AAMC Legislative and

Regulatory Update

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November 2010
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 AAMC Legislative and Regulatory Update
November 2010
Table of Contents

Introduction ............................................................................................................... v
FY 2011 Budget ........................................................................................................ 1
FY 2011 Labor-HHS-Education Appropriation ...................................................... 3
National Institutes of Health (NIH) .................................................................... 3
Health Professions ............................................................................................... 4
National Health Service Corps (NHSC) .............................................................. 5
Children’s Hospital Graduate Medical Education .............................................. 6
Agency for Healthcare Research and Quality ...................................................... 6
Centers for Disease Control and Prevention ........................................................ 6
Bioterrorism and Emergency Preparedness ........................................................ 7
Prevention and Public Health Fund ..................................................................... 8
National Institute of Disability and Rehabilitation Research ............................. 10
FY 2011 Veterans Affairs Funding .......................................................................... 10
VA Graduate Medical Education .............................................................................. 10
FY 2011 National Science Foundation Funding ....................................................... 11
FY 2011 Food and Drug Administration Funding .................................................... 11
Medicare Direct Graduate Medical Education and Indirect Medical Education
Payments ............................................................................................................... 11
Medicare Resident Cap Slots ............................................................................... 11
Supporting Ambulatory Training and Didactic Activities ................................. 12
Resident Physician Shortage Reduction Act of 2009 (S. 973/H.R. 2251) ........... 12
Healthcare Innovation Zones (HIZs) ....................................................................... 13
Center for Medicare and Medicaid Innovation (CMI) ............................................. 13
FY 2010 Hospital Inpatient Payments Revision Required by the ACA .................. 14
FY 2011 Medicare Inpatient PPS Final Rule ............................................................. 14
Market Basket Update and Documentation and Coding Reduction .................. 15
Changes Affecting DGME and IME Payments ................................................... 16
Changes Affecting DSH Payments ...................................................................... 16
Quality Regulations ............................................................................................. 17
Additional Payments for Hospitals with Low Per Enrollee Medicare
Spending ....................................................................................................... 17
Outlier Payment Threshold ................................................................................. 18
ICD-10 ................................................................................................................. 18
CY 2011 Hospital Outpatient Prospective Payment System .................................... 19
Proposed Changes Affecting DGME and IME Payments .................................. 19
Legislative (Affiliation Agreement) ................................................................... 20
Proposed Changes to the CY 2011 OPPS and Payment Rates ........................... 20
Quality Proposed Regulations ............................................................................. 21
Medicare Outpatient Observation Stays ................................................................... 22
Inpatient Rehabilitation Facility Notice .................................................................... 22
Selected Medicare Hospital Quality Provisions Under the ACA ............................ 22
Payment Adjustment for Hospital Acquired Conditions (Sec. 3008) ................ 23

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 Hospital Value Based Purchasing Program (Sec. 3001) .................................... 23
Hospital Readmissions Reduction Program (Sec. 3025) ................................... 23
National Health Care Quality Strategy and Plan ................................................. 24
CMS Proposed Rule to Ensure Visitation Rights For All Patients ........................... 24
Medicare Disproportionate Share Hospital (DSH) Payments ................................. 25
3-Day Payment Window ............................................................................................ 25
Medicare Physician Payments ................................................................................. 25
Legislative ............................................................................................................ 26
Regulatory ............................................................................................................ 26
Physician Quality and Value Initiatives ................................................................... 27
Physician Quality Reporting Initiative (PQRI) .................................................. 27
E-prescribing (eRx) Incentive Program ............................................................... 27
Resources use report and value-based modifier ................................................. 28
Changes in Provider and Supplier Enrollment, Ordering and Referring and
Documentation Requirements; and Changes in Provider Agreements .................... 28
Medicare Recovery Audit Contractor (RAC) Program ........................................... 29
Geographic Variation in Health Care Spending and Utilization ............................. 29
IOM Study of Medicare’s Geographic Adjustments .......................................... 29
IOM Study of Geographic Variations in Health Care Spending ........................ 30
National Summit on Health Care Quality and Value .......................................... 31
Value-Based Payment Modifier for Medicare Payments ................................... 32
Special Medicare Payments for Low-Cost Counties .......................................... 32
Medicare Payment Advisory Commission (MedPAC) ............................................ 32
MedPAC's June Report to the Congress ............................................................. 32
Data Book ............................................................................................................ 33
MedPAC’s Fall 2010 Meetings ........................................................................... 34
Independent Payment Advisory Board (IPAB) ........................................................ 34
Proposed Changes to the Medicare Hospital Cost Report ......................................... 35
End Stage Renal Disease (ESRD).............................................................................. 36
ESRD Payment System Final Rule ..................................................................... 36
ESRD Quality Incentive Program Proposed Rule .............................................. 36
Medicaid Disproportionate Share Hospital (DSH) Payments ................................. 37
Medicaid Direct and Indirect Graduate Medical Education Payments:
A 50 State Survey .................................................................................................. 37
Medicare Trustees Report ......................................................................................... 38
Congressional Academic Medicine Caucus ............................................................. 39
Health Information Technology Incentives ............................................................... 39
Meaningful Use ................................................................................................... 39
Certified EHRs .................................................................................................... 40
HIT Legislative Activity ........................................................................................... 41
Multi-Campus ..................................................................................................... 41
Hospital-Based Eligible Professionals ................................................................ 42
Other HIT Activities ........................................................................................... 42
HIPAA Privacy Rule Accounting for Disclosures: Request for Information .......... 42
HIPAA Proposed Rule on Modifications to the Privacy, Security, and
Enforcement Rules Under HITECH ....................................................................... 43

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Community Benefit Requirements for 501 (c)(3) Hospitals ..................................... 43
False Claims Act ........................................................................................................ 43
Title VII Reauthorization ......................................................................................... 45
Health Professions Shortage Area (HPSA) Negotiated Rulemaking ...................... 46
Federal Student Loan Reform .................................................................................. 46
Department of Education Regulations ............................................................... 46
Health Care Reform ............................................................................................ 46
Reconciliation .................................................................................................... 47
Truth in Lending Act (TILA) ............................................................................. 47
Physician Immigration ............................................................................................. 47
HHS Proposes Changes to Conflict of Interest Rules .............................................. 47
Embryonic Stem Cell Research ............................................................................... 51
Congressional Reaction ...................................................................................... 52
America COMPETES Reauthorization Act of 2010 ............................................... 53
Great Ape Protection Act ......................................................................................... 54
Patent Reform .......................................................................................................... 55
Gene Patent Policy ................................................................................................... 56
National Commission on Fiscal Responsibility and Reform ................................... 57
Biosecurity and Select Agents .................................................................................. 58
Export Controls ......................................................................................................... 59
Patient Centered Outcomes Research Institute ......................................................... 59
National Healthcare Workforce Commision ............................................................ 61
Resident Duty Hours and OSHA .............................................................................. 61

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iv
 You know, it's just one small step from legacy to lame duck.

-- Bill Clinton

Introduction

Congress returns to Washington the week of November 15 for a “lame duck” session. A report1
by the Congressional Research Service (CRS) indicates that seven of the past eight Congresses
(103rd through 110th) have concluded with a lame-duck session. [Note: There was no lame duck
session in 1996, at the end of the 104th Congress.] The CRS report also notes that most of the
recent lame duck sessions have had to complete the annual appropriations bills. In some years
(2002 and 2004) this effort was at least somewhat successful; in other years, a final resolution of
spending legislation was left to the next Congress.

This year, Congress again faces the prospect of trying to complete the spending bills in a
politically charged, post-election environment. Congress failed to finish any of the 12 regular
appropriations bills before the October 1 start of the federal fiscal year, instead passing a
Continuing Resolution (CR, P.L. 111-242) that funds most agencies at FY 2010 levels through
December 3.

Of course, control of the 112th Congress and the number of members who will not be coming
back to Washington in January will be determined on November 2. If the current polling data
are accurate, the Republicans will assume control of the House. A Republican take-over of the
Senate is mathematically possible but deemed less likely. The prospect of the GOP controlling
at least one chamber has led to speculation that the Republicans will not want to finish the
spending bills or any other legislation in the lame duck session, preferring to wait until the next
Congress when they can exert more influence on the final outcome. Further complicating the
post-election environment is that the winners of the Senate races in Delaware, New York (B),
and West Virginia can be seated immediately and do not have to wait for January.

Regardless of how many seats the Republican pick up on the 2nd, most Capitol Hill observers
believe the new Congress will be more fiscally conservative. Federal spending and the size and
role of the federal government have been key issues in many congressional and senate races. In
early October, the Congressional Budget Office issued a preliminary estimate that the FY 2010
federal deficit was the second largest shortfall as a percent of gross domestic product (GDP)
since 1945. The FY 2009 deficit was the largest.

All of this means that Congress will have to try and resolve the FY 2011 spending bills amid
increasing calls for fiscal discipline. In June, the White House Office of Management and
Budget (OMB) issued two memoranda directing non-security federal departments and agencies
to submit separate plans in their FY 2012 budget submissions for reducing spending and
eliminating low-priority programs. In September, House Minority Leader John Boehner (R-

1
http://www.senate.gov/reference/resources/pdf/RL33677.pdf
 

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Ohio), who could become Speaker of a Republican-led House, issued a call to roll non-security
related discretionary spending back to FY 2008 levels. More recently, a number of groups,
including the Committee for a Responsible Federal Budget, the Pew Economic Policy Group,
and the Center for American Progress, have released papers outlining options for reducing the
federal deficit and debt that rely in part on reducing appropriated spending for a wide range of
programs.

In addition to the appropriations bills, other potential lame duck agenda items include extending
the Bush-era tax cuts, set to expire at the end of December, and averting the Medicare physician
fee cuts scheduled to begin on December 1. However, resolution of either issue will be
complicated by the large cost associated with possible solutions amid increasing calls to off-set
additional spending to mitigate the impact on the deficit and debt.

What follows is a summary, as of October 25, of the major legislative and regulatory actions of
importance to academic medicine. Listed at the end of each item is the last name of the AAMC
staff person responsible for monitoring that issue. If you wish to receive additional information
on a specific issue, you are encouraged to visit the AAMC Government Affairs and Advocacy
Web site at: www.aamc.org/advocacy/ or contact these individuals directly.

Ivy Baer, ibaer@aamc.org, Health Care Affairs, 202-828-0499.

Shannon Curtis, scurtis@aamc.org, Government Relations, 202-828-0558.

Travis Crytzer, tcrytzer@aamc.org, Government Relations, 202-828-0418.

Will Dardani, wdardani@aamc.org, Health Care Affairs, 202-828-0541.

Jennifer Faerberg, jfaerberg@aamc.org, Health Care Affairs, 202-862-6221.

Karen Fisher, kfisher@aamc.org, Health Care Affairs, 202-862-6140.

Steve Heinig, sheinig@aamc.org, Scientific Affairs, 202-828-0488.

Mark Lyles, mlyles@aamc.org, Health Care Affairs, 202-828-0493.

Leonard Marquez, lmarquez@aamc.org, Government Relations, 202-862-6281.

Tony Mazzaschi, tmazzaschi@aamc.org, Scientific Affairs, 202-828-0059.

Lori Mihalich-Levin, lmlevin@aamc.org, Health Care Affairs, 202-828-0599.

Christiane Mitchell, cmitchell@aamc.org, Government Relations, 202-828-0526.

David Moore, dbmoore@aamc.org, Government Relations, 202-828-0559.

Mary Patton, mpatton@aamc.org, Health Care Affairs, 202-862-6297.

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Heather Pierce, hpierce@aamc.org, Scientific Affairs, 202-478-9926.

Tannaz Rasouli, trasouli@aamc.org, Government Relations, 202-828-0057.

Matthew Shick, mshick@aamc.org, Government Relations, 202-862-6116.

Clark Thomason, cthomason@aamc.org, Government Relations, 202-741-0748

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 FY 2011 Budget

The Federal government is currently operating under a Continuing Resoulition (P.L. 11-242) that
funds agencies at FY 2010 levels through December 3 while Congress completes the FY 2011
spending bills. President Obama released the details of his FY 2011 budget on February 1. The
$3.7 trillion blueprint assumes a three-year freeze on "non-security" discretionary spending - i.e.,
appropriations for domestic programs - while increasing funding for certain priorities such as
basic and applied research, which is slated for a 5.6 percent increase to a total of $61.6 billion.

The president’s budget calls for $81.233 billion in discretionary budget authority for the
Department of Health and Human Services (HHS), an increase of $2.293 billion (2.9 percent)
over FY 2010, not including funding provided through the American Recovery and
Reinvestment Act [P.L. 111-5]. This total includes a $1 billion (3.2 percent) increase for the
National Institutes of Health (NIH), a $146 million (6.2 percent) increase for the Food and Drug
Administration (FDA), a $354 million (8.7 percent) increase for the Indian Health Service (HIS),
and a $110 million (3.2 percent) increase for the Substance Abuse and Mental Health Services
Administration (SAMHSA). Funding for the Health Resources and Services Administration
(HRSA) is essentially held at FY 2010 levels, receiving only a $28 million (0.4 percent) increase,
while the Centers for Disease Control and Prevention (CDC) are slated for a $133 million (2.1
percent) cut.

On August 20, the Obama Administration submitted to Congress amendments to the FY 2011
budget to provide $400 million in additional funds for a number of programs in HHS, including:

 $250 million increase to the Health Resources and Services account for health workforce
training enhancements;
 $30 million increase to the Health Resources and Services account for State AIDS Drug
Assistance Programs with waiting lists and other signs of distress;
 $35 million increase to the Disease Control, Research, and Training account for domestic
HIV/AIDS prevention and research;
 $55 million increase to the Centers for Medicare and Medicaid Services (CMS) Program
Management account for State high-risk health insurance pools; and
 $30 million increase to the Health Insurance Consumer Information account.

The administration also proposed “reductions of funding from lower-priority Federal programs
and excess funds” to offset the increases:
 $184 million decrease in the Centers for Disease Control and Prevention's (CDC's)
Disease Control, Research, and Training account for Public Health Emergency
Preparedness grants;
 $103 million decrease in budget authority for CDC's occupational safety and health
activities; this is fully offset by a corresponding increase in Public Health Service Act
Evaluation Funds to support these activities;
 $103 million decrease in the National Institutes of Health's Buildings and Facilities
account; and
 $10 million decrease in the CMS Program Management account for research,
demonstrations, and evaluation projects.

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 In addition, the request would decrease Public Health Service Act Evaluation Funds for Patient-
Centered Health Research within the Agency for Healthcare Research and Quality; authorize the
transfer of $200 million from prior BioShield Special Reserve Fund (SRF) to the Department of
Defense to establish a Technical Center of Excellence for Advanced Development and
Manufacturing; authorize the creation of and $200 million in resources to support a strategic
investor entity with BioShield SRF balances; and provide authority to use pandemic influenza
appropriations to promote regulatory science.

Since both the House and Senate Labor-HHS Appropriations Subcommittees have approved
their respective bills, congressional action on these amendments appears unlikely.

The details of the amendments are available at:

www.whitehouse.gov/sites/default/files/omb/assets/budget_amendments/amendment_08_20
_10_0.pdf. [Moore]

Table 1
Discretionary Programs of Interest to AAMC

Program FY 2010 FY 2011 Percent FY 2011 Percent FY 2011 Percent

President’s Change House Change Senate change
Budget 10-11 10-11 10-11

NIH $31.010 B $31.984 B * 3.2 % $32.007 B 3.2 % $32.007 B 3.2 %

Title VII $254 M $356 M 40 % $357 M 40 %
Not yet
---
Title VIII $244 M $754 M * 28.8 % available $292 M 20 %
AHRQ $397 M $508 M * 53.9 % $411 M** 3.5 % $397 M** 0%
Children’s Not yet
---
GME $318 M $318 M 0% available $318 M 0%
Not yet
$141 M $169 M 20 % --- $141 M*** 0%
NHSC available
CDC $6.750 B $6.359 B * - 5.8 % $6.782 B** 0.5 % $6.906 B** 2.3 %
VA Medical
Care $44.496 B $48.183 B 8.3 % $48.183 B 8.3 % $48.303 B 8.6 %
VA
Research $581 M $590 M 1.5 % $590 M 1.5 % $590 M 1.5 %
NSF $6.926 B $7.424 B 7.2 % $7.424 B 7.2 % $7.35 B 6.2 %
FDA $2.357 B $2.51 B 6.5 % $2.571 B 9.1 % $2.516 B 6.7 %
* The president amended his budget request on August 20; he originally proposed $32.007 billion for NIH, $611 million for
AHRQ, $504 million for Title VII and VIII health professions, and $6.611 billion for the CDC.
** These funding levels do not reflect recommended transfers from the Prevention and Public Health Fund. The House Labor-
HHS Sub-committee recommends $10 million be transferred to AHRQ and $594 million to the CDC, while the Senate
Appropriations Committee recommends $17 million be transferred to AHRQ and $663 million to the CDC.
*** The Senate Appropriations committee notes that this amount is in addition to mandatory funding provided through the HHS
Secretary’s NHSC Fund. Combined, the committee anticipates $431 million for the NHSC in FY 2011.

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 FY 2011 Labor-HHS-Education Appropriation

On August 2, the Senate Appropriations Committee filed the report (S.Rpt. 111-243) for its FY
2011 Labor-HHS-Education spending bill (S. 3686). The committee approved its version of the
bill on July 29, two days after the Labor-HHS-Education Appropriations Subcommittee passed
the bill. The bill provides $169.6 billion for the departments of Labor, Health and Human
Services, and Education, and related agencies; an increase of $5.9 billion (3.6 percent) over FY
2010, but $8.3 billion less than President Obama's FY 2011 request.

The House Labor-HHS-Education Appropriations Subcommittee approved its FY 2011 spending

bill on July 15. According to a summary released by the subcommittee, the bill provides $176.4
billion in discretionary spending for the coming year, an increase of $12.7 billion (7.7 percent)
but $1.5 billion less than the president’s budget. The House bill is $6.8 billion higher than the
Senate version. Complete agency details on the House bill will not be available until the full
Appropriations Committee approves it. No date has been set for full committee consideration.

On April 14, the AAMC submitted a written statement for the record to the House Labor-HHS-
Education Appropriations Subcommittee, in support of funding for the National Institutes of
Health (NIH), Agency for Healthcare Research and Quality (AHRQ), the Title VII health
professions programs at the Health Resources and Services Administration (HRSA), and the
National Health Service Corps (NHSC). A similar statement was submitted to the corresponding
Senate subcommittee on April 12.

It is unlikely that either the Senate or House bill will be considered by their respective chambers
prior to the November elections. Congress will need to approve a continuing resolution to
continue funding for the programs in these bills in the new federal fiscal year beginning October 1.

The Senate Committee report is available at: http://frwebgate.access.gpo.gov/cgi-

bin/getdoc.cgi?dbname=111_cong_reports&docid=f:sr243.111.pdf

The House Subcommittee summary and Obey statement are available at:
http://appropriations.house.gov/index.php?option=com_content&view=article&id=692:fy1
1-lh-appropriations-&catid=33:labor-hhs-education&Itemid=134&Itemid=4

The AAMC statement is available at:

www.aamc.org/download/114236/data/aamc_statement_on_fy2011_appropriations_for_the
_department_of_he.pdf. [Moore]

National Institutes of Health: The Senate committee's bill includes $32.007 billion for NIH,
equal to the president's February 1 request and $1 billion (3.2 percent) higher than the FY 2010
funding level. The 3.2 percent increase matches the projected growth in the Biomedical
Research and Development Price Index (BRDPI) for FY 2011.

In its report, the Senate Committee “recognizes that the NIH faces an imposing 'funding cliff'
following the historic increase ... provided by [ARRA]. Negotiating the softest possible landing
is critical to maintaining the scientific momentum gained over the past 2 years and ensuring that

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young investigators in particular can find a bright future in the field of biomedical research.
While the 3.2 percent increase proposed by the administration and recommended by the
Committee is less than what would have been desired in stronger economic times, it keeps up
with biomedical inflation - a distinction that was all too rare during the mid-2000s. The
Committee hopes that this will mark the first of several years of growth for the NIH that, if not
spectacular, are at least steady and predictable."

The Senate committee recommends a total of $500.4 million for the Clinical and Translational
Science Awards [CTSAs] program in FY 2011, a $17.5 million (3.6 percent) increase over FY
2010. The report states that under the Senate bill, a portion of the costs of the CTSAs will
continue to shift to the National Center for Research Resources (NCRR) from the NIH Common
Fund. NCRR's share of the CTSA program increases from $457.7 million in FY 2010 to $477.7
million in FY 2011, while the Common Fund's share drops from $25.4 million in FY 2010 to
$22.7 million in FY 2011.

The Senate committee provides $50 million for the Cures Acceleration Network (CAN)
authorized by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152).

The Senate bill includes $561.6 million for the NIH Common Fund, the same as the president's
budget, and $17.5 million (3.2 percent) more than FY 2010. In addition, the committee's bill
includes $194.4 million for continuation of the National Children's Study.

The committee's bill retains the cap on salaries on extramural grants funded by NIH, AHRQ, and
the Substance Abuse and Mental Health Services Administration at the Executive Level I rate
($199,700 in 2010).

