Highlights From the FY 2009 Medicare Hospital Inpatient Prospective Payment System (IPPS) Proposed Rule
May 7, 2008 – On April 14, 2008, the Centers for Medicare and Medicaid Services (CMS) published the proposed Hospital Inpatient Prospective Payment System rule for FY 2009. This rule will apply to hospital discharges occurring in the period October 1, 2008, to September 30, 2009.
Comments are being accepted on the proposed rule through June 13.
The major provisions of the proposed rule include:
Payment Update and Projected Impact on Hospitals
The hospital inflationary update based on changes in the hospital market basket will be 3.0 percent. However, payment of the full update is dependent upon hospitals reporting a set of quality measures, which are discussed below. Failure to successfully report the quality measures will result in a 1.0 percent update or a 2 percent penalty.
CMS is also imposing a budget neutrality adjustment of 0.9 percent to take into account anticipated changes in Medicare Severity Diagnosis Related Groupings (MS-DRG) coding and documentation that do not represent "real" changes in case mix as hospitals gain experience with the revised MS-DRG structure begun in FY 2008. With the update, budget neutrality adjustment, projected changes in case mix, and other minor changes, all hospitals are projected to receive a 4.1 percent increase in per case payments.
Slightly higher average increases are expected for large urban hospitals and teaching hospitals while rural hospitals will receive somewhat lower average increases in per case payments. Cardiac specialty hospitals are projected to receive a 1.8 percent increase in per case payments. This lower increase for specialty hospitals is due to the changes in the MS-DRG weights, particularly to the phase-in of cost-based MS-DRG weights and the implementation of the MS-DRG system to better account for patient severity.
Impact of Proposals
The update and other proposed changes are estimated to increase total Medicare payments by $4 billion to the approximately 3,500 acute care hospitals it applies to.
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MS-DRG Changes for FY 2009
Changes to MS-DRG Relative Weights
Please see the full MS-DRG weights comparison table with proposed changes in FY 2009 for some services of interest to hematologists. For a rough approximation of the payment rate, these weights can be multiplied by $5,525. This does not factor in any hospital-specific wage or geographic adjustors or the additional payments made for direct and indirect medical education and certain other factors unique to an individual hospital.
Several of the MS-DRGs experienced changes to their relative weights that were greater than typical. This is partially the result of changes to the basing method for MS-DRG relative weights. In 2007, CMS initiated a three-year transition moving from weights based on charges to cost-based weights. For the first time in 2009, MS-DRG relative weights will be based 100 percent on cost-based weights.
MS-DRG Structural Changes
For FY 2009, CMS is proposing only limited changes to the MS-DRG structure implemented in FY 2008. The changes would affect certain cardiac procedures (lead and generator procedures) and would clarify the MS-DRGs involved with the treatment of septicemia.
MS-DRG Payment Policy Changes
CMS also plans to change the payment rate for post-acute transfer cases to more accurately divide the payment between the transferring and the receiving hospitals. The post-acute transfer policy would be applied to hospital discharges to a patient’s home under a written plan that occur within seven days of discharge in addition to the transfers between hospitals.
Changes to List of New Technology
CMS discussed several possible changes to the list of new technology for which add-on payments are paid in addition to the MS-DRG payment. Generally, the add-on payment applies to technologies on the market for less than three years that offer substantial clinical improvement over existing services and that represent a very substantial increase in cost over the mean charge for the MS-DRG group. Four specific technologies are discussed in the rule for possible add-on payments, which involve heart transplant, emphysema, AMI treatment, and spine surgery. CMS invites comments on the specific technologies.
Impact of ICD-9 Revisions
Finally, due to revisions in ICD-9 (International Statistical Classification of Diseases and Related Health Problems), there are some changes in the complications and major complications affecting the MS-DRG list. The changes can be found beginning at page 196 of the rule. Also, a complete updated list of complications and major complications associated with classifying a discharge into a higher paying classification can be found at http://www.cms.hhs.gov/AcuteInpatientPPS.
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CMS Response to Charge Compression Recommendation
Background
The issue of "charge compression" has been a long-standing concern in both the MS-DRG and HOPPS payment systems. The issue relates to the fact that the payment weights for services are based in large part on the relative charges for the services adjusted to estimated cost. There is a tendency on the part of hospitals to markup less costly devices and services by a higher proportion than the markup for high-cost devices and services. Thus, a hospital might markup the charges for a low-cost device by four times but might markup the charges for a $10,000 implanted device by a factor of two to $20,000. This might result in an underestimate of the cost of the expensive devices if a single cost-to-charge ratio was used in calculating the payment. For example, if the average cost-to-charge ratio of the cost center "Medical Supplies Charged to Patients" was 1:4, applying this ratio to the $20,000 charge would result in a cost estimate for the device of only $5,000 or a substantial underestimate of the cost.
