As the CMS embarks on expanding the number of DRGs subject to the post-acute-care transfer policy, it can expect an earful from the hospital community.
Last week, in a wide-ranging announcement, the CMS proposed increasing the number of DRGs subject to the transfer policy to 223 from 30, creating a firestorm in the hospital industry, which was taken aback at the scope of the proposed increase.
"I don't think we ever suspected they would do this," said Chip Kahn, president of the Federation of American Hospitals, which represents for-profit hospitals. "This is a major problem."
As hospital executives descend on Washington this week for the American Hospital Association's annual membership meeting, they say they plan to lobby lawmakers and the Bush administration in an effort to shoot down the CMS proposal.
"The CMS has proposed transfer policy changes and in the past we have been able to scale it back," said Carmela Coyle, senior vice president of policy at the AHA.
Along with changes to the transfer policy, the CMS also proposed lowering the share of Medicare's inpatient hospital payments that are attributable to hospital labor costs. Under last week's proposal, hospitals with labor costs greater than the national average would have 69.7% of their Medicare rates adjusted for differences in wages, down from the current 71.1%. All other hospitals would continue to see 62% of payments adjusted for wage differences. The AHA said it is studying this proposal.
Any savings from the proposed change would be returned to the hospitals nationally through a higher base rate of payment, the CMS said. The CMS also proposed a 3.2% increase in 2006 Medicare inpatient updates to hospitals that report data on 10 quality measures and a 2.8% increase to hospitals that do not report the data.
All changes, if enacted, would become effective Oct. 1.
The uproar in the hospital community centered on the proposed change to the post-acute-care transfer policy. Under that policy, hospitals are paid per diem rates instead of full DRG payments for patients discharged to post-acute facilities before the average length of stay for the DRG.
A report last week from HHS' inspector general's office further fanned the flames of controversy, noting that the CMS overpaid hospitals by $72.4 million in fiscal 2001 and 2002 because hospitals had not complied with Medicare's post-acute-care transfer policy.
Two years ago, the CMS expanded the number of DRGs subject to the policy to 29 from 10. The list grew to 30 last year when one of the 29 DRGs was split. Back in 2003, the industry complained that the increase in DRGS was an underhanded way of reducing the payment update. Last week, the industry repeated that charge, saying the change, if adopted, would result in a 1.1% decrease in payments, according to the AHA. "Traditionally those decisions have been made by providers," Coyle said. This proposal ... says the federal government should make that decision."
The CMS estimates the change would save Medicare about $880 million in fiscal 2006. In Massachusetts, hospitals stand to lose $50 million in 2006, said Joe Kirkpatrick, vice president of healthcare finance at the Massachusetts Hospital Association. In that state the change represents a 1.8% reduction in payments to hospitals because "We have a higher concentration of post-acute hospital settings," Kirkpatrick said. The MHA is scheduled to speak with representatives from Democratic Massachusetts Sens. Edward Kennedy's and John Kerry's offices this week about the CMS proposal.
In a news release, CMS Administrator Mark McClellan said the proposal is fair to hospitals, beneficiaries and taxpayers. "It will make our payments more appropriate for beneficiaries who are transferred relatively quickly to post-acute-care settings," he said.
In developing the proposal, the CMS had considered subjecting all DRGs to the post-acute-care transfer policy but instead eventually focused on DRGs that have at least 2,000 post-acute-care transfer cases and at least 20% of cases discharged to post-acute-care.
The proposed regulations will be published in the May 5 Federal Register. The comment period ends June 24, and a final rule is scheduled to be published by Aug. 1.