PROPOSED PAYMENT AND POLICY CHANGES FOR INPATIENT STAYS IN ACUTE CARE AND LONG-TERM ACUTE CARE HOSPITALS FOR FY 2010
OVERVIEW: On May 1, the Centers for Medicare & Medicaid Services issued a proposed rule that would change payment rates and policies for inpatient services in acute care hospitals under the Inpatient Prospective Payment System (IPPS) for fiscal year (FY) 2010, beginning October 1, 2009. The proposed rule also includes proposals for payment and policy changes for inpatient stays in long-term care hospitals (LTCHs) under the LTCH Prospective Payment System (LTCH PPS). Hospitals that are paid at the higher LTCH PPS payment rates typically treat patients requiring long-stay hospital-level care. To qualify for payment under the LTCH PPS, the hospital’s average length of stay, taking into account all patients, must be greater than 25 days.
The proposed rule, which would apply to more than 3,500 acute care hospitals and approximately 400 LTCHs, would generally be effective for discharges on or after October 1, 2009. Under the proposed rule, Medicare payments to acute care hospitals for inpatient services in FY 2010 are projected to be $117.4 billion, while payments to LTCHs in RY 2010 are projected to be $4.9 billion.
The provisions of the final rule addressing improvements to the hospital quality initiatives, as well as a payment adjustment required by the TMA, Abstinence Education and QI Programs Extension Act are discussed in separate fact sheets that are available on the CMS website at:
BACKGROUND: By law, CMS pays acute care hospitals for inpatient stays under the IPPS and long-term care hospitals under the LTCH PPS. These prospective payment systems establish prospectively set rates based on the patient’s diagnosis and the severity of the patient’s medical condition. Under the IPPS and the LTCH PPS, a hospital receives a single payment rate for the case based on the payment classification assigned at discharge. Until FY 2008, discharges from acute care hospitals were classified into diagnosis-related groups (DRGs) and payments were calculated based on the average costs of treating a patient with a given diagnosis. In FY 2008, Medicare replaced the 538 DRGs with 745 Medicare-severity DRGs (MS-DRGs) which provide more appropriate payment by identifying more severely ill or injured patients and allowing hospitals to receive more payment for their care. In FY 2009, Medicare created an additional MS-DRG bringing the total to 746.
When the IPPS was first implemented, LTCHs were exempted by the Medicare law from payment under the new system because payment rates for the types of patients treated in general acute care hospitals typically would not be adequate to pay for the greater resources needed to treat LTCH patients. Therefore, LTCHs continued to be paid based on costs until the LTCH PPS was implemented in FY 2002. Medicare payments under the LTCH PPS utilize the same DRG system as the IPPS, but payment weights associated with the LTCH patient classifications are calculated based on treatment costs at LTCHs. In conjunction with the IPPS, in RY 2008, the LTCH PPS adopted Medicare severity Long-Term Care DRGs (MS-LTC-DRGs).
PROPOSED IPPS CHANGES FOR FY 2010: Among the key proposals for changes in the IPPS for FY 2010 are the following:
Market Basket Update: As required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), CMS is proposing to rebase and revise the structure of both the operating and capital market baskets for the IPPS FY 2010 update. The current market basket is based on FY 2002 data; the rebased market basket will use data from FY 2006. Among the proposed changes are the addition of three new expense categories and the revision of several price proxies.
Using the rebased and revised market basket, CMS is projecting an operating market basket update of 2.1 percent for FY 2010. As required by the Deficit Reduction Act of 2005 (DRA), hospitals that do not participate successfully in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program would receive the market basket update less 2.0 percentage points, or 0.1 percent based on this projection. The market basket will be updated in the final rule based on more recent data.
Outlier Threshold: CMS is projecting that the total outlier payments in FY 2009 will be 5.4 percent of total payments under the IPPS, 0.3 percentage points higher than the target rate of 5.1 percent. Based on current data, CMS also projects that the number of cases qualifying for outlier payments in 2010 will increase. Therefore, CMS is proposing to raise the outlier threshold in FY 2010 to $24,240 to keep outlier payments equal to 5.1 percent of total payments under the IPPS. If CMS were instead to raise the target percent or lower the threshold, CMS would have to reduce the base payments for the MS-DRGs in order to offset the increase in outlier payments.
Labor Related Share: CMS is proposing to update the labor related share to reflect that labor costs represent a lower share of total costs in FY 2006 than it did in FY 2002. Therefore, we are proposing to set the labor related share at 67.1 percent for FY 2010, compared with 69.7 percent in FY 2009. Labor costs appear to represent a lower share of total hospital costs in part because of more recent survey data from hospitals regarding their use of non-medical professional services and in part because there was considerable growth in hospital network consolidation of administrative functions in home offices not located in the same local labor market as the individual hospitals. This has reduced the geographic variation in labor costs.
Proposed MS-DRG Reassignment for Certain Orthopedic Procedures: CMS is proposing to reassign cases involving patients who have received hip or knee joint replacements, but have contracted an infection that requires the removal of the prosthesis and inpatient hospitalization while the infection is treated and a new prosthesis implanted. The proposed removal of these cases from their current MS-DRGs and assignment to higher paying MS-DRGs will improve the accuracy of payment for the MS-DRGs to which the cases are currently assigned while providing more appropriate payment for these more complex stays.
