Fact Sheets

IMPACT OF PROVISIONS IN THE RY 2008 LTCH PPS FINAL RULE

IMPACT OF PROVISIONS IN THE RY 2008 LTCH PPS FINAL RULE

On May 1, 2007, the Centers for Medicare & Medicaid Services (CMS) issued a final rule to update the payment rates and policies for the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for the 2008 Rate Year (RY), July 1, 2007 through June 30, 2008.  The final rule assures appropriate payment for services furnished to severely ill patients and patients with medically complex conditions, while providing incentives to long-term care hospitals (LTCHs) to furnish more efficient care of Medicare beneficiaries. 

Background

            Long-term care hospitals are generally defined as hospitals that have an average Medicare inpatient length of stay of greater than 25 days.  These hospitals typically provide extended medical and rehabilitative care for patients who may suffer from multiple acute or chronic conditions or require clinically complex care.  Services typically include respiratory therapy, head trauma treatment, and pain management.

Update of the Standard Federal Rate for RY 2008

            The final rule provides for a 0.71 percent increase to the standard Federal rate for patient discharges occurring on or after July 1, 2007 through June 30, 2008.  The LTCH PPS standard rate will be $38,356.45 for the 2008 rate year as compared to $38,086.04 for RY 2007.

·         The Federal rate for RY 2008 reflects an adjustment for market basket and an adjustment to the rate to account for the portion of the increase in case mix that was due to changes in coding practices.  This update is based on the most recent estimate of the market basket applicable to LTCHs, which is 3.2 percent for RY 2008, and the most recently available LTCH case-mix data.

·         CMS analysis of the latest available LTCH claims data indicates that a significant portion of the estimated 3.49 percent increase in observed case mix between FY 2004 and FY 2005 is due to changes in coding practices and documentation rather than the treatment of more resource intensive patients.

·         CMS is adjusting the Federal rate for case mix using 1.0 percent as the estimate of real case mix, consistent with the estimate of real case mix increase used in the acute care hospital inpatient prospective payment system (IPPS).  Therefore, the adjustment for the estimated increase in apparent case mix increase due to changes in coding practices is 2.49 percent. 

High Cost Outlier Fixed-Loss Amount

            In unusually costly cases, Medicare will pay a LTCH an amount in addition to the otherwise payable amount under the LTCH PPS for the LTC diagnosis related group (DRG).  To be eligible for this payment, the LTCH’s estimated costs in treating the case must exceed the LTC-DRG payment by the fixed-loss amount.  Under Medicare regulations, the amount paid to LTCHs for all high cost outlier cases is projected to equal 8 percent of estimated total payments to LTCHs under the LTCH PPS.  The fixed-loss amount is adjusted annually to ensure that estimated high cost outlier payments are projected to equal this target.  

·         To determine the fixed-loss amount for RY 2008 in this final rule, CMS used the most recent available data.  Using more recent LTCH data to estimate the cost of each LTCH case has resulted in a change to the fixed-loss amount.  The fixed-loss amount for RY 2008 is $22,954, compared with $18,477 in the proposed rule and $14,887 in RY 2007.  CMS projects an estimated 2.5 percent decrease in estimated payments per discharge from RY 2007 to RY 2008 due to this change in the fixed-loss amount.

·         To determine the proposed fixed-loss amount for RY 2008, CMS used claims data from the March 2006 update of the fiscal year (FY) 2005 MedPAR file and cost to charge ratios (CCRs) from the July 2006 update of the provider specific file, as those were the best available data at that time.  However, to determine the fixed-loss amount for RY 2008 in this final rule, the most recent available data are the December 2006 update of the FY 2006 MedPAR claims data and the CCRs from the December 2006 update of the provider specific file. 

·         The analysis of the FY 2006 claims data showed that, in general, the average cost per case has increased as compared to the FY 2005 claims data.  Based on the most recent updated claims and CCR data available at the time of this final rule, CMS estimates that retaining the RY 2007 fixed-loss amount of $14,887, would result in an aggregate outlier payment amount of 10.3 percent, significantly higher than the 8 percent target. 

