Chapter 2: Medicare
Overview
Medicare is a nationwide health insurance program for the aged and certain disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI); Part B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and Part D (the prescription drug benefit). The program is administered by the Centers for Medicare & Medicaid Services (CMS). Total program outlays are estimated to reach about $696 billion in fiscal year 2016. Net federal outlays, after deduction of beneficiary premiums and other offsetting receipts, are expected to be close to $592 billion in 2016.
Medicare is administered by CMS within the U.S. Department of Health and Human Services (DHHS). Day-to-day program operations, including processing benefits and paying claims, are conducted by private Medicare contractors.
The Internal Revenue Code contains federal tax law, including provisions that affect health care. The Affordable Care Act made sweeping changes to the tax code.
Congressional Research Service (CRS) Reports
The House Ways and Means Committee is making available selected reports by the Congressional Research Service (CRS) for inclusion in its 2016 Green Book website. CRS works exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of both the House and Senate, regardless of party affiliation.
Medicare Benefits and Payments
R40082: Medicare: Part B Premiums
R43962: The Medicare Access and CHIP Reauthorization Act of 2015
R42401: Medicare Skilled Nursing Facility (SNF) Payments
R42998: Medicare Home Health Benefit Primer: Benefit Basics and Issues
R40611: Medicare Part D Prescription Drug Benefit
Medicare Financing
R43122: Medicare Financial Status: In Brief
RS20946: Medicare: Insolvency Projections
The Affordable Care Act
R43215: Patient Protection and Affordable Care Act (ACA): Resources for Frequently Asked Questions
Legislative History
This section summarizes major Medicare and health related tax legislation enacted into law during the first session of the 114th Congress through October of the second session of the 114th Congress. Previous editions of the Green Book review legislation enacted prior to that date.
The summary highlights major provisions; it is not a comprehensive list of all Medicare or health related tax amendments. Included are provisions that had a significant budget impact, changed program benefits, modified beneficiary cost sharing, or involved major program reforms. Provisions involving policy changes are mentioned the first time they are incorporated in legislation, but not necessarily every time a modification is made.
The Tax Increase Prevention Act of 2014 (TIPA, P.L. 113-295)
Physicians
Accelerated the beginning date to 2016 (from 2017) for adjustments of relative value targets for misvalued services in Medicare physician fee schedules, as provided for in the Protecting Access to Medicare Act (PAMA) of 2014. (PAMA required that adjustments be made in years 2017 through 2020.) Revised the annual target rates for identifying misvalued services from 0.5% of the estimated amount of fee schedule expenditures for 2017 through 2020 to 1.0% for 2016 and 0.5% for 2017 and 2018.
Durable Medical Equipment
Prohibited coverage for items and services for vacuum erection systems furnished on and after July 1, 2015, until such time as Medicare covers erectile dysfunction drugs under Part D.
Dialysis Services
Amended the American Taxpayer Relief Act of 2012 to delay from 2024 to 2025, the inclusion of oral-only end-stage renal disease (ESRD) related drugs in the ESRD prospective payment system.
Taxation
Amended the Internal Revenue Code to increase from 15% to 30% the rate of the continuous levy on payments due to a Medicare provider or supplier for overdue taxes. (The IRS can collect overdue taxes through a continuous levy on certain Federal payments until the overdue taxes are paid in full, or other arrangements are made to satisfy the debt; this includes Medicare provider and supplier payments.)
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10)
Physician Payment System Reform
MACRA made fundamental changes to the way Medicare payments to physicians are determined, how they are updated, and how they incentivize physicians. The Act: 1) repealed the SGR methodology for determining updates to the Medicare physician fee schedule, established annual fee updates in the short term, and put in place a new method for determining updates afterward; 2) established a merit-based incentive payment system to consolidate and replace several existing incentive programs; 3) incentivized the development of, and participation in, alternative payment models; and 4) made other changes to Medicare physician payment statutes.
Specifically, MACRA permanently repealed the sustainable growth rate (SGR) methodology previously used to determine the annual conversion factors in the formula for payment for physicians’ services, and revised the update in rates for 2015 and subsequent years. It froze the update to the single conversion factor at 0.0% for January 1 through June 30, 2015, set the update at 0.5% for July1 through December 31, 2015, at 0.5% annually for 2016 through 2019, and then reduces it to 0.00% for 2020 through 2025.
