Healthcare Reform: What it Will Mean for the O&P Profession

1. Healthcare Reform: What it Will Mean for the O&P Profession May 26, 2010 Peter W. Thomas, JD O&P Alliance Counsel; NAAOP General Counsel Powers Pyles Sutter and Verville, PC peter.thomas@ppsv.com 202-466-6550 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

2. Topics to be Addressed • Coverage Expansion • Private Insurance • Medicaid • Essential Health Benefits: O&P Coverage • Impact on Small Businesses • Fraud and Abuse • Medical Device Tax

3. Expanded Coverage In Exchange forReduced Health Care Expenditures CBO Estimates Medicare and Medicaid expenditure cuts of about $455 billion over ten years Reduction of $122.6 billion through market basket payment revisions and productivity improvements for hospitals paid under IPPS Reduction of $50 billion in Medicare DSH payments Office of Actuary believes that productivity improvements are unrealistic, and estimates 15% of Part A providers would be unprofitable within 10 years. CMS Office of Actuary Estimates Medicare expenditure cuts of about $575 billion over ten years • Reduction of $196 billion in annual Medicare FFS rates • Reduction of $136 billion in Medicare Advantage • Reduction of $36 billion in Medicare and Medicaid DSH payments • Reduction of $87 billion in other expenditures

4. Major Components of Expanded Coverage • New law addresses both uninsured and underinsured coverage • Private market insurance reforms • Dramatic coverage expansion • Individual mandate and federal subsidies • 32 to 34 million more insured Americans, yielding 94% insured (up from 83%) • Medicaid expansion and reforms • Expanded commitment to prevention and private insurance and Medicare • Result: Likely to be more referrals from patients with third party coverage but reduced margins

5. Changes to Private Insurance Market • Scope: individual and small group plans • Some reforms apply to self-insured plans as well • Guaranteed issue/ renewability • No rescissions • Prohibits discrimination based on health status • Prohibits pre-existing condition exclusions • Moderates premium rating (based only on age, family status, geography, benefit package, and tobacco use) • Prohibits lifetime and unreasonable annual caps on benefits • Immediate access to $5 billion high risk pool

6. Changes to Private Insurance Market (cont.) • Creates state-based Exchanges • Implemented by 2014 • Consumer choice of plans – Exchange/Non-Exchange • State flexibility to offer standard plan • Phase-in large group plans and allow grandfathering of existing plans • Multi-state plans instead of “national plan” • These “compacts” must offer essential benefits package • States can add benefits if they cover cost • New law includes reinsurance fund for health plans from 2014-2016 • Subsidies to employers to provide retiree coverage

7. Changes to Private Insurance Market (cont.) • Exchange plans must offer “essential benefits package” as a benefit floor • All plans to include essential package by 2014 • HHS to define package (help from DoL and NAIC) • Includes key service categories, including “rehabilitation and habilitation services and devices” • Four standardized tiers of benefits: • Bronze, silver, gold and platinum • Differing levels of cost sharing (effective 2014) • Catastrophic option offered in individual market (< 30 years) • Premium assistance for low income • Cost-sharing and out-of-pocket limits to make coverage more affordable

8. Essential Benefits Package: O&P Coverage • Final health reform law includes “rehabilitative and habilitative services and devices” in the essential benefits package • Floor statements by Reps. George Miller and Bill Pascrell expressed Congressional intent that “rehabilitative and habilitative services and devices” includes durable medical equipment, prosthetics, orthotics and related supplies • Same floor statement clarifies that O&P should be defined by the Secretary separately from DME for purposes of comparing benefits across private plans under the Exchange • We must work the regulatory process would ensure that DMEPOS are specifically included in the essential benefits package to protect consumer access • BUT, essential benefits do not apply to ERISA plans

