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FY 2007 Budget in BriefCenters for Medicare & Medicaid ServicesOn this page: Overview of the CMS Budget
Centers for Medicare & Medicaid ServicesThe Centers for Medicare & Medicaid Services assures health care security for beneficiaries. The Centers for Medicare & Medicaid Services (CMS) is the largest purchaser of health care in the United States, serving about 90 million Medicare, Medicaid, and State Children's Health Insurance Program (SCHIP) beneficiaries. The FY 2007 Budget request for CMS is $598.1 billion in net outlays, a $54.5 billion, or 10 percent increase over FY 2006. This request finances Medicare, Medicaid, SCHIP, the Health Care Fraud and Abuse Control Program (HCFAC), State insurance enforcement, and CMS operating costs. Following are policy highlights from the CMS FY 2007 Budget request. Medicare
Medicaid and SCHIP
Discretionary Program Management
Other Initiatives
Medicare
Medicare
The Four Parts of Medicare Part A
Part B
Part C
Part D
Implementing MMA The Medicare Modernization Act of 2003 (MMA) enacted sweeping changes to transform and modernize the Medicare program. The MMA changes were supported by the Administration in an effort to offer a 21st century benefits package, expand beneficiary choices, introduce competition, and control spending. Timely and effective implementation of MMA reforms is a high priority for the Administration. Part D Progress: The prescription drug benefit, established by MMA, began on January 1, 2006. Seniors and disabled persons who enroll in the benefit are paying an average monthly premium of about $25 in 2006, well below previous estimates of about $37. Furthermore, beneficiaries have a choice of at least one plan with monthly premiums below $21. In many parts of the country, beneficiaries can enroll in a drug plan for as little as $1.87 per month. Prescription drug plans are available with zero deductibles or deductibles lower than Medicare's standard annual deductible of $250 in every region. CMS and its partners are still promoting the drug benefit and encouraging beneficiaries to sign up by the end of open enrollment in May 2006. At press time, about 24 million Medicare beneficiaries are participating in the new prescription drug benefit. This figure includes more than six million Medicare-Medicaid dual eligible beneficiaries, over six million in employer-sponsored coverage supported by the retiree drug subsidy, and more than three million beneficiaries who signed up for stand-alone prescription drug coverage. In addition, three million Medicare-eligible Federal retirees will continue to receive drug coverage they already enjoy. Medicare Advantage: The MMA created the MA program to offer more choices and better benefits to Medicare beneficiaries through competition among private health insurance plans. With the passage of MMA, a downward trend in private Medicare plan enrollment has been reversed, and 5.7 million beneficiaries, or nearly 13 percent, are enrolled in MA plans. The MMA increased payments to private plans, and plans have been investing these higher payments in improving benefits for Medicare beneficiaries. Beneficiaries in MA can now save an average of about $100 in out-of-pocket costs compared to traditional Medicare, and beneficiaries in fair to poor health save even more. In 2006, CMS has contracts with over 360 private health plans, which will offer more than 1,600 benefit options for seniors and the disabled across the Nation. Approximately 98 percent of Medicare beneficiaries now have access to some kind of local private MA plan. More than 80 percent of beneficiaries have access to regional PPO plans. Of the 3,066 counties in the United States, 3,004 will have a participating local plan. Competitive Bidding: The MMA introduced market competition into the purchase of medical items used to treat Medicare beneficiaries. CMS will implement a competitive bidding program in July 2006 to enable Medicare providers to purchase certain drugs at market prices. In 2007, CMS will expand the use of competitive bidding to the purchase of durable medical equipment (DME) and supplies. Under this new DME model, CMS will use competitive bidding in selected markets. The MMA requires that competition occur in ten of the largest metropolitan statistical areas (MSAs) starting in 2007, expanding to 80 of the largest MSAs by 2009. CMS will choose the 10 regions they believe will provide the most competitive environment and will be of a size that will not overwhelm their current capacity to conduct a bidding process. Under a previous DME demonstration project, competitive bidding achieved Medicare savings and this expanded program is expected to produce similar results. Contracting Reform: The MMA includes provisions that allow the Secretary to introduce greater competition and accountability to the Medicare contracting process. To ensure a sufficient number of private contractors to administer the program, the original Medicare law provided prospective contractors with a number of beneficial provisions such as limiting the type of contractors, requiring cost contracts, and limiting competition for specific functions. The MMA:
In February 2005, CMS announced an accelerated strategy to convert from the current cost contracts to the new Medicare administrative contracts (MACs) over the period FY 2006 through FY 2009. This accelerated strategy ensures that expected benefit savings from Medicare contracting reform could come as early as FY 2009. By then, CMS plans to reduce the overall number of contractors from about 50 to 23 (15 Part A/B MACs, 4 durable medical equipment MACs, and 4 home health MACs). Part of the accelerated strategy includes introducing durable medical equipment Medicare administrative contractors (DME MACs) in 2006. On January 6, 2006, CMS awarded four DME MACs using the full and open competition model envisioned in MMA. The DME MACs will immediately begin transition activities and assume full responsibility for claims processing on July 1, 2006. The FY 2007 budget includes $146.8 million to continue the accelerated contracting reform strategy. With this funding, CMS will transition to seven MACs during 2007. FY 2007 Budget and Legislative Initiatives In conjunction with Medicare's recently updated benefits, which will promote more effective and prevention-oriented care, the FY 2007 Budget includes a package of Medicare legislative proposals designed to strengthen the long-term financial security of the Medicare program. These proposals build on long-term Administration priorities for Medicare, such as improving quality and preventing medical errors, encouraging efficient and appropriate payment for services, fostering competition, and promoting beneficiary involvement in health care decisions. The net savings from this legislative package is $2.5 billion in FY 2007 and $35.9 billion over 5 years. The following is a summary of the FY 2007 budget and legislative priorities. Fostering Productivity: To more accurately pay providers for the care furnished to beneficiaries, as well as encourage the adoption of productivity advances, the Budget proposes to include productivity adjustments to providers in the determination of yearly updates. Specifically, based on the most recent recommendations from the Medicare Payment Advisory Commission (MedPAC) for 2007, the Budget proposes a zero percent payment update for skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities, and an update of the market basket minus 0.45 percent for hospitals. In 2008 and 2009, the payment update for all of these provider categories would be market basket minus 0.4 percent. The Budget also proposes to reduce payment updates for hospice and ambulance services by 0.4 percent for each of the years 2007 through 2009. Rationalizing Medicare Payments: To ensure that Medicare does not pay health care costs where another insurer is primary, the budget seeks to clarify and expand Medicare secondary payer instances. In the area of DME, there has been considerable growth in spending, specifically for power wheelchairs and oxygen and oxygen equipment. Moving oxygen and oxygen equipment from continuous rental to the capped rental category would reduce costs for the Medicare program and its beneficiaries. In addition, the budget proposes to reimburse for short-term power wheelchair usage based on actual time used versus paying up front at the full purchase price. Encouraging Quality and Efficiency: The Administration has undertaken initiatives to hold providers accountable for quality and support care improvements that enhance quality and efficiency. Many of the opportunities to accomplish these goals involve post acute care. Medicare often pays different amounts for post acute care for beneficiaries with similar needs, and often pays more when preventable complications leading to readmissions and other health problems occur in the post acute system. The budget proposes to build on the Administration's quality initiatives by ensuring that patients are served in the most medically appropriate and efficient setting for high quality post acute care. The Administration supports provider payment reforms that encourage quality, and is considering ways to promote more efficient and high quality physician services. The Administration supports physician payment reforms that do not increase taxpayer, Medicare, or beneficiary costs, such as differential updates initially for physicians that report on quality measures and later for physicians that achieve efficient and high quality care. Limiting Subsidies to High Income Beneficiaries: MMA requires higher-income beneficiaries to pay a greater share of the Part B premium starting in 2007. Currently, beneficiary premiums cover 25 percent of Part B program costs. Starting 2007, Part B subsidies will be reduced for beneficiaries