United States: CMS Releases Final Rule Establishing Medicare Prospective Payment System For FQHCs

On April 29, 2014, the Centers for Medicare & Medicaid Services (CMS) released a final rule establishing a Medicare prospective payment system for Federally Qualified Health Center (FQHC) services.  Beginning October 1, 2014, Medicare will pay all FQHCs an all-inclusive, encounter-based rate of $158.85 per patient per day, subject to certain adjustments.  The final rule also included a provision related to Rural Health Clinic staffing and created a new three-tiered penalty structure for non-compliance with certain clinical laboratory proficiency testing requirements.

On April 29, 2014, the Centers for Medicare & Medicaid Services (CMS) released a final rule establishing a Medicare prospective payment system (PPS) for Federally Qualified Health Center (FQHC) services.  As required by the Affordable Care Act (ACA), beginning on October 1, 2014, Medicare will pay FQHCs an all-inclusive, encounter-based rate of $158.85 per patient, per day, subject to adjustment for geographic location and certain types of services.  In addition to the establishment of the FQHC PPS, the final rule includes provisions related to Rural Health Clinic (RHC) staffing and penalties for non-compliance with certain clinical laboratory proficiency testing requirements.  The final rule was published in the Federal Register on May 2, 2014, and will be open for public comment until July 1, 2014.

FQHC Medicare PPS

Historically, each FQHC has been paid a facility-specific, all-inclusive, encounter-based rate based on the FQHC's cost of providing care.  Section 10501(i)(3)(A) of the ACA required the creation of a new payment system for FQHC services paid under Medicare Part B based on rates that were set prospectively and applicable to all FQHCs.  The ACA provided that the new payment system would take effect on October 1, 2014.

According to the final rule, under the FQHC PPS, FQHCs will receive $158.85 per patient, per day.  This rate is subject to adjustment based on an FQHC's geographic location (according to the FQHC Geographic Adjustment Factor).  The rate will also be increased by 34 percent when an FQHC provides care to a patient who is new to the FQHC and to a Medicare beneficiary receiving a comprehensive initial Medicare visit (an initial preventive physical examination or an initial annual wellness visit).  FQHCs may also receive the adjusted rate for subsequent annual wellness visits.

For non-preventive care visits, Medicare will pay FQHCs the lesser of actual charges or 80 percent of the PPS rate.  Beneficiary coinsurance will be calculated based on 20 percent of the lesser of actual charges or the FQHC PPS rate.  Consistent with the ACA, most preventive services are exempt from beneficiary coinsurance.  For FQHC claims featuring a mix of preventive and non-preventive services, Medicare will pay for 100 percent of the charges for preventive services, and a beneficiary's coinsurance will be 20 percent of the remaining amount (calculated by subtracting the FQHC's billed charges for the preventive service from the total rate, either PPS or actual charges).  Where any beneficiary coinsurance is waived due to the provision of preventive services, Medicare will pay 100 percent of the payment amount.

In the proposed rule, CMS sought to limit FQHCs to one encounter payment per patient, per day.  After receiving public comments, CMS created two exemptions to this proposed provision.  An FQHC may receive a second encounter payment when a patient leaves the FQHC after an initial visit, and returns the same day with an illness or injury not present at the time of the initial visit.  Additionally, an FQHC may receive a separate encounter payment for a mental health visit occurring on the same day as a medical visit.

An FQHC that contracts with a Medicare Advantage organization will receive at least the same amount for services as it would have received under the FQHC PPS.  If the Medicare Advantage contract rate is lower than the PPS rate, an FQHC will receive a wrap-around payment from Medicare to cover the difference.

FQHCs will transition into the PPS based on their cost-reporting periods, with PPS payments beginning with the first cost-reporting period beginning on or after October 1, 2014.  On January 1, 2016, the PPS will convert to a calendar year update cycle.

Rural Health Clinic Contracting

As established by the Rural Health Clinic Services Act of 1977, RHCs are required to employ at least one nurse practitioner (NP) or physician assistant (PA).  CMS has previously interpreted this requirement to prevent payment for practitioners, other than physicians, who provided services to RHCs under contract.  The final rule provides that RHCs may receive payment for services furnished by contracted non-physician practitioners, so long as the RHC employs at least one NP or PA.  Non-physician practitioners include NPs, PAs, certified nurse midwives, clinical psychologists and clinical social workers.

Enforcement Actions for Proficiency Testing Referral

The Taking Essential Steps for Testing Act of 2012 (TEST Act) gave CMS the discretion to impose appropriate sanctions for cases of intentional referral of clinical laboratory proficiency testing (PT) samples to other laboratories.  Prior to the enactment of the TEST Act, a violation involving intentional PT referral resulted in automatic revocation of a Clinical Laboratory Improvement Amendments (CLIA) certificate and a resulting ban from owning or operating a CLIA-certified laboratory for two years.  The final rule creates three levels of sanctions for intentional PT referral, organized by severity and extent of the referrals.

  • For the first category of cases (which includes the most flagrant violations such as repeat referrals), CMS will impose a severe penalty, similar to the existing penalty, of an automatic revocation of the CLIA certificate for at least one year and a ban prohibiting the owner or operator of the laboratory from owning or operating a CLIA-certified laboratory for at least one year, with a possible civil monetary penalty.
  • In the second category of cases, a laboratory's CLIA certificate would be suspended or limited for less than one year, but not revoked.  A suspension of the CLIA certificate means that a laboratory may not test human specimens for health care purposes.  A limitation of the CLIA certificate means that the laboratory is not permitted to perform testing or to bill Medicare or Medicaid for the specialty of tests that has been limited, but it may perform all other testing under its own CLIA certificate.  Additionally, a laboratory in this second category would face alternative sanctions, including civil monetary penalties and staff training.
  • The third category includes the least severe cases.  For this category, the laboratory will be required to pay a civil monetary penalty and to comply with a directed plan of correction, including staff training.

Joseph Parise, an associate in New York, also contributed to this newsletter.

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