On April 30, 2014, CMS released the much anticipated proposed Hospital Inpatient Prospective Payment System rule (“Proposed IPPS Rule”), which would apply to FY 2015 Medicare payments.  For inpatient acute care hospitals, CMS estimates a net operating payment rate increase of 1.3 percent over FY 2014 payments.  Comments on the Proposed IPPS Rule are due by June 30, 2014.  

The 1.3 percent increase in operating payments reflects a 2.7 percent market basket update, minus a 0.4 percent multi-factor productivity reduction, minus a 0.2 percent reduction required by the Affordable Care Act, and a 0.8 percent recoupment adjustment for MS-DRG documentation and coding changes.  Hospitals that fail to submit quality data and/or are not EHR meaningful users are subject to an additional 0.675 percent reduction for each shortcoming, or a combined reduction of 1.350 percent.  Notably, CMS also proposes DSH payment adjustments, changes to various payment provisions aimed at improving quality of care, and changes to the Board jurisdiction rules. 

• Uncompensated Care and Disproportionate Share (DSH) Payment: CMS provides its estimates for each of the three factors that will be used in calculating the uncompensated care payment for hospitals.  As CMS explains, “[t]hese three factors represent our estimate of 75 percent of the amount of Medicare DSH payments that would otherwise have been paid [Factor 1], an adjustment to this amount for the percent change in the national rate of uninsurance compared to the rate of uninsurance in 2013 [Factor 2], and each eligible hospital’s estimated uncompensated care amount relative to the estimated uncompensated care amount for all eligible hospitals [Factor 3].”
  
  CMS estimates that Factor 1, which effectively is the “size of the pie” to be distributed in uncompensated care payments, will be $10.654 billion dollars.  CMS explains, and invites comments upon, the assumptions and calculations it employed in reaching this figure.
  
  Regarding Factor 2, CMS estimates that the percentage of uninsured individuals under 65 was reduced from 18 percent in 2013 to 14.5 percent in FY 2015.  This estimate was based on the “CBO’s February 2014 estimates of the effects of the Affordable Care Act on health insurance coverage.”  Applying the previously established formula, CMS calculated Factor 2, therefore, to be 0.8036.  CMS invites comment on its calculation of Factor 2 but cautions that its “proposal for Factor 2 is subject to change if more recent CBO estimates of the insurance rate become available at the time of the preparation of the final rule.”  Factor 2 for FY 2015 is significantly lower than Factor 2 for FY 2014, which was only 0.943.  As a result, the uncompensated care pool for FY 2014 was $9.03 billion as compared to $8.56 billion proposed for 2015.
  
  Regarding Factor 3, CMS explains that it continues to think it is premature to begin using Worksheet S-10 in the calculation of the uncompensated care provided by hospitals.  Therefore, CMS proposes “to continue to employ the utilization of insured low-income patients defined as inpatient days of Medicaid patients plus inpatient days of Medicare SSI patients.”  CMS has published Table 18 on its website, which lists Factor 3 data for all eligible hospitals. Hospitals will have 60 days from the date of public display of this proposed rule to notify CMS in writing of any errors.  After giving the matter further consideration, CMS explains that it would not propose to include in Factor 3 insured low-income days from exempt units (specifically, inpatient rehabilitation units paid under the IRF PPS and inpatient psychiatric units paid under the IPF PPS). 
  
  In addition, while CMS’s prior policy regarding hospital mergers had been to use only the surviving hospital’s data for purposes of calculating Factor 3, for FY 2015 CMS is “proposing to revise [its] methodology for determining Factor 3 to incorporate data from both merged hospitals until data for the merged hospitals become available.”  CMS states, however, that it “would not consider an acquisition where the new owner voluntarily terminates the Medicare provider agreement of the hospital it purchased by rejecting assignment of the previous owner’s provider agreement to be a merger.”

• Board Jurisdiction and Cost Reporting Requirements: CMS proposes to remove from the current regulation the requirement that a provider have either an audit adjustment or a protest item for a specific item for the Provider Reimbursement Review Board (Board) to have jurisdiction over that item.  Instead, CMS would require that a provider include all such claims on its cost report as a condition for payment.  In particular, the proposed regulation would state that “if a provider fails to include an appropriate claim for an item in its cost report, the NPR issued by the contractor will not include payment for the item and payment also will not be permitted in any decision, order, or other action by a reviewing entity . . . in an administrative appeal filed by the provider.”  CMS proposes to include in the new regulation a requirement that the Board include in each of its substantive decisions an explicit finding that a provider properly claimed the item in its cost report since that will now be a condition for payment.  CMS’s new policy would ostensibly mean that a provider would have no rightto payment for anything it did not claim on its cost report, whether by mistake or even, perhaps, because of some factual or legal impediment.  If a provider, for example, failed to include all of its returned bad debt accounts or Medicaid eligible days on its cost report, or checked the wrong box on its cost report, the provider would have no right to have that item corrected.  Instead, providers would be entirely dependent upon their contractors’ discretion in accepting an amended cost report or issuing a reopening.
• Value-Based Purchasing (VBP): As required by statute, CMS will increase the amount of payment at issue for the 2015 VBP program from 1.25 percent to 1.5 percent.  CMS estimates the amount of money at issue to be equivalent to $1.4 billion dollars.
  
