Medicare Program; Prospective Payment System for Long-Term Care Hospitals: Annual Payment Rate Updates and Policy Changes
Federal RegisterMay 7, 2004
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1263-F]
RIN 0938-AM84
Medicare Program; Prospective Payment System for Long-Term Care Hospitals: Annual Payment Rate Updates and Policy Changes
AGENCY:
Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION:
Final rule.
SUMMARY:
This final rule updates the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). The payment amounts and factors used to determine the updated Federal rates that are described in this final rule have been determined based on the LTCH PPS rate year. The annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights remains linked to the annual adjustments of the acute care hospital inpatient diagnosis-related group system, and will continue to be effective each October 1. The outlier threshold for July 1, 2004 through June 30, 2005 is also derived from the LTCH PPS rate year calculations. In this final rule, we also are making clarifications to the existing policy regarding the designation of a satellite of a LTCH as an independent LTCH. In addition, we are expanding the existing interrupted stay policy and changing the procedure for counting days in the average length of stay calculation for Medicare patients for hospitals qualifying as LTCHs.
DATES:
This final rule is effective July 1, 2004.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487 (General information).
Judy Richter, (410) 786-2590 (General information, transition payments, payment adjustments, and onsite discharges and readmissions, interrupted stays, co-located providers, and short-stay outliers).
Michele Hudson, (410) 786-5490 (Calculation of the payment rates, relative weights and case-mix index, market basket update, and payment adjustments).
Ann Fagan, (410) 786-5662 (Patient classification system).
Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and budget neutrality).
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted stay, and transition period).
Kathryn McCann, (410) 786-7623 (Medigap).
Robert Nakielny, (410) 786-4466 (Medicaid).
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To assist readers in referencing sections contained in this preamble, we are providing the following table of contents.
Table of Contents
I. Background
A. Legislative and Regulatory Authority
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
2. Hospitals Excluded from the LTCH PPS
C. Transition Period for Implementation of the LTCH PPS
D. Limitation on Charges to Beneficiaries
E. Health Insurance Portability and Accountability Act Compliance
II. Publication of Proposed Rulemaking
III. Summary of the Major Contents of This Final Rule
IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications and Relative Weights
A. Background
B. Patient Classifications into DRGs
C. Organization of DRGs
D. Update of LTC-DRGs
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
2. Maintenance of the ICD-9-CM Coding System
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
F. Method for Updating the LTC-DRG Relative Weights
V. Changes to the LTCH PPS Rates and Changes in Policy for the 2005 LTCH PPS Rate Year
A. Overview of the Development of the Payment Rates
B. Update to the Standard Federal Rate for the 2005 LTCH PPS Rate Year
1. Standard Federal Rate Update
a. Description of the Market Basket for the 2005 LTCH PPS Rate Year
b. LTCH Market Basket Increase for the 2005 LTCH PPS Rate Year
2. Standard Federal Rate for the 2005 LTCH PPS Rate year
C. Calculation of LTCH Prospective Payments for the 2005 LTCH PPS Rate Year
1. Adjustment for Area Wage Levels
a. Background
b. Wage Index Data
c. Labor-Related Share
2. Adjustment for Cost-of-Living in Alaska and Hawaii
3. Adjustment for High-Cost Outliers
a. Background
b. Establishment of the Fixed-Loss Amount
c. Reconciliation of Outlier Payments Upon Cost Report Settlement
d. Application of Outlier Policy to Short-Stay Outlier Cases
4. Adjustments for Special Cases
a. General
b. Adjustment for Short-Stay Outlier Cases
c. Extension of the Interrupted Stay Policy
d. Onsite Discharges and Readmittances
5. Other Payment Adjustments
6. Budget Neutrality Offset to Account for the Transition Methodology
7. Changes in the Procedure for Counting Days in the Average Length of Stay Calculation
8. Clarification of the Requirements for a Satellite Facility or a Remote Location to Qualify as a LTCH and Changes to the Requirements for Certain Satellite Facilities and Remote Locations
VI. Computing the Adjusted Federal Prospective Payments for the 2005 LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. Collection of Information Requirements
XII. Regulatory Impact Analysis
A. Introduction
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Impact on Rural Hospitals
4. Unfunded Mandates
5. Federalism
B. Anticipated Effects of Payment Rate Changes
1. Budgetary Impact
2. Impact on Providers
3. Calculation of Prospective Payments
4. Results
5. Effect on the Medicare Program
6. Effect on Medicare Beneficiaries
C. Impact of Policy Changes
1. Requirements for Satellite Facilities and Remote Locations of Hospitals to Qualify as Long-Term Care Hospitals
2. Change in Policy on Interruption of a Stay in a LTCH
3. Change in Procedure for Counting Covered and Noncovered Days in a Stay that Crosses Two Consecutive Cost Reporting Periods
D. Executive Order 12866
Regulations Text
Addendum—Tables
Acronyms
Because of the many terms to which we refer by acronym in this proposed rule, we are listing the acronyms used and their corresponding terms in alphabetical order below:
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Pub. L. 106-554
CMS Centers for Medicare & Medicaid Services
COPS Medicare conditions of participation
DRGs Diagnosis-related groups
FY Federal fiscal year
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 104-191
IPPS Acute Care Hospital Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review file
OSCAR Online Survey Certification and Reporting (System)
PPS Prospective Payment System
QIO Quality Improvement Organization (formerly Peer Review organization (PRO))
SNF Skilled nursing facility
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248
I. Background
A. Legislative and Regulatory Authority
The Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA) (Public Law 106-113) and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Public Law 106-554) provide for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Social Security Act (the Act), effective for cost reporting periods beginning on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as “a hospital which has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days.” Section 1886(d)(1)(B)(iv)(II) of the Act also provides an alternative definition of LTCHs: specifically, a hospital that first received payment under section 1886(d) of the Act in 1986 and has an average inpatient length of stay (as determined by the Secretary) of greater than 20 days and has 80 percent or more of its annual Medicare inpatient discharges with a principal diagnosis that reflects a finding of neoplastic disease in the 12-month cost reporting period ending in FY 1997.
Section 123 of Public Law 106-113 requires the PPS for LTCHs to be a per discharge system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resources and costs in LTCHs while maintaining budget neutrality.
Section 307(b)(1) of Public Law 106-554, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment.
In a
Federal Register
document issued on August 30, 2002 (67 FR 55954), we implemented the LTCH PPS authorized under Public Law 106-113 and Public Law 106-554. This system uses information from LTCH patient records to classify patients into distinct long-term care diagnosis-related groups (LTC-DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the
Federal Register
.
The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Public Law 97-248, for payments for inpatient services provided by a LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA (reasonable cost-based) payment provisions are located at 42 CFR part 413.) With the implementation of the prospective payment system for acute care hospitals authorized by the Social Security Amendments of 1983 (Public Law 98-21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and were paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital-specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. The August 30, 2002 final rule further details payment policy under the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of Public Law 106-113. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements.
We refer readers to the August 30, 2002 final (67 FR 55954) rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS.
On June 6, 2003, we published a final rule in the
Federal Register
(68 FR 34122) that set forth the 2004 annual update of the payment rates for the Medicare PPS for inpatient hospital services furnished by LTCHs. It also changed the annual period for which the payment rates are effective. The annual updated rates are now effective from July 1 to June 30 instead of from October 1 through September 30. We refer to this time period as a “long-term care hospital rate year” (LTCH PPS rate year). In addition, we changed the publication schedule for these updates to allow for an effective date of July 1. The payment amounts and factors used to determine the annual update of the Federal rates are based on a LTCH PPS rate year. The annual update of the LTC-DRG classifications and relative weights are linked to the annual adjustments of the acute care hospital inpatient diagnosis-related groups and are effective each October 1.
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
Under the existing regulations at § 412.23(e)(1) and (e)(2)(i), which
implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare and must have an average Medicare inpatient length of stay of greater than 25 days. Alternatively, for cost reporting periods beginning on or after August 5, 1997, a hospital that was first excluded from the PPS in 1986, and can demonstrate that at least 80 percent of its annual Medicare inpatient discharges in the 12-month cost reporting period ending in FY 1997 have a principal diagnosis that reflects a finding of neoplastic disease must have an average inpatient length of stay for all patients, including both Medicare and non-Medicare inpatients, of greater than 20 days (§ 412.23(e)(2)(ii)).
Existing § 412.23(e)(3) provides that the average Medicare inpatient length of stay is determined based on all covered and noncovered days of stay of Medicare patients as calculated by dividing the total number of covered and noncovered days of stay of Medicare inpatients (less leave or pass days) by the number of total Medicare discharges for the hospital's most recent complete cost reporting period. Fiscal intermediaries verify that LTCHs meet the average length of stay requirements. We note that the inpatient days of a patient who is admitted to a LTCH without any remaining Medicare days of coverage, regardless of the fact that the patient is a Medicare beneficiary, will not be included in the above calculation. Because Medicare would not be paying for any of the patient's treatment, the patient is not a “Medicare inpatient” and data on the patient's stay would not be included in the Medicare claims processing systems. In order for both covered and noncovered days of a LTCH hospitalization to be included, for purposes of the average length of stay calculation, a patient admitted to the LTCH must have at least one remaining benefit day as described in § 409.61.
The fiscal intermediary's determination of whether or not a hospital qualifies as an LTCH is based on the hospital's discharge data from its most recent cost reporting period and is effective at the start of the hospital's next cost reporting period (§ 412.22(d)). If a hospital does not meet the length of stay requirement, the hospital may provide the intermediary with data indicating a change in the hospital's average length of stay by the same method for the period of at least 5 months of the immediately preceding 6-month period (§ 412.23(e)(3)(ii)). (See 68 FR 45464, August 1, 2003.) Requirements for hospitals seeking classification as LTCHs that have undergone a change in ownership, as described in § 489.18, are set forth in § 412.23(e)(3)(iii).
LTCHs that exist as hospitals-within-hospitals or satellite facilities of LTCHs must also meet the criteria set forth in § 412.22(e) or § 412.22(h), respectively, for the LTCH to be excluded from the acute care hospital inpatient prospective payment system (IPPS) and paid under the LTCH PPS.
2. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions, as described in § 412.22(c) and, therefore, are not subject to the LTCH PPS rules:
• Veterans Administration hospitals.
• Hospitals that are reimbursed under State cost control systems approved under 42 CFR Part 403.
• Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Public Law 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1 (note)) (statewide all-payer systems, subject to the rate-of-increase test at section 1814(b) of the Act).
• Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries.
C. Transition Period for Implementation of the LTCH PPS
In the August 30, 2002 final rule, we provided for a 5-year transition period from reasonable cost-based reimbursement to fully Federal prospective payment for LTCHs (67 FR 56038). During the 5-year period, two payment percentages are to be used to determine a LTCH's total payment under the PPS. The blend percentages are as follows:
Cost reporting periods beginning on or after
Prospective payment federal rate percentage
Reasonable cost-based reimbursement rate percentage
October 1, 2002
20
80
October 1, 2003
40
60
October 1, 2004
60
40
October 1, 2005
80
20
October 1, 2006
100
0
D. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth discussion of beneficiary liability under the LTCH prospective payment system (67 FR 55974-55975). Under § 412.507, as consistent with other established hospital prospective payment systems, a LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under §§ 409.82, 409.83, and 409.87 and for items and services as specified under § 489.30(a), if the Medicare payment to the LTCH is the full LTC-DRG payment amount. However, under the LTCH PPS, Medicare will only pay for days for which the beneficiary has coverage until the short-stay outlier threshold is exceeded. (See section V.C.4.b. of this preamble.) Therefore, if the Medicare payment was for a short-stay outlier case (§ 412.529) that was less than the full LTC-DRG payment amount because the beneficiary had insufficient remaining Medicare days, the LTCH could also charge the beneficiary for services delivered on those uncovered days (§ 412.507).
Since the origin of the Medicare system, the intent of our regulations has been to set limits on beneficiary liability and to clearly establish the circumstances under which the beneficiary would be required to assume responsibility for payment, that is, upon exhausting benefits described in 42 CFR part 409, subpart F. The discussion in the August 30, 2002 final rule was not meant to establish rates or payments for, or define, Medicare-eligible expenses. While we regulate beneficiary liability for coinsurance and deductibles for hospital stays that are covered by Medicare, payments from Medigap insurers to providers for inpatient hospital coverage after Medicare benefits are exhausted are not regulated by us. Furthermore, regulations
beginning at § 403.200 and the 1991 National Association of Insurance Commissioners (NAIC) Model Regulation for Medicare Supplemental Insurance, which was incorporated by reference into section 1882 of the Act, govern the relationship between Medigap insurers and beneficiaries.
E. Health Insurance Portability and Accountability Act Compliance
We note that as of October 16, 2002, a LTCH that was required to comply with the Administrative Simplification Standards under the Health Insurance Portability and Accountability Act (HIPAA) (Pub. L. 104-191) and that had not obtained an extension in compliance with the Administrative Compliance Act (Pub. L. 107-105) is obligated to comply with the standards for submitting claim forms to the LTCH's Medicare fiscal intermediary (45 CFR 162.1002 and 45 CFR 162.1102). Beginning October 16, 2003, LTCHs that obtained an extension and that are required to comply with the HIPAA Administrative Simplification Standards must start submitting electronic claims in compliance with the HIPAA regulations cited above, among others.
II. Publication of Proposed Rulemaking
On January 30, 2004, we published a proposed rule in the
Federal Register
(69 FR 4754-4817) that set forth the proposed annual update of the payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) for the 2005 LTCH PPS rate year. (The annual update of the LTC-DRG classifications and relative weights for FY 2005 remains linked to the annual adjustments of the acute care hospital inpatient DRG system, which will be published by August 1, and will be effective October 1, 2004.)
In the January 2004 LTCH PPS proposed rule, we discussed and clarified existing policies regarding the classification of a satellite facility, or a remote location, of a LTCH as an independent LTCH and proposed new policies for certain satellite facilities and remote locations. (See section V.C.8. of this preamble.) We also proposed to revise the existing interrupted stay policy applicable under the LTCH PPS. (See section V.C.4.c. of this preamble.)
We also proposed a threshold amount for outlier payments for the 2005 LTCH PPS rate year as discussed in section V.C.3.b. of this preamble. We also proposed a change in the procedure for counting the days in the inpatient average length of stay for hospitals to qualify as LTCHs, as discussed in section V.C.7. of this preamble.
We received a total of 14 timely items of correspondence containing multiple comments on the proposed rule. The major issues addressed by the commenters included: Clarification of our policy regarding satellite facilities and remote locations becoming independent LTCHS, determining average length of stay based on the number of days of care for only the patients that were discharged during the hospital's fiscal year, and expanding the existing interrupted stay policy to include any discharges up to and including 3 days and requiring the LTCH to pay for services “under arrangement” during the interrupted stay.
Summaries of the public comments received and our responses to those comments are described below under the appropriate subject heading.
III. Summary of the Major Contents of This Final Rule
In this final rule, we set forth the annual update to the payment rates for the Medicare 2005 LTCH PPS rate year and make other policy changes. The following is a summary of the major areas that we are addressing in this final rule:
A. Update Changes
• In section IV. of this preamble, we discuss the annual update of the LTC-DRG classifications and relative weights and specify that they remain linked to the annual adjustments of the acute care hospital inpatient DRG system, which are based on the annual revisions to the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes effective each October 1.
