Beneath the hype: MMA provisions you to know: the prescription drug benefit may be the most highly touted aspect of the new Medicare bill, but other provisions have more immediate significance for hospitals

Healthcare Financial Management, June, 2004 by Thomas W. Coons, Carel T. Hedlund, Leslie Demaree Goldsmith

To be fully informed about the recently enacted Medicare Prescription Drug, Improvement, and Modernization Act (MMA), you need to look past the marquee issues. While much publicized for its prescription drug coverage and renewed support for managed care organizations, the new Medicare law also made significant changes to certain areas of hospital payment. Some of the most important provisions for hospital financial leaders are those pertaining to the wage index; indirect and graduate medical education (IME and GME); the hospital outpatient PPS; and audits, appeals, and overpayments. Here's a distillation of the key points of those provisions.

Wage Index

Beginning with discharges on or after October 1, 2004, hospitals that have a wage index of less than 1.00 will have the wage index applied to only 62 percent of the standardized amount, instead of 71 percent of that amount. Because this provision is not budget neutral, the adjustment produces only winners. Many rural and small urban hospitals stand to benefit significantly.

Rather than provide "rifle shot" legislation to reclassify specific areas, Congress authorized CMS to establish a one-time wage index reclassification process for hospitals that do not otherwise qualify for reclassification under the annual procedures of the Medicare Geographic Classification Review Board. Hospitals had to apply by February 15, 2004, and the new rates for the qualifying hospitals took effect April 1, 2004, for three years. Although this provision is not budget neutral, the amount authorized is limited to $900 million. If there is not enough money to provide funding to all hospitals that qualify, there may be challenges to CMS's implementation of this provision.

Also, by October 1, 2004, CMS must implement a wage-index adjustment for outbound commuting, designed to provide a blended wage index to hospitals in counties in which a substantial number of hospital workers commute to nearby metropolitan service areas (MSAs) with higher wage indexes. CMS must set thresholds for qualifying counties and may request hospitals to submit data on their employees' counties of residence. Be on the lookout for application deadlines.

IME and GME

In what could be the most important provision affecting medical education since 1997, the law provides for a redistribution of full-time equivalents (FTEs) from hospitals that are not using all of their "authorized" FTEs to hospitals that need additional FTEs.

To determine this redistribution, CMS will look at a "reference level," which will generally be the resident level in each hospital's most recent cost report for the period ending on or before September 30, 2002, that has been settled (or submitted, subject to audit). With limited exceptions, if during this period a hospital has fewer FTEs than allowed under its historic cap, CMS is directed to reduce the hospital's resident limit by 75 percent of the difference between the cap and the new reference level limit.

Then, starting July 1, 2005, CMS is authorized to redistribute the unused resident slots to other hospitals, with the qualification that no more than 25 FTEs may be transferred to any given hospital. Significantly, payment for FTEs that are redistributed is at a lower rate for both IME and GME than payment for other FTEs at the receiving hospital.

The new law will create winners and losers. The winners will be hospitals that are located primarily in rural and other than large urban areas and that are at or above their FTE caps. These hospitals will be eligible ,o receive up to 25 additional FTEs. This benefit will be somewhat reduced, however, by the lower payment rates associated with the redistributed FTEs.

Conversely, hospitals that have failed to claim all of the FTEs up to their limit could Find the new legislation quite troubling as they may face a substantial reduction in their FTE limits.

Several other changes regarding IME and GME are noteworthy.

First, adjustments to the IME multiplier will cause it to increase through 2005, but then drop beginning 2006.

Second, hospitals with geriatric residency training programs that have residency periods extending beyond one year will be permitted to count the residents as FTEs for one additional year.

Third, the law provides limited relief, applicable during 2004, for family practice programs in which the training takes place, in part, in nonhospital locations. For programs existing as of January 1, 2002, CMS must allow a hospital to count each resident receiving such training without regard to the financial arrangement between the hospital and the teaching physician who is practicing in the nonhospital site. This moratorium allows hospitals to count such family practice residents for portions of hospital cost years contained within calendar year 2004, and for cost years whose reports are settled in 2004. CMS, however, still requires that an agreement exist between the hospital and physician at the nonhospital site.

Fourth, the new law extends for 10 years the ceiling on per resident amounts (PRAs) associated with high cost programs, first established by the Balanced Budget Refinement Act. Thus, through 2013, hospitals with PI/As above 140 percent of the geographically adjusted national average amount will not receive an increase in their PRAs