Regarding "class B" animal dealers, the committee reiterates its expectation that NIH phase out
the dealers expeditiously. The report notes that "The 3- to 4-year timeline projected by the NIH
to complete this transition is longer than the Committee would have preferred," but also indicates
that "the Committee is pleased that the NIH is on track to meet the early milestones of this
timeline … [and] expects this pace to continue."

The bill passed by the House subcommittee also provides the president's February 1 requested
$32.007 billion for NIH, a $1 billion (3.2 percent) increase. In his opening statement at the
subcommittee markup, Subcommittee Chair David Obey (D-Wis.) highlighted "continued
support for biomedical research" as a major theme of the bill and said, "Within limited resources,
this year's bill puts the emphasis on translating basic research results into practical and available
cures and treatments. Among other things, it permits NIH to use up to $50 million to launch a
newly authorized program aimed at that objective, which is called the Cures Acceleration
Network." [Moore]

Health Professions: For FY 2011, the House Labor-HHS-Education Appropriations

Subcommittee approved $356 million for the Title VII health professions programs, a $102
million (40 percent) increase over FY 2010 enacted levels and $96 million over the president’s
request. Subcommittee Chair David Obey’s (D-Wis.) statement confirmed that the measure also
includes “$292 million for nursing education.” Further details regarding specific program level

4
funding are expected to be available after the full House Appropriations Committee completes its
mark up of the FY 2011 bill.

The Senate bill provides $356.6 million for the Title VII health professions programs, a $102.5
million (40.3 percent) boost. Within the total, the committee allocates $90 million for grants to
support physician training in family medicine, general pediatrics, and general internal medicine,
as well as physician assistant education - a $51 million (131 percent) increase over the
comparable FY 2010 funding level. As authorized in the Affordable Care Act (ACA, P.L. 111-
148 and P.L. 111-152) the Senate bill appropriates funds for primary care medicine and dentistry
distinctly. The bill also significantly expands the Title VII Faculty Loan Repayment program,
with $6.3 million (a $5 million or 395 percent increase), and funding for Title VII Workforce
Information and Analysis, providing $13.8 million (a $10.9 million or 386 percent increase).
Funding for the Public Health and Preventive Medicine program is increased to $19.7 million, a
$9.7 million (96.7 percent) increase directed to fellowships and training in preventive medicine.

The Senate committee also invests in two new Title VII programs established by the ACA. The
bill provides $5.1 million for the Rural Physician Training grant program for medical schools to
establish, improve, or expand "rural-focused" training programs. Additionally, the bill provides
$5 million within the Centers for Disease Control and Prevention (CDC) intended for the new
public health loan repayment program authorized under section 776 of the Public Health Service
Act.

On August 20, 2010, President Obama submitted several amendments to his FY 2011 budget
request. Included among the amendments was a $250 million increase “to help the health
professions training infrastructure expand and sustain training efforts and address the expected
demand for primary care providers and the geriatric health professions workforce.” The budget
originally proposed in February requested $504 million for Titles VII and VIII, a roughly $6
million increase over FY 2010 levels. The increase was dedicated solely to the workforce
information and analysis program.

On June 16, 2010, Secretary of Health and Human Services Kathleen Sebelius announced $250
million of funding to strengthen the primary care workforce. Part of the mandatory funds
designated for the Prevention and Public Health Fund created by the Affordable Care Act, $168
million was allocated for primary care residency expansion under Title VII (see Prevention and
Public Health Fund on page 8).On September 28, 2010 the Department of Health and Human
Services announced the recipients of this funding. The primary care residency expansion funds
were awarded to 82 accredited primary care residency training programs. For the full list of
grantees, go to: www.hhs.gov/news/press/2010pres/09b/state_charts_a_m.html.

Also on September 28, 2010, the AAMC, as part of the Health Professions and Nursing
Education Coalition (HPNEC), hosted a congressional briefing on the Title VII and Title VIII
programs. The event featured three speakers representing a range of Title VII and Title VIII
programs. There were approximately 60 attendees, 20 of whom were congressional staff.
Presentations from the speakers can be viewed at: www.aamc.org/advocacy/hpnec. [Curtis]

5
National Health Service Corps (NHSC): For FY 2011, the Senate Appropriations Committee
recommends flat discretionary funding ($141 million) for the National Health Service Corps
(NHSC); however, the committee notes that this amount is in addition to mandatory funding
provided through the HHS Secretary's NHSC Fund as established under the Affordable Care Act
(ACA, P.L. 111-148 and P.L. 11-152). Combined, the committee anticipates $431 million for the
NHSC in FY 2011, more than double the FY 2010 enacted level.

In addition to encouraging HRSA to continue recent improvements to the applications process

and a demonstration project for part-time service, the committee notes that "specialty care is
increasingly rare in communities that have been declared a public health emergency" and
encourages HRSA to provide "technical assistance" to these communities.

Children’s Hospitals Graduate Medical Education: As requested by the president, the Senate
committee maintains funding for the Children’s GME program at the FY 2010 level of $318
million. Details of the House bill will become available once the House Appropriations
Committee approves the bill. [Rasouli]

Agency for Healthcare Research and Quality: The Senate committee maintains funding for
the Agency for Healthcare Research and Quality (AHRQ) at the FY 2010 funding level of $397
million, but transfers an additional $17 million to AHRQ from the Prevention and Public Health
Fund for the U.S. Preventive Services Task Force ($7 million) and clinical preventive services
research ($10 million). The committee rejects the president’s proposal to discontinue funding for
the existing Centers for Education and Research in Therapeutics (CERTs), and instead provides
$13.5 million, the same as in FY 2010. The bill provides $35 million for patient-centered
outcomes or comparative effectiveness research, a $21 million (66.7 percent increase) over FY
2010.

Though details of the House subcommittee’s bill will not be available until after the full
committee considers it, a table prepared by the House subcommittee lists funding for AHRQ at
$411 million. The funding level is $14 million (3.5 percent) above the FY 2010 level. The House
subcommittee also designates $10 million from the Prevention and Public Health Fund for
AHRQ.

The president’s budget originally boosted funding for AHRQ to $611 million, a $214 million
(53.9 percent) increase over FY 2010. Within the total, the budget increased funding for patient-
centered health research from $21.0 million to $272.75 million. However, in a series of budget
amendments submitted to Congress on August 20, 2010, the president proposes decreasing his
original request for patient-centered health research by $102.8 million, citing the availability of
mandatory funding for the Patient Centered Outcomes Research Institute established in the
Affordable Care Act (P.L. 111-148 and P.L. 111-152). The revised request for AHRQ totals
$508.1 million. [Rasouli]

Centers for Disease Control and Prevention: For FY 2011, the House Labor-HHS-Education
Appropriations Subcommittee provides $6.750 billion for the CDC, a $32 million (0.47 percent)
increase over FY 2010 enacted levels. The House subcommittee also allocates $594 million from
the Prevention and Public Health Fund to the CDC for FY 2011. The measure passed by the full

6
Senate Appropriations Committee provides $6.906 billion for the CDC, a $156 million (2.3
percent) increase over FY 2010, including $663 million from the Prevention and Public Health
Fund. The Senate Report (Senate Report No. 111-243) indicates that several programs received
modest increases, with the occupational health and safety programs and the National Center for
Health Statistics receiving substantial increases over FY 2010. Funding for buildings and
facilities received substantial cuts. No details are available on specific program funding levels
from the House Appropriations Committee.

On August 20, 2010, President Obama submitted several amendments to his FY 2011 budget
request. Included among the amendments were changes to his request for the CDC, reducing the
total amount requested by $252 million, to a total of $6.359 billion for FY 2011. However,
according to the amendment language, the decrease would be offset by an increase in Public
Health Service Act Evaluation Funds and by pandemic influenza grants that were carried over by
States beyond their original expirations date of July 21, 2010.

On June 18, 2010, Secretary of Health and Human Services Kathleen Sebelius announced $250
million of funding for prevention and public health activities for FY 2010. The funds were part
of the Prevention and Public Health Fund created in the Affordable Care Act, which provides
mandatory funding for prevention and public health activities. Of the $250 million, $54 million
was designated for research, tracking, and public health activities at the CDC (see Prevention and
Public Health Fund on page 8). [Curtis]

Bioterrorism and Emergency Preparedness: The Senate Committee provides $1.046 billion
through the Public Health and Social Services Emergency Fund for the Office of the Assistant
Secretary for Preparedness and Response (ASPR), a $155 million (17.4 percent) increase over
FY 2010. Within the ASPR total, the bill adopts the president’s proposed language to transfer
$476 million from the BioShield Special Reserve Fund to fund the Biomedical Advanced
Research and Development Authority (BARDA), including management costs associated with
Project BioShield. However, “due to the large amount of funds available to promote promising
countermeasures” (approximately $358 million in prior-year unobligated balances), the
committee rejects the president’s proposal to allow the secretary to transfer additional amounts
from Project BioShield. For the hospital preparedness cooperative agreements, the Senate bill
includes $426 million, as provided in FY 2010. Details of the House funding levels will become
available after the House Appropriations Committee considers its version of the bill.

On August 20, 2010, the president submitted to Congress a series of amendments to his FY 2011
budget request for the Department of Health and Human Services (HHS). The submission
included new budget language implementing some recommendations of a recently released HHS
report reviewing the public health emergency medical countermeasures enterprise. The
amendment allows unspent pandemic flu funds to support advances in regulatory science for
medical countermeasures, and allows the HHS Secretary to transfer up to $200 million within
HHS from the BioShield Special Reserve Fund; the transferred funds would be used to create “a
new strategic investment corporation” that would “support investments in the private sector with
specific focus on disruptive technologies including novel antimicrobials and multi-use platform
technologies for diagnostics and medical countermeasures.” The amendment also proposes
allowing the HHS Secretary to transfer up to $200 million from the BioShield fund to establish a

7
Technical Center of Excellence for Advanced Development and Manufacturing within the
Department of Defense.

The HHS report is available at:

www.medicalcountermeasures.gov/documents/MCMReviewFinalcover-508.pdf

The president’s August 20 budget amendments are available at:

www.whitehouse.gov/sites/default/files/omb/assets/budget_amendments/amendment_08_20
_10_0.pdf [Rasouli]

Prevention and Public Health Fund: The Affordable Care Act (P.L. 111-148 and P.L. 111-
152) established the Prevention and Public Health Fund to increase funding for prevention and
public health activities under the Public Health Service Act. The law provides a mandatory
appropriation for the Fund, including $500 million in FY 2010, increasing up to $2 billion in FY
2015 and each fiscal year thereafter.

FY 2010: The ACA provided $500 million through the Fund for FY 2010. On June 16, 2010,
Secretary Sebelius announced that $250 million would be available to develop and strengthen the
primary care workforce over the next five years, including $168 for a “Primary Care Residency
Expansion” initiative through Title VII of the Public Health Service Act. The initiative focused
on increasing enrollment in accredited primary care residency programs (i.e., family medicine,
general internal medicine, and general pediatric medicine). The secretary also announced support
for other HRSA workforce programs for physician assistants and nursing education, establishing
nurse practitioner-led health clinics, and state health workforce planning. In a June 17 statement,
the AAMC praised the initiative as “the first of many necessary steps to improve America’s
health by expanding access to preventive, primary, and specialty medical care” and encouraged
Congress and the Obama administration to “take the next step and lift the freeze on Medicare-
supported residency training.” The secretary announced awardees in a September 27, 2010
statement.

Secretary Sebelius’ announcements is are available at:

www.hhs.gov/news/press/2010pres/06/20100616a.html and
www.hhs.gov/news/press/2010pres/09/20100927e.html. The AAMC statement is posted at:
www.aamc.org/newsroom/newsreleases/2010/136222/100617.html

In a June 18 announcement, Secretary Sebelius announced that the second $250 million
installment of FY 2010 funding will support:
 $126 million in community and clinical prevention activities, including $20 million to
assist communities in integrating primary care services into publicly-funded, community-
based behavioral health settings;
 $70 million to strengthen state, local, and tribal public health infrastructure;
 $31 million for research and tracking activities, including $21 million for public health
surveillance and $5 million for each the Community Preventive Services Task Force and
the Clinical Preventive Services Task Force; and
 $23 million in public health training activities, including $8 million for public health
workforce programs at CDC and $15 million for public health training centers.

8
Johanns Amendment: On September 14, 2010, the Senate rejected an amendment offered by
Senator Mike Johanns (R-Neb.) to the Small Business Jobs and Credit Act of 2010 (H.R. 5297)
that would have rescinded funding provided through the ACA for the Prevention and Public
Health Fund.

The amendment sought to repeals a tax reporting provision for businesses that was included in the
ACA. Because the reporting provision is intended to close a current “tax gap,” it is expected to
generate $19.2 billion in revenues over 10 years. The Johanns amendment would have rescinded the
mandatory appropriations provided in the ACA for the Prevention and Public Health Fund as an
offset for the revenue lost due to the repeal.

On September 10, 2010, the AAMC sent a letter urging senators to oppose the Johanns
amendment. The letter, which states that “using the Fund as an offset would undermine programs
designed to reduce the burden of disease, improve the quality of life, and bend the health care
cost curve,” is available at: www.aamc.org/download/150374/data/091010.pdf.

FY 2011: For FY 2011, the law provides $750 million that lawmakers may use to supplement
prevention funding in the annual HHS spending bill. The Senate Appropriations Committee
directs the bulk of the funding ($663 million) to the CDC for:
 Community Transformation Grants authorized under Section 4201 of P.L. 111-148 ($220
million);
 Racial and Ethnic Approaches to Community Health (REACH, $50 million);
 Chronic disease state grants ($140 million);
 Smoking cessation activities ($90 million);
 Epidemiology and laboratory capacity grants ($50 million);
 Prevention research centers ($10 million);
 Extramural grants for prevention and public health research ($20 million) and disability
and health promotion ($5 million);
 Scientific review of samples from the National Birth Defects Prevention Study ($5
million);
 Community health worker demonstration grants ($30 million);
 Task Force on Community Preventive Services ($7 million); and
 An education and outreach campaign regarding benefits under health reform.
The committee also provides $34 million to the National Center for Health Statistics within the
CDC total.

The committee also directs $40 million from the Fund to the Substance Abuse and Mental Health
Services Administration (SAMHSA) for primary and behavioral health integration grants; $17
million to AHRQ for the U.S. Preventive Services Task Force ($7 million) and clinical
preventive services research ($10 million); and $30 million to HHS for tobacco cessation
activities, public health and prevention coordination and strategic planning, and the National
Prevention, Health Promotion, and Public Health Council established under the ACA.

9
Like the Senate Committee, the House subcommittee transfers most ($594 million) of the FY
2011 allocation to the CDC; however, details of specific programs supported by the Fund were
not included in materials released by the subcommittee. Other agencies supplemented by
transfers from the Fund in FY 2011 include: HRSA ($30 million), SAMHSA ($116), and AHRQ
($10 million). [Rasouli]

National Institute of Disability and Rehabilitation Research: The Senate Appropriations

Committee matches the president’s budget with $112 million for the NIDRR, a $3 million (2.8
percent) increase over FY 2010. [Shick]

FY 2011 Veterans Affairs Funding

On July 28, 2010, the House approved (411-6) FY 2011 and 2012 funding for programs under the
Department of Veteran Affairs (VA). Report language (H.Rept. 111-559) accompanying the
appropriations measure (H.R. 5822) includes instructions for the VA to provide by September 1,
2010, "a report on a comprehensive review of VA research facilities and their deficiencies." The
report language notes that the review was requested in 2005 and that "work on this report is largely
complete." Additionally, the House requests "an analysis of the square footage dedicated to research
space that was renovated, modified, or constructed in fiscal year 2009 with funding from Medical
Facilities or Major or Minor Construction and the priority ranking of each research facility project
in Major or Minor Construction for fiscal years 2010 and 2011."

The House Military Construction and Veterans Affairs (Mil.Con.-VA) appropriations bill reaffirms
the $48.183 billion for FY 2011 VA medical care enacted last year as advanced funding, a $3.7
billion (8.3 percent) increase over FY 2010, matching the president's budget. VA medical care
includes the VA Medical Services, VA Support and Compliance, and VA Medical Facilities
accounts.

On July 15, 2010, the Senate Appropriations Committee approved its version of the Mil.Con.-VA
spending bill (S. 3615) with $48.303 billion for VA medical care in FY 2011, a $3.8 billion (8.6
percent) increase over FY 2010. The Senate increase over the enacted FY 2011 advance
appropriations includes an additional $20 million for VA Medical Facilities and $100 million for
VA Medical Services. Both bills also include $50.6 billion of advance funding for FY 2012 VA
medical care.

Both the House and Senate bills include $590 million for the VA Medical and Prosthetic
Research program, a $9 million (1.6 percent) increase over FY 2010, matching the president's
request. The VA research program is not authorized for advanced appropriations.

VA Graduate Medical Education

The VA Office of Academic Affiliations has developed three Requests for Proposals (RFPs) that
will provide funding for about 250 new, permanent resident positions nationwide in AY 2011-
2012 (residents start July 1, 2011). The RFPs target: Critical Needs and Emerging Specialties;
New Affiliations and New VA Sites of Care; and Educational Innovation. Additional

10
information and RFPs for the AY 2011-2012 cycle are available through the VA Office of
Academic Affiliations website: http://www4.va.gov/oaa/GME_enhancement.asp.

In the first four phases of the GME Enhancement initiative, 1,221 physician resident positions were
awarded to 87 facilities in 71 specialty training programs. Starting in the 2007-2008 academic year
(AY), the Department of Veterans Affairs (VA) undertook a multi-year expansion of their
proportional support of the nation’s graduate medical education (GME). The VA’s “GME
enhancement” initiative stems from the recommendations included in the September 2005 Advisory
Committee on Veterans Health Administration Resident Education report. The report encouraged
the VA to restore and maintain its historic support for approximately 11 percent of the total U.S.
resident physician position. [Shick]

FY 2011 National Science Foundation Funding

On June 29, 2010 the House Commerce-Justice-Science Appropriations Subcommittee approved

its FY 2011 spending measure, which provided the NSF with $7.424 billion, a $498 million (7.2
percent) increase over FY 2010 and equal to the amount requested in the president’s FY 2011
budget. The NSF receives $7.350 billion in the measure approved by the full Senate
Appropriations Committee (S. 3636) on July 22, 2010, a $424 million (6.2 percent) increase over
FY 2010 and $74 million less than the president’s budget request. For NSF research and related
activities, the House subcommittee approved $5.961 billion for FY 2011, a $343 (6.1 percent)
million increase over FY 2010, but $58 million less than the president’s request. The Senate full
committee approved $5.967 billion for research and related activities, a $349 million (6.2
percent) increase over FY 2010 levels and $52 million less than the president’s request. [Curtis]

FY 2011 Food and Drug Administration Funding

The House Agriculture Appropriations Subcommittee June 30, 2010 approved $2.571 billion for
the FDA for FY 2011, a $241 million (9.1 percent) increase over FY 2010 enacted levels and
$55 million over the president’s budget. A statement provided by Subcommittee Chair Rosa
DeLauro (D-Conn.) states that the Office of Generic Drugs, Center for Devices and Radiologic
Health, and drug advertising review programs were priorities and received substantial increases
over FY 2010. Only July 15, 2010, the Senate Appropriations Committee approved $2.516
billion for the FDA in FY 2011(S. 3606), a $166 million (6.7 percent) increase over FY 2010 and
equal to the president’s request. The Senate Report (Report No. 111-221) indicates that several
programs receive increases, with food safety programs receiving the largest funding increases
over FY 2010 levels. [Curtis]

Medicare Direct Graduate Medical Education

and Indirect Medical Education Payments

Medicare Resident Cap Slots: To assure an adequate physician workforce for the future, the
AAMC continues to advocate strongly for an increase in Medicare-supported residency training
slots. The Balanced Budget Act of 1997 placed a limit on the number of Medicare-supported
resident cap slots that, in general, are determined by the hospital’s resident count reported on its
1996 cost report.

11
Although the Affordable Care Act (ACA, P.L. 111-148, and P.L. 111-152) does not include
additional residency slots, it does redistribute 65 percent of unused DGME and IME residency
slots. The redistribution process is now being addressed through the regulatory process.
Proposed regulations were published in the Federal Register on August 3 and comments were
due August 31. Final regulations implementing the redistribution process are expected
November 1. The AAMC will continue to recommend an increase in the number of Medicare-
supported GME residency slots, similar to the AAMC-supported language of the “Resident
Physician Shortage Reduction Act of 2009” (see below).

For additional information and a complete analysis, please see the AAMC-prepared summaries
available at: www.aamc.org/initiatives/reform/..

Supporting Ambulatory Training and Didactic Activities: The Affordable Care Act (ACA,
P.L. 111-148 and P.L. 111-152) includes AAMC-supported language that addresses problematic
regulatory barriers to placing residents in non-hospital settings for a portion of their training.
Specifically, a hospital may now count for purposes of DGME and IME payments the time its
residents spend training in clinical non-hospital sites if the hospital incurs the costs of the
residents stipends and benefits effective July 1, 2010. Previously, the hospital also had to incur
physician supervisory costs. Also included are provisions that preserve and redistribute
Medicare resident cap slots when teaching hospitals close on or after March 20, 2008.
Additionally, the law allows resident didactic time in hospital settings to be counted for IME
payments, retroactive to January 1, 1983, and resident didactic time in clinical non-provider
settings can be counted for DGME payments (retroactive to July 1, 2009). Proposed regulations
implementing these provisions were included in the Medicare CY 2011 outpatient PPS proposed
rule (see below).

