Payment rates for inpatient hospital services would decrease by 2.9 percent for fiscal year 2011 (FY11) under the new inpatient PPS (IPPS) proposed rule published by CMS. IPPS payment rates would be updated by the hospital market basket increase, which is currently 2.4 percent, for those hospitals that report quality data, and 0.4 percent for those that do not. The proposed market basket update to the IPPS rates, in conjunction with other proposed payment changes, would result in an estimated $142 million decrease in FY11 operating payments (or a -0.1 percent increase) and an estimated $20 million decrease in capital payments (or a -0.2 percent increase).

The proposed policies and payment rates for FY11 do not reflect the provisions of the Patient Protection and Affordable Care Act (PPACA). CMS notes that it plans to issue separate documents in the Federal Register addressing the provisions of the PPACA that affect the FY11 proposed policies and payment rates under the IPPS and the long-term care hospital (LTCH) PPS.

The proposed changes would be applicable to discharges occurring on or after October 1, 2010.

Medicare Severity Diagnosis-Related Group (MS-DRG) Documentation and Coding

CMS adopted the Medicare severity diagnosis related group (MS-DRG) patient classification system in the FY08 IPPS final rule to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY07 to 745 in FY08. CMS notes that increasing the number of MS-DRGs and more fully taking into account patients' severity of illness in Medicare payment rates encourages hospitals to improve their documentation and coding of patient diagnoses.

The adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In the FY08 final rule, in order to maintain budget neutrality, CMS implemented an adjustment of -4.8 percent to the national standardized amount to eliminate the estimated effect of changes in coding or classification that did not reflect real changes in case mix. CMS provided for phasing in this adjustment over 3 years: -1.2 percent for FY08, -1.8 percent for FY09, and -1.8 percent for FY10.

The Transitional Medical Assistance, Abstinence Education, and Qualifying Individuals Programs Extension Act (TMA) of 2007 reduced the documentation and coding adjustment that CMS adopted to -0.6 percent for FY08 and -0.9 percent for FY09. CMS postponed the documentation and coding adjustment until FY11. The TMA did not adjust the FY10 -1.8 percent documentation and coding adjustment promulgated in the FY08 IPPS final rule. The TMA also required CMS to conduct a retrospective evaluation of FY08 and FY09 claims data and make necessary payment adjustments over FY10, FY11, and FY12 in order to restore budget neutrality if the evaluation determined that the documentation and coding changes did not reflect real changes in the case mix. The evaluation revealed that implementation of the MS-DRG system resulted in a 2.5 percent increase in payments due to documentation coding changes in FY08 and a 2.9 percent increase in FY09, totaling 5.4 percent.

In order to eliminate the effects of documentation and coding changes on future payments, and begin recovering excess payments that occurred in FY08 and FY09, CMS is proposing to decrease IPPS payments by 1.9 percent ( 2.5 percent minus 0.6 percent) and 3.9 percent (5.4 percent minus the combined statutory reductions of both years (-0.6 percent + -0.9 percent), respectively. These two adjustments total -5.8 percent. CMS proposes to apply half, or -2.9 percent, in FY11, with additional reductions in subsequent years. An adjustment of this magnitude allows CMS to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required by the TMA.

FY11 MS-DRG Documentation and Coding Adjustment

Because sole community hospitals (SCHs) and Medicare-dependent, small rural hospitals (MDHs) use the same MS-DRG system as all other hospitals, CMS believes they could receive increased payments from documentation and coding changes and should, therefore, be equally subject to the prospective budget neutrality adjustment of -5.4 percent. Therefore, as with the other IPPS hospitals, CMS proposes to apply an adjustment of -2.9 percent in FY11 to the rates paid to these facilities. Since there have been no previous adjustments to rates paid to SCHs and MDHs to account for documentation and coding changes, the entire -5.4 percent payment adjustment still needs to be implemented. Unlike the adjustments for other IPPS facilities, this proposed adjustment would be cumulative and prospective.

Hospitals in Puerto Rico are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. A retrospective evaluation of claims data for these hospitals also revealed an increase in payments due to documentation and coding that did not reflect real changes in case-mix. Therefore, a cumulative adjustment of -2.4 percent in FY11 to the Puerto Rico specific rate is required to eliminate the full effect of the documentation and coding changes on future payments. Because this proposed -2.4 percent adjustment is the full adjustment, CMS does not anticipate proposing any additional adjustments to payment rates for documentation and coding effects.

