IRHA 2013 Annual Conference
Andy Rinzel, Senior Manager
&
Nick Motta, Managing Consultant
BKD, LLP
2
 Federal Fiscal Year (FFY) 2014 Inpatient
PPS Final Rule
◦ Posted to CMS website August 2, 2013
◦ Official publication August 19, 2013
 CMS Proposed Disproportionate Share
Hospital (DSH) Formula
 Other Regulatory &
Legislative Issues
 Give Away Money!
3
Market Basket Update
Productivity/ACA* Cut
Documentation & Coding Cut
Pay for Inpatient Criteria Change
Net Change **
2.5%
(0.8)
(0.8)
(0.2)
0.7%
* Patient Protection and Affordable Care
Act (ACA) of 2010, HR 3590 & HR 4872
** Additional 2% for quality non-reporters
4
 Starting 10/1/11, annual Medicare
inflation adjustment is reduced by
productivity adjustment “equal to the
10-year moving average of changes in
annual economy-wide private nonfarm
business multi-factor productivity”
◦ 10/1/11 cut = 1.0%
◦ 10/1/12 cut = 0.7%
◦ 10/1/13 cut = 0.5%
 No sunset with cumulative impact
5
 4/1/10 = 0.25%
 10/1/14 = 0.2%
 10/1/10 = 0.25%
 10/1/15 = 0.2%
 10/1/11 = 0.1%
 10/1/16 = 0.75%
 10/1/12 = 0.1%
 10/1/17 = 0.75%
 10/1/13 = 0.3%
 10/1/18 = 0.75%
6
 Section 631 of American Taxpayer Relief Act
◦ Requires $11 billion be recovered from hospitals
between 2014 & 2017
◦ CMS estimates 9.3% cut would recover all in 2014
◦ Instead, 0.8% cut in 2014
 No additional cut to hospital-specific rates for sole
community hospitals (SCH)
7
 Current rules: Medicare Benefit Policy
Manual, Chapter 1, Section 10—
“Physicians should use a 24-hour
period as a benchmark, i.e., they should
order admission for patients who are
expected to need hospital care for 24
hours or more, and treat other patients
on an outpatient basis. . . Admissions
of particular patients are not covered or
noncovered solely on the basis of the
length of time the patient actually
spends in the hospital.”
8
 CMS presumption “that inpatient
admissions are reasonable and
necessary for beneficiaries who require
more than 1 Medicare utilization day
(defined by encounters crossing 2
“midnights”) in the hospital receiving
medically necessary services.”
◦ Contractors would disregard 2-midnight
presumption for hospitals “systematically
delaying the provision of care to surpass
the 2-midnight timeframe.”
9
 CMS specifies “that hospital services
spanning less than 2 midnights should
have been provided on an outpatient
basis, unless there is clear
documentation in the medical record
supporting the physician’s order and
expectation that the beneficiary would
require care spanning more than 2
midnights or the beneficiary is receiving
a service or procedure designated by
CMS as inpatient-only.”
10
 CMS actuary estimates
◦ 400,000 encounters would shift from
outpatient to inpatient
◦ 360,000 encounters would shift from
inpatient to outpatient
◦ Net additional expenditures of $220
million
 CMS makes 0.2% cut to inpatient
payment rates to pay for added
expenditures
11
 Capital rate is $429.31 (up from $425.49; .9%)
 Outlier threshold is $21,748 (currently $21,821)
◦
Proposed at $24,140
◦
Drop due to change in DSH payment methodology
◦
Uncompensated care payment now on per claim basis
12
 CMS created new cost centers for measuring DRG cost
◦
Implantable devices, MRI, CT Scan, Cardiac Cath Lab
 Now CMS uses 19 cost-to-cost ratios
 Table 5 lists the new weights
 Table 5 (Supplement)
◦
Shows weights if only the 15 cost-to-charge ratios were used

Biggest loser is DRG 90 (Concussion); down 7.9%

Biggest winner is DRG 454 (Spinal Fusion); up 5.5%
13
 Will not implement 2010 census changes until FFY
2015
 Changes can be accessed at:
http://www.whitehouse.gov/sites/default/files/omb
/bulletins/2013/b-13-01.pdf
 List 2 shows all metropolitan areas & counties
 List 6 shows metropolitan areas by state
◦ Evaluate your area now to see if changes may
impact payments: SCH status, wage index, etc.
