Chapter 2: Medicare

Medicare Introduction and Overview

Introduction

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 added by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, MMA).  The program is administered by the Centers for Medicare & Medicaid Services (CMS).  Total program outlays are estimated to reach $618 billion in fiscal year 2014. Net federal outlays, after deduction of beneficiary premiums and other offsetting receipts, are expected to be $518 billion in 2014.

Medicare is administered by CMS within the U.S. Department of Health and Human Services (DHHS). (Prior to June 14, 2001, this agency was known as the Health Care Financing Administration (HCFA).)  Day-to-day program operations, including processing benefits and paying claims, are conducted by private Medicare contractors.

Coverage

Almost all persons age 65 and over are automatically entitled to premium-free Medicare Part A, as they, or their spouses, have at least 40 quarters of Medicare covered employment.  Part A also provides coverage, after a 24-month waiting period, for persons under age 65 who are receiving Social Security cash benefits on the basis of disability.  Most persons who need a kidney transplant or renal dialysis also may be covered, regardless of age. In 2014, Part A is expected to cover close to 54 million aged and disabled persons (including those with chronic kidney disease). Medicare Part B is voluntary.  All persons age 65 and over and all persons enrolled in Part A may enroll in Part B by paying a monthly premium; those with higher incomes pay higher premiums.  In 2014, about 49 million aged and disabled persons are enrolled in Medicare Part B.

Approximately 70% of beneficiaries receive covered services through Parts A and B. Together these programs are known as “Original Medicare.”  (“Original Medicare” is sometimes referred to as “traditional fee-for-service Medicare” since a separate payment is made for each unit of service.)  Medicare beneficiaries who are eligible for Part A and enrolled in Part B have the option of obtaining covered services through private health plans under Part C rather than through Original Medicare.  (In this case, monthly per capita payments are made to the health plan.) Approximately 30% of Medicare beneficiaries have elected this option.  All beneficiaries can elect to obtain coverage for prescription drugs through private health plans under Medicare Part D.  In 2014, about 41 million Medicare beneficiaries (about 75% of those eligible) are enrolled in Medicare Part D.

Benefits

Part A provides coverage for inpatient hospital services, up to 100 days of post-hospital skilled nursing facility (SNF) care, some home health services, and hospice care. CMS reimburses acute inpatient hospitals, home health agencies, hospice, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities under separate prospective payment systems.  A prospective payment system (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount.  Patients must pay a deductible ($1,216 in 2014) each time their hospital admission begins a benefit period.  (A benefit period begins when a patient enters a hospital and ends when he or she has not been in a hospital or SNF for 60 days.)  The limited numbers of beneficiaries requiring care beyond 60 days are subject to additional charges.  Patients requiring SNF care are subject to a daily coinsurance charge for days 21-100 ($152 in 2014).  There are no cost-sharing charges for home health care and limited charges for hospice care.

Part B provides coverage for physicians' services, laboratory services, durable medical equipment (DME), hospital outpatient department (OPD) services, and other medical services.  The program generally pays 80 percent of Medicare's fee schedule or other approved amount after the beneficiary has met the annual deductible ($147 in 2014).  The beneficiary is liable for the remaining 20 percent.

Under Part C, beneficiaries have the option of obtaining covered services through private health plans.  Under an agreement with CMS, a plan agrees to provide all services covered under Medicare Parts A and B (except for hospice care) in return for a capitated monthly payment. 

Part D provides coverage for outpatient prescription drugs through private prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans.  Similar to Part C, Medicare makes monthly payments to Part D plans for each Part D enrollee.  All plans are required to meet certain minimum benefit requirements, however there are significant differences among plans in terms of benefit design, drugs included on plan formularies (i.e., list of covered drugs), cost-sharing applicable for particular drugs, and monthly premiums.

Financing

Medicare Part A is financed primarily through the HI payroll tax levied on current workers and their employers.  Employers and employees each pay a tax of 1.45 percent on all earnings. The self-employed pay a single tax of 2.9 percent on earnings.  Beginning in 2013, high-income workers with wages over $200,000 for single filers, and $250,000 for joint filers, pay an additional 0.9 percent in payroll taxes on the income over these thresholds.  Revenues are credited to the HI trust fund.  The 2014 Medicare Trustees Report estimates that the HI trust fund will be depleted (insolvent) in 2030.

Part B is financed through a combination of monthly premiums levied on program beneficiaries and Federal general revenues.  Beneficiary premiums have generally represented about 25 percent of Part B costs; Federal general revenues (i.e., tax dollars) account for most of the remaining 75 percent.  Beginning in 2007, higher income individuals pay higher premiums. Revenues are credited to the SMI trust fund.

