On April 27, 2016, CMS published the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule for fiscal year (FY) 2017 in the Federal Register. Highlights from the proposed rule are explained in further detail below.

Completion of Medicare Severity-Diagnosis Related Group (MS-DRG) $11 Billion Overpayment Recoupment

  • CMS proposes to make an additional -1.5 percent documentation and coding recoupment adjustment to the MS-DRG standardized amount for FY 2017. CMS has been phasing in recoupment adjustments for FY 2014, 2015 and 2016 at -0.8 percent, resulting in reduced payments by $5.92 billion of the $11 billion total overpayment related to the transition to the MS-DRG payment system in FY 2008. CMS will address the remaining $5.08 billion through the -1.5 percent adjustment in FY 2017.

LTCH Payment System Changes

  • CMS simplifies the application of the LTCH PPS 25 percent threshold policy by consolidating the existing policy into a single newly created provision. The 25 percent threshold policy is a per discharge payment adjustment that is applied when the number of patients from any single referring hospital exceeds a certain threshold (generally 25%). The policy adjusts payments for discharges over the applicable threshold during a cost reporting period. The 25 percent threshold policy would be consistent with current policy (i.e. not apply to subclause (II) LTCHs or grandfathered hospitals-within-hospitals, exclude high-cost outlier discharges, and not include Medicare Advantage discharges) and apply to all discharges, regardless of whether the discharge was paid at the site neutral payment rate or the LTCH PPS federal payment rate.
  • CMS states that it will continue to implement a dual payment rate structure, which pays LTCHs at either a site neutral payment rate or at the LTCH PPS standard federal payment rate, depending on whether the LTCH meets certain statutorily defined criteria. The proposed rule does not make any substantive changes to the applicability of the site neutral payment rate for FY 2017.

Two-Midnight Rule Retrospective Payment Adjustment

  • CMS proposes to retrospectively adjust payment rates to address the two-midnight policy payment reductions through a permanent adjustment factor of 1.002 and a temporary one-time adjustment factor of 1.006 for FY 2018. CMS implemented a 0.2 percent payment reduction for FYs 2014, 2015 and 2016 for anticipated expenditures related to implementing the two-midnight rule.

Uncompensated care payments

  • For FY 2017, CMS proposes to use data from three cost reporting periods instead of one to calculate Medicare Disproportionate Share Hospital (DSH) payments, and proposes to apply a proxy to estimate Medicare SSI inpatient days for Puerto Rico whose residents are not eligible for SSI.
  • For FY 2018, CMS proposes to define uncompensated care costs as the costs of charity care and non-Medicare bad debt and to incorporate Worksheet S-10 data over a three-year period, where insured low income day data will be averaged with uncompensated care cost data.

Quality Reporting Updates

  • Hospital Inpatient Quality Reporting (IQR) Program – CMS proposes to remove 15 measures for the FY 2019 payment determination and subsequent years; (ii) refine two previously refined measures beginning with FY 2018 payment determination; (iii) add four new claims-based measures; (iv) invite public comment on enumerated potential new quality measures; (v) require hospitals to submit all available electronic clinical quality measures (eCQMs) for four quarters of data, annually beginning with the CY 2017 reporting period/FY 2019 payment determination; (vi) modify the existing validation process for Hospital IQR Program data to include validation of eCQMs beginning with the FY 2020 payment determination; (vii) update CMS’s Extraordinary Circumstances Extensions or Exemptions (ECE) policy, including by extending the ECE request deadline to 90 days beginning in FY 2017 for events occurring on or after October 1, 2016, and a new submission deadline of April 1 beginning on April 1, 2017 and subsequent eCQM reporting years;
  • LTCH Quality Reporting Program – CMS clarifies that LTCH quality data will be publicly reported on the CMS Website, such as Hospital Compare, beginning in fall 2016 on four quality measures. CMS proposes four new measures for FY 2017 payment determination and three new measures for the FY 2018 payment determination and subsequent years. CMS also proposes to provide confidential feedback reports to LTCHs on their performance on the specified measures, beginning 1 year after the specified application date that applies to such measures and LTCHs. CMS proposes to extend the period for submission of exception and extension request from 30 days to 90 days from the date of the qualifying event which is preventing the Medicare provider from submitting their quality data.
  • Hospital-Acquired Condition (HAC) Reduction Program – In addition to changing the scoring methodology for the HAC Reduction Program from decile-based to continuous, CMS proposes to clarify several program requirements, adopt a modified PSI 90 measure, and use different performance time periods for FY 2018 and 2019.
    • CMS clarifies the term “complete data” for the PSI 90 measure within Domain 1. A hospital would have “complete data” for Domain 1 if the hospital has three or more eligible discharges for at least one component indicator and at least 12 months of data. This means that a hospital with more than three eligible discharges but less than 12 months of data would not have a Domain 1 score.
    • CMS also clarifies the National Healthcare Safety Network Center for Disease Control Healthcare-Associated Infection (NHSN CDC HAI) submission requirements within Domain 2 for newly opened hospitals. Newly opened hospitals that voluntarily file a notice of participation with the Hospital IQR Program within six months of opening are not required to submit data until the first day of the quarter after the notice of participation is filed. Newly opened hospitals that do not choose to file a notice of participation with the Hospital IQR Program within six months of opening must submit data for these Domain 2 measures on the first day of the quarter after the first six months of opening.
    • Beginning in FY 2018, CMS proposes to adopt a modified PSI 90 measure. The modified PSI 90 measure would be called Patient Safety and Adverse Events Composite. Modified PSI 90 would remove PSI 07 Central Venous Catheter-Related Blood Stream Infection Rate and add the following three indicators: PSI 09 Perioperative Hemorrhage or Hematoma Rate, PSI 10 Physiologic and Metabolic Derangement Rate, and PSI 11 Postoperative Respiratory Failure Rate.
    • CMS also proposes to use different time periods of performance data for Domain 1 for purposes of calculating the Total HAC Score in FY 2018 and 2019. For the FY 2018 HAC Reduction Program, CMS would use a 15-month performance period (July 1, 2014 through September 30, 2015). For the FY 2019 HAC Reduction Program, CMS would use a 21-month performance period (October 1, 2015 through September 30, 2017). The 24-month performance period for the Domain 2 measures would remain the same for FY 2018 and 2019.
    • The HAC Reduction Program reduces payments to hospitals ranked in the lowest performing quarter of all hospitals submitting data to the program for the purpose of incentivizing such hospitals to reduce HACs.
  • Hospital Readmissions Reduction Program – In the proposed rule, CMS clarifies that public reporting of excess readmission ratios would be posted on the Hospital Compare website annually and as soon as feasible following the preview period. Beginning in FY 2017, excess readmissions related to a coronary artery bypass graft will be included in the list of conditions hospitals must report under the FY 2015 IPPS LTCH PPS final rule. As a result, CMS proposes the methodology for including the coronary artery bypass graft condition in the calculation of the readmission payment adjustment.

5 Years to Establish a GME/IME FTE Cap for New Rural Track Training Programs

  • CMS proposes to extend the period urban teaching hospitals have to establish a new rural track FTE cap from the first three program-years to the first five program-years. The FTE limitation would take effect beginning the cost reporting period that coincides with or follows the start of the sixth program year of the rural training track’s existence. Notably, CMS clarifies there would be no change to the indirect medical education intern-resident-to-bed ratio cap for these urban teaching hospitals.

Comments to open provisions in the proposed rule must be received by CMS no later than 5 p.m. EST on June 17, 2016 to receive consideration.

*Wendy Wright is admitted only in North Carolina. Her practice is supervised by principals of the firm admitted in the District of Columbia.