Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

• The proposed rule would increase IPPS operating rates by 0.8% after accounting for all adjustments (if a hospital does not successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program, this update is reduced by 2.0 percentage points). The 0.8% update reflects the hospital market basket of 2.5% reduced by a -0.4 percentage point multi-factor productivity adjustment and an additional -0.3 percentage point reduction in accordance with the Affordable Care Act (ACA). The rate is further decreased by 0.8% for a proposed documentation and coding recoupment adjustment required by the American Tax Relief Act of 2012 and by a 0.2% proposed adjustment to offset the cost of a proposal addressing its inpatient medical review criteria. Specifically, CMS proposes to clarify its medical review criteria to presume that Part A hospital inpatient status is appropriate if the beneficiary is admitted to the hospital pursuant to a physician order and receives care for at least two midnights. On the other hand, hospital inpatient admissions spanning less than two midnights will presumptively be inappropriate under Part A. Appropriate documentation could rebut the presumption.
• The proposed rule includes a number of hospital quality initiatives. For instance, CMS is proposing to implement the ACA’s Hospital-Acquired Condition (HAC) Reduction Program. Under this provision, effective beginning in FY 2015, hospitals that rank among the lowest-performing 25% with regard to HACs will be paid 99% of the IPPS payment that otherwise would be made. The proposed rule addresses, among other things, the payment adjustment, measure selection, risk-adjustment and scoring methodology; performance scoring; public availability of hospital-specific performance information; and limitation of administrative and judicial review. CMS also proposes to update the Hospital Value-Based Purchasing (VBP) Program, which adjusts IPPS payments based on how well a hospital performs or improves performance on a set of quality measures. For FY 2014, CMS proposes increasing the applicable percent reduction to base operating DRG payment amounts to 1.25%, increasing the total estimated amount available for value-based incentive payments (approximately $1.1 billion), and adding new measures to the program. In addition, the proposed rule would expand the Hospital Readmissions Reduction Program, under which CMS currently assesses hospitals’ penalties using three readmissions measures (heart attack, heart failure, and pneumonia). The maximum payment reduction will increase from 1% to 2% in FY 2014, as mandated by the ACA. For FY 2014, CMS also proposes to add two new measures to calculate readmission penalties effective for FY 2015: readmissions for hip/knee arthroplasty and chronic obstructive pulmonary disease. CMS also proposes a revised methodology to take into account planned readmissions for the existing readmissions measures. The proposed rule also would revise IQR program measures.
• CMS proposes to implement new cost centers for Implantable Devices, MRIs, CT scans, and cardiac catheterization for FY 2014, which would increase the total number of cost-to-charge ratios (CCRs) used to calculate the FY 2014 proposed relative weights from 15 to 19. The additional CCRs generally increase the relative weight values for surgical Medicare severity diagnosis related group (MS-DRGs) and decrease the relative weight values for medical MS-DRGs.
• CMS proposes to implement an ACA provision revising how Medicare disproportionate share hospital (DSH) payments are paid. Under the proposed rule, hospitals will receive 25% of the payment they otherwise would receive, and the remaining 75% percent will be adjusted for decreases in the national rate of uninsured individuals and distributed to hospitals payments based on the hospital’s share of uncompensated care relative to all Medicare DSH hospitals.
• The proposed rule also addresses, among many other things: MS-DRG classifications for certain procedures; applications for new technology add-on payments; direct graduate medical education and indirect medical education payments; and the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. In addition, CMS proposes to revise the conditions of participation (CoPs) for hospitals relating to the administration of vaccines by nursing staff, and the CoPs for critical access hospitals relating to the provision of acute care inpatient services.
• With regard to the LTCH PPS, CMS proposes a 1.8% annual update for LTCHs, which would increase the standard federal rate to $40,622.06. The rule also includes a number of other LTCH PPS payment and policy provisions, including a proposal to allow the regulatory moratorium on the full application of the “25% Rule” to lapse, new quality measures, and solicitation of comments on patient criteria-based payment adjustments. Reed Smith has prepared a Client Alert with additional details on the LTCH PPS provisions.

