HFMA Express News - October 28, 2005

IN THIS WEEK’S ISSUE:

1. IRS to Shine Compliance Spotlight on Exempt Hospitals
2. Medicare, Medicaid Spending Packages Reveal Deep Divide
3. Florida Medicaid Demonstration to Introduce Consumer Choice
4. Katrina-Related State Waivers Compared
5. Margins for Medical Groups Dropped In 2004
6. Practice Patterns of Physician-Owned Specialty Hospitals Reviewed
7. CMS Clarifies Value Codes for Renal Disease Claims
8. Quick Links
9. New in the Resource Center

1. IRS TO SHINE COMPLIANCE SPOTLIGHT ON EXEMPT HOSPITALS  

Tax-exempt hospitals will be the focus of a new compliance and enforcement initiative, according to IRS FY06 Exempt Organizations Implementing Guidelines released this week. The guidelines state that the Exempt Organizations Compliance Unit (EOCU) is considering a compliance project to determine how hospitals set and pay executive compensation and how they meet the community benefit standards for purposes of section 501(c)(3). The EOCU would send compliance check letters to “a significant number” of hospitals asking them about these and possibly other issues.  

Enforcement will be the IRS Exempt Organizations (EO) division’s primary focus in the coming fiscal year, noted Martha Sullivan, director of the division, in the guidelines’ cover letter. She noted that “the overwhelming majority of tax-exempt organizations try hard to comply with the letter and spirit of the law, and the tax-exempt community, itself, recognizes the need to protect the reputation of the sector."  

Other initiatives for FY06 will address abuses in façade and conservation easements, charitable trusts, and charities that facilitate abusive transactions.  

2. MEDICARE, MEDICAID SPENDING PACKAGES REVEAL DEEP DIVIDE

The federal budget process inched forward this week as Congressional committees with jurisdiction over Medicaid and Medicare spending completed FY06 budget reconciliation packages. On Tuesday, the Senate Finance Committee approved an HHS reconciliation package that would save $10 billion over five years, splitting the savings between Medicaid and Medicare. Provisions affecting Medicare include:

• A physician payment increase of 1 percent in 2006
• A ban on physician referrals of Medicare or Medicaid patients to physician-owned, limited service hospitals in which they have an ownership or investment interest
• Modification of the “75 percent” rule for inpatient rehabilitation facilities to a 50 percent level through June 30, 2007
• Reduction of Medicare’s skilled nursing facility bad debt payments from 100 percent to 70 percent of allowable costs  
• Implementation of value-based, or pay-for-performance, purchasing for most Medicare providers, including a funding pool to reward providers that meet quality thresholds.

The House Energy and Commerce Committee approved its budget package on Thursday. The committee sought no cuts from Medicare, but instead seeks $9.5 billion in savings from Medicaid reforms, including measures to let states increase beneficiary copayments and structure their benefits packages to look more like private or state employee health plans. The House Ways and Means Committee, which shares jurisdiction over Medicare, was also mute on the subject of Medicare cuts.  

Although the House Energy and Commerce Committee and the Senate Finance Committee have a few provisions in common, such as roughly $2 billion in funding for Medicaid benefits to families affected by recent hurricanes and measures to limit the circumstances under which people may transfer assets to qualify for Medicaid, substantial differences among the bills indicate that the House/Senate conference committee will have a hard time in the coming weeks cobbling together final legislation from these disparate packages.

3. FLORIDA MEDICAID DEMONSTRATION TO INTRODUCE CONSUMER CHOICE

HHS has approved a Medicaid reform plan that will allow Florida beneficiaries to choose their own healthcare plans, in an effort to inject competition and consumer choice into the program. Florida officials hope to counter the 13 percent growth rate of Medicaid the state has experienced for the last six years. Statewide implementation is to follow a July 2006 kick-off in Broward and Duval counties.

Under the waiver, assessment of an enrollee’s risk, or health status, combined with the historic use of health services, will formulate a spending level that will be directed to the enrollee’s choice of managed care plan. Enrollees may also opt out of Medicaid and receive subsidies to purchase employer-sponsored health insurance.

4. KATRINA-RELATED STATE WAIVERS COMPARED

To date, CMS has approved ten state Medicaid waivers to provide healthcare services to Hurricane Katrina survivors. Although the waivers provide assistance to some groups of survivors, many survivors in need, particularly adults without dependent children, remain ineligible for Medicaid or SCHIP and could only gain assistance from providers in states that also authorized uncompensated care pools through their waivers, concludes the Kaiser Commission on Medicaid and the Uninsured, which has developed a brief examining the waivers’ variation in eligibility, benefits, and cost-sharing criteria.

The commission has also developed a policy brief on health coverage for people affected by Hurricane Katrina and a comparison of different approaches to extend Medicaid coverage. This document looks at the Senate legislation that has been proposed, the Bush administration’s waiver approach, and the Texas waiver (called the template, by HHS Secretary Leavitt). There is also a fact sheet that highlights some key questions about the Texas waiver.

