The Centers for Medicare and Medicaid Services has proposed 2010 payment rate updates for acute care and long-term care hospitals that will not please hospital officials.
CMS plans to update acute care hospital payment rates by 2.1 percent for inflation, less an adjustment of 1.9 percentage points to remove the effect of increases in aggregate payments "due to changes in hospital coding practices that do not reflect increases in patient's severity of illness."
CMS also intends to update long-term care hospital rates by 2.4 percent for inflation, less an adjustment of 1.8 percentage points "to account for changes in documentation and coding practices that do not reflect increases in patient's severity of illness."
The proposed changes apply to approximately 3,500 acute care hospitals paid under the Inpatient Prospective Payment System and 400 long-term care hospitals paid under the Long-Term Care Hospital Prospective Payment System, beginning with discharges occurring on or after Oct. 1, 2009.
"We understand hospitals will be concerned about lower than historical update amounts" said Charlene Frizzera, CMS' acting administrator. "However, we are proposing an adjustment that minimizes the effects on FY 2010 payments while still meeting the requirements of the law, which may mean larger reductions in the next two years. We are asking for comments from the public to help us ensure that these proposals are the best ways to meet the requirements of the law."
As Frizzera indicated, the projected 2.1 percent update for inflation for inpatient acute care payment rates is lower than the updates applied in recent years and reflects the slowing rate of inflation in the economy.
The inflation updates are specifically designed to measure the inflation in the costs of resources (the market basket) used by hospitals in delivering care to inpatients. Because long-term care hospitals generally use a different mix of resources than acute care hospitals, their inflation update of 2.4 percent is determined using a different market basket than the market basket used for acute care hospitals.
Hospital advocates are unhappy with the new payment rates.
"We're extremely disappointed with the level of payment for FY 2010," said Tom Nickels, senior vice president for federal relations at the American Hospital Association. "The reductions go well beyond what is appropriate and fly in the face of data showing still-falling Medicare margins that are at an all-time low. Hospitals cannot sustain these additional cuts in an already exceptionally underfunded system."
CMS provides justifications
In FY 2008, the CMS adopted a new classification system for inpatient stays that was intended to be more accurate. The agency says the Medicare Severity Diagnosis-Related Groups are designed "to better take into account the severity of the patient's illness" by providing higher payments for treating sicker patients – treatments that are more costly – and lower payments for other, less severe conditions.
CMS officials claim, however, that hospitals changed their documentation and coding of patient diagnoses under the new system in a manner that leads to an increase in aggregate payments without corresponding growth in actual patient severity.
The agency says the proposed documentation and coding adjustments help ensure that estimated aggregate payments to these hospitals under the new classification systems would not increase solely as a result of the changes to the classification system and hospital coding practices.
Future payment reductions
The CMS has already applied payment adjustments of -0.6 percent in FY 2008 and -0.9 percent in FY 2009 to the acute care hospital rates. However, the agency says that if its review of claims data shows that the adjustments required by law are too low to maintain budget neutrality under the new classification system, it must adjust payment rates to account for that difference in subsequent years.
This means the CMS must adjust payment rates between FYs 2010 and 2012 as necessary to recapture any excess payments made to hospitals in FYs 2008 and 2009 that resulted from changes in hospitals' coding practices.
Based on current estimates, CMS officials estimate total adjustments of approximately 8.5 percent would have to be made to the acute care hospital rates to address changes in hospitals' coding practices, including the increase in FY 2008 payments and the estimated increase in FY 2009 payments.
Thus, the CMS is proposing a prospective adjustment of 1.9 percentage points for FY 2010, which means additional adjustments of approximately 6.6 percentage points will be needed in FY 2011 and FY 2012. The CMS is requesting public comment on whether to apply a different documentation and coding adjustment than the one being proposed for FY 2010.
Quality reporting requirements
Under current Medicare law, hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for Annual Payment Update program will get the full update. Hospitals that do not participate in the quality reporting program will get the update less 2 percentage points.
Ninety-seven percent of participating hospitals received the full update last year. The proposed rule adds four new measures for which hospitals must submit data under the quality reporting program to receive the full market basket update.
Two of these measures are additions to the existing Surgical Care Improvement Project measure set, and CMS officials believe the other two measures will promote hospital participation in nursing-sensitive care and stroke care registries.
The CMS is also proposing changes to regulations affecting payment adjustments to teaching hospitals (hospitals that offer graduate medical education programs) and disproportionate share hospitals (hospitals that provide care to a disproportionate share of low income patients) and to clarify the regulations implementing the Emergency Medical Treatment and Labor Act.
In addition, the proposed rule describes five applications for new technology add-on payments and CMS' preliminary findings about those technologies.