CMS recently released a proposed rule updating the inpatient prospective payment system (IPPS) for hospitals and the payment rules for skilled nursing facilities (SNFs) and inpatient rehabilitation facilities (IRFs) for FY 2010. There are few changes in the proposed rules to distract disappointed providers from the fact that lower rates are on the horizon. Also, as Congress continues to deliberate and provide insight into the direction of healthcare reform initiatives, providers may yet see some significant changes from the proposed rules when they are issued in final form later this year. Information and assistance on providing comments to the proposed rules may be obtained from the contributing authors listed below or from any member of Baker Hostetler’s Healthcare Industry Team.
For more information, please contact Gregory N. Etzel, or 713.646.1316; Robert M. Wolin, or 713.646.1327; Krista M. Barnes, or 713.646.1352; Summer D. Swallow, or 713.646.1306; Ameena Ashfaq, or 713.646.1329; or Kathleen P. Rubinstein, MPA, Policy Analyst, or 713.276.1650.
In This Alert:
On May 1, 2009, a display copy of the proposed IPPS rule for FY 2010 (Proposed Rule) was posted on the Centers for Medicare and Medicaid Services (CMS) website. The full text of the Proposed Rule is slated for publication in the Federal Register on May 22, 2009.
The revised policies and payment rates contained in the Proposed Rule could result in a $979 million decrease in payments to participating hospitals in FY 2010 and will apply to discharges beginning October 1, 2009. Comments must be received by June 30, 2009. A final rulemaking from CMS is anticipated in early August. Highlights from the Proposed Rule’s 1200-plus pages are summarized below.
CMS proposes the following payment changes for FY 2010: (1) a market basket update of 2.1 percent, with hospitals that successfully report quality measures receiving the full update, and those that do not report such measures receiving a 0.1 percent update as required by the Deficit Reduction Act of 2005 (DRA); (2) a 1.9 percent reduction in payment rates to account for the effect of the classification or coding changes discussed below; and (3) an increase in the outlier threshold to $24,240 to keep outlier payments equal to 5.1 percent of total payments under IPPS.
The Proposed Rule contains three additional cost categories that previously had not been separated in the FY 2002-based IPPS market basket, including blood and blood products, administrative and business support services and financial services. Another separate cost category, photo supplies, will be merged into the chemical cost category. Revisions of multiple price proxies also are included in the Proposed Rule.
Pursuant to the Medicare Prescription Drug Improvement, and Modernization Act of 2003 (MMA), the market basket for FY 2010 will be rebased using FY 2006 data. Under the rebased cost category weights, CMS calculates a labor-related share of 67.062 percent, almost three percentage points lower than the current labor-related share of 69.731.
An Indirect Medical Education (IME) multiplier of 1.35 will be used to calculate the IME payment adjustment for discharges beginning in FY 2010, resulting in a 5.5 percent payment increase for every approximately ten percent increase in a hospital’s resident-to-bed ratio.
Congressional efforts in the American Recovery and Reinvestment Act of 2009 (ARRA) to spare teaching hospitals from the loss of the IME capital adjustment may prove to be short-lived. While the ARRA prohibited CMS from reducing the IME capital adjustment by 50 percent in FY 2009, it did not prevent the agency from eliminating 100 percent of the adjustment for FY 2010 and beyond. In the Proposed Rule, CMS reiterates its intention to eliminate the adjustment, making future congressional action necessary for reviving the payment adjustment.
In the FY 2009 final rule, CMS adopted a policy, to be phased in over a three-year period, that applies a budget neutrality adjustment to the rural and imputed floors within a state, rather than on a national basis. Consequently, in FY 2009, hospitals received a 20 percent state level and an 80 percent national blended wage index adjustment. In FY 2010, the wage index will reflect a 50/50 state/national blend. In FY 2011, the adjustment will be transitioned fully to 100 percent of the state level adjustment.
The Proposed Rule also continues the two-year phase-in of the FY 2009 geographic reclassification policy adjustments involving the average hourly wage comparison criteria for individual and county group reclassifications. The average hourly wage standards in FY 2010 will change to 86 percent for urban and group classifications and 84 percent for rural hospitals.
Although CMS applied a negative 0.6 percent documentation and coding adjustment to the Medicare Severity Diagnosis Related Groups (MS-DRG) payment rates in FY 2008, the agency now says that in FY 2008, provider behavioral changes actually increased payments by 2.5 percent with heart failure, chronic obstructive pulmonary disease, simple pneumonia and pleurisy being the “top contributors.”