CMS Response to Contractor Recommendations
CMS contracted with RTI International to analyze the charge compression issue, and RTI came up with number of short-term, mid-term and long-term solutions to this problem. CMS did implement several of the short-term solutions in FY 2008 such as disaggregating the costs of the Emergency Room and Blood and Blood Products from the "Other Services" cost center. (The ER and blood products tended to be marked up to a lower proportion than other services in the "Other Services" cost center.) One of RTI’s recommendations was for CMS to add additional cost centers in the cost report to allow more precise determination of costs in the future. However, until data from improved cost reporting is available, RTI recommended that CMS use a regression model they developed to deal with this problem. CMS decided not to adopt the recommendation to use a regression method as an interim solution to the high-cost device problem. Instead, for FY 2009, the cost report is being changed so that the costs and charges of very high-cost devices such as pacemakers and other implanted devices would not be merged with the costs and charges for low-cost supplies and devices. Given the lag between cost reporting and the determination of MS-DRG and Ambulatory Payment Classifications (APC) weights, any improved and more accurate data will not affect payments until FY 2011.
In addition, CMS notes that hospital associations have begun an educational initiative to encourage hospitals to more accurately report costs and charges in a way that is consistent with how charges are grouped in the MedPAR file (Transmittal 321, Change Request 5928).
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Quality Reporting Initiatives Expanded
As part of its efforts to act as an "active payor" and focus on linking quality reporting initiatives with payment, CMS has proposed to expand both of its inpatient hospital quality reporting initiatives.
Hospital Quality Reporting Data
Background
As one step in the effort to move to value-based purchasing, Medicare currently ties hospital payment to the reporting on certain quality measures. In essence, to receive the full inflationary update, hospitals are obligated to report on their compliance with certain quality measures. If they fail to do so, they sustain a 2 percent reduction in payment. When the system began in FY 2005, the reporting mechanism provided for reporting on 10 quality measures. This was increased to 27 measures in FY 2008. Hospitals report on 25 measures and CMS derives hospital data directly on two measures without separate reporting.
Proposed Changes
For FY 2009, reporting on 30 measures is being proposed.
For FY 2010, CMS is proposing to add 43 additional measures including four nursing sensitive measures, three readmission measures, six venous thromboembolism measures, five stroke measures, nine AHRQ measures and 15 cardiac surgery measures.
There has been some concern in the hospital community regarding the increased burden of reporting on these additional measures. While it is anticipated that larger hospitals will be able to absorb these costs of the additional work that will result from the requirement of reporting on an increased number of measures, concerns have been raised on the impact of this proposal on smaller institutions.
Hospital Acquired Conditions (HAC)
Background
Under the Hospital Acquired Condition (HAC) initiative, hospitals are required to report if specific conditions are present upon admission. Beginning October 1, 2008, Medicare will no longer assign an inpatient hospital discharge to a higher paying MS-DRG if a selected secondary diagnosis was not present on admission. Essentially, Medicare will not pay more for conditions that were acquired in the hospital if they were reasonably preventable through the application of evidence-based guidelines.
Proposed Changes
For FY 2009, this will include:
- Foreign objects retained after surgery
- Air embolism
- Blood incompatibility
- Stage III and IV pressure ulcers
- Falls and trauma
- Catheter-associated urinary tract infection
- Vascular catheter associated infection
- Surgical site infection—mediastinitis after coronary artery bypass graft
Several other conditions are under consideration for designation as HAC procedures including surgical site infection following elective surgery, Legionnaires disease, glycemic control, iatrogenic pneumothorax, delirium, ventilator-associated pneumonia, deep-vein thrombosis/pulmonary embolism, staphylococcus aureus septicemia and clostridium difficile-associated disease. These proposed additions are open for comment.
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Emergency Medical and Treatment Act (EMTALA) Update
Background
The Emergency Medical and Treatment Act (EMTALA) identified hospital obligations for screening and treatment for patients presenting to the emergency room and hospitals' obligations to accept transfers.
The Medicare Modernization Act (MMA) created the EMTALA Technical Advisory Group (TAG) to advise CMS on the application of EMTALA regulations. Since its creation, TAG has submitted 55 recommendations, of which five have already been implemented by CMS in previous rules. CMS has indicated that they are considering the remaining recommendations and may address them in the future.
