Medicare Payment and Reimbursement

Comment Letter to CMS: FY14 IPPS Proposed Rule

February 6, 2014 12:39 pm

June 24, 2013

Marilyn Tavenner
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1599-P
P.O. Box 8011
Baltimore, MD 21244-1850

File Code: CMS-1599-P

Re: Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long Term Care Hospital Prospective Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation; Medicare Program; FY 2014 Hospice Wage Index and Payment Rate Update; Hospice Quality Reporting Requirements; and Updates on Payment Reform; Proposed Rules

Dear Ms. Tavenner:

The Healthcare Financial Management Association (HFMA) would like to thank the Centers for Medicare & Medicaid Services (CMS) for the opportunity to comment on the 2014 Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long Term Care Hospital Prospective Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation; Medicare Program; FY 2014 Hospice Wage Index and Payment Rate Update; Hospice Quality Reporting Requirements; and Updates on Payment Reform (hereafter referred to as the 2014 IPPS Proposed Rule) published in the May 10, 2013 Federal Register. HFMA is a professional organization of more than 40,000 individuals involved in various aspects of healthcare financial management. HFMA is committed to helping its members improve the management of and compliance with the numerous rules and regulations that govern the industry.  


HFMA would like to commend CMS for its thorough analysis and discussion of the myriad Medicare hospital reimbursement decisions addressed in the 2014 IPPS Proposed Rule. Our members have significant concerns regarding the proposals related to:   

  • Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs)
  • Hospital Readmissions Reduction Program
  • Implementation of HAC Reduction Program for FY 2015
  • Hospital Value-Based Purchasing Program (VBP)
  • Hospital Inpatient Quality Reporting Program (IQR)
  • Policy on Admission and Medical Review Criteria for Hospital
  • Inpatient Services under Medicare Part A and Related Cost Offset Adjustments
  • Payment Adjustment for Medicare DSH Hospitals

HFMA appreciates CMS’s efforts to implement the DSH reduction and uncompensated care payment mechanism outlined in the Affordable Care Act. However, we have significant concerns about the lack of settlement for two of the factors and the dearth of guidance to Medicare Advantage plans on how to adjudicate the uncompensated care payment. Further, while we temporarily support the use of Medicaid and SSI days as a proxy to allocate the uncompensated care payment, we ultimately believe that it needs to be based on data that actually reflects providers’ uncompensated care costs, including Medicaid shortfalls. Accordingly, we believe that worksheet S-10, which could be the best source of this data, requires significant revision.

HFMA has concerns about the lack of settlement for Factors One and Two.

Factor One: HFMA is concerned about the potential for the CMS Actuary to underestimate DSH payments, which would ultimately result in an underfunded pool of uncompensated care payments for distribution to providers. A similar phenomenon occurs frequently with outlier payments.

HFMA strongly recommends that CMS annually reconcile estimated DSH payments to actual DSH payments for FY 2014 and subsequent years. Any adjustments necessary to account for the actual vs. projected Factor One should be made to the uncompensated pool in the next available federal fiscal year. CMS has long used similar mechanisms to adjust provider payments for alleged increases in documentation and coding intensity.

Factor Two: While the CBO’s estimate of the percentage of the population gaining insurance coverage as a result of ACA has been significantly reduced, HFMA remains concerned that it is too high. We note that most of the reduction (approximately 4 million individuals) is the result of changes in offering/uptake of employer sponsored insurance. By contrast, coverage estimates as a result of the exchanges and Medicaid expansion are only reduced by 1 and 2 million respectively.

Given some states’ resistance to both exchange development and Medicaid expansion, HFMA believes the CBO coverage estimates are aggressively high. With 27 states1 (many like Texas and Florida with significant numbers of uninsured) defaulting to the federally facilitated exchanges, we are concerned about the effectiveness of outreach and enrollment efforts in those states. As an example, Florida has approximately $6 million to spend on exchange outreach activities to reach a population of four million uninsured (less than $2 per uninsured resident) while Maryland has $24.8 million to reach 730,000 uninsured (more than $33 per uninsured resident)2 . Given the lack of funding for this important effort in most states, it seems reasonable to expect exchange coverage to be reduced by more than one million (approximately 12% of the original estimate of 8 million) when over half of the uninsured population lives in states with a federally facilitated exchange.

