Both the Patient Protection and Affordability Act and Reconciliation Act contain extensive provisions along one of the major avenues of health care services in the U.S.: the Medicare system. Several of these provisions take effect in 2010, as described below.

The Medicare Part D coverage gap "Doughnut Hole"

The Reconciliation Act provides that beginning in June of 2010, individuals who have reached the Medicare Part D initial coverage limit for 2010 will automatically receive a $250 rebate check. This provision is part of the plan to eliminate the Part D coverage gap by the year 2020. Some individuals will not be eligible for the rebate: those who receive a Retiree Drug Subsidy, those whose income exceeds Part B income thresholds, or those who receive subsidies from both Medicare and Medicaid.

The Medicare Part D "Doughnut Hole" has been a headache for many Medicare beneficiaries since the applicable part of the Medicare Modernization Act went into effect in 2006. The Doughnut Hole gap is the amount between the initial coverage limit in a Part D drug plan and the catastrophic coverage threshold. Although Part D drug plans vary, a beneficiary generally pays a deductible of $310 in addition to the monthly premium. After the deductible is met, the plan pays 75 percent of the drug costs, and the beneficiary 25 percent, until the total drug costs reach $2,830 (2010 costs). At this point, unless the plan covers the gap, the beneficiary must then pay the full cost of prescription drugs until the out-of-pocket total cost of the drugs reaches $4550 (2010 costs). From that point, the beneficiary only pays a small co-payment for generic and prescription drugs. However, paying for that gap is a struggle for those Medicare beneficiaries on limited incomes.

Environmental Health Hazard Eligibility

HHS will establish a pilot program to provide Medicare benefits to those individuals who have been subjected to environmental hazard exposure because they reside in or around an area that has been subject to an emergency declaration made as of June 17, 2009. HHS is allowed to establish optional separate pilot programs with respect to each geographic area, subject to an emergency declaration after that time.

An emergency declaration is defined as a declaration of a public health emergency under section 104(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

An environmental exposure-affected individual is one who has one or more conditions (including asbestosis, pleural thickening, pleural plaques, mesothelioma, malignancies of the lung, colon, rectum, larynx, stomach, esophagus, pharynx, ovary, any other diagnosis which the Department of Health and Human Services (HHS) determines is an asbestos-related medical condition, or a diagnosis of a medical condition caused by exposure of to a public health hazard in the context of an emergency declaration as HHS specifies) and has been present in the hazard area for an aggregate total of six months.

Dual-Eligiblity in Medicare and Medicaid

HHS is to establish a Federal Coordinated Health Care Office within the Centers for Medicare and Medicaid Services (CMS). The purpose is to bring together officers and employees of the Medicare and Medicaid programs at CMS to more effectively integrate benefits under the Medicare and Medicaid programs, and to improve the coordination between Federal and state government for individuals eligible for benefits under both programs.

The goals of the Federal Coordinated Health Care Office are to provide dual-eligible individuals full access to benefits entitled under the Medicare/Medicaid programs. The office will simplify the processes for dual-eligible individuals to access items and services; improve quality of health care and long-term services; help with understanding of coverage; eliminate regulatory conflicts between the rules of Medicare and Medicaid; improve care continuity; eliminate cost-shifting between the programs and health care providers; and improve quality of performance of service and supplier providers.

The responsibilities of the office will be to provide states with specialized plans for special needs individuals; for physicians and other entities and individuals to develop programs to align benefits under Medicare/Medicaid for dual-eligible individuals; to support state efforts to coordinate and align acute care and long-term care services; to provide support for coordination and contracting and oversight by the states and CMS with regard to integration of Medicare/Medicaid; and to consult and coordinate with the Medicare Payment Advisory Commission concerning policies relating to benefits for dual-eligible individuals.

Market Basket Updates

The CMS uses the market basket update to adjust hospital payments for inflation. The market basket updates will be adjusted in the near future by a new "productivity adjustment rate," replacing the current method using the Consumer Price Index. The productivity adjustment defined as a 10-year moving average of changes in annual economy-wide productivity gains as will be projected by HHS.

In the meantime, some reductions in market basket updates will be applied to facilities including acute care hospitals, long-term care hospitals, inpatient rehabilitation facilities, and outpatient hospitals. The reduction will be .25% in Fiscal Year 2010, eventually reaching .75% in Fiscal Year 2017 through Fiscal Year 2019.

Physician-Owned Hospitals

Finally, a prohibition takes effect for physician-owned hospitals to participate in Medicare, unless a facility has a provider agreement prior to February 1, 2010. Hospitals that have a provider agreement prior to February 1, 2010 are "grandfathered"-in to continue to participate in Medicare, with some requirements regarding issues such as conflict of interest. For example, a qualifying hospital must submit to HHS a detailed description of the identities of each physician owner or investor and other owners/investors of the hospital; the procedures in place for disclosing a referring physician's ownership or investor status to a patient; and a requirement that the hospital disclose ownership/investment by physicians on its public website and in its advertising. There are also limitations on expansions of such hospitals with existing provider agreements, but a facility may apply to HHS for an exception.

In other reform news, the U.S. Department of the Treasury has announced a new guidance on the Small Business Health Care Tax Credit (see, DM 12494). In the guidance, Internal Revenue Service Notice 2010-44, explains how a business can determine its eligibility and the credit it can receive.

Important points raised in the guidance include the fact that the new tax credits will not be reduced by a state health care tax credit or subsidy, except in very limited circumstances; that small businesses can receive credit for traditional health insurance coverage and for add-on dental, vision and some other limited-scope coverage if meeting requirements; that employers may choose among three different methods of determining house to maximize their eligible tax credit; and about a special transition relief for tax year 2010 simplifying requirements for a qualifying health insurance offer--for those small businesses that did not meet all the requirements for a qualifying health insurance offer due to the fact that the tax credit was enacted on March 23 of this year.

"Small businesses face unique challenges to providing health insurance for their employees, including higher costs and fewer choices. The small business health care tax credit in the Affordable Care Act provides an important incentive to help small businesses overcome these challenges and cover the cost of health insurance for the hardworking Americans they employ," said Secretary Tim Geithner in a press release.

The Department of the Treasury's announcement: http://www.ustreas.gov/press/releases/tg698.htm

The IRS Notice 2010-44 may be accessed at: http://www.irs.gov/pub/irs-drop/n-10-44.pdf