Long-Term Care Hospitals Face Pay Cut in FY 2017

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By Michael D. Williamson

Aug. 2 — Medicare payments to long-term care hospitals will drop by 7.1 percent, or approximately $363 million, in fiscal year 2017.

The Centers for Medicare & Medicaid Services made the cuts in a final rule it released Aug. 2. In contrast, Medicare payments to acute-care hospitals, which are covered by the same final rule, will increase by $746 million in FY 2017.

The final rule, which goes into effect Oct. 1, covers the Inpatient Prospective Payment System (PPS) and Long-Term Care Hospital PPS.

The American Hospital Association called the changes a “mixed bag” in an Aug. 2 statement.

Tom Nickels, the group's executive vice president, sharply criticized the payment cuts for long-term care hospitals (LTCHs). The agency's action “discounts the transformation that the LTCH field is undergoing and has the potential to negatively affect patient access to care,” he said.

Under the proposed version of the rule, released in April, the CMS projected acute-care hospitals would get a pay bump totaling $539 million and that LTCHs would see a drop of $355 million in FY 2017 (75 HCDR, 4/19/16).

The final rule (Docket Nos. CMS-1655-F; CMS-16644-F; CMS-1632-F2) will be published in the Aug. 22 Federal Register.

Medicare pays 3,330 acute-care hospitals under the inpatient PPS and roughly 430 long-term care hospitals under that payment system.

Uncompensated Care Changes Delayed

The CMS, after facing intense pressure from hospital groups, temporarily reversed a proposal to alter how it reimburses hospitals for treating the uninsured. In the inpatient proposed rule released in April, the CMS proposed paying for Medicare uncompensated care through information reported on a new form known as Worksheet S-10 starting in fiscal 2018.

The hospital industry decried the uncompensated care changes in comments on the proposed rule, which were due in June. The modifications to Medicare's reimbursements for treating indigent patients would hurt facilities that treat many poor and medically complex beneficiaries, hospitals groups said at the time (119 HCDR, 6/21/16).

“In light of public comment, we are not finalizing” the uncompensated care proposal, an agency fact sheet on the final rule said. “Instead, our intent is to engage in future rulemaking and begin to incorporate Worksheet S-10 data into the computation” of Medicare uncompensated care payments no later than FY 2021, according to the fact sheet.

In contrast with his remarks on the long-term care payments, the AHA's Nickels praised this move.

“[W]e commend the agency for pausing the incorporation of ‘Worksheet S-10' data in order to improve its accuracy and consistency in determining the cost of treating uninsured patients,” Nickels said. “We will continue to advocate that CMS adopt a broad definition of uncompensated care that includes Medicaid shortfalls and discounts to the uninsured, and fully accounts for graduate medical education expenditures.”

An industry group for teaching hospitals, the Association of American Medical Colleges (AAMC), welcomed the reversal.

“We’re very pleased that CMS paid attention to the ‘significant concerns’ expressed by the AAMC and others and decided not to use the S-10 Worksheet starting in 2018 to calculate” a hospital’s uncompensated care payment, Ivy Baer, a senior director and regulatory counsel at the AAMC, told Bloomberg BNA Aug. 2. “We look forward to working with CMS to determine a more appropriate source for the data” to calculate Medicare uncompensated care payments, she said.

The Federation for American Hospitals, which represents for-profit facilities, praised the uncompensated care reversal. The CMS “did the right thing today to help preserve hospital’s ability to care for uninsured patient,” Chip Kahn, the group's president and chief executive officer, said in a Aug. 2 statement.

Two-Midnight Changes

The rule also eliminated a 0.2 percent payment reduction associated with the controversial two-midnight payment policy that the CMS instituted for short-term inpatient stays, the fact sheet said.

The CMS permanently removed this adjustment and also its effects for fiscal years 2014, 2015 and 2016 by adjusting the FY 2017 payment rates, the fact sheet for the new rule said. The impact of this change is to increase FY 2017 payments by approximately 0.8 percent.

Nickels lauded the CMS's decision to reverse the effects of the 0.2 percent payment reduction and to restore “the resources that hospitals are lawfully due.”

Under the original two-midnight policy, which started in October 2013, the CMS said Medicare Part A payment generally wasn't appropriate for hospital stays not expected to span at least two midnights. When it initiated the policy, the CMS also cut inpatient payments to hospitals by 0.2 percent (or roughly $220 million nationally), because the two-midnight rule would actually increase Part A reimbursements.

Hospitals sued the secretary of health and human services over the pay cut. In that case, the U.S. District Court for the District of Columbia ordered the CMS to explain its rationale for the 0.2 percent pay reduction ( Shands Jacksonville Med. Ctr. v. Burwell , D.D.C., Nos. 14-263, 14-503, 14-536, 14-607, 14-976, 14-1477 ,ordered 3/17/16 ) (53 HCDR, 3/18/16).

Starting with calendar 2016, the CMS allowed inpatient admissions that span fewer than two midnights to be payable under Medicare Part A on a case-by-case basis based on the judgment of the admitting physician.

To contact the reporter on this story: Michael D. Williamson in Washington at mwilliamson@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

The final rule is at http://src.bna.com/hm9.

The fact sheet is at http://src.bna.com/hne.

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