◦ Even if your county didn’t change, see if nearby
counties did
14
 Indiana changes
◦
Madison County becomes part of the Indianapolis CBSA (Anderson
CBSA dissolved)
◦
Scott County becomes part of Louisville CBSA (was rural)
◦
Union County becomes part of Cincinnati CBSA (was rural)
◦
Green County becomes rural (was part of Bloomington CBSA)
◦
Franklin County becomes rural (was part of Cincinnati CBSA)
◦
Gibson County becomes rural (was part of Evansville CBSA)
◦
Tipton County becomes rural (was part of Kokomo CBSA)
15
 MGCRB applications are due by September 3, 2013
◦ “…although OMB issued revisions on February 28, 2013
to its area delineations, we did not propose to adopt
those revisions for the FY 2014 wage index, and we will
not be adopting the revisions before the September 3,
2013 deadline for applications for the FY 2015 wage
index. Therefore, hospitals must apply for
reclassifications based on the delineations we are using
for FY 2014.”
16
 Occupational mix survey for calendar year
2013 will be due July 1, 2014
 Increase labor-share of DRG payment from
68.8% to 69.6% for areas with wage index >
1.0
◦ Labor share remains 62% if wage index < 1.0
 Continue rural floor budget neutrality
policy, spreading impact nationally rather
than within a state
◦ Selected impacts on next slide
17
 Winners
 Losers
◦ Massachusetts +5.6%
◦ DE, IL, NY
-0.6%
◦ Connecticut
+4.9%
◦ 13 States & DC -0.5%
◦ Alaska
+3.3%
◦ 14 States
-0.4%
◦ Nevada
+1.6%
◦ 7 States
-0.3%
◦ INDIANA
-0.5%
18
 Revised the CAH Conditions of Participation to require the
CAH has the capacity to provide acute care inpatient services
 Medicare Dependent adjustment expires on September 30,
2013
 Special Low Volume adjustment expires on September 30,
2013
 CAH may receive 101% of cost reimbursement for FTE
residents
◦
If CAH in fact incurs the cost of training
◦
No IME payments for CAH
19
 A hospital waiving its Lugar status will be deemed rural for all
payment purposes
◦
Table 4J for out-migration adjustments
 Rural Referral Center criteria updated
◦
Case mix and discharges
20
 Tables 15 & 16 available at:
http://www.cms.gov/Medicare/Medicar
e-Fee-for-ServicePayment/AcuteInpatientPPS/FY2014IPPS-Final-Rule-Home-Page.html
 Value-Based Purchasing
 Readmissions Reduction
 Hospital-Acquired Conditions
21
 Starting 10/1/12, 1% of Medicare inpatient
reimbursement is withheld for a valuebased purchasing pool
 Increases 0.25% annually to 2% by 10/1/16
 Earned back with favorable quality
outcomes, based upon achieving certain
performance levels or improving
performance
 Withhold based upon federal base rate, not
hospital-specific rate “add-on”, DSH, etc.
 Review PS&R summaries
22
FFY 2013
FFY 2014
FFY 2015
FFY 2016
Process
70%
45%
20%
10%
10%
HCAHPS
30%
30%
30%
25%
25%
25%
30%
40%
25%
20%
25%
25%
Outcomes
Efficiency
Safety
Total
FFY
2017*
15%
100%
*Proposed, subject to change
100%
100%
100%
100%
23
 Effective 10/1/12, up to 1% of inpatient
reimbursement withheld from hospitals with
higher than expected readmission rates
 Effective 10/1/13, up to 2% withheld
 Effective 10/1/14 & thereafter, up to 3%
withheld
 CMS determines “expected” risk-adjusted
readmission rates for each hospital
 Withhold based upon federal base rate, not
hospital-specific rate “add-on”, DSH, etc.
 N/A for CAH and post-acute care providers
24
 Currently based upon readmissions for
heart attack, heart failure & pneumonia
 For FFY 2015, CMS adding
◦ Acute exacerbation of cardiopulmonary disease
(COPD)
◦ Elective total hip or total knee arthroplasty
 CMS broadened the exclusion for planned
readmissions & to exclude unplanned
readmissions that follow planned
readmissions
25
 Effective 10/1/14, 1% of inpatient
reimbursement withheld annually from
hospitals in bottom 25% of hospitals based
upon level of hospital-acquired conditions
 CMS adopts two alternative sets of measures
using AHRQ Patient Safety Indicators, as well
as CDC infection measures (FY 2015)
◦ More in FY 2016 & FY 2017
 Will be risk adjusted (age, gender, etc.)