9. Individual Mandate & Employer Impact • Requires individuals (and dependents) to carry “qualifying coverage” or pay a fine (effective 2014) • Phased in penalties with hardship and religious exemptions • Penalty: $95/person in 2014, $325 in 2015, $695 thereafter • Speculation whether penalty is enough/constitutional • Employer “play or pay” • Requires employers w/ 50+ employees w/o insurance to pay $2000 fee on each FTE (after the first 30) if one employee receives a federal subsidy to purchase insurance through the Exchange • Employers w/ 200+ employees must enrollee new employees if they provide coverage

10. Small Employer Tax Credits • Beginning in 2010, tax credits up to 35% of premium costs will be available to small businesses • Employer must have < 25 FTEs • With average wages < $50,000 • Physician/Family member employee income not included in calculation • Gradual phase-out for employers with >10 eligible employees and average wages >$25,000 • Employer must pay at least 50% of premiums for its workers

11. Small Employer Tax Credits • Tax credits increase to 50% in January 2014 • Claim credit on business income tax return • Guidance available on irs.gov website

12. Expansion of Medicaid • New category of childless adults • Effective January 1, 2014, minimum Medicaid coverage would be expanded to 133% of the federal poverty line for individuals under age 65, regardless of parental status • No asset test for this new category • Enhanced FMAP to pay for expansion • States would receive 100% federal funding for the expansion in 2014-2016, 95% in 2017; 94%in 2018; 93% in 2019; 90% thereafter • Maintenance of effort • Generally states would be required to maintain the same income eligibility levels until 2014 for adults, and 2020 for children. • As many as 20 million new individuals may be covered under Medicaid

13. Fraud and Abuse Provisions: New 60-Day Repayment Requirement • Providers must report and repay any over-payment within 60 days after the date the overpayment is identified • An “overpayment” means any funds that a person receives from Medicare or Medicaid to which the person, after applicable reconciliation is not entitled

14. 60-Day Repayment Requirement (cont.) • “Applicable reconciliation” is not defined, but was discussed in 2009 FCA amendments as an administrative, judicial or other process for reconciliation of overpayments (i.e., external process).

15. 60-Day Repayment Requirement (cont.) • Enforcement • Law converts an overpayment into a potential false claim by amending FCA definition of “obligation” to include overpayments • FCA provides that knowingly and improperly avoiding an obligation to repay is a false claim • Law authorizes civil monetary penalties for failure to report and return an overpayment

16. 60-Day Repayment Requirement (cont.) • No accommodation for complex issues or need to perform internal audit • No grace period; this new law is effective immediately • No guidance on when an overpayment is deemed “identified”

17. What Providers Need to Do • Develop policy for deciding when an overpayment will be deemed identified • OIG – Corporate Integrity Agreements indicate that identifying an overpayment is different from quantifying an overpayment • Develop procedures to flag 60-day issues, allocate resources, and reduce FCA risk

18. Physician Documentation of Referrals • Physicians must maintain and provide, upon request, documentation relating to written orders or requests for payment for DMEPOS, home health, lab, imaging, and specialists’ services • Ordering/referring physician or non-physician practitioner (NPP) must be enrolled in Medicare; claim form must show NPI

19. Physician Documentation of Referrals (cont.) • CMS may revoke enrollment for up to one year per act of non-compliance • OIG has new, permissive exclusion authority over any individual or entity...ordering, referring for, furnishing, or certifying the need for items or services...that fails to provide (requested information or permit examination of records). 42 U.S.C § 1320a-7(11)

20. Requirement for Face-to-Face Encounter • Physician must have face-to-face encounter with patient prior to ordering DMEPOS or certifying home health • Telehealth services permitted • For DME, must occur within 6 months preceding order (subject to regulation).

21. New Medical Device Tax • PPACA extended annual fee on medical devices to Class I medical devices which includes the vast majority of orthotics and prosthetics as well as durable medical equipment. • Excluded from the tax are: “eyeglasses, contact lenses, hearing aids, and any other medical device determined by the Secretary to be of a type which is generally purchased by the general public at retail for individual use.”