CMS Releases Proposed Medicare Inpatient PPS/LTCH Update for FY 2015

Late on April 30, 2014, CMS released the advance text of its proposed rule to update the Medicare acute hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2015.

With regard to IPPS hospitals, the rule would provide for a 1.3% operating payment rate update, which reflects a 2.7% market basket update, adjusted by a -0.4 percentage point multi-factor productivity cut and an additional -0.2 percentage point cut (both mandated by the Affordable Care Act), with an additional -0.8 percentage point documentation and coding recoupment adjustment. Updates to IPPS hospitals are also subject to several other quality-related adjustments under the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, the Hospital-Acquired Condition (HAC) Reduction Program, the Hospital Inpatient Quality Reporting Program, and the Electronic Health Records Incentive Program. Despite the positive operating rate update, total IPPS payments (capital and operating payments) are projected to decrease by about $241 million in FY 2015 as a result of reductions under the Hospital Readmissions Reduction Program, the HAC Reduction Program, Medicare disproportionate share hospital payment changes, the expiration of certain statutory provisions that temporarily increased payments to hospitals, and other policy changes included in the sweeping 1688-page rule.

With regard to LTCHs, CMS estimates that the rule would increase LTCH PPS payments by 0.8%, or approximately $44 million. This increase would result from a 2.1% update to the standard federal rate (reflecting a 2.7% market basket update offset by a 0.4 percentage point multi-factor productivity adjustment and a -0.2 percentage point reduction under the ACA), a -1.3% budget neutrality adjustment, and a projected decrease in estimated high cost outlier payments. LTCHs are subject to a 2.0 percentage point reduction for failure to submit required quality data for FY 2015. Moreover, other policies in the proposed rule, including implementation of statutory provisions in the Pathway for SGR Reform Act of 2013 and the Protecting Access to Medicare Act of 2014 (including reinstating moratoria on full implementation of the “25 percent threshold” payment adjustment and on the development of new LTCHs and LTCH satellite facilities and additional LTCH beds) and a proposed expansion of the interrupted stay policy, among others, would reduce LTCH PPS payments by approximately $14 million, for a total net increase of approximately $30 million.

The official version of the proposed rule will be published on May 15, 2014. CMS will accept comments on the proposed rule until June 30, 2014. The final rule will be published by August 1, 2014, and will apply generally to discharges occurring on or after October 1, 2014.

President Signs Medicare Physician Fee Schedule/SGR Patch with Numerous Health Policy Provisions

This post was written by Debra McCurdy, Paul Pitts, Gail Daubert, Thomas Greeson, Susan Edwards, and Katie Hurley.

On April 1, 2014, President Obama signed into law H.R. 4302, the “Protecting Access to Medicare Act of 2014” (“the Act”). The Act includes a one-year Medicare physician fee schedule fix that averts a nearly 24 percent payment cut set for April 1, 2014, but which falls far short of earlier hopes for full repeal of the current sustainable growth rate (SGR) formula. The Act also includes numerous other Medicare payment and policy changes, including skilled nursing facility value-based purchasing provisions, reforms to the physician fee schedule relative valuation process, a new framework for clinical laboratory payments, a variety of changes impacting imaging services, changes in the exceptions for long term care hospitals, and extension of certain expiring provisions. In other areas, the bill includes a one-year delay in the transition to ICD-10, changes to the timetable for Medicaid disproportionate share hospital cuts, and “front-loading” of the 2024 Medicare sequestration reduction.

For more information, read our summary of major provisions of the Act.

MedPAC Issues 2014 Report to Congress on Medicare Payment Policy

The Medicare Payment Advisory Commission (MedPAC) has released its annual report to Congress on Medicare payment policy, including payment update recommendations for all the major Medicare fee-for-service payment (FFS) systems, limited recommendations related to the Medicare Advantage (MA) program, and a status report on the Medicare Part D program. The following are highlights of the recommendations for 2015 (many of which were recommended previously):

