On the heels of the historic US House of Representatives vote on its own version of comprehensive health care reform legislation, the US Senate on Thursday, November 19 began parliamentary procedures aimed at facilitating consideration of the Democratic health care reform proposal.  On Wednesday, Senate Majority Leader Harry Reid, D-Nev., had unveiled his plan, which faces unified Republican opposition.  The first hurdle Reid and his fellow Democrats must overcome is the threat of a minority filibuster, which has necessitated the filing of a “cloture petition” preceding a vote to cut off debate.  That vote, likely to take place Saturday evening, requires 60 affirmative votes (the exact number of Democrats and Independents in the Senate).  This vote on the Motion to Proceed on the Reid bill will be an early test of the Senate’s will to dive into health care and of the general support for this massive 2,074-page bill, which would substantially alter the American health care system.

We expect the Senate Republicans will use all necessary parliamentary tools to oppose the current version of the Senate bill.  As an example of one tactic that may or may not come to pass, known budget hawk Sen. Tom Coburn, R-Okla., a physician, has indicated an interest in delaying consideration by insisting under Senate rules that the entire bill be read out loud by the Senate Clerk, which some have estimated would take 50 hours. Typically, when a bill is considered in the Senate, there is no objection to the request by the bill’s sponsor that the bill “be considered as read,” which means that it need not be read out loud.  Sen. Reid’s strategy in pushing for the cloture vote on the Motion to Proceed now, before a Thanksgiving recess next week, is designed to remove many procedural obstacles so that when the Senate returns, it can begin true debate and consideration of amendments.

While there are many noteworthy provisions in the Senate legislation, we believe hospitals and health care providers should be particularly interested in the following four issues, which we have summarized, and about which we will provide further analysis after the Senate vote.

Medicaid Disproportionate Share Hospital (DSH) Payments

Medicaid Disproportionate Share Hospital (DSH) payments are targeted to hospitals that treat a large number of Medicaid and uncompensated care patients.  DHS payments seek to help offset the loss hospitals assume for the care of low-income individuals. The House-passed health care reform bill, HR 3962, provides for a $10 billion reduction in Medicaid DSH payments over three years.  The reductions would begin in fiscal year (FY) 2017, after the Secretary of Health and Human Services issues a report detailing the impact of health reform in reducing the number of uninsured individuals and recommending the appropriate targeting of Medicaid DSH among states.  The states likely to receive the biggest reductions to their federal Medicaid DSH allotments are (1) those with the lowest percentages of uninsured residents, based on audited hospital cost reports; and (2) those not targeting DSH payments to Medicaid and uncompensated care patients.  

In contrast, the Reid bill would maintain current federal Medicaid DSH allotments until at least FY 2012, and only if a state’s uninsured rate, as measured by the Census Bureau's American Community Survey, decreases by 45 percent or more compared to their uninsured rate in FY 2009.  States that experience decreases to their uninsured rate of 45 percent or more would face a 50 percent decrease in their federal Medicaid DSH allotment.  Low DSH states would be decreased by 25 percent. Each year thereafter, if the state's uninsured rate decreases further, the state's DSH allotment would be reduced by a percentage equal to the product of the percentage point reduction in uninsurance and 50 percent.  (On balance, Low DSH states would face half the percentage reduction of other states.) At no time in the future could a state's DSH allotment fall below 35 percent of the FY 2013 total allotment, adjusted for inflation. Any portion of the state's DSH allotment that is used to for a Medicaid 1115 coverage expansion would be exempt from such reductions. The Congressional Budget Office (CBO) has estimated this provision will reduce overall payments under the DSH program by $22.4 billion over the next 10 years.

Medicare Service Cuts

In order to make the health care reform bill deficit neutral, Congress must determine which programs can provide cost savings to offset the increased cost of other initiatives. In both the House and the Senate versions of the health care reform bill, the largest areas for cost savings revenue are in the Medicare program.  The Congressional Budget Office (CBO) has estimated the legislation will generate $396 billion in revenue over the next 10 years from the reductions in the House legislation and $436 billion over 10 years in the Senate legislation.  

