CMS Issues Final Rule for Acute and Long Term Care Hospital Inpatient Prospective Payment Policies and FY 2014 Rates

On August 2, the Centers for Medicare & Medicaid Services (CMS) issued a final rule (Final Rule) which, among other things, updates payment policies and rates for acute care hospitals paid under the Inpatient Prospective Payment System (IPPS) in fiscal year (FY) 2014. The Final Rule also updates payment policies and rates for long term care hospitals paid under the Long Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2014. CMS stated that the Final Rule is intended to: improve value and quality in hospital care; provide clarification about when a patient should be admitted to the hospital; respond to recent concerns about extended Medicare beneficiary stays in hospital outpatient departments; and move forward with healthcare delivery system reforms made possible by the Affordable Care Act (ACA). The Final Rule will be published in the Federal Register on August 19.

Among the highlights of the Final Rule with respect to the IPPS are the following:

Increased Payments for Acute Care Hospitals

According to CMS, the total Medicare operating payments to acute care hospitals for inpatient services occurring in FY 2014 will increase by $1.2 billion, or 0.7%, compared with FY 2013, due to a 1.7% increase in payment rates, together with other policies adopted in the Final Rule.

Medicare Disproportionate Share Hospital Adjustment

The Final Rule makes significant modifications to the Medicare disproportionate share hospital (DSH) adjustment to implement changes made in the ACA. Effective for discharges on and after October 1, DSH hospitals will receive 25% of the DSH payments that they would have received under the previous methodology. The remaining amount of the DSH funding, equal to an estimate of 75% of what otherwise have been paid as DSH payments, reduced to reflect changes in the percentage of individuals younger than 65 years who are uninsured, will become available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to a hospital for a FY will be based on the hospital’s amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that FY. In the Final Rule, CMS discusses the data sources and methodologies it will use in calculating and making Medicare DSH payments under the new methodology.

Hospital Readmissions Reduction Program

Under the Hospital Readmissions Reduction program, hospitals that have high rates of readmitted patients with selected applicable conditions are subject to at least a 1%, but no more than a 2%, reduction in their Medicare base operating IPPS payments. The excess readmission rate is based on the number of patients who are readmitted within 30 days of their discharge date, or patients who contracted medical conditions while in the hospital. For FY 2013 and 2014, the applicable readmission conditions were acute myocardial infarction, heart failure, and pneumonia. The Final Rule provides additional exclusions for these three conditions, including certain planned readmissions. The Final Rule also expands the conditions under the Readmissions Reduction Program for FY 2015 to include patients admitted for an acute exacerbation of chronic obstructive pulmonary disease, and patients admitted for elective total hip arthroplasty and total knee arthroplasty.

Hospital Value-Based Purchasing Program

The Hospital Value-Based Purchasing (VBP) program, established by the ACA, provides for value-based incentive payments for hospitals that meet certain performance standards. The first year in which incentive payments were made under the VBP was FY 2013. The Final Rule removes several measures from the measure set, and also adds several additional measures. These measures, which include measures for outcomes, clinical process of care, efficiency, and patient experience of care, will affect payments under the VBP in FY 2016 and later years.

Hospital-Acquired Condition Reduction Program

The Hospital-Acquired Condition (HAC) Reduction program, established by the ACA, provides an incentive for applicable hospitals to reduce HACs. CMS stated that the HAC Reduction program follows on several previous initiatives that were intended to reduce the number of HACs among Medicare beneficiaries. HACs are medical conditions that patients acquire while receiving treatment for another condition in an acute-care status, and include hospital-acquired infections as well as conditions such as foreign objects retained after surgery. CMS further stated its belief that most common HACs can be prevented through application of evidence-based guidelines. Under the HAC Reduction program, hospitals that rank in the top 25% of hospitals nationwide for acquired conditions will be subject to a payment reduction of 1% of the amount of Medicare payment that would otherwise apply to the hospital’s Medicare discharges. The HAC Reduction program will affect payments in FY 2015 and later years.

Further Postponement of Implementation for Policy Regarding Routine Hospital Services Furnished Under Arrangements

In the Final Rule for the FY 2012 IPPS, CMS set forth a change in policy to preclude hospitals from furnishing routine services under arrangements with another entity unless the services are provided in the hospital in which the patient has been admitted as an inpatient. CMS stated that in most cases that have come to its attention, the services in question were being provided at another hospital that is co-located with a hospital that is excluded from IPPS. Under the policy set forth in the FY 2012 Final Rule, the only services that could be furnished under arrangements outside of the hospital are therapeutic and diagnostic items and services, and routine services could not be furnished outside of the hospital under arrangements. In the Final Rule for FY 2013, CMS postponed the implementation date for this policy. In the Final Rule, CMS further postponed the implementation date for this policy, which will go into effect for services provided on and after January 1, 2015.

Payment Policies for Part B Inpatient Hospital Services; Admission and Medical Review Criteria for Inpatient Services

In the Final Rule, CMS set forth a change in policy to allow payment for additional Medicare Part B inpatient services when CMS, a Medicare review contractor, or a hospital determines after discharge that payment cannot be made under Medicare Part A because the hospital admission was not reasonable and necessary. CMS also made several clarifications and policy changes with respect to the admission and medical review criteria for inpatient hospital services, particularly regarding short inpatient stays and observation days.¹

Among the highlights of the Final Rule with respect to the LTCH PPS are the following:

Increased Payments for LTCHs

According to CMS, the total Medicare operating payments to LTCHs for inpatient services occurring in FY 2014 will increase by about $72 million, or 1.3%, compared with FY 2013.

Expiration of Moratorium on 25% Patient Threshold Payment Adjustment Policy

In the FY 2013 Final Rule, CMS extended the moratorium on the application of the “25% threshold” payment adjustment, which provides that certain LTCHs will be subject to a Medicare payment reduction if more than 25% of their patients are admitted from a particular referring hospital. CMS stated that it is concerned that LTCHs that admit more than 25% of their patients from a particular referring hospital are, in effect, behaving like a step-down unit of the referring hospital, which results in two separate Medicare payments–one to the referring hospital and one to the LTCH–for what CMS believes should be structured as one episode of care. CMS stated that it believes that it would be inappropriate to continue to extend the moratorium. Accordingly, the payment adjustment for LTCHs that admit more than 25% of their patients from a particular hospital will go into effect for discharges on and after
October 1.

Access the Final Rule.

Access CMS’ press release on the Final Rule.

Copyright 2013, American Health Lawyers Association, Washington, D.C. Reprint permission granted.

¹These provisions of the Final Rule will be addressed in separate Regulation, Accreditation, and Payment Practice Group email alerts.