HFMA Comments on Hospital Improvements for Payment Act of 2014 Discussion Draft
March 3, 2015
The Honorable Kevin Brady
U.S. House Committee on Ways and Means, Subcommittee on Health
1135 Longworth House Office Building
Washington, D.C. 20515
Re: Hospital Improvements for Payment Act of 2014 Discussion Draft
Dear Chairman Brady:
The Healthcare Financial Management Association (HFMA) would like to thank the Committee for the opportunity to comment on the discussion draft of the Hospital Improvements for Payment (HIP) Act of 2014. HFMA is a professional organization comprising more than 40,000 individuals involved in various aspects of healthcare financial management in hospitals and health systems, physician practices, and health plans. HFMA is committed to helping its members improve the management of healthcare delivery systems, comply with the numerous rules and regulations that govern the industry, and further the principles of administrative simplification.
HFMA would like to commend the Committee’s efforts in the discussion draft to put forth solutions to the challenges faced by hospitals and Medicare beneficiaries as a result of the Medicare Recovery Audit Contractor (RAC) program and other well-meaning policies that have had negative unintended consequences. While HFMA supports many of the provisions contained within the discussion draft, others are deeply concerning due to their design and ambiguity. Below please find HFMA’s comments on specific sections of the discussion draft and related suggestions for improvement.
Section 101 Hospital Prospective Payment System
Sec. 101 creates a third prospective payment system for short stay cases which would begin in FY 2020. The new payment system would apply to a set of MS-DRGs that met criteria outlined in the draft. Until such time that the new HPPS could be implemented, the discussion draft creates a short-stay transitional payment system effective from FY 2016-2019. To assist in the development of the HPPS, hospitals would be required to submit claims coded as both inpatient and outpatient in FY 2016. The draft also provides a moratorium on RAC reviews of short stay cases until the HPPS is implemented.
According to the discussion draft, both the new HPPS and the transitional payment system will be implemented in a budget-neutral manner. However, the discussion draft’s language leaves “budget neutral” open to definition. Payments for cases from the HPPS would come from the Medicare Hospital Insurance Trust Fund. As such, patients would be subject to the inpatient deductible and any overnight stay in the hospital would be counted toward satisfying the skilled nursing facility (SNF) three-day stay requirement to qualify for coverage.
HFMA appreciates the Committee’s thoughtful efforts to address the gaps in existing payment policy that RACs exploit to deny payment to hospitals for medically necessary services provided to Medicare beneficiaries. While Sec. 101 contains several concepts that HFMA believes are essential to reforming payment policy, HFMA does not support Sec. 101 as it is currently written. The draft solutions add unnecessary administrative complexity and leave hospitals open to additional payment cuts beyond those necessary to create a budget-neutral short-stay payment policy. Instead, HFMA recommends the Committee develop a short-stay payment policy that includes the following elements:
- Instead of creating yet another payment system, the Committee’s short-stay payment policy should be based on existing payment structures. One potential concept is DRG refinement. Under this method, using CMS’s current methodology, two separate sets of DRG weights could be created–one for short-stay cases, (cases having a length of stay of strictly less than two days), and one for non-short-stay cases.
- The MS-DRGs selected for inclusion in such a short-stay policy could be those accounting for a high percentage of all short-stay cases (defined as less than two days), or those with the highest RAC denial rates, or others chosen using other criteria. Any MS-DRG currently on Medicare’s “inpatient-only list” should be excluded from the refined payment methodology and continue receiving the full MS-DRG payment.
- Payments for short-stay cases billed under the outpatient PPS do not cover the cost an efficient provider incurs to provide medically necessary services to a Medicare beneficiary. Based on the most recent MedPAC data, hospital margins on outpatient services were -12.4 percent1 . HFMA strongly believes that payment rates for short-stay cases should cover the full cost (including capital and societal benefit) of providing medically necessary services to Medicare beneficiaries. As such, language in subsequent legislation should be included to ensure that payments for the short-term hospital stays under the refined policy will exceed payments currently available for short-stay cases under the outpatient prospective payment system.
- Similar to the HPPS proposed in Sec. 101, there should be a significant transition period to allow for implementation of a refined policy.
- During the transition period, HFMA strongly supports the moratorium on RAC reviews of short- stay cases that was included in the discussion draft.