 Initial reporting period to be July 1, 2011
through June 30, 2013
26
27
 CMS has surprised most with their
proposal for computing the new DSH
payments
 Creates big winners and losers
 Significant errors exist in data, many
hospitals show no Medicaid days but
are large DSH hospitals
28
 The Affordable Care Act set forth a new
DSH formula beginning in FFY 2014
 25% of DSH payment continues to be
based on current methodology
 Remaining 75% is based upon product
of 3 factors
25% of
DSH
Payment
75% of
DSH
Change in
Uninsured
Care
Costs
Total New
DSH
Payment
29
 Final Rule confirms reduction in DSH
payments to many hospitals
 Worksheet S-10 from the cost report
will not be used in FFY 2014 to gather
data, could be used in future years
 Only subsection(d) hospitals, those who
qualify for DSH, will qualify for the
“add-on” payment under the new
method
30
 FFY 2014 Final Rule throws a curve ball
 Medicaid & Medicare SSI days used as a
proxy for Uncompensated Care Costs
 SSI Enrollment remains a driving force
for future DSH payments
25% of
DSH
Payment
75% of
DSH
Change in
Uninsured
Care
Costs
Total New
DSH
Payment
31
• Why did CMS ignore cost of uninsured?
 Varying definitions of uncompensated care
 Lack of clarity on days definition
 Lack of consistent reporting (CMS-255210 Form S-10)
32
 Two payments will be calculated for a
DSH hospital
 The traditional DSH payments will
continue to be computed, but only paid
at 25% (called the empirically justified
Medicare DSH payment)
 A second payment will be based upon
three factors & is referred to as the
“uncompensated care payment”
33
 Three factors:
◦ Factor 1—Difference between 100% of
DSH payment that would have been paid
out if the law had not been changed & the
25% that will be paid out—estimated for
the Final Rule at $9.58 billion ($9.25
billion in Proposed Rule)
◦ Factor 2—For FFY 2014, 1 minus the %
change in uninsured individuals from
2013—proposed to use 94.3% based upon
CBO’s estimate (88.8% in the Proposed
Rule)
34
 Factor 3—Proportion of uncompensated
care for hospital compared to all hospitals
who receive DSH, using Medicaid days & SSI
days
◦ Factor 3 is based upon each hospital’s share of
total uncompensated care costs across all PPS
hospitals that received DSH payments
35
Example FFY 2014 Proposed & Final Rule: 2014 Estimated Payment
Proposed Rule
Final Rule
FFY 2011 DSH Payment
$5,000,000
$5,000,000
25% Historical DSH
$1,250,000
$1,250,000
Factor 1: (Constant)
$9,253,500,000
$9,579,000,000
Factor 2: (Constant)
88.8%
94.3%
Factor 3: (From CMS Table)
.0345624%
.0345624%
Uncompensated Care Payment
$2,840,000
$3,122,000
Estimated Total FFY 2014 DSH Payment
$4,090,000
$4,372,000
Reimbursement Comparison
($910,000)
($628,000)
36
37
 Data table on CMS website should be
reviewed by all hospitals—notify CMS if data
is in error (shows hospital’s Factor 3)
 CMS is using as-filed 2012 cost reports; this
is problematic because of the Medicare Part
C issue
 Worksheet S-10 could be used in the future,
so it is important to complete it accurately
 Formula may punish states that do not
expand Medicaid if methodology is used in
the future
38
 The uncompensated care component of the
payment will be paid on a per discharge
basis
 A final settlement of both the empirically
justified & uncompensated care payments
will be made on the cost report
 DSH scrubs will continue to be important for
hospitals, not only for the original
computation, which now pays at 25%, but
also for computing the uncompensated care
payment, which uses the same days
39
 BKD has developed a calculator at:
http://www.bkd.com/industries/healthcare/hospitals/dsh-reimbursementdatabase.htm
 Table 3 errors are not uncommon with
hospitals showing zero XIX days—
providers should check this data
40
41
 ACA requires federal DSH payments to
states be cut as coverage expands;
cuts =
◦ Federal FY 2014 - $500 million
◦ Federal FY 2015 - $600 million
◦ Federal FY 2016 - $600 million
◦ Federal FY 2017 - $1.8 billion
◦ Federal FY 2018 - $5 billion
◦ Federal FY 2019 - $5.6 billion
◦ Federal FY 2020 - $4 billion
42
 CMS methodology to cut individual states must
consider 5 factors:
◦ Smaller reduction on “low DSH States”
◦ Larger reduction on states with lowest % of
uninsured using most recent data
◦ Larger reduction on states that don’t target DSH to
hospitals with high Medicaid utilization
◦ Larger reduction on states that don’t target DSH to
hospitals with high uncompensated care
◦ Consider whether state’s DSH allotment included in
BN calculation for expansion at 7/31/09
43
 CMS published proposed rule 5/15/13
◦ Comments were due 7/12/13
◦ Final rule released 8/2/13
 States have range of 0.5% to 7.1%, average cut of 4.4%
 CMS acknowledges states that expand Medicaid may
have lower share of uninsured in the future, & thus more
Medicaid DSH cuts
◦ “Given the statutory reductions in the funding for
Medicaid DSH in the Affordable Care Act, we intend to
account for the different circumstances among states
in the formula in future rulemaking.”