with an annual income over $80,000 and couples over $160,000. The budget proposes to build upon the initial steps of MMA by eliminating annual indexing of thresholds for income-related Part B premiums beginning on January 1, 2008. While all beneficiaries would continue to get Medicare subsidies, this change gives beneficiaries increased participation in their health care, while retaining the current growth in subsidies for most beneficiaries. Medicare Health Savings Accounts: Health Savings Accounts (HSAs) combine a high-deductible health plan with a tax advantaged personal savings account reserved for medical expenses. HSAs give individuals greater ownership over their health care and can be a more economical choice than traditional insurance. More than one million Americans have opted for an HSA since the President signed them into law in December 2003. However, Medicare still does not offer any HSA options. The Administration is developing new Medicare HSA choices for beneficiaries, including allowing people to continue their existing HSAs when they become eligible for Medicare. Competitive Bidding for Labs: CMS successfully tested a competitive bidding model for DME in Polk County, Florida and San Antonio, Texas. Based on that success, MMA expanded DME competitive bidding nationwide and required a similar competitive process for outpatient drugs. The Budget proposes to build on these successful competition models by extending competitive bidding to Medicare laboratory services. Expanding Program Integrity Efforts: The Budget proposes to encourage Medicare providers to collect debts from beneficiaries who have not met their obligations to contribute to their medical care costs. Under this proposal, Medicare would phase out bad debt reimbursement to providers between 2007 and 2011. In addition to the $1.1 billion provided in statute for Health Care Fraud and Abuse Control (HCFAC) in 2007, the Budget requests an additional $118 million targeted at efforts to protect the new prescription drug benefit and Medicare Advantage programs against fraud, waste and abuse. These funds are part of a Government-wide proposal to fund program integrity activities through a discretionary cap adjustment. Building on Contracting Reform: The Administration will build on MMA Contracting Reform by working to improve quality and efficiency and better target resources to Quality Improvement Organizations (QIOs). Strengthening Medicare's Long-Term Financial Security: To support continuing efforts to enhance Medicare's long-term sustainability, the Budget builds on an MMA requirement that the Medicare Trustees Report include a comprehensive fiscal analysis of the program's financing and issues a warning if general revenues are projected to exceed 45 percent of total Medicare financing. If the 45 percent threshold were met and Congress failed to act on recommendations to sustain Medicare's financing, then a four-tenths of one percent reduction to all Medicare payments would be implemented to slow growth, similar to a reduction in the market basket update. The reduction would grow by four-tenths of one percent every year that the 45 percent threshold is exceeded. Medicare Highlights from the Deficit Reduction Act of 2005 Linking Payment to Performance: Starting in 2007, hospitals will be required to submit data on specified quality measures or have their annual market basket update reduced by two percentage points. The Secretary will develop a plan to implement a value-based purchasing program for inpatient hospital payments, beginning in 2009. Likewise, starting in 2007, home health agencies will be required to submit data on quality measures specified by the Secretary, or incur a two percentage point reduction in their market basket update. Promoting Efficiency and Quality: By January 2007, DRA requires the Secretary to implement a hospital-focused gain sharing demonstration project in six sites. The projects will improve Medicare quality and efficiency by testing arrangements between hospitals and physicians to govern utilization of hospital resources and encouraging hospitals to share resulting savings with physicians. Reducing Bad Debt Payments for Skilled Nursing Facilities: Starting in 2006, Medicare reimbursement for skilled nursing facility bad debt will be reduced to 70 percent, consistent with the rate paid to hospitals, except for the bad debt attributable to dual-eligible beneficiaries. Rationalizing Provider Payments: Effective 2006, the title for DME capped rental items will be transferred to beneficiaries after 13 months of continuous use, saving money for Medicare and its beneficiaries. Another provision produces savings from paying less for multiple diagnostic images. Finally, DRA freezes home health updates in 2006, based on MedPAC reports showing home health agencies enjoying healthy profit margins. 