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From Health Law Daily, April 19, 2016

CMS pulls plug on two-midnight payment cuts in IPPS/LTCH Proposed rule

By Patricia K. Ruiz, J.D.

The Fiscal Year (FY) 2017 Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Proposed rule continues CMS’ shift from volume to value and pulls the plug on controversial payment cuts associated with the two-midnight rule. In the advance release of the Proposed rule and the accompanying fact sheet, CMS states that the proposed changes to IPPS payment policies are expected to increase IPPS operating payments by approximately 0.7 percent. In total, CMS projects that total Medicare spending on inpatient hospital services will increase by about $539 million in FY 2017. The proposed changes would take effect October 1, 2016.

Changes to payment rates under IPPS. CMS proposed a 0.9 percent increase in operating payment rates for acute care hospitals under IPPS that are participating successfully in the Hospital Inpatient Quality Reporting (IQR) Program and that are meaningful users of electronic health records (EHR). Hospitals that do not successfully participate in the IQR program will be subject to a one-fourth reduction of the market basket update. Hospitals not engaged in meaningful use of EHR will be subject to a three-fourths reduction of the market basket update. The 0.9 percent increase reflects the initial market-basket update of 2.8 percent, adjusted by a negative 0.5 percent for multi-factor productivity, a negative 0.75 percent under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) cuts, a negative 1.5 percent adjustment to recoup documentation and coding overpayments under the American Taxpayer Relief Act of 2012, and an increase of 0.8 percent to address concerns related to the two-midnight rule.

Two-midnight rule. Following the introduction of the two-midnight rule in 2013, hospitals strongly opposed CMS’ proposal to offset the cost of increased inpatient admissions with a 0.2 percent reduction in inpatient payments (see Hospitals refuse to give up, file another two-midnight challenge, January 13, 2016). Taking the backlash into account, CMS proposed permanently removing the adjustment for FY 2017 and its effects in FYs 2014 through 2016. The increase of 0.8 percent offsets the 0.2 percent adjustment for these years. CMS wrote in its Proposed rule, “While we generally do not believe it is appropriate in a prospective system to retrospectively adjust rates even where we believe a prospective change in policy is warranted, we take this action in the specific context of this unique situation, in which we have been ordered by a Federal court to further explain the bases of an adjustment we have imposed for past years,” (see HHS follows the rules, releases two-midnight rate reduction methodology, December 1, 2015).

Uncompensated care payments. Under the ACA, CMS distributes to disproportionate share hospitals an amount equal to an estimate of 75 percent of what otherwise would have been paid under Medicare, based on the hospital’s relative share of uncompensated care nationally. For FY 2017, CMS proposed distributing approximately $6 billion in uncompensated care payments, down $400 million from FY 2016. CMS proposed two changes to the current methodology: (1) to use data from three cost reporting periods instead of one to limit major fluctuations in uncompensated care payments from year to year; and (2) to apply a proxy to estimate Medicare Supplemental Security Income (SSI) inpatient days for Puerto Rico hospitals, since residents of Puerto Rico are not eligible for SSI benefits.

Quality measures and hospital-acquired conditions (HAC). CMS proposed to remove 15 measures from and add four new claims-based measures to the IQR Program for FY 2019 and subsequent years. CMS also proposed several changes to the HAC Reduction Program policies, including changing methods for scoring under the program from the current decile-based scoring to continuous scoring.

LTCH PPS. CMS proposed a 2.7 percent market-basket update for LTCHs, plus a 0.5 percent cut for productivity and an additional 0.75 cut under the ACA. In the Proposed rule, CMS continues to implement changes required by The Pathway for SGR Reform Act of 2013 (P.L. 113-67) requiring two different types of LTCH PPS payment rates depending on whether the patient meets certain clinical criteria. Cases meeting the higher standard payment rate will see an increase of 0.3 percent in FY 2017. CMS also proposed to streamline regulations regarding the payment adjustment made when the number of cases an LTCH admits exceeds a specified threshold, generally 25 percent. As a result of continuing implementation, CMS projects that LTCH PPS payments would decrease by 6.9 percent, approximately $355 million.

MainStory: TopStory AgencyNews HealthCareReformNews ReimbursementNews IPPSNews CMSNews BillingNews DSHNews HealthReformNews LTCHNews PaymentNews PartANews PartBNews PartCNews PartDNews QualityNews

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