·         Consequently, while increasing the fixed-loss amount to $22,954 is projected to result in a decrease in estimated aggregate LTCH PPS payments, this is necessary in order to maintain the estimated aggregate outlier payment amount at the appropriate level of 8 percent. 

Updated Wage Index Data

            The final rule updates the wage index values for RY 2008 in accordance with the progression of the 5-year phase-in of the wage index adjustment based on the most recent available wage data.  CMS is also updating the estimated labor related share from 75.665 percent in RY 2007 to 75.788 percent under the LTCH PPS beginning in RY 2008.  These changes result in an estimated 1.0 percent decrease in estimated payments per discharge from RY 2007 to RY 2008. 

·         Although CMS is not making any changes to the existing 5-year phase-in of the wage index adjustment that was established when the LTCH PPS was implemented, the continued progression of this phase-in contributes to the decrease in estimated aggregate LTCH PPS payments for RY 2008.

·         The effect of the progression of the 5-year phase-in of the wage index adjustment results in a decrease in estimated payments in RY 2008 for LTCHs located in areas with a wage index value that is less than 1.0.

·         Furthermore, LTCHs located in areas with a wage index value that is less than 1.0 are expected to experience a decrease in estimated payments per discharge in RY 2008 as a result of the increase in the labor related share.  This is because a larger portion of the Federal rate will be adjusted by the wage index to account for differences in local cost variation. 

Impact of Provisions in LTCH PPS RY 2008 Final Rule

            In addition to providing for a 0.71 percent increase to the standard Federal rate, CMS finalized the proposed revision of the short stay outlier (SSO) policy and estimates that the two new policy changes will result in a 0.3 percent decrease in total estimated LTCH PPS payments for RY 2008 as compared to RY 2007.  The proposed rule had also projected that these new policy changes would result in a 0.3 percent decrease in payments.  Furthermore, while CMS adopted the SSO policy from the proposed rule without changes, CMS modified the proposed expansion of the “25 percent rule” to provide LTCHs with a 3-year transition period.  Therefore, as a result of the 3-year transition, the expansion of the “25 percent rule” is projected to have a negligible impact on RY 2008 payments.  Without the 3-year transition, the proposed rule had estimated the impact of this policy to be a 2.2 percent reduction in payments.  CMS notes that the 3-year transition to the full 25 percent or applicable threshold payment adjustment will coincide with its continuing work on the MedPAC recommendations to attempt to develop facility and patient level criteria for LTCHs. 

Comparison of Projected Impact in Final Rule to Proposed Rule

            The final rule finalizes routine payment rate changes and policy changes that will affect payments to LTCHs.  CMS projects that the new policy and routine payment rate changes included in the final rule will together result in an estimated 3.8 percent decrease in total estimated LTCH PPS payments for RY 2008.  While the proposed rule had estimated the total impact (including the effects of the changes to the wage index and labor share) to be a 0.7 percent decrease in payments (excluding the impact of the 25 percent policy), this difference is due primarily to the two routine payment rate changes: (1) the change in the high cost outlier fixed-loss amount resulting from the use of updated claims data and (2) the application of the updated wage index to a higher estimated labor-related share.  Therefore, the vast majority of the decrease in total estimated payments for RY 2008 in this final rule is attributable to the implementation of existing, longstanding policy rather than finalizing new policy changes.

            The following table summarizes the impacts of each of the provisions in the final rule:

Estimated Impact of the Provisions of the Final Rule

¹ About 34 percent of all LTCH cases are projected to receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the “IPPS comparable amount” (rather than the Federal rate).  Therefore, the percent change in estimated aggregate LTCH PPS payments due to the changes to the Federal rate, 0.61 percent, is slightly less than the update to the Federal rate of 0.71 percent.

²Proposed Rule Projection:     0.6% (unchanged)

³Proposed Rule Projection:     -0.9% (unchanged)

⁴Proposed Rule Projection:     -2.2%; Final Rule Projected Change is Negligible

⁵Proposed Rule Projection:     -0.5%

⁶Proposed Rule Projection:     0.7% (without 25 percent policy)