CMS squeezes hos­pi­tals on pay

Modern Healthcare - - NEWS - By Vir­gil Dick­son

While hos­pi­tals are cel­e­brat­ing the Obama ad­min­is­tra­tion’s sur­ren­der on the Medi­care pay cut tied to the two-mid­night rule, they’re seething over a pro­posal to nearly dou­ble the ex­pected pay­ment re­duc­tion meant to re­coup over­pay­ments from in­cor­rect cod­ing.

Hospi­tal lob­by­ists will now spend the com­ing months press­ing the CMS to change course in the fi­nal fis­cal 2017 rule for the in­pa­tient prospec­tive pay­ment sys­tem. Be­cause of a quirk in Medi­care leg­is­la­tion passed last year, the deeper cut would leave hos­pi­tals per­ma­nently in the hole.

Un­der the in­pa­tient PPS, hospi­tal pa­tients are as­signed to one of hun­dreds of di­ag­no­sis-re­lated group codes. In fis­cal 2008, the CMS in­tro­duced Medi­care Sever­ity DRGs, or MS-DRGs, in­tended to com­pen­sate hos­pi­tals for more ex­pen­sive care pro­vided to sicker pa­tients.

Af­ter the new codes were in­tro­duced, how­ever, hos­pi­tals ap­peared to be abus­ing MS-DRGs to get higher pay­ments. In the Amer­i­can Tax­payer Re­lief Act of 2012, Congress re­quired the CMS to re­coup $11 bil­lion in al­leged over­pay­ments by the end of fis­cal 2017.

The CMS com­plied by ini­ti­at­ing an in­stall­ment plan that its ac­tu­ar­ies es­ti­mated would mit­i­gate the blow in any one year. A 0.8% cut to in­pa­tient rates was im­posed in fis­cal 2014, 2015 and 2016. In­dus­try lead­ers said they were shocked last week to see it rise to 1.5% for fis­cal 2017.

Mak­ing things worse, Congress tin­kered last year with the way the rate would be re­stored once the govern­ment got all its money back.

The CMS had in­tended to make a pos­i­tive ad­just­ment in fis­cal 2018 equal to the cu­mu­la­tive re­duc­tions.

But in the Medi­care Ac­cess and CHIP Reau­tho­riza­tion Act, or MACRA—the leg­is­la­tion re­plac­ing Medi­care’s physi­cian pay­ment for­mula—Congress called for tick­ing the rate up by 0.5% a year through fis­cal 2023. That was based on the as­sump­tion that the fis­cal 2017 cut would be the same as it had been in the pre­vi­ous years.

“Congress was clear in its pas­sage of physi­cian pay­ment re­form last year that this cut should be 0.8%, but CMS ig­nored this direc­tive and al­most dou­bled the re­duc­tion,” Rick Pol­lack, CEO of the Amer­i­can Hospi­tal As­so­ci­a­tion, said in a state­ment. “This cut poses an­other chal­lenge to hos­pi­tals’ abil­ity to care for their com­mu­ni­ties.”

The CMS ex­plained in the pro­posed rule that its hands are tied by its pre­vi­ous march­ing or­ders from Congress. Chang­ing eco­nomic and health­care trends up­ended its ear­lier pro­jec­tions, the CMS said, so an­other 0.8% cut would have left the govern­ment $5 bil­lion short of re­coup­ing the over­pay­ments by the statu­tory dead­line.

The hospi­tal in­dus­try, though, isn’t sat­is­fied with that ex­pla­na­tion. “This high uptick seems dra­matic and ex­ces­sive, and we will be care­fully re­view­ing CMS’ method­ol­ogy for set­ting the ad­just­ment to en­sure there were no flaws in the cal­cu­la­tion,” Blair Childs, a se­nior vice pres­i­dent for Premier, said in a state­ment.

Some in­dus­try stake­hold­ers also com­plained that the higher cut ef­fec­tively fines hos­pi­tals for suc­cess­fully re­duc­ing their num­ber of ad­mis­sions un­der the Hospi­tal Read­mis­sions Re­duc­tion Pro­gram out­lined in the Af­ford­able Care Act. Part of the rea­son the CMS’ es­ti­mates were off is that “the num­ber of hospi­tal dis­charges has de­creased more than ex­pected,” the agency said.

“Hos­pi­tals are be­ing pe­nal­ized by CMS for com­ply­ing with their own pro­grams,” said Brian Mur­phy, di­rec­tor of the As­so­ci­a­tion of Clin­i­cal Doc­u­men­ta­tion Im­prove­ment Spe­cial­ists, which rep­re­sents hospi­tal cod­ing staff.

Hos­pi­tals will still re­ceive $539 mil­lion more un­der the in­pa­tient PPS than they did in fis­cal 2016 be­cause of var­i­ous changes out­lined in the pro­posed rule, in­clud­ing the re­ver­sal of the 0.2% pay­ment re­duc­tion un­der the two-mid­night rule and a one­time in­crease to off­set the two-mid­night cut ap­plied in fis­cal 2014, 2015 and 2016.

The agency took the 0.2% bite out of in­pa­tient rates be­cause the pol­icy—which in­structed that hospi­tal stays span­ning more than two mid­nights should be billed as ad­mis­sions rather than out­pa­tient ob­ser­va­tion vis­its—was ex­pected to gen­er­ate an ad­di­tional $220 mil­lion in an­nual costs to Medi­care.

The in­dus­try, how­ever, fiercely bat­tled the pay cut and the pol­icy it­self, which the Obama ad­min­is­tra­tion de­layed sev­eral times and ul­ti­mately mod­i­fied to ap­pease its crit­ics. Last Septem­ber, a fed­eral judge par­tially sided with the AHA and dozens of hos­pi­tals, or­der­ing HHS to re-open the pol­icy to com­ments and fur­ther ex­plain its method­ol­ogy.

In the pro­posed rule posted last week, the CMS re­lented. The agency ac­knowl­edged that small dif­fer­ences in the pol­icy’s ac­tual im­pact on in­pa­tient and out­pa­tient uti­liza­tion “would have a dis­pro­por­tion­ate ef­fect on the es­ti­mated net costs.” More re­cent es­ti­mates by its ac­tu­ar­ies, the agency con­ceded, vary be­tween a net sav­ings and a net cost.

“Congress was clear in its pas­sage of physi­cian pay­ment re­form last year that this cut should be 0.8%, but CMS ig­nored this direc­tive and al­most dou­bled the re­duc­tion.” RICK POL­LACK CEO Amer­i­can Hospi­tal As­so­ci­a­tion

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