Part C has no separate financing mechanism. Payments to MA plans are made in appropriate parts from the HI and SMI trust funds.  Part D is financed by a combination of beneficiary premiums, general revenues, and state transfer payments.  Revenues are credited to a separate account in the SMI trust fund. Beginning in 2011, high-income enrollees pay higher Part D premiums.

Chapter Overview

This chapter of the Green Book includes links to recent Congressional Research Service (CRS) Reports on Medicare.  A Tables and Figures section lists select tables and figures found in these reports.  This chapter of the Green Book also includes a Legislative History of Medicare.  This chapter concludes with a list of Links to Additional Resources, including links to Medicare administrative and expenditure data and information on specific programs and payment systems published by the Centers for Medicare & Medicaid Services (CMS), the Medicare Payment Advisory Commission (MedPAC), and the Congressional Budget Office (CBO).

This page was prepared on September 3, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Medicare Congressional Research Service (CRS) Reports

Medicare Tables and Figures in CRS Reports

Following is a list of tables and figures related to Medicare that can be found in the CRS reports included in this Green Book chapter.

R40425: Medicare Primer

Table B-1. Part A (Hospitalization Insurance)

Table B-2. Part B (Supplementary Medical Insurance)

Table B-3. Part C (Medicare Advantage)

Figure 1. Projected Medicare Benefit Spending, by Category, FY2014

Figure 2. 2014 Standard Medicare Prescription Drug Benefit

Figure 3. Sources of Medicare Revenue: 2013

R43122: Medicare Financial Status: In Brief

Table 1. Medicare Expenditures and Enrollment: CY2013

Table 2. Current Value of Estimated Medicare Unfunded Obligations and General Revenue Spending

Figure 1. Sources of Medicare Revenues: 2013

Figure 2. Projected Number of Years Until HI Insolvency

Figure 3. Historical and Projected Medicare Expenditures

Figure 4. Medicare Cost and Non-interest Income, by Source as a Percentage of GDP

R41436: Medicare Financing

Table 1. Medicare Data for Calendar Year 2013

Table 2. Unfunded HI Obligations

Table 3. Unfunded Part B and Part D Obligations

Table 4. SMI General Revenues as a Percentage of Personal and Corporate Federal Income Taxes

Table A-1. Medicare Enrollment, 1970-2085

Table B-1. Medicare Income and Expenditures, Calendar Years 1970-2023

Table C-1. Average Medicare Benefit Costs per Beneficiary, Calendar Years 1970-2023

Table D-1. Operation of the Hospital Insurance Trust Fund, Calendar Years 1970-2023

Table E-1. Operation of the Part B Account of the SMI Trust Fund, Calendar Years 1970-2023

Table F-1. Operation of the Part D Account in the SMI Trust Fund, Calendar Years 2004-2023

Table G-1. Projected Hospital Insurance Expenditures as a Percentage of GDP

Table G-2. Projected Supplementary Medical Insurance – Part B as a Percentage of GDP

Table G-3. Projected Supplementary Medical Insurance – Part D as a Percentage of GDP

Table G-4. Projected Total Medicare Expenditures as a Percentage of GDP

Figure 1. Sources of Medicare Revenue: 2013

Figure 2. Total Medicare Expenditures

Figure 3. Short-Term HI Expenditures and Income

Figure 4. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual Expenditures

Figure 5. Long-Range HI Income and Cost as a Percentage of Taxable Payroll

Figure 6. Medicare Cost and Non-interest Income by Source as a Percentage of GDP

RS20946: Medicare: History of Insolvency Projections

Table 1. Year of Projected Insolvency of the Hospital Insurance Trust Fund in Past and Current Trustees Reports

Table A-1. Operation of the Hospital Insurance Trust Fund, Calendar Years 1970-2023

Table B-1. Tax Rates and Maximum Tax Bases

Figure 1. Projected Number of Years Until HI Insolvency

Figure 2. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual Expenditures

R40082: Medicare: Part B Premiums

Table 1. Initial Enrollment Period

Table 2. Monthly Medicare Part B Premiums for 2014

Table 3. Part B Premium Adjustment for Married Beneficiaries Filing Separately for 2014

Table 4. 2014 Medicare Savings Program Eligibility Standards

Table A-1. Monthly Part B Premiums, 1966-2014

Table B-1. Income Levels for Determining Medicare Part B Premium Adjustment and Per Person Premium Amounts