Under the Transitional Medical Assistance, Abstinence Education, and QI Programs Extension Act of 2007 (TMA), CMS must adjust payment rates in FY 2010, 2011 and 2012 if a retrospective review of FY 2008-2009 claims data shows a difference between hospitals’ documentation and coding practices and the amount of the adjustment made by the TMA. Accordingly, the agency is proposing a 1.9 percent reduction in payment rates to account for the effect of classification or coding changes that otherwise would result in increased payments under the MS-DRG system, purportedly without an actual change in a hospital’s patient case mix. While CMS has the authority to implement a rate reduction to recoup payments resulting from prior year provider behavioral changes above and beyond the 0.6 percent cut previously applied, the agency says it will address this issue in a future rulemaking and is seeking public comment on the appropriate methodology and analysis.
Other proposed changes include: (1) applying the documentation and coding adjustments to sole community hospitals (SCHs), Medicare-dependent hospitals (MDHs) and Puerto Rico hospitals; (2) reassigning complex cases involving patients who have received hip or knee joint replacements, but have contracted an infection that requires the removal of the prosthesis and inpatient hospitalization to higher paying MS-DRGs; (3) creating a new edit to identify cases in which wrong surgeries occurred for purposes of implementing wrong-site surgery coverage determinations; and (4) making limited revisions to the Complications or Comorbidity Exclusion List to take into account the changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 2009.
Although CMS is not proposing any policy changes to MS-DRG relative weights in the Proposed Rule, the agency is requesting comments on options for improving the standardization process to remove more precisely cost differences across hospitals.
CMS proposes to change its policies for counting inpatient days, labor and delivery days and observation days to calculate DSH payments.
Under the Proposed Rule, if a patient occupied an inpatient bed at any time during her hospital admission, ancillary labor and delivery days will be included in the DSH calculation. According to current policy, ancillary labor and delivery days are counted only if the patient occupied a routine bed prior to occupying an ancillary labor and delivery bed before the census-taking hour. Moreover, the current policy applies even to rooms where labor, delivery and postpartum care all occur in the same bed, requiring hospitals to allocate a certain portion of the patient’s stay to labor and delivery days.
The agency proposes to reverse this policy and count patient days associated with beds for labor and delivery days even when the patient did not occupy a routine bed prior to occupying an ancillary bed, and regardless of whether the patient occupies a “maternity suite” in which labor, delivery, recovery and postpartum care all take place in the same room. This change is consistent with the IPPS treatment of such services (i.e., they are paid as inpatient services) and with the language of the DSH statute. A number of hospitals routinely have been appealing the exclusion of their labor and delivery days to the Provider Reimbursement Review Board (PRRB), challenging CMS’s current policy. The Proposed Rule change, which would be applied prospectively only, represents a quiet acceptance of the arguments hospitals have been advancing in their appeals.
The Proposed Rule also allows hospitals to report Medicaid inpatient days (the numerator of the Medicaid fraction for the DSH calculation) based on either the date of admission, the date of discharge or dates of service. Under current policy, CMS requires hospitals to report such days based on the date of patient discharge. A hospital that chooses to change its methodology for counting days will be required to notify CMS in advance.
Effective for cost reporting periods beginning on or after October 1, 2009, CMS proposes to exclude observation beds and patient days from the DSH calculation under the rationale that observation services are services furnished to outpatients of the hospital, and such days, even for a patient who subsequently is admitted as an inpatient, should not be considered inpatient days for DSH payment purposes. This proposed change would apply to the available bed count used for both DSH and IME payment purposes.
Generally, a provider’s full-time equivalent (FTE) resident count is capped at the number of FTE residents it had during its most recent cost reporting period ending on or before December 31, 1996. However, federal regulations (42 C.F.R. § 413.79(e)) permit hospitals to adjust their FTE caps for “new medical residency training programs” under certain circumstances. Currently, section 413.79(l) defines a “new medical residency training program” as “a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995.” The Proposed Rule “clarifies” that a “new medical residency training program” is one that receives its initial accreditation for the first time, as opposed to reaccreditation of a program that existed previously at the same or another hospital. According to CMS, the current definition could be interpreted as including existing residency programs that merely have been assumed by a different hospital. Additionally, CMS indicated that an accrediting body’s identification of a program as “new” or “initial” is not necessarily determinative with respect to whether the program meets the definition of “new.” Rather, CMS suggests that in evaluating whether a program is truly “new,” the following factors should be considered in addition to the characterization by the accrediting body: (1) whether there are new program directors and/or new teaching staff; (2) whether there are only new residents training in the program(s); (3) the relationship between the hospitals (e.g., common ownership or shared medical school); and (4) the degree to which the hospital with the original program continues to operate its own program in the same specialty. The ability of CMS to look beyond the accrediting body’s determination of a new program creates a murky standard for hospitals attempting to establish training programs that may have some relationship to former residency programs. This is an area ripe for comment by hospitals considering establishing new residency training programs.
