ABA Health eSource
 December 2006 Volume 3 Number 4

CMS Makes Significant Revisions To 2007 Medicare Rates
by Kathy L. Poppitt and Catherine M. Greaves, Thompson & Knight LLP, Austin, TX

Kathy L. Poppitt and Catherine M. GreavesIn an attempt to make payments more accurate and to increase the quality of patient care, the Centers for Medicare and Medicaid Services (CMS) has been busy this fall making significant changes to the payment structures of a wide variety of Medicare Services. In August and September, CMS announced the final pieces of a major overhaul of the method that it uses to pay hospitals for care provided to inpatients. 1 CMS followed this move by publishing on November 1, final changes to the payment rates for physicians, hospital outpatient services and ambulatory surgery centers for calendar year 2007. 2 CMS completed this round of payment changes by announcing an increase in the payment rates for home health services and certain durable medical equipment. 3 Most providers of Medicare services will be affected in some way by these changes.


Beginning in August, CMS began implementing significant revision of the rates that Medicare reimburses hospitals for inpatient services. These reforms, which are effective for fiscal year 2007, are intended to improve the accuracy of Medicare payments for inpatient stays by better reflecting the hospital's actual costs for the stays rather than its billed charges and by more accurately adjusting the rates to account for the severity of a patient's condition . 4 These reforms address concerns that some hospitals focus on certain services and less severely ill patients to maximize rates of reimbursement, leaving the least profitable and most severely ill patients to be treated elsewhere. The final changes announced in September were less substantial than CMS had initially proposed, however, in that there was no DRG weight changing by more than 0.8 percent. 5 CMS estimates that payments to hospitals will increase by $3.4 billion or an average of 3.5 percent due to these changes. 6


One of the major changes CMS made to the Medicare Physician Fee Schedule (MPFS) is to increase payments to physicians for spending time with their patients. 7 CMS hopes that increased physician/patient communications will lead to better outcomes for patients and a better use of health care resources. 8 CMS also expanded preventative services benefits. Ultrasound screenings for abdominal aneurysms and bone mass measurements will be available to qualifying beneficiaries and colorectal cancer screenings will not be subject to the Part B deductible . 9 The final changes to the MPFS do not, however, represent good news for all physicians. Although CMS projects it will pay approximately $61.5 billion to over 900,000 physicians and other health care professionals, overall payments will be decreased by five percent. 10 The decrease is required by law to account for the combined growth in volume and intensity of physician services. 11 This statutory requirement has operated to impose payment cuts since 2002. While the cuts actually went into effect in 2002 for 2003 to 2006, Congress intervened to prevent the full effect of the cuts. It is uncertain as to whether Congress will intervene for 2007.

Among the MPFS services that will experience rate reductions are imaging services. Payment rates for imaging services will be capped at the amount paid for the same services when performed in hospital outpatient departments. 12 Additionally, a 25 percent reduction in the payment for the technical component of multiple imaging procedures on contiguous body parts has been imposed. 13 In implementing these two policies, CMS will apply the multiple imaging reductions first, followed by the outpatient imaging cap, if applicable.

In a significant development, CMS chose not to finalize some of the proposed changes that would place restrictions on the types of space ownership or leasing arrangements that will qualify for the “in-office ancillary services” exception or the physician services exception to Stark. While there is concern that some of these arrangements encourage the overutilization of diagnostic services, CMS stated that it was taking additional time to finalize these proposed regulations to ensure the availability of legitimate group practice arrangements that would allow Medicare beneficiaries to receive services in one location. 14


To address rapid and accelerating growth in hospital outpatient services, CMS recently made major revisions to the payment rates for those services. 15 CMS estimates that hospitals will receive an estimated $32.5 billion and an overall average increase of 3.0 per cent for calendar year 2007. 16 Included within the significant regulatory changes are expanded quality reporting measures, the addition of five new Healthcare Common Procedure Coding System (HCPCS) codes for hospital emergency visits and changes to the payments made to ambulatory surgery centers (ASC).

Beginning in 2009, outpatient rate increases will be tied to the reporting of quality measures, a practice already in place for inpatient services. 17 CMS plans to develop measures that are appropriate specifically for hospital outpatient care. The new HCPCS codes are to describe emergency visits provided in part time dedicated emergency departments (DEDs) that are subject to EMTALA but do not meet the requirements for an emergency department. 18 CMS will pay the new DED visit codes at the payment levels set for clinic visits.

