Proposed inpatient payment rule focuses on cost, quality

The Centers for Medicare & Medicaid Services (CMS) has issued a proposed rule that would update FY 2014 Medicare payment policies and rates for inpatient stays at general acute care and long-term care hospitals (LTCHs). Released on April 26, the proposed rule is designed to reduce the growth in healthcare costs while improving the quality of patient care, according to the agency.

The proposed rule continues CMS’ commitment to payment improvements for Medicare-covered inpatient services, while increasing overall hospital payments (capital and operating) by $27 million. It also lays out the framework for a new Affordable Care Act patient safety program to be launched in FY 2015, aimed at reducing the frequency of hospital-acquired conditions. The rule also proposes to clarify admission and medical review criteria for hospital inpatient services. It includes CMS’ proposals for implementation of an Affordable Care Act provision that changes the methodology for calculating payments to hospitals that serve a large proportion of low-income people.

The proposed rule would increase inpatient prospective payment system (IPPS) operating rates by 0.8 percent after accounting for inflation and other adjustments required by the law. This proposed increase also reflects a proposed temporary reduction of 0.8 percent to implement the American Taxpayer Relief Act’s requirement to recoup overpayments from prior years as a result of a new patient classification system that better recognizes patient severity of illness. CMS also is proposing an additional 0.2 percent reduction to offset projected spending increases associated with proposals regarding admission and medical review criteria for inpatient services. CMS projects that LTCH PPS payments would increase by 1.1 percent, or approximately $62 million, in FY 2014.

The proposed rule includes the following provisions aimed at promoting improved patient care:

• New Hospital-Acquired Condition Reduction Program. Beginning in FY 2015, hospitals that rank among the lowest-performing 25 percent with regard to hospital-acquired conditions will be paid 99 percent of what they would otherwise be paid under the IPPS. The proposed rule proposes the criteria and methodology CMS would use to rank hospitals with a high rate of hospital-acquired conditions.
• Value-Based Purchasing Program. For FY 2014, CMS is increasing the applicable percent reduction, the portion of Medicare payments available to fund the Value-Based Purchasing Program’s value-based incentive payments, to 1.25 percent. CMS estimates that the total amount available for performance-based incentive payments for FY 2014 would be approximately $1.1 billion, and will update this estimate for the final rule.

New measures included in the proposed rule include the following:

• Hospital Readmissions Reduction Program. The maximum reduction in payments under the Hospital Readmissions Reduction program will increase from one to two percent as required by law. CMS also proposes to add two new readmission measures which could be used to calculate readmission penalties for FY 2015.
• Quality Reporting Programs. The proposed rule would update the measures in the Hospital Inpatient Quality Reporting program, Inpatient Psychiatric Facility Quality Reporting program, Long-Term Care Hospital (LTCH) Quality Reporting program, and the PPS-Exempt Cancer Hospital Quality Reporting program. It proposes to reduce providers’ reporting burden by aligning the quality measure reporting requirement with Medicare Electronic Health Record (EHR) Incentive Program policies with certain measures in the Hospital IQR Program.

The rule also includes Admission and Medical Review Criteria for Inpatient Services. CMS proposes to clarify its medical review criteria to presume that hospital inpatient status is appropriate for payment under Medicare Part A if the beneficiary is admitted to the hospital pursuant to a physician order and receives care for at least two midnights. This proposed policy is intended to address longstanding concerns from hospitals that they need more guidance on when a patient is appropriately treated and paid by Medicare as an inpatient. At the same time, the proposed change would help beneficiaries who in recent years have been staying in the hospital longer as outpatients because of the hospital’s uncertainty about Medicare payment if they admit the patient to the hospital.

The proposed rule calls for documentation and coding offsets. Medicare adopted a new patient classification system in FY 2008 that better recognized severity of illness but also led to increases in Medicare spending as a result of changes in documentation and coding. The American Taxpayer Relief Act requires CMS to reduce future rates over the next four years to offset $11 billion in increased payments from prior years. For FY 2014, CMS is proposing a negative 0.8 percent recoupment adjustment as the first step in the recovery process. CMS expects to make similar adjustments in FYs 2015, 2016, and 2017 in order to recover the full $11 billion required by the law.

Medicare pays an additional amount to hospitals that serve a disproportionate share of low-income patients. While these disproportionate share hospital (DSH) payments will continue, they will be reduced to 25 percent of the amount Medicare would pay under the current policy. The remaining 75 percent will be adjusted for decreases in the rate of uninsured individuals nationally and distributed to hospitals that receive DSH payments based on each hospital’s share of uncompensated care relative to all Medicare DSH hospitals. The proposal rule requests comments on how these additional payments will be distributed.

The proposed rule addresses several provisions that pertain to long-term care hospitals. Under current regulation, if an LTCH that admits more than 25 percent of its patients from a single acute care hospital, Medicare will pay for those patients above the 25 percent threshold at a comparable (lower) IPPS rate. A statutory moratorium on application of the 25-percent rule was in place from December 2007 through December 2012. CMS further extended this statutory moratorium through rulemaking, but the proposed regulation would allow the 25-percent patient threshold rule to go into effect in FY 2014.

CMS is soliciting feedback on preliminary findings from research on criteria to identify patients that are chronically critically ill and medically complex (CCI/MC) as the agency "believes those are the most appropriate core population for LTCH care and also for full payment under the LTCH PPS," according to its statement on the proposed rule. Although the research is not yet completed, CMS is describing the current findings in the FY 2014 IPPS proposed rule and soliciting comments on this approach, with the expectation of proposing changes to the LTCH PPS in FY 2015.

CMS will accept comments on the proposed rule until June 25, and will respond to comments in a final rule to be issued by August 1. The proposed rule will appear in the May 10 Federal Register  and can be downloaded from the Federal Register.