July 30, 1997

Medicare+Choice
A new "Medicare+Choice" program is created. Medicare+Choice builds on the existing Medicare program which allows health maintenance organizations (HMOs) to enter into risk contracts with the Health Care Financing Administration. Under Medicare+Choice, Medicare beneficiaries will have the opportunity to choose from a variety of private health plan options the health care plan that best suits their needs and preferences.

The new Medicare+Choice program will operate as follows:

1. Types of Medicare+Choice plans:
a. Unrestricted private fee-for-service plans (FFS).
b. Coordinated care plans including preferred provider organizations (PPOs: fee-for-service plans with incentives to use network providers); and health maintenance organizations (HMOs: Closed provider networks) with or without point-of-service options (PoS: the option within a closed network to choose out-of-network providers at greater cost-sharing)
c. Provider Sponsored Organizations (PSOs: closed networks operated by providers)
d. Medical Savings Accounts combined with a qualified high-deductible policy (Demonstration)

2. Eligibility: All Medicare beneficiaries enrolled in both Part A and Part B are entitled to enroll in a Medicare+Choice plan available in their area of residence, except those with end-stage renal disease who were not already enrolled in a Medicare+Choice plan at the time of diagnosis.

3. Enrollment: Enrollment in Medicare+Choice plans will continue as under current law through the end of 2001 -- with the addition of a permanent coordinated open enrollment period in November of each year during which all plans must accept new enrollees for the following year. Beginning in January of 2002, the current twelve month continuous enrollment will transition to a six month continuous enrollment (generally January through June), and in 2003 and thereafter, beneficiaries can enroll only during a three month continuous enrollment period (generally January through March) with a limit of one change per year -- and during the November coordinated open enrollment period. Special enrollment rules would apply in certain situations. Enrollment activities will be conducted by the Medicare+Choice plans.

4. Disenrollment: Through the end of 2001, Medicare+Choice enrollees may continue to disenroll from a Medicare+Choice plan at any time as under current law. Beginning in January of 2002, beneficiary can only disenroll from a plan during the first 6 months of the year and only one time per year except for during the coordinated annual enrollment period in November. Special disenrollment rules apply for certain circumstances. Medicare+Choice MSA plan holders can only enroll and disenroll during the coordinated enrollment period in November and during other limited circumstances.

5. Information: Comparative information on each Medicare+Choice plan will be compiled and distributed by the Secretary to all eligible individuals during the coordinated open enrollment period in November of each year. The Secretary will coordinate with the States to the greatest extent possible in disseminating this information. Also, all plans will be required to have this information available to provide to any eligible Medicare beneficiary upon request.

6. Marketing: Marketing strategies and materials must comply with standards and receive prior approval by the Secretary.

7. Benefits:
a. Must cover current Medicare-covered items and services;
b. May incorporate extra benefits in basic package; or
c. May offer supplemental benefits, priced separately from basic package.

8. Beneficiary protections and Health Plan Standards including:
a. Must provide access to urgent and emergency services 24 hours a day, 7 days a week;
b. Definition of emergency services based on "prudent layperson" standard.
c. Must have accreditation for meeting quality standards and have ongoing external quality review that is not duplicative of accreditation -- if the plan is accredited;
d. Must have consumer protections:
(1) Appeals and Grievance procedures;
(2) Non-discrimination based on health status.
e. Plans must not discriminate against state licensed provider groups if the plan covers services rendered by such a provider group.

9. Medicare payment:
For each year through 2002, the Medicare payment for each county will equal the highest of the following:
a. A phased-in blend of local and national payment rates (50% local and 50% national by 2003), updated annually by the growth in Medicare fee-for-service minus .8 percentage points in 1998 and minus .5 percentage points thereafter. Payments for graduate medical education (GME) will be carved out of the local rates over five years and paid to hospitals directly for each Medicare+Choice patient admission.
b. A minimum payment amount of $367 in 1998 updated annually by the growth in Medicare fee-for-service minus .8 percentage points in 1998 and minus .5 percentage points thereafter (Minimum payment for the District of Columbia and areas outside the U.S. will be 150 percent of their 1997 payment amount).
c. 102 percent of the county's previous year average payment amount.

The Secretary is required to implement a risk adjustment methodology that accounts for variations in per capita costs based on health status by no later than January 1, 2000.

