CMS solicits applications for Rural Community Hospital Demonstration

CMS is soliciting applications for additional hospitals to participate in the Rural Community Hospital Demonstration Program, which tests payment under a reasonable cost-based methodology for Medicare inpatient hospital services furnished by eligible rural hospitals. No more than 30 hospitals can participate in the program at the same time. Applications are due May 17, 2017, and CMS’ goal is to finalize selections by June 2017.

Section 410A of the Medicare Modernization Act (MMA) (P.L. 108-173) originally authorized the demonstration for five years, and Sections 3123 and 10313 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) extended it for another five-year period. Section 15003 of the 21st Century Cures Act (P.L. 114-255) again amended section 410A to require another five-year extension of the demonstration (see 21st Century Cures clears House, now set for Senate vote, December 1, 2016).

Eligibility

To be eligible to participate in the program, a hospital must: (1) be located in a rural area or be treated as such pursuant to Soc. Sec. Act Sec. 1886(d)(8)(E); (2) have fewer than 51 acute care inpatient beds, as reported in its most recent cost report; (3) make available 24-hour emergency care services; and (4) not be designated or eligible for designation as a critical access hospital pursuant to Soc. Sec. Act Sec. 1820.

Hospitals that were participating in the demonstration as of the last day of the initial five-year period or as of December 30, 2014 may participate in this second extension period, unless the hospital elects to discontinue participation. A newly selected hospital may be located in any state; however, priority will be given to hospitals located in one of the 20 states with the lowest population densities.

Payment

For discharges occurring in the first cost reporting period on or after the implementation of the extension, hospitals participating in the demonstration will receive payment for their reasonable costs of providing covered inpatient hospital services (except for services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital). For discharges occurring during the second or later cost reporting period, hospitals will be paid the lesser of their reasonable costs or a target amount.

For most of the previously participating hospitals, there is a gap between the end date of the hospital’s participating in the first five-year extension and the enactment of the Cures Act on December 13, 2016 that the legislation did not address. In the fiscal year 2018 hospital inpatient prospective payment system (IPPS) Proposed rule, CMS solicited comments on proposed terms of continuation for previously participating hospitals (see IPPS spending to increase $3B, LTCH PPS to decrease $173B, April 17, 2017).

The MMA requires the demonstration to be budget neutral. The IPPS proposed rule detailed the status of the demonstration and the methodology for ensuring budget neutrality.

Inpatient hospital and SNF deductible increase for 2017

The inpatient hospital deductible for calendar year (CY) 2017 will be $1,316, a $28 increase over the CY 2016 deductible, according to an advance release of the CY 2017 inpatient hospital deductible notice from CMS. The Medicare Part A deductible covers patients’ shares of costs for the first 60 days of inpatient hospital. In 2017, the daily coinsurance amount for the 61st through 90th days of hospitalization will increase by $7 to $329 and the daily coinsurance for lifetime reserve days will increase by $14 to $658. Skilled nursing facility (SNF) coinsurance rates will increase from $161 to $164.50.

Percentage increase 

The inpatient prospective payment system (IPPS) market basket percentage increase for 2017 is 2.7 percent and the multifactor productivity adjustment (MFP) is a reduction of 0.3 percent. The percentage increase of IPPS hospitals that submit quality data and are meaningful users of electronic health records (EHRs) is 1.65 percent, while the average percentage increase for IPPS-excluded hospitals is 2.0 percent.

No comments

CMS indicated, per custom, it will waive notice and comment rulemaking on the deductible notice because the formulae used to calculate the hospital deductible and hospital and extended care services coinsurance amounts are imposed by statute. Additionally, CMS noted, delaying publication would be contrary to the public interest. The notice is set to publish in the Federal Register on November 15, 2016.

FTC staff opposes Virginia hospital systems’ cooperative agreement

The Southwest Virginia Health Authority and State Health Commissioner should deny a cooperative agreement application submitted by Mountain States Health Alliance and Wellmont Health System, according to comments submitted by staff of the FTC Bureau of Competition, Bureau of Economics, and Office of Policy Planning.

Mountain States and Wellmont are the two largest hospital systems in the border area of Southwest Virginia and Northeast Tennessee, and they are the only two full-service hospital systems serving the vast majority of patients living in this area, according to the FTC staff’s comments. Together, the hospitals would purportedly hold a near-monopoly over inpatient services in the area and have significant shares in several outpatient services and physician specialty service lines.

Consequently, the FTC staff—after a year-long assessment of the proposed merger—concluded that the proposed deal “presents substantial risk of serious competitive and consumer harm in the form of higher healthcare costs, lower quality, reduced innovation, and reduced access to care.”

