Kusserow on Compliance: OIG Calls for Re-Examination of Critical Access Hospital Payment System

  • Medicare Beneficiaries Pay Half of the Costs for Outpatient Services at CAHs
  • Beneficiaries Pay Two to Six Times More than for Same Services at Acute Care Hospitals

The HHS Office of Inspector General’s (OIG) Office of Evaluation and Inspection (OEI) released a report on critical access hospitals (CAHs), calling for modification of how coinsurance is calculated for outpatient services received at CAHs that would reduce the current reimbursement amounts. The OIG cited higher costs Medicare beneficiaries pay when services are received at a CAH, than for the same services at acute care hospitals. This follows another OIG report from last year. Now these two reports stand back to back with a call for a review of critical access criteria for hundreds of small rural hospitals across the nation. Needless to note, there will be a lot of reaction from rural healthcare providers on this subject, as there was when the first report came out.

CAH Background

The CAH certification was created to ensure that rural beneficiaries would have access to hospital services, with Medicare reimbursing them 101 percent of “reasonable costs.” This is instead of payments made at the predetermined rates set by the Outpatient Prospective Payment System (OPPS). The system that Medicare uses to calculate outpatient coinsurance amounts for beneficiaries who receive services at CAHs differs from that used for beneficiaries who receive services at acute care hospitals. Beneficiaries who receive services at CAHs pay coinsurance amounts based on CAH charges, whereas beneficiaries who receive services at acute care hospitals pay coinsurance amounts based on OPPS rates. CAH charges are typically higher than the reasonable costs associated with CAH services or the OPPS rates that acute-care hospitals receive.

OIG Findings

The OIG reviewed claims data to calculate the percentages and amounts of coinsurance that Medicare beneficiaries paid toward the costs of outpatient services at CAHs. This data was compared to what it would be if beneficiaries paid at acute-care hospitals for the 10 most common outpatient services provided at CAHs. The OIG found that as result of coinsurance amounts being based on charges, Medicare beneficiaries paid nearly half the costs for outpatient services at CAHs. Because coinsurance amounts were based on charges, Medicare beneficiaries paid a higher percentage of the costs in coinsurance for outpatient services received at CAHs than they would have paid at hospitals under OPPS. For the 10 frequently provided outpatient services at CAHs, beneficiaries paid between two and six times the amount in coinsurance that they would have for the same services at acute care hospitals.

OIG Recommendations

To reduce the percentage of costs that Medicare beneficiaries pay in coinsurance, the OIG recommended that CMS seek legislative authority to modify how coinsurance is calculated for outpatient services received at CAHs. The OIG offered suggestions as to how CMS could modify how coinsurance is calculated for such services. These included:

  1. Computing coinsurance so that it is based on interim payment rates rather than charges, and
  2. Processing claims for outpatient services at CAHs as if they were paid under OPPS for the purpose of calculating an OPPS equivalent coinsurance.

CMS neither concurred, nor non-concurred with the OIG recommendation, preferring to sit on the sidelines for the time being; however, it is likely that CMS will eventually have to re-examine how CAH qualifications are defined and its current system of payments for CAHs.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Mandatory Quarantines Criticized; Monitoring Recommended for Ebola Exposure

The fight against the Ebola virus has expanded beyond the Centers for Disease Control and Prevention (CDC) into the states, a move the New England Journal of Medicine (NEJM) called “destructive.” The recent state-level steps, most of which are aimed at health care workers who return to the United States after treating Ebola patients in Africa, have expanded far beyond the CDC’s recommendations and guidances. After one quarantined health care worker accused the governors of New York and New Jersey of violating her basic human rights, the state policies have been widely criticized, and the CDC has provided additional recommendations on how to track individuals who may have been exposed to the virus.


The current outbreak of Ebola virus disease, commonly known as Ebola, began in West Africa, where the first cases were identified by the World Health Organization (WHO) in March 2014. The virus is primarily spread through direct contact (through broken skin or mucous membranes) with the blood or body fluids of a person who is sick with Ebola. Symptoms include sudden fever, severe headache, muscle pain, weakness, diarrhea, vomiting, abdominal pain, and unexplained hemorrhage. Individuals are only infectious after symptoms appear, and thereafter as long as their blood and body fluids, including semen and breast milk, contain the virus. The incubation period for the virus is between two and 21 days; after 21 days have passed, individuals who may have had contact with Ebola are not at risk of infection.