• In sections VI. through IX. of this preamble, we specify the factors and adjustments used to determine the LTCH PPS rates that are applicable to the 2005 LTCH PPS rate year, including revisions to the wage index, the excluded hospital with capital market basket that will be applied to the current standard Federal rate to determine the prospective payment rates, the applicable adjustments to payments, the outlier threshold, the short-stay outlier policy for certain LTCHs, the transition period, and the budget neutrality factor.
B. Policy Changes
• In section V.C.4.c. of this preamble, we discuss our extension of the definition of an interruption of a stay to include an interruption in which the patient is discharged from the LTCH, and returns to the LTCH within 3 days of the original discharge.
• Under section V.C.7. of the preamble to this final rule, we specify the procedure for calculating a hospital's inpatient average length of stay for purposes of classification as a LTCH when covered and noncovered days of the stay involve admission in one cost reporting period and discharge in another cost reporting period.
• In section V.C.8. of this preamble, we discuss our clarification of the procedures under which a satellite facility or a remote location of a hospital must meet the statutory and regulatory requirements to qualify as a distinct LTCH. We also provide for a clarification of the regulation text that incorporates procedures that are already established. That is, in our discussion, we are putting forth a reminder that even though the regulations governing provider-based entities did not specifically address LTCHs at the time, these regulations have always been applicable to these providers.
C. Monitoring
In section X. of this preamble, we discuss our continuing monitoring efforts to evaluate the LTCH PPS.
D. Impact
In section XII. of this preamble, we set forth an analysis of the impact of the policy and payment rate changes in this final rule on Medicare expenditures and on Medicare-participating LTCHs and Medicare beneficiaries.
IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications and Relative Weights
A. Background
Section 123 of Public Law 106-113 specifically requires that the PPS for LTCHs be a per discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs in LTCHs while maintaining budget neutrality. Section 307(b)(1) of Public Law 106-554 modified the requirements of section 123 of Public Law 106-113 by specifically requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the LTCH PPS] on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients as well as the use of the most recently available hospital discharge data.”
In accordance with section 307(b)(1) of Public Law 106-554 and § 412.515 of our existing regulations, the LTCH PPS uses information from LTCH patient
records to classify patient cases into distinct LTC-DRGs based on clinical characteristics and expected resource needs. The LTC-DRGs used as the patient classification component of the LTCH PPS correspond to the hospital inpatient DRGs in the IPPS. We apply weights to the existing hospital inpatient DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCHs.
In a departure from the IPPS, we use low volume LTC-DRGs (less than 25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. In order to deal with the large number of low volume DRGs (all DRGs with fewer than 25 cases), we group low volume DRGs into 5 quintiles based on average charge per discharge. (A listing of the composition of low volume quintiles appears in the August 30, 2002 LTCH PPS final rule at 67 FR 55986.) We also take into account adjustments to payments for cases in which the stay at the LTCH is five-sixths of the geometric average length of stay and classify these cases as short-stay outlier cases. (A detailed discussion of the application of the Lewin Group model that was used to develop the LTC-DRGs appears in the August 30, 2002 LTCH PPS final rule at 67 FR 55978.)
B. Patient Classifications Into DRGs
Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that payment varies by the LTC-DRG to which a beneficiary's stay is assigned. Cases are classified into LTC-DRGs for payment based on the following six data elements:
(1) Principal diagnosis.
(2) Up to eight additional diagnoses.
(3) Up to six procedures performed.
(4) Age.
(5) Sex.
(6) Discharge status of the patient.
Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). As of October 16, 2002, a LTCH that was required to comply with the HIPAA Administrative Simplification Standards and that had not obtained an extension in compliance with the Administrative Compliance Act (Pub. L. 107-105) is obligated to comply with the standards at 45 CFR 162.1002 and 45 CFR 162.1102. Completed claim forms are to be submitted to the LTCH's Medicare fiscal intermediary.
Medicare fiscal intermediaries enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a DRG can be made. During this process, the following types of cases are selected for further development:
• Cases that are improperly coded. (For example, diagnoses are shown that are inappropriate, given the sex of the patient. Code 68.6, Radical abdominal hysterectomy, would be an inappropriate code for a male.)
• Cases including surgical procedures not covered under Medicare. (For example, organ transplant in a nonapproved transplant center.)
• Cases requiring more information. (For example, ICD-9-CM codes are required to be entered at their highest level of specificity. There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 136.3, Pneumocystosis, contains all appropriate digits, but if it is reported with either fewer or more than 4 digits, the claim will be rejected by the MCE as invalid.)
• Cases with principal diagnoses that do not usually justify admission to the hospital. (For example, code 437.9, Unspecified cerebrovascular disease. While this code is valid according to the ICD-9-CM coding scheme, a more precise code should be used for the principal diagnosis.)
After screening through the MCE, each claim will be classified into the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER is specialized computer software based on the same GROUPER used by the IPPS. The GROUPER software was developed as a means of classifying each case into a DRG on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). Following the LTC-DRG assignment, the Medicare fiscal intermediary determines the prospective payment by using the Medicare PRICER program, which accounts for hospital-specific adjustments. As provided for under the IPPS, we provide an opportunity for the LTCH to review the LTC-DRG assignments made by the fiscal intermediary and to submit additional information within a specified timeframe (§ 412.513(c)).
The GROUPER is used both to classify past cases in order to measure relative hospital resource consumption to establish the DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights during our annual update. DRG weights are based on data for the population of LTCH discharges, reflecting the fact that LTCH patients represent a different patient-mix than patients in short-term acute care hospitals.
C. Organization of DRGs
The DRGs are organized into 25 Major Diagnostic Categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER does not recognize all ICD-9-CM procedure codes as procedures that affect DRG assignment, that is, procedures which are not surgical (for example, EKG), or minor surgical procedures (for example, 86.11, Biopsy of skin and subcutaneous tissue).
The medical DRGs are generally differentiated on the basis of diagnosis. Both medical and surgical DRGs may be further differentiated based on age, sex, discharge status, and presence or absence of complications or comorbidities (CC). We note that CCs are defined by certain secondary diagnoses not related to, or not inherently a part of, the disease process identified by the principal diagnosis. (For example, the GROUPER would not recognize a code from the 800.0x series, Skull fracture, as a CC when combined with principal diagnosis 850.4, Concussion with prolonged loss of consciousness, without return to preexisting conscious level.) In addition, we note that the presence of additional diagnoses does not automatically generate a CC, as not all DRGs recognize a comorbid or complicating condition in their definition. (For example, DRG 466, Aftercare without History of Malignancy as Secondary Diagnosis, is based solely on the principal diagnosis, without consideration of additional diagnoses for DRG determination.)
In its June 2000 Report to Congress, MedPAC recommended that the
Secretary “* * * improve the hospital inpatient prospective payment system by adopting, as soon as practicable, diagnosis-related group refinements that more fully capture differences in severity of illness among patients.” (Recommendation 3A, p. 63). We have determined it is not practical at this time to develop a refinement to inpatient hospital DRGs based on severity due to time and resource requirements. However, this does not preclude us from development of a severity-adjusted DRG refinement in the future. That is, a refinement to the list of comorbidities and complications could be incorporated into the existing DRG structure. It is also possible a more comprehensive severity adjusted structure may be created if a new code set is adopted. That is, if ICD-9-CM is replaced by ICD-10-CM (for diagnostic coding) and ICD-10-PCS (for procedure coding) or by other code sets, a severity concept may be built into the resulting DRG assignments. Of course any change to the code set would be adopted through the process established in the HIPAA Administrative Simplification Standards provisions.
D. Update of LTC-DRGs
For FY 2004, the LTC-DRG patient classification system was based on LTCH data from the FY 2002 MedPAR file, which contained hospital bills data from the December 2002 update. The patient classification system consisted of 518 DRGs that formed the basis of the FY 2004 LTCH PPS GROUPER. The 518 LTC-DRGs included two “error DRGs.” As in the IPPS, we included two error DRGs in which cases that cannot be assigned to valid DRGs will be grouped. These two error DRGs are DRG 469 (Principal Diagnosis Invalid as a Discharge Diagnosis) and DRG 470 (Ungroupable). (See the August 1, 2001, Medicare Program final rule, Changes to the Hospital Inpatient Prospective Payment Systems and Rates and Costs of Graduate Medical Education; Fiscal Year 2002 Rates (66 FR 40062).) The other 516 LTC-DRGs are the same DRGs used in the IPPS GROUPER for FY 2004 (Version 21.0).
In the health care industry, annual changes to the ICD-9-CM codes are effective for discharges occurring on or after October 1 each year. Thus, the manual and electronic versions of the GROUPER software, which are based on the ICD-9-CM codes, are also revised annually and effective for discharges occurring on or after October 1 each year. As discussed earlier, the patient classification system for the LTCH PPS (LTC-DRGs) is based on the IPPS patient classification system (CMS-DRGs), which is updated annually and effective for discharges occurring on or after October 1 through September 30 each year. The updated DRGs and GROUPER software are based on the latest revision to the ICD-9-CM codes, which are published annually in the IPPS proposed rule and final rule. The new or revised ICD-9-CM codes are not used by the industry for either the IPPS or the LTCH PPS until the beginning of the next Federal fiscal year (effective for discharges occurring on or after October 1 through September 30). (The use of the ICD-9-CM codes in this manner is consistent with current usage and the HIPAA regulations.) October 1 is also when the changes to the CMS-DRGs and the next version of the GROUPER software becomes effective.
As indicated in the June 6, 2003 LTCH PPS and the August 1, 2003 IPPS final rules (68 FR 34122 and 68 FR 45376, respectively), we make the annual update to the LTCH PPS effective from July 1 through June 30 each year. As a result, the LTCH PPS uses two GROUPERS during the course of a 12-month period: One GROUPER for 3 months (from July 1 through September 30); and an updated GROUPER for 9 months (from October 1 through June 30). The need to use two GROUPERs is based upon the October 1 effective date of the updated ICD-9-CM coding system. As previously discussed, new ICD-9-CM codes may result in changes to the structure of the DRGs. In order for the industry to be on the same schedule (for both the IPPS and the LTCH PPS) for the use of the most current ICD-9-CM codes, it is necessary for us to apply two GROUPER programs to the LTCH PPS. LTCHs will continue to code diagnosis and procedures using the most current version of the ICD-9-CM coding system.
Currently, for Federal FY 2004, we are using Version 21.0 of the GROUPER software for both the IPPS and the LTCH PPS. Discharges beginning on October 1, 2003 and before October 1, 2004 (Federal FY 2004) are using Version 21.0 of the GROUPER software for both the IPPS and the LTCH PPS. Thus, changes to the CMS-DRGs (the DRGs on which the LTC-DRGs are based) and their relative weights, as well as the LTC-DRGs and their relative weights, that will be effective for October 1, 2004 through September 30, 2005, will be presented in the FY 2005 IPPS proposed rule that will be published in the
Federal Register
in the spring of 2004 and finalized in a final rule to be published by August 1, 2004. Accordingly, we will notify LTCHs of any revised LTC-DRG relative weights based on the final DRGs and the applicable GROUPER version for the IPPS that will be effective October 1, 2004.
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
Because the assignment of a case to a particular LTC-DRG will help determine the amount that will be paid for the case, it is important that the coding is accurate. Classifications and terminology used in the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as recommended to the Secretary by the National Committee on Vital and Health Statistics (“Uniform Hospital Discharge Data: Minimum Data Set, National Center for Health Statistics, April 1980”) and as revised in 1984 by the Health Information Policy Council (HIPC) of the U.S. Department of Health and Human Services.
We point out that the ICD-9-CM coding terminology and the definitions of principal and other diagnoses of the UHDDS are consistent with the requirements of the HIPAA Administrative Simplification Act of 1996 (45 CFR part 162). Furthermore, the UHDDS has been used as a standard for the development of policies and programs related to hospital discharge statistics by both governmental and nongovernmental sectors for over 30 years. In addition, the following definitions (as described in the 1984 Revision of the UHDDS, approved by the Secretary of Health and Human Services for use starting January 1986) are requirements of the ICD-9-CM coding system, and have been used as a standard for the development of the CMS-DRGs:
• Diagnoses include all diagnoses that affect the current hospital stay.
• Principal diagnosis is defined as the condition established after study to be chiefly responsible for occasioning the admission of the patient to the hospital for care.
• Other diagnoses (also called secondary diagnoses or additional diagnoses) are defined as all conditions that coexist at the time of admission, that develop subsequently, or that affect the treatment received or the length of stay or both. Diagnoses that relate to an earlier episode of care that have no bearing on the current hospital stay are excluded.
• All procedures performed will be reported. This includes those that are surgical in nature, carry a procedural risk, carry an anesthetic risk, or require specialized training.
We provide LTCHs with a 60-day window after the date of the notice of
the initial LTC-DRG assignment to request review of that assignment. Additional information may be provided by the LTCH to the fiscal intermediary as part of that review.
2. Maintenance of the ICD-9-CM Coding System
The ICD-9-CM Coordination and Maintenance (C&M) Committee is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS) and CMS, that is charged with maintaining and updating the ICD-9-CM system. The C&M Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The C&M Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.
The C&M Committee encourages participation by health-related organizations in the above process and holds public meetings for discussion of educational issues and proposed coding changes twice a year at the CMS Central Office located in Baltimore, Maryland. The agenda and dates of the meetings can be accessed on the CMS Web site at:
http://www.cms.gov/paymentsystems/icd9.
Section 503(a) of Public Law 108-173 includes a requirement for updating ICD-9-CM codes twice a year instead of the current process of annual updates on October 1 of each year. These requirements are included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that “Under the mechanism under this subparagraph, the Secretary shall provide for the addition of new diagnosis and procedure codes in April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” Because this new statutory requirement would have a significant impact on health care providers, coding staff, publishers, system maintainers, software systems, among others, we are soliciting comments on our proposed provisions. The description of these proposed provisions will be published in the
Federal Register
in the FY 2005 IPPS proposed rule.
All changes to the ICD-9-CM coding system affecting DRG assignment are addressed annually in the IPPS proposed and final rules. Because the DRG-based patient classification system for the LTCH PPS is based on the IPPS DRGs, these changes also affect the LTCH PPS LTC-DRG patient classification system.
As discussed above, the ICD-9-CM coding changes that have been adopted by the C&M Committee become effective at the beginning of each Federal fiscal year, October 1. Regardless of the annual update of the LTCH PPS on July 1 of each year, coders will use the most current updated ICD-9-CM coding book, which is effective from October 1 through September 30 of each year. This means that coders and LTCHs that use the updated ICD-9-CM coding system will be on the same schedule (effective October 1) as the rest of the health care industry. The newest version of ICD-9-CM is not available for use until October 1 of each year, which is 5 months after the date that we publish the LTCH annual payment rate update final rule. The new codes on which the LTC-DRGs are based will go into effect and be available for use for discharges occurring on or after October 1 through September 30 of each year. This annual schedule of the revision to the ICD-9-CM coding system and the change of the ICD-9-CM coding books or electronic coding programs has been in effect since the adoption of Revision 9 of the ICD in 1979.