10. Preemption of State Premium Taxes:
The current law on federal preemption of state premium taxes or fees on Federal payments from the FEHB fund to health plans will be extended to Federal payments to Medicare+Choice plans and other health plans receiving capitated payments from the Medicare Trust Funds.

11. Medicare+Choice Plan Organizational, Financial, and Contracting Requirements Including:
a. Must have State licensure;
b. Must assume full risk for Medicare benefits;
c. Must meet solvency requirements;
d. Must meet minimum enrollment requirements.

12. Limited exceptions for PSOs:
PSOs may apply for a Federal waiver of State licensure if the state has denied the PSO a license for solvency or discriminatory reasons, or if the state fails to approve the license within 90 days after the PSO has submitted a substantially complete application. Waivers will be valid for one 36-month period and cannot be renewed. Waivers will not be issued beyond November, 2002. While a PSO is under a Federal waiver, it must still abide by the State's beneficiary protection standards. Solvency requirements for PSOs will be determined through a negotiated rulemaking process, taking into consideration risk based capital standards developed by the National Association of Insurance Commissioners.

13. Medicare supplemental insurance ("Medigap"):
a. Allow portability of Medigap policies. Current law "guaranteed issue" requirements for Medigap policies will be expanded to cover certain circumstances -- including when an individual decides to return to traditional Medicare within one year of their first enrollment in a Medicare+Choice plan.

b. Pre-existing condition exclusions. Insurers will no longer be allowed to impose pre-existing condition exclusions on beneficiaries enrolling during guaranteed issue periods.

c. New Medigap high deductible option. Two new standard Medigap benefit plans will be authorized which allow an annual $1500 deductible before the policy begins paying benefits.

14. PACE Program:
The Program for All-inclusive Care for the Elderly (PACE), which provides health and long-term care services on a capitated basis to frail elderly persons at risk of institutionalization, would be converted from a demonstration project to a permanent benefit category eligible for coverage and reimbursement under the Medicare program.

15. Demonstration Projects

a. Medicare Medical Savings Account (MSA)Demonstration.
Medicare beneficiaries will have the option of choosing a high deductible Medicare+Choice plan and having contributions made by the Secretary to a Medicare+Choice MSA. The MSA plan's deductible must not be more than $6,000. The demonstration would be capped at 390,000 enrollees and sunsets December 31, 2002.

b. Competitive Pricing Demonstration. A demonstration program will be established to test -- in up to seven sites -- mechanisms in which payments to Medicare+Choice plans are determined through a competitive pricing process.

c. Medicare Enrollment Demonstration. A demonstration program will be established for using a third-party contractor to conduct the Medicare+Choice plan enrollment and disenrollment functions in an area, to be conducted separately from the competitive pricing demonstrations.

d. Social Health Maintenance Organizations (SHMOs). The existing SHMO demonstration projects will be extended through 2000 and enrollment will be expanded for each demonstration from 12,000 to 36,000.

e. Community Nursing Organization Demonstration Projects. This demonstration project which tests a prepaid capitated, nurse-managed system of care will be extended for an additional period of 2 years.

f. Medicare Coordinated Care Demonstration. The Secretary of HHS will design and conduct a Medicare coordinated care demonstration to test methods for increasing the quality and efficiency of caring for beneficiaries with chronic illnesses who are enrolled in the traditional Medicare fee-for-service program.

g. Medicare Subvention for Military Retirees. The Secretaries of HHS and Defense will design and conduct a demonstration of Medicare reimbursement for medical care provided to Medicare-eligible military retirees.

16. Commissions
Two commissions are established:

a. National Bipartisan Commission on the Future of Medicare: A 17-member commission will be established and charged with making recommendations by March 1, 1999, to Congress and the President on actions necessary to ensure the long term fiscal health of the Medicare program. The Commission is also charged with making recommendations on financing for graduate medical education; the impact of over-indexing on the status of the Trust Fund; and the feasibility of allowing persons between ages 62 and 65 to "buy-in" to Medicare.

b. Medicare Payment Review Commission: A 15-member commission will replace the existing Physician Payment Review Commission and the Prospective Payment Review Commission. The new commission will submit an annual report to Congress on the status of Medicare reforms, and make recommendations on Medicare payment issues and related issues affecting the Medicare program.