In HR 3962, the following areas would provide in excess of $10 billion in cost savings: market basket updates, Medicare DSH, Skilled Nursing Facility care, Home Health care, Medicare Part C – known as Medicare Advantage, drug discounts in Part D, coding adjustments, and changes to the Work Geographic Index floor and Practice Expense Geographic Adjustment.  The bill also establishes the Center for Medicare and Medicaid Innovation which would “research, develop, test, and expand innovative payment and delivery arrangements to improve the quality and reduce the cost of care provided to patients in each program.”

In the Senate version of the bill, the Medicare services that have been designated for the largest reductions in rates include: Home Health Care, Medicare DSH payments, Medicare Advantage payments, market basket updates, and a reduction in the payments of Part D for high income beneficiaries.  While the Senate version includes the Center for Innovation established in HR 3962, it also directs the Secretary of HHS to establish an Independent Medicare Advisory Board that will provide recommendations for future payments.  These recommendations will need legislative action to prevent their implementation.

Hospital Readmissions

According to MedPAC’s June 2007 Report to Congress, “17.6 percent of admissions result in readmissions within 30 days of discharge, accounting for $15 billion in spending.”  Both the House and Senate health care reform bills address excess hospital readmissions.  Legislation gives the Secretary authority to decrease payments to hospitals with excessive readmissions for certain conditions. In FY 2012, HR 3962 implements readmission standards beginning with three conditions and expanding to include additional conditions in future years using a reduction in payment rates.  The Senate bill examines the discharge rates and determines the penalty rates on the level of actual readmissions for a diagnosis-related group (DRG) at the hospital compared to the expected readmissions for the DRG.  The Senate provisions would go into effect beginning in FY 2013.

Medicare Graduate Medical Education

The Medicare program pays most of the direct and indirect costs of graduate medical education (GME) in teaching hospitals for residents at levels reported in hospital cost reports ending in 1996.  Congress has been hesitant to fund new GME positions and has relied on redistributing unused residency slots hospitals that meet certain criteria.  Under HR 3962, hospitals that maintain their existing primary care resident levels, assign new slots to primary care, are accredited accordingly, and demonstrate the likelihood of filling the position(s) within three cost reporting periods, can be considered for redistributed slots.  The legislation provides a cap of 20 new positions for each hospital, though it would be unlikely hospitals will see more than one or two new slots.  Priority would be given to hospitals that experience reductions in positions, hospitals with a 3-year primary care residency program, hospitals with arrangements with Federally Qualified Health Centers and Rural Health Centers, those that emphasize training in outpatient departments, hospitals training residents in designated Health Professional Shortage Area (HPSA), and those in states with low resident-to-population ratios.

Under the Senate bill, hospitals that seek additional positions would be required to maintain the number of slots currently available for primary care residents.  Seventy-five percent of additional slots would be filled with primary care or general surgery residents over a 5-year period. States with resident- to-population ratios in the bottom 25 percent will receive consideration for 70 percent of the resident positions available for redistribution.  The remaining 30 percent will go to states in the top 10 percent in terms of population living in a HPSA area or in the top 10 percent in population; and hospitals in rural settings. The Senate bill allows for the consideration of time spent in non-provider settings in determining the full time status of residents if the hospital incurs the cost (stipend or fringe benefits) for the activity and other activities.  This provision is effective for time recorded beginning in July 1, 2009

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Given the substantial impact on health care providers and related sectors, as well as corporations, municipalities, and nonprofit groups, this legislation merits close attention during the next few weeks.  Arent Fox Government Relations and Health practice groups are actively monitoring developments on the Senate health care reform bill and are available to answer questions.

For more information about the potential implications of the health care reform bill, please contact the following Arent Fox practitioners, or the Arent Fox attorney who regularly handles your legal affairs.