Further, the March 20, 2010, CBO analysis estimated that by 2019 Medicaid and CHIP would cover an additional 16 million individuals. Of that number, 10 million individuals (or approximately 63% of those newly covered under the Medicaid expansion by 2019) would enroll in 2014. Based on the Supreme Court ruling, the February 2014 analysis estimates that approximately 11 million individuals will gain Medicaid coverage under the expansion with approximately 8 million (approximately 73% of those newly covered under the expansion by 2019) gaining it in 2014. Given that an estimated 3.7 million individuals who would have been eligible for the Medicaid expansion live in states that have opted not to expand coverage, with another 2.7 million in states strongly leaning against expansion (total of 6.3 million or approximately 40% of the initial Medicaid expansion population projected by the CBO)3 , HFMA believes the CBO Medicaid projections are aggressive not only in the total coverage numbers but the timing of the expansion.

HFMA strongly recommends that CMS reconcile the estimate of the change in the uninsured and final settle with providers for FY 2014 and subsequent years. Otherwise, this program runs the risk of reducing DSH/uncompensated care payments to providers beyond what was statutorily intended by the ACA. We would recommend using the Current Population Survey to provide a base year (2013) and actual year (2014) given the relatively short lag time in data. If CMS is truly locked into using data from the CBO by statute, we would ask that you work with the CBO to develop a retrospective reconciliation for 2014 and subsequent years in order to maintain a similar comparison. As above, any adjustment necessary to account for the actual vs. projected Factor Two should be made to the uncompensated pool in the next available fiscal year.

HFMA is concerned by the dearth of guidance or resources provided in the proposed rule (or in other forums) to help Medicare Advantage plans calculate the correct payment amount for the uncompensated care payment. 

HFMA strongly recommends that CMS in the final rule include instructions/resources to facilitate the accurate payment of the uncompensated care amount by Medicare Advantage plans. Given that the payment is a pass through and not in the price, this could be problematic for some Medicare Advantage plans, particularly those that do not participate with a hospital.

In future years HFMA believes CMS needs to use data that better reflects hospitals’ costs related to uncompensated care to allocate the uncompensated care pool to hospitals as opposed to using a proxy. If CMS uses proxy data (Medicaid and SSI days) collected during calendar year 2014 and thereafter, it will disadvantage hospitals in states that have elected not to expand Medicaid. HFMA believes this is inappropriate as hospitals have no control over whether or not the states where they’re located expand Medicaid.

In the proposed rule, CMS suggests that when it moves to using actual cost data, it will only consider bad debt and charity care expense in determining the amount of uncompensated care a hospital or health system provides. In excluding Medicaid shortfalls, CMS comments:

“While we recognize in some cases, a hospital may receive revenues that do not fully cover those costs, we note that this is true for any patient population treated by a hospital regardless of insurance status. Hospitals negotiate contractual allowances with commercial payers, and it is possible that payment for some of these patients would be less than the costs of their care.”

HFMA believes CMS’s line of reasoning in this matter is badly flawed. While it is true that hospitals negotiate with commercial plans, hospitals do not negotiate rates with state Medicaid programs. HFMA is concerned that without including the cost of the Medicaid shortfall in the uncompensated care equation, hospitals in states with relatively low Medicaid rates (who are in essence providing uncompensated care) will be under reimbursed by the uncompensated care pool. To remedy this problem, the cost of Medicaid shortfalls should be included in the uncompensated care calculation.

