CMS proposes payment rule for inpatient stays, long-term care, rolls back two-midnight cuts

The Centers for Medicare and Medicaid Services on Monday issued a proposed rule on payments for inpatient stays and long-term care that lifts payments for hospitals and rolls back payment cuts under the two midnight rule.

CMS's decision to no longer impose the inpatient payment cut under the two-midnight rule follows a lawsuit filed against the Secretary of Health and Human Services. Fifty-five hospitals filed the suit over Medicare's 0.2 percent cut in payments for inpatient stays under the two-midnight rule.

The providers contested the validity of payment cuts based on the two-midnight rule requirement that a patient be in the hospital for two midnights before Medicare will pay Part A reimbursement for an inpatient stay.

[Also: 55 hospitals sue HHS over two-midnight rule, payment cuts]

CMS, which was trying to curb observation stays, said the rule would shift an estimated 400,000 patients from the outpatient to the inpatient setting, leading to an additional $220 million in payments to providers.

The 0.2 percent cut was to offset the expected increase in payments.

That lawsuit, and another brought by the American Hospital Association and other hospitals, were consolidated as Shands Jacksonville Medical Center vs. Sylvia Burwell, secretary of the Department of Health and Human Services.

A federal judge partly sided with providers in ordering CMS to provide further justification for the 0.2 percent payment reduction.

Under the new rule released Monday, hospitals will get a one-time 0.6 percent payment in 2017 to make up for the 0.2 percent reduction that has been imposed over the last three years.

CMS projects that total Medicare spending on inpatient hospital services, including capital, will increase by about $539 million in  2017.

[Also: CMS cements 'physician judgment' exception in two-midnight policy]

The proposed CMS rule would affect an estimated 3,330 acute care hospitals and about 430 long-term care hospitals.

The proposed increase in payment rates for general acute care hospitals is 0.9 percent, adjusted for factors that affect hospitals' costs including the patient's condition, labor, and the provider's geographic area, CMS said.

However, for long-term care, CMS is proposing to reduce payments by 6.9 percent, or approximately $355 million, due to the expectation that less chronically ill patients will be treated in less expensive settings.

Most chronically ill patients are treated in acute care hospitals, but some are admitted to long-term care hospitals. CMS proposes continuing with two different payment rates.

Cases that qualify for the higher standard payment rate will see an increase of 0.3 percent in 2017, CMS said.

In addition, CMS is proposing streamlining its regulations regarding the 25 percent threshold policy, which is a payment adjustment made when the number of cases a long-term care hospital admits from a single hospital exceeds generally 25 percent.

The 2017 payment policies under the Inpatient Prospective Payment System and the Long-Term Care Hospital Prospective Payment System, would go into effect for discharges occurring on or after October 1, CMS said.

CMS projects that its proposed changes to Inpatient Prospective Payment System policies will increase operating payments by approximately 0.7 percent and that changes in uncompensated care payments will decrease IPPS operating payments by an additional 0.3 percent.

In other proposed payments, CMS is proposing to distribute roughly $6 billion in uncompensated care payments in 2017, a decrease of $400 million from the 2016 amount. The decrease reflects an expected drop in the number of uninsured patients under the Affordable Care Act.

Other additional payment adjustments will include continued penalties for excess readmissions, a continued 1 percent penalty for hospitals in the worst performing quartile under the Hospital Acquired Condition Reduction Program, and continued bonuses and penalties for hospital-value based purchasing.

CMS is also proposing a recoupment adjustment for 2017 of -1.5 percent.

The American Taxpayer Relief Act of 2012 requires CMS to recover $11 billion by 2017 to fully recoup documentation and coding overpayments related to the transition to the MS-DRGs that began in 2008, CMS said. For 2017, CMS calculates that $5.08 billion of the $11 billion requirement remains to be addressed.

For the past three years, the cumulative adjustment has been -0.8 percent.

CMS is proposing five changes to data submission requirements for the Hospital Acquired Conditions Reduction Program. Under the program,

CMS creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions by making payment adjustments to hospitals in the worst performing quartile.

The Hospital Readmissions Reduction program requires a reduction to a hospital's DRG payment to account for excess readmissions.

For 2017 and subsequent years, the reduction is based on a hospital's risk-adjusted readmission rate during a three-year period for acute myocardial infarction; heart failure; pneumonia; chronic obstructive pulmonary disease; total hip arthroplasty/total knee arthroplasty; and, effective for 2017, coronary artery bypass graft.

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To align with other quality reporting programs and allow the posting of data as soon as possible, CMS is proposing to update the public reporting policy so that excess readmission rates will be on the Hospital Compare website as soon as feasible.

CMS has also developed new standards for hospitals and critical access hospitals to provide notification to individuals receiving observation services as outpatients for more than 24 hours; and it is also proposing modifications for reporting clinical quality measures for the Medicare and Medicaid Electronic Health Record Incentive Program.

CMS will accept comments on these and other proposed rules until June 16, 2016, and will respond to comments in a final rule to be issued by August 1.

Twitter: @SusanJMorse