Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (H.R. 1)

 Summary of Home Health, Hospice, DME, Regulatory Reform
and Other Key Provisions

Key Elements

Home Health

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Home Health and Hospice




Durable Medical Equipment




Regulatory Reforms

Other Provisions

Home Health

Rural Add-On (Section 421)


One-year 5% add-on for home health services provided in rural areas, which will affect episodes or visits ending on or after April 1, 2004, and before April 1, 2005.

Home Health Market Basket Index (Section 701)

HHMBI minus .8% for last three quarters of calendar year 2004, and all of calendar years 2005 and 2006; subsequent changes to market basket updates will occur at the beginning of calendar years rather than fiscal years.

MedPAC Study on Home Health Margins (Section 705)

MedPAC will conduct a two-year study on home health agencies' payment margins under PPS to determine if differences among agencies are due to case-mix differences or are attributable to other factors.

GAO Study on Medicare-Only CoPs (Section 953)

The General Accounting Office (GAO) will report in six months after the legislation is signed into law the implication of applying home health conditions of participation (CoPs) to only Medicare beneficiaries.

Suspension of OASIS Data Collection (Non-Medicare/Non-Medicaid Patients) (Section 704)

OASIS data collection from non-Medicare and non-Medicaid patients will be temporarily suspended beginning on the date the legislation becomes law while the Secretary evaluates the appropriateness of such data collection. The data collection will either:

  1. be resumed two months after the Secretary issues a report (due 18 months after the legislation is signed into law) if the report concludes that the benefits of such data collection outweigh the burden; or
  2. be permanently terminated if the Secretary reports that the data is of limited value.

Homebound Demonstration (Section 702)

CMS will conduct a two-year demonstration project beginning 6 months after the legislation becomes law to test whether exempting individuals with severe and permanent chronic illnesses or disabilities from the homebound restriction will increase utilization and costs of the Medicare home health benefit. The demonstration will be conducted in three states and will be limited to 15,000 individuals. Eligible individuals must:

  1. be certified by a physician to have a "permanent and severe, disabling condition that is not expected to improve";
  2. be dependent upon assistance from another individual with at least 3 ouf of the 5 ADLs for the rest of the beneficiary's life;
  3. require skilled nursing services for the rest of the beneficiary's life and the skilled nursing is more than medication management;
  4. require a visit by an attendant on a daily basis to monitor and treat the beneficiary's medical condition or to assist the beneficiary with ADLs;
  5. require technological assistance or the assistance of another person to leave the home; and
  6. not "regularly work in a paid position full-time or part-time outside the home."

Medical Adult Day-Care Demonstration (Section 703)

CMS will conduct a three-year, five-state demonstration project on the substitution of medical adult day-care services for a portion of services that are prescribed in a home health plan of care; payment will be 95% of the PPS episode rate. Beneficiary involvement is voluntary and the demonstration is limited to 15,000 beneficiaries. HHAs may provide these services directly or under arrangements with a medical adult day-care facility. (Section 703)

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Home Health and Hospice

Federal and State Criminal Background Checks – Pilot Program (Section 307)


It appears that the most onerous components of the Senate-passed criminal background check legislation were eliminated or softened in the final Medicare bill. For example, it appears that providers would not be required to conduct or pay for the “10-fingerprint check” that utilizes state criminal records and the FBI system. Rather, providers would be “permitted” to conduct these checks. In addition, the pilot states would report on the cost and feasibility of such requirements to the Secretary of HHS. The Secretary of HHS would then evaluate the pilot program and make recommendations based on the information reported by the states.

Under the final legislation passed by the Senate and House, the U.S. Department of Justice and the U.S. Department of Health and Human Services will establish a three-year, 10 state pilot program to identify "efficient, effective and economical procedures" for long-term care facilities or providers (including home health, hospice, and personal care providers) to conduct national and state criminal background checks on "prospective direct patient access employees" (to be referred to below as “prospective employees”).

Before hiring such employees, providers in selected states must conduct such background checks in accordance with procedures established by the state.

Prospective employees will be required to disclose any disqualifying information and provide a "rolled set" of fingerprints.