17. Tax treatment for not-for-profit hospitals. A non-profit hospital organized and operated exclusively for a charitable purpose for purposes of Code section 501(c)(3) will not lose this status solely because the hospital participates in a provider-sponsored organization, whether or not the PSO is exempt from tax.

19. Reduce hospital payments for inpatient capital (i.e., land, buildings) 17.7% percent for FY 1998-2002.

20. Amend current capital payments for capital asset sales to reflect the sales price equal to book value (applicable to hospitals and skilled nursing facilities).

21. Extend hospital transfer policy to only 10 diagnosis related groups (DRGs) to be determined by the Secretary. For discharges to a skilled nursing facility, a PPS-exempt facility or home health care, payments to hospitals will be either treated as hospital transfers with a per diem payment, or for those hospital stays with a substantial portion of the costs of a case incurred in the early days of the stay, a blended payment rate (equal to 50% of the transfer payment and 50% of the total DRG payment). In FY 2001, the Secretary may extend the policy to other DRGs.

22. The Secretary shall recommend to Congress a new hospital disproportionate share (DSH) formula with a single threshold. DSH payment growth is reduced by an annual average reduction of 1.0 percent of what payments would have otherwise have been each year FY 1998-2002. In addition, hospitals will be eligible to seek reclassification for DSH purposes.

23. Eliminate graduate medical education and disproportionate share add-ons for outlier payments.

24. Reduce bad debt payments to providers to 75% during FY 1998, 60% during FY 1999, and 55% in future years.

25. Increase payments to Puerto Rico's hospitals by altering the blended formula for the standardized amount from the 75% local rate, 25% Federal rate to a 50%/50% blend.

26. Establish permanent payment for hemophilia clotting factor.

27. Establish a floor on area wage index such that no urban area in a state will have a lower wage index than a rural area.

PPS-EXEMPT HOSPITALS

28. Establish a PPS for rehabilitation hospitals FY 2001 which will have a three year transition until full implementation, collect data to establish a PPS for long-term care hospitals, and study the effect of the new policies on psychiatric hospitals related to teaching institutions.

29. For older hospitals established before 1990 that typically have lower levels of reimbursement, they may opt to rebase. The optional rebasing takes into account the 5 past cost reporting periods, dropping the highest and lowest cost reports, and computing the average cost per discharge based on the remaining three cost reports.

30. Facilities that are currently receiving very high cost-based reimbursement would be limited to not exceed the 75th percentile of each category of hospitals' target amounts.

31. Zero update for all PPS-exempt hospitals for FY 1998, and a variable update for all hospitals in FY 1999-2002.

32. Reduce hospital capital payments for rehabilitation, long-term care, and psychiatric hospitals by 15 percent for FY 1998-2002.

33. Bonus payments may be up to 3% of a hospital's target amount. There are two types of bonus payments:

a. Traditional bonus payments are limited to the lesser of 15% of the difference between a hospital's target amount and costs, or 2% of it's target amount.

b. A new continuous improvement bonus payment is available to hospitals that reduce costs from the previous year which is equal to the lesser of 50% of the difference between last year's costs minus this year's costs, or 1% of the hospital's target amount.

34. Change relief payments so that they apply only to those facilities in greatest need (with costs that are at least 10% above their target).

35. Establish new payment criteria for start-up rehabilitation, long-term care and psychiatric hospitals, so that costs do not exceed 110 percent of the national median for each category of hospitals, modified by the area wage-index.

36. Grandfather long-term care hospitals that were established within a hospital prior to September 30, 1995.

GRADUATE MEDICAL EDUCATION

37. Phase-down the hospital indirect medical education (IME) payment adjustment from 7.7 percent in FY 1997 to 7.0 percent in FY 1998; 6.5 in FY 1999; 6.0 percent in FY 2000; 5.5 percent in 2001 and after.

38. Payment of GME carve out ("pay back") from HMO payments to teaching hospitals serving Medicare managed care enrollees.

39. Other graduate medical education provisions:
a. Establish a cap on the number of residents supported by Medicare graduate medical education payments.
b. Allow payments to rural health clinics, Federally qualified health centers, and Medicare+Choice organizations.
c. Incentive payments for reductions in number of residents.
d. Provide additional funding for combined primary care residencies.