  • MedPAC recommends a 3.25% update to inpatient and outpatient hospital payment rates, concurrent with two changes that would institute site-neutral payments among settings. First, Congress should direct the HHS Secretary to reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory payment classifications. Second, MedPAC recommends reducing payment for long-term care hospital (LTCH) services furnished to patients whose illness is not characterized as chronically critically ill (CCI) to the same rate that an acute care hospital would be paid for such care; savings from this provision would fund an outlier pool for acute care hospitals that treat costly CCI patients.
  • Congress should repeal the sustainable growth rate (SGR) system for physician services and replace it with a 10-year path of statutory updates that includes a higher update for primary care services than for specialty care services. MedPAC also endorsed the collection of data to establish more accurate work and practice expense values; budget-neutral changes to improve data on which relative value unit weights are based and to redistribute payments from overpriced to underpriced services; and relative value unit reductions to achieve fee schedule savings.
  • Congress should eliminate the ambulatory surgical center (ASC) payment update for 2015, require ASCs to submit cost data, and direct the Secretary to implement a value-based purchasing program for ASCs by 2016.
  • Congress should eliminate the skilled nursing facility (SNF) market basket update. Congress also should direct the Secretary to revise the prospective payment system for SNFs and begin a process of rebasing with an initial reduction of 4% and subsequent reductions until Medicare’s payments better align with providers’ costs. Moreover, Congress should direct the Secretary to reduce payments to SNFs with relatively high risk-adjusted rates of rehospitalization during Medicare-covered stays.
  • MedPAC reiterates previous recommendations to rebase home health rates, eliminate the market basket update, revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services, and establish a per episode copay for home health episodes not preceded by hospitalization or post-acute care use. In addition, Congress should direct the Secretary to reduce payments to home health agencies with relatively high risk-adjusted rates of hospital readmission.
  • Congress should eliminate the update to hospice rates for FY 2015 and adopt a series of previous MedPAC payment reform recommendations.
  • Congress should eliminate the 2015 updates for outpatient dialysis services and direct the Secretary to establish a quality measure that assesses poor outcomes related to anemia in the End-Stage Renal Disease Quality Incentive Program, revise the low-volume adjustment, and audit dialysis facilities’ cost reports.
  • Congress should eliminate the FY 2015 payment updates for inpatient rehabilitation facilities and LTCHs.
  • With regard to Medicare Advantage (MA), MedPAC recommends that Congress: (1) direct the Secretary to determine payments for employer-group MA plans in a manner more consistent with the determination of payments for comparable non-employer group plans; and (2) include the Medicare hospice benefit in the MA benefits package beginning 2016.

Note that while MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies.

OIG Recommends Expanding the Medicare "DRG Window"

A recent HHS Office of Inspector General (OIG) report examines Medicare services provided during the Medicare Severity Diagnosis Related Group (DRG) payment window – that is, the period when certain outpatient services related to an inpatient admission are considered to be included in the DRG payment. Currently, outpatient services delivered within three days of an inpatient admission in a setting owned by the admitting hospital are included in the DRG payment. On the other hand, the OIG notes that services provided by hospitals that share a common owner (i.e., multiple hospitals owned by the same corporation) are not subject to the DRG window. The OIG estimated that Medicare payments for outpatient services provided at settings owned by admitting hospitals in the 11 days prior to the DRG window totaled $263 million in 2011. The Medicare program also paid an estimated $45 million in 2011 for outpatient services provided at hospitals affiliated with, but not owned by, admitting hospitals during the three days prior to inpatient admissions. The OIG recommends that CMS seek legislative authority to (1) expand the “DRG window” to include additional days prior to the inpatient admission (the OIG does not specify the number of days), and (2) expand the DRG window to include other hospital ownership arrangements, such as affiliated hospital groups. CMS did not concur with either recommendation, noting that they have not been proposed by the President and observing that they would require legislation.

CMS Again Extends "Probe & Educate" Phase for 2-Midnight Inpatient Admissions Criteria Implementation; Clarifies Physician Certification Requirements

CMS has announced that it is extending provider education activities related to its new Medicare inpatient hospital admission and medical review criteria (commonly known as the 2-Midnight Rule). Specifically, CMS is extending what it refers to as the “Probe & Educate” review process for an additional six months, through September 30, 2014. Under this extension, Recovery Audit Contractors (RACs) and other Medicare review contractors will not conduct post-payment patient status reviews of inpatient hospital claims with dates of admission on or after October 1, 2013 through October 1, 2014. Medicare Administrative Contractors (MACs) will continue to select claims for review with dates of admission between March 31, 2014 and September 30, 2014, however, and claims not in compliance will be denied. MACs also will continue to hold educational sessions with hospitals through September.  CMS also has clarified related provisions regarding physician orders for and certification of hospital inpatient services.