Proposed Changes
CMS is proposing two changes to the EMTALA provisions.
CMS is proposing to revise language in the regulations that would clarify that when an individual covered by EMTALA is admitted as an inpatient and remains unstabilized with an emergency medical condition, a receiving hospital with relevant specialized capabilities has an EMTALA obligation to accept that individual if the transfer is medically appropriate and the receiving hospital has the necessary capabilities.
Because it is required elsewhere, CMS is also proposing to delete the EMTALA requirement that hospitals maintain a list of on-call physicians. Additionally, CMS is proposing to revise language in the regulations elsewhere that if a hospital is participating in a formal community call plan that it would count as complying with EMTALA on-call list requirements as long as the formal community plan meets the criteria specified in the proposed rule. CMS believes that this amendment would provide hospitals greater flexibility in maintaining continuous call.
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Hospital Disclosure of Financial Arrangements
Background
As an outgrowth of CMS’ efforts to develop a strategic plan to address issues relating to physician-owned specialty hospitals, which was required under the Deficit Reduction Act of 2005, CMS sent a survey to 130 specialty hospitals and 220 competitor hospitals. This survey requested information about the hospitals’ ownership and the hospitals’ financial arrangements with physicians. In its report to Congress on the DRA provision, CMS stated that the agency would require all hospitals (not just specialty hospitals) to provide it with information on a periodic basis concerning physician investment interests in the hospitals and the hospital’s compensation arrangements with physicians. The objective would be to identify arrangements that might violate the self-referral law or raise the possibility of an illegal kickback. The agency remains concerned that these compensation arrangements could lead a physician to refer patients to a hospital in the same way that a physician who has an ownership interest could have an interest in referring patients to that hospital.
Proposed Changes
CMS has not yet decided whether to survey all hospitals annually, stagger a survey so that all hospitals are surveyed over a period of years, or do a targeted survey focusing on certain types of relationships or certain hospitals. As an initial step, CMS is proposing to survey some 500 hospitals to determine compliance with Medicare self-referral rules and to assist them in determining future reporting requirements. Appendix C of the proposed rule contains the survey instrument known as the Disclosure of Financial Arrangements Report (DFRR). There are a total of eight different worksheets in the DFRR, with the first six applying only to hospitals with physician ownership or investment.
CMS is soliciting comments on the DFRR instrument, including whether this should be a recurring effort, whether it should be sent to all hospitals or staggered, whether the information being collected is the correct information, and the amount of time required to complete the DFRR.
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Physician Ownership Disclosure Requirements
Proposed Changes
Currently hospitals that are physician-owned are required to disclose this fact to patients and also provide the names of the physician owners. CMS proposes to extend this provision to situations where an immediate family member has a financial interest, aligning the disclosure policy with the self-referral rules. CMS believes that this will help patients make more informed decisions regarding treatment in that facility.
CMS also proposes to exempt from the definition of a physician-owned hospital, any facility in which none of the physicians having an equity interest in the facility refer patients to that facility.
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Self-Referral Rules (Stark Law and Regulations, Phase I, II and III)
Background
The law prohibits physicians from making referrals for certain designated health services to an entity in which the physician or a family member has a financial relationship through ownership or direct or indirect compensation. This is subject to numerous exceptions for situations that are deemed not to pose any risk to the program. One of the issues dealt with in prior rulemaking involve questions of when a referring physician "stands in the shoes" of their parent physician organization for purposes of determining direct and indirect compensation. Industry has complained that the recent Phase III regulations have closed exceptions that were previously available for academic medical centers and integrated health-care delivery systems that do not present the opportunity for program abuse.
Request for Comments
In this proposed rule, CMS invites comments on two alternative ways to address the "stand in the shoes" provision to allow certain compensation arrangements. For parties interested in commenting on this issue, the discussion can be found beginning on page 577 of the proposed rule.
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Gainsharing Arrangements
Background
The term "gainsharing" refers to arrangements where a hospital gives physicians a share of the reduction of savings in hospital costs attributable in part to the physician’s efforts. Some of these arrangements have inadvertently implicated the physician self-referral provisions, the fraud and abuse statutes, and the anti-kickback statutes complicating efforts to align hospital and physician incentives to control costs. The OIG has issued several advisory opinions on individual gainsharing arrangements, but these opinions do not have general applicability.
Request for Comments
CMS is considering developing an exception to allow gainsharing arrangements that do not present the risk of program or patient abuse. To assist them in this effort, CMS is requesting comments on what types of safeguards should be included in any exception for gain sharing arrangements and whether certain services should not qualify for the exception.
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