2006 Physician Update: The physician payment update for 2006 is set at zero percent, instead of the previously scheduled -4.4 percent update. Accelerating Income-Related Part B Premium: The MMA required phase-in of an income related Part B premium over 5 years, from 2007 to 2011. DRA accelerates this time frame, requiring the income-related premium be fully implemented by 2009. Promoting Efficient Program Administration: To encourage providers to submit clean electronic claims, DRA extends the time period by which contractors must pay paper claims, from 27-30 days to 29-30 days. Enhancing Program Integrity: DRA provides an additional $100 million in 2006 for the Medicare Integrity Program, to enhance program integrity oversight of the new prescription drug benefit and Medicare Advantage programs. Medicare Quality Improvement Efforts Improving quality of care and reducing medical errors are important goals in modernizing Medicare. The Administration supports greater availability of reliable and consistent quality information. The Medicare website now displays quality data that allows consumers to make informed choices by comparing the performance of hospitals, nursing homes, home health agencies, and dialysis facilities. The Administration also supports provider payment reforms that promote quality and efficiency and discourage increased complications and costs. CMS is working with Medicare providers to identify and test budget-neutral incentives that will stimulate improved performance on quality and efficiency measures. The following are additional CMS activities that support efforts to improve quality of care in Medicare. Expanding Pay-for-Performance: CMS is working to develop and implement payment systems that support higher quality care - the right care for each person every time. These payment reforms can help providers deliver care that prevents complications, avoids unnecessary medical services, and achieves better outcomes at a lower overall cost. CMS is working on several fronts to expand pay for performance initiatives. Encouraging Quality Data Reporting: In 2002, CMS initiated a voluntary requirement that hospitals report certain quality measures. This concept was adopted by MMA and expanded under DRA. Hospitals now face reductions to their annual payment updates for failure to report on selected quality measures. In early 2006, CMS is also launching a similar voluntary reporting effort for physicians. CMS will collect information on 16 clinical measures and work with doctors to improve data accuracy and clinical care. Comparative facility quality information, available on the Medicare web site, can help guide consumer choices and drive quality improvements. Conducting Demonstration Programs: CMS is testing several demonstrations and pilot projects to test P4P principles. Using financial incentives, the Premier Hospital Quality Incentive demonstration adjusts hospital payments up or down depending on how they perform on certain quality outcomes measures. Under this project, top performing hospitals have so far received $8.9 million in bonuses based on performance, with improvements in quality and fewer costly complications. The Physician Group Practice Demonstration is testing pay for performance for large physician groups. Physician groups who achieve benefit savings among their patient population using quality improvement approaches will receive performance payments. A series of demonstrations will test if various disease management models can improve health outcomes and reduce costs in Medicare. Promoting Health Information Technology: CMS is promoting the adoption of health information technology (IT) tools to improve performance and quality outcomes. For example, CMS is providing technical assistance to physicians' offices on how to adopt health IT tools to improve quality through the Doctor's Office Quality Information Technology (DOQ-IT) project. CMS has also developed regulations on standards for e-prescribing and for promoting interoperable record systems. Quality Improvement Organizations: QIOs-previously Peer Review Organizations-were established by Title XI, Section 1151 of the Social Security Act, Part B, to serve the following functions:
QIOs are a central player in this Administration's efforts to improve the quality of care provided to Medicare beneficiaries. QIOs assist providers seeking to improve the quality of care delivered in nursing homes, home health agencies, hospitals, and physicians' offices. These quality improvement efforts are essential to the Administration's goals to modernize and strengthen the Medicare program. In the 7th cycle of contracts (commonly called a Scope Of Work or SOW), QIOs for the first time provided assistance on both the statewide and provider-specific level to nursing homes and home health agencies to improve quality. They also continued ongoing work with hospitals and physicians' offices. Medicare providers improved their quality of care on 29 of 41 clinical quality measures.
