FY 2015 IPPS Final Rule Offers No Substantive Changes to the Two-Midnight Rule

Some changes are good, but some not so good. Despite 597 pages, one will struggle to find a change here that is deemed “good” — unless you are a bureaucrat, perhaps.

CMS issued the Inpatient Prospective Payment System (IPPS) final rule creating changes to the Medicare payment policies and rates under IPPS and the PPS payment update for fiscal year (FY) 2015 on August 4. While no substantial changes are made to the Two Midnight Rule, several programs are affected, including the start of the troubling Hospital-Acquired Condition (HAC) Reduction Program. Some highlights of the various changes made by the FY2015 rule are mentioned below.

Hospital Payment Rates Adjusted

The final rule includes a payment update totaling 1.4 percent in FY 2015 for acute care hospitals.  This includes the IPPS market basket increase of 2.9 percent (up from 2.7 percent in the proposed rule) and a minus 0.8 percent recoupment cut to the standardized amount in FY 2015, which continues implementation of the documentation and coding adjustment required by the American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240).

The update also reflects a multi-factor productivity adjustment of minus 0.5 percentage points (up from the minus 0.4 percentage points offered in the proposed rule) and a  minus 0.2 percentage point reduction, which is required by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152).

Also, while the payment update for acute care hospitals was a positive 1.4 percent, the update for major teaching hospitals may instead be an even lower minus 1.3 percent (-1.3%). This added negative impact will likely be driven by the ACA mandated provisions (and cuts) included in the DSH and HAC programs.

The Two-Midnight Rule

Not surprisingly (to me, anyway), CMS found no consensus among comments made when responding to CMS’ request in the proposed rule for “alternative payment approaches” for short hospital stays. Nevertheless, CMS now claims it will take all of the comments into account in any potential future rulemaking and plans to actively work with stakeholders to address the complex question of how to further improve short inpatient hospital stay payment policy.

The Association of American Medical Colleges (AAMC) posted a letter to CMS Administrator Marilyn Tavenner, expressing their disappointment that despite strong comments from industry about the immediate need to fix the rule – given its inadequate reimbursement, the displacement of medical judgment, and the provider and beneficiary confusion caused by the Two-Midnight Rule – CMS has chosen to neither revise nor replace the policy.

In an Aug. 4 statement, AAMC President and CEO Darrell G. Kirch, M.D., noted, “The AAMC looks forward to working with CMS on a short hospital stay payment policy solution that supports physicians’ relying on their medical judgment to determine when a patient needs to be admitted as a hospital inpatient.”

Disproportionate Share Hospital (DSH) Payments

As required by the ACA, the final rule continues to implement changes to DSH payments, but the total dollar amount available to be distributed through the uncompensated care (UC) DSH formula is reduced by nearly $1 billion, a much larger reduction than was published in the proposed rule.

“We are very disappointed that the ACA-mandated Medicare disproportionate share hospital (DSH) cut is significantly higher than originally proposed,” said Linda Fishman, Senior Vice President of Public Policy Analysis and Development for the American Hospital Association (AHA). “While we understand some of the reductions are due to increased coverage, it is unclear how CMS arrived at the remaining reductions.”

The UC DSH pool estimate is said to be based on 75 percent of the projected DSH payment in FY 2015 reduced proportionately to the projected decrease in the uninsured population. While the proposed rule projected $14.205 billion for DSH payments in FY 2015, the final rule revised the projection to $13.383 billion (almost 5.8 percent cut). The distribution of the UC DSH pool will continue to be calculated based on a DSH-eligible hospital’s share of Medicaid and supplemental security income (SSI) days associated with their acute care units.

Confused yet? You’re not alone.

Value-Based Purchasing (VBP) Program

The VBP program, also brought to you by the ACA, purports to adjust payments to hospitals under IPPS based on the quality of care provided to patients. In FY2014, CMS took back 1.25 percent of Medicare reimbursement to IPPS hospitals, totaling $1.1 billion. This money was then dispersed to hospitals, supposedly based upon how well they performed on healthcare quality measures – such as treatment of heart attack and congestive heart failure — as well as patient satisfaction. Under that plan, 778 hospitals lost more than 0.2 percent of their Medicare payments in FY2014, while 630 hospitals received a bonus of more than 0.2 percent, since they scored better, under the VBP measuring system.

For 2015, CMS is raising the reduction percentage for under-performers to 1.5 percent of Medicare reimbursements, resulting in about $1.4 billion in value-based incentives.

Additionally, CMS finalized updates to their measurements for the program, removing six measures and adding six measures in FY 2017. They continue to shift the focus of the VBP program away from process measures and towards outcome and safety measures.  To further reflect this new balance of measures in outcome and safety, CMS also modified the weights for each, again starting in FY 2017.

Hospital Readmissions Reduction Program (HRRP)

In the Hospital Readmissions Reduction Program, the maximum penalty has increased from 2 percent to 3 percent. One new measure was finalized for FY 2017, coronary artery bypass graft (CABG), and CMS added readmissions for Chronic Obstructive Pulmonary Disease (COPD) and Total Hip Arthroplasty/Total Knee Arthroplasty (THA/TKA), thereby adding to the number of penalties that can hit your hospital in FY2015. Also, CMS plans to change the planned readmissions algorithm, but some would suggest further changes.

