Recently released Medicare Payment Advisory Commission recommendations to the CMS to refine its new inpatient hospital payment system dont go far enough in limiting proposed payment reductions to the industry, major hospital associations argued last week.
The CMS in its proposed hospital inpatient prospective payment system rule for fiscal 2008 recommended a 2.4% cut to reimbursements to offset the anticipated cost-saving effect of greater use of coding for complications and co-morbidities as hospitals move to Medicare Severity DRGs or MS-DRGs. The MS-DRGs are a new payment system the CMS is proposing to better reflect the severity of a patients condition (April 23, p. 8).
In a comment letter to the CMS last week, MedPAC also recommended that the agency cut inpatient payment adjustment, but only between 1.6% and 1.8% per year for at least the first two years after implementation. The comment period closed June 12. The reduction should offset the money that hospitals would save on documentation and reporting under the new system, the commission estimated.
Hospital groups have criticized the provision to reduce payments as a back door method to cut spending. The AHA estimates the proposed measure will reduce industry payments by nearly $25 billion over five years. The cuts are incredibly threatening to hospitals that provide services to Medicare beneficiaries, said Chip Kahn, president of the Federation of American Hospitals. MedPACs suggestion is for a smaller cut than what the CMS proposed, but it would still cost hospitals billions of dollars, said Don May, vice president for policy with the American Hospital Association.
MedPAC in its research estimates that payments would likely exceed 5% up or down for a few hundred hospitals by adopting MS-DRGs in fiscal 2008. To lay on top of that any additional cut without evidence that there has been a change in coding, is irresponsible, May said. If the CMS looked at evidence down the road and saw there was a change in coding, then it could make payment adjustments retrospectively as needed, he continued.
Its unfortunate that neither MedPAC nor the CMS based its assumptions on any real data, Kahn said. Both organizations assume some kind of coding effect, but We think that because of the nature of the MS-DRGs there will be little effect on coding.
Mark Miller, MedPACs executive director, admitted that the process of setting these adjustments is an imprecise science.
Yet, whenever changes have taken place to prospective payment systems in the past, hospitals suddenly get an opportunity to put in more codes, and payments go up even though hospitals are presumably treating the same types of patients, Miller said. While its true that patient severity has increased, it hasnt outpaced the rate of coding increases, Miller said. The adjustment MedPAC is recommending is to offset the expected increases that will result from implementation of the MS-DRGs, he said.
MedPAC is also supporting the agencys proposal to eliminate certain capital-related cost provisions for urban hospitals, money thats used to purchase high-tech equipment such as MRIs and CT scanners as well as updating facilities and information systems, May said. The AHA estimates that proposed cuts to capital payments will reach nearly $1 billion over the next five years.
In its letter, MedPAC said the MS-DRGs should be adopted as planned, but the CMS should make additional adjustments to the proposed methods for estimating those weights. The fiscal 2008 proposed rule recommends paying hospitals based on a blend of one-third charge-based weights and two-thirds cost-based weights for DRGs. In fiscal 2009, hospitals would be paid 100% based on cost-based DRG weights, according to the proposed rule.
Instead of slowly transitioning to cost-based weights, the CMS in the final rule should either immediately adopt the cost-based weights or implement a two-year transition period for MS-DRGs that coincides with the remainder of the transition period for implementing the cost-based weights, MedPAC wrote. These actions would help to balance the payment impacts of implementing severity refinements and cost-based weights, the letter stated.
In other refinements, MedPAC suggested that the CMS standardize Medicares charges and costs used in calculating national revenue center cost-to-charge ratios to adjust for differences in local wage levels and the extent of hospitals teaching activity and service to low-income patients.
Charge compression, which has been a concern over converting from charge to cost-based weights, refers to the practice of assigning a lower markup to relatively high-cost items and a higher markup to lower cost items. In a recent analysis of the cost-based weighting system, RTI International determined that charge compression could underestimate or overestimate cost estimates for specific DRGs, biasing the weights.
To help ameliorate the effects of charge compression on cost-based weights, MedPAC recommended that the agency adopt RTI Internationals recommended methods for calculating national revenue center cost-to-charge ratios for drugs, supplies, radiology, emergency room and blood products. This measure would increase the number of revenue centersgroups of hospital departments in which hospitals charge patients for servicesfrom 13 to 19, MedPAC stated.
A CMS spokesman said that the agency will take MedPACs comments, as well as other comments received from the public, into consideration as we develop the final rule. Traditionally, the final rule is released in August.