Increased Payment Rates for Hospitals and LTCHs Under FY 2013 Proposed Rule

CMS has released the text of the Proposed rule providing changes to the inpatient hospital (IPPS) and long-term care hospital (LTCH) prospective payment systems that will go into effect October 1, 2012, the beginning of fiscal year (FY) 2013. According to the accompanying CMS press release, the Proposed rule aims to continue to improve hospital care to cause better patient outcomes and to low long-term cost growth. The Proposed rule applies to about 3,400 acute care hospitals and 420 LTCHs.

Among the key proposals, although with the usual payment rate changes, are the implementation of the value-based purchasing program and the hospital readmissions reduction program, effectuated by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), and several expansions to Medicare’s quality reporting programs. The proposed rule also details certain payment policy changes for LTCHs based on the expiration of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (P.L. 110-173) moratorium and presents proposed measures for the LTCH quality reporting program for FY 2015 and 2016.

Changes for Hospitals

CMS projects that Medicare payments to IPPS hospitals would increase by about $904 million in FY 2013 (0.9 percent), compared to FY 2012. IPPS hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program would receive a 2.3 percent increase in payment rates, and those that are unsuccessful in participating would see a 2.0 percentage point reduction or a payment rate update of 0.3 percent. The 2.3 percent increase reflects a projected update of 3.0 percent for the hospital market basket, adjusted by a 0.8 percentage point reduction of multi-factor productivity adjustment and a 0.1 percent reduction pursuant to PPACA, increased by 0.2 percent for documentation and coding.

Among the many changes proposed in the FY 2013 Proposed rule are: (1) a Medicare severity diagnosis-related group (MS-DRG) change for cases with both influenza and severe types of pneumonia; (2) the inclusion of labor and delivery days in the count of available beds for Medicare disproportionate share hospital (DSH) and indirect medical education (IME) adjustment purposes; (3) with regard to the Medicare law that requires that routine services be provided directly by the hospital to beneficiaries rather than through an arrangement with another entity, the proposed postponement of the effective date of the policy that limits “services under arrangement” to diagnostic and therapeutic services (until cost reports beginning on or after FY 2014); and (4) several proposed changes to the existing graduate medical education (GME). There are also two proposed categories for the list of hospital acquired conditions (HAC): Surgical Site Infection Following Cardiac Implantable Electronic Device (CIED) and Iatrogenic Pneumothorax with Venus Catheterization.

Value-Based Purchasing Program.  The VBP program, intending to transform Medicare from a system that rewards volume of service to one that rewards efficient, high-quality care, begins adjusting hospital payments starting in FY 2013 depending on a hospital’s ability to improve their performance on a set of quality measures. Under the Proposed rule for FY 2013, new proposals are made regarding total performance scores, the one-percent reduction to based operating DRG amounts, and value-based incentive payments. Additionally, a new Medicare spending per beneficiary measure and a new outcome measure regarding central line-associated bloodstream infection are proposed that would affect payments beginning in FY 2015, and new domains to align with the National Quality Strategy for the Hospital VBP program for FY 2016.

Hospital Readmissions Reduction Program.  PPACA Sec. 3025 mandated the establishment of the Hospital Readmissions Reduction Program, which will reduce payments, starting for FY 2013 discharges, to certain hospitals with excessive readmissions for three conditions: heart attack, heart failure, and pneumonia. In FY 2012, implementation of the program began with the finalization of the three measures, a change to the definition of “readmission” to mean admission to an acute care hospital (ACH) within 30 days of a discharge from an ACH, the calculation of a hospital’s excess readmission ratio for the conditions, and the policy to calculate a hospital’s excess readmission ratio for each condition. For FY 2013, methodology is proposed to calculate of the readmission adjustment factor–the higher of a ratio of a hospital’s aggregate dollars for excess readmissions to their aggregate dollars for all discharges, or a 0.99 percent reduction for FY 2013. The readmission adjustment factor could potentially cause a 0.3 percent reduction in overall payments to hospitals, amounting to $300 million.

