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Medicare News & Information
Perfect Storm Developing Over Changes in Medicare's
Hospital Payment Policy
Some hospital reimbursements
to be reduced 20 to 30
percent
July 17, 2006 The latest storm engulfing Medicare
is a controversy over changes in the way it will pay hospitals for
services rendered its beneficiaries. Last week 189 members of Congress
sent two letters to Mark McClellan, Administration of the Centers for
Medicare and Medicaid Services, urging his agency to delay until fiscal
year 2008 proposed changes in Medicare payments for inpatient hospital
procedures. Today, the New York Times, takes a close look at the policy
change they say will reduce some payments for complex procedures by 20
to 30 percent.
 New
York Times Examines Proposed
Changes to Medicare Inpatient Payment System
The
New York Times on Monday examined concerns over a proposal to
change Medicare hospital reimbursements that would reduce Medicare
payments to hospitals by 20% to 30% for many complex procedures and new
technologies (Pear, New York Times, 7/17).
CMS
in April announced the proposal, which includes the closure of loopholes
used by specialty hospitals and a plan to replace the current
charge-based reimbursement system with a cost-based system.
Under the proposal, the
cost-based reimbursement system would take effect in October, and
severity-adjusted reimbursements -- which would pay hospitals more for
the treatment of sicker patients -- would take effect in October 2007.
The proposal would affect reimbursements for several inpatient
procedures -- such as those that involve the implantation of stents,
defibrillators and other medical devices (Kaiser
Daily Health Policy Report, 7/14). According to the Times,
the proposal would:
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● Reduce
reimbursements for angioplasties and subsequent implantation of
drug-coated stents by 33% to $7,590;
● Reduce reimbursements for implantation of defibrillators by 23% to
$22,000; and
● Reduce reimbursements for hip and knee replacements by 10% to
$14,500.
Concerns
Some hospitals, physicians and patient advocacy groups have raised
concerns that the proposal could have "devastating" effects, the
Times reports. Alan Guerci, president of St. Francis Hospital in New
York, said the proposal would reduce Medicare reimbursements to the
hospital by 12%, or $21 million, and would "significantly reduce
payments for cardiac care and will force many hospitals to reduce the
number of cardiac procedures they perform."
In addition, a coalition
of advocacy groups that includes the
Parkinson's Action Network and the
Society for Women's Health Research in a recent letter to Bush
administration officials wrote that the proposal "could have a
devastating impact on payment for critical treatments for seriously ill
patients." Some pharmaceutical and medical device companies, as well as
more than 200 lawmakers, have called for a delay of the proposal.
HHS Secretary Mike Leavitt has said that the proposal would make the
reimbursement system more accurate.
3M Contract Concerns
Some hospitals and lawmakers also have raised concerns about the
decision by the Bush administration in July 2005 to award a "sole-source
contract" to
3M Health Information Systems to determine whether Medicare could
establish a reimbursement system based on company software. 3M has said
that Medicare could establish such a reimbursement system. Richard
Anderson, CEO of 3M rival
Ingenix, said that 3M had a conflict of interest. Richard Averill,
research director at 3M Health Information Systems, denied that the
company had a conflict of interest, adding, "The contract required us to
use the 3M system in our analysis. There was no evaluation of
alternatives" (New York Times, 7/17).
Medicare Daily Report - July 14, 2006
Bipartisan Groups of
Senators, House Members Urge Delay in Proposed Changes to Medicare
Inpatient Payment System
A bipartisan group of
189 members of Congress this week sent two letters to
CMS Administrator Mark McClellan urging his agency to delay until
fiscal year 2008 proposed changes in Medicare payments for inpatient
hospital procedures, Dow Jones reports (Kamp, Dow Jones,
7/13).
CMS in April proposed
the changes, which include the closure of loopholes used by specialty
hospitals and a plan to replace the current charge-based reimbursement
system with a cost-based system. Under the proposal, the cost-based
reimbursement system would take effect in October, and severity-adjusted
payments -- which would pay hospitals more for treating sicker patients
-- would take effect in October 2007.
Senate
Finance Committee Chair Chuck Grassley (R-Iowa) and ranking member
Max Baucus (D-Mont.) last week also sent a letter to McClellan urging a
one-year delay in the changes (Kaiser
Daily Health Policy Report, 7/11).
The changes would affect
Medicare reimbursement rates for several inpatient procedures, including
those that involve the implantation of medical devices such as stents
and defibrillators. The letters -- one signed by senators on Wednesday
and one signed by House members on Thursday -- both state, "We urge you
to delay these changes until [FY 2008] in order to work with
stakeholders in addressing any underlying methodological issues and to
allow hospitals time to adjust their planning and business operations
accordingly."