For additional information and a complete analysis of these provisions, please see the AAMC-
prepared summaries available at: www.aamc.org/initiatives/reform/. [Mihalich-Levin,
Fisher]

Resident Physician Shortage Reduction Act of 2009 (S. 973/H.R. 2251): Senators Bill Nelson
(D-Fla.), Charles Schumer (D-N.Y.), and Majority Leader Harry Reid (D-Nev.) and
Representatives Joseph Crowley (D-N.Y.), Kendrick Meek (D-Fla.), and Kathy Castor (D-Fla.)
introduced (May 5, 2009) the AAMC-supported Resident Physician Shortage Reduction Act of
2009 (S.973/H.R. 2251). The bill would increase the number of Medicare-supported GME
training positions by 15 percent (approximately 15,000 slots). Two-thirds of these slots would be
directed to hospitals establishing or expanding residency programs, with preference given to
primary care and general surgery programs. The remaining one-third would be allocated to
hospitals currently operating over their resident caps. In addition, the bill also includes
provisions that were part of ACA (P.L. 111-148 and 111-152) and are described in the Graduate
Medical Education (GME) update (see above). As of October 28, S. 973 had 8 cosponsors and
H.R. 2251 had 48 cosponsors.

AAMC-supported legislation introduced May 20, 2009, by Representative Allyson Schwartz (D-
Pa.), the Preserving Patient Access to Primary Care Act of 2009 (H.R. 2350), includes the

12
AAMC- supported provisions contained in S. 973/H.R. 2251. As of October 28, H.R. 2350 had
134 cosponsors. [Crytzer, Mitchell]

Healthcare Innovation Zones (HIZs)

Under the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152), a newly established
Center for Medicare and Medicaid Innovation (CMI) within the Center for Medicare and
Medicaid Services (CMS) contains language that would allow for the testing of AAMC-
supported Healthcare Innovation Zones (HIZs). The CMI, to be established by January 1, 2011,
will test payment and delivery models that can improve quality and slow the rate of Medicare
cost growth.

The HIZ language in ACA is based on the free-standing Healthcare Innovation Zone Pilot Act of
2009 (H.R. 3664), originally introduced by Representative Allyson Schwartz (D-Pa.) on
September 29, 2009.

The HIZ language in ACA is as follows:

1115A(b)(2)(B)(xviii): “Establishing comprehensive payments to Healthcare Innovation

Zones, consisting of groups of providers that include a teaching hospital, physicians, and
other clinical entities that, through their structure, operations, and joint-activities deliver
a full spectrum of integrated and comprehensive health care services to applicable
individuals while also incorporating innovative methods for the clinical training of future
health care professionals.”

The AAMC continues to support and promote the formation and study of HIZs. At press time,
CMS has not released further information regarding any of the pilots and demonstration projects
to be explored by the CMI.

In the March 3 issue of The Journal of the American Medical Association (JAMA), AAMC
President and CEO Darrell G. Kirch, M.D., authored a commentary titled, “The Healthcare
Innovation Zone: A Platform for True Reform.” In the article, Dr. Kirch advocates for the
inclusion of the healthcare innovation zone (HIZ) concept in the newly proposed Center for
Medicare and Medicaid Innovation (CMI). The goal of HIZs is to demonstrate “that
coordination of the full spectrum of care” in multiple payment systems would “improve quality
while controlling costs.” He further explains coordination and integration can be achieved by
partnering with academic medical centers (AMCs) given their “tripartite mission of patient care,
research, and medical education.” The article is available at:
www.aamc.org/newsroom/newsreleases/2010/95410/100303.html. [Lyles, Fisher, Marquez]

Center for Medicare and Medicaid Innovation (CMI)

Section 3021 of the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) creates not later
than January 1, 2011, within the Centers for Medicare and Medicaid Services (CMS) a Center
for Medicare and Medicaid Innovation (CMI) to test innovative payment and service delivery
models to reduce program expenditures while preserving or enhancing the quality of care. The

13
Secretary of Health and Human Services must select models for testing where there is evidence
that the model addresses a defined population for which there are deficits in care leading to poor
clinical outcomes or potentially avoidable expenditures.

Under the legislation, CMS has the authority to waive certain requirements, such as the anti-
kickback rule. The CMI also is required to consult representatives of relevant federal agencies,
and clinical and analytical experts with expertise in medicine and health care management. The
secretary has the authority to expand (including implementation on a nationwide basis) the
duration and scope of a model if it reduces spending while improving or not reducing quality of
care. The statute includes a list of 20 possible models and appropriates $5 million for fiscal year
2010, then $10 billion for fiscal years 2011-2019 to carry out its responsibilities.

In addition to HIZs (see previous section), the models that may be tested include:
 Contracting directly with groups of providers and suppliers, such as through risk-
based comprehensive payment or salary-based payment;
 Supporting care coordination for individuals at high risk of hospitalization through an
HIT-enabled provider network that includes home tele-health technology;
 Varying payment to physicians who order advanced diagnostic imaging based on
their adherence to appropriateness criteria;
 Paying providers and suppliers for using patient decision-support tools; and
 Allowing states to test all-payer payment reform.

More information on the CMI is available on the AAMC’s Demonstration Website at:
www.aamc.org/initiatives/reform/demosandpilots/ [Fisher]

FY 2010 Hospital Inpatient Payment Revisions Required by the ACA

On June 2, 2010, the Centers for Medicare and Medicaid Services (CMS) published in the
Federal Register a notice entitled “Hospital Inpatient Prospective Payment Systems for Acute
Care Hospitals and Fiscal Year 2010 Rates.” The notice sets forth changes to the IPPS
standardized payment amounts for the period April 1, 2010, through September 30, 2010. The
changes are required by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152), which
mandated that the FY 2010 update equal the market basket increase minus 0.25 percentage
points and that the reduced update would only apply from April 1 through the end of the fiscal
year. This change is combined with the market basket update and documentation and coding
offset discussed below under the heading “FY 2011 Medicare Inpatient PPS Final Rule.” CMS
did not accept comments on this notice.

The notice is available at: http://edocket.access.gpo.gov/2010/pdf/2010-12563.pdf. [Fisher,

Mihalich-Levin]

FY 2011 Medicare Inpatient PPS Final Rule

On August 16, 2010, the Centers for Medicare and Medicaid Services (CMS) published in the
Federal Register the fiscal year (FY) 2011 Medicare hospital inpatient prospective payment

14
system (IPPS) final rule. Finalized policies take effect for discharges on or after October 1,
2010.

Market Basket Update and Documentation and Coding Reduction: Under the final rule,
CMS will update Medicare inpatient hospital payments by a market basket rate of 2.6 percent,
minus a reduction of 0.25 percentage points required by the Affordable Care Act (ACA, P.L.
111-148 and P.L. 111-152), minus an additional 2.9 percentage points to remove one-half of
what CMS believes to be the overpayments made to hospitals in 2008 and 2009 due to changes
in hospital coding practices that do not reflect increases in patients' severity of illness. The
documentation and coding adjustments will result in an overall reduction of 0.55 percent to the
standardized payment amount. CMS estimates that as a result of other factors, average teaching
hospital operating payments per discharge in 2011 will be 0.5 percent less than in 2010.

The documentation and coding adjustment is a result of Medicare payments increasing as a result
of what CMS believes are coding changes made in response to the change from DRGs to
Medicare severity-DRGs (MS-DRGs) in FY 2008. The MS-DRG relative weights for FY 2008
were calibrated with the intent that the change from CMS DRGs to MS-DRGs would be budget
neutral, with Medicare payments only increasing if there is an actual increase in the severity of
patients treated.

The AAMC has been working with other hospital associations to do extensive analysis of the
data that underlie CMS documentation and coding reduction. The AAMC believes that the
methodology that CMS used to arrive at the 2.9 percent reduction is fundamentally flawed by
ignoring the historical trend in case mix growth. However, this argument was rejected by CMS
in the final rule.

On July 20, the AAMC joined the American Hospital Association and the Federation of
American Hospitals in signing a letter that provided two additional independent studies to CMS
as the agency considered its FY 2011 hospital IPPS final rule. The studies were commissioned
in response to the proposed 2.9 percent cut in IPPS payments that CMS believes is necessary to
account for increases in documentation and coding that result from the move from DRGs to MS-
DRGs and not due to increases in patient severity. The first study, “Issues in Measuring
Documentation and Coding Change,” examined coding and documentation issues. The second
study, “Trends in Case-Mix in the Medicare Population,” analyzed changes in Medicare case-
mix over time. Both studies concluded that the CMS documentation and coding offset is
overstated and does not adequately account for increase in patient severity. The hospital group
letter urged CMS to change the “methodology for determining documentation and coding change
to better account for increasing patient severity” and to “reduce the proposed cut.”

Additionally, in similar bipartisan July 16 Senate and July 12 House letters, 52 Senators and 242
Representatives strongly urged CMS to confirm that the “appropriate and correct methodology
has been adopted” and to “mitigate” the proposed reduction in hospital payments. As noted in
the letter, analysis completed by the Medicare Payment Advisory Commission (MedPAC) has
shown that “hospitals are currently being paid substantially less than the cost of delivering care
to Medicare patients.” The congressional letters stated the proposed hospital payment reduction

15
(estimated at $3.7 billion in FY 2011) “may adversely affect their ability to care for patients and
serve their communities.”

The AAMC joint letter is available at:

www.aamc.org/download/135000/data/group_letter_on_proposed_ipps_rule.pdf.
The Senate letter is available at:
www.aamc.org/download/156464/data/senate_letter_to_cms_on_proposed_medicare_2011_
ipps_regulation.pdf.
The House letter is available at:
www.aamc.org/download/156460/data/house_letter_to_cms_on_proposed_medicare_2011_i
pps_regulation.pdf. [Fisher]

Changes Affecting DGME and IME Payments: The final rule contains several provisions
affecting DGME and IME payments. First, the final rule clarifies the definition of “approved
medical residency programs” to distinguish between residents and fellows who should be
included in the FTE count for DGME and IME purposes and physicians who should bill for their
services under Medicare Part B. Previously, CMS has defined an “approved” program as one
that is accredited by a national accrediting organization or that leads toward board certification
by the American Board of Medical Specialties (ABMS). CMS now clarifies that:
 effective for cost reporting periods beginning on or after October 1, 2010, chief residents
who have already completed an accredited program and have satisfied minimum
requirements for board certification will no longer be considered residents for indirect
medical education (IME) and direct graduate medical education (DGME) payment
purposes; 
 effective for cost reporting periods beginning on or after October 1, 2010, individuals
training in residency programs that hospitals operate for a period longer than the
minimum accredited program length will no longer be considered residents for DGME
and IME payment purposes; and  
 hospitals may only receive Part B reasonable cost reimbursement for residents in
unapproved programs if those residents are not fully licensed in the state where the
residents are training.   

Second, CMS finalizes its proposal to permit the electronic submission of GME affiliation
agreements to the CMS Central Office. If the electronic submission system is ready to receive
affiliation agreements for the academic year beginning July 1, 2011, CMS will notify hospitals
by May 2011 of the electronic submission process. Even after the electronic process is place,
CMS will continue to accept hard copies of affiliation agreements. [Mihalich-Levin]

Changes Affecting DSH Payments: In response to the court decision in Baystate Medical
Center v. Leavitt, CMS revised its data matching process for the SSI fraction of the Medicare
DSH adjustment formula. The District Court concluded: (1) that the SSI eligibility data CMS
used failed to include stale and forced pay SSI records; (2) that CMS’s use of only a single Title
II number and one Health Insurance Claims Account Number (HICAN) was faulty; and (3) that
the match process used did not appropriately account for retroactive SSI eligibility
determinations and lifting of payment suspensions. For hospitals for which this issue is of
particular concern, please see pages 50275 –50286 of the final rule. [Mihalich-Levin]

16
Quality Regulations: For the first time, CMS has finalized quality measures for the inpatient
quality reporting program for three fiscal years (FYs 2012-FY2014) providing a road map for
hospitals as to what to expect in the upcoming years. Although CMS does clarify, they may
make modifications to the list of measures in future rulemakings.

FY2011: For the FY 2011 payment update, CMS retired the Agency for Healthcare,
Research and Quality (AHRQ) composite measure, Mortality for Selected Surgical
Procedures, since it did not obtain NQF endorsement and was not recommended for
comparative reporting. Therefore, the FY 2011 payment update will be calculated on the
remaining 45 measures.

FY2012: CMS finalized 10 additional measures for the FY 2012 payment determination.
The required measures include two AHRQ Patient Safety Indicators (PSI) and eight
Hospital Acquired Conditions (HACs). These measures are claims based and will be
calculated on three years of Medicare FFS claims. CMS deferred its proposal to require
hospitals to submit all-patient volume data.

FY2013: CMS has finalized the inclusion of two hospital acquired infection measures to
be reported to the Centers for Disease Control and Prevention’s National Healthcare
Safety Network (NHSN). CMS is phasing in the collection of these measures by
requiring one measure to be collected in FY 2013 and the second will be delayed until FY
2014. In addition, CMS has required one chart-based measure in AMI care for FY 2013.

FY2014: CMS finalized four chart-abstracted measures focusing on emergency

department throughput and global immunizations for the FY 2014 payment
determination.

Data Synchronization: Beginning with the FY 2013 payment determination, CMS will
synchronize the reporting periods for all measures, requiring submission for the four
calendar quarters of calendar year 2011. Establishing standard reporting periods for all
measures will provide a foundation for implementing the Value Based Purchasing
provision required under the ACA.

Validation: There will be no changes to the chart validation requirements for FY 2012.
These requirements involve validating records for an annual sample of 800 hospitals
among those that submitted chart-abstracted data for at least 100 discharges combined for
all topics. Beginning with FY 2013, CMS will continue to use the same validation
process with targeting criterion.

To be consistent with the data submission synchronization, data validation will be

required for four consecutive calendar quarters beginning with the 4th quarter of the
calendar year that occurs two years before the payment determination. [Faerberg]

Additional Payments for Hospitals with Low Per Enrollee Medicare Spending: Section
1109 of the ACA requires CMS to make additional payments for FYs 2011 and 2012 totaling

17
$400 million to qualifying hospitals located in counties that rank in the lowest quartile of per
enrollee Medicare spending under parts A and B, adjusted for age, sex, and race. Because this is
a “new policy,” and because CMS added two additional eligible counties (with no qualifying
hospitals) in the final rule, the agency finalized its proposal to distribute $150 million in FY 2011
and $250 million in FY 2012. However, CMS will determine the bottom quartile of counties
only once, through the FY 2011 IPPS rulemaking process. The agency finalized a methodology
for adjusting county level per enrollee Medicare spending for age, sex, and race to determine the
counties that are in the lowest quartile of per enrollee Medicare spending.

The list of providers qualifying for these payments under the proposed methodology is located
on page 68 (Table 3) of the supplemental proposed rule. Note that of the 786 counties in the
lowest quartile, 273 contain qualifying hospitals. [Mihalich-Levin, Steinmetz]

Outlier Payment Threshold: The final rule decreased the outlier threshold from $23,140 in FY
2010 to $23, 075 in FY 2011. The threshold in the final rule was more than $1000 less than the
proposed fixed loss cost threshold of $24,165. [Fisher]

ICD-10: In the final rule, CMS provided a summary of the public comments received on the
approach for updating ICD-9-CM and ICD-10-CM/PCS codes prior to the statutorily required
deadline for ICD-10 implementation on October 1, 2013. These comments were shared at the
the September 15 meeting of the ICD-9 CM Coordination and Maintenance Committee, the
Committee with final statutory jurisdiction over any action impacting the ICD-9-CM and ICD-10
code sets.

The Committee agreed at the September 15 meeting to enact a partial freeze of the ICD-9-CM
and ICD-10 coding systems, beginning Oct. 1, 2011. Their decision followed a request for public
input from the committee and the Centers for Medicare and Medicaid Services (CMS) on a
recommended partial freeze schedule.

The code freeze implementation schedule is identical to the CMS proposal included in the Fiscal
Year 2011 Hospital Inpatient Prospective Payment System (IPPS) Rule. The AAMC, in
comments submitted to CMS on the FY 2011 IPPS proposal, supported a code freeze to "allow
for sufficient time for all affected parties to focus on the complex implementation process."

The partial freeze will be implemented as follows:

The last regular, annual updates to both ICD-9-CM and ICD-10 code sets will be made on Oct. 1,
2011.

 On Oct. 1, 2012, there will be only limited code updates to both the ICD-9-CM and ICD-
10 code sets to capture new technologies and diseases as required by section 503(a) of the
Medicare Prescription Drug, Improvement, and Modernization Act (MIPPA, P.L. 108-
173).

18
  On Oct. 1, 2013, there will be only limited code updates to ICD-10 code sets to capture
new technologies and diagnoses as required by MIPPA. There will be no updates to ICD-
9-CM, as it will no longer be used for reporting.

 On Oct. 1, 2014, regular updates to ICD-10 will begin.

Included in the final rule are plans to complete the expansion of CMS’ internal system capability
to process up to 25 diagnoses and 25 procedures on hospital inpatient claims as part of the
HIPPA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system
update. CMS will be able to process up to 25 diagnosis and 25 procedure codes starting January
1, 2011. CMS’ current system allow for the processing of only the first 9 diagnoses and 6
procedures on hospital inpatient claims. [Dardani]

To access the Federal Register copy of the final rule, go to:

http://edocket.access.gpo.gov/2010/pdf/2010-19092.pdf.

To access AAMC’s comment letters on the proposed rule, go to:

www.aamc.org/advocacy/medicare/inptpps/

CY 2011 Hospital Outpatient Prospective Payment System

On August 3, the Centers for Medicare and Medicaid Services (CMS) published in the Federal
Register a proposed rule that contains changes to the calendar year (CY) 2011 outpatient
prospective payment system (OPPS) as well as proposed payment rates for Ambulatory Surgical
Centers (ASCs). Included in the proposed rule are DGME and IME regulatory provisions (see
Graduate Medical Education section) required by the Affordable Care Act (ACA, P.L. 111-148
and P.L. 111-152). If finalized, CMS will implement the changes to both the OPPS and the ASC
payment system January 1, 2011. The AAMC submitted a comment letter on the proposed rule.

Proposed Changes Affecting DGME and IME Payments: CMS proposes to implement
provisions of the ACA that permit hospitals to count resident time in clinical nonprovider
settings, as long as the hospital incurs the costs of the residents' salaries and fringe benefits for
the time that residents spend in the nonhospital sites. The proposed rule also would implement
provisions allowing hospitals to count didactic time in non-hospital settings for DGME payment
purposes and didactic time in hospital settings for IME payment purposes.

In addition, the proposed rule would implement the resident redistribution provisions of the law
for hospitals that have “unused” Medicare resident cap slots. In general, CMS will take 65
percent of the DGME and IME residency slots that have gone unused by a hospital for the past
three years and redistribute them according to certain criteria. The ACA specifies that 70 percent
of the unused slots must be redistributed to hospitals in states with resident-to-population ratios
in the lowest quartile, and CMS proposes that these states are: Montana, Idaho, Alaska,
Wyoming, Nevada, South Dakota, North Dakota, Mississippi, Florida, Puerto Rico, Indiana,
Arizona, and Georgia. The ACA requires CMS to allocate the remaining 30 percent of the

19
redistributed slots to hospitals in rural areas and to hospitals located in the 10 states with the
highest proportion of their populations living in a health professional shortage area, which CMS
proposes to be: Louisiana, Mississippi, Puerto Rico, New Mexico, South Dakota, the District of
Columbia, Montana, North Dakota, Wyoming, and Alabama. CMS proposes that hospitals that
do not fit within these categories will be ineligible to receive slots through the redistribution
program. The proposed deadline for hospitals to apply for redistributed slots is December 1,
2010. If any slots are left in the distribution pool after the first round of applications, CMS
proposes to initiate a new round of applications after July 1, 2011, using the same redistribution
criteria as the first round.

Regarding slots from closed hospitals, the ACA requires CMS to redistribute permanently the
DGME and IME residency slots from hospitals that closed on or after March 23, 2008.
Currently, hospitals may receive temporary cap slots for training displaced residents from the
closed hospital. Among other criteria, CMS proposes to give preference in distributing these
permanent slots to hospitals that assume an entire program from the closed hospital, hospitals
that received slots from the closed hospital under a GME affiliation agreement and will use the
slots to continue to train at least the number of residents they had trained under the affiliation
agreement, and to hospitals that took in residents displaced by the hospital closure and will
continue to train residents in the same programs as the displaced residents, even after the
displaced residents complete their training. CMS included proposed applications for both the
unused resident slot redistribution program and the closed hospital resident slot redistribution
programs in the rule (see Legislative below for more information). [Mihalich-Levin]

Legislative (Affiliation Agreement): The House July 14 passed the Veterans’, Seniors’ and
Children’s Health Technical Corrections Act of 2010 (H.R. 5712). The legislation, which passed
with bipartisan support by voice vote, was described as a “non-controversial extenders”
package. One key provision was the inclusion of AAMC-supported language that directs CMS
to consider affiliation agreements when identifying unused residency slots under the
redistribution program (described earlier). Without this provision, CMS would not look first at
an affiliated group as a whole to determine if the entire group is over its aggregate capbefore
taking slots away from individual hospitals. Additionally, without this legislative fix, hospitals
whose “highest” resident count does not occur in the same year as the smallest difference
between their cap and their count would risk losing resident slots.