Expiring PPACA provisions.  The Medicare-Dependent Hospital (MDH) Program extended through the end of FY 2012 per Sec. 3124 of PPACA is set to expire and will not apply to discharges occurring after September 30, 2012. Hospitals currently benefiting from the MDH program will be paid based on the federal rate beginning in FY 2013. Also, the low-volume hospital adjustment, which was expanded to include hospitals that are more than 15 road miles from other IPPS hospitals and had fewer than 1,600 Medicare discharges under Secs. 3125 and 10314, is set to expire. Those hospitals’ payments were adjusted on a sliding scale with a higher adjustment for hospital with fewer discharges, and vice versa, under PPACA. However, for FY 2013, the proposed reversion to the pre-PPACA definition of a “low-volume hospital” would mean that hospitals would need to be more than 25 road miles from other IPPS hospitals and have fewer than 200 total discharges (both Medicare and Medicaid) during the fiscal year to receive a 25 percent adjustment, as opposed to an adjustment based on a sliding scale.

LTCH Changes

LTCH payments are estimated to possibly increase by $100 million (1.9 percent) for FY 2013. The increase is based on a proposed update of 2.1 percent, stemming from a proposed market basket update of 3.0 percent, reduced by a multi-factor productivity adjustment of 0.8 percent and an additional 0.1 percent reduction under PPACA, a proposed “one-time” adjustment of -0.98374 to the FY 2013 standard federal rate (application to discharges occurring on or before December 31, 2012), and estimated increases to high cost outliers and decreases in short-stay outlier payments based on payment methodology changes effective for discharges occurring on or after December 31, 2012. If the moratorium on the application of the “25 percent threshold” payment adjustment policy is extended for an additional year, as proposed, LTCHs would not see a decrease in Medicare payments of around $170 million.

Expiration of MMSEA moratorium.  MMSEA created a three-year moratorium that prevented the implementation of certain payment policies affecting LTCHs, as well as on establishing new LTCHs and LTCH satellite facilities and on increasing the number of patient beds in existing facilities in most cases. The moratorium is set to expire during 2012. Proposed, however, is a one-year extension of the existing moratorium on the “25 percent threshold” policy (mentioned above), the application of an approximate 1.3 (from 2.1 to 0.8) percent reduction for a one-time prospective budget neutrality adjustment (not applying to discharges occurring on or before December 28, 2012), and the reduction of Medicare payments to IPPS comparable per diem amount for exceptionally short stays in LTCHs (for discharges occurring on or after December 29, 2012).

Quality Reporting Program

The Proposed rule would strengthen and streamline the Hospital IQR program through the proposed additional measures and the removal of others that are seeing reporting rates reaching optimal performance. The proposed IQR program changes are also meant to improve care through the proposal of measures for perinatal care and readmissions, surgical complications for hip and knee replacement procedures, quality of patients’ care transitions, and for the use of surgery checklists to reduce errors. Specifically, proposals that would reduce the number of measures in the IQR program from 72 to 59 for the FY 2015 payment determination, and 60 for the FY 2016 payment determination.

Quality reporting initiatives are also proposed for LTCHs for FY 2015 and 2016 payment determinations. Five new measures are proposed for the FY 2016 payment determination year: (1) Percent of Nursing Home Residents Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay); (2) Percent of Residents Assessed and Appropriately Given the Pneumococcal Vaccine (Short-Stay); (3) Influenza Vaccination Coverage among Healthcare Personnel; (4) Ventilator Bundle; and (5) Restraint Rate per 1,000 Patient Days. Also proposed are quality measure reporting for psychiatric hospitals paid under IPPS and PPS-exempt cancer hospitals, as well as additional reporting under the ambulatory surgical center (ASC) quality reporting program.

Documentation and Coding Adjustments

The documentation and coding adjustments for FY 2008 and 2009, required under the TMA, Abstinence Education, and QI Programs Extension Act of 2007 (P.L. 110-90), would be complete under the Proposed rule, while keeping the new coding system that was introduced in 2008 budget neutral. These adjustments would result in an aggregate rate increase of 0.2 percent.