Of particular note to LTCHs are the invalid diagnosis codes (Table 6C) and the invalid procedure codes (Table 6D) located in the annual proposed and final rules for the IPPS. Claims with invalid codes are not processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
We emphasize the need for proper coding by LTCHs. Inappropriate coding of cases can adversely affect the uniformity of cases in each LTC-DRG and produce inappropriate weighting factors at recalibration. We continue to urge LTCHs to focus on improved coding practices. Because of concerns raised by LTCHs concerning correct coding, we have asked the American Hospital Association (AHA) to provide additional clarification or instruction on proper coding in the LTCH setting. The AHA will provide this instruction via their established process of addressing questions through their publication “Coding Clinic for ICD-9-CM.” Written questions or requests for clarification may be addressed to the Central Office on ICD-9-CM, American Hospital Association, One North Franklin, Chicago, IL 60606. A form for the question(s) is available to be downloaded and mailed on AHA's Web site at:
www.ahacentraloffice.org.
In addition, current coding guidelines are available at the National Center for Health Statistics (NCHS) Web site:
www.cdc.gov/nchs.icd9.htm.
In conjunction with the cooperating parties (AHA, the American Health Information Management Association (AHIMA), and NCHS), we reviewed actual medical records and are concerned about the quality of the documentation under the LTCH PPS, as was the case at the beginning of the IPPS. We fully believe that, with experience, the quality of the documentation and coding will improve, just as it did for the IPPS. As noted above, the cooperating parties have plans to assist their members with improvement in documentation and coding issues for the LTCHs through specific questions and coding guidelines. The importance of good documentation is emphasized in the revised ICD-9-CM Official Guidelines for Coding and Reporting (October 1, 2002): “A joint effort between the attending physician and coder is essential to achieve complete and accurate documentation, code assignment, and reporting of diagnoses and procedures. The importance of consistent, complete documentation in the medical record cannot be overemphasized. Without such documentation, the application of all coding guidelines is a difficult, if not impossible, task.” (Coding Clinic for ICD-9-CM, Fourth Quarter 2002, page 115)
To improve medical record documentation, LTCHs should be aware that if the patient is being admitted for continuation of treatment of an acute or chronic condition, guidelines at Section I.B.10 of the Coding Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable concerning selection of principal diagnosis. To clarify coding advice issued in the August 30, 2002 final rule (67 FR 55979-55981), we would like to point out that at Guideline I.B.12, Late Effects, a late effect is considered to be the residual effect (condition produced) after the acute phase of an illness or injury has
terminated (Coding Clinic for ICD-9-CM, Fourth Quarter 2002, page 129). Regarding whether a LTCH should report the ICD-9-CM code(s) for an unresolved acute condition instead of the code(s) for late effect of rehabilitation, we emphasize that each case must be evaluated on its unique circumstances and coded appropriately. Depending on the documentation in the medical record, either a code reflecting the acute condition or rehabilitation could be appropriate in a LTCH.
Since implementation of the LTCH PPS, our Medicare fiscal intermediaries have been conducting training and providing assistance to LTCHs in correct coding. We have also issued manuals containing procedures as well as coding instructions to LTCHs and fiscal intermediaries. We will continue to conduct such training and provide guidance on an as-needed basis. We also refer readers to the detailed discussion on correct coding practices in the August 30, 2002 LTCH PPS final rule (67 FR 55979-55981). Additional coding instructions and examples will be published in Coding Clinic for ICD-9-CM.
F. Method for Updating the LTC-DRG Relative Weights
As discussed in the June 6, 2003 LTCH PPS final rule (68 FR 34131), under the LTCH PPS, each LTCH will receive a payment that represents an appropriate amount for the efficient delivery of care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. Therefore, in accordance with § 412.523(c), we adjust the standard Federal PPS rate by the LTC-DRG relative weights in determining payment to LTCHs for each case.
Under this payment system, relative weights for each LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients who are classified to each LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each LTC-DRG that represents the resources needed by an average inpatient LTCH case in that LTC-DRG. For example, cases in a LTC-DRG with a relative weight of 2 will, on average, cost twice as much as cases in a LTC-DRG with a weight of 1.
As we discussed in the August 1, 2003 IPPS final rule (68 FR 45374-45384), the LTC-DRG relative weights effective under the LTCH PPS for Federal FY 2004 were calculated using the December 2002 update of FY 2002 MedPAR data and Version 21.0 of the CMS GROUPER software. We use total days and total charges in the calculation of the LTC-DRG relative weights.
By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. Such distribution of cases with relatively high (or low) charges in specific LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, we use a hospital-specific relative value method to calculate relative weights. We believe this method removes this hospital-specific source of bias in measuring average charges. Specifically, we reduce the impact of the variation in charges across providers on any particular LTC-DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge. (See the August 1, 2003 IPPS final rule (68 FR 45376) for further information on the hospital-specific relative value methodology.)
In order to account for LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), we grouped those low volume LTC-DRGs into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights. For FY 2004 based on the FY 2002 MedPAR data, we identified 173 LTC-DRGs that contained between 1 and 24 cases. This list of low volume LTC-DRGs was then divided into one of the five low volume quintiles, each containing a minimum of 34 LTC-DRGs (173/5 = 34 with 1 LTC-DRG as a remainder). Each of the low volume LTC-DRGs grouped to a specific quintile received the same relative weight and average length of stay using the formula applied to the regular LTC-DRGs (25 or more cases), as described below. (See the August 1, 2003 final rule (68 FR 45376-45380) for further explanation of the development and composition of each of the five low volume quintiles for FY 2004.)
After grouping the cases in the appropriate LTC-DRG, we calculated the relative weights by first removing statistical outliers and cases with a length of stay of 7 days or less. Next, we adjusted the number of cases in each LTC-DRG for the effect of short-stay outlier cases under § 412.529. The short-stay adjusted discharges and corresponding charges were used to calculate “relative adjusted weights” in each LTC-DRG using the hospital-specific relative value method described above. (See the August 1, 2003 final rule (68 FR 45376-45385) for further details on the steps for calculating the LTC-DRG relative weights.)
We also adjusted the LTC-DRG relative weights to account for nonmonotonically increasing relative weights. That is, we made an adjustment if cases classified to the LTC-DRG “with comorbidities (CCs)” of a “with CC”/“without CC” pair had a lower average charge than the corresponding LTC-DRG “without CCs” by assigning the same weight to both LTC-DRGs in the “with CC”/“without CC” pair. (See August 1, 2003 final rule, 68 FR 45381-45382.) In addition, of the 518 LTC-DRGs in the LTCH PPS for FY 2004, based on the FY 2002 MedPAR data, we identified 167 LTC-DRGs for which there were no LTCH cases in the database. That is, no patients who would have been classified to those DRGs were treated in LTCHs during FY 2002 and, therefore, no charge data were reported for those DRGs. Thus, in the process of determining the relative weights of LTC-DRGs, we were unable to determine weights for these 167 LTC-DRGs using the method described above. However, since patients with a number of the diagnoses under these LTC-DRGs may be treated at LTCHs beginning in FY 2004, we assigned relative weights to each of the 167 “no volume” LTC-DRGs based on clinical similarity and relative costliness to one of the remaining 351 (518-167 = 351) LTC-DRGs for which we were able to determine relative weights, based on the FY 2002 claims data. (A list of the no-volume LTC-DRGs and further explanation of their relative weight assignment can be found in the August 1, 2003 IPPS final rule (68 FR 45374-45385).)
Furthermore, for FY 2004, we established LTC-DRG relative weights of 0.0000 for heart, kidney, liver, lung, pancreas, and simultaneous pancreas/kidney transplants (LTC-DRGs 103, 302, 480, 495, 512 and 513, respectively) because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. If in the future, however, a LTCH applies for certification as a Medicare-approved transplant center, we believe that the application and approval procedure would allow sufficient time for us to propose appropriate weights for the LTC-DRGs affected. At the
present time, though, we included these six transplant LTC-DRGs in the GROUPER program for administrative purposes. As the LTCH PPS uses the same GROUPER program for LTCHs as is used under the IPPS, removing these DRGs would be administratively burdensome.
As we stated in the August 1, 2003 IPPS final rule, we will continue to use the same LTC-DRGs and relative weights for FY 2004 until October 1, 2004. Accordingly, Table 3 in the Addendum to this final rule lists the LTC-DRGs and their respective relative weights and arithmetic mean length of stay that we will continue to use for the period of July 1, 2004 through September 30, 2004. (This table is the same as Table 3 of the Addendum to the August 1, 2003 IPPS final rule (68 FR 45650-45658), except that it includes the five-sixth of the average length of stay for short-stay outliers under § 412.529.) As we noted earlier, the final DRGs and GROUPER for FY 2005 that will be used for the IPPS and the LTCH PPS, effective October 1, 2004, will be presented in the IPPS FY 2005 proposed and final rule in the
Federal Register
.
Accordingly, we will notify LTCHs of the revised LTC-DRG relative weights for use in determining payments for discharges occurring between October 1, 2004 and September 30, 2005, based on the final DRGs and the applicable GROUPER version that will be published in the IPPS rule by August 1, 2004.
V. Changes to the LTCH PPS Rates and Changes in Policy for the 2005 LTCH PPS Rate Year
A. Overview of the Development of the Payment Rates
The LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. Effective with that cost reporting period, LTCHs are paid, during a 5-year transition period, on the basis of an increasing proportion of the LTCH PPS Federal rate and a decreasing proportion of a hospital's payment under reasonable cost-based payment system, unless the hospital makes a one-time election to receive payment based on 100 percent of the Federal rate (see § 412.533). New LTCHs (as defined at § 412.23(e)(4)) are paid based on 100 percent of the Federal rate, with no phase-in transition payments.
The basic methodology for determining LTCH PPS Federal prospective payment rates is set forth in the regulations at §§ 412.515 through 412.532. Below we discuss the factors used to update the LTCH PPS standard Federal rate for the 2005 LTCH PPS rate year that will be effective for LTCHs discharges occurring on or after July 1, 2004 through June 30, 2005.
When we implemented the LTCH PPS in the August 30, 2002 final rule (67 FR 56029-56031), we computed the LTCH PPS standard Federal payment rate for FY 2003 by updating the best available (FY 1998 or FY 1999) Medicare inpatient operating and capital costs per case data, using the excluded hospital market basket.
Section 123(a)(1) of Public Law 106-113 requires that the PPS developed for LTCHs be budget neutral. Therefore, in calculating the standard Federal rate under § 412.523(d)(2), we set total estimated LTCH PPS payments equal to estimated payments that would have been made under the reasonable cost-based payment methodology had the PPS for LTCHs not been implemented. Section 307(a) of Public Law 106-554 specified that the increases to the hospital-specific target amounts and cap on the target amounts for LTCHs for FY 2002 provided for by section 307(a)(1) of Public Law 106-554 shall not be taken into account in the development and implementation of the LTCH PPS. Furthermore, as specified at § 412.523(d)(1), the standard Federal rate is reduced by an adjustment factor to account for the estimated proportion of outlier payments under the LTCH PPS to total LTCH PPS payments (8 percent). For further details on the development of the FY 2003 standard Federal rate, see the August 30, 2002 final rule (67 FR 56027-56037) and for the 2004 LTCH PPS rate year rate, see the June 6, 2003 final rule (68 FR 34122-34190). Under the existing regulations at § 412.523(c)(3)(ii), we update the standard Federal rate annually to adjust for the most recent estimate of the projected increases in prices for LTCH inpatient hospital services.
B. Update to the Standard Federal Rate for the 2005 LTCH PPS Rate Year
As established in the June 6, 2003 final rule (68 FR 34122), based on the most recent estimate of the excluded hospital with capital market basket, adjusted to account for the change in the LTCH PPS rate year update cycle, the LTCH PPS standard Federal rate effective from July 1, 2003 through June 30, 2004 (the 2004 LTCH PPS rate year) is $35,726.18.
In the discussion that follows, we explain how we developed the standard Federal rate for the 2005 LTCH PPS rate year. The standard Federal rate for the 2005 LTCH PPS rate year is calculated based on the update factor of 1.031. Thus, the standard Federal rate for the 2005 LTCH PPS rate year will increase 3.1 percent compared to the 2004 LTCH PPS rate year standard Federal rate.
1. Standard Federal Rate Update
Under § 412.523, the annual update to the LTCH PPS standard Federal rate must be equal to the percentage change in the excluded hospital with capital market basket (described in further detail below). As we discussed in the August 30, 2002 final rule (67 FR 56087), in the future we may propose to develop a framework to update payments to LTCHs that would account for other appropriate factors that affect the efficient delivery of services and care provided to Medicare patients. As we discussed in the January 30, 2004 proposed rule (69 FR 4762), because the LTCH PPS has only been implemented for less than 2 years (that is, for cost reporting periods beginning on or after October 1, 2002), we have not yet collected sufficient data to allow for the analysis and development of an update framework under the LTCH PPS. Therefore, we are not addressing an update framework for the 2005 LTCH PPS rate year in this final rule. However, we noted that a conceptual basis for the proposal of developing an update framework in the future can be found in Appendix B of the August 30, 2002 final rule (67 FR 56086-56090).
a.
Description of the market basket for LTCHs for the 2005 LTCH PPS rate year.
A market basket has historically been used in the Medicare program to account for price increases of the services furnished by providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. The development of the LTCH PPS standard Federal rate is discussed in further detail in the August 30, 2002 final rule (67 FR 56027-56037).
Under the reasonable cost-based payment system, the excluded hospital market basket was used to update the hospital-specific limits on payment for operating costs of LTCHs. Currently, the excluded hospital market basket is based on operating costs from cost report data from FY 1997 and includes data from Medicare-participating long-term care, rehabilitation, psychiatric, cancer, and children's hospitals. Since LTCHs' costs are included in the excluded hospital market basket, this market basket index, in part, also reflects the costs of LTCHs. However, in order to capture the total costs (operating and capital-related) of LTCHs, we added a capital component
to the excluded hospital market basket for use under the LTCH PPS. We refer to this index as the excluded hospital with capital market basket.
As we discussed in the August 30, 2002 final rule (67 FR 56016 and 56086), beginning with the implementation of the LTCH PPS in FY 2003, the excluded hospital with capital market basket, based on FY 1992 Medicare cost report data, has been used for updating payments to LTCHs. In the June 6, 2003 final rule (68 FR 34137), we revised and rebased the excluded hospital with capital market basket, using more recent data, that is, using FY 1997 base year data beginning with the 2004 LTCH PPS rate year. (For further details on the development of the FY 1997-based LTCH PPS market basket, see the June 6, 2003 final rule (68 FR 34134-34137)).
In the August 30, 2002 LTCH PPS final rule (67 FR 56016 and 56085-56086), we discussed why we believe the excluded hospital with capital market basket provides a reasonable measure of the price changes facing LTCHs. However, as we discussed in the June 6, 2003 final rule (68 FR 34137), we have been researching the feasibility of developing a market basket specific to LTCH services. This research has included analyzing data sources for cost category weights, specifically the Medicare cost reports, and investigating other data sources on cost, expenditure, and price information specific to LTCHs. Based on this research, we did not develop a market basket specific to LTCH services.
