On May 4, 2010, the Centers for Medicare & Medicaid Services (CMS) published the 2011 Inpatient Prospective Payment System (IPPS) proposed rule for acute and long-term care hospitals, noting throughout that provisions of the two health care reform bills enacted in March were not included. The Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010, together known as the Affordable Care Act (ACA) were enacted in March 2010, and on June 2, 2010, CMS published a supplemental proposed rule that included some ACA provisions.
The proposed rules include a 2.4 percent market basket update, reduced 0.25 percent by ACA provisions. CMS further reduced rates 2.9 percent for a documentation and coding adjustment discussed below. After these adjustments plus budget neutrality and other adjustments, the proposed standardized amounts are actually lower than the fiscal year 2010 rates. The FY2011 operating standardized amount is $5,154, 1.3 percent below the 2010 rate, and the capital standardized rate of $422.18 is 1.9 percent below the 2010 final rate. Long-term care hospital (LTCH) standardized amounts are 0.84 percent below 2010 rates.
CMS has proposed to establish the fixed-loss outlier threshold at $24,165, up about $1,000 from the 2010 threshold.
CMS estimates payments to all hospitals will decrease by an average of 0.9 percent under the provisions of the proposed rules, with rural hospitals experiencing a 1.4 percent decline.
Some key components of the proposed rules include:
Documentation & Coding Adjustment
When CMS adopted the MS-DRG payment system, it anticipated hospitals would change coding patterns to increase payments under the new system. To avoid paying for coding changes not representing true increases in patient severity, CMS also implemented significant reductions to payment rates called documentation and coding adjustments. Congress reduced CMS’ adjustments for FY2008 and 2009. However, Congress also mandated that CMS recoup by the end of FY2012 any overpayments made in those two years as a result of the reduction and reduce rates prospectively, if necessary.
CMS currently estimates a recoupment of 5.8 percent of annual payments would be necessary to recover 2008 and 2009 overpayments, and a prospective rate adjustment of 3.9 percent also is necessary. CMS proposes to recover half the 5.8 percent overpayment amount in FY2011 with a 2.9 percent rate reduction. CMS does not indicate their intentions in future years with regard to the remaining 2008 and 2009 overpayment and prospective rate adjustment.
One possible scenario is for CMS to continue the 2.9 percent reduction in FY2012 to recoup the remaining overpayment, after which the 2.9 percent could be added back to the base. Then, when the 2.9 percent is added back, the base could be reduced 3.9 percent (a net 1 percent reduction at that time) to satisfy the mandate to reduce rates prospectively. This scenario would be the least disruptive to the payment system.
These adjustment provisions are highly controversial. Many contend CMS’ estimates significantly overstate both the overpayment and prospective adjustment needed. In addition, CMS proposes making similar adjustments to sole community and Medicare dependent hospitals’ hospital-specific rates, even though CMS previously acknowledged it lacks statutory authority for such adjustments.
Quality Indicators
A significant portion of the proposed rules discuss how DRGs were re-weighted and quality standards proposed for the next several years. While a detailed discussion of these measures is beyond the scope of this article, CMS has proposed to remove, modify and add various items to the required quality reporting matrix. Hospitals should closely monitor these provisions to ensure they don’t become subject to the 2 percent penalty for failure to report all required quality measures.
The proposed rule includes adding five conditions to the Hospital Acquired Conditions (HAC) listing. Unless these conditions are documented as present on admission, a hospital will not receive incremental payments for the increased severity caused by these or other HACs.
Payment for Transfer Cases
Under existing regulations, hospitals may be subject to a payment reduction if a patient is transferred to another IPPS hospital before the patient reaches the geometric mean average length of stay minus one day. In the proposed rule, CMS proposes to expand the transfer payment reductions to include transfers to critical access hospitals (CAHs) and to hospitals that do not participate in the Medicare program. Hospitals will be required to use discharge status code “66” for transfers to a CAH and status code “02” for transfers to another short-term general acute care hospital regardless of that hospital’s Medicare participation status.
Providers should note that transfers to CAH swing-bed programs continue to be exempt from the transfer payment reductions.
Critical Access Hospitals
The proposed rules include two significant changes for CAHs. First, implementing a technical correction included in ACA, CMS is revising regulations so a CAH electing Method II billing continues to receive 101 percent of allowable cost for outpatient services.
CMS also proposes to change the process for CAHs electing outpatient Method II billing. Under existing rules, a CAH must make a Method II election annually. Under the proposed rule, the election will stay in place until the hospital notifies CMS that it wants to terminate that status.
Medicare Dependent Hospitals (MDHs)
The proposed rule also would change what is counted to meet the 60 percent Medicare utilization criteria to qualify as an MDH. Current regulations only allow hospitals to include days related to patients “receiving” part A benefits when determining if Medicare is 60 percent of inpatient utilization. The proposed rule would change the requirement to patients “entitled to” Part A benefits, which would allow a hospital to include Medicare Advantage days, exhausted Part A benefit days and Medicare secondary payer days in the computation. This should allow more hospitals to qualify for MDH status.
The proposed rule also notes the MDH program has been extended another year, through October 1, 2012.
IPPS Hospital Low Volume Adjustment
The low volume adjustment rule has been temporarily expanded to allow many more hospitals to qualify for enhanced payments. A hospital with fewer than 1,600 Medicare acute discharges that is also more than 15 miles from another acute care hospital will qualify for an add-on to inpatient operating payments. The add-on can be as much as 25 percent for hospitals with less than 200 Medicare acute discharges, declining to 1.6667 percent for hospitals with 1,500 to 1,599 Medicare discharges. Similar to the MDH provisions, a hospital must count all discharges for patients entitled to Part A benefits, not just those paid by Part A.