Beginning in 2019, the amounts paid to providers will be adjusted through one of two methods, depending on whether the physician chooses to participate in a merit-based incentive payment system (MIPS) or an alternative payment model (APM).
MACRA directed the Secretary of Health and Human Services (the Secretary) to combine components of the three specified existing performance incentive programs (the Physician Quality Reporting System, the Value Modifier, and the Medicare Electronic Health Record incentive program) into a new incentive program (MIPS). Under the new MIPS, eligible professionals (including physicians, physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists, but excluding most APM participants) are to receive annual payment increases or decreases based on their performance as measured by standards the Secretary is to establish according to specified criteria. A final rule was issued on October 14, 2016 that provides detail and specifics for many of the changes.
In addition to creating the MIPS, MACRA established pathways for implementing new, alternative, payment models that might eventually replace traditional fee-for-service-based payment. The term alternative payment model is defined to mean any of the following: 1) a model under the Centers for Medicare & Medicaid Services (CMS) Center for Medicaid and Medicare Innovation (other than a health care innovation award); 2) a Medicare shared savings program accountable care organization; 3) a demonstration under Section 1866C of the Social Security Act (SSA); or 4) a demonstration required by federal law.
Eligible Medicare professionals will be incentivized to participate in Medicare APMs through higher payments. Beginning in 2019 and ending in 2024, eligible professionals in a qualifying APM that is providing covered services will receive payment for the services provided that year as well as an amount equal to 5% of the estimated aggregate payment amounts for covered professional services for the preceding year. The incentive payment will be made in a lump sum on an annual basis. Beginning in 2026, there will be two update factors, one for items and services furnished by a participant in a new APM and another for those who do not participate in an APM. The update factor for the APM participants will be 0.75%, and the update factor for those not participating in an APM will be 0.25%. To advise and evaluate the development of APMs, the Act established an ad hoc committee called the Physician-Focused Payment Models Technical Advisory Committee.
Hospitals
Extended through fiscal year (FY) 2017 the increased inpatient hospital payment adjustment for certain low-volume hospitals to account for the higher incremental costs associated with a low volume of discharges. Under the low-volume hospital extension, hospitals with fewer than 1,600 Medicare discharges and that are 15 road miles or more from the nearest like hospital receive a graduated payment adjustment of up to 25%. (Upon expiration, the adjustment will revert to the original statutory standards of fewer than 800 total discharges and more than 25 road miles.)
Extended the Medicare Dependent Hospital Program through FY2017 to allow qualifying small rural hospitals with a high proportion of Medicare patients to continue receiving enhanced payments.
Amended the Protecting Access to Medicare Act of 2014 to allow the continuation of the Medicare Administrative Contractor (MAC) “probe and educate” program on a pre-payment basis to assess provider understanding of and compliance with the “two-midnight rule” through FY2015. (Under the Medicare two-midnight rule, inpatient admissions are presumed to be medically appropriate if a physician expects a beneficiary’s treatment to require a two-night hospital stay and admits the patient under that assumption.) Also continued to delay the enforcement of the two-midnight rule by Medicare Recovery Audit Contractors (RACs) through September 30, 2015, unless there is evidence of systemic gaming, fraud, abuse, or delays in the provision of care by a provider of service.
Amended the TMA, Abstinence Education, and QI Programs Extension Act of 2007, as amended by the American Taxpayer Relief Act of 2012 (ATRA), to adjust hospital inpatient prospective payment system (IPPS) rates for discharges occurring during FY2018 through FY2023, replacing the ATRA one-time 2018 payment increase of 3.2% with a phased-in payment rate increase of 0.5% per year for fiscal years 2018 through 2023. (ATRA authorized the Secretary to reduce IPPS rates for hospital discharges in FY2014 through FY2017 in order to recoup $11 billion in past overpayments related to documentation and coding adjustments under the new Medicare Severity Diagnosis Related Group (MS-DRG) system that did not reflect real changes in patient case-mix.)