OUTPATIENT HOSPITAL DEPARTMENTS

40. Outpatient hospital:
a. Eliminate formula-driven overpayments in FY 1998; extend capital and non-capital cost limits;
b. Establish a prospective payment system (PPS) for outpatient hospital services for FY 1999;
c. Reduce beneficiary outpatient cost-sharing.

HOSPICE

41. In FY 1998-2002, reduce the annual inflation update by market basket minus 1 percentage point.

42. Require payments based on the location of an individual's home.

43. Restructure hospice benefit:
a. Allow two 90 day periods, followed by unlimited 60 day periods with physician certification;
b. Allow greater flexibility in services provided;
c. Allow hospices to contract for physician services;
d. Waive rural staffing requirement;
e. Establish waiver of liability when an individual is not, in fact, terminally ill; and
f. Allow greater flexibility for the timing of physician certification.

SKILLED NURSING HOMES (SNFs)

44. Temporary extension for routine cost limits for FY 1998.

45. Establish a case-mix adjusted per diem prospective payment system for all SNF costs (i.e. routine, ancillary, and capital-related). Transition is over four years with facility specific payments blended with national prospective rates.

a. National base payments are calculated from 1995 allowable cost for SNFs (excluding exceptions payments made to SNFs, SNFs exempted from cost limits, and half of the difference between the cost limits for free-standing and hospital-based SNFs from the calculation of the base payment amount). The national base payment is updated by MB-1 through 2002.

b. Facility specific payments are based on 1995 cost reports, updated MB-1 through 1999.

HOME HEALTH SERVICES

46. Interim payment for home health services for FY 1998-1999 combines reduced cost limits for visits with an agency-specific per beneficiary annual limit calculated from 98% of the agency's cost reporting period ending in 1994. The blended per beneficiary limit is based 75% on the agency's own costs per beneficiary and 25% on the average cost per beneficiary for agencies in the same census region.

47. Prospective payment system to be implemented in FY 2000.

48. Payment to be based on location where home health service is furnished.

49. Eliminate periodic interim payments at the same time as implementation of home health prospective payment.

50. Clarify the home health benefit:
a. Part-time and intermittent nursing care.
b. Require the Secretary to study and recommend appropriate homebound criteria.
c. Eliminate current practice of establishing home health benefit services for individuals for the purpose of obtaining a blood sample.

51. Beginning in 1998, establish a 100 visit post-hospital home health benefit under Part A, with all other visits considered part of a new Part B home health benefit. Payments for the new Part B home health benefit will be paid partly from the Part A Trust Fund for a six year phase-in period, and the outlays attributable to the home health benefit will be phased-in to the Part B premium over 7 years.

NEW OR ENHANCED PREVENTION BENEFITS

52. Mammography screening -- Annual mammograms for women at age 40; Part B deductible is waived.

53. Improved coverage of pap smears and pelvic exams, including waiver of Part B deductible.

54. Coverage of prostate cancer screening beginning in 2000.

55. Coverage of colorectal cancer screening.

56. Diabetes self-management benefits -- Provides payment for diabetes self-management education; payment for monitors and testing strips to individuals with Type II diabetes; reduce by 10 percent payment for testing strips.

57. Coverage of bone mass measurements for individuals with certain clinical conditions.

58. Expansion of immunization outreach program.

ANTI-FRAUD AND PROGRAM INTEGRITY PROVISIONS

58. New penalties for fraud: permanent exclusion from Medicare of any individual convicted of three health-related crimes; refusal to enter into Medicare contracts with felons; exclusion of a health care business controlled by a family member of an individual guilty of fraud; new civil monetary penalties for individuals that contract with an excluded health care provider and for kickbacks.

59. Other anti-fraud and program integrity improvements:
a. New requirements to provide Medicare beneficiaries with information about detecting and reporting fraud.
b. New requirement for surety bond for durable medical equipment and certain other providers.
c. Requirement for Medicare providers to supply employer identification numbers and Social Security numbers.
d. Advisory opinions on certain physician self-referral laws.
e. New payment authorities: inherent reasonableness; competitive bidding demonstrations; fee schedules.

PHYSICIANS AND OTHER HEALTH PROFESSIONALS

60. Physician fee schedule:
a. Establish one conversion factor for all physician services; and
b. Revise the physician payment update formula.