As we also discussed in the June 6, 2003 final rule (68 FR 34137), our analysis of the Medicare cost reports indicates that the distribution of costs among major cost report categories (wages, pharmaceuticals, capital) for LTCHs is not substantially different from the 1997-based excluded hospital with capital market basket. Data on other major cost categories (benefits, blood, contract labor) that we would like to analyze were excluded by many LTCHs in their Medicare cost reports. An analysis based on only the data available to us for these cost categories presented a potential problem since no other major cost category weight would be based on LTCH data.
Furthermore, as we also discussed in that same final rule (68 FR 34137), we conducted a sensitivity analysis of annual percent changes in the market basket when the weights for wages, pharmaceuticals, and capital in LTCHs were substituted into the excluded hospital with capital market basket. Other cost categories were recalibrated using ratios available from the IPPS market basket. On average between FY 1995 and FY 2002, the excluded hospital with capital market basket shows increases at nearly the same average annual rate (2.9 percent) as the market basket with LTCH weights for wages, pharmaceuticals, and capital (2.8 percent). This difference is less than the 0.25 percentage point criterion that determines whether a forecast error adjustment is warranted under the IPPS update framework.
As we discussed in the January 30, 2004 proposed rule (69 FR 4763), we continue to believe that an excluded hospital with capital market basket adequately reflects the price changes facing LTCHs. We continue to solicit comments about issues particular to LTCHs that should be considered in relation to the FY 1997-based excluded hospital with capital market basket and to encourage suggestions for additional data sources that may be available. We received no comments on the proposed market basket for determining the LTCH PPS standard Federal rate for the 2005 LTCH PPS rate year. Accordingly, in this final rule, we are using the FY 1997-based excluded hospital with capital market basket as the LTCH PPS market basket for determining the update to the LTCH PPS standard Federal rate for the 2005 LTCH PPS rate year.
b.
LTCH market basket increase for the 2005 LTCH rate year.
As we discussed in the June 6, 2003 final rule (68 FR 34137), for LTCHs paid under the LTCH PPS, we stated that the 2004 rate year update applies to discharges occurring from July 1, 2003 through June 30, 2004. Because we changed the timeframe of the LTCH PPS standard Federal rate annual update from October 1 to July 1, as we explained in that same final rule, we calculated an update factor that reflected that change in the update cycle. For the update to the 2004 LTCH PPS rate year, we calculated the estimated increase between FY 2003 and the 2004 LTCH PPS rate year (July 1, 2003 through June 30, 2004). Accordingly, based on Global Insight's forecast of the revised and rebased FY 1997-based excluded hospital with capital market basket using data from the fourth quarter of 2002, we used a market basket update of 2.5 percent for the 2004 LTCH PPS rate year (68 FR 34138).
Consistent with our historical practice of estimating market basket increases based on Global Insight's forecast of the FY 1997-based excluded hospital with capital market basket using more recent data from the fourth quarter of 2003, in this final rule, we are using a 3.1 percent update to the Federal rate for the 2005 LTCH PPS rate year. In accordance with § 412.523, this update represents the most recent estimate of the increase in the excluded hospital with capital market basket for the 2005 LTCH PPS rate year.
2. Standard Federal Rate for the 2005 LTCH PPS Rate Year
In the June 6, 2003 final rule (68 FR 34140), we established a standard Federal rate of $35,726.18 for the 2004 LTCH PPS rate year based on the best available data and policies established in that final rule. In the January 30, 2004 proposed rule (69 FR 4763), for the 2005 LTCH PPS rate year, we proposed a standard Federal rate of $36,762.24 based on the proposed update of 2.9 percent. Since the proposed 2005 LTCH PPS rate year standard Federal rate was already adjusted for differences in case-mix, wages, cost-of-living, and high-cost outlier payments, we did not propose to make any additional adjustments in the standard Federal rate for these factors.
In this final rule, in accordance with § 412.523, we are establishing a standard Federal rate of $36,833.69 based on the most recent estimate of the LTCH PPS market basket of 3.1 percent. Since the standard Federal rate for the 2005 LTCH PPS rate year has already been adjusted for differences in case-mix, wages, cost-of-living, and high-cost outlier payments, we did not make any additional adjustments in the standard Federal rate for these factors.
C. Calculation of LTCH Prospective Payments for the 2005 LTCH PPS Rate Year
The basic methodology for determining prospective payment rates for LTCH inpatient operating and capital-related costs is set forth in § 412.515 through § 412.532. In accordance with § 412.515, we assign appropriate weighting factors to each LTC-DRG to reflect the estimated relative cost of hospital resources used for discharges within that group as compared to discharges classified within other groups. The amount of the prospective payment is based on the standard Federal rate, established under § 412.523, and adjusted for the LTC-DRG relative weights, differences in area wage levels, cost-of-living in Alaska and Hawaii, high-cost outliers, and other special payment provisions (short-stay outliers under § 412.529 and interrupted stays under § 412.531).
In accordance with § 412.533, during the 5-year transition period, payment is based on the applicable transition blend percentage of the adjusted Federal rate and the reasonable cost-based payment rate unless the LTCH makes a one-time
election to receive payment based on 100 percent of the Federal rate. A LTCH defined as “new” under § 412.23(e)(4) is paid based on 100 percent of the Federal rate with no blended transition payments (§ 412.533(d)). As discussed in the August 30, 2002 final rule (67 FR 56038), and in accordance with § 412.533(a), the applicable transition blends are as follows:
Cost reporting periods beginning on or after
Federal rate percentage
Reasonable cost-based payment rate percentage
October 1, 2002
20
80
October 1, 2003
40
60
October 1, 2004
60
40
October 1, 2005
80
20
October 1, 2006
100
0
Accordingly, for cost reporting periods beginning during FY 2004 (that is, on or after October 1, 2003, and before September 30, 2004), blended payments under the transition methodology are based on 60 percent of the LTCH's reasonable cost-based payment rate and 40 percent of the adjusted LTCH PPS Federal rate. For cost reporting periods that begin during FY 2005 (that is, on or after October 1, 2004 and before September 30, 2005), blended payments under the transition methodology will be based on 40 percent of the LTCH's reasonable cost-based payment rate and 60 percent of the adjusted LTCH PPS Federal rate.
1. Adjustment for Area Wage Levels
a.
Background.
Under the authority of section 307(b) of Public Law 106-554, we established an adjustment to account for differences in LTCH area wage levels under § 412.525(c) using the labor-related share estimated by the excluded hospital market basket with capital and wage indices that were computed using wage data from inpatient acute care hospitals without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Furthermore, as we discussed in the August 30, 2002 final rule (67 FR 56015-56019), we established a 5-year transition to the full wage adjustment. The applicable wage index phase-in percentages are based on the start of a LTCH's cost reporting period as shown in the following table:
Cost reporting periods beginning on or after
Phase-in percentage of the full wage index
October 1, 2002
1/5th (20 percent)
October 1, 2003
2/5ths (40 percent)
October 1, 2004
3/5ths (60 percent)
October 1, 2005
4/5ths (80 percent)
October 1, 2006
5/5ths (100 percent)
For example, for cost reporting periods beginning on or after October 1, 2004 and before September 30, 2005 (FY 2005), the applicable LTCH wage index value would be three-fifths of the applicable full wage index value without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act.
In that same final rule (67 FR 56018), we stated that we would continue to reevaluate LTCH data as they become available and would propose to adjust the phase-in if subsequent data support a change. As we discussed in the June 6, 2003 final rule (68 FR 34140), because the LTCH PPS has only been implemented for less than 2 years, sufficient new data have not been generated that would enable us to conduct a comprehensive reevaluation of the appropriateness of adjusting the phase-in. However, in that same final rule, we explained that we had reviewed the most recent data available at that time and did not find any evidence to support a change in the 5-year phase-in of the wage index.
In the January 30, 2004 proposed rule (69 FR 4764), we stated that because of the recent implementation of the LTCH PPS and the lag time in availability of cost report data, we still do not yet have sufficient new data to allow us to conduct a comprehensive reevaluation of the appropriateness of the phase-in of the wage index adjustment. As we discussed in that same proposed rule, we reviewed the most recent data available and did not find any evidence to support a change in the 5-year phase-in of the wage index. Accordingly, we did not propose a change in the phase-in of the wage index data. We received no comments, and therefore, at this time, we are not adjusting the phase-in of the wage index adjustment in this final rule.
b.
Wage Index Data.
In the June 6, 2003 final rule (68 FR 34142), for the 2004 LTCH PPS rate year, we established that we will use the same data that was used to compute the FY 2003 acute care hospital inpatient wage index without taking into account geographic reclassifications under sections 1886(d)(8) and (d)(10) of the Act because that was the best available data at that time. The acute care hospital inpatient wage index data is also used in the inpatient rehabilitation PPS (IRF PPS), the home health agency PPS (HHA PPS), and the skilled nursing facility PPS (SNF PPS). As we discussed in the August 30, 2002 final rule (67 FR 56019), since hospitals that are excluded from the IPPS are not required to provide wage-related information on the Medicare cost report and because we would need to establish instructions for the collection of such LTCH data in order to establish a geographic reclassification adjustment under the LTCH PPS, the wage adjustment established under the LTCH PPS is based on a LTCH's actual location without regard to the urban or rural designation of any related or affiliated provider.
In the January 30, 2004 proposed rule (69 FR 4764), for the 2005 LTCH PPS rate year, we proposed to use the same data used to compute the FY 2004 acute care hospital inpatient wage index without taking into account geographic reclassifications under sections
1886(d)(8) and (d)(10) of the Act to determine the applicable wage index values under the LTCH PPS, because these are the most recent available complete data. These data are the same wage data that were used to compute the FY 2004 wage indices currently used under the IPPS and SNF PPS. (We note that in the January 30, 2004 proposed rule, we mistakenly stated that these data are the same wage data that were used to compute the FY 2003 wage indices currently used under the IPPS and SNF PPS. We should have said that the proposed wage index values for the 2005 LTCH PPS rate year were computed from the same data used to calculate the FY 2004 wage indices currently used under the IPPS and SNF PPS. Also, in the January 30, 2004 proposed rule, in the example of how the proposed LTCH PPS wage index values for discharges occurring on or after July 1, 2004 through June 30, 2005 would be applied for LTCHs' cost reporting periods beginning during FY 2005, we mistakenly stated that the applicable wage index value would be three-fifths of the full FY 2005 acute care hospital inpatient wage index data, without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act. We should have said that the wage index values for the 2005 LTCH PPS rate year for LTCHs' cost reporting periods during FY 2005 would be three-fifths of the full FY 2004 acute care hospital inpatient wage index data, without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act. The proposed wage index values shown in Tables 1 and 2 in the Addendum of the January 30, 2004 proposed rule (69 FR 4790-4808) were correct.
We received no comments on the proposed wage index for the 2005 LTCH PPS rate year. Accordingly, in this final rule, we are establishing LTCH PPS wage index values for the 2005 LTCH PPS rate year calculated from the same data used to compute the FY 2004 acute care hospital inpatient wage index data without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act. The LTCH wage index values applicable for discharges occurring on or after July 1, 2004 through June 30, 2005 are shown in Table 1 (for urban areas) and Table 2 (for rural areas) in the Addendum to this final rule.
As noted above, the applicable wage index phase-in percentages are based on the start of a LTCH's cost reporting period beginning on or after October 1st of each year during the 5-year transition period. For cost reporting periods beginning on or after October 1, 2003 and before September 30, 2004 (FY 2004), the labor portion of the standard Federal rate will be adjusted by two-fifths of the applicable LTCH wage index value. Specifically, for a LTCH's cost reporting period beginning during FY 2004, for discharges occurring on or after July 1, 2004 through June 30, 2005, the applicable wage index value will be two-fifths of the full FY 2004 acute care hospital inpatient wage index data, without taking into account geographic reclassifications under sections 1886(d)(8) and (d)(10) of the Act as shown in Tables 1 and 2 in the Addendum to this final rule. Similarly, for cost reporting periods beginning on or after October 1, 2004 and before October 1, 2005 (FY 2005), the labor portion of the standard Federal rate will be adjusted by three-fifths of the applicable LTCH wage index value. Specifically, for a LTCH's cost reporting period beginning during FY 2005, for discharges occurring on or after July 1, 2004 through June 30, 2005, the applicable wage index value will be three-fifths of the full FY 2004 acute care hospital inpatient wage index data, without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act as shown in Tables 1 and 2 in the addendum to this final rule.
Because the phase-in of the wage index does not coincide with the LTCH PPS rate year (July 1st through June 30th), most LTCHs will experience a change in the wage index phase-in percentages during the LTCH PPS rate year. For example, during the 2005 LTCH PPS rate year, for a LTCH with a January 1st fiscal year, the two-fifths wage index will be applicable for the first 6 months of the 2005 LTCH PPS rate year (July 1, 2004 through December 31, 2004) and the three-fifths wage index will be applicable for the second 6 months of the 2005 LTCH PPS rate year (January 1, 2005 through June 30, 2005). We also note that some providers will still be in the first year of the 5-year phase-in of the LTCH wage index (that is, those LTCHs with cost reporting periods that began during FY 2003 and are ending during the first 3 months of the 2005 LTCH PPS rate year (July 1, 2004 through September 30, 2004). For the remainder of those LTCHs' FY 2003 cost reporting periods, for discharges occurring on or after July 1, 2004 through June 30, 2005, the applicable wage index value will be one-fifth of the full FY 2004 acute care hospital inpatient wage index data, without taking into account geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act as shown in Tables 1 and 2 in the Addendum to this final rule. As noted above, we received no comments on the proposed wage index values for the 2005 LTCH PPS rate year, and, therefore, we have adopted them as final in this final rule.
c.
Labor-related share.
In the August 30, 2002 final rule (67 FR 56016), we established a labor-related share of 72.885 percent based on the relative importance of the labor-related share of operating and capital costs of the excluded hospital with capital market basket based on FY 1992 data. In the June 6, 2003 final rule (68 FR 34142), in conjunction with our revision and rebasing of the excluded hospital with capital market basket from an FY 1992 to an FY 1997 base year, we used a labor-related share that is determined based on the relative importance of the labor-related share of operating costs (wages and salaries, employee benefits, professional fees, postal services, and all other labor-intensive services) and capital costs of the excluded hospital with capital market basket based on FY 1997 data. While we adopted the revised and rebased FY 1997-based LTCH PPS market basket as the LTCH PPS update factor for the 2004 LTCH PPS rate year, we decided not to update the labor-related share under the LTCH PPS pending further analysis. Accordingly, the labor-share for the 2004 LTCH PPS rate year was 72.885 percent.
In the August 1, 2002 IPPS final rule (67 FR 50041-50042), we did not use a revised labor-related share for FY 2004 because we had not yet completed our research into the appropriateness of this updated measure. In that rule, we discussed two methods that we were reviewing for establishing the labor-related share—(1) updating the regression analysis that was done when the IPPS was originally developed and (2) reevaluating the methodology we currently use for determining the labor-related share using the hospital market basket. We also explained that we would continue to explore all options for alternative data and a methodology for determining the labor-related share, and would propose to update the IPPS and excluded hospital labor-related shares, if necessary, once our research is complete.