• CMS is updating IPPS rates by 2.8% for FY 2013. This increase reflects a 2.6% market basket update that is reduced under the Affordable Care Act (ACA) by a multi-factor productivity adjustment of 0.7% and an additional 0.1% reduction, which is then increased by a 1.0% documentation and coding adjustment (CMS did not adopt its proposal to make a prospective documentation and coding adjustment to account for estimated overpayments in FY 2010, and as a result the overall update is higher than under the proposed rule). Payments also will be impacted by other policies, including an estimated 0.3% cut under a new readmissions reduction program (discussed below), and expiration of certain temporary increases to the Medicare-Dependent Hospital program and the low-volume hospital payment adjustment under the ACA.
• The rule includes a number of hospital quality initiatives. CMS seeks to strengthen the Hospital Value-Based Purchasing Program (VBP Program) by adjusting hospital payments beginning in FY 2013 and annually thereafter based on how well a hospital performs or improves performance on a set of quality measures. Among other things, CMS finalized a risk-adjusted Medicare spending per beneficiary measure under the VBP Program, which will impact payments beginning in FY 2015. The rule also revises Inpatient Quality Reporting (IQR) program measures, resulting in a net reduction in measures from 72 to 59 for the FY 2015 payment determination, and 60 for the FY 2016 payment determination. Hospitals that do not successfully participate in the IQR program will have their market basket update reduced by two percentage points (to a 0.8% update). The rule also establishes the methodology to calculate the readmissions adjustment factor for the ACA Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for heart attack, heart failure, and pneumonia. CMS estimates that readmission policy will reduce base operating DRG payments to 2,206 hospitals, resulting in 0.3% overall decrease in hospital payments. CMS also is adding Surgical Site Infection Following Cardiac Implantable Electronic Device and Iatrogenic Pneumothorax with Venous Catheterization to the list of hospital acquired conditions for FY 2013. In addition, the rule establishes new quality reporting requirements for cancer hospitals and inpatient psychiatric facilities, and finalizes several requirements pertaining to ambulatory surgical center (ASC) quality reporting, with various effective dates.
• CMS adopted its proposal to postpone the effective date of a policy adopted in the FY 2012 IPPS rule that clarified that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity. On the other hand, routine services, such as contracted nursing services, furnished outside the hospital may not be furnished “under arrangement” and covered by Medicare. In response to requests from hospitals for additional time to restructure arrangements and establish operational protocols, the final rule provides that this policy will be effective for hospital cost reports beginning on or after October 1, 2013.
• The final rule also, among many other things: modifies Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; makes a variety of changes to graduate medical education policy (including changes relating to determining a hospital’s fulltime equivalent resident cap); announces the approval of three new technology add-on payment applications (glucarpidase (Voraxaze®), fidaxomicin (DIFICIDTM), and the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft); updates the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits; and updates LTCH-PPS policies and rates, as discussed below.

The policies in the final rule generally are applicable to discharges occurring on or after October 1, 2012, with certain exceptions.

• Model 1: Retrospective payment models for the acute inpatient hospital stay only. 

For this model, the episode of care consist of all Part A services furnished to “included beneficiaries” during a hospital stay, including hospital diagnostic testing and all related therapeutic services furnished by an entity wholly owned/operated by the admitting hospital in the three days prior to admission and the hospital facility services furnished during the hospital stay. Awardees will offer a discount from the usual Part A hospital inpatient MS-DRG payments; the minimum discount varies by year, ranging from 0% for the first six months, gradually increasing to 2% by year three. 

• Model 2: Retrospective bundled payment models for hospitals, physicians, and post-acute providers for an episode of care consisting of an inpatient hospital stay followed by post-acute care. 

All beneficiaries admitted to an awardee acute care hospital for agreed-upon MS-DRGs will be included in the episode. The episode begins with the inpatient hospital admission to a participating provider and continues for a minimum of 30 days following discharge. The episode includes all hospital services (as defined in Model 1), plus Part A and Part B services furnished during the hospital stay, and Part A and Part B services furnished in the post-discharge period related to the episode “anchor.” In addition to the inpatient services, bundled services include inpatient hospital readmission services; long term care hospital services (LTCH); inpatient rehabilitation facility services (IRF); skilled nursing facility services (SNF); home health agency services (HHA); hospital outpatient services; independent outpatient therapy services; clinical laboratory services; durable medical equipment (DME); and Part B drugs. Applicants should propose a target price for the episode that includes a single rate of discount on the expected Medicare payments for all included Part A and Part B services. CMS requires minimum discount of 3% for applicants who propose a 30-89 day post-discharge episode, and a 2% minimum discount for 90 day or longer episode. Awardees may not restrict beneficiary choice of provider, including post-acute care provider, and awardees will be financially liable for care for included beneficiaries that is furnished by providers who are not participating in the model. 

• Model 3: Retrospective bundled payment models for post-acute care where the bundle does not include the acute inpatient hospital stay. 