On August 1, 2005, QIOs began a new three-year contract cycle. While continuing many existing quality improvement activities, the 8th contract cycle shifts the focus from targeted quality efforts to more systemic improvements. This cycle of contracts is broken into three major areas of work:
Health Care Fraud and Abuse Control Program The Health Insurance Portability and Accountability Act of 1996 (HIPAA), established the Health Care Fraud and Abuse Control (HCFAC) Program. The FY 2007 budget proposes to fund the HCFAC program through both a mandatory and a discretionary funding stream. Proposed FY 2007 total HCFAC funding is $1.2 billion. Of this amount, $1.1 billion funds the mandatory portion of the program. Within the mandatory amount is $24 million provided in DRA for the Medicare-Medicaid data matching program. The remaining $118.4 million represents new discretionary proposed funding. The HCFAC program was established to:
HCFAC Mandatory Funds: The HCFAC Program dedicates $1.1 billion from the Medicare Part A Trust Fund toward combating health care fraud and abuse. The FY 2007 money is allocated into three major parts: 1) $744 million for the Medicare Integrity Program (MIP); 2) $114 million to the Federal Bureau of Investigation (FBI); and, 3) $240.6 million allocated among the Department of Justice (DOJ), the HHS Office of the Inspector General (OIG), and other HHS agencies, including for 2006 CMS, the Administration on Aging (AoA), The Health Resources and Services Administration (HRSA), the Office of the National Coordinator for Health Information Technology (ONC), and the Office of General Counsel (OGC). The programs and projects financed by these funding streams are used to detect and prevent fraud, waste, and abuse through investigations and audits, educational activities, and data analysis. From 1997 to 2004, HCFAC activities have returned approximately $7.3 billion to the Medicare Trust Fund. The MIP activity in HCFAC provides funds for: medical review; benefits integrity work to identify and refer patterns of fraud to law enforcement; provider and HMO audits of cost reports; Medicare secondary payer activities; and provider education and training. The Administration has requested an additional $85.6 million in discretionary funding to safeguard the Medicare prescription drug benefit and Medicare Advantage. These funds will increase the total MIP funding to $829.6 million in 2007. The FBI uses its $114 million allocation for health care fraud enforcement and investigations. In addition, the FBI provides operational support for national anti-fraud initiatives focusing on pharmacies, chiropractic services, medical clinics, and transportation providers. The remaining $240.6 million finances a variety of anti-fraud and abuse activities. The HHS OIG uses its share to: a) bring about judgements and settlements related to health care fraud and abuse; and b) develop and implement recommendations, in conjunction with CMS, for correcting systemic vulnerabilities detected during evaluations and audits. The funding not allocated to the OIG is known as the "wedge." DOJ uses its portion of the wedge for civil and criminal prosecutions of health care professionals and providers. The remaining wedge monies go to HHS and are used primarily for: SCHIP and Medicaid financial management oversight; educational activities at AoA; supporting the Healthcare Integrity and Protection Data Bank; fraud prevention research by ONC; and investigative and litigation support at OGC. HCFAC Cap Adjustment: As part of a Government-wide proposal to fund program integrity activities through a discretionary cap adjustment, the Budget requests discretionary HCFAC funding totaling $118.4 million in FY 2007 and $182.5 million in FY 2008. These amounts will be allocated among DOJ and OIG, as well as the Medicaid and Medicare programs at CMS. These funds are intended to complement the program integrity activities funded with mandatory HCFAC funds. Mandatory HCFAC funds have been capped since FY 2002, while at the same time, the Medicare program has experienced significant transformation and growth in Medicaid has put spending in that program on par with Medicare, thereby elevating the need for enhanced financial management oversight. The two-year, discretionary HCFAC request will be used to safeguard the new Medicare prescription drug benefit and Medicare Advantage plans against fraud, waste, and abuse, as well as to expand program integrity oversight of the Medicaid program. Reducing Erroneous Medicare Payments CMS announced in November 2005 that in just one year, aggressive oversight and new efforts to improve payment accuracy have cut the percentage of improper fee-for service Medicare claims payments