As we explained in the August 30, 2002 final rule, which implemented the LTCH PPS, the June 6, 2003 LTCH PPS final rule, and the June 9, 2003 high-cost outlier final rule, the LTCH PPS was modeled after the IPPS for short-term, acute care hospitals. Specifically, the LTCH PPS uses the same patient
classification system (CMS-DRGs) as the IPPS, and many of the case-level and facility-level adjustments explored or adopted for the LTCH PPS are payment adjustments under the IPPS (that is, wage index, high-cost outliers, and the evaluation of adjustments for indirect teaching costs and the treatment of a disproportionate share of low-income patients).
Furthermore, as discussed in greater detail in the August 30, 2002 LTCH PPS final rule (67 FR 55960), LTCHs are certified as acute care hospitals that meet the criteria set forth in section 1861(e) of the Act to participate as a hospital in the Medicare program, and in general, hospitals qualify for payment under the LTCH PPS instead of the IPPS solely because their inpatient average length of stay is greater than 25 days, in accordance with section 1886(d)(1)(B)(iv)(I) of the Act, implemented in § 412.23(e). In the June 6, 2003 LTCH PPS final rule (68 FR 34144), we explained that prior to qualifying as a LTCH under § 412.23(e)(2)(i), hospitals generally are paid as acute care hospitals under the IPPS during the period in which they demonstrate that they have an average Medicare inpatient length of stay of greater than 25 days.
The primary reason that we did not update the LTCH PPS labor-related share for the 2004 LTCH PPS rate year was due to the same reason that we explained for not updating the labor-related share under the IPPS for FY 2004 in the August 1, 2003 IPPS (68 FR 27226) which are equally applicable to the LTCH PPS. We did not revise the labor-related share under the IPPS based on the revised and rebased FY 1997 hospital market basket and the excluded hospital market basket because of data and methodological concerns. We indicated that we would conduct further analysis to determine the most appropriate methodology and data for determining the labor-related share.
Section 403 of the Medicare Prescription Drug and Modernization Act of 2003 (enacted December 8, 2003, Pub. L. 108-173) amends section 1886(d) of the Act to provide that for discharges occurring on or after October 1, 2004, the labor-related share under the IPPS is reduced to 62 percent if such a change would result in higher total payments to the hospital. While the statute provides the option to hospitals of using an alternative to the current IPPS labor-related share (71 percent), the statute does not address updating the current IPPS labor-related share. We intend to discuss the details of implementing this provision in the IPPS proposed rule for FY 2005.
As we discussed in the January 30, 2004 proposed rule (69 FR 4765), although section 403 of Public Law 108-173 provides for an alternative labor share percentage, this alternative only applies to hospitals paid under the IPPS and not to LTCHs. Consequently, since we have not yet implemented a change in the labor-share methodology used under the IPPS, and the alternative provided at section 403 does not apply to LTCHs, we did not propose to change the LTCH PPS labor-share for the 2005 LTCH PPS rate year. We received no comments on our proposal to retain the current labor-related share for the 2005 LTCH PPS rate year.
Accordingly, the labor-related share for the 2005 LTCH PPS rate year will remain at 72.885 percent. As is the case under the IPPS, once our research on the labor-related share is complete, any future revisions to the LTCH PPS labor-related share will be proposed and subject to public comment.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR 56022), we established, under § 412.525(b), a cost-of-living adjustment (COLA) for LTCHs located in Alaska and Hawaii to account for the higher costs incurred in those States. (We note that the OFR inadvertently omitted § 412.525(b) in the current version of the CFR (revised as of October 1, 2003). The OFR is aware of this error and will be making the necessary correction in the near future.) In the January 30, 2004 proposed rule (69 FR 4765), for the 2005 LTCH PPS rate year, we proposed to make a COLA to payments for LTCHs located in Alaska and Hawaii by multiplying the standard Federal payment rate by the appropriate factor listed in Table I. below. These factors are obtained from the U.S. Office of Personnel Management (OPM) and are currently used under the IPPS. In addition, in that same proposed rule, we proposed that if OPM released revised COLAS factors before March 1, 2004, we would use them for the development of the payments and publish then in the LTCH PPS final rule.
The OPM has not released revised COLA factors for Alaska and Hawaii since the publication of the January 30, 2004 proposed rule. We received no comments on the proposed COLA factors for Alaska and Hawaii for the 2005 LTCH PPS rate year. Therefore, under § 412.525(b), we are finalizing the COLA factors for Alaska and Hawaii shown below in Table I for the 2005 LTCH PPS rate year.
Table I.—Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals for the 2005 LTCH PPS Rate Year
Alaska:
All areas
1.25
Hawaii:
Honolulu County
1.25
Hawaii County
1.165
Kauai County
1.2325
Maui County
1.2375
Kalawao County
1.2375
3. Adjustment for High-Cost Outliers
a.
Background.
Under § 412.525(a), we make an adjustment for additional payments for outlier cases that have extraordinarily high costs relative to the costs of most discharges. Providing additional payments for outliers strongly improves the accuracy of the LTCH PPS in determining resource costs at the patient and hospital level. These additional payments reduce the financial losses that would otherwise be caused by treating patients who require more costly care and, therefore, reduce the incentives to underserve these patients. We set the outlier threshold before the beginning of the applicable rate year so that total outlier payments are projected to equal 8 percent of total payments under the LTCH PPS. Outlier payments under the LTCH PPS are determined consistent with the IPPS outlier policy.
Under § 412.525(a), we make outlier payments for any discharges if the estimated cost of a case exceeds the adjusted LTCH PPS payment for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the amount used to limit the loss that a hospital will incur under an outlier policy. This results in Medicare and the LTCH sharing financial risk in the treatment of extraordinarily costly cases. The LTCH's loss is limited to the fixed-loss amount and the percentage of costs above the marginal cost factor. We calculate the estimated cost of a case by multiplying the overall hospital cost-to-charge ratio by the Medicare allowable covered charge. In accordance with § 412.525(a), we pay outlier cases 80 percent of the difference between the estimated cost of the patient case and the outlier threshold (the sum of the adjusted Federal prospective payment for the LTC-DRG and the fixed-loss amount).
We determine a fixed-loss amount, that is, the maximum loss that a LTCH can incur under the LTCH PPS for a case with unusually high costs before the LTCH will receive any additional payments. We calculate the fixed-loss amount by simulating aggregate
payments with and without an outlier policy. The fixed-loss amount would result in estimated total outlier payments being projected to be equal to 8 percent of projected total LTCH PPS payments.
Currently, under both the LTCH PPS and the IPPS, only a maximum cost-to-charge ratio threshold (ceiling) is applied to a hospital's cost-to-charge ratio and, as discussed in the June 9, 2003 high-cost outlier final rule (68 FR 34506-34507) for discharges occurring on or after August 8, 2003, a minimum cost-to-charge ratio threshold (floor) is no longer applicable. Thus, if a LTCH's cost-to-charge ratio is above the ceiling, the applicable statewide average cost-to-charge ratio is assigned to the LTCH. In addition, for LTCHs for which we are unable to compute a cost-to-charge ratio, we also assign the applicable statewide average cost-to-charge ratio. Currently, MedPAR claims data and cost-to-charge ratios based on the latest available cost report data from Hospital Cost Report Information System (HCRIS) and corresponding MedPAR claims data are used to establish a fixed-loss threshold amount under the LTCH PPS.
In the June 9, 2003 high-cost outlier final rule (68 FR 34507), consistent with the outlier policy changes for acute care hospitals under the IPPS discussed in that same final rule, we no longer assign the applicable statewide average cost-to-charge ratio when a LTCH's cost-to-charge ratio falls below the minimum cost-to-charge ratio threshold (floor). We made this policy change because, as is the case for acute care hospitals, we believe LTCHs could arbitrarily increase their charges in order to maximize outlier payments. Even though this arbitrary increase in charges should result in a lower cost-to-charge ratio in the future (due to the lag time in cost report settlement), previously when a LTCH's actual cost-to-charge ratio fell below the floor, the LTCH's cost-to-charge ratio was raised to the applicable statewide average cost-to-charge ratio. This application of the statewide average resulted in inappropriately high outlier payments. Accordingly, for LTCH PPS discharges occurring on or after August 8, 2003, in making outlier payments under § 412.525 (and short-stay outlier payments under § 412.529), we apply the LTCH's actual cost-to-charge ratio to determine the cost of the case, even where the LTCH's actual cost-to-charge ratio falls below the floor.
Also, in the June 9, 2003 high-cost outlier final rule (68 FR 34507), consistent with the policy change for acute care hospitals under the IPPS, under § 412.525(a)(4), by cross-referencing § 412.84(i), we established that we will continue to apply the applicable statewide average cost-to-charge ratio when a LTCH's cost-to-charge ratio exceeds the maximum cost-to-charge ratio threshold (ceiling) by adopting the policy at § 412.84(i)(3)(ii). As we explained in that same final rule, cost-to-charge ratios above this range are probably due to faulty data reporting or entry. Therefore, these cost-to-charge ratios should not be used to identify and make payments for outlier cases because such data are clearly errors and should not be relied upon. In addition, we made a similar change to the short-stay outlier policy at § 412.529. Since cost-to-charge ratios are also used in determining short-stay outlier payments, the rationale for that change mirrors that for high-cost outliers.
b.
Establishment of the fixed-loss amount.
In the June 6, 2003 final rule (68 FR 34144), for the 2004 LTCH PPS rate year, we used the March 2002 update of the FY 2001 MedPAR claims data to determine a fixed-loss threshold that would result in outlier payments projected to be equal to 8 percent of total payments, based on the policies described in that final rule, because these data were the best data available. We calculated cost-to-charge ratios for determining the fixed-loss amount based on the latest available cost report data in HCRIS and corresponding MedPAR claims data from FYs 1998, 1999, and 2000.
In that same final rule, in determining the fixed-loss amount for the 2004 LTCH PPS rate year (using the outlier policy under § 412.525(a) in effect on July 1, 2003), we used the current combined operating and capital cost-to-charge ratio floor and ceiling under the IPPS of 0.206 and 1.421, respectively (as explained in the IPPS final rule (67 FR 50125, August 1, 2002)). As we discussed in the June 9, 2003 high-cost outlier final rule (68 FR 34508), we concluded that it was not necessary to recalculate a new fixed-loss amount once the changes to the outlier policy discussed in that final rule became effective because the difference between the fixed-loss amount determined with or without the application of the floor would be negligible.
If a LTCH's cost-to-charge ratio was below this floor or above this ceiling, we assigned the applicable IPPS statewide average cost-to-charge ratio. We also assigned the applicable statewide average for LTCHs for which we are unable to compute a cost-to-charge ratio, such as for new LTCHs. Therefore, based on the methodology and data described above, in the June 6, 2003 final rule (68 FR 34144), for the 2004 LTCH PPS rate year, we established a fixed-loss amount of $19,590. Thus, during the 2004 LTCH PPS rate year, we pay an outlier case 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the adjusted Federal LTCH payment for the LTC-DRG and the fixed-loss amount of $19,590).
Also, in the June 6, 2003 final rule (68 FR 34145), we established that beginning with the 2004 LTCH PPS rate year, we will calculate a single fixed-loss amount for each LTCH PPS rate year based on the version of the GROUPER that is in effect as of the beginning of the LTCH PPS rate year (that is, July 1, 2003 for the 2004 LTCH PPS rate year). Therefore, for the 2004 LTCH PPS rate year, we established a single fixed-loss amount based on the Version 20.0 of the GROUPER, which was in effect at the start of the 2004 LTCH PPS rate year (July 1, 2003). As we noted above, the fixed-loss amount for the 2004 LTCH PPS rate year is $19,590.
As we proposed in the January 30, 2004 proposed rule, in calculating the fixed-loss amount for the 2005 LTCH PPS rate year, we applied the current outlier policy under § 412.525(a); that is, we assigned the applicable statewide average cost-to-charge ratio only to LTCHs whose cost-to-charge ratios exceeded the ceiling (and not when they fell below the floor). Accordingly, we used the current IPPS combined operating and capital cost-to-charge ratio ceiling of 1.366 (as explained in the IPPS final rule (68 FR 45478, August 1, 2003)). We believed that using the current combined IPPS operating and capital cost-to-charge ratio ceiling for LTCHs is appropriate for the same reasons we stated above regarding the use of the current combined operating and capital cost-to-charge ratio ceiling under the IPPS.
As stated in the January 30, 2004 proposed rule (69 FR 4766-4767), for the 2005 LTCH PPS rate year, we used the December 2002 update of the FY 2002 MedPAR claims data to determine a proposed fixed-loss amount that would result in outlier payments projected to be equal to 8 percent of total payments, based on the policies described in that proposed rule, because those data were the best LTCH data available at that time. In that same proposed rule, we explained that we considered using claims data from the September 2003 update of the FY 2003 MedPAR to determine the proposed fixed-loss amount (and the proposed budget neutrality offset discussed in section V.C.6. of this preamble) for the 2005 LTCH PPS rate year. However, initial analysis has shown that the FY
2003 MedPAR data contain coding errors. As in the case with the FY 2002 MedPAR, we have learned that a large hospital chain of LTCHs had continued to consistently code diagnoses inaccurately on the claims it submitted, and these coding errors were reflected in the September 2003 update of the FY 2003 MedPAR data. Those coding inaccuracies in the MedPAR claims data could have caused significant skewing of the fixed-loss amount and would have impacted the determination of the budget neutrality offset.
While we have corrected the coding inaccuracies in the FY 2002 MedPAR, we were unable to correct the coding errors in the FY 2003 MedPAR in time for publication of the January 30, 2004 proposed rule since the correction process required extensive programming work. Accordingly, we used the December 2002 update of the FY 2002 MedPAR claims data to determine the proposed fixed-loss amount of $21,864 for the 2005 LTCH PPS rate year. Thus, we proposed to pay an outlier case 80 percent of the difference between the estimated cost of the case and the proposed outlier threshold (the sum of the proposed adjusted Federal LTCH PPS payment for the LTC-DRG and the proposed fixed-loss amount of $21,864). We also stated that we expected to be able to use FY 2003 MedPAR data (corrected, if necessary) to calculate the fixed loss amount for the 2005 LTCH PPS rate year in this final rule.
We have reviewed LTCH claims data from the December 2003 update of the FY 2003 MedPAR data and it appears that the coding errors that were found previously in the September 2003 update of the FY 2003 MedPAR (discussed in the January 30, 2004 proposed rule (69 FR 4774)) have been corrected. Specifically, upon discovering the coding errors, we notified the large chain of LTCHs whose claims contained the coding inaccuracies to request that they resubmit those claims with the correct diagnoses codes by December 31, 2003 so that those corrected claims would be contained in the December 2003 update of the FY 2003 MedPAR data. It appears that those claims were submitted timely with the correct diagnoses codes, therefore, it was not necessary for us to correct the FY 2003 MedPAR data for the development of the rates and factors established in this final rule. Accordingly, we are using the December 2003 update of the FY 2003 MedPAR data to determine the fixed-loss amount for the 2005 LTCH PPS rate year established in the this final rule, as it is the best available data at this time.