CMS Guidance on Medicare Inpatient Hospital Admissions Two-Midnight Policy

CMS continues to release subregulatory guidance on the inpatient hospital admission/medical review criteria that were adopted in the final FY 2014 Medicare inpatient prospective payment system/long-term care hospital final rule. In short, under this new policy, if the ordering practitioner expects a beneficiary’s surgical procedure, diagnostic test, or other treatment to require a stay in the hospital lasting at least two midnights, and admits the beneficiary as an inpatient based on that expectation, it is generally appropriate that the hospital receive Medicare Part A payment. The order must also be documented in the medical record in accordance with the regulations, and a physician must certify the medical necessity of hospital inpatient services. CMS recently posted updated subregulatory instructions related to prepayment and post-payment review schedules and parameters, along with answers to frequently-asked implementation questions.

CMS Call on Inpatient Hospital Admissions 2-Midnight Policy (Nov. 12)

A November 12, 2013 CMS call will focus on the physician order, physician certification, inpatient hospital admission, and medical review criteria that were adopted in the final FY 2014 Inpatient Prospective Payment System/Long-Term Care Hospital final rule. In short, under this new policy, if the ordering practitioner expects a beneficiary’s surgical procedure, diagnostic test or other treatment to require a stay in the hospital lasting at least two midnights, and admits the beneficiary as an inpatient based on that expectation, it is generally appropriate that the hospital receive Medicare Part A payment. The order must also be documented in the medical record in accordance with the regulations, and a physician must certify the medical necessity of hospital inpatient services.  CMS recently posted updated subregulatory instructions related to review guidelines and other implementation issues.

CMS Finalizes FY 2014 Medicare IPPS, LTCH Rates

On August 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published a final rule updating FY 2014 Medicare payment policies and rates under the acute inpatient prospective payment system (IPPS) and the long-term care hospital (LTCH) prospective payment system (PPS). The following are highlights of the lengthy rule:

  • The final rule increases IPPS operating payment rates by 0.7% for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program (for hospitals that do not successfully, the update is reduced by 2.0 percentage points). This reflects the hospital market basket of 2.5%, which is reduced by 0.5 percentage points for multi-factor productivity and an additional reduction of 0.3 percentage points under the Affordable Care Act (ACA). The rate is further decreased by 0.8% for a documentation and coding recoupment adjustment required by the American Taxpayer Relief Act of 2012 and by a 0.2% adjustment to offset the effect of the policy on inpatient admission and medical review criteria for hospital inpatient services (discussed below).
  • The final rule addresses a number of hospital quality initiatives. For instance, CMS is implementing the ACA’s Hospital-Acquired Condition (HAC) Reduction Program, under which 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, effective beginning in FY 2015. The rule finalizes the quality measures and scoring methodology for the HAC Reduction Program, along with the process for hospitals to review and correct data. In addition, the rule updates the Hospital Readmissions Reduction Program to, among other things, increase the maximum payment reduction to up to 2% and add hip and knee surgery and chronic obstructive pulmonary disease to the list of conditions used to determine the reduction, effective in FY 2015. CMS also has revised the methodology to better account for planned readmissions. Further, CMS has updated 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 is adding new measures to the program, and increasing the applicable reduction to base operating DRG payment amounts to 1.25%, which increases the total estimated amount available for value-based incentive payments to approximately $1.1 billion. The rule also revises Inpatient Quality Reporting program measures.
  • CMS is finalizing (with modifications) its proposed changes in criteria for determining the appropriateness of inpatient admissions. In brief, under this policy, CMS will provide that, in addition to services designated by CMS as “inpatient only,” surgical procedures, diagnostic tests, and other treatments will be presumed to be appropriate for Medicare Part A inpatient hospital payment when the physician admits a patient based on the expectation that the patient will require a stay of at least two midnights. As noted, CMS adopted its proposed 0.2% rate cut to offset the expected effect of the policy on inpatient admissions.
  • CMS finalized its proposal to use cost-to-charge ratios (CCRs) for Implantable Devices, MRIs, CT scans, and cardiac catheterization for rate-setting purposes, which increases the total number of CCRs used to calculate FY 2014 relative weights from 15 to 19. The additional CCRs generally increase relative weight values for surgical Medicare severity diagnosis related group (MS–DRGs) and decrease values for medical MS–DRGs.
  • The rule implements an ACA provision that provides that distribution of Medicare disproportionate share hospital (DSH) payments will be based in part on an estimate of how much uncompensated care hospitals provide relative to other hospitals.
  • The rule addresses a number of other policy issues, including: MS-DRG classifications for certain procedures; applications for new technology add-on payments; the timeframe for hospital billing of Medicare Part B services inappropriately billed under Part A; the calculation of graduate medical education payments; a revised/rebased market basket; critical access hospital (CAH) conditions of participation; the expiration of the Medicare-Dependent Hospital program, the expiration of changes to low volume hospital policy; and revised measures under the Inpatient Psychiatric Facility (IPF) Quality Reporting, LTCH QRP, and PPS-Exempt Cancer Hospital Quality Reporting programs.
  • The rule also updates LTCH PPS rates and policies for FY 2014. Under the final rule, the standard federal rate will equal $40,607.31, compared to a standard rate of $40,397.96 applicable from December 29, 2012 through September 30, 2013. The FY 2014 standard federal rate reflects a 1.7% update for LTCHs that submit the requisite quality data under the LTCH Quality Reporting Program (LTCH QRP), based on a market basket update of 2.5% reduced by a multi-factor productivity adjustment of 0.5 percentage point and an additional 0.3 percentage point reduction as mandated by the ACA. The LTCH PPS standard federal rate will be of -0.3% for LTCHs that fail to submit data under the LTCH QRP. The rule also provides a budget neutrality adjustment (under the second year of a 3-year phase-in of a onetime prospective adjustment) and an area wage level budget neutrality factor. In addition, the final rule sets the fixed-loss amount for high cost outlier cases at $13,314, down from the FY 2013 fixed-loss amount of $15,408. Moreover, the final rule allows the current moratorium on the full implementation of the so-called “25% rule” to expire at the end of FY 2013 (at which time, if an LTCH admits more than a specified percentage of its patients from a single acute care hospital during a fiscal year, it will be paid at a rate comparable to the IPPS rate for patients above the specified percentage threshold).

IPPS/LTCH Rule Correction Notice

On June 27, 2013, CMS published a correction notice addressing typographical and technical errors in its May 10, 2013 proposed rule updating Medicare inpatient prospective payment system (IPPS) and long-term acute care hospital prospective payment system (LTCH PPS) rates and policies for fiscal year (FY) 2014. 

Reed Smith Client Alert on Part B Inpatient Billing in Hospitals

As previously reported, CMS has issued a proposed rule and an Administrator’s Ruling that address the submission of Medicare Part B inpatient claims where a Medicare Part A claim for a hospital inpatient admission is denied by a Medicare review contractor on the grounds that the inpatient admission was not “reasonable and necessary.” A Reed Smith Client Alert discusses the Administrator’s Ruling and proposed rule, and provides a summary of potential implications for hospitals.

MedPAC's March 2013 Report to Congress

MedPAC has released its annual report to Congress on Medicare Payment Policy, including payment update recommendations for all the major Medicare FFS payment systems and limited Medicare Advantage (MA) recommendations. The report also includes data on the status of the MA and Medicare Part D programs, including information about enrollment, plan options, and beneficiary cost-sharing. Note that while MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies. Major recommendations include the following (many of which were included in previous reports):