5. MARGINS FOR MEDICAL GROUPS DROPPED IN 2004

Margins for medical group practices decreased in 2004, according to a new 2005 cost survey by the Medical Group Management Association (MGMA). According to the survey, margins for internal medicine single specialty groups decreased by 5.5 percent to $201,896 and primary care multispecialty groups not owned by hospitals saw a decrease of 3.9 percent to $217,315. Overall, multispecialty groups’ median total operating margin increased by 1.7 percent. For specialty practices, the median total medical revenue after operating costs per FTE physician grew by 5.6 percent to $387,341.

For specialty practices, the median total medical revenue after operating costs per FTE physician grew by 5.6 percent to $387,341. Among other factors, MGMA attributes the decrease in margins for single specialty groups to the 5.7 increase in median total operating costs per physician and a 4.6 percent increase in average support-staff costs. In addition, professional liability coverage continues to increase at a consistent level for all specialties, with obstetrics and gynecology leading the pack at 5.91 percent of total medical revenue, according to the survey. Since 2003, professional liability costs per full time physician have increased from 13 percent to 19 percent, MGMA noted.

Hospital-owned multispecialty practices seemed to do better at controlling costs, while not-hospital-owned multispecialty practices seemed to better revenue-generators, MGMA observed. Hospital-owned multispecialty practices’ total operating costs per FTE physician dropped 9.9 percent (to $283,191) while not-hospital-owned multispecialty practices saw theirs grow 3.5 percent (to $392,108). Hospital-owned multispecialty practices’ total medical revenue per FTE physician dropped 5.8 percent (to $439,672) while not-hospital-owned multispecialty practices saw theirs grow 6.3 percent (to $673,258).

6. PRACTICE PATTERNS OF PHYSICIAN-OWNERS IN SPECIALTY HOSPITALS REVIEWED

Physicians who are part owners of specialty hospitals tend to treat less acute, more profitable patients in specialty hospitals that they own and refer their complex, lower profit cases to community hospitals, according to an analysis of discharge data of Arizona cardiac doctors. Jean Mitchell, a professor of public policy at Georgetown University, analyzed six years of Arizona inpatient discharge data to compare the practice patterns of physician owners of cardiac specialty hospitals with physicians who only treated patients in competing full-service community hospitals.

The study showed that physician owners treat higher volumes of profitable cardiac surgical DRGs, higher percentages of low severity cases, and higher percentages of cases with generous insurance compared with physician non-owners who treat cardiac patients in community hospitals. According to the report, physician owners treated nearly 3.8 times as many surgical DRG cases as non-owners. In addition, physician owners treated lower percentages of medical DRG cases with three or more comorbidities than did non-owners.

7. CMS CLARIFIES VALUE CODES FOR RENAL DISEASE CLAIMS

CMS has issued Transmittal 721, which clarifies the use of value codes 48 and 49 for end-stage renal disease (ESRD) bills. According to CMS, renal disease facilities should report the most recent hematocrit or hemoglobin reading before the start of the billing period and not at the end of the billing period as currently practiced. Previously, the National Uniform Bill Committee (NUBC) defined the use of value codes 48 and 49 as the most recent hematocrit and hemoglobin reading before the end of the billing period. However, reporting these readings at the end of the billing period does not provide an opportunity for facilities to respond to the results of testing in titrating their dosage of erythropoietin for the billing period, CMS said. Therefore, during their August 2005 meeting, NUBC changed the definitions of the value codes to allow for earlier reporting of these readings.

In addition, CMS released a new ICD-9-CM code 585.5 to represent chronic renal failure. As of October 1, 2005, Code 585 will no longer be acceptable.

8. QUICK LINKS

NEW “SOURCE OF ADMISSION” CODE. CMS announced a new source of admission code “D” to represent transfer from hospital inpatient in the same facility resulting in a separate claim to the payer. Providers should use this code where it is applicable, such as in distinct part units in acute hospitals, a critical access hospital unit, or a swing bed located in an acute hospital.
 

FY06 TRICARE DRG UPDATES. The Department of Defense has published FY06 updates to the TRICARE DRG-based payment system that conform to changes made to the Medicare PPS, effective for admissions occurring on or after October 1.

CRIMINAL ENFORCEMENT ACTIONS. OIG has posted to its web site the current listing of criminal enforcement actions for September 2005. .

OIG REPORT ON NATIONAL PRACTITIONER DATA BANK COMPLIANCE. The OIG’s final report examining HHS agencies’ compliance in the medical malpractice reporting requirements to the National Practitioner Data Bank finds that as of October 2004, HHS agencies failed to report approximately 474 medical malpractice cases to the NPDB.

9. NEW IN THE RESOURCE CENTER

HFMA’S INTERNET GUIDE TO COMMUNITY BENEFITS. Get useful tools and information on reporting community benefits from HFMA, government agencies, and other resources.

EXECUTIVE ROUNDTABLE: MEETING THE CHALLENGE OF CONSUMER-DIRECTED HEALTH PLANS. Consumer-directed health plans have the potential to complicate revenue cycle management. Read how a group of healthcare finance executives are adjusting their processes to accommodate the increase in these plans.

For customer service, send an e-mail to HFMA’s Member Service Center, memberservices@hfma.org, or call (800) 252-HFMA, and press 2.

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