As of press time, the Senate had not passed legislation including the AAMC-supported affiliation
agreement language. The AAMC will continue to work with Senate leaders and advocate that
the affiliated group language should be attached to moving legislation before the 111th Congress
adjourns. [Mihalich-Levin]

Proposed Changes to the CY 2011 OPPS and Payment Rates: CMS proposes to update the
hospital base OPPS payments by an increase factor of 2.15 percent. This update reflects an
inflationary increase of 2.4 percent minus a 0.25 percentage point reduction required under the
new reform law.

Under the proposed rule, for CY 2011 CMS would pay for the acquisition and pharmacy
overhead costs of separately payable drugs and biologicals without pass-through status at the

20
average sales price (ASP) plus 6 percent. This payment rate represents an increase of 2
percentage points from the rate these products currently receive. However, the agency notes that
this rate may change as more updated data become available.

CMS would apply a budget neutrality adjustment for cancer hospitals and improve payment rates
for partial hospitalization services provided by hospitals.

CMS also proposes to decrease the fixed-dollar outlier threshold from $2,175 in CY 2010 to
$2,025 in CY 2011. [Fisher]

Quality Proposed Regulations: Similar to the Inpatient Prospective Payment System (IPPS)
rule, CMS has proposed a three-year plan for reporting of quality data in the Hospital Outpatient
Quality Data Reporting Program (HOP QDRP). CMS’ plan proposes measures for CYs 2012-
2014, but indicates that not all measures may be finalized in this rulemaking.

Currently, the HOP QDRP program requires the submission of seven chart-abstracted measures
in Surgical Care and AMI care in the Emergency Department (ED) in addition to four claims-
based measures in Imaging Efficiency. CMS proposes additional measures in the areas of HIT,
Diabetes care, ED care and Imaging Efficiency.

Validation: CMS has proposed to implement a validation process similar to what is in

place for the inpatient reporting program. Under the new process, CMS would randomly
select 800 hospitals on an annual basis for validation. The selected hospitals would be
required to submit 12 cases per quarter or 48 per year for review. Hospitals must achieve
a 75 percent match rate or validation score to be eligible for payment. The match rate
would measure agreement on the measure level and not the data element level. The new
process would begin with April 1, 2010, through March 31, 2011, services.

Program requirements: CMS has proposed a new program requirement for

participating in the HOP QDRP that will require hospitals to submit aggregate level
population and sample counts for all relevant Medicare and non-Medicare encounters.
This is a similar requirement to the inpatient program.

Ambulatory Surgery Center (ASC) reporting: The Tax Relief and Health Care Act
gives the Secretary of Health and Human Services the authority to implement a quality
reporting program for Ambulatory Surgery Centers (ASCs). CMS has deferred
implementing such a program, citing issues with the newly implemented ASC payment
system and not wanting to move too quickly. CMS has stated they will implement the
program in a future rulemaking (CY2012). [Faerberg]

The proposed rule, a summary analysis of the graduate medical education provisions, a summary
and analysis of the OPPS proposed rule and the comment letters are available at:
www.aamc.org/download/150396/data/2011_opps_comments_non-dgme_ime.pdf.pdf

21
 Medicare Outpatient Observation Stays

On July 7, AAMC President and CEO Darrell Kirch, M.D., received a letter from then-acting
CMS Administrator Marilyn Tavenner on the increase in outpatient observation services,
particularly those that extend beyond 48 hours. The American Hospital Association (AHA) and
Federation of American Hospitals (FAH) received similar letters.

CMS is concerned about this increase, in large part because of the impact on Medicare
beneficiaries. Beneficiaries who receive observation care and are not admitted as inpatients are
responsible for a 20 percent copay, bear the full costs of self-administered drugs admitted during
the observation time, and are not eligible for Medicare financed skilled nursing care (which
requires a three-day inpatient stay). The letter asked AAMC for input as to why the trend in 48
hour and longer observation stays is occurring.

In response to the letter, the AAMC held a call with constituents and is in the process of
conducting data analysis on this issue with the AHA and FAHS. The three associations also
submitted a joint statement at a CMS listening session on observation services on August 24.
The three organizations plan to complete the data analyses and provide a written response to
CMS. [Fisher]

Inpatient Rehabilitation Facility Notice

On July 22, the Centers for Medicare and Medicaid Services (CMS) published in the Federal
Register a notice implementing routine updates to the Medicare inpatient rehabilitation facility
(IRF) prospective payment system (PPS) for FY 2011. No policy changes and no changes for the
teaching adjustment are proposed in this notice.

The teaching adjustment is based on a regression analysis as well as the IRF's ratio of resident-
to-average daily census (RADC). For FY 2010, CMS finalized a proposal that changes the
methodology to reflect three years of data, rather than one year of data. According to the agency,
this would avoid year-to-year fluctuations in the teaching status adjustment factor.

According to the notice, CMS is still evaluating the effectiveness of the new methodology in
stabilizing the IRF PPS rate structure. The agency states that it will propose further adjustments
through a future rulemaking process, if necessary.

CMS would update base payments for IRFs by 2.25 percent. This update reflects an inflationary
increase of 2.5 percent minus a 0.25 percentage point reduction required under the Affordable
Care Act (P.L. 111-148 and P.L. 111-152).

The notice is available at: http://edocket.access.gpo.gov/2010/pdf/2010-17621.pdf. [Fisher]

Selected Medicare Hospital Quality Provisions Under the ACA

22
The Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) establishes several major
changes in Medicare hospital payment policy. Scheduled for implementation over the next five
years, most of the changes are intended to reduce “wasteful” Medicare spending and improve the
“value” of hospital services. Such action is expected to produce Medicare savings that will offset
the cost of expanding coverage under ACA. The following changes are of particular interest to
teaching hospitals and medical schools.

Payment Adjustment for Hospital Acquired Conditions (Section 3008): Beginning in FY

2015, hospitals scoring in the top quartile for the rate of Hospital Acquired Conditions (HAC) as
compared to the national average will have their Medicare payments reduced by 1 percent for all
DRGs. The applicable period for determination of the rates will be the fiscal year. In calculating
the rates, the secretary will establish and apply an appropriate risk-adjustment methodology.
The conditions included in this provision would be those already selected for the current Hospital
Acquired Conditions payment policy and any other conditions acquired during a hospital stay
that the secretary deems appropriate. [Faerberg]

Hospital Value Based Purchasing Program (Section 3001): The Secretary is required to
develop a Value Based Purchasing (VBP) Program, which pays hospitals based on their
performance for certain quality measures. Incentive payments begin in FY2013 based on
discharges occurring on or after October 1, 2012. The incentive payments will be based on both
attainment and improvement.

The VBP program is budget neutral however; all subsection (D) hospitals will have a reduction
in the base payment rate, excluding IME, DSH and outlier payments, for all DRGs to fund the
incentive pool. The payment reductions will occur irrespective of whether or not a hospital
receives an incentive payment. The schedule for the reductions is as follows: FY 2013 (1
percent), FY 2014 (1.25 percent), FY 2015 (1.5 percent), FY 2016 (1.75 percent) and FY 2017
and beyond (2 percent). The measures included in the initial year of the program will be a subset
of those measures already reported for the current Pay for Reporting program. In FY 2014,
outcome and efficiency measures will be included. All efficiency measures will be risk-adjusted
for factors such as age, sex, race, severity of illness and other factors the Secretary deems
appropriate. Readmission measures will not be included in the VBP program as they are
addressed in a separate readmission payment policy. [Faerberg]

Hospital Readmissions Reduction Program (Section 3025): To account for “excess

readmissions,” effective October 1, 2012, DRG payment rates will be reduced based on a
hospitals ratio of actual to expected readmissions. The reduction applies to the base DRG
payment only and does not include IME, DSH or outlier payments. In FY 2013, the maximum
payment reduction is 1 percent, 2 percent in FY 2014, and capped at 3 percent for FY 2015 and
beyond.

The measures included in the policy must represent high volume and high cost conditions and be
endorsed by the National Quality Forum (NQF). The measures must have appropriate exclusions
for readmissions that are unrelated to the prior discharge (such as planned admissions or transfers
to another hospital). For FY 2013 the readmissions policy will apply to the three measures
currently being reported on Hospital Compare: Heart Attack (AMI), Heart Failure and

23
Pneumonia. In FY 2015, the policy expands to include COPD, CABG, PTCA and Other
Vascular, as identified by MedPAC in its June 2007 report. In addition, hospitals will be
required to submit the appropriate information for CMS to calculate hospital specific all-payer
readmission rates, which would be publicly reported on Hospital Compare.

No later than March 2012, the secretary must make available a program to help reduce
readmission rates for those hospitals with high severity adjusted readmission rates. The program
would be managed through established Patient Safety Organizations (PSOs). [Faerberg]

National Health Care Quality Strategy and Plan: The Department of Health and Human
Services (HHS) released a draft plan for the development of the National Health Care Quality
Strategy and Plan. The Affordable Care Act (P.L. 111-148 and P.L. 111-152) requires the HHS
Secretary to develop a national strategy, including a strategic plan and the development of
priorities, to improve the delivery of health care services, patient health outcomes and population
health. The National Strategy must include provisions for 1) agency specific plans and
benchmarks; 2) coordination among agencies; 3) strategies to align public and private payers;
and 4) alignment with meaningful use of health information technology.

In response to a request for input, the AAMC offered strong support for a national strategy but
also stressed the need to recognize the critical role of education to ensure the sustainability of
quality initiatives and the overall commitment to quality and value through practitioners’ careers.
The letter also stressed the inclusion of the role of research through comparative effectiveness
research (CER) as well as the role of implementation science to ensure new innovations and
process improvements are implemented. The AAMC called for the alignment of measures
across public and private initiatives as well as selecting only those measures supported by
clinical evidence for national goals.

Document: www.hhs.gov/news/reports/quality/nationalhealthcarequalitystrategy.pdf

The AAMC comment letter is available at:

www.aamc.org/download/156486/data/aamc_comment_letter_on_the_proposed_national_h
ealth_care_quality.pdf [Faerberg]

CMS Proposed Rule to Ensure Visitation Rights for All Patients

The AAMC joined the American Hospital Association, the Catholic Health Association of the
United States, the Federation of American Hospitals, the National Association of Children’s
Hospitals, and the National Association of Public Hospitals and Health Systems on a July 2 letter
supporting the administration’s initiative to secure the right of all patients to designate visitors
and ensure hospitals fully respect the informed medical decisions of a patient representative.

On June 28, CMS published a proposed rule that would require hospitals to respect the rights of
patients to designate visitors. The proposed rule also requires hospitals to have written policies
and procedures detailing their visitor designation policy. The rule would implement an April 15
Presidential Memorandum requesting HHS to develop standards that would “preserve the rights
of all patients to choose who may visit them.” The hospital group letter states that the signatories

24
will “encourage our member hospitals to review their policies” and “ensure they promote the
visitation and decision-making rights of the individuals designated by the patients for whom we
care.”

The proposed rule was published in the June 28 Federal Register and the deadline for comments
on the proposal rule was August 27. A final regulation is expected by late fall.

The AAMC group letter is available at: www.aamc.org/download/156440/data/cod-

coth_letter_to_sec._sebelius_on_patient-visitor_priveleges.pdf.
The Presidential Memorandum is available at: www.whitehouse.gov/the-press-
office/presidential-memorandum-hospital-visitation.
The Proposed Rule published in the June 28 Federal Register is available at:
http://edocket.access.gpo.gov/2010/pdf/2010-15568.pdf. [Mihalich-Levin, Crytzer]

Medicare Disproportionate Share Hospital (DSH) Payments

Under the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) Medicare will reduce
DSH expenditures by $22 billion over 10 years. Beginning in FY 2014 the cuts will reduce each
hospital’s current Medicare DSH payments by 75 percent. However, new payments will be
made to eligible hospitals from the new savings. The new payments will be based on a hospital’s
uncompensated care costs. Additional information on this provision has not yet been published.

For additional information and a complete analysis of the Medicare DSH provisions, please see
the AAMC-prepared summaries and slide show presentations at:
www.aamc.org/initiatives/reform/. [Legislative: Mitchell, Crytzer; Regulatory: Fisher,
Mihalich-Levin]

3-Day Payment Window

President Obama June 25 signed into law the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192) that included a provision that
changes the Medicare policy known as the “3-Day Payment Window.” The provision prohibits
the unbundling of payments for therapeutic services unrelated to a hospital admission if they are
performed within 72 hours of an admission. In addition, the provision prohibits hospitals from
going back and unbundling already-submitted claims and would create an estimated “savings” of
$4.2 billion. [Mihalich-Levin, Marquez]

Medicare Physician Payments

Without Congressional action, physicians face a 23 percent cut in Medicare payments effective
December 1, 2010. An additional cut of 6.5 percent is projected for January 1, 2011. The
AAMC continues to work with the American Medical Association (AMA) and other physician
groups to advocate for the repeal of the problematic Sustainable Growth Rate (SGR) formula
currently used to calculate Medicare physician payments. The physician community seeks a
long-term solution that adequately compensates physicians for the costs of caring for Medicare
patients.

25
Legislative: Averting a 23 percent Medicare physician payment cut is one of several major
tasks Congress faces when members are expected to return on November 15. Lawmakers need
to take action before the cut takes effect on December 1, 2010.

The AAMC on September 29 joined the AMA and other physician organizations in signing a
letter to the House leadership, urging Congress to take action to address the cut during the first-
week of an anticipated lame duck session expected to begin November 15. Additionally, the
letter stresses that Congress must break the cycle of addressing cuts only a few months at a time,
and should take action on legislation to permanently replace the SGR formula. The letter states,
“Physicians are committed to taking the leadership in developing Medicare payment reforms to
replace the SGR once and for all, and we are counting on Congress to make permanent reform a
reality.”

The letter is available at:

www.aamc.org/download/155062/data/group_letter_on_medicare_physician_payment_cut.
pdf

The current physician payment update (effective from June 1— November 30, 2010) was
adopted as part of the Preservation of Access to Care for Medicare Beneficiaries and Pension
Relief Act of 2010 (P.L. 111-192) signed by President Obama on June 25. Under P.L. 111-192
physicians receive a positive 2.2 percent update. The Congressional Budget Office (CBO) said
in an August 24 letter to Senator Mike Crapo (R-Idaho) that a Medicare payment fix in 2010
could cost as much as $330 billion over ten years.

President Obama has stated that “kicking these cuts down the road just isn’t an adequate solution
to the problem.” He has stated that the current system of “recurring cuts” and “temporary fixes”
passed into law over ten years ago is “untenable,” and he affirmed his commitment to
“permanently reform the Medicare formula in a way that attacks our fiscal problems without
punishing our hard-working doctors.”

The CBO letter is available at: www.cbo.gov/ftpdocs/118xx/doc11820/CrapoLtr.pdf.

[Mitchell, Crytzer, Marquez]

Regulatory: On July 13, 2010, the Centers for Medicare and Medicaid Services (CMS)
published in the Federal Register a proposed rule for the 2011 Medicare Physician Fee Schedule
(PFS). Without Congressional action, CMS estimates an additional 6.1 percent cut to physician
services starting January 1, 2011. This reduction would be in addition to the 23 percent reduction
scheduled to occur on December 1.

CMS proposes to revise and rebase the Medicare Economic Index (MEI), a variable in the
physician payment update formula. If the MEI proposal is finalized, relatively more weight
would be placed on practice expenses and professional liability insurance (PLI) expenses. Due to
a requirement that changes be budget neutral, this would mean that services with a higher
proportion of these costs will receive an increase, while services with a lower proportion of
practice expense and PLI would be reduced. The MEI proposal also reduces the proportion of

26
practice expense that is geographically adjusted for rent. As a result many high-rent urban areas
will experience a decrease in the practice expense geographic adjustment. CMS also proposes to
convene a technical advisory panel to review all aspects of the MEI. The panel’s
recommendations would be considered in future rulemaking but would not impact this current
proposal.

The proposed rule also implements provisions of the ACA providing bonuses for primary care
services by primary care practitioners and bonuses for general surgeons in health professional
shortage areas.

Finally, the proposed rule makes several suggested changes to the Physician Quality Reporting
Initiative (PQRI) and outlines how CMS plans to impose penalties for E-prescribing Incentive
Program. (See Physician Quality and Value Initiatives below). A final rule is expected to be
published in November.

The rule is located at: http://edocket.access.gpo.gov/2010/pdf/2010-15900.pdf.

AAMC comments can be found at: www.aamc.org/download/144712/data/08242010.pdf.pdf.
[Patton, Baer]

Physician Quality and Value Initiatives

Physician Quality Reporting Initiative (PQRI): The Medicare PFS proposed rule (see
Physician Payment Regulatory above) outlines the criteria for the 2011 Physician Quality
Reporting Initiative. The incentive for successful submission is 1 percent of 2011 total Medicare
Part B allowed charges for services paid under the physician fee schedule. CMS proposes to
retain the 2010 options for individual reporting, but has lowered the reporting threshold for
claims-based reporting from 80 percent to 50 percent. CMS also proposes two group practice
reporting options (GPRO). GPRO I, for groups with over 200 national provider identifiers (NPI)
per tax ID number (TIN), requires practices to submit data on 26 measures for a sample of
patients. GPRO II, which is new for 2011 and is for practices with between 2 and 199 NPIs/TIN,
requires group practices to submit data on a certain number of measures sets (called measures
groups) as well as individual measures. The reporting requirements are scaled according to the
size of the practice. CMS proposes that for 2011 GPRO II will be available to the first 500
groups that apply.

The rule also outlines the requirements for participating in a Maintenance of Certification
program (MOCP). Eligible professionals can receive an additional 0.5 percent incentive if they
participate in an MOCP more frequently than is required to maintain certification. An EP must
conduct a practice assessment as part of the participation.

Other changes to PQRI include the future integration of PQRI with the reporting requirements
for meaningful use of EHRs by January 1, 2012, and the creation of an informal appeals process.
[Patton]

E-prescribing (eRx) Incentive Program: The Medicare PFS proposed rule outlines the
requirements to receive a 2011 eRx incentive, and for the first time describes the way in which

27
CMS would implement the eRx penalties that start in 2012. For 2011, eligible professionals
(EPs) can receive a 1 percent incentive on their Medicare Part B allowed charges for services
paid under the physician fee schedule for being a successful e-prescriber.

Qualified EPs that are not successful e-prescribers will face a 1 percent reduction on physician
fee schedule services in 2012 and a 1.5 percent reduction in 2013. CMS proposes to use
information from 2011 to determine EPs who will have penalties imposed for 2012 and 2013.
EPs are not eligible for the eRx incentive if they receive the Medicare EHR incentives; however,
CMS proposes that they may be subject to penalties in 2012 and 2013 if they do not report under
the eRx program. [Patton, Baer]

Resource use reports and value-based modifier: The proposed Medicare PFS outlined
modifications that CMS has taken in Phase 2 of physician confidential feedback reports on
physician resource use. CMS has decided to halt episode-of-care measurement until a Medicare-
specific episode grouper is finalized and to focus instead on per-capita measurement. Per the
ACA, a Medicare-specific episode grouper must be developed by January 1, 2012. CMS also
solicited comments on statistical methods for cost measurement such as attribution, benchmarks,
composite methods and risk adjustment. A composite, risk adjusted score on cost measures will
be one of the inputs to determine the physician fee schedule value-based modifier which is
scheduled to begin--for selected physicians and physician groups--in 2015. [Patton]

Changes in Provider and Supplier Enrollment, Ordering and Referring and

Documentation Requirements; and Changes in Provider Agreements

On May 5, CMS published an interim final rule (IFR; 75 Fed. Reg. 24437) that implements a
provision of the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) that requires that
physicians and eligible professionals who order and refer for durable medical equipment (DME),
home health, and Part B items and services for Medicare beneficiaries be enrolled in Medicare.
There is an exception that allows interns and residents to order and refer, but requires that the
claim must identify the teaching physician as the ordering or referring supplier.
 
While the effective date of the rule is July 6, 2010, on June 30 CMS announced that it “for the
time being, it will not implement changes that would automatically reject claims based on orders,
certifications, and referrals made by providers that have not yet had their [PECOS] applications
approved by July 6, 2010.

The AAMC wrote to Peter Budetti, head of the CMS Center for Program Integrity, on May 12
requesting a delay in the effective date for part B services until January 3, 2011. For DME and
home health services ACA requires an effective date of July 2010. The AAMC also submitted a
formal comment letter to CMS and again requested a delay in the effective date of the proposed
rule so that CMS can decide on a workable solution to handling orders and referrals made by
residents. It is available at:
https://www.aamc.org/download/131992/data/aamc_asks_cms_for_delay_in_ordering_reffe
ring_physician_interim.pdf. [Baer]

28
 Medicare Recovery Audit Contractor (RAC) Program

The Centers for Medicare and Medicaid Services (CMS) approved an initial set of 18 inpatient
hospital claims for medical necessity review under the Medicare Recovery Audit Contractor
(RAC) program. The RAC program allows third-party auditors contracted by CMS to keep a
contingency fee (between 9 percent and 12.5 percent) based on the amount of provider payments
identified as improper. RACs previously had been limited to conducting automated reviews for
incorrect or improper coding issues and complex reviews for DRG validation. Medical necessity
reviews allow RAC auditors to question the appropriateness of clinical care provided a patient.