Providers will be required to check "any available registries that would likely contain disqualifying information about a prospective employee." Providers will be "permitted" to obtain state and national criminal background checks on prospective employees through a "10-fingerprint check" that utilizes state criminal records and the FBI's Integrated Automated Fingerprint Identification System. Providers may terminate the background checks at any stage at which the provider obtains disqualifying information about a prospective employee.

The background checks would not apply to self-directed care or patient-hired workers.

A provider may not knowingly employ any direct patient access employee who has any disqualifying information.

A pilot State pay permit a provider to provide for a “provisional period of employment” for a direct patient access employee pending completion of a background check, subject to such supervision during the employee’s provisional period of employment. In determining what constitutes appropriate supervision of a “provisional employee,” a pilot State shall take into account “cost or other burdens that would be imposed on small rural long-term care facilities or providers, as well as the nature of care delivered by such facilities or providers that are home health agencies or providers of hospice care.”

A participating State must ensure that a provider that obtains information about a prospective employee pursuant to a background check uses such information only for the purpose of determining the “suitability of the employee for employment.”

A participating State must also ensure that a provider that denies employment to a prospective employee (including during any period of provisional employment) after having found disqualifying information about such individual through a reasonable reliance on information obtained through a background check “shall not be liable in any action brought by the individual based on the employment determination resulting from the information.”

States already requiring criminal background checks may participate in the pilot (if selected).

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Nurse Practitioners (Section 408)

The definition of “attending physician” has been expanded to include nurse practitioners. Therefore, nurse practitioners will be able to establish and review the hospice patient’s written plan-of-care and serve as the patient’s primary determiner of the care provided. However, nurse practitioners would not be permitted to certify a beneficiary as terminally ill for the purposes of receiving the hospice benefit.

Rural Hospice Demonstration Project (Section 409)

The Department of HHS will establish a 5-year demonstration project involving only three hospice programs in rural areas. Under the project, Medicare beneficiaries who are unable to receive hospice care in the home “for lack of an appropriate caregiver” could receive hospice care in a facility of 20 or fewer beds. The facility must provide the full range of hospice services currently covered by Medicare. The limit on the aggregate number of inpatient days provided to beneficiaries who elect hospice care is waived under the demonstration. Rates will be the same as currently provided. The Secretary will report at the end of the demonstration if the same policy should be extended to all hospice programs serving rural areas.

Hospice Consultation Services (Section 512)

Beginning January 1, 2005, Medicare beneficiaries who have not elected the hospice benefit may receive from a physician who is the medical director or employee of a hospice program the following services:

  1. evaluation of the beneficiary’s need for pain and symptom management, including the individual’s need for hospice care;
  2. consultation with respect to end-of-life issues and care options; and
  3. advisement regarding advanced care planning. Payment for such services equals the amount established for similar services under the physician fee schedule, excluding the practice expense component. These services are a one-time benefit.

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Durable Medical Equipment

Changes in DME Payments and Related Supplies (Section 320)


Prices are frozen at current levels for 5 years except in areas where prices are determined by competitive bidding. Competitive Bidding begins in the 10 largest MSAs in 2007 and 80 by 2009. Secretary can apply any competitive bid price nationally. Secretary may exempt areas low population rural areas or urban areas, which are not competitive. Items excluded from bidding include: inhalation drugs, parenteral nutrients and equipment, and implantable devices that support life. For 2005, a list of specific items will have their prices reduced nationally to the median price paid by the Federal Employees Benefit Program including oxygen, oxygen equipment, standard wheelchairs, nebulizers, diabetic lancets and test strips, hospital beds and air mattresses. The Secretary must also establish and implement quality standards for all suppliers of DME, prosthetics and orthotics and designate one or more accrediting organizations.

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Exemption of Preventive Vaccines from AWP Changes, Price Surveys and Competitive Bidding (Sections 303(b) through Sections 303(d))

While many Part B drugs were converted to a new fee schedule, the following categories of drugs and biologicals will continue to be paid at 95% of the AWP.