- Payments for short-stay cases under a refined policy should be adjusted to reflect prevailing market labor rates by the hospital wage index that is currently used (including the system of wage floors and reclassifications) under the IPPS and OPPS payment systems. Beyond the complexity inherent in adding another data element to the Medicare hospital payment system that accomplishes the same purpose as the existing wage index, HFMA has serious concerns about the applicability of Bureau of Labor Statistics (BLS) data to hospitals. Hospital employers differ from the universe of all employers in terms of the wage levels necessary to recruit and retain qualified healthcare employees, the percentage of compensation paid in benefits, the likelihood of unionization, and other factors that might affect compensation rates for some types of employees. Further, the BLS survey is voluntary and represents a sample of employers, not a census of all employers. As such, the data are not fully transparent. By contrast, all hospitals submit wage index data when they file their cost reports. These data are subsequently reviewed to ensure that they were submitted in a consistent manner as all other hospitals, thus creating the transparency that BLS data lack.
- Add-on payments such as indirect medical education (IME) and disproportionate-share hospitals (DSH) should continue to be included as part of the refined policy and the transitional payment methodology. These payments should remain hospital-specific and not “aggregated” as discussed in Sec. 101.
- The discussion draft states that both the HPPS and the transitional payment system will be implemented in a budget-neutral manner. In the instance of a refined short-stay payment methodology, HFMA questions the need for a budget neutrality adjustment. In 2013 hospital margins for Medicare outpatient services (observation services) were -12.3 percent2. Further, partly as a result of overly aggressive RAC reviews, there has been a significant shift of patients from the inpatient setting to outpatient observation. From 2006 to 2012 the number of observation claims increased 88 percent while the average length of an observation stay increased from 26 to 29 hours.3 Given that hospitals have been significantly underpaid for short- stay observation cases, HFMA does not believe that an additional budget neutrality adjustment is warranted.
Should the Committee choose to retain the language related to budget neutrality, HFMA has specific concerns about the methodology for the pool to fund a transitional short-stay payment system. On the surface, the discussion draft appears to use a methodology to fund transitional short-stay payments in a manner conceptually similar to the current outlier funding mechanism. The discussion draft requires the Secretary to reduce payments made under section 1886 of the Social Security Act by “Z percent,” which is not specifically defined in the discussion draft. An adjustment factor will be calculated for each applicable year. The factor will be computed such that total payments for short-stay inpatient case under the transitional structure will be equal to the inpatient short-term payment pool.
However, the accompanying summary of the HIP Act summarizing the transitional payment pool states:
Subparagraph (b)(u)(2) – Payment rate for inpatient short-term hospital discharges based on short-term payment pool for fiscal years 2016 through 2019
Requires the Secretary to create a payment pool to reimburse short-term hospital discharges. The payment pool will equal no less than [X] and no more than [Y] percent. The payment pool will reduce total payments for short-term hospital stays by [Z] percent. The intent of this subparagraph is to ensure the total cost/savings of the HIP Act is budget neutral (emphasis added).
HFMA is concerned that it is the Committee’s intent to set the value of “Z” at whatever level is necessary to make the overall bill budget-neutral or possibly to help finance other Medicare amendments such as changes to the Sustainable Growth Rate (SGR) formula as opposed to just making the short-stay payment policy budget neutral. Hospitals face significant (and in some cases compounding) payment cuts from the Affordable Care Act as well as from more recent legislation such as the Pathway to SGR Reform Act of 2013; the American Taxpayer Relief Act of 2012 (ATRA); Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA); and the American Jobs and Closing Tax Loopholes Act of 2010 (AJCTLA). The cumulative effect of these payments on hospitals is significant and negative causing MedPAC in its March 2014 Report to Congress to comment “These changes may cause Medicare revenues to fall below the costs of relatively efficient providers in 2015.”4 Adding additional payment cuts will jeopardize hospitals’ ability to provide much needed services to their community and is unacceptable.
- As suggested in subparagraph (a)(t)(8) of Sec. 101 the refined MS-DRG short-stay payment mechanism should be paid from the Hospital Insurance Trust Fund. As such, patients would be subject to the inpatient deductible and any overnight stay would count toward the three-day stay qualification for Medicare SNF benefits.
