The federal government will reduce rates paid to physicians and hospitals treating patients with cardiovascular diseases and other serious illnesses in an effort to stem the tide in cost overruns in its Pre-Existing Condition Insurance Plan (PCIP).

In a notice in the Federal Register, the Department of Health and Human Services (HHS) announced that beginning June 15 it would implement 100 percent of Medicare payments for claims for patients enrolled in PCIP. The plan was designed as a bridge for people who otherwise would be denied insurance because of previous conditions, including some cardiovascular diseases and cancer, until 2014. Under the patient Protection and Affordable Care Act, such patients will be eligible for insurance in 2014, regardless of pre-existing conditions.

HHS explained that the new payment rates were needed because the cost of claims is threatening to outpace the funding allocated by Congress. Since its launch in 2010, the program has enrolled 135,000 people with pre-existing conditions.

“The combined effect of the number of individuals enrolled in the program, particularly very sick individuals, their high utilization of covered services, and the statutory limitations on enrollee cost-sharing (which limits the maximum amount an enrollee pays out-of-pocket for covered services to $6,250 in 2013) has led to a situation where the overall cost of the PCIP program is higher than originally projected,” HHS wrote.

To ensure the sustainability of the program, the new payment rates needed to be in effect “as soon as operationally possible.”

HHS said it chose Medicare payment rates because they apply to most services, are familiar and are accepted at most institutions. “Since Medicare payment rates are well known by facilities and providers, we believe using a rate indexed to Medicare best informs them of what the payment rate for most covered services will be. Based on enrollment and claims data, current HHS estimates indicate that implementing a payment rate that is 100 percent of Medicare will allow us to ensure that there is sufficient funding to pay for the claims and administrative expenses of the PCIP program until coverage under the program ends in 2014.”

The policy prohibits charging patients in the plan in excess of allowable out-of-pocket costs for a covered service. “[A]s a condition of accepting payment for most covered services, facilities and providers will be prohibited from ‘balance billing’ enrollees in the federally-administered PCIP for the difference between the plan allowance for those covered services and the charge for the covered service that they might otherwise bill to a patient who is not a federally-administered PCIP enrollee.”

The payment rates do not apply to prescription drugs, organ and tissue transplants, dialysis and durable medical equipment benefits.

The interim final rule is available here.