Some ambulatory surgery centers (ASCs) may be significantly impacted by the changes to the hospital outpatient rates. CMS is adding twenty-one new procedures to the list of procedures that can be performed at ASCs. 19 However, it is also implementing a provision of the law that caps payment for ASC procedures at the lesser of the ASC rate or the hospital outpatient rate. 20 CMS estimates that this provision will result in a decrease in payments for approximately 280 procedures performed in ASCs beginning January 1, 2007. 21 Also effective January 1, 2007, Medicare beneficiaries will be required to pay a 25% copayment for screening colonoscopies, an increase over the previous copayment of 20%. 22


For calendar year 2007, home health agencies can expect to receive up to an average 3.3 percent increase for Medicare payment rates. 23 However, as with the inpatient and soon, outpatient rates, home health agencies wishing to receive the full projected payment increase will be required to report quality data. Those agencies failing to report quality data will receive only an average 1.3 percent increase in their payments. 24 Further, durable medical equipment suppliers must transfer title to oxygen equipment to beneficiaries after thirty six months of rental payments and certain capped rental items, such as wheelchairs and hospital beds, after thirteen months of rental payments. 25 However, once a beneficiary owns the equipment, Medicare will continue to make payments for reasonable and necessary maintenance, oxygen contents and a one-time pick-up fee for items no longer medically necessary.

It is often said that the only constant is change and this saying certainly holds true for the Medicare program. The reimbursement rates and operational requirements for services are revised regularly and it is important for health care providers to stay on top of these updates. Reviewing newly published regulations and the accompanying commentary, reading CMS press releases and consulting health care counsel as necessary are some of the steps a provider can take to stay current with the many changes that occur within the Medicare program.

1 FY 2007 Hospital Inpatient Prospective Payment System Final Payment Rates, 71 Fed. Reg. 47870 (August 18, 2006); and http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS (click on IPPS Regulations and Notices: and CMS 1488-N for additional information about the wage index notice announced September 29, 2006).
2 FY 2007 Medicare Physician Fee Schedule, CMS-1321-FC and CMS-1317-F available at http://www.cms.hhs.gov/physiciansfeeschedule; and FY 2007 Outpatient Prospective Payment System Final Payment Rates, 71 Fed. Reg. 68158 ( November 24, 2006).
3 FY 2007 Home Health Prospective Payment System Update, 71 Fed. Reg. 65883 ( November 9, 2006).
4 CMS Fact Sheet, FY 2007 Inpatient Prospective Payment System Final Rule ( August 1, 2006).
5 CMS Fact Sheet, FY 2007 Hospital Inpatient Prospective Payment System Final Payment Rates ( September 29, 2006).
6 Id.
7 Press Release, CMS, Medicare Announces Final Rule Setting Physician Payment Rates and Policies for 2007 ( November 1, 2006).
8 Id.
9 FY 2007 Medicare Physician Fee Schedule, CMS-1321-FC and CMS-1317-F (November 1, 2006),available at http://www.cms.hhs.gov/physiciansfeeschedule, (ultrasound screenings for abdominal aneurysms are discussed on pages 195-206; bone mass measurements are discussed on pages 346-383; and colorectal cancer screenings are discussed on pages 206-208).
10 Press Release, CMS, Medicare Announces Final Rule Setting Physician Payment Rates and Policies for 2007 ( November 1, 2006).
11 42 U.S.C. Section 1395w-4(f).
12 FY 2007 Medicare Physician Fee Schedule, CMS-1321-FC and CMS-1317-F ( November 1, 2006), see discussion at pages 174-190.
13 Id.
14 Press Release, CMS, Medicare Announces Final Rule Setting Physician Payment Rates and Policies for 2007 ( November 1, 2006).
15 71 Fed. Reg. 67960 et. al ( Nov. 24, 2006).
16 Press Release, CMS, CMS Announces Changes to Policies and Payment for Outpatient Services (November 1, 2006).
17 71 Fed. Reg. 68227-68228 ( November 24, 2006).
18 71 Fed. Reg. 68129-68130 ( November 24, 2006).
19 71 Fed. Reg. 68168-68170 ( November 24, 2006).
20 71 Fed. Reg. 68226 ( November 24, 2006).
21 Press Release, CMS, CMS Announces Changes to Policies and Payment for outpatient Services ( November 1, 2006).
22 71 Fed. Reg. 68225-68226 (November. 24, 2006).
23 Press Release, CMS, CMS Announces Payment Changes for Medicare Home Health Services and Certain Durable Medical Equipment ( November 1, 2006).
24 71 Fed. Reg. 65935 ( November 9, 2006).
25 71 Fed. Reg. 65933-65934 ( November 9, 2006).