The first case of Ebola on American soil was diagnosed on September 30, 2014. A man from Liberia sought care at Dallas’ Texas Presbyterian Hospital once he began experiencing symptoms. All individuals who had close contact with the man were monitored for 21 days after exposure; he died on October 8, 2014. Two health care workers who treated the man at Texas Presbyterian tested positive for Ebola; both have since been discharged as Ebola-free. According to the CDC, the highest risk of exposure to Ebola is for health care providers caring for Ebola patients, as well as others in close contact with Ebola patients such as family and friends.

In response to the initial three cases of Ebola, the CDC, working with the Department of Homeland Security, began screening travelers from Guinea, Liberia, and Sierra Leone upon arrival at five U.S. airports (New York’s JFK International, Washington-Dulles, Newark, Chicago-O’Hare, and Atlanta). The agency announced active post-arrival monitoring of travelers from those three countries, which requires travelers to report their symptoms (or lack thereof) on a daily basis for 21 days. The CDC also provided updated guidance to health care workers to help prevent further transmission from treating patients with the virus. The new guidance requires “rigorous and repeated training” in how to properly use personal protective equipment, and stresses the need for oversight and observers to ensure that all procedures are being completed fully and correctly.

New York Aid Worker

A New York man who had volunteered in Guinea as a health care worker returned to the United States without any Ebola symptoms. He cleared the airport’s enhanced screening, then returned to his home with instructions on post-arrival screening. Six days later on October 23, 2014, the man experienced a low-grade fever and reported it to local health officials. He was then transferred–by a specially trained HAZ TAC unit wearing Personal Protective Equipment—from his home to Bellevue Hospital in New York City, a designated Ebola treatment facility, where he tested positive for the virus. The CDC identified four individuals to monitor for possible infection due to close contact with the man. To date, none have presented symptoms.

States React

On October 24, 2014, the day after the New York aid worker was diagnosed with Ebola, New York Governor Andrew M. Cuomo (D) and New Jersey Governor Chris Christie (R) jointly announced additional Ebola screening protocols for the international airports in their states, JFK and Newark. One major change was the mandatory quarantine imposed upon any individual who had direct contact with an individual infected with the Ebola virus while in Liberia, Sierra Leone, or Guinea. The states specifically included medical personnel who have performed medical services for individuals infected with the Ebola virus for mandatory quarantine.

The quarantine policy was implemented immediately. That same day, the New Jersey Department of Health released a statement announcing the quarantine of a health care worker who arrived at Newark Liberty International Airport without Ebola symptoms; the health care worker was placed in isolation at Newark’s University Hospital. Kaci Hickox, a nurse who recently treated Ebola patients in Sierra Leone, contacted CNN while under quarantine to publicize the “inhumane” treatment she was experiencing. Hickox repeatedly tested negative for Ebola, despite the state announcing that she had developed a fever. Hickox states that her temperature was taken only with a forehead scanner, which is less accurate than an oral thermometer.

Christie defended the decision to place Hickox under mandatory quarantine, saying “I understand that this has made this woman uncomfortable and I’m sorry that she’s uncomfortable but the fact is I have the people in New Jersey as my first and foremost responsibility to protect their public health.” Hickox was released from University Hospital on October 27, 2014; the state announced its plan to transport her to her home in Maine, where she will spend the remainder of her 21-day quarantine. New York released a fact sheet regarding its quarantine policy, which allows in-home quarantine with unannounced visits from the state to check the individual’s health and to ensure he or she is honoring the quarantine.

Other States

In Illinois, Governor Pat Quinn (D) announced a mandatory 21-day home quarantine for high-risk individuals who have had contact with an individual infected with Ebola, including medical personnel. Chicago-O’Hare International Airport is one of the designated points of entry for individuals entering the U.S. from the countries experiencing the Ebola outbreak. The state issued a guidance clarifying its position for determining whether an individual is “high-risk.” Similarly, Florida Governor Rick Scott (R) signed an executive order requiring mandatory twice-daily monitoring for all individuals returning from Liberia, Sierra Leone, and Guinea. Despite the absence of a designated screening airport in the state, Scott maintained the necessity of his action because “four individuals have already returned to Florida after traveling to Ebola-affected areas.”