Table B-2. Income Levels for Determining Part B Premium Adjustment for Married Beneficiaries Filing Separately and Associated Premiums

Table C-1. Projected Part B Premiums

Figure 1. Monthly Medicare Part B Premiums

R40907: Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System

Figure 1. Two Measures of the Difference Between Cumulative Allowed and Actual Expenditures for Physician Services Under the SGR System

Table 1. Summary of Updates and Legislative Activity

Table 2. Select Legislative Proposals to Modify the SGR Calculation

R42401: Medicare’s Skilled Nursing Facility Primer: Benefit Basics and Issues

Table 1. Aggregate Freestanding SNF Medicare Margins

Figure 1. Medicare-Covered SNF Days per 1,000 Part A Beneficiaries in 2012, by County

Figure 2. SNF Prospective Payment System Formula

Figure 3. FY2015 SNF Prospective Payment System, Urban Example

Figure 4. FY2015 SNF Prospective Payment System, Rural Example

Figure 5. Distribution of Covered SNF Days, by Rehabilitation RUG

R42998: Medicare Home Health Benefit Primer: Benefit Basics and Issues

Table 1. Average Medicare Payment and Visits for the Most Common Principal Diagnoses in 2011

Table 2. Aggregate Freestanding Home Health Agency Medicare Margins, 2003-2011

Figure 1. Home Health Utilization

Figure 2. Home Health Prospective Payment System Formula for Episodes with Five or Greater Visits

Figure 3. CY2014 Home Health Prospective Payment System, Urban Example

Figure 4. CY2014 Home Health Prospective Payment System, Rural Example

Figure 5. Home Health Expenditures by Part A and B, 2001-2011

Figure 6. Standardized Part A Home Health Payments per User in 2011

Figure 7. Standardized Part B Home Health Payments per User in 2011

R40611: Medicare Part D Prescription Drug Benefit

Table 1. Total Medicare Beneficiaries with Prescription Drug Coverage, 2012

Table 2. Medicare Part D Low-Income Subsidy Enrollment

Table 3. Overview of How Medicare Beneficiaries Qualify for LIS

Table 4. Non-Renewing MA-PD and PDP Plans

Table 5. 2014 Monthly Medicare Part D Surcharge

Table 6. Closing the Doughnut Hole

Table 7. Sliding-Scale Premium for Subsidy-Eligible Individuals

Table 8. Part D Standard Benefits, 2014

Table 9. Plan Liability under Risk Corridor Provisions

Table 10. Medicare Part D Risk Corridor Payment Increases and Decreases

Table 11. Statement of Operations of Part D Account, CY2013

Table 12. Comparison of Projected and Actual Part D Enrollment and Spending

Table 13. Comparison of Original CBO Estimates and Actual Part D Costs, FY2004-FY2013

Table A-1. Operation of the Part D Account in the SMI Trust Fund, Calendar Years 2004-2023

Figure 1. Average Annual Part D Basic Monthly Premium

Figure 2. 2014 Standard Medicare Prescription Drug Benefit

Figure 3. Closing the Doughnut Hole

Figure 4. Utilization Controls in Part D PDP Plans

Figure 5. Medicare Part D Plans, by Year

R42745: Medigap: A Primer

Table 1. Select Original Medicare Cost-Sharing Levels, 2013

Table 2. Standard Medigap Plans, Effective On or After June 1, 2010

Figure 1. Sources of Supplemental Coverage Among Medicare Beneficiaries, 2009

Figure 2. Distribution of Current Medigap Plans, All Medigap Beneficiaries, 2012

Figure 3. Medigap Enrollment, by State, 2012

Figure 4. Percent of Medicare Enrollees with Medigap Coverage, by State, 2012

R41196: Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline

Table B-1. Timeline for Update Reductions Including Productivity Adjustments, by Provider

Table C-1. Start Date, Effective Date, or Deadline—Prior to 2010

Table C-2. Start Date, Effective Date, or Deadline—CY2010

Table C-3. Start Date, Effective Date, or Deadline—CY2011

Table C-4. Start Date, Effective Date, or Deadline—CY2012

Table C-5. Start Date, Effective Date, or Deadline—CY2013

Table C-6. Start Date, Effective Date, or Deadline—CY2014

Table C-7. Start Date, Effective Date, or Deadline—CY2015

Table C-8. Start Date, Effective Date, or Deadline—CY2016

Table C-9. Start Date, Effective Date, or Deadline—CY2017

Table C-10. Start Date, Effective Date, or Deadline—CY2018

Table C-11. Start Date, Effective Date, or Deadline—CY2019

Table C-12. Start Date, Effective Date, or Deadline—CY2020

Table C-13. Unspecified Start Date, Effective Date, or Deadline

Figure 1. Estimates of Medicare Spending FY2010-FY2019

L97-802: Medicare Provisions in the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33)

