FFY 2014 – Inpatient Medicare PPS Proposed Rule Summary

May 10, 2013 FR

Presented by Lisa Ellis and Yolanda Chin

May 10, 2013

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AGENDA

Inpatient PPS Update Factors DRG Rate Calculation Example Wage Index Changes Market Basket DSH Payment Changes DGME Changes Critical Access Hospitals (CAHs) Medicare Dependent Hospital (MDH) Designation Low-Volume Hospitals Sole Community Hospitals (SCH) Value-Based Purchasing Program Hospital Readmission Reduction Program (HRRP) Hospital IQR Program Admission and Medical Review Criteria for Inpatient Services Clarified Proposals for Future Years

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Inpatient PPS Update Factors

Topic Proposed 2014 Final 2013 Final 2012 % Change

Inpatient Hospital Update – FY 2013

Market Basket Update 2.50% 2.60% 3.00%

ACA Productivity Reduction -0.40% -0.7% -1.00%

ACA Mandated MB Reduction -0.30% -0.10% -0.10%

Adjusted MB Increase Full Allowable (No Quality data -2%) 1.80% 1.80% 1.90%

Coding Adjustment MS DRG

CY Coding Adjustment * -0.80% -1.90% -2.00%

One-time adj. FY 08-09 for FY12; Reverse in FY13 2.90% -2.90%

Less: Offset for proposed changes to admission and medical review for IP services FY 2014 -0.20%

Net Impact of MS DRG Coding Adjustment -1.00% 1.00% -4.90%

PPS Base Rates (Full) WI>1.0

Labor $3,741.72

Labor $3,679.95

Labor $3,584.30 1.68%

Nonlabor $1,634.32

Nonlabor $1,668.81

Nonlabor $1,625.44 -2.07%

PPS Base Rates (Red) WI<1.0

Labor $3,333.14

Labor $3,607.65

Labor $3,513.95 -7.61%

Nonlabor $2,042.90

Nonlabor $1,636.02

Nonlabor $1,593.54 24.87%

Capital Rate $432.03 $425.49 $421.42 1.54%

Outlier Threshold $24,140 $21,821 $22,385 10.63% Occupational Mix Adjusted National AHW $38.21 $37.46 $36.25 2.00%

Overall IPPS Payments Increase - 0.8 % Full update 1.8 % if participating in IQR Reduced update -0.2% decrease if not participating in IQR *Required $11 Billion recoupment per ATRA – 2014-2017

DRG Rate Calculation Example

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Example HospitalDRG Rate with Operating and Capital DSHEFFECTIVE 10/1/13 - 9/30/14 - Proposed

Source:FY 2014 Fed Reg Proposed Rule dated 4/26/13 - CMS-1599-P

Reclassified to Santa Rosa for

2013

Reclassified to Oakland for

2014 REF.FFY 2013 FFY 2014

Final Proposed

PPS RATE10/1/12 - 9/30/13

10/1/13 - 9/30/14

Labor 3,679.95$ 3,741.72$ Table 1AWage Index (reclassifed to Santa Rosa) 1.6082 1.6454 Table 4aAdjusted Labor 5,918.10$ 6,156.63$ Non-Labor 1,668.81$ 1,634.32$ Table 1AUnadjusted Base DRG Rate 7,586.91$ 7,790.95$

Readmissions Adjustment Factor 0.9999 0.9999 Table 15VBP Adjustment Factor - (final factor to be determined) 0.9995261925 0.9967041761 Table 16Adjusted Base DRG Rate 7,582.55$ 7,764.49$

Operating DSH Factor 7.580% 7.580% DSH Calc.Adjusted Operating DSH Amount 574.72$ 588.51$

DRG with Operating DSH 8,157.27$ 8,353.00$

Capital Amount with DSH 616.25$ A 635.62$ A

DRG w/ DSH w/ Capital 8,773.52$ 8,988.62$

CAPITALFederal Rate 425.49$ 432.03$ Table 1DGAF 1.3845 1.4064 Table 4A

Capital DSH Factor 1.0461 1.0461 DSH Calc.

