CMS ANNOUNCES FY 2006 RATE INCREASES FOR INPATIENT STAYS IN ACUTE CARE HOSPITALS
Acute care hospitals that report selected quality data will receive a 3.7 percent increase in payment rates for inpatient services under a final rule issued today by the Centers for Medicare & Medicaid Services (CMS). This increase is 0.5 percentage points above the market basket projected in the proposed rule published last May. Aggregate payments to Inpatient Prospective Payment System (IPPS) hospitals in fiscal year (FY) 2006 are expected to increase by $3.3 billion over 2005.
The final rule also reduces the outlier threshold to $23,600 in 2006 from $25,800 in 2005. The outlier threshold is used to determine how much a hospital’s costs for a particular case must exceed the DRG payment, before extra payments will be made for the case. As a result of the lower threshold, it will be easier for hospitals to qualify for additional payments in 2006.
The final rule also includes important changes to the Diagnosis Related Groups (DRGs) which serve as the basis for the payment rates under IPPS, particularly improvements in accuracy of cardiac DRGs; revision of the postacute care transfer policy; changes to provisions affecting Critical Access Hospitals (CAHs); and revised policies for direct and indirect graduate medical education (GME). The final rule also revises the payments for long term care hospitals, which are paid under a separate prospective payment methodology.
Only those hospitals that are participating in Medicare’s quality reporting initiative will receive the full 3.7 percent increase. As required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act or MMA), hospitals that do not submit quality information will receive an update that is 0.4 percentage points lower, or 3.3 percent. However, CMS expects that, as in 2005, the overwhelming majority of acute care hospitals will participate in the quality reporting program in 2006.
The final rule enhances the voluntary quality reporting program by including requirements that improve the accuracy of the reported data. In order to receive the full payment for FY 2006, hospitals must correctly abstract and report clinical data on 10 quality measures relating to the treatment of heart attack, heart failure and pneumonia cases for two consecutive calendar quarters. CMS has reviewed the hospitals’ data submissions and determined that nearly all hospitals were able to meet the quality standards that are being adopted in this final rule. Many hospitals are now reporting 17 quality measures for these three conditions. Medicare is working with the private-public Hospital Quality Alliance on additional measures related to patient satisfaction and outcomes of care that could be added in the coming year.
“We have taken steps to improve care through quality measures, because it is important not only to the health of our beneficiaries, but for avoiding unnecessary health care spending,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “For example, CMS recently announced our participation in a national quality partnership, the Surgical Care Improvement Project, which has set as its goal a 25 percent reduction in surgical complications by 2010. As we find new ways to improve health care outcomes, we can anticipate reduced spending on the treatment of complications.”
CMS projects that the combined impact of the 3.7 percent inflation update and other changes (such as the expansion of the post-acute transfer policy, Medicare payment for outliers, etc.) being adopted in the final rule will yield an average 3.5 percent increase in payments for operating costs for urban hospitals in fiscal year 2006, while rural hospitals will see an average increase of 3.3 percent.
The final rule also revises nine cardiovascular surgery DRGs that account for over 700,000 Medicare discharges per year. In response to public comment and consistent with recommendations by the Medicare Payment Advisory Commission (MedPAC), CMS is making these revisions so Medicare’s payments better recognize severity of illness. The changes announced in the final rule will differentiate cardiac surgery patients based on whether they have a “major cardiovascular condition.” The changes represent a significant improvement in accuracy of the cardiac DRGs. As CMS noted in its report to Congress on specialty hospitals in May, CMS is completing a comprehensive analysis of potential changes in cardiac DRGs as recommended by MedPAC and others for implementation by FY 2007.
“The payment changes we are adopting are important improvements in accuracy, with the goal of ensuring equitable payment to all hospitals,” said Dr. McClellan. “We are acting now on our recent report on physician-owned specialty hospitals, to make sure that the hospitals that do best in Medicare are the ones that do best in quality and cost, not the ones that get the most straightforward cases.”
The final rule also expands the number of DRGs that are subject to the postacute care transfer policy. This policy reduces payment to the hospital when the patient is transferred after a short stay to a post-acute care setting that provides most of the patient’s care. The purpose of this policy is to protect Medicare from paying for the same care twice: once as part of the hospital’s payment for the DRG, and then as a separate payment to the postacute facility. CMS had proposed to make 231 DRGs as subject to this policy. However, in response to public comments, CMS reduced the number of DRGs that would be subject to the postacute transfer policy to 182. The change to Medicare’s postacute transfer policy is estimated to save taxpayers $780 million in Medicare payments.
“We are taking this step because in many cases of incomplete hospital stays when patients are transferred, it is not appropriate to pay for a full hospital stay,” said Dr. McClellan. “At the same time, we have limited the payment changes based on concerns raised about the criteria for transfer payments that we proposed earlier this year.”
The final rule reduces the share of Medicare's inpatient hospital payments that are attributable to hospital labor costs from 71.1 to 69.7 percent for hospitals in areas that have labor costs greater than the national average. The result would be a very small reduction in the rates paid to these hospitals. For all other hospitals, the statute requires the labor-related portion of Medicare's inpatient hospital rates to equal 62 percent. Any savings associated with the proposed change in the labor-related portion of Medicare's rates will be returned to all hospitals nationally through a higher base rate of payment.
In general, CMS received favorable comments on its proposals relating to graduate medical education (GME) payments to teaching hospitals. These included establishing indirect medical education (IME) resident caps for non-IPPS hospitals that convert to the IPPS, allowing new teaching hospitals to affiliate with existing teaching hospitals, and the "initial residency period," which concerns the payment that teaching hospitals receive for certain residents in advanced specialty programs. The proposals are being finalized accordingly.
Finally, the final rule defines how a Critical Access Hospital (CAH) that was designated by a State as a “necessary provider,” can retain that status after relocating its facility. The Medicare Modernization Act of 2003 eliminated the authority of states to designate CAHs as “necessary providers.” This designation allowed a CAH to be situated less than 35 miles from the nearest hospital. However, the MMA did not specify how existing CAHs with necessary provider status should be treated if they relocate. In response to comments, CMS is allowing a necessary provider CAH to relocate if the facility in its new location meets all three of the “75-percent” criteria. That is, 75 percent of the patients must come from the same service area as before the relocation; 75 percent of the services must be the same as at the prior facility; and 75 percent of the staff must be the same as at the prior facility. CMS did not adopt provisions in the proposed rule that would have set a date by which a CAH must notify CMS of its intent to relocate or would have required that construction plans were under way prior to the enactment of the MMA.
“Critical access hospitals have a distinct and vital role, and our final rule reflects significant changes in response to comments to make sure they can fulfill that role effectively,” said Dr. McClellan. “Our final rule makes sure that we provide flexibility for changes in their location on the one hand, while making sure that the CAH program remains focused on the critical services it provides to underserved communities on the other.”
The final rule will appear in the August 12, 2005 Federal Register. The new policies and payment rates will become effective October 1, 2005.
Note: For more information, visit the CMS Website at www.cms.hhs.gov/providers/hipps/default.asp?
For details on modified cardiac DRGs to improve payment, use the following: