4954 would allow devices undergoing expedited PMA review to automatically be designated as "substantially improved," making the product eligible for a new technology "add-on" payment under the inpatient prospective payment system.

Under the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), a "new" technology is defined as a product that "substantially improves" diagnosis or treatment of Medicare beneficiaries.

Sec. 533 of BIPA mandates additional payments for new technology items under the IPPS.

New technology items must meet one or more of three criteria to qualify: the technology must offer a treatment option for a patient population for which currently available treatments are inappropriate; allow for a diagnosis of a condition that is currently undetectable or offer an earlier diagnosis than current technology; or significantly improve clinical outcomes compared with currently available treatment.

In addition, a new technology must result in average charges above the DRG mean charges plus one standard deviation of charges based on a logarithmic distribution. The extra funds are 50% of the amount by which the cost of the case exceeds the DRG payment.

An amendment offered by Ways & Means Committee Chair Bill Thomas (R-Calif.) altered HR 4954 to exclude technology undergoing expedited 510(k) review from automatically being designated as a new technology. According to AdvaMed, however, the changed criteria will not have a major impact since so few technologies actually undergo expedited review.

Nevertheless, the bill improves the payment amount for new technology over the current IPPS proposed rule and lowers the cost threshold for add-on payments.

Under HR 4954, the threshold for receiving the add-on payment is "the lesser of 50% of the national average standardized amount for operating costs of inpatient hospital services for all hospitals and all diagnosis-related groups or one standard deviation for the diagnosis-related group involved." The legislation also requires that CMS attempt to place new technologies into appropriate existing DRGs before considering an add-on payment.

The bill further mandates that CMS reconsider new technology applications submitted in FY 2003 that were denied; each product's new technology status would be extended by a year.

The inpatient prospective payment system FY 2003 proposed rule discusses four applications for the new technology add-on payment, two of which were for devices: the Medtronic InFuse bone graft /LT-Cage lumbar tapered fusion system and Advanced Neuromodulation Systems' Renew spinal cord stimulation therapy (⁴ Also see "Medtronic InFuse New Technology Add-On Payment Hinges On FDA Approval" - Medtech Insight, 13 May, 2002., p. 3).

The Medtronic device will be the first product to receive the add-on payment, provided it receives FDA approval in time for issuance of the final rule on Aug. 1, 2002, the proposed rule states. Comments are due on the IPPS proposed rule July 8.

The bill further provides for public input by requiring CMS to make public a list of technologies applying for the new technology payment. CMS also should accept comments and data from the public on whether the technology represents a substantial improvement and should host a public meeting at which stakeholders can present data to CMS clinical staff before annual publication of the IPPS proposed rule.

Regarding rulemaking, the legislation states that CMS must release a final rule no later than three years after the proposed rule, "except under exceptional circumstances."

HR 4954 also carries a provision regarding the outpatient prospective payment system, setting a 15% limit on OPPS "pass-through" pro-rata reductions. Legislation sponsored by Sens. Jeff Bingaman (D-N.M.) and Olympia Snowe (R-Maine) would have limited those cuts to 20% (⁵ Also see "Future OPPS Pro-Rata Reductions Limited To 20% Under Senate Bill" - Medtech Insight, 27 May, 2002., p. 30).

Industry is still clamoring for CMS to release claims data and methodology that are being used to formulate the 2003 OPPS proposed rule, expected in July. During an address to AdvaMed board members June 20 in Washington, D.C., HHS Secretary Tommy Thompson assured the trade group that the data is forthcoming.

Another amendment offered to HR 4954 by Reps. David Camp (R-Mich.) and William Jefferson (D-La.) establishes Medicare coverage for cholesterol and other blood lipid screening tests.

Device Inpatient Payment, Medicare Contractor Reforms Pass With Drug Bill

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