Total Capital Rate per Discharge w/ DSH 616.25$ A 635.62$ A

Increase in IPPS base rate for FY 2014 215.10$

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Wage Index Changes

CMS currently uses Office of Management and Budget (OMB) statistical areas to define areas

On February 28, 2013 OMB announced revisions to these statistical areas based on 2010 census, but there was not sufficient time to implement changes

Changes based on 2010 census expected to be proposed for FY 2015

CMS has proposed to extend rural floor through FFY 2014

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Market Basket

Now rebased to 2010 – will use FY 2010 cost reports for relative portion of base-year cost weights – instead of FY 2006 data

Labor-related share increased to 69.6 percent from 68.8 percent. For hospitals with wage indices of less than 1.0, labor-related share will remain at 62 percent

Market Basket update is 2.5%

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DSH Payment Changes

New Medicare DSH Payment Method

Changes per ACA Section 1886(r)

Effective FFY 2014

New DSH payment rules do not revise or replace capital DSH payment

Two payment components:

25% of what hospital would have been paid under existing DSH formula - “empirically justified DSH payments”

75% of previous DSH entitlements will be placed in a pool and the new payments based in part on uncompensated care - “uncompensated care DSH payments”

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DSH 25% of Existing DSH Payment

(“empirically justified DSH payments”)

Still paid on interim payment basis, per discharge

Changes will need to be made to hospital cost report

More detailed operational and cost report instructions will follow the final rule

DSH Eligibility for Uncompensated Care Payment

(“uncompensated care DSH payments”) Subsection (d) hospitals – PPS hospitals that qualify for existing DSH based

on their “disproportionate patient percentage” or Pickle percentage CMS is proposing to exclude:

Sole community hospitals (SCH) that are paid based on their hospital specific payment rate

Maryland hospitals paid under a waiver

Hospital participating in Rural Community Hospital Demonstration

Critical Access Hospitals (CAH)

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DSH Three Factors Used to Calculate Uncompensated Care Payment

1) CMS estimate of 75% of amount of Medicare DSH payments for FY 2014 (otherwise would have been paid under existing DSH methodology)

2) Adjustment for percent change in national uninsured rate (persons under 65) from a base 2013 rate

3) Each eligible hospital’s estimated uncompensated care amount relative to the estimated uncompensated care amount for all hospitals that are eligible to receive the standard DSH payment

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DSH Factor 1 – 75% of Aggregate Amount under Old DSH

CMS will estimate the pool in advance of each year – 2014 estimate is

$12.338 billion

75% of that amount would be $9.2535 billion for 2014

This estimate based on February 2013 estimate from Office of the Actuary

Final estimate would be based on July 2013 estimate from Office of the Actuary

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DSH

Factor 2 – Uninsured Rate Change

Estimated uninsured rate for 2013 is 18% from a Congressional Budget

Office (CBO) letter from 2010

Estimated uninsured rate for 2014 is 16% from a CBO report issued February 5, 2013

Calculation of percent change in uninsured rate:

1 – [(0.16 – 0.18)/0.18] = 1 – 0.111 = .889 (88.9 percent)

This must be reduced per statute by a reduction of 0.1 percentage points for 2014 – 88.9 percent – 0.1 percentage points = 88.8 percent

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DSH Adjusted Uncompensated Care Pool for 2014 = $8.217 Billion

$9.2535 x 88.8 percent = $8.217 billion

Note – this amount is not based on real data for either 2013 or 2014

CMS is not expecting to reconcile this amount at a later date for actual experience

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DSH Factor 3 – Uncompensated Care Cost

CMS is proposing to use alternate data to measure uncompensated care cost for

FY 2014, and possibly additional years

FY 2014 proposal to use Medicaid patient days + Medicare SSI patient days from a prior period (2010/2011)

Concerns regarding standardization and completeness of Worksheet S-10 data

For 2014, each hospital’s percent-to-total of uncompensated care cost will be estimated using a proxy:

1. Medicaid days from most recently available cost report (2010/2011)

2. Medicare-SSI days from most recently available SSI ratios (FFY 2010 available now, FFY 2011 available Spring 2013)

Medicare Advantage (Part C) days will be included in SSI fraction (diluting it)

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DSH Payments for DSH

CMS issued a Medicare Supplementary table containing calculation of allocation percentages.

