The CMS rattled the long-term acute-care hospital industry last week when it proposed largely unexpected regulations that would clamp down on Medicare payments to the facilities.
While only 318 long-term acute-care hospitals are currently operating in the U.S., their numbers are growing rapidly and government officials have become increasingly concerned about the ones that operate within general acute-care hospitals-and about the higher payments they receive for treating patients perceived to be more complex.
Under the rules released last week, which are part of the CMS' proposed prospective payment regulations for 2005, Medicare would require long-term acute-care hospitals that operate within other hospitals to have separate ownership and to draw no more than 25% of admissions from the host hospital.
After the release of the proposed regulations, Standard & Poor's placed industry giant Select Medical Corp. on a credit watch "with negative implications" after the chain said most of its 79 long-term acute-care hospitals would not meet the 25% requirement.
"The problem with the rule is that it takes such a broad-based approach that it hurts all of the providers who are separate and distinct in the way they provide valuable Medicare services," said Bob Ortenzio, president and chief executive officer of Select Medical. "We're hoping that the CMS will narrow its focus so that those providers who are following the rules and providing a valuable service for patients can continue doing so."
While Ortenzio did not offer a specific alternative, he said the company was hashing out details of recommendations it would propose to the CMS to maintain fair Medicare policy for long-term acute-care hospi- tals, which receive significantly higher payments than general acute-care hospitals.
A CMS official cited the concern that host hospitals have a financial incentive to move patients to the higher-paying facility and may often do so to maximize profit rather than to provide the appropriate level of care.
The CMS proposal "comes as a major surprise to the industry and Wall Street," an analysis of the regulation by investment banking firm Jefferies & Co. said.
Other parts of the CMS' proposed inpatient payment regulation were less of a surprise but still stirred strong reactions from the hospital industry. The American Hospital Association said it is particularly concerned about proposed regulations governing the wage index used to calculate Medicare payments. For instance, the CMS' proposed regulation for the first time would include an "occupational mix" adjustment designed to compensate hospitals for their unique labor costs (April 12, p. 12).
By incorporating the occupational mix data into the wage index, policymakers hoped to help rural hospitals whose average wages are depressed by the low numbers of registered nurses and laboratory technicians they employ. According to the AHA, if the proposed adjustment takes effect, one-third of rural hospitals would see their wage index go down and two-thirds of urban hospitals would see theirs go up.
"If you've got money moving around in a way that doesn't seem to follow the intent, or quite frankly make sense, there are more questions that need to be answered," said Carmela Coyle, AHA senior vice president of policy.
The CMS is proposing to use newly defined payment regions, known as metropolitan statistical areas, to determine hospitals' wage indexes. The new areas are based on 2000 census data instead of the 1990 data. The agency opted not to propose so-called micropolitan statistical areas, which would put some hospitals in their own wage category and could create a new bureaucratic headache for hospitals and Medicare.
"We tried to do this in the least disruptive way to hospitals," said Herb Kuhn, director of the CMS' Center for Medicare Management.
As for overall payment rates proposed by the regulation, urban hospitals participating in the CMS' voluntary quality reporting initiative would receive an average payment increase of 4.7% in 2005 after receiving a 1.2% increase in 2004. Hospital officials attributed the greater rate of increase to provisions in the Medicare reform law designed to boost reimbursement. Rural hospitals, which were singled out in the Medicare bill for several new payment perks, will see their payments increase an average of 6%, compared with 5.8% in 2004.
The CMS estimated that Medicare payments to 3,900 acute-care hospitals will total $105 billion next year, up from a projected $100 billion this year. Hospitals that submit quality data to the CMS will receive a full-inflation payment increase, or 3.3%; hospitals that do not submit the data will receive a 2.9% increase. Some analysts cautioned, however, that the increased rates do not necessarily compensate hospitals for the increasing volume of patients they will treat.
The CMS' proposed rule, which is expected to be published in the Federal Register May 18, would also set the threshold required to qualify for Medicare outlier payments at $35,085 in 2005, up from $31,000 this year. Comments on all provisions in the proposed regulation are due to CMS by July 12, and agency officials said they would carefully review all public comment before issuing a final regulation later this year. [[[[
-with Julie Piotrowski