Hospitals are permitted to elect to apply their IME and GME FTE resident caps on an aggregate basis if they form a Medicare GME affiliated group (see 42 C.F.R. § 413.79(f)). This allows hospitals meeting certain specifications to temporarily adjust their caps to reflect the rotations of residents among the affiliated hospitals during a given fiscal year. Currently, each hospital in an affiliated group must elect aggregate treatment no later than July 1 of the relevant residency program year. In the Proposed Rule, CMS recognizes that the July 1 deadline created problems for new hospitals that wish to join affiliation groups, yet did not open and begin training residents prior to the July 1 deadline. Therefore, CMS is proposing to amend section 413.79(f) to allow hospitals that are new after July 1 and begin training residents for the first time prior to the following July 1 to receive a temporary FTE cap adjustment to reflect its participation in a Medicare GME affiliated group.
The Proposed Rule reflects the increasing focus on quality, which will continue to be an issue for providers, not only for payment purposes, but also for compliance and enforcement.
Pursuant to DRA § 5001(a)(2), hospitals that do not participate in the RHQDAPU program or do not comply with the program’s reporting requirements will have their annual payment update reduced by 2.0 percentage points for that fiscal year. For the FY 2010 payment determination, CMS added 15 new measures to the RHQDAPU program and retired two measures: beta blocker at arrival for heart attack care and pneumonia oxygenation assessment. The deadline for submitting a request for reconsideration in connection with the FY 2010 payment determination is November 1, 2009, and CMS proposes that all hospitals submit a request for reconsideration regarding the fulfillment of RHQDAPU program requirements and receive a decision on that request before filing an appeal with the PRRB. CMS is soliciting public comments on the extent to which the proposed procedures will be less costly for hospitals, and whether they will lead to fewer PRRB appeals.
The proposed RHQDAPU program quality measures for FY 2011 include two new chart-abstracted measures and two new structural measures: (1) postoperative urinary catheter removal on postoperative day one or two, (2) perioperative temperature management, (3) participation in a systematic clinical database registry for stroke care, and (4) participation in a systematic clinical database registry for nursing sensitive care. The two surgical measures are endorsed by the National Quality Forum. CMS also proposes a harmonization of two measures—death among surgical patients with treatable serious complications and nursing sensitive failure to rescue—into the single name “death among surgical inpatients with serious, treatable complications.”
Additionally, for FY 2011 and subsequent years, hospitals would be required to electronically acknowledge on an annual basis the completeness and accuracy of the data submitted for the RHQDAPU program payment determination under the Proposed Rule.
CMS is seeking comments on the proposed new quality measures and on a number of RHQDAPU program issues including: (1) identifying measures that may be suitable for retirement; (2) suggestions on how all-payer claims data can be collected and used by CMS to calculate measures; (3) recommendations on additional Agency for Healthcare Research and Quality (AHRQ) measures that CMS should consider adopting for future RHQDAPU program payment determinations; (4) comments on registry structural measures; and (5) comments about rules CMS could adopt to enable hospitals to request either an extension or a waiver of various RHQDAPU program requirements in the event of a disaster.
CMS is considering five applications for new technology add-on payments for FY 2010. In order for technology to qualify for an additional payment beyond the payment for the associated MS-DRG, the applicant must demonstrate that the medical service or technology (1) is new (generally not available on the open market for more than two to three years), (2) is high cost relative to other cases in the relevant MS-DRG(s), and (3) offers substantial clinical improvement over existing services or technologies for the Medicare patient population. The applications for new technology add-on payments include a laser treatment for intracranial tumors, a chemotherapy drug used to treat leukemia, a treatment for myocardial infarctions, an imaging system for coronary arteries and a valve system used for treating lung air leaks.
The Proposed Rule revises the EMTALA regulations to (1) clarify that a waiver of EMTALA sanctions pursuant to an inappropriate transfer only applies if the transfer arises out of the circumstances of the emergency, (2) provide that the sanctions waived for an inappropriate transfer or for the relocation or redirection of an individual to receive a medical screening examination at an alternate location are in effect only if the hospital to which the waiver applies does not discriminate on the source of an individual’s payment or ability to pay, and (3) state that the waiver of EMTALA sanctions may apply to one or more hospitals in a portion of an emergency area or a portion of an emergency period.