  1. Pneumococcal, influenza, and hepatitis B vaccines;
  2. A drug or biological furnished before January 1, 2004;
  3. Blood clotting factors furnished during 2004;
  4. A drug or biological furnished during 2004 that was not available for Part B payment as of April 1, 2003;
  5. A drug or biological (other than erythropoietin) furnished in connection with renal dialysis services that are separately billed by renal dialysis facilities; and
  6. radiopharmaceuticals and blood products.

The preventive vaccines (influenza, pneumonia & HepB covered under section 1861 (s) (10) of the Social Security Act) are excluded from the AWP less 15%, the pricing survey reduction and the competitive bidding provisions in the legislation.

In general, reimbursement for other drugs furnished in 2004 will equal 85% of the AWP (determined as of 4/1/03). Beginning in 2005, drugs and biologicals (except for the vaccines and those associated with certain renal dialysis services) will be paid using either the average sales price (ASP) methodology or through the competitive acquisition program.

Infusion drugs furnished through covered durable medical equipment starting 1/1/04 will be paid 95% of the AWP in effect on 10/1/03. Those infusion drugs that may be furnished in a competitive acquisition area starting January 1, 2007 will be paid on the competitive price. Intravenous immune globulin will be paid at 95% of AWP in 2004 and paid according to the average sales price (ASP) method beginning in 2005.

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Regulatory Reforms

Regulatory Timetable Established and Time Limits for Rulemaking (Section 902)

CMS must publish a timetable for all rules with no dates in excess of 3-years. Missed dates must be justified in writing and interim rules that are not followed by final rules on time must have formal notice of continuation with a justification for delay. Any regulatory provisions in a final rule that are not a logical outgrowth of the proposed regulation cannot take effect without public comment and new final rule.

Compliance with Policy or Regulatory Changes (Section 903)

CMS is barred from retroactive application of regulatory or policy changes unless the Secretary determines it is required by law or the public interest. Providers who reasonably rely on CMS guidance that proves inaccurate are not subject to penalty or interest on any repayment.

Medicare Intermediary and Carrier Contracting Rules Changed (Section 911)

Medicare intermediary and carrier contracting rules are eliminated and flexible rules for “Medicare Administrative Contractors” are substituted. Such contracts must be recompeted with competitive bidding every 5 years, providers must be consulted and their satisfaction considered in the MAC competition process and contractor performance standards and reports made public.

Provider Education and Technical Assistance (Section 921)

CMS is required to improve the effectiveness and efficiency of provider education and technical assistance, including contractor performance standards related to claims payment errors. Contractors are required to have a system to respond to provider and beneficiary inquiries accurately within 45 days and maintain public records of their performance under this system. Special emphasis is placed on training small providers. Contractors are barred from using provider educational attendance in targeting enforcement audits.

Medicare Administrative Law Judge Appeals Moved from Social Security Administration to Dept of Health and Human Services (Section 931)

Medicare ALJs are moved from SSA to DHHS no later than October 2005 based on a plan submitted to the Inspector General no later than April 2004. The plan must assure that ALJs remain independent of CMS and the sufficiency of resources to make timely determinations.

Procedures for Random and Non-Random Pre-Payment Review (Section 934)

The Secretary is required to issue regulations in consultation with providers that will restrict prepayment random review and require that non-random review be justified by sustained or high levels of payment error with rules on the timeframe for terminating non-random reviews.

Overpayment Recovery Procedures Mandated (Section 935)

Providers are guaranteed a 6 month extended repayment plan upon request. Plans of up to 3-years are permitted and up to 5-years in extreme hardship as defined in the law and determined by the Secretary. Collection cannot begin until after reconsideration, if requested, but interest accrues. Use of extrapolation in calculating overpayments is somewhat restricted. Additional procedural requirements are specified.

Rulemaking Ordered for Correction of Claims Errors Without Appeal (Section 937)

The Secretary is ordered to publish regulations with a year allowing providers to correct minor errors on claims without going through the appeal process.

Mandated Mediation Process for Local Medical Review Determinations(Section 940)

Contractors are required to have a mediation process to deal with any issues that arise from providers or supplier who register a high volume of complaints about the decision of a local medial review director.