  • Congress should increase payment rates for inpatient and outpatient hospital prospective payment systems by 1%, and require the difference between the statutory update and the recommended 1% update be used to offset payment increases due to documentation and coding changes and to recover past overpayments.
  • Congress should repeal the sustainable growth rate (SGR) system for physician services and replace it with a 10-year path of statutory fee-schedule updates. This proposal, first offered in October 2011, would combine a freeze in payment levels for primary care and, for all other services, annual payment reductions followed by a freeze. MedPAC also endorsed the collection of data to establish more accurate work and practice expense values; budget-neutral changes to improve data on which relative value unit weights are based and to redistribute payments to underpriced services, and changes to the structure of accountable care organization shared savings payments.
  • Congress should eliminate the ambulatory surgical center (ASC) payment update for 2014, require ASCs to submit cost data, and direct the Secretary to implement a value-based purchasing program for ASCs by 2016.
  • Congress should eliminate the skilled nursing facility market basket update, and direct the Secretary to revise the prospective payment system for SNFs and begin a process of rebasing payment as soon as practicable. 
  • MedPAC reiterates previous recommendations to rebase home health rates, eliminate the market basket update, revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services, establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use, and expand program integrity efforts.
  • Congress should eliminate the update to hospice rates for FY 2014 and adopt a series of previous MedPAC recommendations addressing payment and program integrity reforms.
  • Congress should eliminate the 2014 updates for outpatient dialysis services, inpatient rehabilitation facilities, and long-term care hospitals.
  • With regard to Medicare Advantage, Congress should allow the authority for most MA chronic care special needs plans (SNPs) to expire (with certain exceptions) and allow MA plans to enhance benefit designs for individuals with specific chronic or disabling conditions. MedPAC also recommends that Congress permanently reauthorize dual-eligible special needs plans (D–SNPs) that assume clinical and financial responsibility for Medicare and Medicaid benefits (with certain changes) and allow the authority for all other D–SNPs to expire.

 

CMS Updates Hospital Part B Inpatient Billing Policy

This post was written by Rachel M. Golick and Susan A. Edwards.

On March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) concurrently issued a proposed rule and Administrator’s Ruling addressing the submission of Medicare Part B inpatient claims where a Medicare Part A claim for a hospital inpatient admission is denied by a Medicare review contractor on the grounds that the inpatient admission was not reasonable and necessary. The proposed rule also would apply to situations where a hospital determined, through a self-audit, that an inpatient admission was not reasonable and necessary. The Administrator’s Ruling, which is effective as of the issuance date, establishes an interim policy until CMS finalizes the proposed rule.

The Administrator’s Ruling (CMS Ruling Number CMS-1455-R) stems from an influx of Administrative Law Judge (ALJ) and Medicare Appeals Council (MAC) decisions upholding Medicare review contractors’ decisions denying inpatient admissions as not reasonable and necessary, but ordering payment of all services at issue as though they were rendered at an outpatient level of care. The Administrative Ruling notes that such ALJ and MAC decisions defy current Medicare regulations limiting such payment to a small set of outpatient services. The Administrator’s Ruling acquiesces, at least on a temporary basis, to the approach taken by the ALJs and the MAC, allowing hospitals to submit Part B inpatient claims for payment for nearly all reasonable and necessary services that would have been payable to the hospital had the beneficiary originally been treated as an outpatient, subject to certain limitations set forth in the Administrator’s Ruling.

The proposed rule would establish a permanent policy that would permit hospitals to submit Medicare Part B claims as if the hospital treated the Medicare beneficiary as an outpatient rather than admitted the beneficiary as an inpatient. Current Medicare policy allows hospitals to rebill Medicare Part B only a limited set of “ancillary services,” listed in Chapter 6, Section 10 of the Medicare Benefit Policy Manual, when Part A coverage is denied for certain reasons. As a consequence, the proposed rule would expand the services that hospitals could rebill to Part B when Part A coverage is denied. Notably, however, the proposed rule would exclude from rebilling services that specifically require an outpatient status, including emergency department visits and observation services. In addition, unlike the Administrator’s Ruling, which permits Part B inpatient and/or outpatient claims to be filed more than one year after the date of service (assuming timely filing of the original Part A inpatient claim), the proposed rule would impose a one-year timely filing deadline. In other words, a hospital would have to bill Part B claims within one calendar year of the date of service. This timely filing limitation would likely significantly reduce the number of denied Part A claims that a hospital could rebill to Medicare Part B.

The proposed rule would apply to all hospitals billing Part A services, including short-term acute care hospitals, hospitals paid under the outpatient prospective payment system, long-term acute care hospitals inpatient psychiatric facilities, inpatient rehabilitation facilities, critical access hospitals, children’s hospitals, cancer hospitals, and Maryland waiver hospitals. CMS is accepting comments on the proposed rule until May 17, 2013.

