… Or How a 2.3 Percent Raise Became a 3 Percent Reduction
At first glance, the FY-2015 revision of the Medicare hospital inpatient prospective payment systems (IPPS) by the Centers for Medicare & Medicaid Services (CMS) appears to offer acute care hospitals a 2.3 percent rate increase beginning this month. Dig deeper, however, and it looks more likely that Tennessee hospitals will actually realize less than last fiscal year for providing the same services.
“It’s death by a thousand cuts,” explained David McClure, senior vice president for Finance & Medicare at the Tennessee Hospital Association. “What CMS gives you, they find a way to take back.”
McClure, who has been with THA for nearly two decades, recently spent several weeks deciphering the 500-plus pages of the IPPS final rule, which was published in the Federal Register in August in advance of going into effect Oct. 1. “The inpatient rule controls the payment to hospitals for about $2.5 billion in the state of Tennessee,” he said. “This inpatient rule continues on with the implementation of provisions in the Affordable Care Act and the American Taxpayer Relief Act of 2012.”
On the plus side of the payment equation for Tennessee hospitals, he noted, “The market basket update this year was 2.3 percent. That’s about $60 million.”
However, McClure continued, those ‘new’ dollars are quickly offset when looking at reductions and penalties spread out through a number of provisions in the two acts. Two automatic cuts tied to ACA reduce the market basket index by 0.5 percent and 0.2 percent respectively. The first is a reduction to offset productivity improvements assumed to have been gained through increased efficiency. The second, McClure said, is a general reduction to help pay for the Affordable Care Act that is in place through 2021. “Those two reductions account for about $16 million in cuts,” he noted.
“Then in the Taxpayer Relief Act, they have what’s considered a coding reduction. That’s worth about $17.5 million,” he continued.
McClure said the rationale behind the 0.8 percent cut is that hospital personnel are becoming better coders. He added that’s probably true considering the number of audits and increased emphasis on coding education. However, McClure continued, the basic premise behind the rationale is flawed since billing is for services rendered … being ‘better’ at coding has no impact on the actual cost of the service provided.
With these three cuts in place, more than half of the $60 million increase has already been erased. And, McClure noted, that’s just the beginning.
“Probably the biggest change that will happen for hospitals in 2015 comes from the Medicare Disproportionate Share payments,” he continued.
McClure explained CMS began implementing a strategy in 2014 to reduce Medicare DSH payments because enrollment in health plans and expansion of Medicaid was anticipated to increase the number of people with coverage. CMS also reworked the formula for offsetting care delivered to the uninsured. The Medicare DSH funding was split into two pools with 25 percent remaining traditional DSH and 75 percent moving to a new uncompensated care pool.
“We’re becoming part of the minority now in states that haven’t expanded Medicaid,” McClure noted. “CMS looked at uncompensated coverage rates nationwide and made a decision about how much to cut and how to divide it nationally.”
With 27 states opting to expand Medicaid, the uncompensated care pool has been significantly impacted. The net result, McClure said, is that Tennessee is really hit twice … both by not expanding coverage to a large population segment and then by receiving reduced rates for delivering care to that patient sector.
“Tennessee will receive 23.8 percent less in DSH and uncompensated care pool payments,” he said. “Under all that redistribution and computations, we will receive $36 million less in Tennessee than we would have under the traditional formula of DSH payments.” He added large, urban hospitals would feel the brunt of those cuts, absorbing approximately $32.5 million of the anticipated $36 million in lost reimbursement.
For those keeping up with the math, the reimbursement picture now looks like this — $60 million on the plus side for FY-2015 and approximately $69.5 million in new cuts. “Then on top of that, you take away another 2 percent for sequestration,” McClure continued, noting the automatic spending cuts are currently scheduled through 2024.
Monetary Penalties
After all the automatic cuts, hospitals must also factor in monetary penalties associated with quality metrics.
“From the quality side, there are really three metrics being considered this year — value-based purchasing, readmissions and hospital-acquired conditions,” McClure said. He added the 19 different measures being considered under value-based purchasing are anticipated to be an economic wash for hospitals in Tennessee.
As for the readmissions penalty, McClure noted CMS has increased the area of focus from three in 2014 to five in 2015 with the addition of COPD and elective hip and knee implants. “The cap in the penalty also moves from 2 percent to 3 percent in 2015,” he said. The estimate is that Tennessee hospitals will probably see close to $10 million in penalties this coming year.
Similarly, CMS is looking at eight different measures under hospital-acquired conditions and comparing and ranking hospitals nationally. Those in the worst quartile for HACs will see Medicare payments reduced by 1 percent. “We estimate there will probably be 17 or 18 hospitals in Tennessee (that fall in that quartile), and estimate it will reduce those hospitals’ payments by $7 million total,” he said.
McClure noted that at the time he spoke to Medical News CMS had yet to publish the final data on hospitals regarding both the readmissions and HAC program but that information was anticipated to be available by Oct. 1.
The Bottom Line
“When you get to the bottom, bottom line, we would get $25 million less than we did last year,” McClure said of expectations for FY-2015 in Tennessee. That reduction, which equals close to a 1 percent cut from FY-2014, coupled with wiping out the entire 2.3 percent increase touted for FY-2015 means area hospitals will receive about 3 percent less than anticipated this coming year. “Right now we’re in the neighborhood of receiving 92-93 percent of cost … so we’re getting paid less than cost,” McClure pointed out of net Medicare IPPS payments.
So how do hospitals keep the doors open? “Hopefully CMS is correct and some of these (newly) insured will come into the hospital and help provide some cash flow and help the hospitals survive,” he said of those joining commercial plans through the federal healthcare marketplace.
However, he noted, many of the newly insured are opting for high deductible plans that have a lower monthly costs. “They get federal subsidies for their premiums but not for their deductibles,” McClure continued. “Some folks are having a hard enough time paying premiums. I don’t know how they’ll pay a $5,000 or $10,000 deductible.”
AHA Reacts to Final Rule
Linda Fishman, senior vice president for the American Hospital Association, released the following statement regarding the IPPS final rule:
“Today’s rule will make it more difficult for hospitals to maintain their commitment to their communities. We are very disappointed that the ACA-mandated Medicare Disproportionate Share Hospital (DSH) cut is significantly higher than originally proposed. While we understand some of the reductions are due to increased coverage, it is unclear how CMS arrived at the remaining reductions. These payments provide vital support to hospitals that serve the most vulnerable patients. That’s why we continue to urge Congress to help hospitals and patients by delaying the Medicare DSH cuts for two years.
While we appreciate CMS making refinements to its scoring methodology for the hospital-acquired conditions penalty program, one-fourth of hospitals will continue to be penalized regardless of their improvement in quality. Additionally, the program negatively affects those hospitals caring for older, sicker patients. We will continue to urge Congress to develop an alternative proposal that would more effectively promote hospital quality improvement.
We appreciate CMS’ willingness to involve stakeholders on developing a methodology that will more accurately pay for short inpatient stays, and we will work with CMS on this important issue.”
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