Comment:
One commenter noted that CMS proposed a fixed-loss amount of $21,864 for the 2005 LTCH PPS rate year based on FY 2002 MedPAR claims data due to coding errors found in the FY 2003 MedPAR claims data, and that CMS plans on using the corrected FY 2003 MedPAR claims data to calculate the fixed-loss amount for the final rule. The commenter believed that, as a result of the fact that a large hospital chain of LTCHs continued to make coding errors, other LTCHs would be deprived of the opportunity to make meaningful comments. The commenter recommended that the revised fixed-loss amount should be published in an interim final rule in order to allow for meaningful comments.
Response:
As with all other Medicare prospective payment systems, the data that we use both for the proposed and final rules, to determine the rates, adjustments and other factors under the LTCH PPS, including the fixed-loss amount, is always the best data available at the time we are determining a rate. As we stated in the January 30, 2004 proposed rule, we expected to use the FY 2003 MedPAR data to calculate the final fixed-loss amount for the 2005 LTCH PPS rate year in this final rule. Thus, the commenters were given adequate notice for meaningful comment on our proposal. In addition, we note that this data became available to the public at the end of February 2004, which was at least 3 weeks prior to the close of the 60-day public comment period that ended on March 23, 2004. We believe that this data was sufficiently available to those interested in accessing the data, and to ensure that we correctly applied the methodology that we established to compute the fixed-loss amount in the August 30, 2002 final rule when we implemented the LTCH PPS using the FY 2003 MedPAR data. Thus, because the methodology that we use to calculate the fixed-loss amount in both the proposed rule and in this final rule continues to be the same as the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 56022-56027) when the LTCH PPS was implemented (that is, we determine a fixed-loss amount that would result in outlier payments projected to be equal to 8 percent of total payments under the LTCH PPS), the public had the opportunity to use the most recently available FY 2003 MedPAR data to calculate of the applicable fixed-loss amount prior to the close of the comment period. To the extent that the public disagreed with the outcome, they could have written to us during the comment period, and we would have addressed their concerns. However, we did not receive any comments.
Accordingly, we do not believe it is necessary or appropriate to publish the final fixed-loss amount for the 2005 LTCH PPS rate year in a separate notice. However, if LTCHs have concerns regarding the calculation of the fixed-loss amount for the 2005 LTCH PPS rate year established in this final rule based on the FY 2003 MedPAR claims data, they may bring those concerns to our attention. Based on those concerns, if we determine that our established methodology for determining the fixed loss amount was applied incorrectly, we would take the necessary steps to correct the fixed-loss amount prospectively in accordance with the Administrative Procedure Act.
Furthermore, as noted above, we determined the fixed-loss amount for the 2005 LTCH PPS rate year established in this final rule based on the version of the GROUPER that will be in effect as of the beginning of the 2005 LTCH PPS rate year (July 1, 2004), that is, Version 21.0 of the LTCH PPS GROUPER (68 FR 45374-45385). Consistent with our historical practice of using the most recent available data, we computed cost-to-charge ratios for determining the fixed-loss amount for the 2005 LTCH PPS rate year based on the latest available cost report data in HCRIS and corresponding MedPAR claims data from FYs 1999, 2000, 2001 and 2002. (We note that FY 2002 data was not used to compute cost-to-charge ratios in the proposed rule because it was not available at the time of the development of the proposed rule. The limited amount of FY 2002 data available to use to compute the cost-to-charge ratios used for determining the fixed-loss amount established in this final rule has resulted in very little change in the cost-to-charge ratios used in the proposed rule compared to those used in this final rule. Our methodology for calculating the cost-to-charge ratios remains the same.) As we explained above, the current applicable IPPS statewide average cost-to-charge ratios were applied when a LTCH's cost-to-charge ratio exceeded the ceiling (1.366). In addition, we assigned the applicable statewide average to LTCHs for which we were unable to compute a cost-to-charge ratio. (Currently, the applicable IPPS statewide averages can be found in Tables 8A and 8B of the August 1, 2003 IPPS final rule (68 FR 45637-45638).)
Based on the data and policies described in this final rule, we are establishing a fixed-loss amount of $17,864 for the 2005 LTCH PPS rate
year. Thus, we will pay an outlier case 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the adjusted Federal LTCH payment for the LTC-DRG and the fixed-loss amount of $17,864).
The final fixed-loss amount of $17,864 for the 2005 LTCH PPS rate year is lower than the $21,864 fixed-loss amount we had proposed for the 2005 LTCH PPS rate year and lower than the current fixed-loss amount of $19,590 for the 2004 LTCH PPS rate year. Both the current fixed-loss amount for the 2004 LTCH PPS rate year and the proposed fixed-loss amount for the 2005 LTCH PPS rate year were computed using the December 2002 update of the FY 2002 MedPAR data (as explained in detail in the June 6, 2003 final rule (68 FR 34145) and the January 30, 2004 proposed rule (69 FR 4774), respectively). As discussed above, we used the December 2003 update of the FY 2003 MedPAR data to determine the final fixed-loss amount for the 2005 LTCH PPS rate year established in this final rule because it is the best available data at this time. Our methodology for calculating the fixed-loss amount remains the same.
c.
Reconciliation of outlier payments upon cost report settlement.
In the June 9, 2003 high-cost outlier final rule (68 FR 34508-34512), we made changes to the LTCH outlier policy consistent with those made for acute care hospitals under the IPPS because, as we discussed in that same final rule, we became aware that payment vulnerabilities existed in the previous IPPS outlier policy. Because the LTCH PPS high-cost outlier and short-stay policies are modeled after the outlier policy in the IPPS, we believe they were susceptible to the same payment vulnerabilities and, therefore, also merited revision. Consistent with the change made for acute care hospitals under the IPPS at § 412.84(m), we established under § 412.525(a)(4)(ii), by cross-referencing § 412.84(m), that effective for LTCH PPS discharges occurring on or after August 8, 2003, any reconciliation of outlier payments may be made upon cost report settlement to account for differences between the actual cost-to-charge ratio and the estimated cost-to-charge ratio for the period during which the discharge occurs. As is the case with the changes made to the outlier policy for acute care hospitals under the IPPS, the instructions for implementing these regulations are discussed in further detail in Program Memorandum Transmittal A-03-058. In addition, in that same final rule (68 FR 34513), we established a similar change to the short-stay outlier policy at § 412.529(c)(5)(ii).
We also discussed in the June 9, 2003 IPPS high-cost outlier final rule (68 FR 34507-34512) that only using cost-to-charge ratios based on the latest settled cost report does not reflect any dramatic increases in charges during the payment year when making outlier payments. Because a LTCH has the ability to increase its outlier payments through a dramatic increase in charges and because of the lag time in the data used to calculate cost-to-charge ratios, in that same final rule (68 FR 34494-34515), consistent with the policy change for acute care hospitals under the IPPS at § 412.84(i)(2), we established that, for LTCH PPS discharges occurring on or after October 1, 2003, fiscal intermediaries will use more recent data when determining a LTCH's cost-to-charge ratio. Therefore, by cross-referencing § 412.84(i)(2) under § 412.525(a)(4)(iii), we established that fiscal intermediaries will use either the most recent settled cost report or the most recent tentative settled cost report, whichever is from the later period. In addition, in that same final rule, we established a similar change to the short-stay outlier policy at § 412.529(c)(5)(iii).
d.
Application of outlier policy to short-stay outlier cases.
As we discussed in the August 30, 2002 final rule (67 FR 56026), under some rare circumstances, a LTCH discharge could qualify as a short-stay outlier case (as defined under § 412.529 and discussed in section V.B.4. of this preamble) and also as a high-cost outlier case. In such a scenario, a patient could be hospitalized for less than five-sixths of the geometric average length of stay for the specific LTC-DRG, and yet incur extraordinarily high treatment costs. If the costs exceeded the outlier threshold (that is, the short-stay outlier payment plus the fixed-loss amount), the discharge would be eligible for payment as a high-cost outlier. Thus, for a short-stay outlier case in the 2005 LTCH PPS rate year, the high-cost outlier payment will be 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the fixed-loss amount of $17,864 and the amount paid under the short-stay outlier policy).
Based on a comparison of the LTCH claims from the FY 2002 MedPAR data and the FY 2003 MedPAR data for the 266 LTCHs which had claims in both data sets, we found that the average LTC-DRG relative weight (based on the Version 21.0 GROUPER, as discussed above) assigned to each case increased 2.7 percent from FY 2002 to FY 2003. In addition, we found that the average covered charge per discharge (inflated to 2005 LTCH PPS rate year) increased 3.3 percent from FY 2002 to FY 2003 and total LTCH PPS payments per discharge (based on FY 2002 MedPAR data) increased 7.3 percent compared to total LTCH PPS payments per discharge estimated in this final rule (based on FY 2003 MedPAR data).
Our analysis indicates that this increase in LTCH PPS payments per discharge between the LTCH claims in the FY 2002 MedPAR data and the LTCH claims in the FY 2003 MedPAR data is largely attributable to the increase in the average LTC-DRG relative weight per discharge and the increase in the average covered charge per discharge. The increase in the average LTC-DRG relative weight assigned to each case from FY 2002 MedPAR compared to FY 2003 MedPAR data indicates that, on average, LTCH patients are being assigned to LTC-DRGs that have a higher relative weight, and, therefore, generally receive a higher LTCH PPS payment. This results in an increase in total LTCH PPS payments system-wide. In accordance with § 412.523(d)(1), we reduce the standard Federal rate by 8 percent for the estimated proportion of LTCH PPS outlier payments. Because the average payment per discharge has increased, thereby increasing total LTCH PPS payment, the fixed-loss amount must be lowered in order to maintain total outlier payments that are projected to equal 8 percent of total payments under the LTCH PPS.
As we noted above, because the LTCH PPS has only been implemented for less than 2 years, sufficient new data have not been generated that would enable us to conduct a comprehensive analysis to determine the factors contributing to the increase in the average LTC-DRG relative weight assigned to each case. As discussed in section X. of this preamble, we intend to monitor trends in the LTCHs' Medicare payments and costs once sufficient data under the LTCH PPS has been generated. For example, we may conduct medical record reviews of LTCH Medicare patients to ensure that proper coding practices are being employed.
4. Adjustments for Special Cases
a.
General.
As discussed in the August 30, 2002 final rule (67 FR 55995), under section 123 of Public Law 106-113, the Secretary generally has broad authority in developing the PPS for LTCHs, including whether (and how) to provide for adjustments to reflect variations in the necessary costs of treatment among LTCHs.
Generally, LTCHs, as described in section 1886(d)(1)(B)(iv) of the Act, are distinguished from other inpatient hospital settings by maintaining an average inpatient length of stay of greater than 25 days. However, LTCHs may have cases that have stays of considerably less than the average length of stay and that receive significantly less than the full course of treatment for a specific LTC-DRG. As we explained in the August 30, 2002 final rule (67 FR 55954), these cases would be paid inappropriately if the hospital were to receive the full LTC-DRG payment. Below we discuss the payment methodology for these special cases as implemented in the August 30, 2002 final rule (67 FR 56002-56010).
b.
Adjustment for short-stay outlier cases.
A short-stay outlier case may occur when a beneficiary receives less than the full course of treatment at the LTCH before being discharged. These patients may be discharged to another site of care or they may be discharged and not readmitted because they no longer require treatment. Furthermore, patients may expire early in their LTCH stay.
Generally, LTCHs are defined by statute as having an average inpatient length of stay of greater than 25 days. We believe that a payment adjustment for short-stay outlier cases results in more appropriate payments because these cases most likely would not receive a full course of treatment in this short period of time and a full LTC-DRG payment may not always be appropriate. Payment-to-cost ratios simulated for LTCHs, for the cases described above, show that if LTCHs receive a full LTC-DRG payment for those cases, they would be significantly “overpaid” for the resources they have actually expended.
Under § 412.529, in general, we adjust the per discharge payment to the least of 120 percent of the cost of the case, 120 percent of the LTC-DRG specific per diem amount multiplied by the length of stay of that discharge, or the full LTC-DRG payment, for all cases with a length of stay up to and including five-sixths of the geometric average length of stay of the LTC-DRG.
As we noted in section V.C.3. of this preamble, in the June 9, 2003 high-cost outlier final rule (68 FR 34494-34515), we revised the methodology for determining cost-to-charge ratios for acute care hospitals under the IPPS because we became aware that payment vulnerabilities existed in the previous IPPS outlier policy. As we also explained in that same final rule, because the LTCH PPS high-cost outlier and short-stay outlier policies are modeled after the outlier policy in the IPPS, we believe they were susceptible to the same payment vulnerabilities and, therefore, merited revision. Consistent with the policy established for acute care hospitals under the IPPS at § 412.84(i) and (m) in the June 9, 2003 high-cost outlier final rule (68 FR 34515), and similar to the policy change described above for LTCH PPS high-cost outlier payments at § 412.525(a)(4)(ii), we established under § 412.529(c)(5)(ii) that for discharges on or after August 8, 2003, short-stay outlier payments are subject to the provisions in the regulations at § 412.84(i)(1), (i)(3) and (i)(4), and (m). In addition, short-stay outlier payments are subject to the provisions in the regulations at § 412.84(i)(2) for discharges on or after October 1, 2003 in accordance with § 412.529(c)(5)(iii). Therefore, in the June 9, 2003 high-cost outlier final rule (68 FR 34508-34513), under § 412.529(c)(5)(ii), by cross-referencing § 412.84(i)(2), we established that fiscal intermediaries will use either the most recent settled cost report or the most recent tentative settled cost report, whichever is from the later period, in determining a LTCH's cost-to-charge ratio.
In addition, by cross-referencing § 412.84(i), we established that the applicable statewide average cost-to-charge ratio is only applied when a LTCH's cost-to-charge ratio exceeds the ceiling. Thus, the applicable statewide average cost-to-charge ratio is no longer applied when a LTCH's cost-to-charge ratio falls below the floor. Furthermore, by cross-referencing § 412.84(i)(4), we established that any reconciliation of payments for short-stay outliers may be made upon cost report settlement to account for differences between the estimated cost-to-charge ratio and the actual cost-to-charge ratio for the period during which the discharge occurs. As noted in the discussion of the high-cost outlier policy in section V.C.3. of this preamble, the instructions for implementing these regulations are discussed in further detail in Program Memorandum Transmittal A-03-058.
In the June 6, 2003 final rule (68 FR 34146-34148), for certain hospitals that qualify as LTCHs under section 1886(d)(1)(B)(iv)(II) of the Act (“subclause (II)” LTCHs) as added by section 4417(b) of Public Law 105-33, and implemented in § 412.23(e)(2)(ii), we established a temporary adjustment to the short-stay outlier policy during the 5-year transition period. Under § 412.529(c)(4), effective for discharges from a “subclause (II)” LTCH occurring on or after July 1, 2003, the short-stay outlier percentage is 195 percent during the first year of the hospital's 5-year transition. For the second cost reporting period, the short-stay outlier percentage is 193 percent; for the third cost reporting period, the percentage is 165 percent; for the fourth cost reporting period, the percentage is 136 percent; and for the final cost reporting period of the 5-year transition (and future cost reporting periods), the short-stay outlier percentage is 120 percent, that is, the same as it is for all other LTCHs under the LTCH PPS.
As we discussed in the June 6, 2003 final rule (68 FR 34147), we established this formula with the expectation that an adjustment to short-stay outlier payments during the transition will result in reducing the difference between payments and costs for a “subclause (II)” LTCH for the period of July 1, 2003 through the end of the transition period, when the LTCH PPS will be fully phased-in.