Each hospital identified as “projected to receive DSH for FY 2014” has been given a “Proposed Factor 3.”

This percentage is then multiplied by $8.217 billion to determine what each hospital will receive for uncompensated care costs.

If a hospital is NOT expected to qualify for standard DSH payment for a fiscal year: No interim payments for Standard DSH or additional payment for uncompensated care If ultimately qualifies for standard payment at cost report settlement, CMS would pay 25

percent and new payment for uncompensated care at that time

If a hospital IS expected to qualify for standard DSH payment for a fiscal year: Interim DSH payments (25 percent) on a discharge basis New uncompensated care payments made periodically but not per discharge If hospital is found not to be eligible at cost report settlement, CMS will recoup interim

payments

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DSH Uncompensated Care Payments

Uncompensated care payment will be paid on Federal Fiscal Year basis

CMS proposes “to reconcile that amount in the cost reporting period that begins in the respective Federal fiscal year” – 12/31/14 cost report will start receiving uncompensated care costs in fall of 2013

CMS proposes all three factors determined prospectively and not reconciled at cost report settlement

CMS may decide to reconcile factor 3 based on more recent cost report data

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DSH Sole Community Hospitals

Uncompensated care payments would not be accounted for in determining whether an SCH is paid the higher of the Federal rate or the hospital-specific rate

CMS is proposing to exclude sole community hospitals paid under their hospital specific rate “from the application of section 1886 (r) of the Act” (i.e., no DSH payment or new uncompensated care payment)

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DSH Medicare Advantage (Part C) Days

CMS proposing to adopt the policy change first announced in 2004:

Include Medicare Advantage days in the SSI fraction – will dilute it

Exclude Medicaid-eligible portion of these days from numerator of Medicaid fraction – will dilute it

This is CMS’ response to the district court decision in the Allina case, where they were ruled against because they did not give required notice-and-comment rulemaking procedure

Going forward, effective 10/1/13, CMS is giving notice of the treatment of Medicare Advantage days

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DGME Changes

DGME

Proposal to include labor and delivery (L&D) IP days in the Medicare Utilization Ratio (numerator and denominator)

Would require changes to cost report worksheets – WS S-3, Part I

CMS recognizes that this will reduce GME payments, as the denominator will be increased greater than numerator

Reduction in IPPS payments by $15 million in FY 2014

INFLATION UPDATE FREEZE FOR HIGH PER RESIDENT AMOUNTS (PRAs)

Freeze for PRAs that exceed ceiling expires beginning in FY 2014

Cost reporting periods beginning on or after 10/1/13 – apply full CPI-U update for GME payment

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Critical Access Hospitals (CAHs)

For DGME or IME, a hospital may not claim FTE resident training that occurred at a CAH

CAH can include costs of training these residents when they rotate to the CAH

Also, proposal clarifies COP (Conditions of Participation) – must provide IP care on site

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Medicare Dependent Hospital (MDH) Designation

MDH designation extended by Section 606 of American Taxpayer Relief Act

(ATRA) for one additional year, through FY 2013

Proposed FY 2014 rule included expiration of MDH payment designation, effective for discharges after 10/1/13. These hospitals will then be paid for inpatient services based on the Federal rate

MDHs can apply for SCH status but must apply by 8/31/13 in order to be paid as SCH at 10/1/13

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Low-Volume Hospitals

Temporary changes to low volume definition and payment adjustment

methodology that was provided by ACA and ATRA for FY 2011 – FY 2013 are expiring

Return to the definition and payment method in place prior to FY 2011:

Effective for FY 2014 and subsequent years, in order to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. Under existing policy, effective for FY 2014 and subsequent years, qualifying hospitals would receive the low-volume hospital payment adjustment of an additional 25 percent for discharges occurring during the fiscal year.