HFMA believes the most appropriate place to collect the data necessary to calculate the uncompensated care amount is the cost report worksheet S-10. However, CMS needs to work with hospitals to improve the instructions for the S-10 and resolve the significant flaws that exist in the current worksheet. The main challenges include:

Audit Process for Charity Care and non-Medicare Bad Debt: Currently, there are no published charity care audit instructions for Medicare contractors to follow when reviewing charity care and non-Medicare bad debt. The audit procedures should be similar to those related to allowable Medicare bad debt. The auditor should be instructed to pull a sample and, if the provider followed its own charity care and bad debt policies, the charity care and bad debt should be allowable. Additionally, providers are only allowed to appeal adjustments that have a material settlement impact on the cost report. While the data used to calculate the uncompensated care payment will have a significant reimbursement impact on hospitals, it does not “settle” on the cost report. CMS must allow hospitals a mechanism to appeal adjustments to the S-10.

Conflicting Instructions: The initial instructions on the S-10 worksheet refer to the statutory requirement for hospitals to report costs “incurred by the hospital for providing inpatient and outpatient hospital services.” However, the instructions for line 20 direct the hospital to report gross charges for charity care for the “entire facility,” which is generally understood to include portions of the facility on the cost report that are not paid under IPPS/OPPS such as inpatient rehab/psychiatric facilities and skilled nursing facilities. This is problematic as charity care is reduced to cost on line 21 using the hospital cost to charge ratio on line 1. Given that the CCR for the hospital and the subparts are in many instances very different, this will lead to an inappropriate reporting of charity care costs. A similar problem occurs on line 26 for bad debt reporting. CMS needs to clarify its instructions as to whether providers should report only charity care charges and bad debt expense related to inpatient and outpatient services on line 20 and 26. If CMS intends for providers to report subpart charity care charges, this should be done with separate lines and have corresponding separate lines for CCRs to accurately adjust charges for each provider type to cost.

Further, the phrase “entire facility” is generally understood to exclude providers reimbursed on a fee schedule (e.g. physicians). However, many organizations employ significant numbers of physicians that are typically covered under the hospital’s charity care policy and bad debt policies. HFMA encourages CMS clarify whether or not charges related to fee schedule providers should be included for charity care (line 21) and bad debt (line 26). 

Timing of Charity Care and Bad Debt Reporting: Instructions for line 20 state that charity care charges should be limited to services “delivered during this cost reporting period.” This is problematic in that it does not reflect the reality of hospital operations and will ultimately understate charity care costs. Hospitals can grant charity care at any point in the patient account resolution process. Depending on the level of documentation required to obtain charity care and the patient’s responsiveness in submitting the proper documentation, charity care can be granted long after the cost report for the fiscal year in which the services were delivered.

Similarly, the instructions for line 26 state that bad debt charges (both Medicare and non-Medicare) reported on the line should be related to services provided during the fiscal year (either written off or expected to be written off). Not only is this inconsistent with the way allowable Medicare bad debt is treated, but like charity care, following the current instructions will under report non-Medicare bad debt. As an accounting concept (that CMS follows in its requirements for a provider to claim a bad debt related to a beneficiary’s deductible and co-insurance on the cost report as reimbursable) a provider cannot write an account off to bad debt until it has been deemed uncollectible/worthless. For most patients this determination will be made long after the cost report has been filed. Further, like Medicare bad debt we believe that worksheet S-10 should include only bad debt that has actually been written off (not expected to be written off). We believe this would reduce the administrative complexity of compiling and auditing bad debt debts claim on worksheet S-10.

CMS should correct the instructions for both lines 20 and 26 to better reflect the timing of when accounts are granted charity care or written off to bad debt. The language should read “charges written off during the period covered by the cost report.” 