Post-Acute Care Providers
Set the Medicare annual payment updates for skilled nursing facilities, inpatient rehabilitation facilities, long-term care hospitals, and hospices to 1% for FY2018 and for home health agencies to 1% for calendar year (CY) 2018, after application of the productivity adjustment.
Home Health
Extended the 3% payment increase for home health services provided to beneficiaries in rural areas through December 31, 2017.
Authorized the Secretary to require Medicare home health agencies to post a surety bond of at least $50,000 or an amount commensurate with the volume of Medicare payments to the home health agency.
Physicians and Other Practitioners
Extended through December 31, 2017 the 1.0 floor for the work geographic practice cost index (GPCI) used in determining relative values for physician’s services under the Medicare physician payment system. (The Medicare physician fee schedule is adjusted geographically for three factors to reflect differences in the cost of resources needed to produce physician services: physician work, practice expense, and medical malpractice insurance. The geographic adjustments are indices that reflect how each area compares to the national average in a “market basket” of goods.)
Allowed automatic extensions of any two-year period for which a physician or practitioner opts out of the Medicare claims process under a private contract. Directed the Secretary to make publicly available through an appropriate HHS website information on the number and characteristics of opt-out physicians and practitioners. (Physicians and certain practitioners are able to enter into private contracts (under SSA §1861(r)) with Medicare Part B beneficiaries, provide services, and bill patients without being subject to the upper payment limits specified by Medicare.)
Directed the Secretary to make publicly available, on an annual basis, information with respect to physicians and other eligible professionals on items and services furnished to Medicare beneficiaries. Beginning in 2016, this information must be integrated on the Physician Compare website.
Prohibited the Secretary from implementing the November 13, 2014 final rule that would have required the transition of all 10-day and 90-day global surgical packages to 0-day global periods. (Reimbursement for a global surgical package, also called global surgery, includes payment for all necessary services normally furnished by a surgeon before, during, and after a procedure, a time-span constituting the global period.) Directed the Secretary through rulemaking to develop and implement a process to gather, from a representative sample of physicians, information needed to value surgical services.
Chronic Care Services
Required the Secretary to make payment under the Medicare physician fee schedule for chronic care management services provided by a physician, physician assistant, nurse practitioner, clinical nurse specialist, or certified nurse midwife furnished on or after January 1, 2015, and directed the Secretary to conduct an education and outreach campaign to inform relevant professionals and Medicare Part B enrollees of the benefits of chronic care management services and to encourage individuals with chronic care needs to receive such care. This campaign is to be directed by the Office of Rural Health Policy within HHS and the Office of Minority Health within CMS, and is to focus on encouraging participation by underserved, rural populations and racial/ethnic minority populations.
Therapy Services
Extended through December 31, 2017 the process under which providers and practitioners may request an exception on an individual’s behalf to the dollar limits (caps) on medically necessary outpatient therapy services (physical therapy services, speech-language pathology services, and occupational therapy services) when those services are reasonable and necessary. Directed the Secretary, in place of the manual medical review process (as implemented under the Middle Class Tax Relief and Job Creation Act of 2012, P.L. 112-96), to implement a targeted medical review process for outpatient therapy services.
Ambulance Services
Extended through December 31, 2017 the temporary increase in payments for ground ambulance services, including urban, rural, and super rural ground ambulance services.
Expanded the prior authorization of repetitive scheduled non-emergent ambulance transports model, effective no later than January 1, 2016, to six additional areas: Delaware, the District of Columbia, Maryland, North Carolina, Virginia, West Virginia. (Ambulance suppliers or beneficiaries began submitting prior authorization requests in South Carolina, New Jersey and Pennsylvania on December 1, 2014 for transports occurring on or after December 15, 2014.) If deemed appropriate by the Secretary, the model is to be expanded to all states.