As we stated in that same final rule, we also expect that during this 5-year period, “subclause (II)” LTCHs will make every attempt to adopt the type of efficiency enhancing policies that generally result from the implementation of prospective payment systems in other health care settings. We did not propose any changes to the short-stay outlier policy in the January 30, 2004 proposed rule (69 FR 4768). We received no comments on the existing short-stay outlier policy at § 412.529.
c.
Extension of the interrupted stay policy.
At existing § 412.531(a), we define an “interruption of a stay” as a stay at a LTCH during which a Medicare inpatient is transferred upon discharge to an acute care hospital, an IRF, or a SNF for treatment or services that are not available in the LTCH and returns to the same LTCH within applicable fixed-day periods. (We also include transfers to swing beds under this interrupted stay policy for LTCH payment policy determinations, consistent with the SNF PPS payment policy. That is, a readmission to a LTCH from post-hospital SNF care being provided in a swing bed that is located either in the LTCH itself or in another onsite Medicare provider has the same policy consequence as a readmission to the LTCH from an onsite SNF (June 6, 2003, 68 FR 34149).)
As defined in the previous paragraph, an interrupted stay is treated as one discharge from the LTCH. The day-count of the applicable fixed-day period of an interrupted stay begins on the day of discharge from the LTCH (which is also the day of admission to the other site of care). For a discharge to an acute care hospital, the applicable fixed-day
period is 9 days, for an IRF, 27 days, and for a SNF 45 days. The counting of the days begins on the day of discharge from the LTCH and ends on the 9th, 27th, or 45th day for an acute care hospital, an IRF, or a SNF, respectively, after the discharge.
If the patient is readmitted to the LTCH within the fixed-day threshold, return to the LTCH is considered part of the first admission and only a single LTCH PPS payment will be made. For example, if a LTCH patient is discharged to an acute hospital and is readmitted to the LTCH on any day up to and including the 9th day following the original day of discharge from the LTCH, one LTC-DRG payment will be made. If the patient is readmitted to the LTCH from the acute care hospital on the 10th day after the original discharge or later, Medicare will pay for the second admission as a separate stay with an additional LTC-DRG assignment. In implementing this policy, we provide that, in the event a Medicare inpatient is discharged from a LTCH and is readmitted and the stay qualifies as an interrupted stay, the provider must cancel the claim generated by the original stay in the LTCH and submit one claim for the entire stay. (For further details, see Medicare Program Memorandum Transmittal A-02-093, September 2002.)
On the other hand, if the patient stay exceeds the total fixed-day threshold outside of the LTCH at another facility before being readmitted, two separate payments would be made. One would be based on the principal diagnosis and length of stay for the first admission and the other based on the principal diagnosis and length of stay for the second admission. Depending upon their lengths of stay, both stays could result in payments as a short-stay outlier (§ 412.529), a full LTC-DRG, or even a high-cost outlier. Further, if the principal diagnosis is the same for both admissions, the hospital could receive two similar payments. It is also important to note that under the existing interrupted stay policy, a separate Medicare payment is made to the intervening provider under that provider's payment system.
When we introduced the interrupted stay policy for LTCHs in the August 30, 2002 final rule (67 FR 56002-56006), we noted that we would consider expanding or revising the policy based on information received from the provider community or information gained from our ongoing monitoring activities. During the first year of the LTCH PPS, it has come to our attention, from both of these sources, that certain LTCHs are discharging patients during the course of their treatment for the sole purpose of receiving specific tests or procedures from another facility (that should have been furnished under arrangements by the LTCHs), and then readmitting the patient to the LTCH following the administration of the test or procedure. In other words, these patients do not stop receiving medical care that must be considered LTCH inpatient services during the period between their discharge from and readmission to the LTCH. On the contrary, they continue to receive care, often of a highly specialized type, from the other facility before being readmitted for further inpatient care at the LTCH. This sequence of care suggests that the original discharge from the LTCH may be motivated by financial considerations rather than by clinical judgment and, therefore, would be inappropriate.
Existing regulations at § 412.509(c) require a LTCH to furnish all necessary covered services for a Medicare beneficiary who is an inpatient of the hospital either directly or under arrangements (as defined in § 409.3). Under § 409.3, when services are furnished under arrangements, Medicare payments made to the provider that arranged for the services discharges the liability of the beneficiary or any other person to pay for those services. The “under arrangements” policy set forth in § 412.509 for LTCHs derives from the regulations at § 411.15(m), which implement section 1862(a)(14) of the Act. Section 1862(a) of the Act specifies the services for which no payment may be made under Medicare Part A and Part B and also specifies the exception for certain services to be furnished “under arrangements” by providers.
If a LTCH obtains, from another facility “under arrangements,” a specific test or procedure for one of its inpatients that is not available on the LTCH's premises, as contemplated by § 412.509, a discharge and a subsequent readmission would be unnecessary and inappropriate. This is true even if it is necessary to transport the patient to another facility to receive the arranged-for service. Furthermore, no additional claim can be submitted to Medicare by the other entity that actually furnished the test or procedure because, under § 412.509(c), the LTCH must furnish all necessary covered services to the Medicare beneficiary who is an inpatient of the hospital either directly or under arrangements. In this situation, generally, the LTCH would include the medically necessary test or procedure on its patient claim to Medicare (which could have an effect on the assignment of the LTC-DRG and thus the Medicare payment to the LTCH) and the LTCH would be responsible for paying the provider directly for the test or procedure.
Patient discharges from the LTCH for tests or procedures that should have been provided under arrangements, followed by LTCH readmission, result in an inappropriate increase in Medicare costs in three ways:
First, the Medicare payment associated with the LTC-DRG that would be assigned to the patient's stay will typically already include the costs of the test or procedure. (The August 30, 2002 LTCH PPS final rule (67 FR 55977-55985), includes an in-depth description of the derivation of LTC-DRGs from ICD-9-CM codes on Medicare claims and a discussion of the development and calculation of LTC-DRG relative weights.) Second, the intervening provider will bill Medicare separately for the test or procedure. Thus, if services that should have been furnished directly or under arrangements by the LTCH are instead unbundled and billed separately, Medicare would pay the other provider for the service that should have been paid for “under arrangements” by the LTCH under § 412.509.
Third, a discharge for outpatient services and a subsequent readmission to the LTCH is not currently covered under the interrupted stay policy at existing § 412.531. Section 412.531(a) only includes discharges from a LTCH to an acute care hospital, an IRF, and a SNF for treatment or services not available in the LTCH and subsequent readmission to the same LTCH. If a patient is discharged and readmitted to the LTCH following an outpatient test or procedure, under current policy, after making a LTCH PPS payment for the first discharge, there would be a second Medicare payment to the LTCH when the patient is finally discharged.
In the January 30, 2004 proposed rule (69 FR 4769-4770), in order to address these concerns, we proposed to revise the definition of an interruption of a stay under § 412.531 to add situations in which a patient is discharged from the LTCH and readmitted to the same LTCH within 3 days of the discharge (revised § 412.531(a)(1)). We believe that if a patient is discharged from a LTCH for any reason to an acute care hospital, IRF, SNF, or home, and is then readmitted within 3 days, in general, the patient's original admitting diagnoses would not change significantly during those 3 days. Therefore, a readmission would not constitute a new episode of care. We questioned whether a patient
who was discharged home and then returned to the same LTCH within 3 days should have been discharged in the first place. Since LTCHs are designed to treat patients with a high level of acuity and multicomorbidities, we believed that a 3-day period was a reasonable window during which necessary offsite medical care might be delivered, under arrangements, as contemplated under § 412.509, without an appreciable change in the original admitting diagnoses. Moreover, this 3-day period is consistent with the policy under the IRF PPS under which the maximum period of time that a patient could be away from the IRF is 3 days before a new patient assessment is required. Therefore, under our proposal, if a patient were discharged on Monday to an acute care hospital, IRF, SNF, or home, and readmitted either on that Monday (the first day), Tuesday (the second day), or Wednesday (the third day), the subsequent readmission would not be considered a new admission and Medicare would pay the LTCH for only one discharge based on the combined length of stay for the period prior to, during, and after the absence from the LTCH. If a patient was readmitted to the LTCH at any time after Wednesday, (the third day), the 3-day interrupted stay policy would no longer be relevant and Medicare payments would be governed by the existing interrupted stay policy. Therefore, if following discharge from a LTCH, and treatment or services as an inpatient at an acute care hospital, IRF, or SNF for greater than 3-days, but less than the interrupted stay threshold for that provider type (9 days for an acute care hospital, 27 days for an IRF, 45 days for a SNF), when the patient is readmitted to the LTCH, only one payment would be made to the LTCH, but the intervening provider may also submit a Medicare claim for that patient. Moreover, if the patient's stay at the intervening provider exceeds the threshold, a readmission to the LTCH will be counted as a new stay for each provider, as noted above, a readmission to the LTCH will be counted as a new stay pursuant to § 412.531(a)(1). We reiterate that the provisions of the proposed 3-day or less interrupted stay policy would be only applicable for patients who are discharged from a LTCH to an acute care hospital, IRF, SNF, or home, and then are readmitted to the LTCH within 1, 2, or 3 days. After that point, when the interruption exceeds 3 days, but less than the fixed period threshold in the original interrupted stay policy, a separate payment will be made to the intervening facility under the appropriate PPS, but one payment would be made to the LTCH for one episode of care. We will hereafter refer to the original interruption of stay policy as “the greater than 3-day interruption of stay”. This clarified and renamed policy, from day 4 forward, under revised § 412.531(a)(2), and the counting of days would begin on the first day of admission to the intervening provider (but not at day 4) for purposes of determining whether or not the episode is actually one LTCH stay with an interruption within the 9, 27, or 45 day threshold, or two separate LTCH stays that would be occasioned by a stay in excess of the applicable thresholds.
An example of when the proposed 3-day or less interrupted stay policy would govern is as follows: if a LTCH patient is discharged from the LTCH to an acute care hospital, stays at the acute care hospital for 3 days and then returns to the LTCH by midnight of the 3 days, Medicare would pay one LTC-DRG payment to the LTCH and the LTCH would be responsible for paying the acute care hospital for the costs of the tests which should have been provided under arrangements by the LTCH. In this case, the proposed payment policy was dictated by the presumption that the discharge to the acute care hospital was not warranted, but services should be provided to the LTCH patient under arrangements if the patient needed to be readmitted to the LTCH within 3 days of being discharged.
An example of when the existing greater than 3-day interruption of stay governs is as follows: A LTCH patient is discharged from the LTCH and admitted directly to an IRF where the patient remains for 16 days prior to being readmitted to the LTCH for further care. The interrupted stay threshold for IRFs is 27 days and since the stay at the IRF is within the 27 day threshold, both stays at the LTCH will be paid as one discharge under the LTCH PPS and Medicare will pay the IRF for the patient's treatment under the IRF PPS for days 1 through 16. In this case, payment policy is dictated by the presumption that the hospitalization at the intervening site was appropriate because the patient required treatment at the IRF for a number of days significantly in excess of 3 days, as specified in the less than 3-day interruption of stay policy. But the patient's readmission to the LTCH prior to reaching the 27 day threshold means that it is being paid as a continuation of the original hospitalization.
An example of a situation not governed by either of the interrupted stay policies is as follows: a LTCH patient is discharged to an acute care hospital and remains under treatment for 12 days (the greater than 3-day interrupted stay threshold for acute care hospitals is 9 days) prior to being readmitted to the LTCH. In this case, Medicare will pay the acute care hospital under the IPPS and the patient's readmission to the LTCH will be paid separately as a second bona fide admission. In this case, treatment at the acute care hospital is being paid under the IPPS and because the number of days away from the LTCH exceed the fixed threshold of 9 days under the greater than 3-day interruption of stay policy, the second admission is being seen as a separate episode of care. (§ 412.531(b)(4))
Under the proposed revision of the interruption of stay policy for LTCHs in the January 2004 proposed rule, we stated that any treatment or medical services furnished to the individual during the 3-day (or less) absence from the LTCH could not be billed separately to the Medicare program or to the beneficiary, but would be paid as “under arrangements” services to the LTCH. When we established the LTCH PPS (67 FR 55954, August 30, 2002), we calculated payments under the LTCH PPS using base year costs that include the numerous tests and procedures typical of the complicated medical conditions that characterize LTCH patients, including those furnished by other providers in order to satisfy the statutory requirements under section 123 of Public Law 106-113, for budget neutrality. Therefore, we believed that a readmission to the LTCH that triggers the 3-day or less interrupted stay policy should be treated as a continuation of the episode of care that occasioned the first admission. Further, we believe that the readmission to the LTCH within 3 days establishes the presumption that any treatment or services furnished during the intervening 3 (or less) days should have been provided by the LTCH “either directly or under arrangements” (§ 412.509(b)). The entire stay would generate one LTC-DRG payment under the LTCH PPS, which would be “payment in full for all inpatient hospital services, as defined in § 409.10.” (§ 412.509(a)) Under § 409.10(a) inpatient hospital services means the following services furnished to an inpatient of a qualified hospital: (1) Bed and board; (2) nursing services and other related services; (3) use of hospital or CAH facilities; (4) medical social services; (5) drugs, biologicals, supplies, appliances, and equipment; (6) certain other diagnostic or therapeutic services; (7) medical or surgical services provided by certain interns or residents-
in-training; and (8) transportation services, including transport by ambulance.
As explained above, we proposed that a readmittance to the LTCH within 3 days after a discharge will result in one LTC-DRG payment for the entire stay. Since we are treating both, the stay at the LTCH that occurred before and after the discharge to the intervening provider, parts of the stay as one episode of care, we proposed that treatment or care provided during the “interruption” would be considered to have occurred during that single episode of care and that payment for such services are included in the LTC-DRG payment. We also proposed to include the days of the 3-day or less interruption of stay in counting LTCH days to determine the total length of stay of the patient at the LTCH if medical treatment or care were provided during the 3 days or less because these services would be considered to have been paid for as part of the total LTCH stay (§ 412.531(b)(1)(iii)). Furthermore, we proposed that if a patient is discharged home, and within a 3-day or less period received no additional medical treatment or service, but is readmitted to the LTCH, the days away from the LTCH would not be included in the length of stay calculation.
We also proposed that this policy would be applicable to all services or procedures provided to the patient either under Medicare Part A, or Part B, except for the services which are expressly excluded from bundling under section 1886(a)(1)(H)(i) of the Act and § 411.15(m), such as services furnished by physicians under § 415.102(a) and other specific health professionals. Failure to comply with this bundling requirement could lead to sanctions such as termination of the LTCH's Medicare provider agreement or civil money penalties (under section 1866(a)(1)(H)(i) of the Act).
Although we understand that, in good faith, a patient could be discharged from a LTCH, return home for a day or two, experience a setback, and then be readmitted to the LTCH, we believe that this type of a readmission to the LTCH must be considered an extension of the original hospitalization and that Medicare will not pay for two claims for what was, in effect, one episode of care. The 3-day or less interrupted stay policy takes into account the profile of most LTCH patients, as typically very sick individuals with multicomorbidities. We believe that it is reasonable to presume that if this type of patient is discharged and then readmitted to a LTCH within 3 days, the readmission signifies a continuation of the original hospital stay and not a new episode of care. Furthermore, we are concerned about reports of LTCHs discharging and readmitting patients who are still undergoing active treatment rather than obtaining services for these patients “under arrangements” in accordance with section 1862(a)(14) of the Act and the regulations at § 412.509.