Partial Payments by Patients: Reducing gross charges for charity care by any partial payments received from the patient is appropriate accounting treatment. However, the instructions related to line 22 pose two problems. First, there is a timing issue similar to those discussed above related to reporting charity care granted and bad debt expense. The instructions require that only partial payments received for care delivered during the cost reporting period be reported. As with charity care granted and bad debt expense, the less burdensome approach suggested by HFMA would be to report all gross charges waived during the period and all related payments received during the period. The instructions also require that hospitals report payments “expected” as well as received. The difficulty is that the gross amounts expected from patients for whom there have been partial write-offs pursuant to a hospital’s charity care policy are often not paid in full. Under proper accounting, the amount of such payments would have to be discounted to reflect the amount that is expected in reality to be paid. There is no discussion in the instructions on how such estimates should be made, how they will be reviewed by Medicare contractors, and how experience showing that a prior year’s estimate was too high or too low should be reflected, if at all, on the current year’s S-10. As with bad debt, we would encourage CMS to limit partial payments reported on the S-10 to those actually received to reduce the administrative burden for providers. However, if CMS does not change the instructions, it needs to work with the industry to provide guidance to hospitals and contractors as to how these estimates will be handled in the S-10 instructions.

Hospital Readmissions Reduction Program (HRRP)

In prior comment letters (links included below), HFMA has expressed significant concern about the limited number of excluded conditions, insufficient risk adjustment for the HRRP measure, and misalignment of economic incentives across the care continuum. While we applaud CMS for working with the NQF to broaden exclusions for HRRP measures, we are deeply disappointed that CMS has not taken a similar tack with the risk-adjustment mechanism or moved more rapidly to align economic incentives for all provider types.

We are specifically concerned about the dearth of economic variables included in the risk-adjustment mechanism, given the role that these factors play in a patient’s likelihood of readmission. We appreciate CMS’s attempt to analyze the impact of economic status (presented on pages 366-367 of the 2013 proposed IPPS rule) on the penalties meted out by the HRRP. However, we continue to believe that CMS’s analysis under appreciates the effect economic status has on readmissions. MedPAC analysis has shown that there is a positive relationship between the percentage of SSI beneficiaries in a hospital’s patient population and the likelihood of incurring a HRRP penalty4 .

HFMA continues to strongly recommend that CMS conduct a thorough analysis of the role economic factors play in Medicare readmissions. We believe that this analysis should be conducted at the claims level for readmitted Medicare patients and match their zip codes to existing poverty data to provide an accurate understanding of the role economic conditions, which are beyond a hospital’s control, play in readmissions.

Further, HFMA continues to recommend that CMS include SSI and other similar economic indicators (e.g., presence of Medicaid as a secondary payer) to improve risk adjustment at the claims level. Much like the excluded conditions, CMS should work with NQF to develop readmissions measures that fully account for economic drivers. Until an appropriate risk adjustment mechanism is implemented, CMS should suspend the HRRP.

We continue to believe that refining the risk-adjustment mechanism is necessary to ensure a level playing field for all providers while protecting safety net hospitals and their communities from the unintended and counter-productive consequences of an incomplete risk-adjustment mechanism. For these facilities, inpatient Medicare payments are a larger than average component of their revenue. Any reduction in Medicare payment related to an incomplete risk adjustment will have both direct and indirect consequences. As a direct consequence, it will limit providers’ ability to invest in programs to reduce unnecessary readmissions, and the socio-economic factors that cause them, further harming Medicare beneficiaries. Indirectly, it will reduce employment and increase the ranks of uninsured in these communities as safety net hospitals will likely respond to additional financial pressure by reducing staffing levels.

Across the care continuum, there are misaligned financial incentives that pose barriers or result in missed opportunities to coordinate care, reduce readmissions, and improve patients’ outcomes. Examples of barriers HFMA’s members have identified as most pressing, as well as recommended solutions, are outlined below.

Physicians: Research shows patients who receive timely physician follow-up care post discharge are significantly less likely to be readmitted.2,3 However, in many instances, beneficiaries do not receive follow-up care in the recommended time frame. There are many reasons for this, which include-but are not limited to-socioeconomic issues, appointment availability, and patient compliance.

