Press release




The Centers for Medicare & Medicaid Services (CMS) today issued a proposed rule designed to assure appropriate payment for services by long-term acute care hospitals (LTCHs) to severely ill or medically complex patients, while providing incentives for more efficient care for Medicare beneficiaries.  Under this proposed rule, Medicare total payments to LTCHs are expected to be $4.4 billion for rate year (RY) 2008.

“The rule we are proposing today is intended to promote accurate payments for patients who need inpatient care in long-term care hospitals,” said Acting CMS Administrator Leslie V. Norwalk, Esq.  “We look forward to receiving public comments on this set of proposals that are part of our effort throughout the Medicare program to promote the delivery of high quality, efficient care.”

Long-term care hospitals, in general, are 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 are clinically complex and may suffer from multiple acute or chronic conditions. Services typically include comprehensive rehabilitation, respiratory therapy, head trauma treatment and pain management.

The LTCH prospective payment system (PPS), which sets payments for approximately 390 long-term care hospitals, was implemented in FY 2003, is updated annually, effective for discharges on or after July 1 of each year.  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 to the treatment of more resource intensive patients.

In light of these data, CMS is proposing to update the LTCH PPS Federal rate by 0.71 percent to $38,356.45 for RY 2008.  This update reflects the Rehabilitation, Psychiatric, and Long-Term Care (RPL) market basket of 3.2 percent adjusted for the difference between the reported case mix increase due to coding practices and the real case mix increase due to increases in patient severity.  The proposed update is higher than the zero percent update recommended by the Medicare Payment Advisory Commission (MedPAC) earlier this year.  The payment per discharge to LTCHs is also significantly higher than the Federal rate for acute care hospitals paid under the Inpatient Prospective Payment System (IPPS), which, for FY 2007, is generally about $5,300 per discharge. 

Medicare pays a LTCH an additional amount for unusually high cost cases under the high-cost outlier policy. To be eligible for this payment, the hospital’s estimated costs in treating the case must exceed the LTC-DRG payment by an outlier fixed-loss amount. The proposed rule would set the outlier fixed-loss amount for rate year 2008 at $18,477, up from $14,887 in rate year 2007.  This threshold is projected to limit estimated aggregate outlier payments to 8 percent of total estimated payments under the LTCH PPS.

Because the LTC-DRGs are the same DRGs used under the inpatient hospital PPS, although weighted to reflect the greater complexity of their cases, CMS is not revising the LTC-DRGs and relative weights at this time. Any changes will be made at the same time as the hospital IPPS update, on October 1, 2007.  The most recent changes to the LTC-DRGs, relative weights and average length of stays for FY 2007, were presented in the FY 2007 IPPS final rule.

However, in light of concerns raised by commenters on past rules and an analysis of recent LTCH case-mix data, CMS is proposing a budget neutrality requirement for the annual update to the LTC-DRG classifications and relative weights to ensure that the LTC-DRG reclassification and recalibration processes do not, by themselves, either increase or decrease aggregate payments to LTCHs.

In addition to the update, CMS is adopting other payment policies in the rule as well.  Presently, a policy known as the “25 percent rule” governs Medicare payments to LTCHs based on the percentage of patients that were admitted from its co-located host hospital (generally an acute care hospital).  Under this policy, if a LTC hospital-within-a-hospital or a LTCH satellite’s percentage of discharges that were admitted from its co-located host hospital exceed a given percentage (generally 25 percent) for the cost reporting period, the payment to the LTCH would be adjusted downward.

CMS is proposing to extend the 25 percent threshold to certain situations not currently covered under the existing regulations.  Under this proposed policy, the payment adjustment would apply to virtually all LTCHs for which more than 25 percent (or the applicable percentage in certain special circumstances) of its discharged patients were admitted from an individual hospital, regardless of whether that hospital was located in the general vicinity of the LTCH.

In the proposed rule, CMS also presents an approach to revise the current payment adjustment formula for specific short-stay outlier (SSO) patients.  Under the approach, Medicare would include, as part of the SSO payment formula, the “comparable IPPS amount” for that particular DRG for those LTCH discharges with a length of stay (LOS) that is less than or equal to an “IPPS-comparable threshold.”  CMS believes this approach would result in appropriate Medicare program payments for those cases that are admitted and treated as LTCHs, but with a LOS similar to cases more typically treated as acute care hospitals.  CMS also is requesting that commenters offer additional recommendations as to alternative approaches to address concerns about inappropriate payments under the LTCH PPS for SSO cases under the current policy. 

In addition to the LTCH PPS proposed changes, CMS is using this proposed rule as an opportunity to propose an unrelated change regarding Medicare’s payment policies for graduate medical education payments to a teaching hospital when its residents are being trained in a nonhospital site.  Under current rules, if residents are training in a nonhospital setting, a teaching hospital may count those residents in calculating their graduate medical education payments if, in part, the teaching hospital pays “all or substantially all of the costs for the training program in the nonhospital setting.”  The proposed rule would amend this, effective July 1, 2007, to require that the teaching hospital pay at least 90 percent of the total costs of training residents in the nonhospital setting (including residents’ salaries, fringe benefits, travel and lodging expenses when appropriate plus the portion of the cost of teaching physicians’ salaries attributable to direct graduate medical education).  To reduce the administrative burden of documenting those costs, CMS has also proposed to allow hospitals to utilize specified proxies to determine those costs.

CMS will accept comments on the proposed rule for 60 days, and will publish a final rule later this spring.  The final rule will be effective for discharges occurring on or after July 1, 2007 through June 30, 2008.


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