In the January 2004 proposed rule, we indicated that we intend to collect data on any Medicare claims for outpatient services as well as inpatient services furnished during the time that the patients are away from the LTCH under the 3-day or less interrupted stay policy. We would review data to determine whether we will expand the 3-day time period and we will consider proposing this change in a future rule. Further, if it appears that additional patients are being discharged for the purpose of receiving tests or procedures at other Medicare settings, and then readmitted to the LTCH, in order for the LTCH to avoid paying for the procedure “under arrangements,” we may find it appropriate for our Quality Improvement Organizations (QIO) to evaluate the medical basis for the original discharge. A patient discharge that is not clinically justifiable could constitute potential violation of the LTCH's conditions of participation in the Medicare program for inadequate discharge planning or an inappropriate discharge from the LTCH under § 482.43. Moreover, as noted above, if a separate bill is submitted by an entity other than the LTCH for services furnished during this period, this could also be a violation of the LTCH's provider agreement obligation regarding bundled services.
In proposing the policy in the January 2004 proposed rule, we did not attempt to restrict a LTCH from pursuing necessary or more appropriate clinical care from another facility. As we designed the PPS for LTCHs, the original interrupted stay policy was created for situations where sound clinical judgment could suggest a different treatment setting for LTCH patients: A patient requiring emergency surgery at an acute care hospital; a patient who would appear to benefit from a specific therapy regimen at an IRF; or a patient who had improved and, therefore, could be appropriately cared for at a SNF. The policy accounted for a readmission to the LTCH after the emergency care or in the event of a change in the patient's condition, that is, for sound clinical reasons. Fundamentally, the original interrupted stay policy resulted from our determination to allow considerable latitude to medical personnel in this regard without untoward payment consequences for the Medicare program.
We proposed a revision to the existing interrupted stay policy because we believed that 3 days in most instances represents an appropriate interval for establishing whether or not the reason for the patient's readmission is directly connected to the original episode of care and whether or not Medicare-covered services were obtained during the interruption that should have otherwise been provided “under arrangements” by the LTCH.
All inpatient services, under Medicare, fall within the purview of the requirement of section 1862(a)(14) of the Act, and, therefore, what we stated was not a departure from existing policy. Under section 1862(a)(14) of the Act, notwithstanding any other provision of this title, “no payment may be made under Part A or Part B for any expenses incurred for items or services which are other than physicians' services (as defined in regulations promulgated specifically for purposes of this paragraph), services described by section 1861(s)(2)(K) of the Act (certified nurse-midwife services, qualified psychologist services, and services of a certified registered nurse anesthetist) and which are furnished to an individual who is a patient of a hospital or critical access hospital by an entity other than the hospital or critical access hospital unless the services are furnished under arrangements (as defined in section 1861(w)(1) of the Act with the entity made by the hospital or critical access hospital.” Section 1861(w)(1) of the Act states that “[t]he term “arrangements” is limited to arrangements under which receipt of payment by the hospital, critical access hospital, skilled nursing facility, home health agency, or hospice program (whether in its own right or as agent), for services for which an individual is entitled to have payment made under this title, discharges the liability of such individual or any other person to pay for the services.” We believe the objective of these statutory provisions, which were implemented for inpatient acute care hospitals in regulations at § 411.15(m) and subsequently at § 412.509 for LTCHs, was to discharge financial liability for inpatients who may have received additional care off-premises and to assign payment responsibility for the care to the hospital that is being paid for that beneficiary's total care for that spell of illness. The total care delivered by the hospital may be provided “directly” or “under arrangements” with other facilities (§ 412.509(c)) and was included in Medicare's payment to the hospital.
Over the years, we have often referred to this as the “prohibition against unbundling” for purposes of emphasizing that if a Medicare provider “unbundles” specific components of a beneficiary's total inpatient care (provided either “directly” or “under arrangements”) and sends separate claims to Medicare for those tests or treatments, the provider would be acting in violation of the statute and applicable regulations. Since LTCHs treat patients with multicomorbidities who are often in need of a wide range of diagnostic and treatment modalities and lengthy hospitalizations, we believe that in this particular setting, this statutory requirement is particularly vulnerable to gaming. For that reason, we proposed to clarify the existing general unbundling prohibition and to propose specific language on the unbundling prohibition as it applies to the interrupted stay policy under the LTCH PPS and proposed to codify it in regulations. As noted above, we were concerned that LTCH patients, under active treatment, are being inappropriately discharged to other treatment sites, receiving tests or procedures related to one of the diagnoses the patient being hospitalized and which otherwise should have been provided at the LTCH either directly or under arrangements under § 412.509 and then readmitted to the LTCH. Another claim is also being submitted to Medicare by the other treatment site for those tests or procedures. As stated earlier, under the LTCH PPS, payments associated with specific LTC-DRGs include all costs associated with rendering care to the type of patients treated in LTCHs and, therefore, additional Medicare payments for such services would be inappropriate.
We noted in the proposed rule that we understand that during a particular hospitalization, a typical LTCH patient, with multicomorbidities, could suddenly require emergency care at an acute care hospital. This would be the case, for example, if a patient who was admitted to the LTCH with a principal diagnosis of chronic obstructive pulmonary disease and respirator dependence, with secondary diagnoses of hypertension, Type II diabetes mellitus, history of coronary artery disease, and history of bladder cancer suddenly exhibits symptoms consistent with a pneumothorax (lung collapse) and requires treatment that is beyond the scope of the LTCH. Services obtained at an acute care hospital, under the proposed 3-day or less policy, would be considered related to the original diagnoses, and submission of a separate claim by the acute hospital is considered a violation of the unbundling requirement established by section 1862(a)(14) of the Act. Payment to the acute hospital for any services delivered would be the responsibility of the LTCH since the critical episode was directly related to the hospitalization at the LTCH. Conversely, if the same patient had instead suddenly suffered a myocardial infarction (heart attack) that requires a cardiac workup, evaluation, and possible implantation of a cardiac stent, it may be appropriate to discharge this patient for admission to an acute care facility for appropriate evaluation and the invasive cardiac procedure. Under these circumstances, the admission to the acute hospital was totally unrelated to the patient's diagnoses in the LTCH and arguably there may be no need to bundle the services. A discharge from the LTCH and a readmission following the procedure at the acute hospital in order to resume the treatment provided by the LTCH, for which the patient was originally hospitalized, could be entirely appropriate. (Notwithstanding the necessity of the discharge, under the 3-day or less interrupted stay policy, there would be no additional separate LTC-DRG payment generated to the LTCH if the patient returns to the LTCH within the 3-day period.) We also noted in the proposed rule that it could be argued that in this type of a subsequent admission to the acute hospital, the acute care hospital should be able to submit a claim to Medicare for the procedure. (This payment to the acute hospital may be subject to the postacute care policy at § 412.4, depending upon the DRG to which it is assigned (68 FR 45404 and 45412, August 1, 2003).)
We stated that we were aware that there could be exceptions, and that in the example cited above, sound medical judgment could have dictated that the patient who needed the cardiac stent should first be discharged to the acute hospital and then readmitted to the LTCH within 3-days in order to continue necessary treatment at the LTCH. In such a case, notwithstanding our 3-day interrupted stay policy, it would be arguable that the implantation of the cardiac stent did not fall within the category of services that should be paid for by the LTCH under arrangements, and that the acute hospital should be able to submit a claim to Medicare.
Accordingly, while arguably it may be appropriate to attempt to limit the unbundling requirement that services be provided under arrangement to those that are “related” to the admitting diagnoses of the LTCH patient, we did not propose a methodology that would be both administratively feasible and not subject to gaming, given the multiple comorbidities typical of LTCH patients. The prospective payment system for this particular setting was designed to capture all costs associated with treating these highly complicated cases, and we believed that it would be difficult to distinguish whether a particular critical episode could be seen as arising from one of the patient's many medical conditions for which the patient is presently at the LTCH. Therefore, in the January 2004 proposed rule, we solicited comments and suggestions that were consistent with the stated policy goals described above and that would be administratively feasible. We understood that any policy adopted would need to be issued with detailed instructions to fiscal intermediaries on implementation procedures to ensure a correct and consistent interpretation of our policy objectives.
Comment:
We received a comment from a LTCH chain fully endorsing the proposed 3-day interrupted stay policy.
Response:
We thank the commenter for supporting the proposed policy. In order to address the essential issues raised in the proposed rule, while taking into account legitimate concerns raised by the LTCH community in public comment, we are making certain modifications to the final policy. Under this final rule, if a LTCH discharges a patient to an acute care hospital, an IRF, SNF, or home for 3 days or less and the patient returns to the same LTCH within 3 days, Medicare will make only one LTC-DRG payment to the LTCH, as the stay is paid as a single episode of care. In addition, we will make no separate payment to the intervening acute care hospital, IRF, SNF, or in the case of a beneficiary who is discharged home and who receives outpatient treatment from an acute care hospital or an IRF for medical care or services provided to the LTCH patient during the 3-day or less interrupted stay. Payments for tests, treatments, or procedures provided to the LTCH patient during the “interruption” at an outpatient hospital setting or for treatment or care as an inpatient at an acute hospital, IRF, or SNF would be the responsibility of the LTCH as services provided “under arrangements'(§ 412.509(b) and (c)). Furthermore, this policy also governs if the LTCH patient receives care or treatment at more than one of these intervening sites during the 3-day or less period, that is, this policy applies if the patient is discharged from the LTCH on Monday morning, and on Monday afternoon receives an MRI at an outpatient department of an acute care
hospital then is admitted as an inpatient to the acute care hospital on Monday evening and finally is discharged home on Tuesday morning and readmitted to the LTCH on Wednesday. In response to several comments, which we will discuss in detail below, we have decided to establish a exception in this general 3-day or less rule for the 2005 LTCH PPS rate year to the payment policy discussed above in the event that during an up to 3-day interruption, a LTCH patient receives treatment in an acute care hospital that results in the case being grouped to a surgical DRG. For this limited instance we will allow the acute hospital to bill separately for the discharge that is grouped to a surgical DRG. During the 2005 LTCH PPS rate year, we will gather data on the impact of this exception in order to evaluate, among other effects, the frequency of this scenario during a 3-day interrupted stay at a LTCH, as well as what surgical DRGs are actually represented. Depending upon what information the data reveals, we may decide to propose to continue this exception or to propose appropriate policy revisions.
Therefore, the policy that we are finalizing in this final rule differs from our proposed policy. We had originally proposed that no payment would be made to intervening providers during a 3-day or less interruption in stay, but in this final rule, we are now providing a 1-year exception in the event that inpatient care provided at an acute care hospital is grouped to a surgical DRG. Under this finalized policy, where the LTCH is required to pay for care during any days of the 3-day or less interruption, all days of the 3-day or less interruption that the patient is away from the LTCH will be included in that patient's day count at the LTCH. If the LTCH patient goes home during the interruption and receives no additional medical care prior to being readmitted to the LTCH, the intervening days will not be included in the day count because the LTCH did not deliver any services to the patient during those days either directly or “under arrangement”.
In the proposed rule, we proposed that outpatient services provided during the 3-day or less interruption of stay were considered to be part of the LTCH episode of care and, thus, are considered to be provided “under arrangements.” We believe that our reference to outpatient services, tests, or procedures could have been clearer. So we are taking this opportunity to clarify, to the extent it was not already clear, that our policy applies to outpatient services provided in acute care hospitals and IRFs (these two sites of care were cited in our proposed rule). SNFs, which were also mentioned in the proposed rule, do not provide outpatient care and, thus, are excluded from the outpatient reference. We note that we are clarifying this at § 412.531.
We have reviewed the proposed § 412.531 and determined that it can be simplified and clarified so that it is less cumbersome to understand and more clearly describes the division of the original interrupted stay policy into a “3-days or less interruption of stay” and a “greater than 3-day interruption of stay.” Thus, we have made significant revisions to the regulations text in an effort to accomplish this goal. Please note that the revised “interruption of stay” regulations text is not substantively different than the proposed interrupted stay regulations text, (except for the case of where, after further review and consideration of public comment, we have made an exception to our proposed policy for care grouped to a surgical DRG under the IPPS for the 2005 LTCH rate. We are providing, in this final rule, that under these unique circumstances, the intervening acute care hospital gets a separate Medicare payment). Consequently, we have replaced the general term “interruption of stay” with two definitions that reflect the division of our original policy into two specific concepts (3-days or less and greater than 3-days), as well as make conforming terminology changes throughout the section. Among other things, we have also more concisely outlined the method for determining the length of stay of the patient at a LTCH if the patient does not receive inpatient or outpatient medical care or treatment provided by an acute care hospital or IRF, or SNF services, during a 3-day or less interruption of stay. Moreover, we provided a more clear breakdown of how a LTCH and an intervening provider will be paid during a “3-day or less” or “greater than 3-day” interrupted stay. In addition, the original term “interruption of stay” appears throughout the existing regulation text at § 412.525 and § 412.532. We have made conforming changes to these regulations as well to reflect the two components of the interrupted stay terminology. These conforming terminology changes in § 412.525 and § 412.532 do not affect the substantive policy of these provisions.
Over the course of the first year of implementation of the revised 3-day or less interrupted stay policy, we will study relevant claims data in order to evaluate whether further proposed refinements to this policy would be warranted in next year's rule. Specifically, we will (1) analyze new data to determine whether problems associated with LTCH interrupted stays equally affected all settings to which LTCH patients may have been discharged and subsequently readmitted; and, (2) we will closely monitor patterns of discharges and readmissions under the first year of this policy using relevant claims data as soon as they become available to determine whether further proposed changes to the policy are required to ensure that beneficiary access to medically necessary services are not compromised by creating disincentives for other providers to accept patients discharged from LTCHs.
Comment:
Two commenters asserted that CMS had presented no empirical evidence to support the position that the proposed expansion of the interrupted stay policy would prevent inappropriate “unbundling” of treatment and services or prevent “gaming” the system. The commenters noted that there are already processes in place for CMS to address a compliance problem (that is, QIOs, OIG investigations, fraud and abuse action). The commenters point out that CMS should take into account the fact that some QIOs are adopting medical necessity criteria and discharge standards. Furthermore, they believed that CMS was wrong to pursue a regulatory scheme that would penalize LTCHs for appropriate discharges to acute care hospitals in lieu of actually enforcing existing regulations. One commenter encouraged CMS to “precisely target” those LTCHs that are found to be engaging in patient discharge and readmissions policies for financial purposes rather than for clinical benefit.
Response:
In the August 30, 2002 final rule that implemented the LTCH PPS, we stated that we would consider expanding or revising the interrupted stay policy based on information received from the provider community or information gained from our ongoing monitoring sources. The LTCH PPS was implemented for LTCHs beginning with the cost reporting periods beginning on or after October 1, 2002. Therefore, some LTCHs (for example, hospitals with cost reporting periods beginning August 1, 2002) may have been subject to the LTCH PPS for less than one year. Accordingly, we have only limited specific data on the impact of behavioral changes brought about by the LTC
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