HFMA applauds CMS for incorporating transitional care management CPT codes into the 2013 Final Physician Fee Schedule Rule. We believe this is a necessary first step in aligning physician incentives with hospitals to reduce readmissions. However, by itself it is insufficient.

HFMA recommends that CMS take the following steps to align physician and hospital incentives to reduce readmissions: 

  • Expedite implementation of a physician value modifier and include a component that rewards physicians with low volumes of risk-adjusted readmissions (RARs) using funds withheld from physicians with high volumes of RARs.
  • Work with the OIG to create waivers from Stark, Civil Monetary Penalties, and other legal barriers to hospital gain-sharing arrangements, allowing hospitals to pay bonuses to community physicians who have successfully collaborated with the hospital to lower readmission rates.

Skilled Nursing Facilities (SNFs): MedPAC estimates that 25 percent of Medicare SNF residents are readmitted to the hospital4. Although hospitalizations are often medically necessary, expert evaluation suggests that 28 to 40 percent of such admissions might be avoided with high-quality SNF care5. In most instances, the hospital where the index admission occurred does not have an ownership interest or financial relationship with the SNF that is the source of the readmission. Not only are the financial incentives between hospitals and SNFs misaligned but in some cases CMS’s SNF reimbursement policy makes it financially advantageous to the SNF for patients to be readmitted. As a case in point, CMS’s policy covering only the first 100 days of SNF care post-discharge creates an incentive for SNF patients to be readmitted. 

HFMA recommends that CMS: 

  • Expedite the implementation of a SNF value-based purchasing adjustment that includes performance measures related to conditions such as electrolyte imbalance, congestive heart failure, respiratory infection, urinary tract infection, and sepsis that are common causes of hospital readmissions
  • Develop a corresponding penalty mechanism for SNFs with high rates of hospital readmissions
  • Correct the SNF reimbursement system so that it is no longer financially advantageous for beneficiaries to be readmitted
  • Work with the provider community and OIG to identify legal barriers that prevent hospitals and SNFs from collaborating and create sufficient exemptions that will further efforts to reduce preventable readmissions.

Telemonitoring and Other Technological Care Extenders: There is a growing body of evidence that proves the efficacy of telemonitoring as a means to coordinate care, improve patient outcomes, and reduce readmissions and overall episode cost. Despite these results, few hospitals have implemented it because the technology is expensive and currently not supported by the Medicare reimbursement system beyond limited circumstances. HFMA encourages CMS to pay Medicare providers for effective use of telemonitoring technologies for at-risk individuals. We propose to define at risk as a beneficiary who is burdened with one or more chronic diseases. This payment should be available for telemonitoring services provided in settings such as the patient home, SNF or group home settings. Given the technology’s potential to improve outcomes and the readmission penalties, even a nominal level of payment would likely encourage wider adoption among fee-for-service providers and significantly improve beneficiary outcomes.

Patients: Socioeconomic issues play a significant role in hospital readmissions. For example, when an indigent patient cannot afford the necessary medication to manage a chronic condition or a patient with a limited support network cannot keep a follow-up appointment with a community healthcare provider, the odds of a potentially preventable readmission are significantly increased. While the scope of these problems is beyond what hospitals alone can solve, there are significant legal barriers related to beneficiary inducement that prevent hospitals from supporting vulnerable beneficiaries. HFMA recommends that CMS and the OIG create waivers, similar to those afforded participants in the Shared Savings Program, allowing hospitals to provide vulnerable Medicare beneficiaries with medically indicated services aimed at preventing readmissions. Following the examples discussed above, items covered by the waiver would run the gamut from providing low/no-cost prescriptions to rides to follow-up appointments.

HFMA realizes that many of these recommendations will require congressional action. We strongly recommend that while CMS pursues the necessary legislation to implement the recommendations outlined above. Further. the Center for Medicare and Medicaid Innovation should launch pilot programs to test each recommendation to better align incentives. 