Some of the new medical necessity reviews will cover conditions such as: chest pain; circulatory
system diagnoses; nutritional and metabolic disorders; vascular procedures; red blood cell
disorders; musculoskeletal disorders; and various digestive disorders. A complete list of issues
can be found at: http://racb.cgi.com/Issues.aspx

The ACA requires the RAC program to be expanded to include audits for Medicaid, Medicare
Part C (Medicare Advantage plans), and Medicare Part D (prescription drug plans) by December
31, 2010. More information on the RAC program is available at:
www.cms.gov/RAC/03_RecentUpdates.asp#TopOfPage. [Dardani]

Geographic Variations in Health Care Spending and Utilization

IOM Study of Medicare’s Geographic Adjustments: The Institute of Medicine (IOM)

committee commissioned on August 20 to study Medicare geographic adjustment factors held its
first meeting on September 16-17. The study is the first of two geographic variation studies
included in a written agreement between the administration and congressional members of the
Quality Care Coalition. The first study titled, “Geographic Adjustment Factors in Medicare
Payment” will comprise two separate reports. The first, which is expected in spring 2011, will
evaluate the accuracy of Medicare’s geographic adjustment factors and the methodology and
data used to calculate them. The second, expected in spring 2012, will evaluate the effects of
Medicare adjustments on: the distribution of the health care workforce; quality of care;
population health; and the ability to provide efficient, high-value care.

At the first meeting committee members heard from technical experts on how the indices are
developed and used in the Medicare payment system. Jon Blum, Director, Center for Medicare
Management at CMS, urged the group to build an independent consensus and “actionable
recommendations.” Representatives Allyson Schwartz (D-Pa.) and Bruce Braley (D-Iowa) gave
urban and rural perspectives (respectively) on the role of geographic indices in calculating
Medicare payments. MedPAC Executive Director Mark Miller noted that the issue debate
should be about setting accurate payments in an administrative price system and that other policy
issues, such as access and provider supply, should be addressed through different policy tools.
Committee members were highly engaged and highlighted the relatively few number of payment
localities for physician payments. They also recognized the risk of using geographic adjustments
to address broader policy goals.

29
The IOM committee evaluating Medicare’s geographic adjustment factors includes:
 Committee Chair Frank A. Sloan, Ph.D., Duke University;
 Jon B. Christianson, Ph.D., University of Minnesota, Minneapolis;
 Stuart Guterman, M.A., The Commonwealth Fund;
 Judith K. Hellerstein, Ph.D., University of Maryland, College Park;
 Carlos R. Jaen, M.D., Ph.D., FAAFP, University of Texas Health Science Center;
Meridean L. Mass, Ph.D., The University of Iowa;
 Marilyn Moon, Ph.D., American Institutes for Research;
 Cathryn L. Nation, M.D., University of California Office of the President;
 Thomas C. Ricketts, Ph.D., M.P.H., The University of North Carolina at Chapel Hill;
 Jane E. Sisk, Ph.D., M.A., Centers for Disease Control and Prevention;
 Bruce Steinwald, M.B.A., Independent Consultant;
 David Vlahov, Ph.D., R.N., New York Academy of Medicine;
 M. Roy Wilson, M.D., M.S., University of Colorado at Denver;
 Barbara O. Wynn, M.A., The RAND Corporation;
 Alan M. Zaslavsky, Ph.D., Harvard Medical School; and
 Stephen Zuckerman, Ph.D., The Urban Institute.

The next meeting is scheduled for November 4-5.

For a more detailed description of the IOM commissioned study please visit:
http://www.iom.edu/Activities/HealthServices/GeographicAdjustments.aspx.

IOM Study of Geographic Variations in Health Care Spending: The IOM on September 24
released information about a second study on regional variations in health care spending and
utilization. The study has been commissioned as part of a written agreement between the
administration and congressional members of the Quality Care Coalition. In the newly
announced study, “Geographic Variation in Health Care Spending and Promotion of High-Value
Care,” the committee will explore geographic variations in the intensity and cost of health care
services. It also will assess geographic variations in per capita health care spending among
Medicare, Medicaid, privately insured, and uninsured populations. Specifically, the committee
will evaluate: how to define a geographic area; variations that occur in areas of differing sizes;
input prices, practice patterns, access to/growth in services as possible drivers of variations;
whether variations are driven by diversity within patient populations, health status, access to
care, coverage, and patient preferences; whether variations are triggered by physician decisions
or reduced by the availability of reliable medical guidelines; and variations that are unexplained
by empirical evidence.

The IOM committee evaluating variations in health care spending and utilization includes:
 Committee Chair Joseph P. Newhouse, Ph.D., Harvard University;
 Peter Bach, M.D., CMS;
 Amber E. Barnato, M.D., University of Pittsburgh Medical Center;

30
  Robert Bell, Ph.D., AT&T Labs Research;
 John Bertko, The RAND Corporation;
 Karen Davis, Ph.D., The Commonwealth Fund;
 Mark Fendrick, M.D., University of Michigan Medical School;
 Alan Garber, M.D., Ph.D., Stanford University;
 Paul B. Ginsburg, Ph.D., Center for Studying Health System Change;
 Douglas Hastings, J.D., Epstein Becker & Green, P.C.;
 Brent C. James, M.D., Intermountain Health Care, Inc.;
 Kimberly S. Johnson, M.D., Duke University Medical Center;
 Thomas H. Lee, M.D., Partners Community Healthcare, Inc.;
 Mark B. McClellan, M.D., Ph.D., The Brookings Institute;
 Sally C. Morton, Ph.D., University of Pittsburgh;
 Robert D. Reischauer, Ph.D., The Urban Institute;
 Alan Weil, J.D., National Academy for State Health Policy; and
 Gail R. Wilensky, Ph.D., Project HOPE.

The first committee meeting will be held November 9-10 and a second meeting is scheduled for
January 17-18, 2011. The committee is expected to issue a report in July 2013.

For a more detailed description of the IOM study on utilization and spending visit:
www.iom.edu/Activities/HealthServices/GeographicVariation.aspx.

National Summit on Health Care Quality and Value: The Department of Health and Human
Services (HHS) on October 4 hosted a day-long National Summit on Health Care Quality and
Value as part of a commitment made under an agreement between HHS Secretary Sebelius and
members of the Quality Care Coalition. At the summit states, providers, consumer advocates,
employers, and other interested stakeholders discussed ideas about ensuring and rewarding high
quality care. The meeting, hosted by the HHS Office of Delivery System Reform’s Director,
Peter Lee, featured presentations by Secretary Sebelius and CMS Administrator Donald
Berwick, M.D. Additional panel discussion topics included: designing high value health care
systems; promoting quality through payment redesign; fostering state-federal collaboration and
public-private partnerships; promoting innovation to achieve high value, efficient health care;
and building the health care workforce of the future.

AAMC institutions participating in the summit included: Richard "Buz" Cooper, M.D., Professor
of Medicine, Leonard Davis Institute Senior Fellow, University of Pennsylvania; Melinda Estes,
M.D., President and Chief Executive Officer, Fletcher Allen Health Care; Bruce Hamory, M.D.,
Chief Medical Officer Emeritus, Geisinger Health System; Mike Johns, M.D., Chancellor,
Emory University; J. Lloyd Michener, M.D., Chair of the Department of Community and Family
Medicine, Duke University Medical Center; Edward Miller, M.D., Dean of the School of
Medicine and Chief Executive Officer, Johns Hopkins Medicine; and Tom Rosenthal, M.D.,
Chief Medical Officer, University of California, Los Angeles Medical Center.

31
The agreement letter between HHS Secretary Sebelius and members of the Quality Care
Coalition is available at:
http://house.gov/wu/pdf/3.20.10_Sebelius_Letter_to_Quality_Care_Coalition.pdf.

Value-Based Payment Modifier for Medicare Payments: Included in ACA (P.L. 111-148 and
P.L. 111-152) are value provisions creating a value-based modifier for physician payments and a
hospital value based purchasing (VBP) program. For more information please refer to the
Physician Quality and Value Incentives (page 27) and Select Medicare Hospital Quality
Provisions Under ACA (page 22) updates.

Special Medicare Payments for Low-Cost Counties: ACA establishes special payments for
certain hospitals located in counties with low levels of Medicare spending. The payments,
totaling $400 million, are available in FYs 2011 and 2012 (see page 17).

The AAMC continues to monitor proposals intended to identify and reduce geographic variations
in Medicare spending. The AAMC believes Congress should fully review and identify the many
drivers of variations (e.g., income, race, previous coverage status) before taking any actions
related to spending and resource use. [Fisher, Crytzer, Marquez, Mitchell]

Medicare Payment Advisory Commission

MedPAC's June Report to the Congress: In its report released June 15, the Medicare Payment
Advisory Commission (MedPAC) recommends that Congress authorize the Secretary of Health
and Human Services (HHS) to establish a performance-based incentive program for Medicare
indirect medical education (IME)payments. This recommendation, along with four others, is
included in a chapter titled: Graduate medical education financing: Focusing on educational
priorities. Three of the recommendations are for studies aimed at examining specific aspects of
health workforce training. The June Report chapter concludes the commission's nearly two-year-
long examination of ways to improve GME through Medicare's DGME and IME payments.

The chapter emphasizes the commission's primary goal in undertaking this project: to create a
payment system that fosters greater accountability for Medicare's DGME and IME dollars and
rewards education and training that will improve the health care delivery system. MedPAC
acknowledges that the U.S. system of GME is, in some respects, the best in the world. However,
the commission believes that more can be done to improve certain education and training skills,
such as evidence-based medicine, team-based care, care coordination, and shared decision
making.

To achieve a "performance-based" GME program, the commission recommends that Congress

authorize the Secretary of HHS to distribute approximately $3.5 billion in IME payments above
the so-called "empirical level" that MedPAC estimates to be around 2.2 percent; the IME
adjustment is currently set at 5.5 percent. The distribution of IME funds above the empirical
level would be contingent on institutions meeting desired educational outcomes and standards.

Recognizing that Medicare should not prescribe GME curricula, the recommendation states that
the Secretary of HHS should establish standards for distributing these funds after consultation

32
with various groups, including accrediting organizations, training programs and health care
organizations, as well as patients and purchasers.

The other recommendations would have the Secretary of HHS:

 Annually publish a publicly accessible report that shows the direct GME and IME
payments received by each hospital, the number of residents trained and Medicare's share
of the associated costs incurred by the hospital;
 Conduct workforce analyses to determine the number of residency positions needed in
the U.S. by total and by specialty;
 Report to the Congress on how residency programs affect the financial performance of
sponsoring institutions and whether all residency programs should be supported equally
by the Medicare program; and
 Study strategies for increasing the diversity of the health professional workforce (e.g.,
increasing the shares of underrepresented rural, lower income and minority communities)
and report on which strategies are most effective.

In a July 7 letter to MedPAC Chair Glenn Hackbarth, the AAMC responded to the
recommendations that the commission made in its June 2010 Report to the Congress. The letter
expresses disappointment that the commission chose to ignore the need for additional Medicare
resident cap slots, instead recommending only that the Secretary of HHS conduct a workforce
study. The AAMC also states it opposes the commission's recommendation to reduce Medicare
IME payments by more than 50 percent (about $3.5 billion) and put them "at risk" in a
performance-based incentive program. Such a program is unnecessary given the accreditation
requirements of the Accreditation Council of Graduate Medical Education (ACGME) and
because it would significantly destabilize the academic medical community. The AAMC
strongly supports the commission's recommendation that the secretary study strategies to
improve the diversity of the health professional workforce.

Data Book: In June, MedPAC released its 2010 Data Book, which contains tables and figures
accompanied by brief discussions on a broad range of Medicare topics. The Data Book includes
financial margin information for hospitals, including teaching hospitals. MedPAC’s analyses of
Medicare data show that, between 2007 and 2008 total margins have declined for all hospitals
regardless of teaching status. However, the aggregate margin for major teaching hospitals
declined more sharply, becoming negative for the first time in more than a decade. Specifically,
major teaching hospitals saw a 5.9 percentage points decrease in the aggregate total margin, from
5.4 percent to -0.5 percent, compared to a 4.2 percentage points decrease for other teaching and a
2.8 percentage points decrease for nonteaching hospitals.

In 2008, Medicare inpatient margins were 5.3 percent for major teaching hospitals, -5.8 percent
for other teaching hospitals and -9.4 percent for nonteaching hospitals. Medicare overall
margins in 2008 were -1.5 percent for major teaching hospitals, -7.4 percent for other teaching
hospitals and -10.0 percent for nonteaching hospitals. This year’s data book does not include
historic Medicare inpatient or overall margin data by teaching status.

33
MedPAC’s Fall 2010 Meetings: During its fall 2010 meetings, MedPAC has not specifically
discussed teaching hospitals or Medicare DGME or IME payments but instead has focused,
among other issues, on implementation options for delivery system reforms including Medicare's
shared savings program, known as the accountable care organization (ACO) program, and on the
recent growth in outpatient observation care. Regarding ACOs, the Commission discussed
random variations in cost, a bonus/penalty model as an alternative to the bonus-only model
discussed in the ACA, selection of quality measures and targets, and whether patients should be
informed of a physician’s decision to join an ACO. Regarding the recent growth in hospital
outpatient observation care, MedPAC Staff and the Commission discussed possible reasons for
such increase, including increased scrutiny by Medicare of short (one or two-day) inpatient stays.

The MedPAC Report is available at: www.medpac.gov/documents/Jun10_EntireReport.pdf

The AAMC’s letter to MedPAC on the DGME and IME policies is available at:
https://www.aamc.org/download/133874/data/june_7_aamc_response_to_medpac_letter.pd
f.pdf

MedPAC’s Data Book is available at:

www.medpac.gov/documents/Jun10DataBookEntireReport.pdf. [Fisher]

Independent Payment Advisory Board (IPAB)

Established in Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152), the IPAB—a 15
member independent panel, to be appointed by the president and confirmed by the Senate— is
charged with enforcing a limit on Medicare spending growth. IPAB members are expected to be
nationally recognized experts in health finance, payment, economics, actuarial science, or health
facility and health plan management. The board will have broad authority to craft and execute
new Medicare policies (including changes to provider reimbursement) with limited
Congressional input. In general, unless Congress acts to block the proposals within a brief and
limited time period and identify similar savings elsewhere, CMS will implement the policy
recommendations. The first IPAB proposal must be submitted to Congress and the president
beginning in 2014. The IPAB is expected to save $15.5 billion over 10 years. Additional
information on this provision has not yet been published.

In opposition to the IPAB, Senators John Cornyn (R-Texas), Orrin Hatch (R-Utah), Jon Kyl (R-
Ariz.), Pat Roberts (R-Kan.), and Tom Coburn (R-Okla.) July 27 introduced the “Health Care
Bureaucrats Elimination Act” (S. 3653), which would repeal the IPAB. In a joint statement,
Senator Cornyn said the IPAB would “put power in the hands of politically-appointed
Washington bureaucrats.” Senator Roberts added the IPAB will lead to rationing and that access
to quality care will be “threatened by the decisions made behind closed doors by an unelected
board and unaccountable government officials.” Similar legislation, the “Medicare Decisions
Accountability Act of 2010” (H.R. 4985), was introduced March 25 in the House by
Representative David Roe (R-Texas). As of October 25, S. 3653 had 12 co-sponsors and H.R.
4985 had 54 co-sponsors.

34
The AAMC continues to believe that the Medicare Payment Advisory Commission (MedPAC),
as currently structured, already serves as an independent advisory body to Congress. The
AAMC also believes Congress should continue to exercise its ability to evaluate the impact of
payment policy changes on the communities and patients they serve.

During debates over health care reform, the AAMC joined 73 health care provider and advocacy
groups in signing a January 11 letter to Senate Majority Harry Reid (D-Nev.) and House Speaker
Nancy Pelosi (D-Calif.) strongly opposing the establishment of the IPAB in the final health care
reform agreement. The letter states that, in addition to the savings in provider payments already
included in the health reform legislation, the IPAB reductions could “jeopardize both access for
Medicare beneficiaries and even infrastructure for the entire health care system.” The letter is
available at:
www.aamc.org/download/113668/data/group_letter_to_house_speaker_and_senate_majorit
y_leader_re_sena.pdf.

For additional information and a complete analysis, please see the AAMC-prepared summaries
available at: www.aamc.org/initiatives/reform/. [Crytzer, Marquez, Mitchell]

Proposed Changes to the Medicare Hospital Cost Report

CMS solicited comments on its proposed modifications to the Medicare hospital cost report in a
Federal Register notice dated July 2, 2009. At press time, the final version of the updated
Medicare hospital cost report had not yet been released, but a revised draft was posted on the
CMS website on April 30, 2010, and is being cleared by the Office of Management and Budget.
In the agency’s electronic health record final rule published in the Federal Register on July 28,
2010, CMS announced that the new cost report will be effective for cost reporting periods
beginning on or after May 1, 2010.

In its August 31, 2009, comment letter, the AAMC urged the CMS to address concerns regarding
the proposed changes to Worksheet S-10 of the cost report, which requests significant data on
Medicaid and indigent care costs and payments. The method CMS uses to calculate charity care
costs is of particular concern to AAMC members, who represent just 6 percent of all hospitals,
yet provide 41 percent of total hospital charity care costs.

In its letter, the AAMC noted that the proposed Worksheet S-10 is a significant improvement
over the prior form but expressed several concerns regarding the accuracy and clarity of specific
lines of the worksheet. For example, CMS’s proposed Medicare cost-to-charge ratio (used to
convert charges to costs) is based only on Medicare reimbursable costs and would not accurately
reflect true charity care and uncompensated care costs, as many patients that receive charity care
are not necessarily Medicare patients. The AAMC also submitted several comments on the
proposed changes to worksheets E Part A, which contains data used to compute IME payments,
and E-4, which contains data used to compute DGME payments. The AAMC letter is available
at: www.aamc.org/download/72030/data/083109.pdf.

Though not a final version, the revised draft released on April 30 amends Worksheet S-10 from
the agency’s original draft proposal and incorporates an AAMC recommendation to add a line

35
(Line 19) that reflected the hospital’s total unreimbursed costs (Lines 8, 12, 16) . In the revised
draft, CMS also revised Worksheet E-3 Part IV (now E-4) for DGME and Worksheet E Part A
for IME payments and included a new Worksheet E-1, Part II, for HIT incentive payments. The
revised draft version of the cost report is available at:
www.cms.gov/PaperworkReductionActof1995/PRAL/itemdetail.asp?filterType=none&filte
rByDID=99&sortByDID=2&sortOrder=descending&itemID=CMS1235106&intNumPerPa
ge=10. [Mihalich-Levin, Steinmetz]

End Stage Renal Disease (ESRD)

ESRD Payment System Final Rule: On July 26, 2010, the Centers for Medicare and Medicaid
Services (CMS) released a final rule that will establish a new prospective payment system (PPS)
for dialysis services for Medicare beneficiaries with end-stage renal disease (ESRD). The rule
was published in the Federal Register on August 12 and will take effect for dialysis services
furnished on or after January 1, 2011.

Under the final rule, CMS will make a single, bundled payment to dialysis facilities that will
cover outpatient dialysis treatment, prescription drugs, and clinical laboratory tests. This new
payment system will replace the current "composite rate" ESRD payment, which does not
include certain ESRD-related items and services including injectable drugs and non-routine
laboratory testing. CMS's final base payment of $229.63 per dialysis session will be adjusted for
case-mix factors such as the patient's age, body size, and time on dialysis, as well as for facility
characteristics including area wage index and low dialysis volume. CMS also will make
additional adjustments to the base payment for specific conditions or co-morbidities that
significantly affect a course of treatment, and will make outlier payments for particularly
expensive cases. CMS did not finalize any case mix patient adjustments based on the patient's
sex, race, or ethnicity. In response to public comment, CMS also added a payment adjustment for
home dialysis training when clinically appropriate.

The Medicare Improvements for Patients and Providers Act of 2008 (MIPAA, P.L. 110-275)
required CMS to establish a fully-bundled ESRD PPS and to phase in the new payment system
over a four-year period. CMS's final rule incorporates the required phase-in but also would allow
facilities to choose to be paid entirely under the new system beginning on January 1, 2011.
Facilities that make this election must do so by November 1, 2010.

The ESRD final rule is available at: http://edocket.access.gpo.gov/2010/pdf/2010-18466.pdf.

[Mihalich-Levin, Fisher]

ESRD Quality Incentive Program Proposed Rule: CMS also issued a proposed rule for
implementing the ESRD pay-for-performance program as required by MIPAA. The new
program, referred to as the Quality Incentive Program (QIP), requires providers and facilities to
be measured and paid on quality performance standards. Those facilities that do not meet or
exceed the performance benchmarks will be subject to a payment reduction of 0.5 percent up to 2
percent for services furnished on or after January 1, 2012.

36
For the initial year of the program, facilities will be measured on three claims-based measures
focused on hemodialysis and anemia. CMS has proposed a scoring methodology to determine a
facility overall performance score and how that translates to payment determination. The
performance results of individual facilities as well as national results will be publicly reported on
the Dialysis Facility Compare (DFC) website.