Table 1. Medicare Outlays

Table 2. Estimated Medicare Outlays Under Current Law (Prior to Enactment of BBA), FY1997-FY2007

Table 3. Estimated Medicare Part B Monthly Premium

Table 4. Transition to Annual Coordinated Election of Medicare+Choice Plans

Table 5. Beneficiary Cost-Sharing and Provider Reimbursement Under Medicare+Choice Plans for Basic Benefit Package

Table 6. Major Factors for Determining Medicare Payments to Medicare+Choice Plans

Table 7. CBO Estimate of Medicare Savings in the Balanced Budget Act of 1997, FY1998-FY2002

Table 8. Impact of BBA 97 on Medicare, FY1997-FY2002

Figure 1. Estimate of Medicare Savings in Conference Agreement on BBA 1997

This page was prepared on October 23, 2014, for the 2014 version of the House Ways and Means Green Book.

Medicare Legislative History

This section summarizes major Medicare legislation enacted into law during the second session of the 112th Congress through October of the second session of the 113th 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 amendments.  Included are provisions which 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 descriptions include either the initial effective date of the provision or, in the case of budget savings provisions, the fiscal years for which cuts were specified.

American Taxpayer Relief Act (ATRA) of 2012 (P.L. 112-240)

Hospitals

Extended the Medicare Dependent Hospital Program (MDH) through FY2013 to allow qualifying small rural hospitals with a high proportion of Medicare patients to continue receiving Medicare payment adjustments.  Extended the additional Medicare payment for inpatient services for low-volume hospitals through FY2013.  Under the low-volume hospital extension, hospitals with fewer than 1,600 Medicare discharges and that are 15 miles or more from the nearest like hospital receive a graduated payment adjustment of up to 25%.  Upon expiration, the adjustment will revert to original standards of fewer than 200 total discharges and more than 25 road miles.

Authorized the Secretary of HHS to reduce inpatient prospective payment system (IPPS) rates for hospital discharges occurring during FY2014 through FY2017 in order to recoup $11 billion in overpayments related to documentation and coding adjustments for discharges occurring during FY2008 to FY2010 under the Medicare Severity Diagnosis Related Group (MS-DRG) system that did not reflect real changes in patient case-mix.

Hospital Outpatient Departments

Reduced payments for certain stereotactic radiosurgery services furnished under the hospital outpatient department prospective payment system furnished on or after April 1, 2013.

Physicians

Extended Medicare physician payment rates without change through 2013.  Authorized eligible health care professionals who participate in a qualified clinical data registry to receive Medicare incentive payments for reporting on quality measures.  Maintained through 2013 the 1.0 floor for the work geographic practice cost index (GPCI) in determining relative values for physicians' services under the Medicare physician payment system.

Therapy Services

Revised requirements for Medicare payments for outpatient therapy services, including extending through December 31, 2013 the process allowing exceptions to limits (caps) on medically necessary outpatient therapy services.  Made reductions to Medicare payments for multiple therapy services provided to the same patient on the same day for services provided on or after April 1, 2013.

Ambulance Services

Extended the temporary increases in payment for ground ambulance services in urban and rural areas and the increase in the assistance for rural ambulance providers furnishing services in low-population density areas (super rural adjustment) through December 31, 2013.  Extended the increase in payment for certain urban air ambulance services until June 30, 2013.  Reduced Medicare payments by 10% for ambulance services consisting of non-emergency basic life support services involving transport of an individual with end-stage renal disease (ESRD) for renal dialysis services furnished other than on an emergency basis by a provider of services or a renal dialysis facility.  Mandated two studies on the use and feasibility of using cost report data to analyze cost variation by type of ambulance provider and the appropriateness of the ambulance fee schedule add-ons.

Dialysis Services

Required the Secretary to make reductions in Medicare payments for renal dialysis services provided on or after January 1, 2014 to account for changes in the utilization of certain drugs and biologicals.  Delayed the incorporation of oral-only ESRD related drugs into the ESRD bundled payment system to January 1, 2016.  Directed the Government Accountability Office (GAO) to update its prior report to Congress on the impact of including specified oral drugs furnished for the treatment of end-stage renal disease in the ESRD bundled prospective payment system on Medicare beneficiary access to high-quality dialysis services.