Standardized Payment Rates

After all updates and adjustments, the proposed payment rates for FY11 would be as follows:

Area Wage Index Greater than 1.0

Area Wage Index Less than 1.0

Puerto Rico Hospitals

Outlier Payments

For FY11, CMS proposes to continue to use the same methodology it used for FY09 to calculate the outlier threshold. CMS would apply an adjustment factor to the cost-to-charge ratio (CCR) to account for cost and charge inflation. Using this methodology, CMS proposes an outlier fixed-loss cost threshold for FY11 equal to the prospective payment rate for the DRG, plus any indirect medical education (IME) and disproportionate share (DSH) payments and any add-on payments for new technology, plus $23,970. CMS is not proposing to make any adjustments for the possibility that hospitals' CCRs and outlier payments may be reconciled upon cost report settlement because it believes that CCRs will no longer fluctuate significantly and, therefore, few hospitals will actually have these ratios reconciled when they settle their cost reports.

CMS projects that the thresholds for FY11 will result in outlier payments that will equal 5.1 percent of operating DRG payments and 5.8 percent of capital payments based on the federal rate. CMS estimates that actual outlier payments for FY10 will be approximately 4.7 percent of actual total DRG payments, approximately 0.4 percent lower than the 5.1 percent projected in setting the outlier policies for FY10. Currently, the outlier threshold amount is $23,140.

Quality Reporting

The proposed changes regarding quality measurement reporting are extensive. CMS proposes an expansion of the reporting hospital quality data for the annual payment update (RHQDAPU) program that will take place over three payment years, and proposes to add measures not only for FY12, but also for FY13 and FY14. For the FY11 payment determination, CMS retained 41 of the FY10 quality measures, combined two quality measures, and added four new measures. CMS also proposes to retire the Mortality for Selected Procedures Composite, one of the nine AHRQ measures that it adopted in the FY09 IPPS final rule, from the RHQDAPU program measure set for FY11. CMS invites comments on its proposal to retire this measure from the RHQDAPU program. CMS is also seeking comments on whether to retire 11 additional measures contained in the FY10 IPPS final rule.

CMS is proposing that for the FY12 payment determination, hospitals submit the required registry participation information once for the structural measures through a web-based collection tool between July 1, 2011, and August 15, 2011, with respect to the time period of July 1, 2010, through December 31, 2010.

Below is the list of structural measures that CMS proposes to adopt for the FY12 payment determination:

• Cardiac surgery
• Stroke care
• Nursing sensitive care

Following are details of CMS's plan for the expansion of quality measures over the next three fiscal years:

FY12

• Adding the following ten claims based measures to the RHQDAPU program measure set for the FY12 payment determination:
• • Two AHRQ patient safety indicators:
    • PSI-11: Post-Operative Respiratory Failure and PSI
    • PSI-12: Post-Operative Pulmonary Embolism (PE) or Deep Vein Thrombosis (DVT)
  • Eight hospital acquired condition measures
    • Foreign Object Retained After Surgery
    • Air Embolism
    • Blood Incompatibility
    • Pressure Ulcer Stages III & IV
    • Falls and Trauma: (includes: fracture, dislocation, intracranial injury, crushing, injury, burn, electric shock)
    • Vascular Catheter-Associated Infection
    • Catheter-Associated Urinary Tract Infection (UTI)
    • Manifestations of Poor Glycemic Control
• Hospitals would be required to submit all-patient data for 55 MS-DRGs that relate to RHQDAPU program measures

FY13

• Addition of one new chart-abstracted measure:
  • AMI-statin at discharge
• Adoption of two new National Quality Foundation-endorsed measures of healthcare acquired infections that are currently being collected by the Centers for Disease Control (CDC) via the National Healthcare Safety Network (NHSN):
  • Central Line Associated Blood Stream Infection (NQF #0139)
  • Surgical Site Infection (NQF #0299)
• Hospitals would be required to report data on measures to one of four qualified registries:
  • implantable cardioverter defibrillator complications
  • cardiac surgery
  • stroke
  • nursing-sensitive care
• Hospitals participating in RHQDAPU would be required to submit the data elements needed to calculate the central line associated blood stream infection and surgical site infection measures to the CDC's NHSN using the standard procedures on a monthly basis for discharges occurring on or after January 1, 2011

FY14

• Addition of four new chart-abstracted measures to the RHQDAPU program measure set for the FY14 payment determination:
  • Emergency department (ED) throughput--admit decision time to ED departure time for admitted patients (NQF #0497)
  • ED throughput-median time from emergency department arrival to ED departure for admitted patients (NQF #0495)
  • Global flu immunization
  • Global pneumonia immunization

CMS currently displays volume data for 70 MS-DRGs, 55 of which relate to RHQDAPU program measures, on the Hospital Compare website. CMS is proposing that hospitals report these data once annually, beginning with January 1, 2011 discharges, by submitting the all-patient data elements needed to calculate MS- DRG volume to QualityNet so that the volume of cases treated by a hospital for the 55 MS-DRGs currently displayed can be determined.

Under the final rule for the FY12, FY13, and FY14 payment determinations, the RHQDAPU program Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) requirements CMS adopted for FY11 would continue to apply. Under these requirements, a hospital must continuously collect and submit HCAHPS data in accordance with the current HCAHPS Quality Assurance Guidelines and the quarterly data submission deadlines.

