August 29, 2016

AHA: “Unjustified” Payment Cut in Hospital IPPS Final Rule for FY 2017

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In the final rule for the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) PPS for the 2017 fiscal year, the Centers for Medicare & Medicaid Services (CMS) continues to move the Medicare program toward paying providers based on the quality, rather than the quantity, of care given to patients. 

The final rule, which appeared in the Federal Register on Aug. 22, will affect discharges that occur on or after Oct. 1, 2016.

General acute-care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users will receive an approximately 0.95-percent increase in operating payment rates.

This increase reflects the projected hospital market basket update of 2.7 percent, adjusted downward by several factors, which CMS explains in full in the final rule. Hospitals that do not successfully participate in the Hospital IQR Program and do not submit the required quality data will be subject to a one-fourth reduction of the market basket update. Any hospital that is not a meaningful EHR user also will be subject to a three-fourths reduction of the market basket update.

In addition to updating the incentive programs listed further below, CMS discussed the changes it made to the IPPS payment rates and the adjustments related to the two-midnight policy (reversing the effects of the 0.2-percent payment reduction that was part of the original policy) and Medicare uncompensated care payments.

Unjustified Payment Cut 

CMS also finalized a 1.5-percent cut that would engage compliance with a 2012 law that directs the agency to recoup the effect of 2010-2012 documentation and coding changes that occurred with the switch from DRGs to MS-DRGs. This adjustment – from the 0.8 percent expected (and made for the last two years) – has caused a bit of a stir among hospital leaders, according to the Aug. 2 American Hospital Association (AHA) News Now report: “We are disappointed that CMS finalized an unjustified cut to reimbursement rates for hospital services,” the report read. “While a reduction to the hospital update factor was mandated by law in 2012, CMS is undermining Congress’ intent by imposing a cut that is nearly two times what Congress specified.”

CMS, however, estimated that the 0.8-percent reduction expected would have left the government $5 billion short of recouping the overpayments by its deadline of 2017. The agency said changing economic and healthcare trends upended its earlier projections and made it necessary to increase the cut.

MOON Now Required

Aug. 6, 2016 was the date by which hospitals and critical access hospitals (CAHs) were to begin giving the CMS-developed Medicare Outpatient Observation Notice (MOON) to Medicare beneficiaries who have been receiving observation services as outpatients for more than 24 hours. The notice must be provided no later than 36 hours after observation services are initiated or, if sooner, upon release.

An oral explanation of the notice also must be provided, ideally in conjunction with its delivery, and a signature must be obtained from the individual or a person acting on the individual’s behalf to acknowledge receipt. A hospital or CAH staff member must sign the notice if the individual refuses to sign.

Incentive Programs 

For 2017, CMS also updated the following programs:

  • The Hospital-Acquired Condition (HAC) Reduction Program creates an incentive for hospitals to reduce the incidence of HACs by adjusting payments to hospitals that are in the worst-performing quartile for HACs. For 2017, CMS made five changes to existing policies.
  • The Hospital Readmissions Reduction Program (HRRP) requires a reduction to a hospital’s base operating MS-DRG payment to account for excess readmissions associated with selected applicable conditions. For 2017 and subsequent years, the reduction is based on a hospital’s risk-adjusted readmission rate during a three-year period for the following:
    • Acute myocardial infarction
    • Heart failure
    • Pneumonia
    • Chronic obstructive pulmonary disease (COPD)
    • Total hip arthroplasty/total knee arthroplasty
    • Coronary artery bypass graft (CABG).
Excess readmission rates will be posted to the Hospital Compare website as soon as feasible following the hospitals’ preview period.

  • The Medicare and Medicaid EHR Incentive Programs include the requirements for eligible hospitals and CAHs that report clinical quality measures (CQMs). For 2017, CMS modified some of the reporting and submission requirements, including the proposed removal of certain CQMs to align with the Hospital IQR Program.
  • The Hospital IQR Program is a pay-for-reporting program established by the Medicare Prescription Drug, Improvement, and Modernization Act. In the 2017 final rule, CMS added four new claims-based measures for the 2019 payment determination and subsequent years (three clinical episode-based payment measures and one communication and coordination-of-care measure) and finalized the removal of 15 measures for the 2019 (and subsequent years’) payment determination. Of these 15 measures, 13 are electronic clinical quality measures (eCQMs).
  • The Hospital Value-Based Purchasing (VBP) Program adjusts payments to hospitals for inpatient services based on their performance on an announced set of measures. CMS finalized updates to the program requirements and expanded the measure set.
  • The final rule was published in the Federal Register on Aug. 22, 2016. Check under Medicare Programs at https://www.federalregister.gov/public-inspection for the link.
  • A CMS fact sheet about the final rule can be found at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-08-02.html
Disclaimer: Every reasonable effort was made to ensure the accuracy of this information at the time it was published. However, due to the nature of industry changes over time we cannot guarantee its validity after the year it was published.
Janis Oppelt

Janis keeps the wheel of words rolling for Panacea®'s publishing division. Her roles include researching, writing, and editing newsletters, special reports, and articles for RACMonitor.com and ICD10Monitor.com; coordinating the compliance question of the week; and contributing to the annual book-update process. She has 20 years of experience in topics related to Medicare regulations and compliance.

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