We are preparing a Client Alert providing a more detailed analysis of the proposed rule and Administrator’s Ruling. In the meantime, please contact Daniel A. Cody (415-659-5909), Rachel M. Golick (415-659-4802), Susan A. Edwards (202-414-9261) or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.

CMS Notice Corrects Hospital Readmissions Data

CMS published a notice on March 13, 2013 correcting previous technical errors to the Medicare inpatient prospective payment systems (IPPS) final rulemaking for FY 2013. Among other things, CMS is correcting statistics on the Hospital Readmissions Reduction Program with regard to (1) the amount by which payments to hospitals would be reduced; and (2) the number of hospitals that will have their base operating DRG payments reduced by the readmissions adjustment. 
 

CMS Schedules Feb. 5 Meeting on FY 2014 IPPS New Tech Add-on Applications

On February 5, 2013, CMS is holding a town hall meeting on FY 2014 applications for new medical services and technology add-on payments under the hospital inpatient prospective payment system (IPPS). Interested parties are invited to present their recommendations and data regarding whether the FY 2014 new medical services and technologies applications meet the substantial clinical improvement criterion. The registration deadline for presenters is January 14, 2013, and registration deadline for other participants is January 21, 2013. In the notice, CMS announces its intention to enable meeting participation via live streaming and/or a webinar. Additional details will be provided in the future, but CMS warns that it cannot guarantee the reliability of these technologies.

CMS Publishes Corrections to FY 2013 IPPS, EHR Incentive Program Final Rules

On October 29, 2012, CMS published additional corrections to its August 31, 2012 final FY 2013 Medicare inpatient prospective payment system (IPPS) rule. The corrections address the achievement thresholds and benchmark values presented in the Clinical Process of Care measures section of the final performance standards for the FY 2015 Hospital Value-Based Purchasing Program table.  In addition, CMS has published a notice correcting technical and typographical errors in the September 4, 2012 final rule specifying the “Stage 2” meaningful use criteria that eligible professionals, eligible hospitals, and critical access hospitals must meet in order to qualify for Medicare and/or Medicaid electronic health record (EHR) incentive payments.

CMS Publishes Corrections to Administrative Simplification, IPPS/LTCH PPS Rules

On October 4, 2012, CMS published technical corrections to the agency’s September 5, 2012 final administrative transactions rule that adopted a unique health plan identifier standard and delayed the implementation date for the International Classification of Diseases, 10th Revision (ICD-10) coding update from October 1, 2013 to October 1, 2014. CMS also published a rule on October 3, 2012 correcting various technical errors in the August 31, 2012 final rule updating Medicare hospital inpatient prospective payment system and long-term care hospital prospective payment system (LTCH PPS) payments and policies for fiscal year (FY) 2013. Finally, on October 17, 2012, CMS is publishing corrections to its August 31, 2012 LTCH PPS final rule regulatory provisions to ensure that the regulations reflect the finalized 25-percent payment adjustment threshold policy set forth in the preamble of the final rule.

CMS Issues Final Medicare Inpatient Hospital Rates/Policies for FY 2013

On August 31, 2012, the Centers for Medicare & Medicaid Services (CMS) is publishing its final rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for FY 2013. Overall, CMS estimates that FY 2013 payments to general acute care hospitals for operating expenses will increase by $2 billion under the rule considering all policy changes, the expiration of certain temporary payment increases, and projected utilization. CMS addresses a wide variety of policies in the extensive rule, including the following:

  • 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.

CMS Correction Notices (IPPS, LTCH-PPS, MA, PDP)

On June 11, 2012, CMS published corrections to the May 11, 2012 proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for fiscal year (FY) 2013. Among other things, CMS is decreasing the national capital standard federal payment rate, which in turn decreases the standardized amount used to calculate IPPS payment rates from $5,750.04 to $5,748.09. As a result, proposed payment amounts for 2013 would be slightly lower than previously calculated. CMS also clarifies its preamble discussions of qualifications for LTCHs and calculation of outlier payments and corrects technical and typographical issues. CMS also has published corrections to technical and typographical errors in its April 12, 2012 final rule with comment period updating Medicare Advantage (MA) and Medicare Part D prescription drug program rules for contract year 2013. 