Implementation of HAC Reduction Program for FY 2015

HFMA strongly supports efforts to reduce preventable hospital acquired conditions (HAC). Additionally, as we have discussed in our whitepaper Defining and Delivering Value, we believe the shift to more outcomes focused quality measures is in general a positive one5. However, we are concerned there is significant overlap among the measures proposed for the 2015 HAC Reduction Program and the 2015 and 2016 proposed value-based purchasing (VBP) programs. Please see Table I.a–I.c for a detailed mapping of the overlap for years 2015–2017.

Given the significant overlap of the proposed HAC measures and the VBP program, HFMA strongly recommends eliminating the overlapping measures from the VBP program. While we believe it would have been appropriate to include patient safety measures in the VBP prior to the implementation of the HAC reduction program, incorporating patient safety measures in VBP in conjunction with the HAC reduction program constitutes “double jeopardy,” penalizing a hospital twice for the same issue. 

Hospital VBP Program

In addition to the concerns discussed above regarding the significant and unacceptable overlap between the Hospital VBP and HAC reduction programs, HFMA continues to take issue with the domain weighting within the VBP program and the Medicare Spending Per Beneficiary (MSPB-1) measure.

As stated in previous comment letters (links included below) we remain deeply concerned that the currently proposed VBP program exacerbates existing misalignments among the various provider types to the detriment of some providers.

HCAHPS Weighting: We continue to believe the HCAHPS domain is over-weighted as it comprises 30 percent of the overall VBP score in 2014 and 2015 and is proposed to comprise 25 percent in 2016 and 2017. While providers should focus on improving patient satisfaction, anecdotal evidence has shown significant variation in scores due to differences in acuity level and region of the country6 . Further, a recent study found that “patient satisfaction was independent of hospital compliance with surgical processes of quality care and with overall hospital employee safety culture.”7

HFMA strongly recommends that CMS conduct a patient level study to better understand the relationship between HCAHPS scores and outcomes. This study should include the effect of factors beyond a hospital’s control such as patient severity and region. Otherwise, CMS runs the risk of inappropriately penalizing facilities for a measure that may have little relationship to patient outcomes. We are also concerned that without understanding the relationship of patient acuity and geography on HCAHPS scores, CMS could inadvertently penalize hospitals that provide higher acuity services to a sicker patient population or disadvantage hospitals in one region over another. 

Finally, we believe that CMS should significantly reduce the weighting of the HCAHPS domain until the relationship between HCAHPs scores and differences in location and variances in acuity are better understood.

Efficiency Metric: CMS proposes to include an efficiency metric in the 2015 VBP program. The metric is defined as “inclusive of all Part A and Part B payments from 3 days prior to a subsection (d) hospital admission through 30 days post discharge with certain exclusions. It is risk adjusted for age and severity of illness, and the included payments are standardized to remove differences attributable to geographic payment adjustments and other payment factors.”

As discussed in previous comment letters, physicians control the majority of decisions that impact spending across an episode of care. Therefore, it will be difficult to isolate and ascribe responsibility for a beneficiary’s overall spending to a given hospital. CMS needs to work with the hospital community to develop and implement efficiency metrics sensitive enough to measure spending that hospitals directly influence. Any metric that does not achieve this goal will ultimately reflect variations within physician practices, not underlying hospital cost efficiency. This will only penalize hospitals for the clinical preferences of community physicians, a factor that is beyond the control of hospitals.

HFMA continues to strongly recommend that CMS take the following steps to ensure that hospitals aren’t inappropriately penalized for factors beyond their control related to the overall efficiency of patient care. 

  • Delay implementation of the efficiency metric until after the “Physician Value-Modifier” is implemented into the payment system for all physicians. Hospitals should not be expected to bear the brunt of penalties related to physician preferences. Implementing a penalty on only one side of the equation will only further misalign the financial incentives between physicians and hospitals and fail to improve the quality of care for Medicare beneficiaries.
  • Work with hospitals to refine the efficiency metric. Limiting the measurement to only conditions related to the index admission would be a significant improvement over all spending over a 30-day period and would be a more accurate proxy for factors within a hospital’s control.