While the payment system refinements discussed above will be a significant first step toward fixing the problem, any solution is incomplete without the accompanying reforms of the RAC program which are discussed in comments on Sec. 105 below.
Dual Coding/APC-DRG Crosswalks: Additionally, subparagraph (b)(u)(4) would require hospitals to submit dual claims for the same short-stay case coded under both the ICD-10 and CPT procedure codes for FY 2016. Dual submission would be enforced by RACs. By FY 2016, HHS is required to publish a cross-walk of ICD-10 to CPT procedure codes for short stays with a cross-walk for all discharges published by FY 2018. By FY 2019, the discussion draft requires the HHS Secretary to publish a cross-walk of APCs to MS-DRGs.
Under a MS-DRG refinement approach, submitting dual claims is unnecessary. HFMA strongly recommends that the Committee remove this requirement as it will saddle hospitals with a significant additional administrative cost. If the Committee maintains this requirement, HFMA believes that payment rates to hospitals should be adjusted upward to reflect the considerable resources that it will take to code a short-stay case under both the ICD-10 inpatient procedure coding system and the CPT/HCPCS outpatient procedure coding system. Additionally, HFMA believes it is inefficient to have RACs monitor dual submission. This could easily be done using automated matching edits in the existing claims submission system.
Similar to the above comment, under an MS-DRG approach HFMA does not believe the ICD-10 procedure code to HCPCS outpatient procedure coding system or MS-DRG to APC cross-walks discussed in subparagraph (b)(u)(4) are necessary. Further, HFMA questions whether an accurate viable crosswalk, as mandated in the discussion draft, can be developed. The creation of a crosswalk will be difficult and result in “approximate” maps with many concepts existing in one code set but not in other code sets. CPT and ICD-10-PCS codes are significantly different in terms of structure, terminology, and foundational principles. For example, while CPT may have different codes to distinguish differences in physician work; ICD-10-PCS codes focus on differences in the objectives of a procedure.
Section 102 Per Diem Payment Rate for Short Lengths of Stay
In addition to the short-stay payment methodology discussed above, sec. 102 creates a per diem for “unusually short LOS discharges” that are not covered but the HPPS. The per diem rate is based on 80 percent of the applicable base DRG payment and calculated such that payment for the first two days of any discharge is greater than the other days within a discharge.
HFMA strongly opposes the per diem payment rate on multiple grounds. First, this appears to be a blunt attempt to reduce hospital payments as there is no justification for the 20 percent reduction in payments for these cases. Second, IPPS payments are based on a system that averages resource utilization such that within a given MS-DRG, some hospitals experience a positive margin on some cases, a negative margin on others. If the intent is to create an inlier payment system, then it must be done in a budget-neutral manner. Finally, adding yet another short-stay payment methodology would add significant administrative burden. HFMA believes it would be better to monitor trends in short-stay cases over time and, as necessary, add MS-DRGs to the refined payment policy.
Section 103 Repeal of the Two-Midnight Payment Reduction
Sec. 103 repeals the 0.2 percent payment reduction included in the 2014 IPPS final rule. The reduction was justified as an offset for CMS’s anticipated impact of an increase in cases paid under the IPPS as a result of the two-midnight rule.
HFMA strongly supports this provision. Feedback from our members suggests that the two-midnight rule has had the opposite effect as CMS anticipated. Contrary to CMS’s model, our members have seen a significant increase in the number of admissions shifting from inpatient to observation status.
Section 105 Improvements to the RAC Program
Section 105 suggests a number of improvements to the RAC program. While HFMA generally supports the concepts put forth with some changes, we believe additional changes to the RAC program are required to address the problems inherent in the program that have led to the significant backlog at the Administrative Law Judge (ALJ) level of appeal. The discussion draft:
- Decreases the maximum statutory look-back period for RAC audit and recovery activities from four to three years. While HFMA generally supports reducing the look-back period we note that CMS has already implemented a three-year look-back period. HFMA believes that it would be more useful to limit the look-back period to original claims filing dates within the prior Medicare fiscal year.
- Requires RAC auditors to make a 30-day discussion period available to providers and suppliers prior to issuing a full or partial payment denial. HFMA supports a 30-day discussion period as long as it is implemented with all of the improvements discussed in this comment letter.