Additional Payments to Hospitals in Low Cost Areas
The ACA creates a pool of $400 million to be paid over two years to hospitals located in counties in the lowest quartile of adjusted Medicare spending per beneficiary. The proposed rules contain a list of 415 hospitals CMS has currently identified as qualified to receive such payments. Payments to the hospitals will be based on the ratio of each hospital’s Medicare reimbursement to the total Medicare reimbursement of all qualifying hospitals.
Certified Registered Nurse Anesthetist (CRNA) Reimbursement
CMS proposes to allow hospitals, including CAHs, that elected to reclassify from urban to rural status using 42 CFR 412.103 to meet the location criteria to receive cost reimbursement for CRNA services. Previously, CMS required a hospital to be physically located in a designated rural area to receive payment. CMS is not proposing to extend this provision to hospitals located in Lugar counties.
Provider Taxes for CAHs
Many states levy taxes on hospitals and other providers to help fund state Medicaid programs. Other states are developing such programs. CMS proposes to “clarify” that such taxes may be considered allowable costs for a CAH, but that Medicare Administrative Contractors (MACs) have the authority to determine on a case-by-case basis if reductions in some portion of the tax should be disallowed as a reimbursable cost. MACs apparently will have the ability to reduce the allowable component of the tax to account for payments the hospital receives that are associated with the assessed tax in some cases. CMS’ proposal is vague and nebulous, making it impossible to discern the nature of the clarification and providing no guidance to ensure a consistent application. Hospitals that include such taxes in their allowable costs and receive substantial amounts of cost reimbursement, especially CAHs, should monitor this proposal.
Changes to Cost Report Forms
CMS proposes to expand the standard cost reporting departments to include CT, MRI and cardiac catherization. If finalized, providers offering these services should make sure they can separately track activities related to these departments.
Wage Index
The proposed rules primarily reference the recent changes as part of the ACA that will impact the wage index. Subsequent Federal Registers will be issued to address the changes further. Key changes related to wage index include the following:
- Change in Reclassification Criteria – The final FY2009 IPPS rules phased in higher percentage thresholds hospitals had to meet to seek reclassification. As a result of the ACA, the criteria will return to pre-FY2009 levels. Hospitals should carefully evaluate their options with regard to reclassification. Consistent with prior years, it is important to evaluate any current reclassification requests.
- Budget Neutrality Adjustment – The FY2009 IPPS rules also changed the budget neutrality adjustment (BNA) from a nationally computed adjustment to begin phasing to a state-specific adjustment by FY2011. However, the ACA returns the BNA to a nationally computed adjustment starting with FY2011. This is favorable to states with a low state-specific BNA as a result of having urban areas subject to the rural floor.
- Occupational Mix Survey – CMS will continue to use the 2007-2008 occupational mix survey (OMS) for FY2011 for the occupational mix adjustment factor. The proposed rules do not include significant changes to the methodology CMS has used historically. As a reminder, there will be a new OMS required for FY2013 based on data collected for the 2010 calendar year. This OMS is due July 1, 2011.
- Wage Index Methodology – The proposed rules do not include significant changes to the methodology used by CMS to compute the wage index. The proposed rules’ wage index tables are based upon the March 2010 public use files. Therefore, consistent with prior years, the wage index will change with the final rules and use of the subsequent public use files. With regard to the future of the wage index, the ACA requires the Health and Human Services Secretary to report to Congress by December 31, 2011, recommendations with regard to the wage index process, taking into consideration the original intent of MedPac’s report. Changes would not be effective until after Congress acts on the report. Therefore, it is important to continue to evaluate your hospital’s wage index information.
Medicare’s Proposed Rules to Impact Sub-Acute & Specialty Providers
When CMS issued the FY2011 proposed rules, it included numerous provisions that will affect LTACHs and sub-acute providers. Some of these provisions include:
- Proposed Changes to Medicare Conditions of Participation Affecting Hospital Rehabilitation Services & Respiratory Care Services – New regulations for ordering rehabilitation and respiratory care services will be the same going forward, but the new conditions of participation would allow physicians of medicine or osteopathy, nurse practitioners or physician assistants to order such services as long as they are also in accordance with state law and hospital policies.
- Proposed Changes to the Accreditation Requirements for Medicaid Providers of Inpatient Psychiatric Services for Individuals under Age 21 – CMS proposes to remove the requirement that psychiatric hospitals and hospitals with inpatient psychiatric programs providing services to individuals under age 21 must obtain accreditation from The Joint Commission to provide these services under the Medicaid program. CMS also proposes to revise the accreditation requirements for psychiatric residential treatment facilities (PRTFs) by removing any specific references to accreditation organizations. This would afford them flexibility in obtaining accreditation by a national accrediting organization whose program has been approved by CMS or by any other accrediting organization with comparable standards recognized by the state.
- LTCH Payment Provisions – The proposed rules also include numerous provisions that affect LTCHs. Among these are modifications to the LTCH expansion and new hospital moratorium. CMS also proposes to modify regulations related to LTCHs that receive a substantial number of admissions from a single referral source.
Overall, the proposed rules include a number of positive but temporary payment provisions for providers. The rules also include payment reductions that will not reverse in future periods. Hospitals should continually review their operations and monitor rule changes in light of significant changes yet to come from the March 2010 health care reform legislation.
Contact your BKD National Health Care Group advisor with questions or for more information on these matters.
Co-authors Sue Brammer and Kevin Wellen, of BKD, LLP, contributed to this article.
