CMS Announces Final Rule for Inpatient Prospective Payment Reforms - 8/1/06

The Centers for Medicare and Medicaid Services has issued a final rule for Medicare’s inpatient prospective payment system reforms, effective for discharges on or after Oct. 1, 2006. The changes will be phased in over a three-year period instead of requiring hospitals to fully transition to the new system in 2007 as earlier proposed. The payment reforms align hospital payments more closely with the costs of a patient’s care by using hospital costs rather than charges, and by accounting more fully for the severity of the patient’s condition.

Payment to all hospitals will increase by an average 3.5% for FY07 when all provisions of the rule are taken into account. In addition, while some diagnosis related groups have significant payment increases, no DRG has an FY07 payment reduction of more than 5.4%. More than 1,000 hospitals in rural areas will see an average increase of 3.7% in FY07; urban hospitals will see an average increase of 3.4%, and cardiac specialty hospitals will see an average increase of only 1.2%. About 2% of hospitals will experience payment decreases due to certain wage index changes. Overall, the final rule is estimated to increase payments to acute care hospitals by $3.4 billion.

Based on public comments, CMS has refined the methods used to determine average costs per case at the DRG level. For example, it has expanded the number of distinct hospital departments used in the calculations from 10 to 13; included more hospital data in the final calculations by applying less stringent criteria for eliminating statistical outliers; and accounted for hospital size when evaluating the markup of charges over costs. Together, these refinements result in substantially smaller changes in payment than CMS proposed earlier this year. In addition, CMS is announcing steps to further evaluate hospital charging practices--particularly for expensive items like medical devices--as part of further improvements for 2008.

CMS is also implementing a significantly lower threshold for cost “outlier” status than had been proposed earlier this year. The law requires that Medicare provide additional payment if a hospital’s costs for treating a case exceed the usual Medicare payment for that case by a set threshold. In FY06, a hospital had to lose more than $23,600 on a case to receive additional Medicare payment. For FY07, CMS had proposed to increase this threshold to $25,530. The final rule for 2007 sets a threshold of $24,475. Further, CMS also changed how it calculates the loss threshold based on comments from hospital stakeholders. Medicare expects the additional payments for high-cost cases will equal 5.1% of total inpatient payments.

http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1921.

CMS Releases Final Rule for Inpatient Rehabilitation Facilities Payment - 8/1/06

Inpatient rehabilitation facilities are projected to receive approximately $7 billion in payments from the Medicare program in FY07 under a final rule announced on August 1st by CMS. The rule updates payment rates and modifies payment policies for services furnished to Medicare beneficiaries for discharges occurring on or after Oct. 1, 2006, through Sept. 30, 2007. The rule’s provisions are estimated to increase Medicare payments to approximately 1,240 IRFs in FY07 by approximately $50 million. The rule provides for an update to IRF payment rates of 3.3%, and implements certain provisions in the Deficit Reduction Act of 2005 affecting IRFs.

The rule delays by one year the existing regulations regarding the three-year phase-in to a 75% compliance threshold--a requirement that, when fully phased in, requires that at least 75% of an IRF’s patient population have one of the 13 designated medical conditions for which intensive inpatient rehabilitation services are medically necessary. Thus, for providers with cost reporting periods that start on or after July 1, 2006, and before July 1, 2007, the compliance threshold will be 60%. For providers with cost reporting periods starting on or after July 1, 2007, and before July 1, 2008, the compliance threshold will be 65%, while the 75% threshold will be imposed for providers with cost reporting periods beginning on or after July 1, 2008.

In addition, the final rule includes a 2.6% reduction in the standard payment amount for FY07, to offset the effect of changes in coding that do not reflect real changes in patient acuity. This is less than the 2.9% adjustment included in the proposed rule. As a result, the final rule increases the outlier threshold for high-cost outlier cases to $5,534 in 2007, which is less than the $5,609 in the proposed rule. At this level, CMS projects that estimated outlier payments would equal 3% of total estimated payments under the IRF PPS.

http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1924

Proposed 2007 Medicare Physician Fee Schedule Released - 8/8/06

On Aug. 8, 2006, the Centers for Medicare & Medicaid Services (CMS) released the proposed 2007 Medicare physician fee schedule. Although providers had anticipated 4.6 percent reduction in payment, revisions of the sustainable growth rate (SGR) calculation have increased the cut to 5.1 percent.

Some of the other highlights include proposals:

• Amending the physician self-referral (Stark) regulations.
• Updating the drug add-on adjustment to the composite rate for End Stage Renal Disease facilities to 15.2 percent.
• Developing supplier standards for independent diagnostic testing facilities.
• Affecting reimbursement for imaging services.

CMS has made available a preview of the rule on its Web site. Access the CMS version of the proposal at http://www.cms.hhs.gov/PhysicianFeeSched/PFSFRN/itemdetail.asp? filterType=none&filterByDID=-99&sortByDID=4&sortOrder=ascending&itemID=CMS1185539.

Medicare Nursing Home Payments to Increase 3.1% in 2007 - 7/27/06

CMS has announced that Medicare payments to nursing homes will increase by approximately $560 million in 2007. The 3.1% increase will be reflected in Medicare payment rates to nursing facilities that furnish certain skilled nursing and rehabilitation care to Medicare beneficiaries. The SNF prospective payment system update notice also outlined several initiatives, including plans to develop an integrated system of post-acute care payment to make payments for similar services consistent regardless of where the service is delivered; encourage the increased use of health IT in the delivery of post-acute care; make information about healthcare pricing and quality accessible and understandable; and accelerate quality improvements for nursing home residents. Read the announcement at http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1918.

CMS announced a 3.1% increase in Medicare payment rates to home health agencies for CY07, an additional $460 million in payments. CMS proposes to evaluate home healthcare quality by relying on te submission of 10 outcome and assessment information set quality measures that are currently being publicly reported. HHAs that submit the required quality data will receive a 3.1% increase in payments. If a HHA does not submit quality data, the home health market basket percentage increase will be reduced to 1.1% for CY07. Rural home health agencies that participate in the ongoing quality measurement effort will see an estimated 3.3% increase in payment, while urban agencies that continue to provide quality data will experience an estimated 2.9% increase in payments.

CMS is also proposing to revise the payment methodology for oxygen equipment, oxygen contents, and capped rental durable medical equipment. This proposed rule would ensure that Medicare pays appropriately for these items and would reduce out-of-pocket costs for beneficiaries who pay a 20% copay on this equipment. Read the press release at http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1917.

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