Durable Medical Equipment

Made Medicare reimbursement for non-mail-order diabetic supplies equal to the single payment amounts established under the national mail-order competition for diabetic supplies.

Imaging Services

Revised equipment utilization rates for purposes of Medicare payment for advanced diagnostic imaging services for 2014 and subsequent years.

Medicare Advantage

Extended authorization of Medicare Advantage plans that exclusively serve special needs individuals (SNPs) through December 31, 2014.  Extended the authorization for reasonable cost contract plans to serve without restrictions through December 31, 2013.  Revised the health status coding adjustment factor used in determining payments to Medicare Advantage plans.

Program Integrity

Extended from three years to five years the length of time the Secretary has to collect Medicare overpayments.

Medicare Improvement Fund

Eliminated funding for the Medicare Improvement Fund for FY2014 and FY2015.

Continuing Appropriations Resolution, 2014 (P.L. 113-67) [Includes the Bipartisan Budget Act of 2013 and the Pathway for SGR Reform Act of 2013]

Sequestration

Extended sequestration for direct spending, including Medicare, for an additional two years, through FY2023.  The percentage reductions in FY2022 and FY2023 are to be the same percent as the corresponding percentage reductions for such spending in FY2021.  In FY2023, the Medicare payment reductions are to be 2.90% for the first six months in which the sequestration order is effective and, for the second six months, the payment reduction is to be 1.11%.

Hospitals

Extended the Medicare Dependent Hospital Program (MDH) to allow qualifying small rural hospitals with a high proportion of Medicare patients to continue receiving payment adjustments, and extended the Medicare inpatient hospital payment adjustment for low-volume hospitals both through March 31, 2014 and retroactive to October 1, 2013.  Under the low-volume hospital extension, hospitals with fewer than 1,600 Medicare discharges and that are 15 miles or more from the nearest like hospital receive a graduated payment adjustment of up to 25%.  Upon expiration, the adjustment will revert to original standards of fewer than 200 total discharges and more than 25 road miles.

Created criteria for the types of patients for whom care may be paid at the higher Medicare long-term care hospital (LTCH) rate, limiting such payments to patients with stays longer than 3 days in an intensive care unit or who receive significant ventilator services in a LTCH.  Beginning in FY2016, services provided to patients not meeting this criteria or who are primarily rehabilitation or psychiatric patients are to be paid at lower rates that are comparable to the inpatient rate paid at acute care hospitals.  There will be a 2-year transition period in FY2016 and FY2017 when blended payments will apply.  Beginning in FY2020, LTCHs that have over 50% of their discharges paid at the lower rate during a cost reporting period will be paid under the IPPS in the following cost reporting period.  Amended the Medicare, Medicaid, and SCHIP Extension Act of 2007 to extend for an additional 4 years: 1) certain rules for payments to LTCH hospitals-within-hospitals, and 2) the delay in the 25% patient threshold payment adjustment.  Reinstated from January 1, 2015 through September 1, 2017 the moratorium on the expansion or establishment of LTCHs.

Physicians

Provided a 0.5% update to the single conversion factor in the sustainable growth rate (SGR) formula used to determine Medicare physician payments, from January 1, 2014 through March 31, 2014. Extended through March 31, 2014, the 1.0 floor for the work geographic practice cost index (GPCI) in determining relative values for physicians' services under the Medicare physician payment system.

Therapy Services

Extended through March 31, 2014, the process for allowing exceptions to the dollar amount caps on Medicare coverage of medically necessary outpatient therapy services.

Ambulance Services

Extended through March 31, 2014, the increased payments for certain ground ambulance services and for super rural ambulance services in low-population density areas.

Medicare Advantage

Extended the authorization for specialized Medicare Advantage plans for special needs individuals through December 31, 2015. Extended the authorization for reasonable cost contract plans to serve without restrictions through December 31, 2014.

Military Retired Pay Restoration Act (P. L. 113-82)
(Note: Official title of the enrolled version: An act to ensure that the reduced annual cost-of-living adjustment to the retired pay of members and former members of the Armed Forces under the age of 62 required by the Bipartisan Budget Act of 2013 will not apply to members or former members who first became members prior to January 1, 2014, and for other purposes.)

Sequestration

Extended sequestration for direct spending, including Medicare, for an additional year—through FY2024.

Medicare Improvement Fund

Replaced the requirement to establish a Medicare Improvement Fund with one that requires the Secretary of HHS to establish a Transitional Fund for Sustainable Growth Rate (SGR) Reform, available to provide funds to pay for physicians' services under part B to supplement the conversion factor for 2017 if the conversion factor for that year is less than that for 2013.  Made monies available to the Fund from the Federal Supplementary Medical Insurance Trust Fund for expenditures during or after 2017.

