Medicare Compliance & Reimbursement

CMS Lowers Outlier Threshold In Inpatient Rule

Under the final Medicare inpatient payment rule for fiscal year 2005, released August 2, hospitals will have an easier time obtaining special payments for treating the most costly Medicare patients. The proposed rule would have made these "outlier" payments harder to obtain.
 
Hospitals receive outlier payments when the cost of treating a particular patient exceeds the available Medicare reimbursement by a sufficient amount, dubbed the "outlier threshold." The payments are intended to counter any incentive to under-treat unexpectedly costly patients that might flow from Medicare's inpatient prospective payment system, which pays the same for all patients in the same "diagnostic-related group," or DRG.
 
The proposed rule would have raised the threshold to $35,085 from this year's level of $31,000, but the final rule lowers the threshold to $25,800. "We want to make it easier for hospitals" to qualify for outlier payments "without having very high charges," Centers for Medicare & Medicaid Services Administrator Mark McClellan explained in a conference call with reporters.
 
If hospitals lower charges, that could help the uninsured, who often must pay "list prices" while their insured counterparts benefit from negotiated discounts. But Ashley Thompson, the American Hospital Association's senior associate director for policy, told MLR that "I don't see a direct link between" a lower outlier threshold and reduced charges.
 
"My guess is that hospitals will proceed forward as they always have," Thompson said. "Hospitals set charges for many reasons, and having a change in the outlier threshold should not change the way hospitals set charges." What a lower threshold will do, she noted, is "make sure funds are available for hospitals when they treat incredibly complex cases."

Hospitals Within Hospitals: Delay, But Still Controversy

McClellan said CMS had decided not to make any changes for 2005 in the rules governing long-term care hospitals located within other hospitals. The proposed rule would have allowed these "hospitals within hospitals" (HIH) to receive payments as LTCHs only if they admitted no more than 25 percent of their patients from the host institutions. It also would have barred common ownership of the HIH and the host hospital.
 
CMS was trying to tackle a growing cost problem: Spending on LTCHs almost quintupled between 1993 and 2001, and between 1993 and 2003 the number of HIHs grew almost three times as fast as the total number of LTCHs.
 
Nevertheless, the proposed rule's limitations provoked intense opposition from legislators, with House Ways and Means Health Chair Nancy Johnson (R-CT) being only one prominent example. Johnson, others on Capitol Hill, and the hospital industry have instead backed a proposal by the Medicare Payment Advisory Commission to establish criteria for LTCH patients.
 
CMS plans to start phasing in the 25-percent limitation beginning in FY 2006. "We are also imposing some gradual, reasonable limits on the payment of a second large amount for patients that do not reach outlier status at the host hospital," said McClellan.
 
Thompson said the HIH provisions remain AHA's "greatest concern" regarding the rule. AHA fears that changes envisioned by CMS "would severely limit appropriate payment, and access for patients with complex illnesses to LTC facilities."
 
The rule grants a full 3.3-percent update on hospitals' so-called market basket of services if they report data on the 10 measures involved in CMS' Hospital Quality Initiative, which focuses on best practices in the treatment of heart attacks, heart failure, and pneumonia. Hospitals that fail to report get a 2.9-percent update. "Virtually all acute-care hospitals are submitting data to us in order to get the full update, showing that payment incentives for reporting ... can really work," McClellan said. He added that his agency is "going through the data submissions right now, and will have more specific numbers soon on how many hospitals will actually be getting the full update."
 
When the market-basket update is combined with other payment enhancers, CMS said, urban hospitals will get an average reimbursement increase of 5.7 percent. Rural hospitals will do even better, getting a 6.2-percent hike. CMS projects that aggregate payments to the nation's approximately 3,900 acute-care hospitals will total $105 billion, up from $100 billion in 2004.