The hospitals proposed several commitments they claimed would control and mitigate any anticompetitive effects, including price commitments. However, these commitments would be insufficient and unlikely to mitigate the anticompetitive effects, according to testimony presented by Mark Seidman, FTC Deputy Assistant Director for the Mergers IV Division.

“[T]he price commitments described in the application are ambiguous and appear to leave the hospitals with the opportunity and incentive to obtain higher prices from health insurers,” Seidman stated. “And even if prices were successfully constrained, it would do nothing to prevent harm to quality of care, and in fact would make that harm more likely.”

It also was noted that “once a merger is consummated—whether under a cooperative agreement or otherwise—it is extremely difficult to unwind.” Consequently, approving the cooperative agreement would risk that the deal would become permanent, especially because the plan of separation submitted by the hospitals did little to alleviate the significant challenges of “unscrambling the eggs,” following the merger.

Value-based purchasing may not be encouraging much improvement

To improve the Value-Based Purchasing (VBP) program CMS should address four concerns, according to a report by David Muhlestein, Ph.D., J.D., of Leavitt Partners. CMS should (1) empirically evaluate whether penalties are large enough to lead providers to make changes across the four domains; (2) structure quality measures so that only meaningful differences in performance lead to meaningful differences in payments; (3) decrease the measurement volatility by increasing the number of cases for each of the metrics and creating an alternative VBP program for low-case volume hospitals; and (4) consider urging Congress to reconsider combining the VBP program with the readmission and hospital-acquired conditions (HAC) reduction to better align measures across programs, the report recommended.

Background

The VBP program was implemented by CMS in 2013 under Section 3001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-14) as one of three value-based programs for hospitals. The VBP program is different from its counterparts in that it is structured to be revenue neutral, allowing some hospitals to receive bonus payments while others receive penalties for inpatient payments. It also evaluates performance across four weighted domains: clinical process of care (10 percent), patient experience of care (25 percent), clinical outcomes (40 percent), and efficiency (25 percent).

Estimated impact on financial performance

For hospitals involved in the VBP program, an average of 35.4 of discharges are paid for by Medicare, and 46.1 percent of revenue comes from inpatient care. Because the VBP modifier only affects Medicare inpatient care, the modifier can only affect about one-sixth of hospital revenue. The report estimates that, for FY 2016, the VBP modifier will affect a hospital’s income with a maximum 0.35 percent decrease in total revenue or a maximum 0.8 percent increase in total revenue. However, the report estimates that only 4.9 percent of hospitals will see a penalty or bonus payment that exceeds 0.25 percent of net revenue. Of those hospitals, only 8.3 percent will be penalized.

Performance over time

Hospitals may improve their performance each year. The report shows that, between 2015 and 2016, 45 percent of hospitals received bonuses in both 2015 and 2016, while 30 percent were penalized both years. About 25 percent of hospitals made a change between the two categories, with 11 percent moving from bonus to penalty and 14 percent moving from penalty to bonus. The report also classified hospitals into quintiles based on their 2015 and 2016 performance and found a surprising amount of movement between the quintiles, with 40 percent moving up or down one quintile, 13 percent moving two quintiles, 4 percent moving three quintiles, and 1 percent moving four quintiles.

Policy implications

While the VBP program is intended to give incentives for hospitals to improve their quality of care, the relatively small financial incentives may not be sufficient enough to justify the high investment required to implement significant changes for many hospitals, especially considering that the potential for return is unknown. More work needs to be done, the report stated, to determine whether hospitals that had higher penalties improved more than those with smaller penalties or bonuses. To encourage improvement, the report suggested moving toward measures that have clear pathways for improvement, with such measures weighted higher than those with a more nebulous pathway toward improvement. To allow hospitals clearer performance benchmarks, the report also suggested limiting measures used in the program to those where there is a meaningful distribution of performance, limiting the number of potential scores in each category to those that are substantially different.

Volatility

High levels of volatility in VBP program results may indicate that the program is not adequately measuring true underlying quality and that program measures may be susceptible to random variation, as opposed to a hospital actually alternating between worsening and improving every year. Because smaller facilities tended to be more volatile, the report suggested creating an alternative program for those smaller hospitals to allow better monitoring of changes in quality.

Overlap with other Medicare initiatives

Measures within the VBP program, the Hospital Readmissions Reduction Program (HRRP) and the Hospital Acquired Conditions (HAC) reduction program are not fully coordinated, the report noted. Rather than administering separate programs, the report suggested urging Congress to combine the programs into one to better align all quality and performance measures across programs, allowing hospitals to be better-positioned to prioritize their efforts.