On April 17, 2015, CMS released a proposed rule (Proposed Rule) to update the fiscal year (FY) 2016 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS).  Overall, CMS estimates that the Proposed Rule would increase net IPPS operating payments to hospitals by approximately 0.3 percent or $120 million over FY 2015 payments.  Comments on the Proposed Rule are due by June 16, 2015.   

The projected 0.3 percent increase in net IPPS operating payments results from all proposed changes to IPPS payment policies, including a 1.1 percent proposed increase in operating payment rates to IPPS hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.  This 1.1 percent rate increase reflects a 2.7 percent market basket update, minus a 0.6 percent multi-factor productivity adjustment, minus a 0.2 percent reduction required by the Affordable Care Act (ACA).  As in FY 2014 and FY 2015, the rate is further decreased by a proposed 0.8 percent recoupment adjustment for MS-DRG documentation and coding changes.  Hospitals that do not participate in the IQR Program and do not submit the required quality data will be subject to a 25 percent reduction in the market basket update for FY 2016.  Hospitals that are not meaningful EHR users will be subject to a 50 percent reduction in the market basket update.

Additional IPPS Proposed Rule Highlights

• Disproportionate Share Hospital (DSH) Payments and Uncompensated Care Payments – Continuing with the reductions in DSH payments resulting from the ACA, CMS proposes to distribute a pool of $6.4 billion in uncompensated care payments in FY 2016, a decrease of $1.3 billion from the estimated FY 2015 uncompensated care pool.  This decrease is primarily attributable to continued declines in the number of uninsured individuals since the passage of the Affordable Care Act, according to CMS.  In particular, CMS estimates that the percentage of uninsured individuals will decrease from 13 percent in 2015 to 11 percent in 2016.  CMS also proposes to codify in regulation its policy of using Medicaid days from cost reporting periods spanning fewer than 12 months in calculating a provider’s Factor 3 in situations where neither of the provider’s two most recent cost reporting periods reflects a full 12 months.  CMS specifically invites comments on this proposal.
• Two Midnight Rule – In a Fact Sheet accompanying the release, CMS acknowledges that the Medicare Access and CHIP Reauthorization Act of 2015 extended the Probe & Educate period until September 30, 2015.  CMS notes that it is considering feedback, as well as recent MedPAC recommendations concerning the Recovery Audit Contractor (RAC) program and Medicare short stay policies, and expects to include a further discussion of the broader set of issues related to short inpatient hospital stays, long outpatient stays with observation services, and the related -0.2 percent IPPS payment adjustment in the Calendar Year 2016 Hospital Outpatient Prospective Payment System (OPPS) proposed rule to be released this summer.  CMS does not further discuss the 0.2 percent payment reduction associated with the Two Midnight Rule.  Please click here for a prior Health Headlines article summarizing the MedPAC recommendations.  
• Hospital Value-Based Purchasing (VBP) Program – CMS proposes to expand the number of measures for the VBP Program.  Specifically, CMS proposes to add a care coordination measure to the FY 2018 program year and a 30-day mortality measure for chronic obstructive pulmonary disease (COPD) to the FY 2021 program year, and to remove two measures effective for the FY 2018 program year—IMM-2 Influenza Immunization, which is “topped out,” and the AMI-7a Fibrinolytic Therapy Received within 30 Minutes of Hospital Arrival measure, which is not widely reported and with respect to which many hospitals have less than the minimum number of cases required for reporting.
• EHR Programs and Quality Reporting – CMS proposes modifications to some of the clinical quality measures (CQM) reporting and submission requirements.  These modifications are intended to align the CQM reporting period for electronic reporting for both the EHR and the IQR programs, specify the options for the editions of certified EHR technology providers may use, and establish requirements for the version of electronic specifications (eCQMs) a provider must use for electronic submission of quality reporting data.  CMS also proposes to add eight new measures for the IQR program and to remove nine measures beginning in FY 2018.
• Hospital Acquired Conditions (HAC) and Hospital Readmissions Reduction Programs – CMS also proposes to expand the relevant population for two measures that are already included in the HAC Reduction Program.  For example, CMS proposes to expand the HAC infection measures to encompass patients beyond those in intensive care units (ICUs).  CMS estimates $28 million in savings from the HAC program in FY 2016.  CMS proposes to implement extraordinary circumstances exception (ECE) policies under both the HAC Reductions Program and the Hospital Readmissions Reduction Program.  With respect to the Hospital Readmissions Reduction Program, in particular, CMS notes that it continues to study the issue of risk adjustment for beneficiaries’ socioeconomic status, and expects a report to be issued to Congress by October 2016.
• Bundled Payments for Care Improvement Initiative – CMS announced that it is also seeking comments on policy and operational issues surrounding the potential future expansion of the Bundled Payments of Care Improvement initiative.

LTCH Proposed Rule Highlights

• Changes to Payment Rates – CMS estimates that the proposed payment updates to the LTCH PPS will result in a net payment decrease to LTCHs of 4.6 percent (or approximately $251 million).  This projected decrease is primarily attributable to the Proposed Rule’s implementation of section 1206 of the Pathway for SGR Reform Act of 2013.  The law directs CMS to establish two distinct payment groups for LTCH discharges occurring in cost reporting periods beginning on or after October 1, 2015: discharges meeting certain clinical criteria will be paid under the standard LTCH PPS payment rates, and all other patient discharges will be paid under the new, lower “site neutral” payment rates that are generally based on the IPPS rates.Cases that qualify for the standard LTCH PPS payment rate will see an increase in that payment rate of 1.9 percent. 
• Site Neutral Payment Specifics – CMS proposes specifics regarding the application of the site neutral payment rate and the criteria for exclusion from that rate.  In particular, CMS proposes to implement the statutory transitional payment method for site neutral payment rate cases occurring in cost reporting periods beginning during FYs 2016 and 2017.  For those cases, the applicable payment rate will be calculated as a 50/50 blend of the standard LTCH PPS payment rate and the site neutral payment rate.
• LTCH Quality Reporting Program – CMS also proposes adding four new quality measures under the LTCH Quality Reporting Program—three previously finalized quality measures and one new functional status quality measure.  CMS further proposes to begin publicly reporting LTCH quality data on a CMS website, such as Hospital Compare.

CMS expects that the Final Rule will be issued by August 1, 2015. 

The Proposed Rule will be published in the April 30, 2015 Federal Register.  The inspection copy of the Proposed Rule is available here.  CMS’s Fact Sheet is available here.

Reporters, Linda Lin, Atlanta, + 1 404 572 3566, llin@kslaw.com, and Isabella Edmundson, Atlanta, + 1 404 572 3527, iedmundson@kslaw.com.