Protecting Access to Medicare Act (PAMA) of 2014 (P.L. 113-93)

Sequestration

Adjusted the Medicare sequestration reductions in FY2024 to 4% for the first 6 months following the President’s sequestration order, and 0% for the last 6 months.

Hospitals

Extended the increased Medicare inpatient hospital payment adjustments for low-volume hospitals to April 1, 2015, and extended the Medicare-Dependent Hospital (MDH) program to April 1, 2015 to allow qualifying small rural hospitals with a high proportion of Medicare patients to continue receiving Medicare payment adjustments.  Under the low-volume hospital extension, hospitals with fewer than 1,600 Medicare discharges and that are 15 miles or more from the nearest like hospital receive a graduated payment adjustment of up to 25%.  Upon expiration, the adjustment will revert to original standards of fewer than 200 total discharges and more than 25 road miles.

Provided for technical corrections to the new long-term care hospital (LTCH) criteria enacted in the 2014 Continuing Appropriations Resolution.  Moved up the start date of the moratorium on new LTCHs and LTCH expansions to the date of enactment (April 1, 2014) from January 1, 2015.  Allowed for exceptions to the moratorium on new LTCHs for those LTCHs that, on or before the date of enactment, have already started construction, have begun their qualifying period, or have obtained a certificate of need.

Authorized the Secretary of HHS to continue through June 2015 certain medical review activities related to the Medicare two-midnight rule, but delayed related Recovery Audit Contractor (RAC) post-payment reviews through March 31, 2015 unless there is evidence of systemic gaming, fraud, abuse or delays in the provision of care by a provider of service.  (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.)

Skilled Nursing Facilities

Required the establishment of a new skilled nursing facility value-based purchasing system (SNF VBP), beginning during or after FY2019, under which SNFs are to be evaluated and scored based on performance standards established by the Secretary.  The Secretary is to develop an all-cause, all-condition readmission measure not later than October 1, 2015, which is to be replaced by an all-condition, risk-adjusted, potentially preventable hospital readmission rate for SNFs as soon as practicable.

SNFs are to be ranked from high to low on these performance measures; SNFs determined as high-performing will receive value-based incentive payments in addition to their per diem payments, while SNFs in the lowest 40% of the ranking will receive a reduction in their Medicare payment rates.  Each SNF’s performance score and ranking is to be made publically available on the Nursing Home Compare website no later than October 1, 2017.  The program is to be funded through a portion of a 2% reduction in Medicare SNF per diem payments; and, between 50% and 70% of the 2% reduction applied each year is to be allocated for value-based incentive payments. The remaining portion of the 2% reduction will be retained as savings to the Medicare program.

Physicians

Extended the 0.5% update to the single conversion factor in the sustainable growth rate (SGR) formula scheduled for January through March of 2014 through the rest of CY2014, and provided a 0% update for January 1, 2015 through March 31, 2015. Extended the 1.0 floor for the physician work geographic practice cost index (GPCI) through March 31, 2015.

Authorized the Secretary to collect and use certain information on physicians’ resource use for services paid under the physician fee schedule such as time involved in furnishing services; amounts, types and prices of practice expense inputs; and overhead and accounting information. Authorized the Secretary to use this information in determining the relative values in the formula for setting physician’s fees.

Revised and expanded the criteria for codes to be reviewed when identifying potentially misvalued codes.  Set an annual target rate for relative value adjustments for misvalued services for years 2017-2020.  For codes with relative value unit reductions of 20% or more compared with the previous year, the reductions are to be phased in over a 2 year period.

Therapy Services

Extended the therapy cap exceptions process through March 31, 2015.

Dialysis Services

Amended the American Taxpayer Relief Act of 2012 (ATRA) to delay the inclusion of oral-only end stage renal disease (ESRD) related drugs in the ESRD prospective payment system’s bundled payments until January 1, 2024.  Required the Secretary to establish a process for (1) determining when a product is no longer an “oral only” drug, and (2) including new injectable IV products into the bundled payment Eliminated the remaining reductions required by ATRA; instead, the annual payment increase in 2015 is to be 0%, in 2016 and 2017 payments will be reduced by 1.25%, and in 2018, by 1%.  Beginning in 2016, the ESRD Quality Incentive Program (established by MIPPA) is to include to the extent feasible outcomes-based measures specified by the Secretary that are based on conditions treated with oral-only drugs.

Ambulance Services

Extended the increased payments for ground ambulance and super rural ground ambulance services to April 1, 2015.