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)
Modified the DMEPOS competitive acquisition program by adding the requirements that 1) DMEPOS suppliers meet applicable state licensure as a condition for being awarded a contract under the competitive bidding program (which codified an existing program requirement), and 2) suppliers bidding for contracts, beginning between January 1, 2017 and January 1, 2019, obtain a bid surety bond of between $50,000 and $100,000 for each bidding area. Suppliers who bid at or below the median composite bid rate, and are offered a contract but do not accept it, will be required to forfeit their surety bond. Authorized physicians, physician assistants, nurse practitioners, or clinical nurse specialists to document the face-to-face encounters that they themselves conduct. (A face-to-face evaluation of a beneficiary is required as a condition for payment of selected DMEPOS items.) This provision made the requirement similar to the face-to-face requirement for power wheelchairs.
Medicare Advantage
Extended the authorization for specialized Medicare Advantage (MA) plans for special needs individuals (SNPs) through December 31, 2018.
Required that reasonable cost plans that can no longer qualify to be cost plans be transitioned into MA plans, and allowed cost plans that otherwise would qualify under the statutory requirement to voluntarily transition into MA plans.
Medigap
Prohibited the sale of Medigap policies that cover Part B deductibles on or after January 1, 2020. (This provision does not affect policies sold before 2020.)
Part B and Part D Premiums
Adjusted income thresholds used to determine Medicare Parts B and D premiums paid by high-income enrollees, for years beginning with 2018. In 2020, requires adjusting the threshold for inflation based on the 2019 income threshold amounts, and updating the thresholds for inflation each year thereafter.
Assistance for Low-Income Beneficiaries
Made permanent the qualifying individual (QI) program. Under the QI program, using funds transferred from the Medicare Supplementary Medical Insurance Trust Fund, states pay Medicare Part B premiums for low-income Medicare beneficiaries with incomes between 120% and 135% of the federal poverty level. Extended funding for the QI program through FY2016, and set a formula for setting allocations for subsequent years.
Medicare Administrative Contractors
Extended the MAC contract terms, from 5 years to 10 years. Requires the Secretary to publish performance information on each MAC.
Required each MAC to establish an improper payment outreach and education program for providers and suppliers in its respective geographic service areas.
Program Integrity
MACRA contained numerous provisions designed to reduce waste, fraud, and abuse in the Medicare program. Among other things, it directed the Secretary to: 1) establish procedures to ensure that a Social Security number is not displayed on an individual's Medicare card; 2) establish procedures to ensure that Medicare payments are not furnished to incarcerated individuals, individuals not lawfully present in the United States, and deceased individuals; 3) develop a plan to revise the incentive reward program under the Health Insurance Portability and Accountability Act of 1996 to encourage greater participation by individuals in reporting fraud and abuse in the Medicare program; 4) require valid prescriber National Provider Identifiers on pharmacy claims for Part D drugs beginning in CY2016; and 5) establish a medical review process for certain chiropractic manipulation treatments for claims submitted after December 31, 2016. The Act also allows the Secretary to assess the cost effectiveness and feasibility of using electronic (smart) Medicare cards for beneficiaries and providers, gives beneficiaries the option to receive the Medicare summary notice electronically beginning January 1, 2017, and enables hospitals and critical access hospitals to compensate physicians for reducing medically unnecessary services without being subject to civil monetary penalties.
Health Information Technology
Declared it a national objective to achieve widespread exchange of health information through interoperable certified electronic health records (EHR) technology nationwide by December 31, 2018. Directed the Secretary to establish related metrics. Required the Secretary to examine the feasibility of establishing one or more mechanisms to assist providers in comparing and selecting certified EHR technology products.
Medicare Improvement Fund
Removed the $195 million in funds from the Medicare Improvement Fund that were added by the Improving Medicare Post-Acute Care Transformation Act of 2014, leaving the fund with $0.
Taxation
Amended the Internal Revenue Code to increase the percentage of Medicare provider and supplier payments subject to continuous federal levy from 30% (set in TIPA) to 100%. This provision is applicable to payments made 180 days after enactment.
Trade Preference Extension Act of 2015 (P.L. 114-27)
Dialysis Services
Required Medicare coverage and payment of renal dialysis services provided by an outpatient renal dialysis facility to individuals with an acute kidney injury, effective for services provided on or after January 1, 2017.
Steve Gleason Act of 2015 (P.L. 114-40)
Durable Medical Equipment
Required that speech generating devices and accessories be paid under the “Payment for inexpensive and other routinely purchased durable medical equipment category” (which can be made as a lump sum or on a rental basis) when furnished on or after October 1, 2015 and before October 1, 2018.