by half, from 10.1 percent in 2004 to 5.2 percent in 2005, a $9.5 billion reduction in improper payments. As part of its future performance goals, CMS has targeted further reducing the Medicare error rate to 5.1 percent in 2006 and 4.9 percent by 2007. MIP is the primary source of funding to lower Medicare improper payments and finances the Comprehensive Error Rate Testing (CERT) program. CERT is the primary management tool for reducing the percentage of erroneous Medicare payments. Implemented in 2003, CERT allows CMS to estimate the Medicare error rate using a sample size of approximately 160,000 fee-for-service claims. Further, the program tracks payment accuracy data at the contractor, provider, and service levels, allowing CMS to identify where problems exist and more effectively target improvement efforts to address those problems. The significant reduction in the Medicare FFS error rate from 2004 to 2005 can be attributed largely to a marked reduction in errors from claims with no documentation and insufficient documentation. These reductions are linked to efforts through CERT to educate providers about problems with medical record documentation and methods to improve their accuracy and completeness. When CERT data reveal a pattern that indicates a payment problem, CMS works with contractors to develop corrective action plans. In 2005, CMS began an assessment of the risk for improper payments to Medicare Advantage plans and will take a series of steps starting this year to measure the accuracy of these payments in detail and address potential risks. By reviewing monthly managed care payments, CMS will examine whether beneficiaries are eligible for a plan, how payments are made, and what happens when a beneficiary's enrollment is terminated. Likewise, this year CMS will begin work to identify and prevent fraud and abuse of the new prescription drug benefit, through contractors called Medicare Rx Integrity Contractors (MEDICS).
Clinical Laboratory Improvement Amendments of 1988 The Clinical Laboratory Improvement Amendments of 1988 (CLIA) expanded survey and certification of clinical laboratories from Medicare-participating and interstate commerce laboratories to all facilities testing human specimens for health purposes. CLIA also introduced user fees to finance survey and certification activities at clinical laboratories. User fees are credited to the Program Management account but are available until expended for CLIA activities. CMS determines the workloads of each State survey agency by taking the total number of laboratories and subtracting waived laboratories, laboratories issued certificates of provider-performed microscopy, State-exempt laboratories, and accredited laboratories. The CLIA program has 186,360 laboratories registered with CMS, 20 percent of which are subject to routine inspection (every 2 years) under the program. The remainder are exempted. Workload projections for the FY 2006-2007 cycle include 20,582 surveys of nonaccredited laboratories, 826 State validation surveys of accredited laboratories, and approximately 1,441 follow-up surveys and complaint investigations. Data support the contention that CLIA has improved the overall quality of laboratory testing in the nation. On average, the number of quality deficiencies decreases approximately 40 percent from the first round of laboratory surveys to the second, with further decreases in subsequent surveys. Medicare Legislative Proposals Table
Medicaid
Medicaid is a jointly-funded, Federal-State program that provides medical assistance to certain low-income groups. In FY 2007, approximately 52.9 million individuals, including children, the aged, blind, and/or disabled, and people who meet eligibility criteria under the old Aid to Families with Dependent Children (AFDC) program, will be covered by Medicaid. Additionally, many other individuals will receive Medicaid benefits through waivers and amended State plans with somewhat higher income eligibility limits. The Medicaid current law baseline assumes passage of the Deficit Reduction Act of 2005 (DRA). In FY 2007, the Federal share of current law Medicaid outlays is expected to be $199.45 billion. This is a $7.11 billion (3.7 percent) increase over projected FY 2006 spending. Background Under Medicaid, State expenditures for medical assistance are matched by the Federal Government using a formula based on per capita income in each State relative to the national per capita income. The Federal medical assistance percentage (FMAP) rates for FY 2007 will range from 50 to 76 percent for medical assistance payments. Overall, the Federal Government pays for approximately 57 percent of total Medicaid expenditures. In addition to medical assistance payments, the