Criticism of States

Physicians and other health experts have heavily criticized the mandatory quarantines that states are implementing. The NEJM criticized these policies as “not scientifically based,” “unfair and unwise,” and “more destructive than beneficial.” It argued that “hundreds of years of experience show that to stop an epidemic of this type requires controlling it at its source”—therefore, skilled health care workers must not have additional barriers making it harder for volunteers to return home. The NEJM lauded the New York aid worker, saying that returning workers can follow his example of alerting public health officials if they develop symptoms. Dr. Anthony Fauci, Director of the National Institute of Allergies and Infectious Diseases at the National Institutes of Health (NIH), warned against mandatory quarantines, saying that “draconian” requirements may have unintended consequences, such as preventing aid workers from going to Africa. He recommended treating returning people with respect, and told the states to “go with the science.”

Continued CDC Action

On October 27, 2014, the CDC released an interim guidance for monitoring and movement of persons with potential Ebola virus exposure and a corresponding fact sheet. It recommends monitoring depending on an individual’s risk level: active monitoring, where an individual monitors himself or herself and reports any symptoms to the public health authority, for individuals at low-risk, and direct active monitoring, in which a public health official directly observes the individual daily to review symptoms and monitor status, for those with some or high risk. Individuals who may have been exposed to Ebola virus should limit their travel to “controlled movements”—no long-distance commercial conveyances, such as planes, trains, or buses, and should ensure that any movement allows the continuation of active or direct active monitoring.

Ongoing updates to the governmental response are available at www.whitehouse.gov/ebola-response and http://www.cdc.gov/vhf/ebola/index.html.

Kusserow’s Corner: Medicare Trust Fund Estimated to Survive through 2030

It is widely known that the aging of the population is creating a “time bomb” for Medicare Part A. The question for decades has been when will the bomb explode, that is, when will the Fund bankrupt and not have enough money to pay for Medicare Beneficiary services. The Trust Fund is supported by the Federal Insurance Contribution (FICA) tax of 7.65 percent that is automatically withheld from every employee’s check with another 7.65 percent being paid by the employer on behalf of the employee. This is to pay into both the Social Security and Health Insurance (HI) Trust Funds. Of the 7.65 percent FICA, exactly 1.45 percent of the salary goes into the HI trust.

The reason for the time bomb concern is that, demographically, we have long known that the ratio of working employees that contribute to the trust funds is declining against the growing number of elderly individuals who are drawing against the funds as Social Security recipients and Medicare beneficiaries. The simple reality is that Americans are living longer. There are only a few options open for staving off the explosion for the Medicare Trust Fund: raise FICA taxes, reduce the rates of escalation of health care costs, and/or cut benefits.

During my tenure as HHS Inspector General, we worked diligently to reduce the rate of health care costs due to waste, abuse, and fraud. The Office of Inspector General (OIG) continues in this effort. No matter the amount of effort, this cannot but slightly slow down the rate of the explosion. Other measures to reduce the rate of increase in health care costs relate to cutting back expenditures for health services, not an attractive alternative. The daily press speaks about changes in reimbursement initiatives by Medicare and how that invokes a great deal of outcry from the provider community. The most controversial method to staving off bankruptcy of the HI is to cut on the benefit side of the equation. So far, the only step in that direction is moving towards means-tested programs whereby those with larger incomes may receive fewer benefits.

So, the question comes down to the estimated date of the explosion or bankruptcy of HI. This year, the Office of the Actuary in CMS issued its most recent report on the state of the Medicare Trust Fund to the Trustees who are mandated to report annually to Congress on the financial operations and actuarial status of the program. There is one combined report, discussing both the HI program (Medicare Part A) and the Supplementary Medical Insurance (SMI) program (Medicare Part B and Prescription Drug Coverage). It is the second-largest social insurance program in the U.S. after Social Security, with 52.3 million beneficiaries and total expenditures of $583 billion in 2013. The Trustees Report details a substantial amount of information on the past and estimated future financial operations of the Trust Funds. The report projects that the Medicare HI Trust Fund will face depletion by 2030.

