Issue Paper

Further Balanced Budget Act Refinements Needed


In the Medicare Balanced Budget Refinement Act of 1999, Congress corrected several provisions of the 1997 Balanced Budget Act (BBA) that had excessively reduced Medicare reimbursements to nursing facilities and home health care providers. A few issues remain, however, that need legislative remedies:


Consolidated Billing. The BBA changed nursing homes’ Medicare billing procedures, requiring nursing facilities to bill Medicare for all Part B services provided to residents. Because of the complexity of this change, HCFA indefinitely delayed its July 1, 1998 implementation date, with the exception of billing for outpatient rehabilitation therapies, which went into effect January 1, 1999. HCFA now is developing the process for full implementation of Part B consolidated billing and is looking at a January 1, 2001 implementation date.

The new policy was designed to reduce the opportunity for multiple service providers to submit fraudulent, duplicate bills by holding nursing facilities liable for any errors in billing, whether or not they are intentional. Although the concept of consolidated billing is laudable, it places added administrative burdens and fiscal risks on nursing facilities that could prove catastrophic. Those risks and burdens are expected to be addressed in greater detail in a soon-to-be-released report issued by Jing Xing, a consulting firm under contract with HCFA.

Billing for many Part B services requires specially trained staff and claims processors to meet complex billing procedures. For example, claims for orthotic and prosthetic equipment require not only detailed codes, but also extensive modifiers to indicate how the device is constructed. Currently, specially trained coders employed by the orthotic and prosthetic vendors prepare the bill. Skilled nursing facility staff do not have the expertise in all the intricacies of billing each of these services to produce consistently accurate claims. At the same time, if skilled nursing facilities rely on vendors to produce the claims, the nursing facilities will be liable for fraud if the claims contain any errors.



Need for an Outlier Provision

The Prospective Payment System (PPS) for skilled nursing facilities bases reimbursement on the average cost of providing care within resource utilization groups (RUGs-III). In a prospective payment system based on average payments, some residents will have costs that far exceed the average. The exclusions identified in the Balanced Budget Refinement Act of 1999, which go into effect April 1, 2000, will help alleviate some of the disparities associated with extremely expensive services. However, there will always be a small number of cases, generally known as “outliers”, whose costs greatly exceed the average payment (i.e., $100/day Clinitron beds or a $5,000-10,000 prosthetic device).

In other prospective payment systems that HCFA has created, for hospitals, home health, and hospital outpatients, an outlier provision was included for the excessively expensive cases. The BBA did not specifically allow for such a provision for skilled nursing facilities, and HCFA maintains that it cannot create an outlier without statutory authority.


Modify BBA ’97 to require HCFA to develop an outlier or exceptions policy within the skilled nursing facility prospective payment system to pay adequately for RUG-III episodes with costs that far exceed the prospective payment.


Access to Full Federal Rate for Skilled Nursing Facilities

Since the July 1, 1998 implementation date of the skilled nursing facility prospective payment system, reimbursements have been made according to a formula that combines a facility-specific rate with a federal rate, which is given increasing weight each year. Facility-specific rates are based on cost reports that skilled nursing facilities filed in 1995. Since that time, many facilities have significantly changed their operations, often by accepting sicker patients who need a higher level of care than a facility previously provided. For these facilities, the facility-specific rate is inadequate, and the federal rate more appropriately reimburses the kind of care they now provide.

The Medicare Balanced Budget Refinement Act allowed facilities to opt for the full federal rate at the beginning of their next cost reporting year, effective January 1, 2000. Facilities whose cost-reporting years began this January received significant relief under this provision. However, for the approximately 25% of WAHSA facilities whose cost reporting periods do not begin until July or October, they will benefit to a much lesser extent, since they already are farther into the transition period.


Allow all skilled nursing facilities, regardless of when their Medicare cost reporting period begins, the option to opt for the full federal rate on or after January 1, 2000.

The Wisconsin Association of Homes and Services for the Aging (WAHSA) is a statewide membership organization of not-for-profit corporations principally serving elderly and disabled persons. Membership is comprised of 190 religious, fraternal, private and governmental organizations which own, operate and/or sponsor 194 not-for-profit nursing homes, 71 community-based residential facilities, 39 residential care apartment complexes, 100 independent living facilities, and 446 community service programs which provide services ranging from Alzheimer's support, child day care, hospice and home care to Meals on Wheels. For more information, please contact the WAHSA staff at (608) 255-7060: John Sauer, Executive Director; Tom Ramsey, Director of Government Relations; or Brian Schoeneck, Financial Services Director.

WAHSA 204 South Hamilton Street Madison, WI 53703
Telephone: (608)255-7060 FAX:(608)255-7064