44
 Required by Budget Control Act of
2011, after Congress & White House
failed to agree on deficit reduction
measures
 2% cut in all Medicare payments,
effective for services on or after April 1,
2013
 Based upon net Medicare payment, not
counting deductible/coinsurance
 Theoretically reinstated in 2022
45
25
20
15
Costs
Pmts
10
5
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
46
 Requires $11 billion documentation & coding
adjustment starting 10/1/13
 Extended low-volume payment add-on through
September 30, 2013, for hospitals with fewer than
1,600 Medicare discharges (ENDING SOON!)
 Extended Medicare-dependent hospital program
through September 30, 2013
◦ CMS automatically reinstated MDHs with no change in
status
◦ Special rules for MDHs that had reverted to urban or SCH
status
47
 Medicare outpatient cost-based lab program
expired June 30, 2012
 Medicare outpatient hold harmless program expired
December 31, 2012 (ALREADY GONE!)
◦ December 2012 CMS report (required by
February 2012 legislation) implied hospitals
earning hold harmless may be inefficient
◦ CMS notes they’ve changed from geometric
median to mean costs for outpatient rates; this
$3 million may “decrease the need” for $104
million in hold harmless payments
48
 Debate continues, with debt extension
rapidly approaching
 Additional cuts are possible, such as
◦ Reducing ability of states to fund
Medicaid programs with provider taxes
◦ Additional Medicare documentation &
coding cuts
◦ Cutting payments for provider-based
clinics
◦ Cutting payments for Medicare bad debts
49
 CMS has won some PRRB appeals on the
issue that PT/OT/ST are separate
services and are required to be reported
separately within the cost report
◦ Issue is being pursued by CMS on
contractor quality reviews/audits
◦ May have negative impact as utilization
can vary across therapies
 Understand CCR’s
 Understand allocations
50
 IPPS 2013 Final Rule changed how you
count labor & delivery beds
◦ OLD RULE: Labor, delivery & recovery
beds were considered ancillary beds and
not counted; similar to ER and recovery
beds
 LDRP suites were counted typically
◦ NEW RULE: Effective for cost report
periods beginning on or after 10/1/12,
labor and delivery beds count as an
available bed
51
 Compliance & cost report issues
◦ Hospitals who are near a particular count
necessary to maintain a designation
 MDH, CAH, RHC limit exemptions
 Unanswered questions
◦ Some states license L&D beds, others
don’t
◦ How can your bed count exceed your
licensed beds?
52
 If a provider disagrees with a CMS
position, they should file the cost report
and list the reimbursement impact as a
protested item
 Potential issues
◦ SSI/DSH
◦ Provider tax (HAF)
◦ Hospital specific issues
53
 1600 discharge maximum currently
slated to end 9/30/13
 LVA hospitals should now be getting
paid on each claim
 LVA hospitals should have received
retro-active payments for FFY 2013
 Mistakes have been made—check your
calculation and data
54
 Dead again? Maybe
 Is conversion to SCH an option?
55
 Tentative payments and adjustments—
do not trust they are correct
 Rate reviews/lump sums—do not trust
they are correct
 Re-opening and NPRing of cost reports
during transition from NGS to WPS has
created additional risk
◦ Review ALL adjustments, changes, etc. to
ensure accuracy
56
 Bad debt reductions – begins now
◦ 65% for PPS effective 10/1/12
◦ 88% for CAH effective 10/1/12
 Potential reduction of reimbursement
from 101% to 100% for CAH
 CAH mileage requirement—if within 10
miles of another hospital, plan and
make sure your board is informed
57
Contact Information
Andy Rinzel
arinzel@bkd.com
317.383.3682
or
Nick Motta
nmotta@bkd.com
502.581.0435