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Other Provisions

Extension of the Telemedicine Demonstration Project (Section 417)

The legislation extends for another four years and doubles the funding for the “Informatics, Telemedicine, and Education Demonstration Project,” which allows “health care provider telemedicine networks” to use high-capacity computer systems and medical infomatics to improve primary care and prevent health complications in beneficiaries with diabetes mellitus. Modified home computers or home telemedicine units are linked to clinical information systems to assist beneficiaries residing in medically under-served rural or medically under-served inner-city areas. Interactions with nurse case managers, video conferencing, and access to health information and data in both Spanish and English are important elements of the project. Effective date: when legislation is signed into law.

Demonstration Project for Consumer-Directed Chronic Outpatient Services (Section 648)

The conference agreement requires the Secretary to establish no fewer than three demonstration projects that evaluate methods to improve the quality of care provided to

Medicare beneficiaries with chronic conditions and that reduce expenditures that would otherwise be made on their behalf by Medicare. The methods are required to include permitting beneficiaries to direct their own health care needs and services.

In designing the demonstrations, the Secretary is required to evaluate practices used by group health plans and practices under State Medicaid programs that permit patients to self-direct the provision of personal care services and to determine the appropriate scope of personal care services that apply under the demonstration projects.

The Secretary is required to establish the demonstrations within 2 years of enactment and evaluate the clinical and cost-effectiveness of the demonstrations.

Demonstrations are required to be located in an urban area, a rural area, and an area that has a Medicare population with a diabetes rate that significantly exceeds the national average rate.

Voluntary Chronic Care Improvement Under Traditional FFS (Section 721)


The conference agreement requires the Secretary to establish and implement chronic care improvement programs. The programs are required to improve clinical quality and beneficiary satisfaction and achieve spending targets for Medicare for beneficiaries with certain chronic health conditions.

The chronic care improvement (CCI) program is required to

  1. have a process to screen each targeted beneficiary for conditions other than the specified chronic conditions, such as impaired cognitive ability and co-morbidities, in order to develop an individualized, goal-oriented care management plan;
  2. provide each targeted beneficiary participating in the program with the care management plan; and
  3. carry out the plan and other chronic care improvement activities.

The care management plan is required to be developed with the beneficiary and, to the extent appropriate, include:

  1. a designated point of contact responsible for communications with the beneficiary and for facilitating communications with other health care providers;
  2. self-care education for the beneficiary (through approaches such as disease management or medical nutrition therapy) and education for primary caregivers and family members;
  3. education for physicians and other providers and collaboration to enhance communication of relevant clinical information;
  4. the use of monitoring technologies that enable patient guidance through the exchange of pertinent clinical information, such as vital signs, symptomatic information, and health self-assessment; and
  5. the provision of information about hospice care, pain and palliative care, and end-of-life care.

To the extent that a care management plan includes medical nutrition therapy, such services should be delivered by a registered dietician or nutrition professional as defined in Section 1861 of the Social Security Act (42 U.S.C. 1395x.).

The Secretary is required to develop a method for identifying targeted beneficiaries who may benefit from participation in a chronic care improvement program and to communicate with the targeted beneficiary regarding the opportunity to participate.

Targeted beneficiaries who are eligible to participate cannot be enrolled in a plan under Medicare Part C and must have one or more of the threshold conditions including: congestive heart failure, diabetes, chronic obstructive pulmonary disease (COPD), or other diseases or conditions specified by the Secretary.

Beneficiary participation is voluntary.

In carrying out the care management plan, the chronic care improvement organization is required to:

  1. guide the participant in managing the participant’s health (including all co-morbidities, relevant health care services, and pharmaceutical needs) and in performing activities as specified under the elements of the care management plan of the participant;
  2. use decision-support tools such as evidence-based practice guidelines or other criteria as determined by the Secretary; and
  3. develop a clinical information database to track and monitor each participant across settings and to evaluate outcomes.

