Hospital industry officials found plenty not to like in the CMS hospital inpatient prospective system final rule unveiled last week. The industry is opposed to an estimated five-year Medicare reimbursement cut of $20 billion that is tied to the CMS new severity-adjusted DRG system, a cut to urban hospitals and another cut to teaching hospitals, all under the final rule.
The American Hospital Association is working hard to get the DRG-related cut canceled by Congress. This misguided policy wrongly assumes major changes in how hospitals categorize patients for payment purposes, penalizing hospitals in advance based on a guess by CMS, said AHA President Richard Umbdenstock in a written statement.
The final rule also will increase total inpatient Medicare spending by an estimated 3.5% or almost $4 billion in fiscal 2008, according to the CMS. And it expands its list of publicly reported quality measures for hospitals and creates new disclosure requirements for specialty hospitals.
Also released last week by the CMS were reimbursement levels for inpatient rehabilitation facilities, which will rise 3.2% in fiscal 2008; and skilled-nursing facilities, which will rise 3.3%. Continued implementation of the so-called 75% rule for inpatient rehabilitation was included but may be altered by Congress.
But its the cuts that have been drawing attention from healthcare providers, though the new Medicare Severity DRG system itself is not the issue. The CMS is replacing the current system of 538 DRGs with 745 new ones that more accurately account for the severity of a patients condition. It isnt necessarily the MS-DRGs themselves that hospitals oppose, said Kenneth Raske, president of the Greater New York Hospital Association. By nature, theyre more accurate in that they reflect how sick patients are, he said. Its the agencys decision to implement a negative behavioral offset on a prospective basis, rather than seeing what happens in the field first, and then making adjustments retroactively, he said.
Payments under the new MS-DRG system are expected to increase for hospitals serving more severely ill patients and decrease for those who treat less complex patients. However, to compensate for the anticipated upcoding hospitals will engage in as the MS-DRG system is implemented, the final rule is adopting a negative 1.2% adjustment for the coming fiscal year, with more cuts projected over the next few years, resulting in the AHAs estimate for a $20 billion reduction in payments.
Calling these cuts irresponsible and inappropriate, Don May, vice president for policy with the AHA said the hospital lobby would be working with Congress in an attempt to stymie the cuts.
An HHS funding bill approved several weeks ago in the House would delay implementation of the MS-DRGs by a year. Nearly the entire Houseby a vote of 412-12voted to restrict the CMS from spending funds on prospective implementation of this payment cut, Umbdenstock said.
Umbdenstock noted that 269 representatives and 63 senators signed on to a letter in opposition to this cut.
The CMS asserts the adjustments are needed to help maintain budget neutrality. Otherwise, aggregate payments for inpatient hospital services would increase significantly under the new [MS-DRG] systemwithout any corresponding growth in actual patient severity, said CMS Chief Actuary Richard Foster.
Urban hospitals and teaching hospitals also face cuts by way of reduced reimbursements for capital costs for urban hospitals and an eliminated capital payment for indirect medical education at teaching hospitals.
We are still in the process of assessing what this means in terms of any cuts, said Debra Carey, CEO of 350-bed SUNY Downstate Medical Center University Hospital, an urban teaching hospital in Brooklyn, N.Y.
The intent of these cuts is to reduce overall expenses, but trying to take from urban hospitals that have such a huge responsibility for taking care of underserved patients is unfair, Carey said. The hospital had more than 18,000 discharges over the past fiscal year.
Although the CMS kept an inflationary adjustment in place for urban hospitals capital costs, it eliminated a 3% large urban area capital add-on that has been used to pay for construction costs. The rationale is that urban hospitals are making too much money on capital payments. However, at a time when we need to spend billions of dollars on information technology, the federal government is going in the opposite direction, Raske said.
Another capital payment thats being eliminated is the indirect medical education adjustment that teaching hospitals use to pay for equipment. Teaching hospitals need these payments because they tend to cater to a more diverse patient case mix and service menu, Raske said.
The CMS did offer a 90-day comment period on the IME adjustment elimination in the final rule, which means the door may not be closed on this issue, Raske said.
Regarding the MS-DRGs, the agency is opting for a more gradual phase-in than originally proposedover two years, instead of one. However, it is continuing its three-year transition from charge-based to cost-based weights.