MS-DRG Relative Weights: CMS is not proposing any policy changes related to MS-DRG Relative Weights. CMS discusses options for improving the standardization process, and solicits public comments as to how the standardization process can be improved to more precisely remove cost differences across hospitals, thereby improving the accuracy of the relative weights in future fiscal years.
Wage Index: The proposed rule discusses the status of the transitions of the following two regulatory changes we adopted in the FY 2009 final rule:
New Medical Services and Technology: In order for technology to qualify for an additional payment beyond the payment for the associated MS-DRG, the applicant must demonstrate that the medical service or technology:
The proposed rule discusses the following applications for new technology add-on payments in FY 2010:
Graduate Medical Education (GME) Proposal: CMS is proposing to clarify the definition of a new medical residency training program in the regulations. The regulations specify that a new medical residency program is one that receives initial accreditation for the first time, as opposed to a reaccreditation of a program that existed previously at the same or another hospital. In addition, CMS is proposing to specify that a new hospital that begins training residents for the first time after July 1 would be permitted to submit a Medicare GME affiliation agreement prior to the end of its cost reporting period in order to participate in a Medicare GME affiliated group for the remainder of the academic year.
Emergency Medical Treatment and Labor Act (EMTALA) Waiver Policy: CMS is proposing to amend the EMTALA regulations regarding the waiver of EMTALA sanctions in an emergency area during an emergency period to make the regulations more consistent with section 1135 of the Social Security Act. In addition, CMS is proposing to specify that CMS will waive EMTALA sanctions for an inappropriate transfer and for the redirection or relocation of an individual to receive a medical screening examination at an alternate location only if the hospital does not discriminate based on the source of an individual’s payment or ability to pay. Finally, CMS is proposing that a waiver of EMTALA sanctions may apply to a portion of an emergency area or a portion of an emergency period.
Critical Access Hospital (CAH) Proposal: Consistent with section 148 of the Medicare Improvements for Patients and Providers Act, CMS is proposing that a CAH may receive reasonable cost-based payment for outpatient clinical diagnostic laboratory tests furnished to an individual receiving services directly from the CAH even if the individual is not physically present in the CAH at the time the laboratory specimen is collected. CMS is proposing that in order for the individual to be determined to be receiving services directly from the CAH, the individual must either receive outpatient services in the CAH on the same day the specimen is collected or the specimen must be collected by an employee of the CAH.
American Recovery and Reinvestment Act of 2009 Implementation: In the final IPPS rule for 2008, CMS announced that it was maintaining the capital IPPS teaching adjustment for FY 2008, but would begin phasing it out in FY 2009 by reducing it by 50 percent, and eliminate it entirely in FY 2010. The American Recovery and Reinvestment Act of 2009 (ARRA), enacted on February 17, 2009, directed CMS not to apply the 50 percent adjustment in FY 2009, but specified that the ARRA provision would not affect the phase-out of the capital IPPS teaching adjustment for FY 2010 and subsequent fiscal years. CMS is updating the regulations to reflect that ARRA requires the full capital IME adjustment be paid in FY 2009. CMS is soliciting public comments on its implementation of the ARRA provision.
PROPOSED LTCH PPS CHANGES FOR RY 2010:
LTCH PPS Market Basket: CMS currently uses the rehabilitation, psychiatric, long-term care (RPL) hospital market basket to update the prospective payment systems that have been developed specifically for each of these types of facilities, taking into account the mix of resources required to treat their specific patient populations. Currently, the RPL market basket is based on FY 2002 data for freestanding inpatient rehabilitation facilities (IRFs), freestanding inpatient psychiatric facilities (IPFs) and LTCHs. At the time, there were too few LTCHs to generate data to develop a market basket specific to their patient populations, but with the rapidly increasing number of LTCHs since 2002, it may be possible in the future to create a market basket based solely on LTCH data. CMS is proposing to continue using the FY 2002-based RPL market basket for RY 2010, but the proposed rule also discusses the prospect of developing separate market baskets in the future for LTCHs, IRFs, and IPFs. Using the FY 2002-based RPL market basket, CMS is projecting a market basket update of 2.4 percent for RY 2010. This includes increases in both the operating section and the capital section of the FY 2002-based RPL market basket. The market basket will be updated in the final rule based on more recent data.
Outlier Threshold: CMS is projecting that the total outlier payments in RY 2009 will be approximately 6.1 percent of total LTCH PPS payments, 1.9 percentage points lower than the target rate of 8 percent. Based on current data, CMS also projects an increase in aggregate LTCH PPS payments in RY 2010 as compared to RY 2009. Therefore, CMS is proposing to decrease the LTCH outlier threshold in RY 2010 to $16,059. This is the amount currently projected to keep LTCH outlier payments at 8 percent of total payments under the LTCH PPS in RY 2010.
The proposed rule went on display today at the Office of the Federal Register’s Public Inspection Desk and will be available as a special filing at:
CMS will accept comments on the proposed rule until June 30, and will respond to them in a final rule to be issued by August 1, 2009.
For more information, please see:
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