Payment boost

Hospitals were pleasantly surprised last week when the CMS reversed course and announced a 1.1% increase in Medicare payments for 2012. But they remain concerned about future adjustments for coding and certain elements of the hospital readmission reduction program in the agency's final inpatient PPS rule.

Earlier this year, the CMS had proposed what would have amounted to a 0.55% reduction in payments for acute-care hospitals. Instead, the CMS issued a payment increase in its final rule Aug. 1 that the agency expects will raise payments for these facilities by about $1.13 billion next year.

The boost is due in part to a higher market basket update of 3%, compared with the proposed rule's recommendation of 2.8%. But even more significant was a lower adjustment for documentation and coding of -2% versus the -3.15% the CMS had proposed.

“Clearly, CMS made the right choice from our viewpoint by deciding to even out the effect over time for the coding adjustment for MS-DRGs,” said Chip Kahn, president and CEO of the Federation of American Hospitals. The MS-DRG, or Medicare Severity Diagnosis Related Group, took effect for fiscal 2008.

Jessica Roth, director of legislation and policy at the law firm McDermott, Will & Emery in Washington, said the documentation and coding adjustment is likely the biggest change in the final rule from the proposed rule. This change offered a greater level of detail for coding—increasing the number of diagnosis-related groups to 999 from 467—to distinguish the severity of cases, Roth explained.

The American Hospital Association still believes the number the CMS has established for changes to coding is too high, according to Don May, vice president for policy at the AHA. “They had said that they believed there was a total of 3.9% remaining” to adjust for coding changes, he said. “We would argue with that number.” And while the final rule called for a lower adjustment than was anticipated, it indicated that the CMS will revisit the issue.

“In CMS' proposed rule, it alluded to a future adjustment that would be required since it is not taking the full -3.9% in 2012,” said a research note from Deutsche Bank Securities. “In keeping with its policy intent to recover program dollars perceived to be lost to higher document and coding, the CMS stated that because only a -2% will be made in 2012, an additional 1.9% will be necessary in future years.”

At issue, May said, is that the CMS' methodology in coding does not account for patients who are sicker. “What happens is that those patients who do end up in the inpatient setting get more sick because those who are less sick can be seen in other settings because of new technology,” McDermott, Will & Emery's Roth said. “The argument is that CMS in their simple math doesn't account for a natural increase in case mix because of this trend of being able to deliver more complex care in outpatient settings.”

Another troubling area of the rule for providers relates to certain aspects of the Hospital Readmissions Reduction Program, which was established in last year's Patient Protection and Affordable Care Act. The program will reduce payments to certain hospitals that have excess readmissions for certain selected conditions for discharges on or after Oct. 1, 2012. Last week's rule finalized readmissions for acute myocardial infarction (heart attack), heart failure and pneumonia, as well as the methodology used to calculate excess readmission rates. As Roth explained, the measure related to heart attack excludes planned re-admissions, but the measures for heart failure and pneumonia do not exclude either unrelated or planned admissions.

To illustrate why hospitals think the CMS should exclude planned readmissions in other areas, the AHA's May cited cancer procedures for patients as an example. “We know that the course of treatment is that you have three inpatient admissions,” he said. “That's the course of treatment, so that's planned. And we don't think hospitals should be penalized for doing what we're supposed to be doing.”

The federation's Kahn echoed that sentiment. “I think it's a problem,” he said. “I think they should be looking at re-admissions we could actually avoid,” he added. “They want to reduce all readmissions, but a justifiable readmission is a justifiable readmission.”

The final rule, which applies to about 3,400 acute-care hospitals for discharges on or after Oct. 1, also included an overall 2.5% increase to long-term acute-care hospitals. That increase—which includes a 1.8% increase in payment rates—is projected to raise Medicare payments by $126 million for this segment, the CMS said.