Recent literature suggests that CMS’ current policy for readmissions for the HRRP payment program does not account for sociodemographic factors for the patients and community that a hospital serves. Hospitals serving populations with more limited education and income are concerned that they will be hit with HRRP penalties more often than is fair. The National Quality Forum recently reported on “Risk Adjustment for Socioeconomic Status or Other Sociodemographic Factors” and unanimously concluded that “to not adjust performance measures for sociodemographic factors results in incorrect conclusions about quality.”

Hospital-Acquired Condition (HAC) Reduction Program

CMS did not add any measures to the HAC Reduction Program, which now is set to begin in FY 2015. They did, however, finalize a proposal to decrease the weight of claims-based measures from 35 percent to 25 percent, and increase the weight of measures from the Centers for Disease Control’s National Health Safety Network to 75 percent, all beginning in FY 2016. CMS estimates that over half of large teaching hospitals will be hit by the HAC penalty in FY 2015.

In their comments to Ms. Tavenner, the AAMC pointed out that the reason that so many teaching hospitals will be hit by HAC Reduction Program is because of two problems in the way that CMS is implementing the program:

“First, the HAC program is the only performance program where penalties could apply to add-on payments as well as base diagnoses-related group (DRG) payments.

“Second, the current measure scoring methodology disproportionately identifies teaching hospitals as poor performers, which may be because of technical issues related to measurement rather than true differences in quality.” (See page 3 of their comments.)

AAMC went on to suggest that “CMS to use the Agency’s administrative authority to ensure teaching hospital performance is appropriately measured and not disproportionately impacted.”

The concern over the application to add-on payments is due to the fact that teaching hospitals receive additional payments for providing unique services, for care provided to disadvantaged patients, and for – go figure – teaching. Therefore, HAC adjustments can more severely penalize a teaching hospital than a non-teaching hospital.

AAMC proposed that CMS limit HAC adjustments to base DRG payments, just as the VBP and HRRP programs do, now.

Bundled Payments for Care Improvement (BPCI) Initiative

We recently talked about the BPCI on Finally Friday! and you might wish to review some of the handouts there, and revisit the CMS pages about it all, but basically, CMS will continue these demonstration projects, and collect all the appropriate data, using it all to help them in their IPPS payment modeling and ratesetting calculations. If you want a robust treatment on these initiatives, see this page.

CMS admits that these programs are unlikely to have an demonstrable effect on FY2015 operations and policies.

It is interesting to note that comments were posted with concerns that the expanded program would add data to CMS databases that would skew MS-DRG relative weights. CMS claims they will continue to include all applicable data, and will “monitor the possible impact that hospitals enrolled in the BPCI initiative may have on the MS-DRG relative weights in future fiscal years.”

Add-On Payments for New Services and Technologies

[Dr. Ron Hirsch brought this area to my attention, so it is included here at his suggestion.]

The new medical service or technology add-on payment policy under the CMS IPPS program provides a methodology for receiving additional payments for cases with relatively high costs involving eligible new medical services or technologies (while preserving some of the incentives inherent under an average-based prospective payment system – according to CMS).

Perhaps the most interesting part of this policy/program is that it is in fact EXEMPT from being subject to “budget neutrality.” That is, the budget has no claim on controlling these add-on payments, since 2005 (Section 503(d)(s) of Public Law 108-173).

The basic principal is that if a device/service is approved at all, the provider can be reimbursed for 50% of the cost of the device/service. (Perhaps over-simplified, but you get the idea.)

The Final Rule lists two categories of these – basically those previously approved and approved again for FY2015; and those newly approved for FY2015.

Previously Approved and Re-Approved for FY 2015

  • Glucarpidase (Trade Brand Voraxaze®)
    max payment = $45,000 per case.
  • DIFICID™ (Fidaxomicin) Tablets
    max payment = $868 per case.
  • Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft
    max payment = $868 per case.
  • Kcentra™
    max payment = $1,587.50 per case.
  • Argus® II Retinal Prosthesis System
    max payment = $72,028.75 per case.
  • Zilver® PTX® Drug Eluting Peripheral Stent
    max payment = $1,705.25 per case.

Newly Approved for FY 2015

  • CardioMEMS™ HF (Heart Failure) Monitoring System
    max payment = $8,875 per case.
  • MitraClip® System
    max payment = $15,000 per case.
  • Responsive Neurostimulator (RNS®) System
    max payment = $18,475 per case.

MS-DRG Changes Made

Finally, CMS, as proposed, did create some new MS-DRGs for endovascular cardiac valve replacements:

  • MS-DRG 266 (endovascular cardiac valve replacement with MCC)
  • MS-DRG 267 (endovascular cardiac valve replacement without MCC)

MS-DRG 490 and 491 will now be replaced with the following new MS-DRGs:

  • MS-DRG 518 (back and neck procedures except spinal fusion with MCC or disc device/neurostimulator)
  • MS-DRG 519 (back and neck procedures except spinal fusion with CC)
  • MS-DRG 520 (back and neck procedures except spinal fusion without CC/MCC)

The following additional diagnosis codes will be removed from MS-DRG 794 (neonate with significant problems):

  • V17.0, family history of psychiatric condition
  • V17.2, family history of other neurological diseases
  • V17.49, family history of other cardiovascular diseases
  • V18.0, family history of diabetes mellitus
  • V18.19, family history of other endocrine and metabolic diseases
  • V18.8, family history of infectious and parasitic diseases
  • V50.3, ear piercing

FY 2015 IPPS Final Rule Home Page

Finally, the home page for the FY 2015 Hospital Inpatient PPS final rule is here. The page includes links to the final rule (display version or published Federal Register version) and all subsequent published correction notices (if applicable), all tables, additional data and analysis files and the impact file.

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