CMS proposes that the payment determination for the RHQDAPU program for HCAHPS will be based on the following discharges:

• FY12: from April 1, 2010 through December 31, 2010
• FY13: from January 1, 2011 through December 31, 2011
• FY14: from January 1, 2012 through December 31, 2012

Transfer Payment Policy

In order to further align IPPS regulations relating to acute care patient transfers with its original intent, CMS proposes to add a new paragraph specifying that an acute care hospital ''transfer case'' includes a transfer to an acute care hospital that would otherwise be eligible to be paid under the IPPS, but does not have an agreement to participate in the Medicare program, and another that states that an acute care hospital ''transfer'' also includes a transfer to a critical access hospital.

Indirect Medical Education

The IME adjustment factor is calculated by using a hospital's ratio of residents to beds and a formula multiplier. For discharges occurring during FY08 and fiscal years thereafter, the formula multiplier is 1.35. CMS estimates that application of this formula multiplier for the FY11 IME adjustment will result in an increase in IPPS payment of 5.5 percent for every approximately 10-percent increase in the hospital's resident-to-bed ratio.

Critical Access Hospitals

Under existing regulations, a critical access hospital that is being paid under Method II (the optional method) is required to submit an election in writing on an annual basis if it wishes to continue to be paid under the optional method for a subsequent cost reporting period. CMS has been informed that, in past years, some CAHs have submitted their elections several days late, which has caused them to lose their optional method election for the entire cost reporting year, thereby resulting in financial hardship for these providers. Untimely submission of the optional method election may be due to staffing turnovers, as well as a change in fiscal intermediary or Medicare administrative contractor. Under the proposal, effective for cost reporting periods beginning on or after October 1, 2010, if a CAH has elected the optional method that election would remain in place until it is terminated. If a CAH wishes to terminate that election, it must submit its termination request to the fiscal intermediary or MAC at least 30 days prior to the start of the next cost reporting period.

Also, CMS proposes to clarify its payment policy to reflect its concerns regarding when certain provider taxes may be allowable costs under the Medicare program. CMS believes that the proposed revision would clarify that Medicare contractors will determine the allowability of provider taxes on a case-by-case basis, based on reasonable cost principles, and will determine if a reduction of the allowable tax expenses is proper to account for payments providers receive that are associated with the assessed tax.

Direct Graduate Medical Education Payments

CMS proposes to clarify the rules that define what is considered to be an approved medical residency training program that would qualify for direct GME payments. Specifically, "resident" would be revised to mean, ''an intern, resident, or fellow who is formally accepted, enrolled, and participating in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board.'' This change would be effective for IME and direct GME for cost reporting periods beginning on or after October 1, 2010.

Currently, institutions that are members of the same Medicare GME affiliated group are allowed to elect to apply their direct GME and IME full time employee resident caps based on the aggregate cap of all hospitals that are part of the group. CMS has only accepted signed hard copies of the GME affiliation agreements that are received through the mail. CMS proposes an electronic submission process (e-mail or website) through which hospitals would submit their agreements to its central office.

Long-Term Care PPS

The proposed payment update for LTCHs will now take place on the same schedule and in the same publication as the IPPS. For FY11, CMS is proposing to update the LTCH PPS standard federal rate by -0.1 percent. This proposed update reflects an adjustment based on the most recent market basket estimate, currently 2.4 percent, and a proposed adjustment to account for the increase in case mix in FY08 and FY09 that resulted from changes in documentation and coding practices under the MS-LTC DRGs that did not reflect an increases in patients' severity of illness. Under the LTCH PPS proposed rule for FY11, the labor-related share would be 75.407. CMS also notes that if more recent data are available for the final rule, it would use those data to establish a final update to the FY11 LTCH PPS standard federal rate, if applicable. Payments to LTCHs are expected to increase by $41 million.

Rural Referral Centers

CMS proposes that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial rural referral center (RRC) status for cost reporting periods beginning on or after October 1, 2010, they must have a case-mix index (CMI) value for FY09 that is at least 1.5127, or the median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs) calculated by CMS for the census region in which the hospital is located. CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment.

A hospital may be classified as an RRC if:

• The hospital's CMI is at least equal to the lower of the median CMI for urban hospitals in its census region; and
• The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located

If an osteopathic hospital is to qualify for RRC status for cost reporting periods beginning on or after October 1, 2010, the hospital would be required to have at least 3,000 discharges for its cost reporting period that began during FY08. CMS notes that the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges. Therefore, 5,000 discharges is the minimum criterion for all hospitals.

Comments

The proposed rule is published in the May 4, 2010 Federal Register, and comments on the rule are due June 18, 2010.

Publication Date: Friday, May 21, 2010