- Directs the Secretary to establish limits on the number of documentation requests made of providers that varies based on the provider/suppliers’ historical denial rates. HFMA supports the concept of positively correlating audit limits with historical denial rates, with two caveats. First, any future legislation must specify that the denial rate used to determine record requests is based on the final denial rate that incorporates the results of cases appealed through the ALJ. Second, the legislation must also impose a penalty for RACs when their post-payment denials are overturned on appeal (as further discussed below). Without incorporating these two features, HFMA is deeply concerned that tying a RAC’s ability to request documentation to a provider/supplier’s historical denial rate will only encourage RACs to become more aggressive and inappropriately deny even more claims.
- Requires all Medicare contractors who perform pre- and post-payment reviews to enter active audits into the RAC data warehouse. HFMA generally supports this provision. However, we believe the language needs to specifically state that the various entities who perform pre- and post-payment reviews are expressly prohibited from reviewing a claim that is either under review by another pre/post payment review entity or has been reviewed by a pre/post payment review entity.
In addition, to ameliorate the problems facing Medicare beneficiaries and providers, HFMA believes the following structural changes are needed to the RAC and Medicare programs:
- Impose a financial penalty on RACs when a denial is overturned on appeal. A penalty assessed in such instances would curb overzealous RACs and create a level playing field for both RACs and providers in addressing incorrect payments.
- Require RACs to consider only the medical documentation available at the time the admission decision was made in determining whether an inpatient stay was medically necessary. Currently, RACs utilize information that may not have been available to the physician at the time of the admission decision in order to deny claims. This requirement would restrain RACs’ current practice of second-guessing physicians’ judgment based on the outcome rather than the facts the physician had at the time.
- Eliminate application of the one-year timely filing limit to rebilled Part B claims. When a Part A claim for a hospital inpatient admission is re-opened and denied by a Medicare review contractor because the inpatient admission was determined not reasonable and necessary, the hospital could submit a subsequent Part B claim for services provided within 180 days of a revised or final determination. This would allow hospitals to either rebill immediately after the claim is denied or pursue their appeals rights and receive a final determination on the Part A claim before rebilling under Part B
- CMS currently does not allow rebilling for medically necessary services such as diabetes self-management training, physical therapy, speech-language pathology, occupational therapy, emergency department visits, and observation services that were part of an inpatient Part A claim denied by a RAC or other retrospective payment review. CMS supports this decision by stating that these services specifically require outpatient status in order to be billed and that the claim cannot be switched to outpatient status after the patient has been discharged.
HFMA finds this argument troublesome for several reasons, which it has communicated to CMS via multiple comment letters. First, it willfully (and in contradiction of CMS’s own program manuals) overlooks the fact that the excluded services were medically necessary services provided to eligible Medicare beneficiaries. In these cases, hospitals have provided a medically necessary service for which they incurred a cost and should be appropriately reimbursed. CMS’s own manuals support this principle. CMS states in the Benefits Policy Manual in Chapter 1, § 10 and Chapter 6, § 10, that Part B payment will be made for hospital services provided if Part A payment is denied. Further, the Financial Management Manual in Chapter 3, § 170.1 directs contractors to “ascertain whether the beneficiary is entitled to any Part B payment for services in question when the contractor determines that a Part A overpayment has been made.”5 By ignoring its own administrative pronouncements and refusing to pay for medically necessary services, CMS is further shifting the cost of caring for eligible beneficiaries onto other purchasers of health care.
Second, as CMS is well aware, the administrative distinction (upon which its decision rests) between an inpatient stay and an observation stay (during which many of these services are received) is not supported clinically. In almost all instances, observation patients are admitted to a bed on an inpatient unit and receive care from the same clinical staff as would an inpatient. This administrative distinction between inpatient services and observation was created at a time when it was inconceivable that three years after an admission, a Medicare contractor who has never seen the patient in question and who lacks the prerequisite education and credentialing to make an admission decision could subsequently deny a claim.