Notice of Observation Treatment and Implication for Care Eligibility Act of 2015 (NOTICE; P.L. 114-42)
Hospital Outpatient Services
Effective 12 months after enactment, required hospitals, including critical access hospitals, to give each individual who receives observation services as an outpatient for more than 24 hours an adequate oral and written notification within 36 hours after beginning to receive them which: 1) explains the individual's status as an outpatient and not as an inpatient and the reasons why; 2) explains the implications of that status on services furnished (including those furnished as an inpatient), in particular the implications for cost-sharing requirements and subsequent coverage eligibility for services furnished by a skilled nursing facility; 3) includes appropriate additional information; 4) is written and formatted using plain language and made available in appropriate languages; and 5) is signed by the individual or a person acting on the individual's behalf (representative) to acknowledge receipt of the notification, or if the individual or representative refuses to sign, the written notification is signed by the hospital staff who presented it.
Protecting Affordable Coverage for Employees Act of 2015 (P.L. 114-60)
Medicare Improvement Fund
Made funds available in the amount of $205 million to the Medicare Improvement Fund for services provided during and after FY2020.
Bipartisan Budget Act of 2015 (BBA 15, P.L. 114-74)
Site Neutral Payment for Hospital Outpatient Services
Excluded outpatient hospital services provided on or after January 1, 2017 by new off-campus hospital provider-based outpatient departments from the outpatient hospital prospective payment system, with certain exceptions. These services are to be reimbursed under the Medicare physician fee schedule.
Sequestration
Extended the sequestration of direct (mandatory) spending, including Medicare, an additional year, through FY2025. (Sequestration is a process of automatic spending reductions under which budgetary resources are permanently cancelled to enforce specific budget policy goals. Under sequestration, Medicare benefit payment reductions are limited to 2%.) Also adjusts the limits, so that the 2% limit is raised to 4% for the first six months of FY2025 and reduced to 0% for the last six months of FY2025.
Part B Premiums
Revised the methodology used to determine Medicare Part B premiums for 2016 to mitigate significant premium increases for those not protected under the hold-harmless rule in that year. (The hold-harmless rule protects Part B enrollees whose benefits are deducted from their Social Security benefits from premium increases that would result in a smaller net benefit from Social Security. In 2016, about 70% of Part B enrollees qualified for such protection, while 30% did not.) The reduced premium revenue is to be replaced with additional general revenue transfers from the Treasury, which is to be repaid over time through the application of a $3.00 per month premium surcharge (higher for higher-income beneficiaries). The methodology is to again apply in 2017 if, as in 2016, there is no increase in monthly Social Security benefits. The provision also reduced the increase in 2016 Part B deductibles for all Part B enrollees.
Securing Fairness in Regulatory Timing Act of 2015 (P.L 114-106)
Medicare Advantage
Extended from 45 days to 60 days the annual notice period for the announcement of payment rates under Medicare Advantage (MA) beginning in 2017. MA organizations are to have at least 30 days to comment on proposed changes.
S.1461 - A bill to provide for the extension of the enforcement instruction on supervision requirements for outpatient therapeutic services in critical access and small rural hospitals through 2015 (P.L. 114-112)
Therapy Services
Required HHS to continue to instruct Medicare contractors not to enforce requirements for direct physician supervision of outpatient therapeutic services in critical access and small rural hospitals through December 31, 2015.
Consolidated Appropriations Act of 2016 (CAA, P.L. 114-113)
Hospitals
Modified payments to certain rural long-term care hospitals for treatment of severe wounds for discharges occurring prior to January 1, 2017, temporarily halting pending Medicare site-neutral payment reductions for these services.
Hospitals in Puerto Rico
Increased the Medicare inpatient hospital payment rates for Puerto Rico hospitals. For discharges on or after January 1, 2016, the payment calculation associated with inpatient hospital operating costs is to be based on 100% of the applicable Federal percentage (rather than a blend of 25% Puerto Rico and 75% of Federal). Made Puerto Rico hospitals eligible for Medicare incentive payments for the adoption and meaningful use of certified electronic health record technology beginning January 1, 2016.
