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Newsletter Article


Rating the Winners and Losers in the Medicare Package

By John Reichard, CQ HealthBeat Editor

December 11, 2006 -- From Wall Street's point of view, the biggest winners in the Medicare provisions that Congress cleared early Saturday morning included dialysis clinics, home health agencies, and home oxygen equipment providers.

Investors in those firms were heartened, according to Washington, D.C., health care consultant Alec Vachon, because dialysis providers got a payment boost while home health agencies and home oxygen equipment providers ducked payment cuts.

Imaging providers were among the losers, Vachon added, but managed care plans rated as neither winners nor losers despite the trimming of $6.5 billion from a $10 billion fund created under the Medicare overhaul law (PL 108-173) to ensure participation in the program by regional PPOs.

Stock analysts "apparently assume regional PPOs are non-starters, at least for publicly traded health plans," Vachon said.

Doctors appeared to have missed being the biggest losers of all by avoiding a scheduled 5 percent payment cut in 2007. Their basic payment rates stay flat unless they report data on quality of care starting in July of next year, in which case they receive a 1.5 percent increase.

To qualify for that boost, doctors must report data on at least three quality measures, according to a House aide. For operational reasons, they won't actually get the bonus payments until early 2008, when the payments will be issued in the form of a lump-sum payment, the aide said.

The measures must be from a list produced through a consensus-setting process involving doctors and Medicare officials. If three measures haven't been approved for a particular specialty, doctors will receive the payment for meeting existing measures for that type of care, the aide said.

But opinions differ over how doctors will fare in 2008. The tax-trade-health package that included the Medicare provisions creates a fund in 2008 to "promote physician payment stability and physician quality initiatives," according to a House Ways and Means Committee summary. According to the aide, the new Medicare provisions place $1.35 billion into the fund in 2008 to be apportioned by the Department of Health and Human Services secretary among base payment rates or bonus payments for reporting on quality of care measures.

Because the fund blunts the reductions that would be required by the current Medicare payment formula, doctors are facing a 5 percent payment cut in 2008 rather than a larger cut, the aide said.

But Vachon, a former Senate Finance Committee aide involved in drafting Medicare legislation in the late 1990s, questioned that assessment Monday, putting the 2008 cut at a hefty 10 percent despite the fund. "I used to write this stuff," he said. "Please show me how I'm wrong."

Dialysis firms will see $400 million fall to the bottom line over five years, according to Vachon. Under the new Medicare language, they will see a 1.6 percent increase in Medicare payments in 2006. Ways and Means Chairman Bill Thomas, R-Calif., had urged higher payments in those rates, voicing concern last week that the lack of a regular yearly payment update is causing facilities to dangerously overuse anemia treatments.

Home health firms appeared to be a logical cost-cutting target to help pay for erasing the 2007 doctor payment cut because of their average profit margins on Medicare patients and a scheduled 2007 payment increase. Freestanding home health agencies reported average profit margins of 16.7 percent on Medicare patients in 2005, according to data released last week by the Medicare Payment Advisory Commission. In 2007, they are scheduled to get a 3.3 percent increase in payments.

Oxygen providers similarly appeared to be in line for cuts. The Bush administration has pushed for cuts, and the HHS Office of the Inspector General issued a report in mid-September saying Medicare was paying too much for home oxygen therapy.

But both oxygen and home health providers have staunch defenders on Capitol Hill and were able to breathe a sigh of relief when lawmakers spared them.

Imaging providers were not so lucky.

Stephen J. Ubl, chief executive officer of the Advanced Medical Technology Association, said the association was "disappointed that Congress failed to eliminate the draconian reductions for imaging procedures mandated by the Deficit Reduction Act of 2005 [PL 109-171]. Advanced imaging technologies are critical to early disease detection. They often eliminate the need for invasive exploratory surgeries and play a vital role in determining the best treatment options. We encourage the 110th Congress to recognize the benefits that imaging technologies provide to patients and revisit this issue early next year."

Opponents of the imaging cuts say drafters of the budget savings law popularly known as the DRA had no real policy rationale and were simply looking for savings. The cuts "were nothing that the CMS or MedPAC ever advocated," said Tim Trysla, executive director of the Access to Medical Imaging Coalition. "It appears to be a large money grab in the closed doors of the DRA conference." The cuts will be severe—"50 to 70 percent reductions in some modalities," he said. Patient advocacy groups, about 140 House members and about one-quarter of the U.S. Senate have gone on record opposing the reductions, Trysla added. "We're going to work to educate members to reverse the cuts," he declared.

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