Response
According to Dow Jones, the letters "back complaints from within
the [medical device] industry, where companies have noted problems with
the methodology behind the CMS proposal and have urged a slower pace."
Analysts said the
changes likely will not directly affect medical device pricing, "but
there is still broad investor concern that a squeeze on hospitals could
send negative shockwaves back up the supply chain" to the manufacturers,
Dow Jones reports (Dow Jones, 7/13).
CMS spokesperson Peter
Ashkenaz said the agency has received the letters and will respond to
the lawmakers. He declined further comment because of the ongoing
rule-making process (Carey,
CQ HealthBeat, 7/13).
Following is the news release from CMS announcing the changes last
April.
CMS Proposes
Payment and Policy Changes for Acute Care Hospital Services to
Inpatients
The Centers for Medicare & Medicaid
Services (CMS) today issued a notice of proposed rulemaking that would
begin the transition to the first significant revision of the Inpatient
Prospective Payment System (IPPS) since its implementation in 1983.
When fully implemented, which is planned to occur by fiscal year (FY)
2008 and potentially earlier, the revised IPPS would improve the
accuracy of payment rates for inpatient stays by basing the weights
assigned to Diagnosis Related Groups (DRGs) on hospital costs rather
than charges, and adjusting the DRGs for patient severity.
The estimated market basket
increase of 3.4 percent in FY 2007 would increase payments to acute care
hospitals by $3.3 billion. Over 1000 hospitals in rural areas would see
an average increase of 6.7 percent.
The hospital payment reforms we
are proposing today will mean payments for hospital inpatient services
will more accurately reflect the costs of providing the services, said
CMS Administrator Mark B. McClellan, M.D., Ph.D. We are taking
important steps to make payments fairer to hospitals and to assure
beneficiary access to services in the most appropriate setting.
This proposed rule will be shaped
by the public comment process, Dr. McClellan added. We look forward to
comprehensive feedback from hospitals, suppliers, and other stakeholders
that will help to refine and improve the final version of the rule.
The proposed changes reflect
recommendations from the Medicare Payment Advisory Commission (MedPAC),
and respond to some Congressional concerns that the existing system may
create incentives for certain hospitals to cherry-pick more profitable
cases. The reforms will significantly affect payments to specialty
hospitals hospitals that typically are owned, in whole or in
significant part, by physicians who serve as referral sources. The
growth in specialty hospitals has been slowed temporarily by statute or
regulation since the Medicare Modernization Act was signed in December
2003.
CMS is considering a two-step
process of transformation.
The first step, set out in the proposed
rule, would assign weights to DRGs based on hospital costs, rather than
hospital charges. This would eliminate biases in the current DRG system
arising from the differential markup hospitals assign for ancillary
services among the DRGs. The new DRG weights would go into effect
October 1, 2006.
A second step, currently scheduled
for FY 2008, would replace the current 526 DRGs with either the proposed
861 consolidated severity-adjusted DRGs or an alternative severity
adjusted DRG system developed in response to the public comments CMS is
soliciting on this issue. CMS is also considering ways of improving
recognition of severity in the current DRG system by FY 2007. When the
two steps are fully implemented, hospitals can expect more accurate
payment for their services.
CMS is proposing to increase the
outlier threshold for FY 2007 to $25,530, up from $23,600 in 2006. This
proposed increase is based on data suggesting a consistent pattern of
inflation in hospital charges which affect hospital cost-to-charge
ratios used in determining eligibility for outlier payment. The
proposed FY 2007 threshold is expected to keep aggregate hospital
outlier payments within the target of 5.1 percent of total payments
under the IPPS.
In addition to accurate payment for
existing technologies, CMS is committed to ensuring that Medicare
beneficiaries have rapid access to new technologies by providing for
temporary add-on payments for appropriate technologies. In order to be
eligible for additional reimbursement, a product must be:
● New that is, less than two to
three years old;
● Expensive that is, it must meet a defined cost threshold in
relation to the underlying DRG; and
● A substantial clinical improvement for the Medicare patient
population.
CMS has received three applications
for new technology add-on payments in FY 2007. CMS is soliciting
comments on whether these technologies meet the criteria for the
temporary add-on payments. CMS is also proposing to continue new
technology payments for two of the three technologies that were approved
for payment in FY 2006.
The proposed rule will be published
in the April 25, 2006 Federal Register. Comments will be
accepted until June 12, 2006, and a final rule will be published later
this year.
To review the proposed rule, use
this link:
http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/cms1488p.pdf
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