The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) mandated that, effective July 1, 2009, clinical diagnostic laboratory services furnished by a CAH be paid on a reasonable cost basis without regard to whether the patient is physically present in the CAH or in a skilled nursing facility or a clinic (including a rural health clinic) that is operated by a CAH at the time the specimen is collected.
Currently, patients must be physically present in the CAH at the time the specimens are collected. In order to implement the statutory change, CMS has proposed that a CAH may receive reasonable cost-based payment for outpatient clinical diagnostic laboratory tests furnished to an individual who is an outpatient of the CAH. CMS, however, is still defining “outpatient” to mean a person who is registered at the hospital or that CAH records as an outpatient and receives services directly from the hospital or CAH. CMS has proposed to define “receives directly from the CAH” to mean that either the patient must be receiving outpatient services in the CAH on the same day the specimen is collected, or the specimen must be collected by an employee of the CAH. The individual would not have to be physically present in the CAH at the time the specimen is collected.
The Proposed Rule would change reimbursement under the “optional method” or “Method 2” for CAH outpatient services to reduce reimbursement to “reasonable cost” rather than 101 percent of reasonable costs under 42 C.F.R. § 413.70(b)(3)(ii)(A). CMS has proposed this change because section 1834(g)(2)(A) of the Social Security Act uses “reasonable cost” reimbursement instead of 101 percent of reasonable costs.
In its March 2009 “Report to Congress: Medicare Payment Policy,” MedPAC recommended that “Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2010 by the projected rate of increase in the hospital market basket index, concurrent with implementation of a quality incentive payment program.” CMS believes that an update equal to less than the market basket will motivate hospitals to control their costs consistent with MedPAC’s recommendation.
Medicare payments for SNFs will be reduced by 1.2 percent from the FY 2009 levels. The payment reduction results from a 3.3 percent budget neutrality payment reduction to offset the effect the 2006 expansion of the case mix classification model (RUGs) had on provider behavior, which CMS had intended to be budget neutral, and the offsetting effect of the proposed 2.1 percent update to the Medicare “market basket” of SNF goods and services.
The SNF proposed rule also:
CMS was concerned that under the current RUGs methodology, concurrent therapy has become the standard of care. To reflect CMS’s preference for individual therapy, CMS is proposing in the RUG-IVs to allocate concurrent therapy minutes to individual patients to compute the payment rates. CMS also proposes to significantly restrict the look-back period. Under the look-back period policy, a resident’s RUG classification is based, in part, upon service received prior to admission. Under the RUG-IV proposal, CMS proposes considering only those services that are provided after admission to the SNF.
CMS was concerned that under the current RUGs methodology, concurrent therapy has become the standard of care. To reflect CMS’s preference for individual therapy, CMS is proposing in the RUG-IVs to allocate concurrent therapy minutes to individual patients to compute the payment rates.
CMS also proposes to significantly restrict the look-back period. Under the look-back period policy, a resident’s RUG classification is based, in part, upon service received prior to admission. Under the RUG-IV proposal, CMS proposes considering only those services that are provided after admission to the SNF.
The revised policies and payment rates contained in the SNF proposed rule generally become effective on October 1, 2009. Comments must be received by June 30, 2009. A final rulemaking from CMS on the SNF proposed rule is anticipated in early August.
The proposed rule updates the IRF payment rate from $12,958 to $13,587. The rate was determined by increasing the FY 2009 rate by the basket inflation adjuster (2.4 percent) and by adjusting, in a budget neutral manner, the case mix group relative weights, average length of stay values, wage index and the labor-related factors and facility level adjustments (rural (proposed decreasing from 21.3 percent to 18.27 percent, subject to a budget neutrality factor of 1.0025), low income percentage (proposed decreasing the factor from .6229 to .4372, subject to a budget neutrality factor of 1.0221), and teaching status adjustments (proposed increasing the factor from .9012 to 1.0494, subject to a budget neutrality factor of .9980)). The outlier threshold amount also has been increased for FY 2010 to $9,976.
The IRF proposed rule revises the following existing requirements to:
Additionally, the IRF proposed rule would (1) apply the proposed classification and payment requirements to both rehabilitation hospitals and rehabilitation units, and (2) require IRFs to submit patient assessments on MedicareAdvantage patients as well as fee-for-service Medicare patients for use in computing whether 60 percent of the IRF’s Medicare admissions have 1 of the 13 medical conditions listed in 42 C.F.R. § 412.23(b)(2)(ii) as a primary condition or comorbidity to be classified as an IRF.
The revised policies and payment rates contained in the IRF proposed rule generally become effective on October 1, 2009. Comments must be received by June 29, 2009. A final rulemaking from CMS on the IRF proposed rule is anticipated in early August.
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