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

• 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 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 proposes updating IPPS rates by 2.3%, which reflects a projected market basket update of 3.0%, which is reduced by a multi-factor productivity adjustment of 0.8% and an additional 0.1% reduction mandated by the Affordable Care Act (ACA), increased by 0.2% documentation & coding adjustment. Note that this rate increase would be offset by other reductions, including a -1.3% documentation/coding adjustment to hospital-specific rates, a 0.3% cut under a 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 proposed rule includes a number of hospital quality initiatives. The rule would strengthen the Hospital Value-Based Purchasing Program (VBP Program) to adjust 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 would add a risk-adjusted Medicare spending per beneficiary measure to the VBP Program, which would affect payments beginning in FY 2015. The rule also would revise the Inpatient Quality Reporting (IQR) program measures, resulting in a net reduction in measures from 72 to 59 for the FY 2015 payment determination. Hospitals that do not successfully participate in the IQR program will have their market basket update reduced by two percentage points. The proposed rule also would establish the methodology and payment 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 2,210 hospitals, resulting in 0.3% overall decrease in hospital payments. CMS also proposes 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 also would establish new or revised requirements for quality reporting by other types of Medicare providers, including cancer hospitals, inpatient psychiatric facilities, and ambulatory surgical centers.
• CMS proposes 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, CMS now proposes that this policy be effective for hospital cost reports beginning on or after FY 2014.
• The proposed rule would, among many other things: modify Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; make a variety of changes to graduate medical education policy, including changes relating to determining a hospital’s fulltime equivalent resident cap; address applications for new technology add-on payments; 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; and update LTCH-PPS policies and rates, as discussed in a separate entry.

Data files and tables are posted here.  Comments will be accepted until June 25, 2012.

• Congress should increase acute care hospital inpatient and hospital outpatient payment rates by 1% in 2013; gradually recover past inpatient overpayments due to documentation and coding changes; and gradually reduce outpatient hospital payment rates for evaluation and management office visits to the rate of physician office visits for the same service.
• 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. The proposal, first announced in October 2011, would freeze rates for primary care services for 10 years, while other services would be subject to annual payment reductions of 5.9% for 3 years, followed by a freeze. MedPAC also endorsed budget-neutral changes to improve data on which MPFS relative value unit (RVU) weights are based and to redistribute payments to underpriced services, and made recommendations regarding the structure of accountable care organization shared savings payments.
• Congress should eliminate the 2013 update for skilled nursing facilities (SNFs), and direct the Secretary to revise the SNF payment system to redistribute payments away from intensive therapy care that is unrelated to patient care needs and toward medically complex care. The Secretary also should begin rebasing payments in 2014, with an initial reduction of 4% and additional reductions thereafter to align with providers’ costs. The Secretary also should reduce payments to SNFs with relatively high risk-adjusted rates of rehospitalization.
• Congress should eliminate the 2013 market basket update for inpatient rehabilitation facilities and long-term care hospitals, and update the outpatient dialysis payment rate by 1%.
• Congress should update payment rates for ambulatory surgical centers (ASCs) by 0.5% for 2013, require ASCs to submit cost data, and direct the Secretary to implement a value-based purchasing program for ASCs by 2016.
• Congress should direct the Secretary to: begin a two-year rebasing of home health rates in 2013; revise the case-mix system to rely on patient characteristics rather than therapy visits; establish a per episode copay for home health episodes not preceded by hospitalization or post-acute care use; and expand certain program integrity efforts.
• Congress should increase hospice rates by 0.5% for FY 2013 and adopt a series of previous MedPAC recommendations addressing payment and program integrity reforms.
• Congress should modify Part D low-income subsidy copayments for beneficiaries with incomes at or below 135% of poverty to encourage the use of generic drugs when available in selected therapeutic classes (with safeguards to prevent substitutions that are not clinically appropriate).

While MedPAC recommendations are not binding, they are often considered by lawmakers in developing Medicare legislation.

• 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.