Imaging Services

Prescribed a new quality incentive payment policy for certain computed tomography (CT) services.  In 2016, payments are to be reduced by 5%, and in 2017 and thereafter by 15%, for specified CT services furnished using equipment that does not meet certain radiation dose safety standards.

Directed the Secretary through rulemaking to specify appropriate use criteria (AUC) for imaging services.  Beginning in 2017, CMS is to only allow payments to the furnishing professional for an applicable advanced diagnostic imaging service if the service claim includes certain information including information about whether the service adheres to the applicable AUC.  Also beginning in 2017, the Secretary is to identify ordering physicians with low adherence to applicable AUCs, and beginning January 1, 2020, such physicians will be required to obtain prior authorization from CMS for applicable imaging services.

Laboratory Services

Prescribed requirements for the establishment of Medicare payment rates for clinical diagnostic laboratory tests based on private sector payment rates starting in 2017; if the rates determined under the new methodology are significantly lower than existing rates, the reductions will be phased in over a specified time period.

Codified the CMS process for determining payment rates for new or substantially revised clinical diagnostic lab tests that are not advanced tests, and required a public explanation of the payment rates.

Revised the payment methodology for new advanced diagnostic laboratory tests (tests that are furnished by the laboratory that developed them and involve patient specific analysis of multiple biomarkers of DNA, RNA, or unique protein combinations; or that have been cleared or approved by the FDA; or that meet similar criteria established by the Secretary).  New advanced diagnostic lab tests furnished only by the original developing laboratory will be paid the actual list charge (the publically available rate) for the first 9 months, and paid based on the new private sector payment methodology thereafter.  Required that Medicare administrative contractors issue local coverage determinations for clinical diagnostic tests in accordance with certain standards. 

Medicare Advantage

Extended specialized Medicare Advantage plans for special needs individuals through December 31, 2016, and the authority for reasonable cost contract plans to serve without restrictions through December 31, 2015.

Transitional Fund for Sustainable Growth Rate (SGR) Reform

Eliminated funding for the Transitional Fund for Sustainable Growth Rate Reform which was created by P.L. 113-82. 

Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 (P.L. 113-185)

Post-Acute Care Providers

Required that post-acute care (PAC) providers (defined as long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), and home health agencies (HHAs)) report standardized patient assessment data, data on quality measures, and data on resource use and other measures, all of which meet specified requirements.  Required the data to be standardized and interoperable to allow for exchange of longitudinal information among PAC and other providers to better enable them to coordinate care, improve Medicare beneficiary outcomes, and enhance discharge planning.  Required PAC providers to report the standardized patient assessment data (at minimum for patient admissions and discharges) by October 1, 2018 for LTCHs, IRFs, and SNFs, and by January 1, 2019 for HHAs.  Also required the Secretary by those same dates to ensure a match between the patient assessment data submission and claims data submitted for that patient.

Required specified resource use data to be submitted beginning October 1, 2016 for LTCHs, IRFs, and SNFs, and January 1, 2017 for HHAs.  Required the phase-in of submissions for quality data from October 1, 2016 through October 1, 2018 for LTCHs, IRFs, and SNFs, and January 1, 2017 through January 1, 2019 for HHAs.  Required the Secretary, beginning one year after the specified application date, to provide confidential feedback reports to PAC providers on their performance with respect to the quality and resource measures, and no later than two years after the specified application date for these measures, to publically report PAC provider performance on these measures. 

Established that conditions of participation for PAC providers, acute care hospitals and critical access hospitals be modified by January 1, 2016 to require use of standardized data as well as quality and resource measures in their discharge planning processes.  Directed the Secretary to reduce by 2 percentage points the update to the market basket percentage for SNFs which do not report the required data, and incorporated these data requirements in existing update penalty programs for other PAC providers.  Required the Medicare Payment Advisory Commission (MedPAC) and the Secretary to conduct a series of reports using existing data and the new information collected to evaluate and recommend features of a new PAC payment system.

Hospice

Required that beginning 6 months after the date of enactment and ending September 30, 2025, hospices be surveyed by an appropriate State or local survey agency, or an approved accreditation agency, at least once every 3 years.  Prescribed the annual update to the hospice aggregate payment cap amount for FY2017 through FY2025 as the percentage update to payment rates for hospice care or services furnished during the fiscal year beginning on the October 1 preceding the beginning of the accounting year.

