IPPS, LTCH Proposed Payment Changes–Quality Programs and Recent Laws

Acute care hospitals that participate in the Hospital Inpatient Quality Reporting Program and have demonstrated meaningful use of electronic health records would see their Medicare payments increase 1.3 percent in fiscal year (FY) 2015, under a Proposed rule issued on April 30, 2014. Payments to long-term care hospitals (LTCHs) would increase by about 0.8 percent under CMS’ proposal. About 3,400 hospitals and 435 LTCHs receive Medicare payments under these two prospective payment systems (PPS). The Proposed rule will be published in the Federal Register on May 15, 2014.

The Proposed rule also implements or revises regulations relating to various sections of the Affordable Care Act (ACA) (P.L. 111-148), the American Taxpayer Relief Act of 2012 (ATRA) (P.L. 112-240), and the Protecting Access to Medicare Act of 2014 (P.L. 113-93).

CMS sets payment rates for hospitals and LTCHs for inpatient stays based on a patient’s diagnosis and severity of illness. The payment rates are based on an annual market basket update that is then adjusted for various factors, explained below. Because of these adjustments, CMS projects that total IPPS payments will decrease by $241 million in FY 2015, while payments to LTCHs will increase by $44 million.

IPPS Payment and Adjustments

For hospitals, the FY 2015 market basket update is 2.7 percent. This is reduced by (1) 0.4 percentage points related to multi-factor productivity (based on average changes in economy-wide productivity over a 10-year period); (2) 0.2 percentage points (a productivity adjustment mandated by ACA sec. 3401); and (3) 0.8 percentage points (the documentation and coding recoupment adjusted mandated by ATRA). Overall payments to hospitals under IPPS will be further reduced because of the hospital readmissions reduction program, the hospital acquired condition program, Medicare disproportionate share hospital (DSH) adjustments, the expiration of certain temporary payment increases to hospitals, and other proposed IPPS changes.

Quality Measures

The Proposed rule includes several adjustments relating to various hospital quality programs, including—

Hospital Value-Based Purchasing Program—For FY 2015, CMS is increasing the portion of Medicare payments available to fund value-based incentive payments to 1.5 percent of the base operating diagnosis related group (DRG) payment amounts to all participating hospitals.

Hospital Readmissions Reduction Program—The maximum reduction in payments will increase from 2 to 3 percent. For FY 2015, CMS proposes to assess hospitals’ readmissions penalties using five readmissions measures endorsed by the National Quality Forum (NQF). CMS estimates that Medicare hospital readmissions declined by 150,000 from January 2012 through December 2013.

Hospital-Acquired Condition (HAC) Reduction Program—Beginning in FY 2015, hospitals scoring in the top quartile for the rate of HACs (i.e., those with the poorest performance) will have their Medicare inpatient payments reduced by 1 percent.

Further quality changes are highlighted in a CMS fact sheet.

Two-Midnight Rule

CMS recognizes in the Proposed rule that hospitals continue to have concerns about implementation of the “two-midnight rule,” the benchmark for determining the appropriateness of an inpatient hospital admission versus treatment on an outpatient basis. CMS notes that “there could be additional rare and unusual circumstances that have not been identified that justify inpatient admission and Part A payment absent an expectation of care spanning at least 2 midnights” and is inviting feedback from providers, which can be sent to CMS via written correspondence or emailed to SuggestedExceptions@cms.hhs.gov, with “Suggested Exceptions to the 2-Midnight Benchmark” in the subject line.

Disproportionate Share Hospitals

Under ACA sec. 1104, hospitals’ Medicare DSH payments were reduced to reflect lower uncompensated care costs relative to increases in the number of insured. Starting in FY 2014, hospitals receive 25 percent of the amount they previously would have received under the former formula for Medicare DSH; the remaining 75 percent would be distributed to hospitals based on each hospital’s share of uncompensated care costs relative to all hospitals that receive DSH payments. CMS proposes to use the Office of the Actuary’s estimate of payments that would otherwise be made for Medicare DSH in FY 2015, adjusted by the change in the percentage of individuals that are uninsured as estimated by the Congressional Budget Office and a statutory factor to determine the amount available for uncompensated care payments.

Updated Labor Markets

CMS is proposing to use the most recent labor market area delineations based on the 2010 Census and issued by the Office of Management and Budget (OMB). Recognizing that using updated data might impact a hospital’s designation as “urban” or “rural,” CMS is proposing that “hospitals currently located in an urban county that would become rural under the new OMB delineations would be assigned the urban wage index value of the labor market area in which they are physically located for FY 2014 for 3 years beginning in FY 2015.”

Long-Term Care Hospitals

LTCHs would see Medicare payments increase by 0.8 percent (about $44 million) in FY 2015 under the Proposed rule. Sec. 1206 of the Bipartisan Budget Act of 2013 (P.L. 113-67) established a new framework for the application of patient criteria for LTCHs starting in FY 2016; in the Proposed rule CMS solicits feedback on policies relating to establishing the relative payment weights and high-cost outliers so that the agency may evaluate various options in preparation for developing proposals to implement the statutory changes beginning in FY 2016.

CMS also proposes to implement sec. 1206(b)(1) of P.L. 113-67, which provides for the retroactive reinstatement and extension, for an additional four years, of the statutory moratorium on the full implementation of the 25-percent threshold policy. Under this policy, if an LTCH admits more than 25 percent of its patients from a single acute care hospital, Medicare will make payments comparable to IPPS hospitals for patients above that threshold. CMS also proposes to implement the moratoria included in P.L. 113-67 on new LTCHs, LTCH satellites, and new beds in existing LTCHs and satellites from April 1, 2014, to September 30, 2017. The Proposed rule outlines three exceptions to the moratorium on new LTCHs and satellites; there is no exception to the moratorium on new beds in existing facilities.

CMS also is proposing to expand the interrupted stay policy, which addressed circumstances under which a person would be discharged from an LTCH and admitted to another facility, then directly readmitted to the LTCH within a certain period. The threshold is expanded to 30 days, which matches the 30-day window for hospitals that is applied under the Hospital Readmissions Reduction Program.