Medicaid appropriation funds the Center for Disease Control and Prevention's Vaccines for Children program and the Federal share of Medicaid State and local administrative costs. Historically, eligibility for Medicaid had been based on qualifying under the cash assistance programs of AFDC or Supplemental Security Income (SSI). With the creation of the Temporary Assistance for Needy Families (TANF) program in 1996 (which replaced AFDC), eligibility for Medicaid and cash assistance were de-linked. Medicaid eligibility, however, remains tied to AFDC program rules in place in 1996. All those who qualify under the 1996 AFDC rules and most SSI recipients, commonly referred to as the "categorically eligible," must be covered under State Medicaid programs. States must cover three additional groups: 1) pregnant women and infants whose family income does not exceed 133 percent of the Federal poverty level; 2) all children under six living in families with incomes under 133 percent of the Federal poverty level; and 3) children aged six through 18 years living in families with incomes below the poverty line. In 2006, the Federal poverty level for a family of three was $16,600 in the continental United States. States may also cover "medically needy" individuals. Such individuals meet the categorical eligibility criteria, but have too much income or too many resources to meet the financial criteria. Generally, States are required to provide a core of 13 mandatory services to eligible needy recipients, including: inpatient and outpatient hospital care; health screening, diagnosis, and treatment for children; family planning; physician services; and nursing facility services to individuals over 21. States may also elect to cover any of over 30 specified optional services, which include prescription drugs, clinic services, dental care, eyeglasses, and services provided in intermediate care facilities for those with developmental disabilities. Medicaid Highlights from the Deficit Reduction Act of 2005 Expansion of State Long-Term Care Partnership Program: Establishes authority for all States (outside of the original four State demonstrations) to implement long-term care partnership plans that provide dollar-to-dollar disregard of assets or resources equal to the insurance benefit payments on behalf of the individual. The provision provides standards for reciprocity among partnership States unless they notify the Secretary of their decision to exempt themselves. Additionally, the DRA establishes a National Clearinghouse for long-term care information to educate beneficiaries on all types of long-term care insurance. Money Follows the Person Rebalancing Demonstration: This demonstration, which builds on the President's New Freedom Initiative, will help States rebalance their long-term health care systems between institutional and home and community-based services (HCBS) by awarding selected States with an enhanced matching rate to pay for HCBS for individuals transitioning from institutional care to a setting of their choice. Family Opportunity Act: The Family Opportunity Act (FOA) was passed as part of the DRA and includes a provision that allows States to offer middle-income families with disabled children the option of buying into Medicaid. FOA includes a demonstration that provides States with the opportunity to offer home and community based alternatives to psychiatric residential treatment facilities for children as part of the New Freedom Initiative first proposed by the President. The FOA also restores Medicaid eligibility for certain SSI beneficiaries. Expanded Access to Home and Community-Based Services (HCBS) for the Elderly and Disabled: Beginning January 1, 2007, HCBS for elderly and disabled will become an optional benefit for States. $1 million is also appropriated for the period of FY 2006 through FY 2010 for measuring quality in HCBS programs. Optional Choice of Self-Directed Personal Assistance Services: Beginning January 1, 2007, self-directed personal assistance services for the elderly and disabled would become an optional benefit for States. Asset Transfer Reform: The DRA includes several provisions to increase penalties or change the rules regarding asset transfers in order to deter individuals from transferring assets so that they may become eligible for Medicaid long-term care services. These changes include lengthening the look-back period from three years to five years and changing the penalty period start date; altering how annuities are treated; modifying the "income first" rule regarding community spouses; disqualifying individuals with substantial home equity from receiving long-term care assistance except where the spouse or minor or disabled child lives in