Hospital IQR Program

On page 127 of the proposed rule, CMS states it is “considering adding a measure of hospitals’ performance on treating Medicare beneficiaries appropriately as a hospital inpatient or a hospital outpatient. Specifically, we are considering constructing a measure to assess the rate and/or dollar amount of billing hospital inpatient services to Medicare Part B, subsequent to the denial of a Part A hospital inpatient claim.”

HFMA is strongly opposed to the creation of an efficiency measure based on RAC activity for multiple reasons. First, as discussed in our recent commenter letter related to CMS-1455-P: Medicare Program; Part B Inpatient Billing in Hospitals (link included below), we believe the Recovery Audit Contractor program is inherently flawed. Given that providers prevail in 72 percent of appeals, we are deeply concerned that the data used for this metric will not be corrected to reflect the outcome of appeals. As a result, providers will be unjustly penalized for the rapacious behavior of RACs, while the RACs continue to function with no consequence assigned for their extraordinarily high error rate.

Second, we believe that developing an efficiency metric based on RAC activity would constitute “double jeopardy.” Providers would not only be penalized for providing medically necessary services with recoupments and costs associated with managing RAC audits, but be exposed to reduced payment through the value based-purchasing modifier if this were eventually included in the VBP program.

Third, we believe the measure described in the proposed rule is a measure of administrative process, not the efficiency with which clinical care is delivered.  

Admission and Medical Review Criteria for Inpatient Services

HFMA appreciates CMS’s effort to define stay that qualifies for reimbursement under Medicare Part A as one where the admitting physician believes the patient’s stay will “span two midnights.” HFMA believes a better approach to achieving CMS’s desired policy goal would be to implement a pre-authorization program similar to what is used by almost all of the other public and private payers. This would allow CMS to achieve its policy goal of ensuring appropriate utilization of inpatient services and let hospitals leverage existing resources and processes to comply with CMS administrative rules. CMS’s current regime of retrospective review requires hospitals to allocate additional resources to administrative functions that do nothing to improve the quality of patient care.

If CMS finalizes the two midnight policy, HFMA has multiple concerns. First, we believe the proposed reimbursement offset for this policy is in appropriate. CMS proposes to apply a 0.2 percent budget neutrality adjustment which reduces overall payments to hospitals by an estimated $220 million for FY 2014. HFMA recommends that the final 2014 IPPS rule exclude the budget neutrality adjustment related to the proposed admission and medical review criteria for inpatient services. Prior to the inclusion of this policy, MedPAC estimated that provider Medicare margins in 2013 we be approximately -6 percent8 . Including this additional cut will further stress financially challenged hospitals. Of greater concern from a policy perspective, implementing this cut in the final rule confirms that CMS believes it is appropriate to under-reimburse hospitals for medically necessary services that are provided in the appropriate setting to eligible Medicare beneficiaries.

Second, we have concerns about the lack of clarity around the documentation requirements implied in the proposed rule. The proposed rule states that physicians must document the reasonable basis for the expectation of a stay crossing two midnights to justify the medical necessity of an inpatient admission. HFMA believes CMS needs to use the rule-making process to better define what criteria constitute a “reasonable basis for the expectation of a stay crossing two midnights.”