The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.5 percent of GDP in 2013 to 5.3 percent of GDP by 2035, and will increase gradually thereafter to about 6.9 percent of GDP by 2088. The Trustees noted that projected long-term actuarial imbalance is smaller than that of the Social Security trust funds under the assumptions employed in this report.

It is important to note that Part B of SMI, which pays doctors’ bills and other outpatient expenses, and Part D of SMI, which provides access to prescription drug coverage, is outside the Trust Fund. Under current law, it is funded by the Treasury of the United States and is part of the federal budget. As such, the federal government automatically provides financing each year to meet the next year’s expected costs. General revenues finance roughly three-quarters of these costs, and premiums paid by beneficiaries finance almost all of the remaining quarter. SMI receives a small amount of financing from special payments by states and from fees on manufacturers and importers of brand-name prescription drugs.

However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 1.9 percent of the Gross Domestic Product (GDP) in 2013 to approximately 3.3 percent of GDP in 2035, and then more slowly to 4.5 percent of GDP by 2088. What this means is that it could bankrupt the federal government. As such, we can expect that health care will remain a top policy issue for the federal government for years to come as they seek solutions to a problem that is growing daily. What providers can expect is increased scrutiny and action by enforcement agencies to find any and all waste, abuse, and fraud that is contributing to the problem.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Quality and Cost Reduction are Focus of New IPPS Rule

CMS has issued an advanced release of its hospital inpatient payment policy and changes for Fiscal Year (FY) 2015, which will strengthen the connection between care quality and Medicare payments received by approximately 3,400 general acute care and 435 long-term care hospitals (LTCHs). The final rule includes a payment rate update of 1.4 percent for acute care hospitals and an update of 1.1 percent for LTCHs. Despite the payment updates, CMS projects overall Medicare payments to inpatient hospitals will decrease by $756 million in FY 2015. The most significant provisions of the final rule are focused on improving the quality of care in hospitals by reducing hospital payments for readmissions and hospital acquired conditions (HACs).

Value-Based Purchasing

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) Value-Based Purchasing Program, adjusts hospital payments under the Inpatient Prospective Payment System (IPPS) relative to the quality of care furnished by the hospital. The amount CMS is taking back from base operating diagnosis-related group (DRG) payments, in order to disperse among participating hospitals with the highest quality is rising from 1.25 percent of DRG payments to 1.5 percent of DRG payments. The amount of quality care incentives to be dispersed among hospitals will be $1.4 billion for FY 2015.

Readmissions and Acquired Conditions

Payment reductions under the Hospital Readmissions Reduction program will increase from 2 to 3 percent to motivate increased inpatient care quality and reduce unnecessary hospital readmissions. The HAC program developed by the ACA will begin operation in FY 2015 and will reduce payments by 1 percent for hospitals with the highest number of HACs. Under the HAC program, Medicare limits reimbursement to hospitals for conditions that were reasonably preventable after the beneficiary was admitted to a hospital. The program negatively impacts hospitals that score in the lowest 25 percentile for HACs.

Wage Index

CMS is required to adjust its IPPS payments based upon geographic differences in labor costs. CMS is going to use the most recent labor market area delineations issued by The Office of Management and Budget (OMB) in its wage index for FY 2015. However, CMS is going to implement a transition into the use of the new OMB delineations by using a blend of the old and new wage index. The new wage index will take full effect in FY 2016.

Other Changes

The Final rule includes a reminder to hospitals that the ACA aimed to promote pricing transparency. CMS recommends that in order to comply with statutory requirements, hospitals make public a list of their standard charges or make such a list available upon inquiry. The Final rule also imposes changes to the Inpatient Quality Reporting (IQR) program, which previously reduced a hospital’s applicable payment percentage increase by two points if the hospital did not participate successfully in the IQR program. Under the new rule, the reduction for failure to participate successfully in the IQR program will be a reduction of one quarter of a hospital’s annual payment increase.