When a retrospective audit denies the inpatient admission but recognizes the medical necessity of other services, the auditor is in essence stating that observation services were appropriate. Yet even in these instances where the place of care, not necessity of the care, is in question, CMS refuses to infer from the admission order that the physician would have ordered observation services had the option for inpatient admission been foreclosed. Again, CMS’s policy directly contradicts its own manual. Chapter 29, § 280.3 of the Claims Processing Manual recognizes that providers are entitled to correct payment for services that are not “covered as billed.”6
Based on the CMS manuals cited above, Medicare Appeals Council (MAC) decisions have ordered CMS contractors to review services provided during the inpatient admission for coverage and payment under Part B. Subsequently, ALJs have routinely remanded cases for determination of the amount that should be paid when they deny appeals for inpatient admissions. In most cases, the instructions have ordered the payment of observation services when, in fact, they were not billed on the original claim.
Given that there is significant regulatory support in the CMS manuals, as confirmed by the findings of both the MAC and ALJs, HFMA strongly encourages the Committee to require CMS to revise its existing policies to allow hospitals to adjust claims denied by the RAC, rebill all medically necessary services that are part of a Part A inpatient claim that is denied by the RAC or other retrospective audit, and receive payment for all medically necessary services–including observation.
- Limit RAC auditing of approved issues to a defined time period, instead of approving them indefinitely, as is now the practice. After the issue’s audit time period has expired, RACs should be prohibited from auditing that issue. CMS should then analyze the audit results and offer education to providers in that jurisdiction if warranted. A RAC would need to seek new approval from CMS to audit for that same issue again, but must wait a certain defined time period to allow providers to incorporate education before requesting new approval. Additionally, a senior CMS official should be held accountable for approval of audit issues.
Section 110 Cost Information on Certain Hospital Payments
HFMA fully supports the goals of meaningful price transparency for patients. A whitepaper7 that resulted from a recent cross-industry taskforce that HFMA convened defined meaningful price transparency as:
In health care, readily available information on the price of healthcare services that, together with other information, helps define the value of those services and enables patients and other care purchasers to identify, compare, and choose providers that offer the desired level of value.
The intended outcome of price transparency is to provide; patients and other care purchasers with the information they need to make an informed choice of provider. Price transparency is just one component of the information that care purchasers need to make this choice; the quality and safety of services a provider delivers, for example, are other important components of the information a care purchaser needs.
Sec. 110 would require hospitals to report to CMS actual amounts collected by a hospital from uninsured and insured patients for the preceding two years for the 50 most common DRGs and APC groups. CMS would then make the data publicly available via website and hospitals would be required to link to it. Further, the rule states that making this data publicly available “allows for meaningful comparisons of hospital collections and related policies by zip code“ and “is readily understandable by a typical consumer.”
HFMA does not believe this provision will bring about meaningful price transparency and does not support it for the following reasons:
- It is unclear to HFMA how this information would be useful to patients and consumers. The information to be reported is retrospective and aggregated. To make an informed choice about where to receive care, patients will need an estimate specific to their particular circumstances (e.g., family percentage of the federal poverty level, whether or not they are insured, health plan benefit design if they are insured).
- HFMA is highly concerned about the accuracy of any conclusions drawn from “comparisons of hospital collections and related polices” as described in this section. The resolution of patient balances is influenced by a myriad of factors including, but not limited to, economic conditions in the community and the hospital’s catchment area that may have very little to do with a hospital’s collection policies.
- HFMA believes this requirement is duplicative of other state and federal regulations. At the federal level, the Affordable Care Act (ACA) requires hospitals to post charges annually and CMS posts similar data on a website as well for inpatient and outpatient services. Additionally 42 states require reporting on charges or payment rates.
- Finally, given the limited value of this information to patients and consumers, HFMA is concerned about the administrative burden of this additional reporting. Requiring hospitals to expend resources compiling this data will pull resources away from transparency efforts that will provide patients with meaningful estimates of their responsibility for services.
Sec. 110 also requires MedPAC to include information on charity care as a percentage of total care furnished by hospitals as part of its annual report. For tax-exempt hospitals, this information is available on Schedule H of IRS form 990. As written, this provision is largely redundant. To improve the utility of this information, HFMA recommends that bad debt and Medicaid shortfalls be added to the reporting. The addition of data related to the Medicaid shortfall is especially critical given the rapid expansion of the program. Just taking bad debt and charity care into account has never provided an accurate picture of uncompensated care provided by hospitals. Moving forward, without understanding the Medicaid shortfall, the uncompensated care information will be increasingly inaccurate.