Transitional Fund for Sustainable Growth Rate (SGR) Reform

Replaced the Transitional Fund for SGR Reform with a re-established Medicare Improvement Fund (MIF).  Made funds of $195 million available to the MIF from the Medicare Hospital Insurance and Supplementary Medical Insurance Trust Funds during and after FY2020.  The funds are to be used by the Secretary to make improvements under the original Medicare fee-for-service program for individuals entitled to, or enrolled for, benefits under part A or enrolled under Medicare part B.

This page was prepared on November 21, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Medicare Links to Additional Resources

Centers for Medicare & Medicaid Services (CMS)

National Health Expenditure Data. Data includes historical and projected spending measures on annual health spending in the U.S. by type of service delivered (hospital care, physician services, nursing home care, etc.) and source of funding for those services (private health insurance, Medicare, Medicaid, out-of-pocket spending, etc.).

CMS Statistics. Summary information about health expenditures and the Medicare and Medicaid programs.

CMS Data Compendium. Contains historic, current, and projected data on Medicare enrollment and Medicaid recipients, expenditures, and utilization. Also includes data pertaining to budget, administrative and operating costs, individual income, financing, and health care providers and suppliers are also included.

Medicare and Medicaid Statistical Supplement.  The Medicare and Medicaid Statistical Supplement contains approximately 300 pages of statistical information about Medicare, Medicaid, and other Centers for Medicare & Medicaid Services (CMS) programs.  The Supplement includes charts and tables showing health expenditures for the entire U.S. population, characteristics of the covered populations, use of services, and expenditures under these programs.

Medicare Trustees Reports. Detailed, lengthy document, containing a substantial amount of data on the past and estimated future financial operations of the Medicare Hospital Insurance and Supplementary Medical Insurance Trust Funds.

Medicare Enrollment. This site contains various Medicare enrollment tables.  It includes national and state enrollment trends, state enrollment by aged, disabled and all, as well as county level enrollment.

Medicare Current Beneficiary Survey (MCBS). MCBS is a continuous, multipurpose survey of a nationally representative sample of aged, disabled, and institutionalized Medicare beneficiaries.  MCBS, which is sponsored by CMS, is the only comprehensive source of information on the health status, health care use and expenditures, health insurance coverage, and socioeconomic and demographic characteristics of the entire spectrum of Medicare beneficiaries.

Fee-for-Service Statistics Utilization statistics for Medicare Parts A and B. Tables for Medicare utilization for Part A and Medicare utilization for Part B are included.  Information included for hospitals, home health agencies, hospice, skilled nursing facilities, physician and other Part B services.

Prospective Payment Systems. A Prospective Payment System (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount.  CMS uses separate PPSs for reimbursement to acute inpatient hospitals, home health agencies, hospice, hospital outpatient, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities.  Links to information about each specific PPS.

Fee Schedules. Listing of fee maximums used to reimburse a physician and/or other providers on a fee-for-service basis.  MS develops fee schedules for physicians, ambulance services, clinical laboratory services, and durable medical equipment, prosthetics, orthotics, and supplies.  Links to information about each specific fee schedule.

Physician Fee ScheduleContains information on payments under the physician fee schedule and related information concerning the development of the payment amounts.

Medicare Advantage and Medicare Part D Contract and Enrollment DataThe Medicare Advantage (MA) / Part D Contract and Enrollment Data section is a centralized repository for publicly available data on contracts and plans, enrollment numbers, service area data, and contact information for MA, Prescription Drug Plan (PDP), cost, PACE, and demonstration organizations.  Data is broken down by state, county and contract.  Also provides annual Medicare Health Plan Employer Data and Information Set (HEDIS) performance measures.

Medicare Advantage Rates and StatisticsContains information on MA payment methodology, rate calculation data, benchmarks, risk adjustment, and fee-for-service expenditure data by county.

Medicare Prescription Drug BenefitIncludes links to data on drug plan availability, premium information, Part D enrollment, and coverage gap spending.

Congressional Budget Office (CBO)

April 2014 Medicare Baseline

Collection of CBO Medicare related publications including reports and cost-estimates (scores) on recent legislation

2014 Long-Term Budget Outlook including forecasts of Medicare spending and its relationship to total federal spending and GDP

Medicare Payment Advisory Commission (MedPAC)

Data Book: Health Care Spending and the Medicare Program, June 2014

June 2014 Report to Congress, Medicare and the Health Care Delivery System

March 2014 Report to Congress, Medicare Payment Policy

Non-Government Sources

Kaiser Family Foundation State Health Facts: Medicare Data

Kaiser Family Foundation Health and Prescription Drug Plan Tracker

This page was prepared on September 3, 2014 for the 2014 version of the House Ways and Means Committee Green Book.