May 1—Hospitals would receive a 1.3 percent Medicare increase in FY15 under a proposed payment rule issued late Wednesday by the Centers for Medicare & Medicaid Services (CMS). CMS also requested suggestions on an alternate payment methodology for short-stay admissions.

CMS’s hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) proposed rule for FY15 would provide the 1.3 percent increase after accounting for inflation and other statutorily required adjustments. The initial 2.7 percent market-basket update for hospitals that submit data on quality measures and were meaningful users of electronic health records in FY13 would be reduced by one-quarter for hospitals that do not undertake either initiative. Hospitals that fail to meet the requirements of both initiatives would lose half of the initial market-basket rate.

All IPPS hospitals would receive a productivity cut of 0.4 percent and an additional market basket cut of 0.2 percent, as required by the Affordable Care Act (ACA). Another 0.8 percent cut that would, in part, fulfill the requirement of the American Taxpayer Relief Act of 2012 (ATRA) that CMS recoup supposed surplus payments from FY10-FY12.

Another cut included in the rule was the latest 1 percent ACA-mandated reduction in Medicare disproportionate share hospital payments.

All proposed FY15 changes would reduce the overall rate to 0.8 percent, a Bank of America-Merrill Lynch analysis noted. That cut was in line with the analysts’ expectations, although it is expected to hit urban hospitals worse with a 0.9 percent cut than rural hospitals, which face a 0.2 percent overall cut.

Short-Stay Suggestions Sought

Also included in the rule was a request for suggested an alternative payment methodology under the Medicare program for short inpatient hospital stays.

“We are interested in public comments on such a payment methodology, specifically how it might be designed,” the proposed rule stated. “There are several issues of consideration that would inform how such a payment methodology would be devised.”

Among the specific questions and considerations that CMS identified as critical for developing an alternative payment methodology was how to define short-term or low-cost hospital stays.

“While HFMA appreciates CMS’s request for feedback on a new short-stay payment policy, we are deeply concerned with the proposed average 0.8 percent reduction in payments included in the proposed rule,” said Chad Mulvany, director, healthcare finance policy, strategy and development for HFMA. “Among other items, HFMA remains concerned that the proposed reduction to DSH payments is greater than statutorily warranted based on coverage expansion.”

The request for input on an alternative payment methodology for short-stay admissions followed recent legislation delaying full enforcement of a new short-term admissions policy by six months—until April 2015—which came amid hospital concerns about numerous uncertainties surrounding details of its implementation.

The lack of significant changes in the two-midnight policy drew criticism from some hospital advocates.

“CMS makes no concrete proposals and provides no indication that it will imminently abandon its flawed policy in favor of a new, more equitable approach,” said Blair Childs, senior vice president, Premier, an alliance of more than 2,900 U.S. hospitals and other providers. “This leaves hospitals trying to implement an unclear, unfair policy where they will soon be subject to audits.”

Other hospital advocates were pleased that the 0.8 percent ATRA cut was not larger.

“While we continue to be concerned about excessive coding cuts, today’s proposal to continue to phase in the coding cuts mandated by the [ATRA] will help provide hospitals with additional time to manage the payment reductions,” said Rick Pollack, vice president for the American Hospital Association.

LTCHs’ Payment Boosted

For LTCHs, CMS proposed to increase payments by 0.8 percent in FY15 and proposed regulatory changes related to interrupted stays and co-located LTCHs, addressed statutorily required changes related to the so-called 25 percent rule and a moratorium on new LTCH facilities and beds, and discussed changes that coming in FY16 related to a new site-neutral payment system mandated by Congress.

The proposed rule will be published in the May 15 Federal Register, and comments will be accepted through June 30.

Publication Date: Thursday, May 01, 2014