The ESRD Quality Incentive Program proposed rule is available at:

www.gpo.gov/fdsys/pkg/FR-2010-08-12/pdf/2010-18465.pdf.
AAMC comments can be found at:
www.aamc.org/download/157066/data/aamc_comment_letter_on_medicare_program_end_
stage_renal_disease.pdf [Faerberg]

Medicaid Disproportionate Share Hospital (DSH) Payments

The Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) reduces Medicaid DSH
payments by $14 billion over 10 years beginning in FY 2014. The provision also directs the
Secretary of HHS to develop a methodology for reducing DSH allotments to all states to achieve
the mandated reductions.

For additional information and a complete analysis of the Medicaid DSH provisions please see
the AAMC-prepared summaries and slide show presentations at:
www.aamc.org/initiatives/reform/.

Shortly after the enactment of the ACA, the HHS Office of Inspector General (OIG) released a
June 2010 “Review of Medicaid Disproportionate Share Hospital (DSH) Payment Distribution”
analyzing the allocation of payments to hospitals in seven selected states (Kansas, Louisiana,
Missouri, New Jersey, New York, North Carolina, and Texas). The review found that state-
owned hospitals receive Medicaid DSH payments representing 95 percent of their
uncompensated care costs, while local public hospitals receive 69 percent and private hospitals
receive 38 percent. The OIG recommends that CMS reevaluate states’ distribution of Medicaid
DSH payments and consider requesting Congressional legislation to assure they are more evenly
distributed. In a written response, CMS concurred with the recommendations, but noted they
would need to consider, any findings within the context, of scheduled DSH reductions under the
ACA as described above.

The Review is available at: http://oig.hhs.gov/oas/reports/region7/70904150.pdf. [Mitchell,

Crytzer, Fisher]

Medicaid Direct and Indirect Graduate Medical Education Payments: A 50 State Survey

The AAMC May 21 released the 2009 “Medicaid Direct and Indirect Graduate Medical
Education Payments: A 50-State Survey.” The report contains comprehensive information about
Medicaid direct graduate medical education (DGME) and indirect medical education (IME)
payments and methodologies, reflecting both fee-for-service and managed care programs.

37
The survey found that 41 states and the District of Columbia provided payments for DGME
and/or IME costs under their Medicaid programs in 2009. Eight states did not make either
payment. Of that group, Illinois, Massachusetts, and Texas, are among the states with the largest
number of graduate medical education programs. The increase in the number of states that do
not make these payments has almost tripled since 2005. While Medicaid DGME and IME
payments are difficult to obtain and must be estimated in a number of states, the survey
responses suggest that total DGME and IME payments increased from an estimated $3.2 billion
in 2005 to $3.78 billion in 2009, despite the decline in state support for graduate medical
education.

The survey is available at:

https://services.aamc.org/publications/showfile.cfm?file=version161.pdf&prd_id=299&prv
_id=371&pdf_id=161 [Fisher]
Medicare Trustees Report

On August 5, the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance Trust Fund (commonly referred to as the "Medicare
trustees") released their annual report on the current status and projected financial condition of
the Medicare program. The report shows that the financial status of the hospital insurance (Part
A) trust fund is substantially improved by the lower expenditures and additional tax revenues
instituted by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152).

The report estimates that the hospital insurance (HI) trust fund will be exhausted in 2029 under
current law and by 2028 under an alternative scenario that assumes that the physician fee
reductions are overridden and that the productivity adjustments are gradually phased out over 15
years starting in 2020. This represents a substantial improvement compared to projections
estimating the exhaustion of the HI trust fund by 2017 under the law in effect prior to the ACA.
The productivity adjustments refer to the ACA's mandated reduction in the rate of growth in
health care costs.

The trustees caution that in the long range, the improvement in the financial outlook of the
Medicare trust fund depends on the feasibility of the ACA's mandated reduction in the rate of
growth in health care costs. If providers cannot reduce their cost per service correspondingly,
through productivity improvements or other steps, Medicare beneficiaries' access to services can
be negatively affected. The report emphasizes the need to find innovative new methods of
delivering and paying for health care that improve quality of outcomes and achieve better cost
efficiency.

According to the trustees, the difference between expenditures and general revenue is projected
to exceed 45 percent in 2010, prompting a funding warning for the fifth consecutive year.
Pursuant to the 2003 Medicare Modernization Act (MMA), a funding warning is triggered when
the trustees make a determination in two consecutive annual reports that general revenue will
make up more than 45 percent of total Medicare financing within a seven-year period. When a
funding warning is issued, the MMA requires that the administration make and Congress

38
consider a proposal to bring the funding level below 45 percent. Congress has not acted on
previous administration proposals.

The report is available at: www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf. [Fisher]

Congressional Academic Medicine Caucus

Representatives Allyson Schwartz (D-Pa.) and Patrick Tiberi (R-Ohio) co-chair the bipartisan
Congressional Academic Medicine Caucus (CAMC). The AAMC-supported CAMC was
created to “promote the groundbreaking achievements happening in our nation’s teaching
hospitals and medical schools and to recognize the unique care, research, and safety net functions
that these institutions undertake.” The AAMC continues to strongly urge its members to
encourage their Members of Congress to join the CAMC, especially as the ACA provisions are
implemented.

As of October 25, CAMC members included: Representatives Shelley Berkley (D-Nev.);

Sanford Bishop (D-Ga.); Tim Bishop (D-N.Y.); Rick Boucher (D-Va.); Mike Capuano (D-
Mass.); Russ Carnahan (D-Mo.); Andre Carson (D-Ind.); Bill Cassidy (R-La.); Joe Courtney (D-
Conn.); Joseph Crowley (D-N.Y.); Kathy Dahlkemper (D-Pa.); Danny Davis (D-Ill.); William
Delahunt (D-Mass.); Mike Doyle (D-Pa.); Steve Driehaus (D-Ohio); Vernon Ehlers (R-Mich.);
Eliot Engel (D-N.Y.); Bob Goodlatte (R-Va.); Rush Holt (D-N.J.); Steve Israel (D-N.Y.); Hank
Johnson (D-Ga.); Paul Kanjorski (D-Pa.); Marcy Kaptur (D-Ohio); Leonard Lance (R-N.J.);
Christopher Lee (R-N.Y.); David Loebsack (D-Iowa); Nita Lowey (D-N.Y.); Stephen Lynch (D-
Mass.); Dan Maffei (D-N.Y.); Carolyn Maloney (D-N.Y.); Edward Markey (D-Mass.); James
McGovern (D-Mass.); Michael McMahon (D-N.Y.); Dennis Moore (D-K.S.); Christopher
Murphy (D-Conn.); Richard Neal (D-Mass.); Bill Pascrell (D-N.J.); Tom Perriello (D-Va.);
Joseph Pitts (R-Pa.); Phil Roe (R-Tenn.); Steven Rothman (D-N.J.); Tim Ryan (D-Ohio); John
Sarbanes (D-Md.); Louise Slaughter (D-N.Y.); Albio Sires (D-N.J.); Lee Terry (R-Neb.); and
Robert Wittman (R-Va.).

The CAMC Web site is available at:

www.aamc.org/initiatives/reform/72814/reform_camc.html.
The AAMC press release is available at:
www.aamc.org/newsroom/newsreleases/2009/72968/091006.html. [Crytzer, Marquez,
Mitchell]

Health Information Technology Incentives

The American Recovery and Reinvestment Act (ARRA, P.L. 111-5) provides an estimated $22
billion in funding for programs and incentive payments to promote the adoption of health
information technology (HIT). This funding includes incentive payments for hospitals,
physicians, and other “eligible professionals” under the Medicare and Medicaid programs as well
as matching grants, such as demonstration projects to develop curricula integrating certified
electronic health records (EHRs) in the clinical education of health professionals.

Meaningful Use: On July 13, 2010, CMS and the Office of the National Coordinator for Health
Information Technology (ONC) released final rules implementing the first stage of the Medicare

39
and Medicaid electronic health record (EHR) incentive payment program. The CMS rule
finalizes the requirements providers must meet to become "meaningful users" of certified EHRs,
and the ONC rule identifies standards and certification criteria for the certification of EHR
technology. The rules were published in the Federal Register on July 28.

CMS's final rule implements a definition of meaningful use that allows providers some flexibility
in qualifying for Medicare and Medicaid EHR incentives. Although CMS initially proposed an
"all-or-nothing" approach to meeting the meaningful use requirements, the agency did not
implement this approach in the final rule. Under the final rule, hospitals must satisfy the
requirements of 14 core measures and 5 of 10 "menu" measures, while eligible professionals
must satisfy the requirements of 15 core measures and 5 of 10 "menu" measures.

With respect to quality measures, CMS addressed concerns associated with requiring the
reporting of clinical quality measures that have not been specified for EHRs nor adequately
tested. The final rule revised the hospital and physician quality reporting requirements by
reducing the number of quality reporting measures for Stage 1 and adopting only those measures
that have electronic specifications posted on the CMS website.

The CMS final rule also includes important provisions that allow faculty physicians who provide
care in hospital-based clinics to qualify for incentives. The rule does not, however, recognize
individual hospitals within a system that share a single provider number as eligible for incentive
payments. (see HIT Legislative Activity below for more information)

With respect to standards and certification, ONC revised several certification criteria to reflect
more clearly how a complete EHR or EHR module must comply with adopted standards and,
where applicable, what the relevant adopted implementation specifications must be. ONC
finalized a proposal to give providers options for achieving certain standards criteria by allowing
alternative standards in areas where no specific standard has emerged and where the shift to one
standard may pose burdensome (e.g., the continuity of care document (CCD) and the continuity
of care record (CCR) may both be used). ONC also removed REST and SOAP as specified
transport standards, enabling flexibility for secure transmission as long as a provider encrypts
data and ensures data integrity.

Hospitals and eligible professionals will be able to register for the EHR incentive program
beginning in January 2011 and begin attesting to being a meaningful user in April 2011, and
CMS expects to begin making payments to meaningful users of certified EHRs in mid-May of
2011.

Certified EHRs: To be eligible for Medicare and Medicaid EHR incentives, a provider must
become a meaningful user of a “certified” EHR. On June 18, 2010, ONC released the final rule
on the establishment of a temporary certification program. The rule was published in the June 24
Federal Register and went into effect the same day.

The final rule establishes a temporary certification program under which the ONC will authorize
organizations to become ONC-Authorized Testing and Certification Bodies (ONC-ATCBs) that
will test and certify complete electronic health records (EHRs) and EHR modules. Under the

40
American Recovery and Reinvestment Act (ARRA, P.L. 111-5), which authorized the Medicare
and Medicaid EHR incentive program, providers who become meaningful users of "certified"
electronic health records are eligible for incentive payments.

The final rule contains several provisions of particular importance to teaching hospitals with self-
developed EHRs and vendor EHRs that have been modified. In response to comments, ONC will
require ONC-ATCBs to have the capacity to provide remote testing and certification so that the
EHRs need not be tested and certified at the ONC-ATCB's facility. In response to requests to
clarify the definition of "self-developed," ONC also explained that not all vendor EHR products
that are certified and subsequently modified will need to be recertified, but that if providers
"would like absolute assurance that any modifications made did not impact the proper operation
of certified capabilities, they may find it prudent to seek to have the Complete EHR or EHR
Module(s) retested and recertified."

Additionally, ONC decided to adopt as final its proposal that if a temporary certifying body's
status is revoked, EHRs certified by that body will only retain their certified status for 120 days.
ONC also finalized its proposal to require ONC-ATCBs to provide the National Coordinator no
less frequently than weekly a current list of complete EHRs and EHR modules that have been
tested and certified.

ONC has posted a page on the ONC Web site (http://onc-chpl.force.com/ehrcert) that lists all
of the complete and modular EHRs that have been tested and certified to date under the
Temporary Certification Program. A final rule on the permanent certification program will be
issued in the fall of 2010, andhe temporary certification program is expected to sunset on
December 31, 2011, or at a later date if the National Coordinator determines that the permanent
certification program is not fully ready to be implemented at that point.

Slide presentations that provide overviews of the CMS and ONC regulations are available on the
AAMC’s HIT website at: www.aamc.org/hit. [Mihalich-Levin]

HIT Legislative Activity

Multi-Campus: On August 5, Senator Charles Schumer (D-N.Y.) introduced the AAMC-

supported Electronic Health Record Incentives for Multi-Campus Hospitals Act of 2010 (S.
3708). Additionally, on July 30, Representatives Pete Stark (D-Calif.), Zach Space (D-Ohio),
Frank Pallone (D-N.J.), and Michael Burgess (R-Texas) introduced H.R. 6072, an identical
House version. Both bills would ensure that Medicare and Medicaid HIT incentive payments,
authorized by the ARRA (P.L. 111-5), would be available to each hospital that meets meaningful
use requirements in a system consisting of multiple campuses that share a single Medicare
provider number. These bills clarify that hospital systems with multiple campuses would receive
larger incentives, which reflect their incremental costs incurred in installing, operating, and using
certified electronic health records, and training staff at each campus.

In a joint statement, Representative Stark (D-Calif.) said H.R. 6072 would ensure that the
incentive payments “better address the costs faced by multi-campus hospitals to promote
adoption of health IT systems.” Additionally, Rep. Burgess stated that despite attempts to get

41
this provision resolved through the regulatory process, “the rule still ignored the issue, and this
bill would finally fix the problem.”

As of October 25, S. 3708 had 12 co-sponsors and H.R. 6072 had 56 co-sponsors.

Hospital-Based Eligible Professionals: On April 15 President Obama signed the Continuing

Extension Act of 2010 (P.L. 111-157), which included AAMC-supported language expanding
the types of physicians eligible for the Medicare and Medicaid health information technology
(HIT) incentive payments established under the ARRA (P.L. 111-5). Section 6 of the Act
replaces the language "setting (whether inpatient or outpatient)" from ARRA with the phrase
"inpatient or emergency room setting." Based on this new language, CMS revised the agency's
definition of "hospital-based eligible professional" in the final rule on HIT incentives the agency
issued on July 13, permitting more physicians to be eligible for HIT incentive payments. The
final rule was published in the Federal Register on July 28.

Other HIT Activities: The two committees established by the ARRA to advise the Office of the
National Coordinator for Health Information Technology (ONC) have continued to hold monthly
public meetings since May 2009. The HIT Policy Committee and the HIT Standards Committee
will next develop recommendations to the ONC and CMS regarding issues including how
meaningful use should be defined for Stages 2 and 3. The committees also will make
recommendations on other issues related to the nation’s HIT infrastructure.

The agendas and all materials from each of the HIT Policy and Standards Committee meetings
are located on the committees’ Web sites at:
http://healthit.hhs.gov/portal/server.pt?open=512&objID=1269&parentname=Community
Page&parentid=5&mode=2&in_hi_userid=10741&cached=true
and
http://healthit.hhs.gov/portal/server.pt?open=512&objID=1271&parentname=Community
Page&parentid=8&mode=2&in_hi_userid=10741&cached=true
The Department of Health and Human Services (HHS) accepted applications for and began to
announce the awardees of several HIT-related grants supported by ARRA. Details regarding the
various HIT funding opportunities are available at:
http://healthit.hhs.gov/portal/server.pt?open=512&objID=1310&parentname=Community
Page&parentid=8&mode=2&in_hi_userid=11113&cached=true.
[Legislative: Mitchell, Rasouli; Regulatory: Baer, Mihalich-Levin]

HIPAA Privacy Rule Accounting for Disclosures: Request for Information

The "HITECH" portion of the American Recovery and Reinvestment Act (ARRA, P.L. 111-5)
grants individuals the right under the HIPAA Privacy Rule to receive an accounting of
disclosures of protected health information for treatment, payment, and health care operations if
such disclosures are through an electronic health record (EHR). OCR published a request for
information to help "better understand the interests of individuals with respect to learning of such
disclosure [of protected health information], the administrative burden on covered entities and
business associates of accounting for such disclosures, and other information that may inform the
Department's rulemaking in this area."

42
The AAMC submitted a comment letter on May 18, noting that the accounting requirement is
being implemented at a time when providers also face the challenges of meeting the meaningful
use standards for electronic health records (EHR). The letter urges OCR "to avoid imposing
requirements that will be particularly burdensome to providers, have the potential for
jeopardizing patient care and safety, may impede interoperability, and which represent a right
that few patients choose to exercise." The AAMC strongly supports delaying implementation of
the accounting requirement until 2013. The letter is available at
https://www.aamc.org/download/131966/data/comment_letter_on_hipaa_privacy_rule_acc
ounting_for_disclosures.pdf [Baer]

HIPAA Proposed Rule on Modifications to the Privacy, Security, and Enforcement

Rules Under HITECH

The Department of Health and Human Services' (HHS) Office of Civil Rights July 14 published
a notice of proposed rulemaking (NPRM) to modify the HIPAA Privacy and Security rules and
rules pertaining to compliance and investigations, imposition of civil money penalties, and
procedures for hearings. The NPRM implements changes to HIPAA made in the Health
Information Technology for Economical and Clinical Health (HITECH) Act of the American
Recovery and Reinvestment Act (P.L. 111-5). Comments are due September 13. The AAMC
will be submitting a comment letter. The NPRM is available at:
http://edocket.access.gpo.gov/2010/pdf/2010-16718.pdf

HHS also announced two new websites. Breaches of protected health information that involve
500 or more people are listed on one, while the other website includes health data and privacy
resources. [Baer]

Community Benefit Requirements for 501 (c)(3) Hospitals

The AAMC submitted a July 21 comment letter to the Internal Revenue Service (IRS) in
response to a request for comments on provisions in the Affordable Care Act (ACA, P.L. 111-
148 and P.L. 111-152) that impose additional requirements on 501(c)(3) hospitals. The
comments will be used by the IRS to develop guidance on the implementation of the ACA
requirements, which include conducting a community health needs assessment, establishing a
financial assistance policy, and a limitation on charges to individuals eligible for assistance under
the financial assistance policy. In its letter, the AAMC reminded the IRS that education and
research have been included in the criteria that determine which hospitals can qualify for tax-
exempt status since 1969. The letter also offered suggestions for principles that should be
followed for the community health needs assessment and requested that the IRS provide another
opportunity for comment once the guidance is written so that hospitals have an opportunity to
assess the burden and possible unintended consequences. The letter is available at:
www.aamc.org/download/135006/data/07212010.pdf.pdf [Baer]

False Claims Act

The Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) included several provisions
amending the Federal Civil False Claims Act (FCA). The bill amends the FCA’s “public

43
disclosure/original source” rule, allowing plaintiffs to file FCA suits without having personal
knowledge of the transaction that is the basis of the suit, or if the facts that are the basis of the
suit already have been publically exposed to government entity. PPACA also allows violations
of anti-kickback provisions contained in the Social Security Act to be subject to penalties under
the FCA. Both provisions are detrimental to medical schools and teaching hospitals, potentially
exposing them to increased unnecessary, unintended, and frivolous litigation. The FCA
provisions became effective upon signing.

On January 14, 2010, the AAMC sent a letter to House and Senate leadership expressing
concerns with the provisions and their potential for serious and unintended consequences for
medical schools and teaching hospitals and urged conferees to delete the provisions from any
final health care bill. The letter is available at:
www.aamc.org/download/114226/data/aamc_letter_on_concerns_with_several_provisions_
of_the_senate_pa.pdf [Shick, Curtis]

Title VII Reauthorization

The Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) includes numerous provisions
that reauthorize health professions education and training programs under Title VII of the Public
Health Service Act for the first time in over a decade. The legislation also authorizes several new
workforce education and training programs under Title VII. Before the Health Resources and
Services Administration (HRSA) can offer grants for many of the new programs and initiatives,
funding will need to be appropriated in the annual Labor-HHS-Education spending bill. The
Senate Appropriations Committee has allocated funds to two newly-authorized programs,
including the Rural Physician Training Grant program (see page 5). It is unclear whether the
House Appropriations Committee will fund any of the new programs.

A detailed summary of provisions pertaining to the Title VII health professions programs is
available at: www.aamc.org/download/131010/data/hrsa.pdf.pdf. A table comparing funding
levels authorized in ACA with the most recently enacted funding levels for the programs is also
available, at: www.aamc.org/download/131046/data/titleviiandviii.pdf.pdf

Many of the changes to existing Title VII programs became effective in FY 2010 prompting
HRSA to withdraw, revise, and reissue guidance for several open funding opportunities to
implement the programmatic revisions in the law. Additionally, as directed by ACA, HRSA
published in the May 26 Federal Register an interim final rule (IFR) defining “underserved rural
community” to determine eligibility for the newly authorized Rural Physician Training Grant
Program. The definition published in the interim final rule became effective June 26, 2010, and
will not apply to any program other than the Rural Physician Training Grant program. HRSA
combined two existing definitions for “underserved” (as defined by the Office of Rural Health
Policy’s Rural Health Grant programs) and “rural” (based on HRSA’s Office of Shortage
Designation’s definition of Health Professions Shortage Area, HPSA, and Medically
Underserved Area, MUA). Though ACA requires HRSA to review the HPSA designation
methodology through a separate negotiated rulemaking process, the definition in the IFR will not
be affected by any resulting change to the HPSA definition. The IFR is available at:
http://edocket.access.gpo.gov/2010/pdf/2010-12557.pdf.