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New Sole Community Hospital (SCH) Applicants

Including labor and delivery days as inpatient days could affect a hospital’s eligibility for SCH status

Total inpatient days of SCH applicant compared to nearby hospital to determine if it is a “like” hospital (SCH must be more than 35 miles from “like” hospital)

Total inpatient days of nearby hospital must be >8% of applicant’s total inpatient days

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Value-Based Purchasing Program

Would reduce base operating DRG payment amounts by 1.25 percent in FY 2014

Estimated $1.1 billion available for value-based incentive payments for FY 2014

Program is budget neutral

FY 2016 – CMS proposes to remove 3 clinical process of care measures from program and add 3 measures

FY 2017 - 2 additional measures added

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Hospital Readmissions Reduction Program (HRRP)

Began 10/1/12

FY 2014 maximum penalty increases to 2 percent (ACA requirement)

Three 30-day readmissions measures:

Pneumonia, acute myocardial infarction, and heart failure

Proposal modifies three 30-day readmissions measure to exclude planned readmissions

AHA - “While the AHA welcomes the planned readmissions exclusions, we are disappointed that CMS has not yet excluded readmissions unrelated to the initial reason for admission, as the ACA requires.”

Proposal to add two 30-day readmissions measures beginning in FY 2015 – chronic obstructive pulmonary disease, and total hip/knee arthroplasties

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Hospital IQR Program

IPPS Hospitals that do not participate in submitting quality data –

receive a negative .2 percent update

Greater than 99% participation now

FY 2014 – 57 quality measures (10 quality measures in 2004)

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Admission and Medical Review Criteria for Inpatient Services Clarified

Hospitals have needed guidance on when a patient is appropriately treated and paid by Medicare as an inpatient

Supposedly would help patients who have been having longer stays as outpatients because of the hospitals’ uncertainties about payment if patient is admitted

Presumption is that a patient should be admitted if:

• Hospital inpatient admissions spanning at least two midnights (at least more than one Medicare utilization day), will presumptively qualify as appropriate for payment under Medicare Part A.

• Patient requires procedure that is specified as inpatient-only

Presumption can be overcome by medical record documentation if physician admits the patient but the patient stays less than expected time. However, the physician must support their original expectation with medical documentation.

CMS estimate – proposed policy would increase IP PPS expenditures by $220 million.

CMS will permanently and prospectively reduce standardized amount, SCHs’ and MDHs’ hospital-specific rates, and Puerto Rico-specific amount each by 0.2 percent.

AHA – “We are concerned that this proposed policy would continue to allow CMS contractors to second guess physicians’ judgment. We are also very disappointed that CMS is proposing to cut inpatient payments by 0.2 percent to offset the estimated $220 million in additional inpatient PPS expenditures it believes will be associated with this proposed policy.”

FR – “These additional expenditures result from an expected net increase in hospital inpatient encounters due to some encounters spanning more than 2 midnights moving to the IPPS from the OPPS, and some encounters of less than 2 midnights moving from the IPPS to the OPPS.” 27

Proposals for Future Years

2015 – HAC – Hospital-acquired Conditions Effective FY 2015, ACA requires a 1percent reduction in Medicare payment to hospitals in bottom 25 percentile

of national HAC rates Eight quality measures grouped into two domains to determine payment penalties Domain 1 – claims-based Patient Safety Indicators (PSIs) Domain 2 – healthcare-associated infection (HAI) measures – two HAI measures for FY 2015 CMS will calculate a “total HAC score” – higher score indicates worse performance 2016 - IQR PROGRAM To meet FY 2016 IQR reporting requirements, CMS proposes that hospitals have the option to report one

quarter of data for 16 quality measures using electronic health records (EHRs) certified in the meaningful use program. The agency strongly encourages participation in the voluntary election as a precursor to a required electronic reporting requirement of measures. The electronic reporting option would allow hospitals to meet both their FY 2016 IQR reporting requirement for those 16 measures, as well as fulfill the electronic quality measure reporting requirements in the meaningful use program.

AHA – “The AHA is concerned about the substantial differences between EHR-based and manual chart

abstraction methodologies that result in variation in the performance results. We also continue to be concerned that quality measures reported via certified EHRs have not been adequately validated.”

For FY 2016, CMS proposes to remove eight measures from the IQR program. For FY 2016, the agency proposes to add five measures to the IQR program.

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