The episode anchor is the initiation of post-acute care services at a SNF, IRF, LTCH, or with an HHA within 30 days of beneficiary discharge from an acute care hospital for an agreed-upon MS-DRG. The episode will begin on the date post-acute services are initiated with an awardee and continue through a minimum of 30 days following initiation of the episode. The episode must include all related Part A and Part B services furnished during the episode period, including related readmissions (all services in Model 2 except acute inpatient services). Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare payments for all included services. Awardees may not restrict beneficiary choice of provider; awardees are financially responsible for care for included beneficiaries furnished by providers who are not directly participating in the model.  

• Model 4: Prospectively-administered bundled payment models for hospitals and physicians for the acute inpatient hospital stay only. 

Proposals under Model 4 will build on the ongoing Medicare Acute Care Episode (ACE) demonstration for cardiac and orthopedic inpatient procedure hospitalizations, but will expand to additional geographic areas and clinical conditions. CMS notes that, unlike the ACE demonstration, the Bundled Payment Initiative will not include sharing savings with patients because such policies previously “have proven operationally challenging to administer and confusing for beneficiaries.” The episode of care is the acute inpatient admission to an awardee for agreed-upon MS-DRGs through patient discharge. The episode will include Part A hospital services (as defined in Model 1) and Part B professional services, along with specified services furnished during certain readmissions. The CMS will consider applicant proposals around risk adjustment, which must include a description of the methodology and may include plans for updating risk adjustment on a yearly basis. Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare Part A and Part B payments for all hospital facility and professional services furnished during the hospitalization and related readmissions for all beneficiaries with the agreed-upon MS-DRGs (a minimum 3% discount). CMS and the awardee will agree to the price for the bundle of services in advance, and the awardee bears full risk for the price of the episode.

Additional requirements for each model are set forth in the request for application (RFA). In general, CMS seeks to ensure that total Medicare expenditures under any model will decrease relative to what they would have been absent this initiative, and that quality measures are met.   Gainsharing arrangements are permitted under each model, but they must meet criteria “designed to ensure that care is not inappropriately reduced, that the quality of care remains constant or is improved, that there are not inappropriate changes in utilization or referral patterns, and to guard against fraud, waste, and abuse.” CMS states in the RFA that it will consider using its waiver authority with respect to fraud and abuse laws and other Medicare provisions for such gainsharing arrangements as appropriate. Bundled payment agreements will include a performance period of 3 years, with the possibility of a 2-year extension, beginning with program start date (which may be as early as the first quarter of CY 2012 for Model 1 awardees). Potential applicants must submit a letter of intent by September 22, 2011 for Model 1 (subsequently extended until October 6) and by November 4, 2011 for Models 2, 3, and 4; additional deadlines are set forth in the RFA materials. CMS also published a Federal Register notice announcing the initiative. 

• The higher final 1.1% update to payments reflects a 3% market basket update (compared to 2.8% in the proposed rule), which is reduced by a multi-factor productivity adjustment of 1.0% (compared to the proposed 1.2%) and an additional 0.1% reduction mandated by the ACA). This amount is further adjusted by a 2% reduction to account for changes in hospital documentation and coding practices that did not reflect actual increases in patients’ severity of illness (CMS initially proposed a 3.15% documentation and coding adjustment), along with an additional 1.1% increase in response to litigation involving the calculation of budget neutrality for the rural floor. Hospitals that do not successfully participate in the Inpatient Quality Reporting (IQR) program (formerly called the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) will have their market basket update reduced by two percentage points. 
• The final rule includes a number of hospital quality initiatives. The rule expands the measures to be reported under the IQR program for the FY 2014 and FY 2015 payment determinations (there are a total of 76 measures for the FY 2015 payment determination), but streamlines reporting requirements in an effort to reduce the burden on participating hospitals. CMS also is implementing the ACA’s Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. CMS is finalizing measures regarding rates of readmissions for acute myocardial infarction, heart failure, and pneumonia, along with a methodology for calculating excess readmission rates. In addition, the rule builds on CMS’s January 13, 2011 separate proposed rule to implement the ACA’s Hospital Value-Based Purchasing program, which will tie Medicare payments to the quality of hospital services beginning in FY 2013, by adding a measure on Medicare Spending Per Beneficiary (this measure will also be used in the Hospital IQR Program). CMS did not adopt its proposal to add Acute Renal Failure after Contrast Administration to the list of hospital-acquired conditions in FY 2012.
• The final rule also, among many other things: modifies Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; implements ACA policies providing additional payments to certain low-volume hospitals and to qualifying hospitals in certain geographic areas with low per-beneficiary Medicare spending; clarifies the payment policy for replacement of recalled devices to address partial credits; excludes hospice discharges from the disproportionate share hospital and indirect medical education adjustments; further clarifies that the “3-day payment window” policy applies to preadmission diagnostic and non-diagnostic services furnished at physicians’ practices that are wholly owned or wholly operated by the admitting hospital, revises how pension contributions are reported for wage index and cost finding purposes; discusses its decision to deny three applications for new technology add-on payments; modifies add-on payments for hospitals treating patients with end-stage renal disease; finalizes redistribution of graduate medical education caps; and updates the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The final rule also modifies Medicare “under arrangements” requirements to clarify that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity; routine services, such as contracted nursing services, furnished outside the hospital can no longer be furnished “under arrangement” and covered by Medicare. Hospitals that cannot provide routine services directly (rather than under arrangement) to Medicare inpatients would be required to discharge the inpatient and transfer the patient to another hospital.  The final rule also includes numerous changes impacting LTCHs. 