44
HRSA held an August 17, 2010 meeting and an August 31, 2010 webinar on the new Teaching
Health Center (THC) program authorized under Title VII. The ACA included two provisions of
note relating to THCs. First, the legislation made available $230 million in payments for the
creation or expansion of medical residency programs at a THC (such as a community health
center) that is listed by the accrediting body as the sponsoring institution of the program. The
ACA also authorizes the establishment of THC development grants to establish or expand
primary care residency training programs in these community-based health centers. The THC
development grants require an appropriation from Congress before development awards can be
made. Materials from the THC webinar are available at:
www.hrsa.gov/grants/apply/assistance/teachinghealthcenters. [Rasouli, Curtis]

Health Professions Shortage Area (HPSA) Negotiated Rulemaking

On July 21, Secretary of Health and Human Services (HHS) Kathleen Sebelius announced the
final appointees for a negotiated rulemaking committee to review the designation methodology
for Health Professions Shortage Areas (HPSAs) and Medically Underserved Populations
(MUPs). The committee consists of 28 members who are stakeholders representing programs
that are most affected by these designations, including AAMC-supported nominee Lolita M.
McDavid, M.D., M.P.A., Medical Director of Child Advocacy and Protection at Rainbow Babies
and Children’s Hospital, University Hospitals of Cleveland Case Western Reserve University
School of Medicine. The committee also includes Edward Salsberg, director of the new National
Center for Workforce Analysis and former-director of the AAMC Center for Workforce Studies.

Meeting schedules for the committee will be published in the Federal Register with a target date
for a draft final proposal in July 2011. On May 10, the Health Resources and Services
Administration (HRSA) published a Notice of Establishment for the negotiated rulemaking
committee: http://edocket.access.gpo.gov/2010/pdf/2010-11214.pdf

The rulemaking session was mandated by the Affordable Care Act of 2010 (ACA, P.L. 111-148
and P.L. 111-152) as part of health care reform. HRSA plans to address the following issues and
questions in negotiated rulemaking:
 Whether HPSA and MUP should be combined into a single definition;
 Underserved/work force shortage, health status, and demographic indicators;
 Definition of provider FTEs;
 Reducing the burden of designation on State and local entities;
 Potential impact of changes on existing HPSA and MUPs; and
 Implementation of any new designation methodology.

The HPSA and MUP designations determine eligibility for more than 30 federal programs of
importance to medical school and teaching hospitals, including the National Health Service
Corps (NHSC), Title VII and VIII health professions training programs, and most recently as
part of the formula for redistribution of unused GME residency training slots. AAMC
encouraged HRSA to reform the HPSA definition in a manner similar to negotiated rulemaking
in response to a 2008 proposed rule:

45
www.aamc.org/download/58094/data/aamc_letter_in_response_to_hhs_proposed_hpsa_des
ignation_methodo.pdf. [Shick]

Federal Student Loan Programs

Department of Education Regulations: On August 13, 2010, the Department of Education

(ED) released data and technical documentation behind its estimates of the impact of a July 26
"gainful employment" Notice of Proposed Rulemaking. The proposed rule will affect eligibility
for federal Title IV financial assistance of virtually all programs at for‐profit institutions and to
non‐degree programs at public or nonprofit postsecondary institutions; it does not apply to
programs leading to degrees at public or non-profit institutions.

The August 13 data release includes a new “annual loan repayment rate,” which is designed to be
representative of the percentage of borrowers who are successfully reducing the principal of their
federal Stafford loans. A second “debt‐to‐income” test measures the percent of a borrower’s
income that must be used to make repayments on their private and federal student loans. In the
release, ED stresses that “it is not possible to use these data to determine the impact of the
proposed rule on any particular institution.”

On September 7, 2010, the AAMC and the American Association of Colleges of Osteopathic
Medicine (AACOM) submitted a joint comment letter outlining the unique repayment issues of
physicians who must complete residency training before practicing medicine.

Health Care Reform: The Accordable Care Act (ACA, P.L.111-148 and P.L. 111-152) includes
a number of changes to HRSA’s Primary Care Loan (PCL) program, which provides low-interest
loans to physicians in exchange for service in primary care specialties. Effective March 23, 2010,
the law establishes a more reasonable default rate (2 percent greater than the rate the student
would pay if compliant, instead of the current 18 percent); caps loan recipients’ service
requirement at 10 years (or the date the loan is repaid); and directs HRSA to amend loan
guidelines to reflect that HHS shall not require parental information to determine financial need
for independent students. HRSA has clarified that these changes will apply only to PCL and not
to other Title VII or Title VIII loan programs. The law also includes a “Sense of the Congress”
that funds repaid under PCL loan program should be recycled back into the program instead of
returned to the U.S. Treasury.

On May 5, 2010, HRSA issued a new Promissory Note for PCL with the new loan terms. HRSA
has elected to use the Scholarships for Disadvantaged Students (SDS) definition for
“independent student”: at least 24 years old and has not been listed as a dependent on parent’s
taxes for at least 3 years.

Institutions that stopped participating in PCL, but wish to return to the program are encouraged
to contact Jim Essel, PCL Project Officer, HRSA Bureau of Health Professions at
<Jim.Essel@hrsa.hhs.gov> or 301-443-5799.

46
Reconciliation: The Health Care and Education Reconciliation Act (P.L. 111-152)
accompanying health care reform includes legislative recommendations from the president’s FY
2011 budget request. P.L. 111-152 eliminates the Federal Family Education Loan (FFEL)
program and originates all Stafford loans under the Direct Loan program beginning July 1, 2010.
FFEL Stafford loans with a partial disbursement issued prior to July 1, 2010, will continue as
FFEL loans. The law provides $50 million in FY 2010 to the Department of Education for the
technical assistance of institutions in the transition to Direct lending. A primary concern among
the financial aid community is the quality of customer service that will be offered by the
Department of Education considering the expected substantial increase in Direct Loan volume.

The new law also reduces the repayment formula of the Income-Based Repayment (IBR)
program from 15 percent of adjusted gross income to 10 percent, as well as reducing the
maximum loan repayment duration from 25 years to 20 years before forgiveness. The IBR
changes are effective July 1, 2014, and will only apply to new borrowers.

Truth in Lending Act (TILA): On February 14, 2010, new Truth in Lending Act (TILA)
disclosure regulations on private education loans took effect. The new TILA
regulations―prompted by the Higher Education Opportunity Act of 2008 (HEOA, P.L. 110-
315)―define “private education loans” as non-Title IV federal loans. The Federal Reserve now
treats Title VII and VIII health professions loans offered by HRSA as private education loans
and such loans are required to comply with TILA disclosure requirements, despite the fact that
they are federal loans. Amendments to exempt federal health professions loans were considered
as part of broad Wall Street reform legislation (H.R. 4173), but appear to have been left out of
the final House and Senate versions sent to the conference committee.

TILA is designed to protect consumers in credit transactions by requiring clear disclosure of key
terms, lending arrangements, and total costs associated with lending transactions. The revisions
under Title X of HEOA were designed to improve and increase transparency of private education
loans. [Shick]

Physician Immigration

Beginning on January 1, 2010, all requests for H-1B visa prevailing wage determinations must
be filed with the National Prevailing Wage Center and should no longer be filed at local State
Workforce Agencies. The centralized prevailing wage processing was established by a
Department of Labor (DOL) final rule published in the December 19, 2008, Federal Register (73
Fed. Reg. 78020): http://edocket.access.gpo.gov/2008/pdf/E8-29995.pdf

While the occupation “medical resident” is not available on DOL’s Occupational Employment
Statistics program, DOL recognizes that these are training positions but determines prevailing
wage based on the description of job duties and field of specialty. A special analysis of data
from the current AAMC Survey of Resident/Fellow Stipends and Benefits for the local area may
be acceptable for prevailing wage determinations when there are sufficient data, and analyses at
the state level by post graduate year may be acceptable if sufficient localized data are not
available. Please contact Jennifer Gold <jgold@aamc.org> in AAMC Health Care Affairs for
special analyses of the AAMC stipend survey data. [Shick]

47
 HHS Proposes Changes to Conflict of Interest Rules

The Department of Health and Human Services (HHS) issued a notice of proposed rulemaking
(NPRM) in the May 21, 2010, Federal Register, entitled "Responsibility of Applicants for
Promoting Objectivity in Research for which Public Health Service Funding is Sought and
Responsible Prospective Contractors." The proposed rulemaking would significantly change
how institutions and investigators, funded by the National Institutes of Health (NIH) and other
Public Health Service (PHS) agencies, disclose, report, and manage financial conflicts of
interest. On July 21, HHS issued an amendment to its May 21 notice seeking additional
comments on issues related to the transfer of federally-funded grants and principal investigators.
The comment deadline was extended until August 19.

AAMC commented on the NPRM and related amendment on August 17, 2010, in a joint letter
with the Association of American Universities, the American Council on Education, and the
Association of Public and Land-grant Universities. The organizations said that the NPRM “in
many cases appropriately establishes the balance between disclosure and reporting that advances
the public’s interest, and a cumulative regulatory burden that diverts needed resources away from
research.” However, the groups also urged HHS to consider mechanisms to help mitigate the
regulatory burdens the revised regulations will place on institutions and investigators.

The NPRM proposed that an institution make available, through a publicly accessible Web site,
information concerning any significant financial interest disclosed to the institution that is
determined by the institution to be a financial conflict of interest. The organizations’ joint letter
stated that the proposal has raised “serious and reasonable concerns among our members that the
Web posting will be of little practical value to the public and, without context for the
information, could lead to confusion rather than clarity regarding financial conflicts of interest
and how they are managed.” The groups urged that HHS engage the potential stakeholders
(patients, public representatives, institutional officials, and researchers) to design a data-driven
public-reporting website that is easily accessible and navigable and that includes explanatory
information about how conflicts of interest are effectively managed. The groups suggested that
HHS consider maintaining the public reporting system, rather than to require each individual
institution to maintain a unique Web reporting resource.

The joint letter commenting on the proposed regulations also included numerous technical and
substantive suggestions to improve and clarify the proposed regulations.

In general, the proposed regulations issued on May 21 would:

 require that PHS-funded investigators disclose to their institutions all Significant

Financial Interests (SFIs) related to their institutional responsibilities;
 lower the monetary threshold at which interests must be disclosed to the institution,
generally from $10,000 to $5,000;
 require institutions to make the determination as to whether each disclosed SFI is related
to the investigator’s PHS funded research and whether the SFI meets the criteria for a
Financial Conflict of Interest (FCOI)

48
  require institutions to provide the PHS Awarding component (e.g., NIH) significant
additional information on identified FCOIs and how they are being managed; and
 require every PHS-funded institution to post, on a publicly accessible Web site,
information on those SFIs that the institution has determined constitute FCOIs.

The NPR is available at: http://edocket.access.gpo.gov/2010/pdf/2010-11885.pdf

The Amendment to the Notice is available at: http://edocket.access.gpo.gov/2010/pdf/2010-
17739.pdf
The AAMC-AAU-ACE-APLU Comment letter is available at:
www.aamc.org/download/140594/data/081710.pdf.pdf. [Pierce]

49
 Major proposed changes to Public Health Service (PHS) financial conflict of interest (FCOI) regulations
Topic Current Proposed
Significant Financial - De minimis threshold of $10,000 for disclosure - De minimis threshold of $5,000 for disclosure generally applies to
Interests (SFI) generally applies to payments or equity interests payments and/or equity interests
definition - Exclusions include income from seminars, lectures, - Includes any equity interest in non-publicly traded entities
or teaching, and service on advisory committees or - Exclusions include income from seminars, lectures, or teaching, and
review panels, for public or nonprofit entities service on advisory or review panels, for government agencies or
institutions of higher education
Requirements for Only SFIs related to PHS-funded research as - SFIs include financial interests that are related to an Investigator’s
Investigator determined by the Investigator institutional responsibilities
disclosures to the - Institutions responsible for determining whether SFI relates to PHS-
Institution funded research and is a FCOI
Public disclosure No requirement Before spending funds for PHS-supported research, an Institution shall post
on a publicly accessible web site information on certain SFIs that the
Institution determines are related to the PHS-funded research and are FCOI
Management of an Manner of compliance with regulation not specified - For all identified FCOI, Institutions must develop and implement a
identified FCOI by the (manage, reduce or eliminate are indicated as options) management plan (may include reduction or elimination of the SFI)
Institution - If FCOI is one that was not disclosed or reviewed in a timely manner, the
Institution must also implement a mitigation plan which shall include
review and determination as to whether any PHS-funded research conducted
prior to identification and management of the FCOI was biased
Information on an - Grant/Contract number Current requirements, plus:
identified FCOI - Project Director/Principal Investigator (PD/PI) or - Value of the financial interest
reported by the Contact PD/PI - Nature of FCOI, e.g., equity, consulting fees, travel reimbursements,
Institution to the PHS - Name of Investigator with FCOI honoraria, and description of how FCOI relates to PHS-funded research
funding component - Whether FCOI was managed, reduced, or eliminated - Key elements of the Institution’s management plan
Timing of reporting of - Prior to the Institution's expenditure of any funds Current requirements, plus annual updates on any previously-identified
an identified FCOI to under the award FCOI for the duration of the research project
the PHS-funding - Within 60 days for any interest that the Institution
component identifies as conflicting subsequent to the Institution's
initial report under the award
Scope of the regulation Does not cover Small Business Innovation Includes SBIR/STTR Phase I applications
Research/Small Business Technology Transfer
Research (SBIR/STTR) Phase I applications
Investigator training No requirement FCOI training required for Investigators before engaging in PHS-funded
research, and every two years thereafter
HHS authority to The HHS may at any time inquire into the Institutional Clarifies that HHS authority applies before, during, or after an award with
inquire about FCOI procedures and actions regarding conflicting financial regard to any Investigator disclosure of financial interests, whether or not
interests in PHS-funded research the disclosure resulted in the Institution’s determination of a FCOI

50
 Embryonic Stem Cell Research

On August 23, 2010, U.S. Federal District Court Judge Royce C. Lamberth issued a temporary
restraining order immediately prohibiting the National Institutes of Health (NIH) from further
funding human embryonic stem cell (hESC) research. Judge Lamberth’s order came following a
Federal Appeals Court decision giving Drs. James L. Sherley (Boston Biomedical Research
Institute) and Theresa Deisher (Ave Maria Biotechnology Company) standing to bring their suit
(Sherley v. Sebelius) challenging the July 2009 NIH Stem Cell Guidelines on the grounds that
they violate the so-called Dickey-Wicker provision that has appeared in every Labor-HHS
appropriations bill since 1996. That provision prohibits federal funding for research in which
embryos are created for research purposes, or in which human embryos are destroyed, discarded
or subject to risk.

Judge Lamberth ruled that the plaintiffs were likely to win their case when it comes to trial. The
two researchers were given standing by the Appeals Court by claiming that their research with
adult stem cells would face a competitive disadvantage if human embryonic stem cell research
received additional federal resources, and that they would be “irreparable harmed.”

AAMC joined with the Association of American Universities, the Council on Government
Relations and the Association of Public and Land-grant Universities in issuing an August 27
statement on the preliminary injunction expressing the belief that the Lamberth ruling will result
in great harm to patients, unnecessarily disrupt on-going research programs, and is a threat to the
NIH peer review system.

The Department of Justice (DOJ) on August 31 filed a motion to stay the preliminary injunction
pending appeal and requested expedited consideration of the motion. The court granted the
expedited consideration but rejected the motion on September 7. In a declaration attached to the
DOJ motion, NIH Director Francis Collins, M.D., Ph.D., outlined the potential benefits of
embryonic stem cell research and the grave risks posed to such research by continuing the
funding ban.

On September 9, the U.S. Court of Appeals for the D.C. Circuit granted a temporary stay of the
preliminary injunction in response to an emergency motion filed by DOJ the previous day. On
September 28, the Appeals Court issued a permanent stay of the August 23 injunction pending
the Court’s consideration of the DOJ appeal. As a result, the National Institutes of Health (NIH)
can continue to fund intramural and extramural research using the 75 lines on the NIH Stem Cell
Registry, and can review grant applications in the field.

The Justice Department’s brief in the appeal was filed on October 14, the plaintiffs’ brief is due
October 28, and the DOJ reply brief is due November 4, with oral arguments to be scheduled “at
the first appropriate time following the completion of the briefing.”

The merits of Dr. Sherley's and Dr. Deisher's suit are now before Judge Lamberth's court as two
Motions for Summary Judgment: one from the plaintiffs and one from DOJ. Both contend that
the facts of the case are not in dispute and that points of law should allow the Court to rule

51
without a formal trial. However, briefs submitted by both sides do contest various facts in the
case. Briefing in this phase of the case is on-going, with final briefs due October 28th.

AAMC is a co-founder and remains a member of the board of the Coalition for the Advancement
of Medical Research (CAMR). The Coalition submitted an amicus curiae brief on the motion to
stay the injunction on September 3. The brief addressed two of the four factors relevant to
evaluating the DOJ emergency stay motion: the public interest and the likelihood of harm to
other parties. CAMR asked for the stay to be granted, stating that “…the preliminary injunction
will, if not stayed, radically disrupt, and perhaps permanently cripple, ongoing and planned
hESC research…” CAMR also submitted an amicus brief to the U.S. District Court on
September 28 in support of continued NIH funding of hESC research and on October 18 to the
Court of Appeals on the appeal of the preliminary injunction.

Congressional Reaction: Many members of the House and the Senate have called for
Congressional action to authorize explicitly human embryonic stem cell research and make the
legal case moot. Senate Labor-HHS-Education Appropriations Subcommittee Chair Tom Harkin
(D-Iowa) held a hearing before his subcommittee on September 16 on “The Promise of Human
Embryonic Stem Cell Research.” NIH Director Collins, active stem cell researchers, and a
patient testified.

In response to the hearing, AAMC President and CEO Darrell G. Kirch, M.D., issued a statement
on September 16 urging Congress to pass legislation that maintains federal funding of human
embryonic stem cell research (hESC). He noted, "The recent legal proceedings that halted federal
funding of hESC research demonstrate the urgent need for congressional action that will allow
this lifesaving research to continue without interruption. Federal funding of hESC is essential
both to producing new discoveries for a range of serious and intractable diseases, and to ensure
that research is conducted under a rigorous and credible ethical regime. Momentum must not be
lost on research so crucial to advancing the health of the nation.

Also in the Senate, Senator Arlen Specter (D-Pa.) on September 13 introduced legislation to
codify federal funding for human embryonic stem cell research. The Stem Cell Research
Advancement Act of 2010 (S. 3766) would require the Secretary of HHS and Director of NIH to
maintain guidelines on human stem cell research as set out by President Obama's March 2009
Executive Order. The NIH must review the guidelines at least every three years and update them
as scientifically warranted.

The bill also establishes eligibility criteria for federal funding of human stem cell research:

The stem cells were derived from human embryos donated from in vitro fertilization clinics,
were created for reproductive purposes, and are in excess of clinical need.

The embryos to be donated would never be implanted in a woman and would otherwise be
discarded.

The individuals seeking reproductive treatment donated the embryos with written informed
consent and without any financial or other inducements.

52
Senators Barbara Boxer (D-Calif.) and Dianne Feinstein (D-Calif.) are original cosponsors of the
bill.

In the House, Representative Diana DeGette (D-Colo.), cosponsor of the Stem Cell Research
Advancement Act, “to ensure a lasting ethical framework overseeing stem cell research at the
National Institutes of Health (NIH)", reportedly has been working with the House Democratic
leadership seeking swift consideration of legislation ensuring that federal funding of human
embryonic stem cell research can continue. Congress passed legislation in 2006 and 2007
cosponsored by Representatives DeGette and Mike Castle (R-Del.) to authorize federal funding
for embryonic stem cell research, but the House failed to override vetoes by President Bush in
both years. DeGette and Castle reintroduced the “Stem Cell Research Advancement Act” (H.R.
4808) on March 10, 2010. [Mazzaschi, Moore]

America COMPETES Reauthorization Act of 2010

With its programs having expired at the end of FY 2010, both the House and the Senate are
considering the America COMEPTES Reauthorization Act of 2010 (H.R. 5116/S. 3605).
After failing to pass the House on two separate occasions, the COMPETES Act was passed on
May 28, 2010, by a vote of 262-150. The legislation contains language reauthorizing the
National Science Foundation (NSF), the National Institutes of Science and Technology (NIST),
and the Department of Energy’s Office of Science. It also authorizes substantial investments in
basic research and science, technology, engineering, and mathematics (STEM) education.

The House-passed version of the bill contains several provisions of interest to medical schools
and teaching hospitals, including:

 Reauthorizing NSF for five years and on a projected doubling path for the agency budget;
 Requiring that NSF use at least 5 percent of its research budget on high-risk, high-reward
basic research;
 Authorizing awards to promote interdisciplinary research collaborations;
 Authorizing awards to support research partnerships between institutions of higher
education and private sector entities;
 Creating cash prizes to award innovation in research areas supported by NSF;
 Establishing a Bioscience Research Program at NIST to support the development of
standard reference materials and measurements to advance biologic drug research and
development, molecular diagnostics, medical imaging technology, and personalized
medicine; and
 Allowing NIST to establish University Research Centers to conduct research that furthers
the objectives of the Bioscience Research Program.