  FY 2017 Proposed New VBP Measures.  For the 2017 VBP program, CMS proposes to adopt “two new outcome measures for the new Safety domain: hospital-onset methicillin-resistant staphylococcus aureas (MRSA) bacteremia and clostridium difficile infection” and to add an “early elective deliveries” measure to the clinical care-process domain.  In addition, CMS is seeking comment on adopting in the future new items from the HCAHPS survey once those items become eligible for measure selection.  CMS also proposes to restructure and reweight the VBP domain weights for 2017 by reducing the clinical care-process subdomain to just 5 percent while increasing the weight of the new safety domain to 20 percent.  The fact that the clinical care process measure has dropped from a 70 percent weighting in 2013 to just a 5 percent weighting in 2017 is evidence of CMS’s assertion that the VBP program would rapidly move from process-focused measures to outcome-focused measures.
  
  For the FY 2019/2020 VBP programs, CMS proposes to adopt one new hospital-level risk-standardized complication rate following elective hip and knee arthroplasty measure with a 30 month performance period for FY 2019, and a 36 month performance period for FY 2020.

• Hospital Readmission Reduction Program: For the Hospital Readmission Reduction Program, CMS is increasing the potential penalty for hospitals that exceed their “expected” readmission rate for certain conditions from 2 percent to 3 percent, as required by statute.  CMS proposes to keep the same five readmission measures from the prior year, namely, Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), chronic obstructive pulmonary disease (COPD), and elective total hip arthroplasty and total knee arthroplasty (THA/TKA), but would include an updated methodology to account for planned readmissions as well as a refinement to hip/knee arthroplasty readmission measure methodology.  In addition, CMS proposes to introduce a coronary artery bypass graft (CABG) surgical procedure measure to the 2017 program.  As with the other readmission measures, the outcome for this proposed measure will be 30-day, all-cause, unplanned readmissions.
• Hospital Acquired Condition (HAC): CMS proposes to maintain the HAC program, in which hospitals in the highest quartile for certain HACs will receive a 1 percent payment reduction, largely unchanged for FY 2015.  CMS did, however, propose minor “refinements” to the HAC scoring methodology.
• Hospital Inpatient Quality Reporting (IQR) Program: CMS proposes to add a total of eleven measures to the Hospital IQR measure set for FY 2017.  These include
  • nine new measures (episode of care payment measures for pneumonia and heart failure; a sepsis reduction bundle; breast feeding; hearing screening; readmissions for CABG and vascular access; home management plan of care document, and mortality for CABG), and
  • two measures that were previously removed from the program (aspirin prescribed at discharge for AMI and statin prescribed at discharge— both electronically specified). 

Largely because of the removal of “topped out” measures, however, the total number of reportable measures will decrease from 57 to 46 in the FY 2017 IQR program.  As in recent prior years, hospitals that do not satisfactorily report their IQR measures will face a payment reduction equal to one quarter of the applicable IPPS market basket update.

• Graduate Medicare Education Payments (IME/GME): After recently increasing the cap-building period for new residency programs from three years to five years, CMS now proposes to “simplify and streamline” the FTE regulations by having the application of the rolling average calculation and the IME intern-and-resident-to-bed (IRB) ratio cap also become effective simultaneously with the FTE cap such that all three factors will take effect with the “hospital’s cost reporting period that precedes the start of the 6th program year of the first new [residency] program.”
• Inpatient Short Stays: Noting that “[s]ome members of the hospital community have expressed support for the general concept of an alternative payment methodology under the Medicare program for short inpatient hospital stays,” CMS has solicited comments on an alternative payment methodology for inpatient short stays.  The agency specifically seeks commentary on how short or low-cost inpatient hospital stays would be defined and how an appropriate payment for the short or low-cost inpatient hospital stay would be calculated.
• Long-Term Care Hospitals (LTCH): CMS estimates that proposed payment updates to the LTCH PPS will result in a net payment increase to LTCHs of 0.8 percent.  However, CMS also proposes additional policy changes that would reduce LTCH PPS payments, such as a retroactive payment adjustment for LTCH cost reporting periods beginning on or after July 1, 2013, or October 1, 2013, to reinstate and extend for four years the moratorium on the 25 percent threshold payment adjustment under the LTCH PPS in order to implement the Pathway for SGR Reform Act of 2013.
• Miscellaneous:  CMS also proposes several other changes, including the following:
  • Revisions to several MS-DRGs, including, for example, merging MS-DRGs 483 and 484 into MS-DRG 483 for a major joint/limb reattachment procedure of the upper extremities;
  • Revisions to the list of MS-DRGs that would be subject to the postacute care transfer criteria;
  • An increase in the fixed-loss cost outlier threshold for FY 2015 to $25,799 from $21,748 in FY 2014 by using the same methodology adopted for calculating the outlier threshold in the FY 2014 IPPS/LTCH PPS final rule;
  • Proposed regulations for a transition period to enable CAHs to retain their CAH status any time a CAH becomes located in an urban area as a result of an OMB delineation; and
  • Removing the requirement that physician certifications of the 96-hour requirement be completed prior to discharge, and permitting physician certifications to be completed no later than one day before the date that the claim for the inpatient CAH service is submitted.

This article highlights some of the key provisions in the IPPS Proposed Rule.  For additional information and insight, attend the upcoming King & Spalding LLP webinar concerning the FY 2015 IPPS/LTCH proposed rule to be held on May 15, 2014.  An invitation to the webinar will be e-mailed separately.

The display copy of the IPPS Proposed Rule is available here.  CMS expects the IPPS Proposed Rule to be published in the Federal Register soon. 

Reporters, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com, and Dan Hettich, Washington, D.C., +1 202 626 9128, dhettich@kslaw.com.