While hospitals are celebrating the Obama administration's surrender on a Medicare pay cut tied to the so-called two-midnight rule, they're seething over a proposal to nearly double the expected payment reduction meant to recoup overpayments tied to incorrect coding.
Under the inpatient prospective-payment system, all hospital patients are assigned to one of hundreds of DRG codes, a system of classifying any inpatient stay into diagnostic groups for the purposes of payment.
In fiscal 2008, the CMS introduced a new set of DRGs known as Medicare Severity DRGs, or MS–DRGs, intended to compensate hospitals for more expensive care provided to sicker patients.
After the new codes were introduced, however, the CMS claimed that hospitals were abusing MS-DRGs to get higher payments. In the American Taxpayer Relief Act of 2012, Congress required the CMS to recoup $11 billion in alleged overpayments by the end of fiscal 2017.
The CMS initiated a 0.8% payment cut to inpatient rates in fiscal 2014, 2015 and 2016, and hospitals expected to see the same number again in this year's payment rule. Industry leaders say they were shocked Monday to see the cut rise to 1.5%.
“Congress was clear in its passage of physician payment reform last year that this cut should be 0.8%, but CMS ignored this directive and almost doubled the reduction,” Rick Pollack, CEO of the American Hospital Association, said a statement. “This cut poses another challenge to hospitals' ability to care for their communities.”
The CMS, however, estimated that another 0.8% reduction would have left the government $5 billion short of recouping the overpayments. The agency said changing economic and healthcare trends upended its earlier projections and made it necessary to increase the cut. “Some of the marketbasket projections have ultimately been lower than expected, and the number of hospital discharges has decreased more than expected.”
The hospital industry, though, isn't satisfied with the explanation. “This high uptick seems dramatic and excessive, and we will be carefully reviewing CMS' methodology for setting the adjustment to ensure there were no flaws in the calculation,” Blair Childs, a senior vice president for Premier, said in a statement.
Some industry stakeholders also complained that the higher cut effectively fines hospitals for successfully reducing the number of admissions under the Hospital Readmissions Reduction Program outlined in the Affordable Care Act.
“Hospitals are being penalized by CMS for complying with their own programs,” said Brian Murphy, director of the Association of Clinical Documentation Improvement Specialists, which represents hospital coding staff.
Hospitals will still receive $539 million more under the Inpatient Prospective Payment System than they did in fiscal 2016 thanks to various changes outlined in the proposed rule, including the reversal of the 0.2% payment reduction under the two-midnight rule and a one-time increase to offset the two-midnight cut applied in fiscal 2014, 2015 and 2016.