Durable Medical Equipment/Home Health
Established a separate Medicare payment to home health agencies for the use of disposable alternatives to negative pressure wound therapy equipment, effective January 1, 2017.
Imaging Services
Modified Medicare payments for traditional x-ray imaging in order to incentivize providers to transition to digital radiography. Specifically, reduces payment for the technical component of film x-rays under the hospital outpatient prospective payment system and under the physician fee schedule by 20% beginning in 2017, reduces payment for the technical component of x-rays taken using computed radiography technology by 7% during 2018 through 2022, and by 10% beginning in 2023. The payment discount for the professional component of multiple imaging services furnished to the same patient during a single visit is also reduced from 25% to 5% in 2017 and beyond.
Medicare Improvement Fund
Reduced from $205 million to $5 million the amount available to the Medicare Improvement Fund.
Health Insurance Plan Tax
Amended Section 9010 of the Patient Protection and Affordable Care Act (ACA) to suspend the annual tax on large health insurance providers during calendar year 2017. This includes some insurance companies which provide coverage of Medicare services under MA and Part D.
High Cost Employer-Sponsored Health Coverage Excise Tax
Amended Sections 9001(c) and 10901(c) of the Patient Protection and Affordable Care Act (ACA), as amended by section 1401(b) of the Health Care and Education Reconciliation Act of 2010 to delay the high cost employer-sponsored health coverage excise tax two years to years beginning after December 31, 2019; Section 4980I(f) to allow for the deductibility of the tax; and to allow for a study on suitable benchmarks for age and gender adjustment of excise tax on high cost employer-sponsored health coverage.
Medical Device Tax
Amended Section 4191 of the Internal Revenue Code to suspend the excise tax on the sale of medical devices during calendar years 2016 and 2017.
Patient Access and Medicare Protection Act (PAMPA; P.L.114-115)
Radiation and Imaging Services
Modified rules for certain radiation therapy and related imaging services to reduce payment volatility in 2017 and 2018 and prohibited these services from being considered as potentially misvalued services under the Medicare physician fee schedule in 2017 or 2018. Requires the Secretary to submit to Congress a report on the development of an episodic alternative payment model for radiation therapy services furnished in non-facility settings.
Durable Medical Equipment
Exempted through December 31, 2016, Medicare payments adjustments based on the competitive acquisition program for wheelchair accessories and seat and back cushions furnished in connection with Group 3 complex rehabilitative power wheelchairs.
Health Information Technology
Extended the ability of eligible providers to apply for a hardship exemption from requirements (and associated penalties) for meaningful use of EHR technology through 2017. (Applications for this exemption were to have been received from eligible professionals by March 15, 2016 and from hospitals by April 1, 2016.)
Program Integrity
Increased penalties for the illegal purchase, sale or distribution of a beneficiary’s identification number or a health care provider’s unique health identifier.
Required CMS to provide specified incentives for MACs, to reduce improper payment error rates within their jurisdictions.
Medicare Improvement Fund
Eliminated the $5 million in funding from the Medicare Improvement Fund, reducing the fund balance to $0.
Comprehensive Addiction and Recovery Act of 2016 (CARA; P.L. 114-198)
Outpatient Prescription Drug Benefit (Part D)
Provided authority for Medicare Part D plan sponsors, and MA organizations offering combined MA and Part D plans, to create lock-in programs to identify enrollees deemed at high risk of abusing prescription drugs and to limit such beneficiaries’ choice of prescribers or pharmacies in order to better monitor their drug use. Sponsors that offer such programs are to provide beneficiaries deemed at risk of prescription drug abuse with notice of their status; consider beneficiaries’ input on the allowable pharmacies and prescribers, so long as the beneficiaries’ choices do not pose a risk of fraud or abuse; and provide beneficiaries the right to appeal and apply to terminate their at-risk status. Authorizes additional utilization management tools designed to prevent abuse of Part D drugs, such as retrospective utilization review.
Medicare Improvement Fund
Deposited the $140,000,000 in savings generated from the Part D lock-in provisions into the Medicare Improvement Fund.
This page was prepared October 2016 for the 2016 version of the House Ways and Means Committee Green Book.