61. Practice expense (office expenses) reforms:
a. One-year delay in implementation of proposed rule on practice expense reform.
b. Provide a 5-year transition period (1998-2002) for implementing new method of calculating practice expenses.
c. Special statutory rule for 1998 under which approximately 10-percent of the transition to be implemented.
d. Requires GAO study and consultation by HHS Secretary with physician groups on proposed practice expense rule.

62. Allow Medicare beneficiaries to contract for health care services with physicians and other health care professionals who do not participate in the Medicare program; such contracts would not be subject to Medicare's payment limitations and no claim would need be filed with Medicare.

63. Provide expanded direct reimbursement for nurse practitioners and physician assistants.

LABORATORIES

64. Reduce fee schedule payments by lowering cap to 74 percent of median for payment amounts; no inflation update between 1998-2002.

65. Improve benefits administration and program integrity by providing for specialized carriers to process laboratory claims and uniform national rules for coverage.

DURABLE MEDICAL EQUIPMENT

66. No inflation update for 1998-2002. Also provide for a simplified payment procedure for purchase of upgraded medical equipment by Medicare beneficiaries.

67. Reduce the monthly payment amount for home oxygen by 25 percent in 1998, and an additional 5 percent in 1999, with no inflation update in those years. Provides for demonstration project of competitive bidding for oxygen services.

OTHER PART B SERVICES

68. Rehabilitation Services: All payments to be based on fee schedule; annual payment limit on services to be raised from $900 to $1,500.

69. Ambulances: All payments to be based on a fee schedule beginning in 2000; reduction of annual inflation update by one percentage point.

70. Ambulatory Surgical Centers: Reduction in annual inflation updates by 2 percentage points.

71. Prescription Drugs: New payment rules.

72. Require SNFs bill for all Part B services (with the exception of physician services).

BENEFICIARY PREMIUM

73. Establish in permanent law beneficiary premiums at 25 percent of program spending (including home health benefit).

74. Establish new state allocation of $1.5 billion (1998-2002) to provide full Part B premium assistance to Medicare beneficiaries with incomes between 120 percent and 135 percent of poverty, and to 175 percent of poverty for the amount of Part B premium attributable to the home health transfer.

RURAL

75. Reinstate special payments to Medicare dependent hospitals.

76. Establish Medicare Rural Hospital Flexibility program for all states, and create the new designation of Critical Access Hospitals. Transition facilities under the current EACH-RPCH and MAF demonstration programs.

77. Grandfather rural referral centers (RRCs) designated since FY 1991, and for reclassification purposes exempt RRCs from having to meet the 108% average hourly wage (AHW) threshold for the statewide rural AHW.

78. Reform Medicare payments to Rural Health Clinics (RHCs):
a. Extend per-visit payment limits to provider-based clinics;
b. Require triennial recertification;
c. Limit the nurse practitioner/physician assistant (NP/PA) waiver to clinics already certified, new clinics will have to meet the NP/PA staffing requirements;
d. Require clinics to meet performance standards; and
e. RHCs that are currently owned and operated by PA's will be grandfathered through 2002.

79. Establish reimbursement for telehealth services in rural health manpower shortage areas, effective January 1, 1999. Authorize $27 million for a 5-year demonstration project for high-capacity computing and advanced networks.

OTHER PROVISIONS

80. Medicare Secondary Payer:

a. Extend permanently current Medicare secondary payer policies (MSP), including for beneficiaries who are disabled and have end-stage renal disease (ESRD). For ESRD beneficiaries, also increase to 30 months the time period Medicare is secondary payer.

b. Clarify Medicare secondary payor policies regarding time and filing limits.

81. Provide coverage for religious non-medical health care institutions under Medicare for patients who choose to rely solely upon a religious method of healing and for whom the acceptance of medical health services would be inconsistent with their religious belief. Funding would be limited in FY 1998 to no more that $20 million, adjusted for inflation in subsequent years.

82. Eliminate the requirement for any Part A premium contribution for certain state and local retirees over age 65 who worked for at least 40 quarters, and paid the Medicare Part A premium out-of-pocket for the previous 84 months.

83. Increase certification period for organ procurement organizations that have a good record from 2 years to 4 years.

84. Require the placement of advanced directive information in a prominent part of the individual's current medical record.