Section 207 Extension of Non-Enforcement Instruction for Medicare Direct Supervision for Therapeutic Hospital Outpatient Services for CAHs and Rural Hospitals
Sec. 207 extends the House-passed non-enforcement instruction for direct supervision for critical access hospitals (CAHs) for an additional year (CY 2015).
HFMA strongly supports the Committee’s proposal to extend the moratorium on the enforcement of the Medicare direct supervision requirements for outpatient therapeutic services furnished in CAHs and rural hospitals. However, the moratorium only lasts for one year. Without a permanent fix, Medicare beneficiaries’ access to medically necessary outpatient therapy services at CAHs and small rural hospitals will again be jeopardized by unnecessarily onerous supervision requirements. Therefore, we urge the Committee to enact a permanent moratorium on the direct supervision requirements.
Section 208 Critical Access Hospital Relief Act
Sec. 208 would remove the 96-hour criterion of the physician certification requirement as a condition of payment for CAHs. CAHs would still be required to satisfy the other physician certification requirements as well as the condition of participation requiring CAHs to maintain a 96-hour annual average length of stay per patient. HFMA supports this provision, which would allow CAHs to provide access to services, as necessary, to treat Medicare beneficiaries in rural communities.
Section 213 Comprehensive Care Payment Innovation Act
Sec. 213 would create a voluntary bundling program for qualified entities based on both retrospective and prospective payments. HFMA strongly supports efforts to develop bundled and other innovative care models that align incentives for physicians, hospitals, and post-acute providers to improve both the cost efficiency and quality outcomes of care delivery. As such, we support the provision described in section 213. However, we are concerned that the section does not include a post-acute only model. HFMA strongly recommends the committee include language in sec. 213 adding a post-acute only model similar to the Centers for Medicare and Medicaid Innovation Bundled Payment for Care Improvement Model 3.
Section 217 Establishing Beneficiary Equity in the Hospital Readmissions Program
Sec. 217 would require the HHS Secretary to incorporate a sociodemographic adjustment into the hospital readmissions reduction program. The program initially requires the use of dual eligible individuals starting in federal FY 2016 and subsequently adjustments based on the IMPACT report.
HFMA fully supports this provision as there is a litany of peer-reviewed research that demonstrates the significant correlation between sociodemographic factors and hospital readmission rates. The failure to account for these factors unjustly penalizes safety net hospitals and further denies their communities vital resources for healthcare improvement.
HFMA recommends that in addition to using the proportion of dual eligible patients a hospital treats as a sociodemographic factor in FY 2016 and FY 2017, the Committee should provide the Secretary with the option of using U.S. Census Bureau data. HFMA also strongly encourages the Committee to leave the Secretary flexibility in the future to use an alternative adjustment other than that identified in the IMPACT study. This will allow for better mechanisms to account for sociodemographic factors to be implemented as they become available.
If you have additional questions, you may reach me or Richard Gundling, Vice President of HFMA’s Washington, D.C., 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
The Healthcare Financial Management Association (HFMA) provides the resources healthcare organizations need to achieve sound fiscal health in order to provide excellent patient care. With more than 40,000 members, HFMA is the nation's leading membership organization of healthcare finance executives and leaders. HFMA helps its members achieve results by providing education, analysis, and guidance, and creating practical tools and solutions that optimize financial management. The organization is a respected and innovative thought leader on top trends and challenges facing the healthcare finance industry. From addressing capital access to improved patient care to technology advancement, HFMA is the indispensable resource for healthcare finance.
1, 2 C. Lisk, J. Stensland, and Z. Gaumer. “Assessing Payment Adequacy and Updating Payments: Hospital Inpatient and Outpatient Services.” MedPAC, Dec. 18, 2014.
3, 4 MedPAC. Chapter 3: “Hospital Inpatient and Outpatient Services.”
5 Financial Management Manual (FMM) (CMS Pub. 100-06), ch. 3, § 170.1 (internally referring to the Part B payment policy in BPM (CMS Pub. 100-02), Chapter 6, § 10).
6 Claims Processing Manual (CMS Pub. 100-04), ch. 29, § 280.3 (“Claims Where There is Evidence That Items or Services Were Not Furnished or Were Not Furnished as Billed”).