The proposed rule also states that inpatients must be formally admitted to the hospital, with an order from a qualified physician or practitioner who has admitting privileges at the hospital and who is responsible for the inpatient care of the patient and “verbal admission orders must be infrequent, and all orders must be promptly authenticated by the ordering physician.” In order to reduce confusion in implementing this new policy, we request that CMS answer the following questions in the final rule:

a. Will telephone orders accompanied by read back be considered verbal orders by auditors? HFMA believes they should be.

b. What will CMS’s definition of promptly authenticated be? It is unacceptable for this to be left ill-defined.

c. Will the auditors look at the date/time of the electronic signature of the inpatient order by the admitting MD? Or, 

d. Will CMS/the RAC consider the entry of the inpatient order date/time?

    i. Opting for option (c) is operationally problematic since signature sign off is delayed and often not even done until after the patient is discharged.

    ii. Opting for option (d) is operationally problematic as well since direct admits have orders entered that are not able to be released until the patient reaches the bed. The bedside RN has to release the order and often does not do this until later as he or she is otherwise occupied providing patient care.

Additionally, the proposed rule states that Medicare’s external review contractors would presume hospital inpatient admissions reasonable and necessary for beneficiaries who require more than one Medicare utilization day (defined by encounters crossing two midnights), unless hospitals were found to be abusing the presumption by systematically delaying care. HFMA requests that CMS also further define through the rule-making process what constitutes evidence that a hospital is “abusing the 2-midnight presumption for non-medically necessary services.”

Without clarity on these issues we are concerned that Recovery Audit Contractors will exploit these vaguely defined concepts to further deny hospitals payment for medically necessary care provided in an appropriate setting to eligible beneficiaries. Additionally, a lack of clarity around this policy will further exacerbate the appeals backlog (which CMS is attempting to resolve with this policy and the one proposed in CMS-1455-P) and could lead to an increased use of observation services as opposed to the decrease that CMS has stated it is seeking.

HFMA looks forward to any opportunity to provide assistance or comments to support CMS’s efforts to refine and improve the 2014 IPPS Proposed Rule. As an organization, we take pride in our long history of providing balanced, objective financial technical expertise to Congress, CMS, and advisory groups. 

We are at your service to help CMS gain a balanced perspective on this complex issue. If you have additional questions, you may reach me or Richard Gundling, Vice President of HFMA’s Washington, DC, office, at (202) 296-2920. The Association and I look forward to working with you.


Joseph J. Fifer, FHFMA, CPA
President and Chief Executive Officer
Healthcare Financial Management Association


About HFMA

HFMA is the nation’s leading membership organization for more than 40,000 healthcare financial management professionals. Our members are widely diverse, employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members’ positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant.

HFMA is a nonpartisan professional practice organization. As part of its education, information, and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards.  



1 Kaiser Family Foundation, State Decisions For Creating Health Insurance Exchanges, as of May 28, 2013

2 Washington Post, Funds to help uninsured choose health-care options could affect how many get coverage

3 Kaiser Family Foundation, The Cost and Coverage Implications of the ACA Medicaid Expansion: National and State-by-State Analysis; AHIP Coverage, Map: States’ Decisions on Medicaid Expansion; HFMA analysis

4 MedPAC, Refining the Hospital Readmissions Reduction Program

5 HFMA, Value Project: Phase 2

6 Washington Post, Patient ratings to affect Medicare payments to hospitals

7 JAMA Surgery, Patient Satisfaction as Possible Indicator of Quality Surgical Care

8 MedPAC, Hospital inpatient and outpatient services

Additional Comment Letters
HFMA Comments on Proposed Readmissions Reduction Program in FFY12 IPPS Rule
HFMA Proactively Comments on the CMS Hospital Readmissions Reduction Program
HFMA Comments on Proposed Rule: FY2013 Hospital Inpatient PPS Medicare Payment
HFMA’s Comment Letter to CMS on Hospital Value-Based Purchasing

Medicare Part B Rebilling
HFMA Comments on Medicare Part B Inpatient Hospital Billing and the RAC Program

Value-Based Purchasing
HFMA Comments on the CMS Hospital Inpatient Value-Based Purchasing Program
HFMA Comments on Proposed Rule: FY2013 Hospital Inpatient PPS Medicare Payment
HFMA’s Comment Letter to CMS on Hospital Value-Based Purchasing


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