The establishment of the chronic care improvement program is conducted in 2 parts. In phase I, the developmental phase, the Secretary is required to enter into contracts with chronic care improvement organizations for the development, testing, and evaluation of chronic care improvement programs using randomized controlled trials. The first contract is required 12 months after enactment for a 3-year period. The Secretary is required to enter into contracts to ensure that chronic care improvement programs cover geographic areas in which at least 10 percent of Medicare beneficiaries reside. The Secretary is further required to ensure that each chronic care improvement program includes at least 10,000 targeted beneficiaries along with a sufficient number of Medicare beneficiaries to serve as a control group.

The Secretary is required to contract for an independent evaluation of each chronic care improvement program. The evaluation is required to include quality improvement measures, such as adherence to evidence-based guidelines and rehospitalization rates; beneficiary and provider satisfaction; health outcomes; and financial outcomes, including any cost savings to Medicare.

If the Secretary finds that the chronic care improvement programs have improved the clinical quality of care, improved beneficiary satisfaction, and achieved specified spending targets, then the Secretary is required to expand the program to additional geographic areas not covered during phase I.

Phase II may include national expansion of the program and is required to begin no later than 6 months after the completion of phase I (nor earlier than 2 years after phase I began). The Secretary is also required to evaluate phase II programs using the same criteria used in the phase I evaluation.

Chronic care improvement organizations are required to monitor and report to the Secretary on health care quality, cost, and outcomes, in a time and manner specified by the Secretary. The organizations are also required to comply with any additional requirements the Secretary may specify. The Secretary may deem chronic care improvement organizations which are accredited by qualified organizations to have met requirements that the Secretary may specify.

The Secretary is not permitted to contract with an organization to operate a chronic care improvement program unless the organization meets the requirements for a chronic care

improvement program and such clinical, quality improvement, financial, and other requirements as the Secretary deems to be appropriate for the target beneficiaries to be served; and the organization demonstrates (to the satisfaction of the Secretary) that it is able to assume financial risk for performance under the contract.

Each contract is required to specify performance standards for each of the specified evaluation factors including clinical quality and Medicare spending targets, against which the performance of the chronic care improvement organization under the contract is measured. Contractual adjustments are required if the contractor fails to meet specified performance standards. Further, the contract is required to provide for full recovery by the government of any amount by which the fees paid to the contractor exceed the estimated savings to Medicare that are attributable to the implementation of the contract.

The Secretary is required to ensure that aggregate Medicare benefit expenditures for targeted beneficiaries participating in the chronic care improvement program do not exceed estimated Medicare expenditures for a comparable population in the absence of such a program.

Appropriations of such sums as necessary to provide for contracts with chronic care improvement programs would be authorized from the Medicare Trust Funds, but in no case would the funding be permitted to exceed $100 million over 3 years, beginning October 1, 2003.

The Secretary is required to submit an interim report to Congress on the scope of implementation of the program, the design of the programs, and the preliminary cost and quality findings based on the evaluation criteria no later than 2 years after implementation. No later than 3-1/2 years after implementation, the Secretary is required to submit an update to the interim report to Congress. The Secretary is further required to submit to Congress 2 additional biennial reports on the chronic care improvement programs. The first is due no later than 2 years after the update report.

Medicare Care Management Performance Demonstration (Section 649)

The Secretary will establish a 3-year demonstration program to promote continuity of care, help stabilize medical conditions, prevent or minimize acute exacerbations of chronic conditions, and reduce adverse health outcomes.

Four sites would be designated for the demonstration with at least two in urban areas and one in a rural area. One of the demonstration sites would be in a state with a medical school with a geriatrics department that manages rural outreach sites and is capable of managing patients with multiple chronic conditions, one of which is dementia.

Any Medicare beneficiary enrolled in part A and B who has one or more chronic medical conditions specified by the Secretary (one of which may be a cognitive impairment) and is unable to manage his or her own care or has a functional limitation and resides in a demonstration area may participate in the program if the beneficiary identifies a principal care physician who agrees to manage the complex clinical care of the beneficiary under the demonstration.

CMS is encouraged to work with Agency for Healthcare Research and Quality (AHRQ) to provide grants to assist physicians in carrying out the health information technology aspect of the demonstration. In particular, the grants should focus on issues involving clinical decision support tools, clinical reminders, and improved communication between patients, providers and payors. AHRQ is currently working to provide grant programs in this area.

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