the home or in instance of undue hardship; and requiring residents of Continuing Care Retirement Communities to spend down resources before applying for Medicaid while considering an individual's entrance fees as a resource. Flexibility in Cost Sharing and Benefits: The DRA allows States to apply limited premiums and cost sharing for certain groups of Medicaid beneficiaries and services, and sets special rules for cost sharing for non-preferred prescription drugs and non-emergency care provided in emergency rooms. Premiums and cost sharing are limited to five percent of family income. Additionally, the DRA allows States to provide Medicaid coverage to certain groups of individuals through enrollment in benchmark benefit packages, similar to those offered in the State Children's Health Insurance Program (SCHIP). Health Care Fraud and Abuse: The DRA includes several provisions which build on existing efforts to strengthen Medicaid and SCHIP program integrity. These provisions establish a new Medicaid Integrity Program; increase funding for the Medicare-Medicaid data matching program to find abuse patterns; provide incentives for States to enact and enforce false claims acts; prohibit providers from billing Medicaid multiple times for the same drug; enhance third party liability; improve enrollment documentation requirements; and create Medicaid transformation grants for States to use to adopt innovative cost-saving methods. Prescription Drugs: The DRA contains several provisions that reform Medicaid payment for prescription drugs, including expanding the Federal Upper Limit list and collecting drug surveys and reports; collecting utilization data for physician administered drugs; expanding access to the 340B drug discount program to children's hospitals for inpatient drugs; and specifying how authorized generic drugs sold to another manufacturer are to be reflected when manufacturers report average manufacturer price and best prices. Changes in Medicaid Funding: The DRA includes five provisions that adjust Medicaid funding to certain States and Territories and provide financing reform to certain services provided by Medicaid. The provisions include managed care organization provider tax reform; clarifications to Medicaid case management and targeted case management benefit reimbursement; an increase in the disproportionate share hospitals allotment for the District of Columbia; enhancement of the match rate for Alaska; and an increase in Medicaid payments to the Territories. Emergency Services Furnished by Non-contract Providers for Medicaid Managed Care Enrollees: The DRA requires Medicaid providers without Medicaid managed care plan contracts to accept as payment in full no more than the amount otherwise applicable outside of managed care less any payments for indirect costs of medical education and direct costs of graduate medical education. Other DRA Provisions With Medicaid Impacts Child Support Enforcement Provisions: Two Child Support Enforcement provisions within the DRA have an effect on the Medicaid baseline. The first provision allows States to seek medical child support for children from both custodial and non-custodial parents. The second provision requires States to review child support orders for TANF cases every three years. Hurricane Katrina Relief: The DRA appropriates $2 billion to provide care through Hurricane Katrina Waivers. Payments will be made to States for a range of health-care related costs, including some administrative costs. Recent Program Developments Medicaid Growth: Nursing home care, community-based long-term care costs, and payments to health plans are significant contributors to the growth in Medicaid outlays. These expenditures are expected to continue to contribute to growth in future years. State programs providing "enhanced payments" to institutional providers have also played a significant role in driving-up Federal Medicaid costs. Waivers: States have sought waivers under section 1115 of the Social Security Act to expand health care coverage to low-income, uninsured populations that do not otherwise meet Medicaid eligibility criteria and to test innovative approaches in health care service delivery through demonstration programs. Although demonstrations vary greatly, many employ the approach of expanding the use of managed care for the Medicaid population. To date, CMS has approved 32 Statewide comprehensive health care reform demonstrations in 29 States. CMS has also approved two sub-State health reform demonstrations and 15 demonstrations specifically related to family planning. The DRA legislation provides new opportunities for innovative waivers to improve health care coverage. 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