Of special interest to the university research community was an amendment offered by

Representative George Miller (D-Calif.) requiring universities to provide unionized research
staffs with certain information requested during the course of contract negotiations. The
amendment, which was included in the final version of the bill as Section 707, also outlines a
process for filing complaints of non-compliance against universities and includes penalties
should universities not comply. Penalties for non-compliance include potential suspension of

53
funds paid through NSF grants to universities for facilities and administrative costs.

The Senate Commerce, Science, and Transportation Committee approved its version of the
America COMPETES Reauthorization Act (S. 3605) by voice-vote on July 15. The Senate’s
slimmed-down version of the COMPETES Act authorizes the programs in the bill for only three
years, as compared to the House’s five year authorization period, and at levels lower than those
supported in the House. The Senate version does not authorize several of the programs
authorized in the House-passed version, such as the NIST Bioscience Research Program and the
NSF grant programs for interdisciplinary research collaborations and institutional research
partnerships. In addition, the Senate version does not contain the requirement that NSF dedicate
5 percent of its research budget to high-risk, high-reward research.

The version approved by the Senate committee also contains several sections on
commercialization of university research adopted as an amendment by Senator Amy Klobuchar
(D-Minn.). The amendment requires universities receiving NSF research grants to submit reports
during each grant year outlining the institution’s research commercialization strategy, the
implementation of the commercialization strategy, and the results of commercialization efforts
for those research projects supported by NSF grants. The amendment also provides up to 5
percent of the grant amount to be made available to defray patent application costs for inventions
produced through NSF-funded research and creates federal loan guarantees for businesses
commercializing NSF grant-funded research ideas. Language similar to that of the Miller
amendment adopted in the House does not appear in the Senate version.

S. 3605 now awaits consideration by the full Senate. The AAMC signed an October 15 letter
urging the Senate to pass the America COMPETES Reauthorization Act of 2010. The letter is
available at http://www.aplu.org/NetCommunity/Page.aspx?pid=1745. [Curtis]

Great Ape Protection Act

On August 3, 2010, Senator Maria Cantwell (D-Wash.) introduced the “Great Ape Protection
Act” (GAPA, S. 3694), co-sponsored by Senators Susan Collins (R-Maine) and Bernie Sanders
(I-Vt.). The House version of the bill (H.R. 1326) was introduced on March 5, 2009 by
Representatives Adolphus Towns (D-N.Y.), David Reichert (R-Wash.), Jim Langevin (D-R.I.),
and Roscoe Bartlett (R-Md.).

The bill bans “invasive” research on chimpanzees, bonobos, gorillas, orangutans, or gibbons.
Similar to legislation introduced in the previous Congress, the bill prohibits any research that
“may cause death, bodily injury, pain, distress, fear, injury, or trauma to a great ape,” including
drug testing, restraining, tranquilizing, anesthetizing, isolation, social deprivation, and other
activities.

Additionally, the measure bans “related activities,” such as breeding or transporting great apes
for research purposes, and the use of federal funds for such research within or outside the United
States. Civil penalties are accrued at not more than $10,000 a day for each violation. GAPA also
directs the Secretary of Health and Human Services to provide for the permanent retirement of
great apes under control of the federal government for research.

54
The AAMC joined more than 30 groups on a January 28, 2010, letter urging representatives to
oppose the House version of the legislation. The letter is available at:
www.aamc.org/download/114228/data/012810.pdf.pdf.

The Senate bill has been referred to the Senate Environment and Public Works Committee;
Senators John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) became co-sponsors in September.
The House bill, which had 151 cosponsors as of October 19, has been referred to the House
Committee on Energy and Commerce. [Rasouli]

Patent Reform

On March 4, 2010, the Senate Judiciary Committee announced a bipartisan agreement on a

substitute amendment to the Patent Reform Act of 2009 (S. 515). House Judiciary leadership has
stalled consideration of patent reform legislation, but the Senate may take up the amendment
when they return from their August recess.

In a press release responding to the Senate announcement, House Judiciary Chair John Conyers
(D-Mich.) stated, “With regard to the proposed Senate Judiciary Committee language released
today, we believe a number of changes are essential before it could be considered by the House.”
Concerns of the

On May 18, 2010, Chairman Conyers and Ranking Member Lamar Smith (R-Texas) introduced
the Patent and Trademark Office [PTO] Funding Stabilization Act (H.R. 5322), a stand-alone bill
that would authorize the PTO to set patent application fees, temporarily impose a surcharge on
patent applicants, and retain all of the revenue the agency generates. In a press statement,
Chairman Conyers noted, "The bill we introduce today is not intended to impact the negotiations
over the larger patent bill pending in the Senate."

Debate over S.515 has been ongoing since it was originally introduced on March 3, 2009, by
Senate Judiciary Chair Patrick Leahy (D-Vt.) and Senator Orrin Hatch (R-Utah), a senior
member of the committee. Chairman Conyers and Ranking Member Smith, introduced
companion legislation (H.R. 1260) the same day.

A key feature of the broader House and Senate patent reform bills would change PTO’s
procedures from giving priority to the “first to invent” to granting “priority” for a patent to the
first inventor to file an application. The bills also provide a system for “post-grant opposition,”
in which affected parties outside of the PTO could argue within the agency against a patent’s
validity. The prevailing argument — either for or against award of particular patents — would
hopefully improve the overall quality of the patents awarded by PTO and would circumvent the
need for costly litigation.

A coalition of higher education associations including the AAMC, the Association of American
Universities, the American Council on Education, the Council on Governmental Relations, the
Association of Public and Land-Grant Universities, and the Association of University
Technology Managers endorsed S. 515 and the 2010 substitute amendment, recognizing that the

55
bill balances many contentious issues among industry sectors, including biotechnology and
information technology, that often have competing interests concerning protection of intellectual
property. The substitute amendment also modified language requested by the coalition, making
it less likely that post-grant challenges could be raised serially as a tactic to harass legitimate
patent holders (a tactic that could be particularly disadvantageous for universities).

The AAMC and the academic coalition have worked to ensure that patent reform proposals
provide a grace period by which inventors can publish pertinent discoveries while not
disadvantaging themselves in a first-to-file system. [Heinig, Shick]

Gene Patent Policy

On March 30, 2010, the U.S. District Court of the Southern District of New York issued a major
ruling on gene patents in the case Association for Molecular Pathology et al. v. U.S. Patent and
Trademark Office et al. The court struck down patents on several claimed sequences of the
BRCA1 and BRCA2 breast cancer genes. Judge Robert Sweet ruled that the sequences were
naturally occurring and therefore were not patentable. Myriad Genomics, which licenses
diagnostic tests based on the patents and which was the prominent defendant in the suit has
vowed to appeal the decision. Many legal observers believe the case may be appealed to the
U.S. Supreme Court.

On May 15, 2009, the AAMC responded to a request from the Department of Health and Human
Services Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS) regarding
a draft report, "Public Consultation Draft Report on Gene Patents and Licensing Practices and
Their Impact on Patient Access to Genetic Tests." The committee report lists a range of “policy
options” to ensure access to reliable genetic diagnostic tests. The draft includes, among these
options, a proposal to re-examine federal agencies’ authority and use of “march-in rights” under
the 1980 Bayh-Dole Act as a means to rescind licensing arrangements presumed by the federal
government to be overly restrictive of access to a genetic test. The legislative history of Bayh-
Dole indicates that such provisions were intended to be used exceptionally, if at all. The
university community has generally opposed efforts to reinterpret or reassert these march-in
provisions in ways that would weaken licensees' settled expectations to use university
technology and that would be contrary to the spirit of the Act.

In its comment letter, the AAMC supported efforts consistent with standing NIH guidelines and
the academic community’s “Nine Points” document to encourage reliance on non-exclusive
licensing for gene-based diagnostic tests. A central concern is that exclusive licensing and
monopoly practices could restrict availability of testing services or impair refinement of tests (for
lack of competitive checks), although case studies conducted on behalf of SACGHS did not
indicate major differences in availability or quality of patented tests compared to non-patented
tests. The AAMC also supported creation of databases or information on licensing practices.
The Association does not at this time consider revision or reinterpretation to Bayh-Dole to be
warranted given the case studies and other findings of the discussion draft. The AAMC
comment letter is available at: www.aamc.org/download/59712/data/050309.pdf

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On October 8, 2009, the SACGHS working group released its draft final report, recommending
that the Administration work for statutory change that would exempt physicians and health care
workers from infringement in performing a diagnostic test using a patented gene sequence. On
February 5, 2010, the Secretary’s Advisory Committee endorsed the working group report that,
although substantially revised to include dissenting views on the committee, continues to include
the recommendation for statutory change exempting from patent infringement anyone using
patented genes in research or diagnostic test. [Heinig, Shick]

National Commission on Fiscal Responsibility and Reform

The bipartisan, 18-member National Commission on Fiscal Responsibility and Reform has held
four public meetings since the president signed an executive order on February 18 establishing
the commission. In addition to the public meetings, the commission held a public forum on June
30 and heard testimony from nearly 75 groups and individuals. The policy experts, advocacy
groups, think tanks, and concerned citizens who testified shared their ideas and suggestions to
address the federal budget imbalances.

Opening the first meeting on April 27, President Obama said, “It is important that we not restrict
the review or the recommendations that this commission comes up with in any way. Everything
has to be on the table.” In opening remarks, commission members expressed the need to change
spending, tax, and entitlement programs to avoid a “tremendous economic crisis” and develop an
“economic plan.”

The commission is tasked with building a “bipartisan consensus to put forth solutions to tackle
our long-ignored fiscal challenges.” The commission must submit a final report to the president
by December 1, 2010. The report will include “changes to address the growth of entitlement
spending” to balance the budget by 2015.

In addition to the commission co-chairs, former Senator Alan Simpson (R-Wyo.) and former
Clinton White House Chief of Staff Erskine Bowles, the members include: Senators Kent Conrad
(D-N.D.), Max Baucus (D-Mont.), Richard J. Durbin (D-Ill.), Judd Gregg (R-N.H.), Michael D.
Crapo (R-Idaho), and Tom Coburn (R-Okla.); Representatives John Spratt (D-S.C.), Xavier
Becerra (D-Calif.), Jan Schakowsky (D-Ill.), Paul Ryan (R-Wis.), Dave Camp (R-Mich.), and
Jeb Hensarling (R-Texas); Andy Stern (President of SEIU); David Cote (CEO of Honeywell
International); Alice Rivlin (former Federal Reserve Vice-Chair); and Ann Fudge (former CEO
of Young and Rubican Brands).

The commission announced the dates of the commission’s upcoming meetings: November 10,
and December 1. Smaller working groups will meet weekly to discuss mandatory spending,
discretionary spending, and revenue reform.

For additional information including webcasts of the meetings, please visit the Fiscal
Commission’s website at: www.fiscalcommission.gov/. [Crytzer]

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 Biosecurity and Select Agents

On July 2, President Obama issued an executive order for “optimizing the security of biological
select agents and toxins in the United States.” The term “select agents” refers to a specific list of
biological pathogens and toxins established under direction of the Antiterrorism and Effective
Death Penalty Act of 1996 (P.L. 104-132). The list is intended to identify pathogens and toxins
that present the most serious concern for intentional misuse to harm people or livestock.
Congress further strengthened the regulation of select agents in the Public Health Security and
Bioterrorism Preparedness and Response act of 2002 (P.L. 107-188), following the anthrax
attacks of the previous year. The Act among other provisions required the U.S. Department of
Agriculture (USDA) and the Department of Health and Human Services (HHS, with the Centers
for Disease Control and Prevention taking the lead) to revamp security requirements for all
organizations or entities possessing or using select agents, including research universities.

President Obama’s recent order mandates several important changes to the regulation of select
agents, primarily directing USDA and HHS "to tier the existing list based upon the risk posed by
the [agent] in enabling a mass casualty incident through deliberate misuse." For agents in the
highest risk tier, HHS and USDA will evaluate options for revising security requirements. The
order also provides for "potentially reducing" the list of select agents, also based on an
evaluation of risk. HHS, USDA, and other federal agencies also are ordered to review rules or
guidance within their existing jurisdictions for regulating security of these pathogens and toxins.

While intentional release or misuse of select agents is a serious concern, research with these
agents also remains vital to legitimate biomedical and biological research, and the executive
order is intended to provide more flexibility for appropriately managing risks. The new policy
also may reduce the regulatory burden on researchers and help institutions better allocate
resources on security and safety.

The executive order follows a systematic review of federal policies and procedures associated
with the security of these agents, and which, according to the administration, “[highlighted] the
need for significant improvements in the structure, coordination, and oversight of these activities
across the Federal government.” Significantly, the order continues to assign HHS and USDA
with the lead for select agent oversight and coordination, with key support from the Department
of Justice and the FBI. The order also creates a new panel of federal security and scientific
experts for the revised select agent program, with the existing National Science Advisory Board
for Biosecurity (NSABB) to serve as a source for external advice on oversight of select agents.

On July 21, CDC and USDA each issued an advanced notice of proposed rulemaking requesting
public comment on possible changes to the select agent list (either adding or removing agents)
and for how security requirements might be tiered for agents, pursuant to the President’s order.
Comments were due to the agencies by August 20, 2010.

The President’s executive order is available at: www.whitehouse.gov/the-press-

office/executive-order-optimizing-security-biological-select-agents-and-toxins-united-stat

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A White House Fact Sheet on the Select Agents Order is available at:
www.whitehouse.gov/the-press-office/fact-sheet-executive-order-optimizing-security-
biological-select-agents-and-toxins-

The CDC notice of proposed rulemaking in the Federal Register is available at:
http://edocket.access.gpo.gov/2010/2010-17728.htm. [Heinig]

Export Controls

President Obama on August 31 announced a major revamping of the Federal Government’s

Export Control System to strengthen national security and the competitiveness of “key” U.S.
manufacturing and technology sectors. The announcement follows a year-long interagency
review of the export control system, which confirmed other assessments that the system was too
fragmented across agency and jurisdictional boundaries, overly complicated and un-focused.
The new system would permit better focus on those technologies that would be most harmful if
released to hostile nations or groups. The system would include a tiered approach based on risk
assessment, with technologies in the upper tier subject to more intensive regulation, similar to the
program recently announced for biological select agents. [see Biosecurity and Selected Agents
above]

The export control system has long affected universities and other academic institutions for their
role in international travel and exchange involving cutting edge research and technology. For
example, transmission of knowledge or skills to a foreign national on a U.S. campus can
constitute a “deemed export” and thus be subject to the controls list.

The control system also will include new licensing policies. The White House announcement of
the policy noted that:

Once a controlled item is placed into a tier, a corresponding licensing policy will be
assigned to it to focus agency reviews on the most sensitive items: A license will
generally be required for items in the highest tier to all destinations. Many of the items in
the second tier will be authorized for export to multilateral partners and Allies under
license exemptions or general authorizations. For less sensitive items, a license will not
be required more broadly. For items authorized to be exported without licenses, there
will be new controls imposed on the re-export of those items to prevent their diversion to
unauthorized destinations.

The announcement reaffirms continued sanctions for specified countries and is available at:
www.whitehouse.gov/the-press-office/2010/08/30/president-obama-lays-foundation-a-new-
export-control-system-strengthen-n [Heinig]

Patient Centered Outcomes Research Institute

On September 23, 2010, the Government Accountability Office (GAO) announced members of
the Board of Governors for the Patient Centered Outcomes Research Institute (PCORI), a non-
profit organization established in the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-

59
152) to identify and support national priorities for comparative effectiveness research (CER).
The announcement is available at: www.gao.gov/press/pcori2010sep23.html.

A. Eugene Washington, M.D., M.Sc., vice chancellor of health sciences at the University of
California, Los Angeles, and dean of the David Geffen School of Medicine at UCLA, will chair
the new board, and Steven H. Lipstein, president and CEO of BJC Health Care in St. Louis and
chair of AAMC’s Council of Teaching Hospitals, will serve as vice chair. Both will serve
through September 2016.

In addition to Dr. Washington and Mr. Lipstein, representatives from four other AAMC-member
institutions were named to the 21-member board:
 Robert Zwolak, M.D., Ph.D., a vascular surgeon at Dartmouth-Hitchcock Medical Center
and professor of surgery at the Dartmouth Medical School will serve through September
2016;
 Arnold Epstein, M.D., the John H. Foster Professor and Chair of the Department of
Health Policy and Management at Harvard University School of Public Health, and
practicing internist at Brigham and Women’s Hospital will serve through September
2014;
 Grayson Norquist, M.D., MSPH, professor and chairman, Department of Psychiatry and
Human Behavior, University of Mississippi Medical Center will serve through September
2014; and
 Harlan Krumholz, M.D., Harold H. Hines, Jr., Professor of Medicine and Epidemiology
and Public Health at Yale University School of Medicine will serve through September
2012.

The law requires the directors of the National Institutes of Health and the Agency for Healthcare
Research and Quality (or their designees) to sit on the board as well.

In a September 23 statement, AAMC President and CEO Darrell G. Kirch, M.D., praised the
appointment of “two exceptional leaders of the nation’s medical schools and teaching hospitals
who are deeply committed to patient-centered research.” Dr. Kirch also noted, “Having this
important research fostered by these academic medicine leaders will ensure that clinicians have
the best information and allow innovation and discovery to flourish as it does in medical schools
and teaching hospitals.” The statement is available at:
www.aamc.org/newsroom/newsreleases/2010/150328/academic_medicine_leaders_to_chair
_board_of_governors_for_patie.html.

The ACA provided $10 million for the institute in FY 2010 and $50 million in FY 2011. Starting
in FY 2013, transfers from Medicare trust funds and private health plans will supplement
mandatory appropriations for PCORI through FY 2019.

The law also directs GAO to appoint a 15-member “methodology committee” to develop and
update methodological standards for research supported by the institute. GAO published a call
for nominations in the September 28, 2010, Federal Register, requesting submissions by October
29, 2010. The notice is available at: http://edocket.access.gpo.gov/2010/pdf/2010-24143.pdf.
[Rasouli]

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 National Health Care Workforce Commission

On September 30, 2010, the Government Accountability Office (GAO) announced the members
of the National Health Care Workforce Commission, a 15-member body that was established in
the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) to study and report on the
nation’s health care workforce needs and policies. Peter Buerhaus, Ph.D., R.N., of Vanderbilt
University Medical Center, was named chair, and Sheldon Retchin, M.D., MSPH, vice president
for health sciences, Virginia Commonwealth University, and CEO, VCU Health System, will
serve as vice chair through September 2013. The announcement is available at:
www.gao.gov/press/nhcwc_2010sep30.html.

In an October 1 statement, AAMC President and CEO Darrell G. Kirch, M.D., noted, “Through
his leadership of the VCU Health System, where he is responsible for the hospital, physician
group, and health plan, as well as the schools of medicine, dentistry, pharmacy, public health,
nursing and allied health, Dr. Retchin has a breadth and depth of knowledge in workforce
development issues. This unique background gives him a significant understanding of the
challenges associated with the education, training and supply of health care professionals.” The
statement is available at: www.aamc.org/newsroom/newsreleases/2010/150576/101001.html.

Representatives from other AAMC-member institutions, including the University of Nebraska

Medical Center, University of Colorado School of Medicine, Morehouse School of Medicine,
George Washington University School of Medicine and Health Sciences, and University of
California, San Francisco, Fresno Medical Education Program, also were appointed to the
commission.

The commission requires an appropriation in the annual spending bills. The Labor-Health and
Human Services (HHS)-Education Appropriations bill (S. 3686) approved by the Senate
Appropriations Committee proposes $3 million for the commission in FY 2011; however, the
federal government is operating under a Continuing Resolution (P.L. 111-242) that funds
agencies at FY 2010 levels through December 3, 2010. Congress will need to finalize the FY
2011 spending bills for funding to become available to the commission. [Rasouli]

Resident Duty Hours and OSHA

Public Citizen, the American Medical Student Association (AMSA), the Committee of Interns
and Residents (CIR), and several individuals filed a petition with the Occupational and Health
Administration of U.S. Department of Labor on September 2, 2010, asking that the agency
regulate resident duty hours.

On September 27 the AAMC provided its view that OSHA regulation is unnecessary and urged
OSHA to reject the petition in a letter
(www.aamc.org/download/156496/data/aamc_comment_letter_to_osha_on_resident_hours.
pdf) to OSHA head David Michaels, Ph.D. In the letter, AAMC President and CEO Darrell
Kirch, M.D., points out that residents learn in a patient care environment where long hours and
heavy workloads are sometimes necessary. They are preparing for a career in a profession where
patient needs often override rest and family time.

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The letter also speaks to the fact that resident work schedules are only part of a complex matrix
that includes supervision, communication, institutional oversight, and patient care staffing and
processes, all of which influence the quality of care and the learning environment. The letter
notes the Accreditation Council for Graduate Medical Education (ACGME), with its expert staff
and volunteers, is best positioned to formulate standards that are evidence based, and to modify
them as new evidence accumulates.

On September 28, the ACGME Board of Directors approved a set of requirements that are a
comprehensive approach to patient care, quality improvement, supervision, professionalism,
transitions in care, and resident well-being. Included are graduated standards for duty hours for
the nation's 111,000 residents training in ACGME accredited teaching institutions. The new
standards will go into effect in July 2011. The new standards can be found on the ACGME web
site at: http://acgme-2010standards.org. [Yoder]

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