Medicare Payments for Outpatient Services Before/During Inpatient Stay

The OIG has issued a report entitled “Medicare Continues To Pay Twice for Nonphysician Outpatient Services Provided Shortly Before or During an Inpatient Stay.” The OIG estimates that Medicare contractors made approximately $6.4 million in overpayments to hospital outpatient providers in 2008 and 2009 for services provided to beneficiaries within 3 days prior to or during an inpatient admission. According to the OIG, these overpayments occurred because provider controls failed to prevent or detect incorrect billing, providers were unaware that beneficiaries were inpatients at other facilities, or providers were unaware of or did not understand Medicare requirements. The OIG also identified problems with Common Working File (CWF) designed to detect incorrect payments, CMS’s process for informing Medicare contractors of CWF alerts, contractor overrides of claims edits, and contractor failure to recover overpayments. The OIG made a series of recommendations, including recovery of overpayments, improved communications between CMS and contractors, and improvements to claims edits.

Medicare Trends in Implantable Medical Device (IMD) Procedures

The Government Accountability Office (GAO) has issued a report entitled “Medicare: Trends in Beneficiaries Served and Hospital Resources Used in Implantable Medical Device Procedures.”  The report discusses trends in the use of IMD procedures – particularly orthopedic and cardiac implants -- among Medicare beneficiaries from the period of 2003 to 2009. The report includes data regarding, among other things, Medicare program spending, admission rates, average lengths of stay, patient characteristics, and discharges to various post-acute care providers.

Older Entries

May 14, 2012 — CMS Proposes Medicare Inpatient Hospital Rates/Policies for FY 2013

April 23, 2012 — Extension of Hospital Wage Index Reclassifications and Special Exceptions

April 2, 2012 — MedPAC Issues March 2012 Medicare Recommendations

November 29, 2011 — FY 2013 IPPS New Technology Payment Town Hall Meeting (Feb. 14, 2012)

September 29, 2011 — CMS Publishes Corrections to 2012 Medicare Payment Rules

July 18, 2011 — Inpatient Hospital PPS, Value-Based Purchasing Program Correction Notices

June 13, 2011 — CMS Issues Correction to FY 2012 Medicare IPPS/LTCH Proposed Rule

April 29, 2011 — CMS Proposes Medicare Inpatient Hospital/LTCH Payment Policies for FY 2012

March 29, 2011 — MedPAC Report to Congress on 2012 Payment Recommendations

December 6, 2010 — CMS Meeting on New Technology Add-On Payments (Feb. 2, 2011)

August 13, 2010 — Final FY 2011 Medicare Inpatient Hospital, LTCH Rates

June 18, 2010 — IPPS/LTCH PPS Correction Notices

May 28, 2010 — Revisions to Medicare Inpatient Hospital, LTCH Rates

April 30, 2010 — CMS Issues Proposed FY 2011 IPPS/LTCH Rule

March 15, 2010 — MedPAC Issues 2011 Medicare Payment Recommendations

January 27, 2010 — MedPAC Votes on 2011 Medicare Provider Update Recommendations

December 4, 2009 — CMS Meetings on Applications for IPPS/OPPS New Medical Service/Technology Payments (Feb. 10)

October 15, 2009 — IPPS/LTCH PPS/IRF PPS Correction Notices

August 4, 2009 — Medicare Final FY 2010 Inpatient PPS Proposed Rule

May 8, 2009 — Medicare Inpatient PPS Proposed Rule

February 27, 2009 — MedPAC Report to Congress -- Medicare Payment/Transparency Provisions

December 31, 2008 — Corrections to Final 2009 Medicare Physician Fee Schedule, Inpatient Hospital Rules

December 8, 2008 — Proposed Non-Coverage of "Never Events"

December 6, 2008 — Medicare Inpatient Hospital Payments/Wage Index Changes & Reclassifications

November 24, 2008 — FY 2010 IPPS New Technology Meeting - Feb. 17, 2009

November 20, 2008 — Baucus/Grassley Hospital Value-Based Purchasing Legislation -- Comment Opportunity

October 30, 2008 — Listening Session on Hospital-Acquired Conditions

October 7, 2008 — Revised FY 2008 Medicare Hospital Inpatient PPS Rates Released

October 7, 2008 — Hospital Quality Reporting in Hurricane Areas

October 7, 2008 — Hospital-Associated Infections

September 10, 2008 — IPPS New Technology Applications