Congress Passes Bill to Avoid “Fiscal Cliff,” With Medicare Doc Fix, Other Medicare/Medicaid Extensions

Congress on New Year’s Day passed the “American Taxpayer Relief Act of 2012,” the main purpose of which is stop the automatic tax increases and federal budget cuts that took effect on January 1, 2013. The legislation also includes several changes to the Medicare and Medicaid programs not directly related to the issues of tax increases and spending cuts, otherwise known as the “fiscal cliff.”

The bill passed by a vote of 89 to 8 vote in the Senate and 257 to 167  in the House.

The tax portion of the bill provides that income taxes will increase for families with income above $450,000 and individuals above $400,000, with increases also in the estate tax and capital gains tax for wealthier Americans.

Physician Medicare Reimbursement Fix

The legislation delays for one year a planned cut in Medicare payments for physicians. Physician Medicare payments are determined in part by the sustainable growth rate (SGR). The SGR was established by law in 1997 and is designed to limit the annual increase in physician payments to the annual increase in the U.S. gross domestic product. Each year, CMS announces a conversion factor that will increase payments if physician spending increases for that year are below the increase in GDP, or cut payments if physician spending increases are above the GDP increase. Every year since the SGR has been in effect physician payments have increased above the GDP increases, and every year CMS has announced cuts in physician payments for the next year. Only Congress can intervene to stop the payment cuts, which are cumulative and so have become potentially larger and larger each year.

The announced spending cut for physician payments was 26.5 percent for 2013 (77 FR 68891). Under this legislation, the conversion factor is set at zero, which means that physician Medicare payments will remain relatively unchanged for 2013. The extension of existing Medicare physician payments will cost about $25 billion over 10 years, according to the Congressional Budget Office.

For physicians providing multiple therapy services on or after April 1, 2013, and for which payment is made under the physician fee schedule, the 25 percent multiple procedure payment reduction is increased to 50 percent.

The floor for the geographic adjustment factors, which are used to modify the relative value of each procedure under the physician fee schedule, has been extended again until January 1, 2014.

For purposes of the mandatory physician quality reporting system, CMS shall treat an eligible professional as satisfactorily submitting data on quality measures if the eligible professional is satisfactorily participating in a qualified clinical data registry.

Documentation and Coding Adjustment For IPPS

The legislation amends the TMA, Abstinence Education, and QI Programs Extension Act of 2007 (P.L. 110-90) to make an additional adjustment to the standardized amounts used in determining payments made under the inpatient hospital prospective payment system (IPPS) based upon the HHS Secretary’s estimates for discharges occurring only during fiscal years 2014, 2015, 2016, and 2017 to fully offset $11,000,000,000 (which represents the amount of the increase in aggregate payments from fiscal years 2008 through 2013 for which an adjustment was not previously applied). The HHS Secretary shall not have authority to fully recoup past overpayments related to documentation and coding changes from fiscal years 2008 and 2009.


The legislation extends the period of time during which Medicare contractors can attempt to collect overpayments from providers from three years to five years.

Outpatient Therapy Services

The legislation extends the exceptions process relating to the cap on outpatient therapy services to December 31, 2013. It also extends the therapy cap to therapy furnished as part of outpatient critical access hospital services.

Radiology Services

The legislation limits Medicare payments for stereotactic radiosurgery, complete course of treatment of cranial lesions.

Diabetic Supplies

The legislation establishes new competitive prices for Medicare payment of diabetic supplies and eliminates overpayments for diabetic supplies.

Ambulance Services

Payments under the ambulance fee schedule for non-emergency transports for end-stage renal disease beneficiaries are reduced by 10 percent for services provided on or after October 1, 2013. The “temporary” increase in the ambulance fee schedule amounts for ground ambulance services originating in a rural or a rural census tract, added in 2004, are extended yet again until January 1, 2014. HHS also is required to prepare a study that analyzes data on existing cost reports for ambulance services furnished by hospitals and critical access hospitals, including variation by characteristics of such providers of services, and another study on the feasibility of obtaining cost data on a periodic basis from all ambulance providers of services and suppliers for potential use in examining the appropriateness of the Medicare add-on payments for ground ambulance services and in preparing for future reform of such payment system.

Advanced Imaging Services

Currently, Medicare payments for advanced diagnostic imaging services are reduced by 75 percent to reflect higher presumed utilization of imaging equipment. Under the legislation, this reduction increases to 90 percent.

Medicare Advantage

The coding adjustment applied to Medicare Advantage (MA) plan adjustments to better align MA payments with Medicare fee-for-service payments is changed from 1.3 to 1.5 percentage points for 2014, and from 5.7 to 5.9 percentage points for 2015 to 2018. The provision allowing specialized MA plans for special needs individuals to restrict enrollment is extended until January 1, 2015. The deadline after which CMS will no longer approve of any new cost plans under MA also has been extended to January 1, 2014.

ESRD Bundled Payments

The legislation requires CMS, for services furnished on or after January 1, 2014, to adjust payments relating to the end stage renal disease (ESRD) bundled payment rate to reflect changes in utilization of certain drugs and biologicals. In making reductions, CMS must take into account the most recently available data on average sales prices and changes in prices for drugs and biological reflected in the ESRD market basket percentage increase factor. The legislation also delays until January 1, 2016, implementation of oral-only ESRD-related drugs in the ESRD prospective payment system. HHS also must conduct an analysis by January 1, 2016, of the case mix payment adjustments relating to ESRD bundled payments, and make appropriate revisions to such case mix payment adjustments. The Government Accountability Office (GAO), no later than December 31, 2015, must prepare a report to Congress on how HHS has addressed implementation of payments for oral-only ESRD-related drugs in the bundled ESRD prospective payment system.

Medicare-Dependent Hospitals and Low-Volume Hospitals

The legislation extends the Medicare-dependent hospital program, which provides extra payments to certain rural hospitals, until October 1, 2013. It also extends through fiscal year 2014 the Medicare adjustment for payments to low-volume hospitals.

Medicare Improvement Fund

The Medicare Improvement Fund, established in 2008, has been defunded completely.

Medicaid Changes

The legislation adjusts the calculations for amounts that states receive for disproportionate share hospitals under Medicaid for fiscal years 2021 and 2022. Several programs under Medicaid have been further extended for one year. These include the Qualifying Individual program (through 2013), Transitional Medical Assistance (through 2013), and the “express lane” option for enrollment under both Medicaid and the Children’s Health Insurance Program (through 2014).