Final FY 2014 Inpatient Payment Rules

Readmissions Reduction Program

In October 2012, Medicare began encouraging to hospitals with excess 30-day readmissions to lower 30-day readmission rates for heart attack, heart failure, and pneumonia patients by reducing a portion of the hospital’s payments by up to one percent, depending on their performance on key readmissions measures. As required by law, the FY 2014 IPPS rule increases the maximum reduction of payments to up to two percent. It adds hip and knee surgery and chronic obstructive pulmonary disease to the list of conditions used to determine the reduction, effective in FY 2015. CMS has increased the number and types of planned readmissions that no longer count against a hospital’s readmission rate.

Admission and Medical Review Criteria for Inpatient Services

The final rule provides greater clarity regarding when inpatient hospital admissions are generally appropriate for Medicare Part A payment. The new rules are intended to address concerns about Medicare beneficiaries having long stays in the hospital as outpatients and improve program integrity.

Under the rule, if a physician expects a beneficiary’s surgical procedure, diagnostic test or other treatment to require a stay in the hospital lasting at least two midnights, and admits the beneficiary to the hospital based on that expectation, it is presumed to be appropriate that the hospital receive Medicare Part A payment. The final rule emphasizes the need for a formal order of inpatient admission to begin inpatient status, but permits the physician to consider all time a patient has already spent in the hospital as an outpatient receiving observation services, or in the emergency department, operating room, or other treatment area in guiding their two-midnight expectation.

CMS Establishing New Integrity Contractor

The Center for Program Integrity (CPI) within CMS is now developing a new program integrity contractor called the Unified Program Integrity Contractor (UPIC). This new entity would perform work across the Medicare and Medicaid program integrity continuum. The program incorporates a unified database, including data matching, coordination and information sharing to identify fraudulent or wasteful billing behavior that goes undetected when the programs are reviewed in isolation. Through a recent Request for Information, CMS has outlined the requirements and a description of the work that CPI contractors would perform. CMS would establish regional UPICs, each of which would support Medicare and Medicaid program integrity requirements in designated States, and whose primary function will be to realize and execute the CPI’s nationally-set priorities and goals at the local or regional level. The CPI has not yet established the number or regional boundaries for the UPICs, but CPI expects the number of UPICs will fall between five and fifteen. After gathering information, CMS will move to defining requirements and developing a Statement of Work (SOW), Performance Work Statement (PWS) or Statement of Objectives (SOO). This new entity would have jurisdiction over Medicare and Medicaid integrity issues including the Zone Program Integrity Contractors (ZPICs) and the integrity responsibility of the MACs. The Medicare Recovery Auditors (RAs) will remain.  

OIG Studies Hospital Observation Stay Controversy

Because CMS and others have raised continuing concerns about hospitals’ use of observation stays and short inpatient stays, the OIG undertook a study on this topic. Some Medicare beneficiaries have spent long periods of time in observation stays without being admitted as inpatients. Also, because some beneficiary stays have later been qualified as observational instead of inpatient, these beneficiaries may not qualify under Medicare for skilled nursing facility (SNF) services following discharge from the hospital. In addition, CMS is concerned about improper payments for short inpatient stays when the beneficiaries should have been treated as outpatients.

To address these concerns, CMS recently released a proposed rule that, if finalized as proposed, would substantially affect how hospitals bill for these stays. The OIG study, Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries, found that under the policies in that proposed rule, the number of short inpatient stays would be significantly reduced; however, the number of observation and long outpatient stays may not be reduced if outpatient nights are not counted towards the proposed 2-night presumption. Also, the OIG raised concerns about SNF services for beneficiaries in observation stays, long outpatient stays and short inpatient stays. The study stops short of recommendations, but the OIG stated that CMS should consider how to ensure that beneficiaries with similar post-hospital care needs have the same access to and cost sharing for SNF services. The OIG also suggested that federal legislation might be necessary. Beneficiary and provider groups continue to be active on this issue. The Improving Access to Medicare Coverage Act (S. 569, H.R. 1179) has been introduced in the Senate and the House, which would deem time an individual spends under observation status eligible to count towards satisfying the 3-day requirement.

House Ways and Means Committee Draft Legislation

The House Ways & Means Committee has released draft legislation that parallels post-acute care reform proposals advanced in the President’s FY 2014 Budget, as well as discussions by the Simpson-Bowles Deficit Reduction Commission and the Bipartisan Policy Commission. Following several recent hearings of the Health Subcommittee, this latest draft legislation echoes some of the discussions:

  1. Reducing market basket updates by 1.1 % for FY 2014 through 2023, for all PAC Providers — home health agencies (HHAs), skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs) and long term care hospitals (LTCHs);
  2. Creating site neutral payments between IRFs and SNFs for certain procedures;
  3. Modifying the criteria required for IRF status (i.e., Medicare’s 75 Percent Rule);
  4. Establishing a SNF readmissions program; and
  5. Creating PAC bundled payments. 

The draft legislation provides that the PAC provider that initially provides services after hospitalization is the entity that would receive the bundled PAC payment, and that provider would be responsible for furnishing (or directing the furnishing) of all of the PAC services included in the PAC bundle after the patient leaves the hospital. Quality measures established under the bundled payment arrangements would include the measure of functional status improvement. The PAC payments would be determined in a manner to ensure that spending for PAC services would be reduced by 2.85 percent from what they otherwise would have been without the bundled payment. Payments for at least 50 percent of all PAC services during each fiscal year would be required to be included under the PAC payment system. The bundled PAC payment system would begin in fiscal year 2018.