The official version of the rule will be published on August 18, 2011. 

• CMS proposes applying a number of adjustments to arrive at an overall operating payment reduction of approximately 0.5%. Specifically, CMS proposes updating IPPS payments by 1.5% (based on a projected market basket update of 2.8%, which is reduced by a multi-factor productivity adjustment of 1.2% and an additional 0.1% reduction mandated by the Affordable Care Act or ACA), with an additional 1.1% increase in response to litigation involving the calculation of budget neutrality for the rural floor, and a 3.15 percentage point reduction to account for changes in hospital documentation and coding practices that did not reflect actual increases in patients’ severity of illness. 
• The proposed rule includes a number of hospital quality initiatives. The proposed rule would expand the measures to be reported for purposes of the Inpatient Quality Reporting (IQR) program (formerly called the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) for the FY 2013 and FY 2014 updates. Hospitals that do not participate in the IQR quality reporting program will have their market basket update reduced by two percentage points.  The rule also would streamline reporting requirements in an effort to reduce the burden on participating hospitals. CMS is also proposing to add one category of conditions (Acute Renal Failure after Contrast Administration) to the list of hospital-acquired conditions (HACs) in FY 2012 (hospitals are prevented from receiving higher payment for care solely resulting from HACs). CMS also proposes implementing the ACA’s Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. CMS is proposing measures regarding rates of readmissions for acute myocardial infarction, heart failure, and pneumonia, along with a methodology for calculating excess readmission rates. The proposed rule also builds on CMS’s January 13, 2011 separate proposed rule to implement the ACA’s Hospital Value-Based Purchasing (VBP) program, which will tie Medicare payments to the quality of hospital services beginning in FY 2013, by proposing an additional measure on Medicare Spending Per Beneficiary. 
• The proposed rule would, among many other things: modify Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; implement ACA policies providing additional payments to certain low-volume hospitals and to qualifying hospitals in certain geographic areas with low per-beneficiary Medicare spending; clarify the payment policy for replacement of recalled devices to address partial credits; exclude hospice discharges from the disproportionate share hospital and indirect medical education adjustments; further clarify Medicare payment for services provided in hospital outpatient departments on either the day of or during the three days prior to an inpatient admission (known as the 3-day payment window); revise how pension contributions are reported for wage index and cost finding purposes; address three applications for new technology add-on payments; and institute policy changes affecting wage indices and add-on payments for hospitals treating patients with end-stage renal disease. CMS also proposes to modify Medicare “under arrangements” requirements to clarify that hospitals could provide only therapeutic and diagnostic services “under arrangements” with an outside entity. Routine services, such as contracted nursing services, furnished outside the hospital could no longer be furnished “under arrangement” and covered by Medicare. The rule also would update the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.
• The proposed rule also includes numerous changes impacting LTCHs. Reed Smith attorneys have prepared a Client Alert summarizing the LTCH proposals, including provisions addressing: changes to payment rates and other payment policies for FY 2012; revisions to and rebasing of the LTCH market basket; a requirement for budget neutrality in the area wage level adjustment; LTCH average length of stay policies; an extension of the LTCH moratorium on new LTCH beds to LTCHs “under development” on December 29, 2007; and implementation of a quality data reporting program for LTCHs as mandated by the ACA. 

Supplementary information regarding the rule is posted on the CMS web site. The official version of the proposed rule will be published May 5, 2011. Comments will be accepted until on June 20, 2011.